A good day to take some money off the table

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Scooter57
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Re: A good day to take some money off the table

Post by Scooter57 » Sat May 04, 2013 8:58 am

avalpert wrote:
Scooter57 wrote:Investing in the stock market is most definitely a form of gambling. The odds are quite good, which is why it's worth pursuing, but risk really is risk, and there is no guarantee that if you follow any investing strategy you'll come out with a predictable return.
By that definition crossing the street at a crosswalk with the light is a form of gambling - you're welcome to use the word that way but I don't think it fits with common usage.
Crossing the street at a crosswalk with the light IS a form of gambling. That's why they tell you to look both ways before crossing. The odds are very good that you will be fine, but there are enough impaired drivers out there that there is always the chance that you won't. I have not one but two relatives who were hit by moving vehicles wile they were stationary, waiting for a red light to change.

So yes, a lot of what we do is gambling, but what differs are the odds. The odds of crossing the street safely are high, a lot higher than profiting long term from investing in the stock market. The odds of profiting in the stock market are a lot higher than the odds of winning a fortune at the slots.

Analysis of past performance suggests that investing in a total market index fund will produce better profits than stock picking over a period of decades (though not necessarily over a shorter period, for example five years.) But analysis of past performance also reveals there are stretches of time, some lasting a decade or more, in which stock investments don't out perform a portfolio 100% invested in fixed income.

A lot of how well you do depends on when and how you invested. A lump sum put in in 1929, 1999 (in a Nasdaq fund), or 2006 in a Developed Market Index might have severely underperformed a long CD ladder.

So yes, investing in stocks is a gamble, and it helps to know the odds so that you don't have to learn them the hard way--when you need to spend the money you had invested 100% in stocks.

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Re: A good day to take some money off the table

Post by bertilak » Sat May 04, 2013 9:00 am

hoops777 wrote:avalpert....Once you have won the game you can stop playing.
The trick is, one's definition of winning keeps changing! Maybe you suddenly realize that what you thought was a won game is really a tie.

It is possible to "lock in" that tie (take some money off of the table) and still have enough left over to keep playing for a bigger score.
Last edited by bertilak on Sat May 04, 2013 9:01 am, edited 1 time in total.
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Re: A good day to take some money off the table

Post by baw703916 » Sat May 04, 2013 9:01 am

Unfortunately I missed the TSP deadline for transactions (noon EDT). So I will be moving money to the G Fund on Monday--hopefully it won't be an RBD. ;)
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Re: A good day to take some money off the table

Post by Peter Foley » Sat May 04, 2013 10:03 am

I think the Trinity Study (investment withdrawal scenarios over a 30 year period) can also provide some guidance here. If your plan say to take money off the table when you meet your goals, by all means do so. BUT, you should have a prudent, well thought out plan. Based on the Trinity Study, I have concluded that one should keep at least 30% in equities. In my plan I set that minimal equity amount at 40%.

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Re: A good day to take some money off the table

Post by JW-Retired » Sat May 04, 2013 10:04 am

Grt2bOutdoors wrote:
umfundi wrote:I guess I disagree with the "take the money off the table" crowd, and to some extent with Dr. Bernstein.

It depends heavily on your overall circumstances, including your age.

I think it is silly to drastically change your AA when you reach "your number", particularly when you are some years away from retirement.

Keith
I disagree - some years back in the go-go era of the Internet rage, a fellow I was acquainted with held quite a bit of Lucent (i know undiversified risk, yada yada) - it was worth $2 million dollars, enough for him to cash out and retire in style. Instead of doing that, he got greedy and thought it would double again - as we all found out later, Lucent went the way of the Enron and Worldcom, bust...... This guy's retirement went up in smoke by not drastically changing his AA when he reached his number and he was ten years away from retirement.
IMO, this guy's folly was much deeper than not "drastically changing his AA when he reached his number and he was ten years away from retirement." Ten, 20, or 30 years from retirement don't put it all on a single stock. If he had a high equity AA in a diversified portfolio he would still have been pretty OK. All his investment assets in one stock. :oops:
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VictoriaF
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Re: A good day to take some money off the table

Post by VictoriaF » Sat May 04, 2013 10:07 am

Scooter57 wrote:
avalpert wrote:
Scooter57 wrote:Investing in the stock market is most definitely a form of gambling. The odds are quite good, which is why it's worth pursuing, but risk really is risk, and there is no guarantee that if you follow any investing strategy you'll come out with a predictable return.
By that definition crossing the street at a crosswalk with the light is a form of gambling - you're welcome to use the word that way but I don't think it fits with common usage.
Crossing the street at a crosswalk with the light IS a form of gambling. That's why they tell you to look both ways before crossing. The odds are very good that you will be fine, but there are enough impaired drivers out there that there is always the chance that you won't. I have not one but two relatives who were hit by moving vehicles wile they were stationary, waiting for a red light to change.

So yes, a lot of what we do is gambling, but what differs are the odds. The odds of crossing the street safely are high, a lot higher than profiting long term from investing in the stock market. The odds of profiting in the stock market are a lot higher than the odds of winning a fortune at the slots.

Analysis of past performance suggests that investing in a total market index fund will produce better profits than stock picking over a period of decades (though not necessarily over a shorter period, for example five years.) But analysis of past performance also reveals there are stretches of time, some lasting a decade or more, in which stock investments don't out perform a portfolio 100% invested in fixed income.

A lot of how well you do depends on when and how you invested. A lump sum put in in 1929, 1999 (in a Nasdaq fund), or 2006 in a Developed Market Index might have severely underperformed a long CD ladder.

So yes, investing in stocks is a gamble, and it helps to know the odds so that you don't have to learn them the hard way--when you need to spend the money you had invested 100% in stocks.
You are confusing gambling with risk. Gambling is a type of risk; risk is far broader than gambling.

Casino-type gambling is at known odds. The odds of being struck at a crosswalk are much less certain, and even for a given intersection they depend on the time of day, on recent events, the walker's alertness, and other factors. Your knowledge of two people being struck makes you vulnerable to the availability bias.

Investing in stocks has gambling and non-gambling components. The gambling part is buying and selling based on some numerical signals similar to those discussed in this thread. The non-gambling part is buying widely diversified ownership in enterprises. That's the reasons stocks are sold as "shares."

Victoria
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Re: A good day to take some money off the table

Post by VictoriaF » Sat May 04, 2013 10:11 am

baw703916 wrote:Unfortunately I missed the TSP deadline for transactions (noon EDT). So I will be moving money to the G Fund on Monday--hopefully it won't be an RBD. ;)
Hi Brad,

Perhaps, you should wait until 11:30 to see if it's really-bad or just bad {smile},

Victoria
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Re: A good day to take some money off the table

Post by Garco » Sat May 04, 2013 10:16 am

While the market's performance so far in 2013 has been rewarding to me, it hasn't thrown my AA out of whack enough to justify rebalancing. So I haven't taken any "money off the table" this year or reallocated across asset classes. I have, however, done some reallocation within the equities category from "overperforming" to "underperforming" equities, specifically from U.S. to international. I did some of that after yesterday's close. This doesn't change the risk profile of my portfolio in any substantial way; it just gives me another horse to root for.
Last edited by Garco on Sat May 04, 2013 11:02 am, edited 1 time in total.

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Re: A good day to take some money off the table

Post by VictoriaF » Sat May 04, 2013 10:26 am

Grt2bOutdoors wrote:I disagree - some years back in the go-go era of the Internet rage, a fellow I was acquainted with held quite a bit of Lucent (i know undiversified risk, yada yada) - it was worth $2 million dollars, enough for him to cash out and retire in style. Instead of doing that, he got greedy and thought it would double again - as we all found out later, Lucent went the way of the Enron and Worldcom, bust...... This guy's retirement went up in smoke by not drastically changing his AA when he reached his number and he was ten years away from retirement.
The rumors of Lucent's demise have been exaggerated. Unlike Nortel that went up in smoke, Lucent is now a part of Alcatel-Lucent.

The fellow holding LU must have thought it would become the next Microsoft or Cisco; he did not want to sell it too early. He was wrong in more than one way, but so were people holding MSFT and CSCO. Except that the latter are now revered as heroes.

Victoria
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Re: A good day to take some money off the table

Post by The Wizard » Sat May 04, 2013 10:59 am

Calm Man wrote:The market could triple from here. Remember it was flat for about a dozen years. We have no idea. I "hate" these algorithms of what to do and when. I just buy and hold and don't care what happens. Right now though, it is eerie how every week it goes up.
Yes, but perhaps you've not hit your "number" yet. Once you do, are you going to fold 'em, walk away from the table, and convert all your chips to CDs?
Or are you going to take the reasonable Boglehead approach to risk management, that of dialing down your equity exposure as you get into your 50s and 60s, until you bottom out at somewhere between 25% and 40% equities?
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Re: A good day to take some money off the table

Post by jeffyscott » Sat May 04, 2013 11:03 am

JW Nearly Retired wrote:
Grt2bOutdoors wrote:some years back in the go-go era of the Internet rage, a fellow I was acquainted with held quite a bit of Lucent (i know undiversified risk, yada yada) - it was worth $2 million dollars, enough for him to cash out and retire in style. Instead of doing that, he got greedy and thought it would double again - as we all found out later, Lucent went the way of the Enron and Worldcom, bust...... This guy's retirement went up in smoke by not drastically changing his AA when he reached his number and he was ten years away from retirement.
IMO, this guy's folly was much deeper than not "drastically changing his AA when he reached his number and he was ten years away from retirement." Ten, 20, or 30 years from retirement don't put it all on a single stock. If he had a high equity AA in a diversified portfolio he would still have been pretty OK. All his investment assets in one stock. :oops:
JW
But, if he had had a diversified portfolio, he'd not have had the $2 million.

While having so much in one stock may have been too risky, he got lucky and won the lottery. Then he chose not to cash in his $2 million winning ticket. If I buy a lottery ticket, you might say that is a waste of $2, but does that mean that I should throw the ticket away if it happens to be a winner? Or that a bigger mistake would not be spending the $2 million in winnings on a million more lottery tickets in the hopes of ending up with even more?
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Re: A good day to take some money off the table

Post by hoops777 » Sat May 04, 2013 11:50 am

The "discussion" regarding the stock market as gambling is interesting.For those who believe it is not gambling I would say it is a form of gambling.You can invest 1M in the total market tomorrow and the truth is you have no way of knowing what it will be worth in 3 years or 3 days.You invest in Treasuries or CD's you know what you will get if you hold to maturity.So simplistic as this is,since the end result of investing in stocks is unknown it is a form of risk to a lesser degree of pure gambling,but you are still gambling on an unknown outcome.So the point is if you have hit your number eliminating the risk seems like a prudent thing to do.
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Re: A good day to take some money off the table

Post by DiscoBunny1979 » Sat May 04, 2013 11:51 am

[quote="garlandwhizzer"many private and professional investors have kept conservative, on the sidelines with the lion's share of their investment assets in cash or bonds even as the total stock market soared 150% in a bit over 4 years. The great rotation out of fixed income has not happened, nor has the rush into equities from money on the sidelines. [/quote]

I tend to agree with this and disagree that we are in another bubble. From my vantage point, Individuals are not putting their money to work into the stock market. Many still have not gotten over the distrust of CEOs or accounting firms or banks. Many individuals are spending cash to buy homes to rent out and have income from those rentals or just keeping their money in CDs. I don't believe individuals are rushing into the market.
VictoriaF wrote:
Casino-type gambling is at known odds. The odds of being struck at a crosswalk are much less certain, and even for a given intersection they depend on the time of day, on recent events, the walker's alertness, and other factors. Your knowledge of two people being struck makes you vulnerable to the availability bias.

Investing in stocks has gambling and non-gambling components. The gambling part is buying and selling based on some numerical signals similar to those discussed in this thread. The non-gambling part is buying widely diversified ownership in enterprises. That's the reasons stocks are sold as "shares."

Victoria
In my opinion, investing in stocks is just like gambling . . . but there is a difference between stocks and 'gambling'. The difference is the rate (time) in which you can either loose or win money. With Stocks, you can loose everything, just like putting a chip down on the roulette wheel. But, what sets them apart is that you can loose your shirt at a faster clip than with stocks. It's the difference between watching your grass grow in our 'human' time over weeks and months versus watching the grass grow in time lapse photography. Gambling losses feel like gambling losses because the time frame you're dealing with is short - like a dog experiences 7 years in our human year. Putting money down on a stock, can make you loose everything, but it's done at slower rate. I also disagree that gambling is done on some numerical signals . . . like if you're at the roulette wheel, counting how many times 22 comes up will allow you to win. Each roll actually is independent of each other. Therefore any numerical signals are false.

I think it's false reasoning to believe that since stocks are sold as "shares" therefore it's not gambling. You don't Gamble at the Casino with real dollars. You have to 'exchange' those dollars for chips. Those chips have no value, but are representations of your stake in the game. The same with shares of a company. The shares have no value (except the perceived value on paper) until such time as someone is willing and able to 'trade in' or 'cash in' those shares to someone that has dollars. The gambling chips have no value (except the value on the accounting ledger), until such time as someone is willing and able to cash in those chips for dollars. I don't really see the difference.

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Re: A good day to take some money off the table

Post by The Wizard » Sat May 04, 2013 12:04 pm

DiscoBunny1979 wrote: ...Those chips have no value, but are representations of your stake in the game. The same with shares of a company. The shares have no value (except the perceived value on paper) until such time as someone is willing and able to 'trade in' or 'cash in' those shares to someone that has dollars. The gambling chips have no value (except the value on the accounting ledger), until such time as someone is willing and able to cash in those chips for dollars. I don't really see the difference.
OK, so what you're saying here is that owning a basket of shares in blue-chip companies like Exxon-Mobil, Proctor&Gamble, and Coca-Cola, all of which have a stable record of dividend payments, has no intrinsic value.
It's simply a matter of holding on until a Greater Fool happens along to take them off your hands for more than you paid.
Well, I suppose that's one way of looking at things...
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Re: A good day to take some money off the table

Post by garlandwhizzer » Sat May 04, 2013 12:11 pm

Although investing in the stock market has risk, it clearly has rewards for those who have the stomach to ride out the downturns. Gambling on the other hand is a zero sum game where there is no expected long term return for the gambling group as a whole. By definition, winners can win no more than losers lose. If you're gambling at a casino or any other organized gambling entity, the game is less than a zero sum game because large profits are extracted from the gambling group as a whole. On the other hand stocks returns, while variable over the short and intermediate term, are ultimately driven by corporate profits which clearly rise over long term even during the Great Depression and following the bloodbath of 2008-9. We are currently at the highest profit level in history for the S&P 500 which interfaces nicely with its record level of valuation. Stocks have a real expected long term return built into them, in sharp contrast to gambling. Stock investing and gambling may resonate similar tunes in people's emotions, but the reality is that they are basically quite different regardless of what our emotions tell us. If emotions drive your investment decisions, they may look the same but they're not.

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Re: A good day to take some money off the table

Post by The Wizard » Sat May 04, 2013 12:14 pm

garlandwhizzer wrote:Although investing in the stock market has risk, it clearly has rewards for those who have the stomach to ride out the downturns. Gambling on the other hand is a zero sum game where there is no expected long term return for the gambling group as a whole. By definition, winners can win no more than losers lose. If you're gambling at a casino or any other organized gambling entity, the game is less than a zero sum game because large profits are extracted from the gambling group as a whole. On the other hand stocks returns, while variable over the short and intermediate term, are ultimately driven by corporate profits which clearly rise over long term even during the Great Depression and following the bloodbath of 2008-9. We are currently at the highest profit level in history for the S&P 500 which interfaces nicely with its record level of valuation. Stocks have a real expected long term return built into them, in sharp contrast to gambling. Stock investing and gambling may resonate similar tunes in people's emotions, but the reality is that they are basically quite different regardless of what our emotions tell us. If emotions drive your investment decisions, they may look the same but they're not.

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Re: A good day to take some money off the table

Post by avalpert » Sat May 04, 2013 6:21 pm

Scooter57 wrote: Crossing the street at a crosswalk with the light IS a form of gambling. That's why they tell you to look both ways before crossing. The odds are very good that you will be fine, but there are enough impaired drivers out there that there is always the chance that you won't. I have not one but two relatives who were hit by moving vehicles wile they were stationary, waiting for a red light to change.

So yes, a lot of what we do is gambling, but what differs are the odds. The odds of crossing the street safely are high, a lot higher than profiting long term from investing in the stock market. The odds of profiting in the stock market are a lot higher than the odds of winning a fortune at the slots.
Like I said, you are welcome to use the word that way - but in doing so you have made it so uninteresting as to not be worth discussing (and mostly you are just hoping that through equivocation fallacies your pronouncement will resonate more than it should).

Yeah, everything in life is uncertain and involves some degree of risk. If everything we do is gambling who cares that investing is too?

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Re: A good day to take some money off the table

Post by avalpert » Sat May 04, 2013 6:23 pm

hoops777 wrote:The "discussion" regarding the stock market as gambling is interesting.For those who believe it is not gambling I would say it is a form of gambling.You can invest 1M in the total market tomorrow and the truth is you have no way of knowing what it will be worth in 3 years or 3 days.You invest in Treasuries or CD's you know what you will get if you hold to maturity.So simplistic as this is,since the end result of investing in stocks is unknown it is a form of risk to a lesser degree of pure gambling,but you are still gambling on an unknown outcome.So the point is if you have hit your number eliminating the risk seems like a prudent thing to do.
You might know what the dollar number for the CD's will be at maturity but you don't know with certainty what that dollar number will be worth in terms of desired goods and services - see it has an unknown outcome too. Everything has unknown components to it - if everything that has unknown components is gambling you have robbed the word of anything insightful to say,

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Re: A good day to take some money off the table

Post by avalpert » Sat May 04, 2013 7:07 pm

DiscoBunny1979 wrote: I think it's false reasoning to believe that since stocks are sold as "shares" therefore it's not gambling. You don't Gamble at the Casino with real dollars. You have to 'exchange' those dollars for chips. Those chips have no value, but are representations of your stake in the game. The same with shares of a company. The shares have no value (except the perceived value on paper) until such time as someone is willing and able to 'trade in' or 'cash in' those shares to someone that has dollars. The gambling chips have no value (except the value on the accounting ledger), until such time as someone is willing and able to cash in those chips for dollars. I don't really see the difference.
This is completely untrue - both casino chips and shares in companies have real value. Both represent contractual obligations of other parties - the value of the chips are decreed by the casino and they are required to honor that and the shares represent a legal ownership of a set percentage of the companies assets. You are looking in the wrong place for the difference and doing a bad job at it. That stocks are sold as shares has nothing to do with why it is differentiated from gambling.

The difference between gambling at a casino and the investing in stocks is the former your expected return is negative and in the latter it is positive.

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Re: A good day to take some money off the table

Post by baw703916 » Sat May 04, 2013 7:15 pm

VictoriaF wrote:
baw703916 wrote:Unfortunately I missed the TSP deadline for transactions (noon EDT). So I will be moving money to the G Fund on Monday--hopefully it won't be an RBD. ;)
Hi Brad,

Perhaps, you should wait until 11:30 to see if it's really-bad or just bad {smile},

Victoria
Hi Victoria,

Well, I did put in the transfer request already (on Friday afternoon, so it will be executed at COB Monday). As it stands now, I am moving money from C,S,I into G. Although if Monday turns out to be a RRRRBD (like the Oct. '87 crash, or a few of the worst days of 2008), I may be moving money out of G into equities.

Brad
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Re: A good day to take some money off the table

Post by JW-Retired » Sat May 04, 2013 8:14 pm

jeffyscott wrote:
JW Nearly Retired wrote:
Grt2bOutdoors wrote:some years back in the go-go era of the Internet rage, a fellow I was acquainted with held quite a bit of Lucent (i know undiversified risk, yada yada) - it was worth $2 million dollars, enough for him to cash out and retire in style. Instead of doing that, he got greedy and thought it would double again - as we all found out later, Lucent went the way of the Enron and Worldcom, bust...... This guy's retirement went up in smoke by not drastically changing his AA when he reached his number and he was ten years away from retirement.
IMO, this guy's folly was much deeper than not "drastically changing his AA when he reached his number and he was ten years away from retirement." Ten, 20, or 30 years from retirement don't put it all on a single stock. If he had a high equity AA in a diversified portfolio he would still have been pretty OK. All his investment assets in one stock. :oops:
JW
But, if he had had a diversified portfolio, he'd not have had the $2 million.

While having so much in one stock may have been too risky, he got lucky and won the lottery. Then he chose not to cash in his $2 million winning ticket. If I buy a lottery ticket, you might say that is a waste of $2, but does that mean that I should throw the ticket away if it happens to be a winner? Or that a bigger mistake would not be spending the $2 million in winnings on a million more lottery tickets in the hopes of ending up with even more?
He didn't buy a lottery ticket and get the $2 million all at once. It grew gradually ........ while it was 10% or 20% of his portfolio was the time he might have been saved. It isn't reasonable to expect that after he rides it up to $2M he is ever going to get off at the perfect time.
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Re: A good day to take some money off the table

Post by gerrym51 » Sat May 04, 2013 8:19 pm

gotta put it in something :mrgreen:

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Re: A good day to take some money off the table

Post by tphp99 » Sat May 04, 2013 8:57 pm

zed, By taking it off the table - you're not going to put it back on the table, right? If so, then it makes perfect sense. If you've reached your goal and can afford to take on less risk, why not? I keep hearing "why play the game when you've won." I was thinking the same thing lately as the market has done well.

I don't understand the criticisms (market timing or not) as investing is very emotional. Sure, I suppose if you let your emotions get the best of you and take on too much risk (greedy?) - that can prove more problematic than someone who's content with their "number" and proceed to take on less risk.

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Re: A good day to take some money off the table

Post by Scooter57 » Sat May 04, 2013 9:15 pm

Avalpert wrote: "...the shares represent a legal ownership of a set percentage of the companies assets."

They do, but you have no way of extracting that percentage of the company's assets from the company. If you want to buy a house, you can't take your 1,000 shares of IBM to the IBM's comptroller and cash out your share of the assets.

The only way you can buy something with the money you put into stock shares is if you can find someone willing buy them from you. The price they pay may or may not have any relationship to the assets and/or earnings of the company. During some periods no one will want to buy your share of the company, rendering it close to valueless.

Victoria's claim that somehow investing in stocks isn't gambling if you don't use technical analysis or some other numerically based scheme to determine when to buy and sounds more like religion to me than sound argument.

Yes, over long periods of time holding stocks has worked out very well, in the U.S. at least, but of course, not in every market, and it is by no means guaranteed that holding U.S. stocks will continue to deliver the unusually good returns that they have delivered over the past 60 years.

To believe that because stocks have behaved in a certain way in the past means they will continue to perform that way could really wreck your life. This isn't academic. Those of us who grew up hearing that the market would deliver on average returns of 10% a year and planned our retirement based on those statistics--derived from long records of market performance--only to enter our retirement years and hear the pundits inform us that, "Whoops! It won't be 10%. Maybe it will be 7%. Or even 4%."

We were told that 4% would be a safe amount to take out of our retirement earnings. Suddenly we are being told, "Whoops, try 2%."

The magical diversification of stocks and bonds, which has led to 40 years of advice to split portfolios between them could easily undergo the same unpleasant transformation. It's quite possible that over the long term stocks might be the best possible investment, but that will be cold comfort if "the long term" means only your heirs will get the benefit of the investments you are making now--and you had invested thinking you would be funding a comfortable retirement.

Which is not to say that stocks are necessarily a bad investment, only that all the studies and papers and theories that float around the investment community are not immutable truths. If you buy stocks understanding that you are, despite all the protective mental devices you might don, gambling, albeit with odds that are tilted in your favor, you are much less likely to make the kinds of life-ruining errors that people make when they invest more in equities than makes sense for their long term hopes, needs, and abilities.

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Re: A good day to take some money off the table

Post by SteveinVanvcouverWA » Sun May 05, 2013 1:04 am

To quote further from the Dr Bernstein interview to which the OP is referring:
And what about when I'm in the middle of my career?

That's the key phase. You need to start bailing out of risky assets as you get closer to achieving that liability-matching portfolio—when you can "win the game" without taking so much risk.

Instead of cutting your stock allocation one percentage point a year -- the standard formula -- in a year with absolutely spectacular returns, you might want to take 4% or 5% off the table. In a series of years when stock returns have been poor, you don't take anything off the table. And over time you start laying down a floor of safe assets with the proceeds from the stocks you've sold.
I am 52 yo and about 15 years from retirement. Since we have seen "absolutely spectacular returns" this year, I am planning to take 5% off the table this weekend and put it into Short term bonds. That will take me from Equities/Bonds 79%/21% to 74%/26%. I'll be laying down my "floor of safe assets" by increasing my bond allocation.

You can call it market-timing if you wish, or opportunistic rebalancing. I call it removing some of my hard-earned retirement money from the very risky stock market, which could possibly drop at any time and stay down for a decade. So my IPS includes following Dr Bernstein's advice above.

Best wishes,
Steve
Last edited by SteveinVanvcouverWA on Sun May 05, 2013 11:04 am, edited 1 time in total.

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Re: A good day to take some money off the table

Post by VictoriaF » Sun May 05, 2013 8:54 am

Scooter57 wrote:Victoria's claim that somehow investing in stocks isn't gambling if you don't use technical analysis or some other numerically based scheme to determine when to buy and sounds more like religion to me than sound argument.

Yes, over long periods of time holding stocks has worked out very well, in the U.S. at least, but of course, not in every market, and it is by no means guaranteed that holding U.S. stocks will continue to deliver the unusually good returns that they have delivered over the past 60 years.

To believe that because stocks have behaved in a certain way in the past means they will continue to perform that way could really wreck your life. This isn't academic. Those of us who grew up hearing that the market would deliver on average returns of 10% a year and planned our retirement based on those statistics--derived from long records of market performance--only to enter our retirement years and hear the pundits inform us that, "Whoops! It won't be 10%. Maybe it will be 7%. Or even 4%."

We were told that 4% would be a safe amount to take out of our retirement earnings. Suddenly we are being told, "Whoops, try 2%."

The magical diversification of stocks and bonds, which has led to 40 years of advice to split portfolios between them could easily undergo the same unpleasant transformation. It's quite possible that over the long term stocks might be the best possible investment, but that will be cold comfort if "the long term" means only your heirs will get the benefit of the investments you are making now--and you had invested thinking you would be funding a comfortable retirement.

Which is not to say that stocks are necessarily a bad investment, only that all the studies and papers and theories that float around the investment community are not immutable truths. If you buy stocks understanding that you are, despite all the protective mental devices you might don, gambling, albeit with odds that are tilted in your favor, you are much less likely to make the kinds of life-ruining errors that people make when they invest more in equities than makes sense for their long term hopes, needs, and abilities.
This is what I wrote:
VictoriaF wrote:Investing in stocks has gambling and non-gambling components. The gambling part is buying and selling based on some numerical signals similar to those discussed in this thread. The non-gambling part is buying widely diversified ownership in enterprises. That's the reasons stocks are sold as "shares."
My point is that investing in a stock market comes down to holding small parts ("shares") of the underlying businesses. For as long as businesses have a non-zero value, stock (share) holdings have non-zero value and that value constitutes the non-gambling component. Fluctuations of shares above and below the underlying business value constitute the speculative, or gambling, component.

Your arguments about the long-term performance of the U.S. markets and safe withdrawal rates are a strawman.

Victoria
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Re: A good day to take some money off the table

Post by VictoriaF » Sun May 05, 2013 2:01 pm

baw703916 wrote:
VictoriaF wrote:
baw703916 wrote:Unfortunately I missed the TSP deadline for transactions (noon EDT). So I will be moving money to the G Fund on Monday--hopefully it won't be an RBD. ;)
Hi Brad,

Perhaps, you should wait until 11:30 to see if it's really-bad or just bad {smile},

Victoria
Hi Victoria,

Well, I did put in the transfer request already (on Friday afternoon, so it will be executed at COB Monday). As it stands now, I am moving money from C,S,I into G. Although if Monday turns out to be a RRRRBD (like the Oct. '87 crash, or a few of the worst days of 2008), I may be moving money out of G into equities.

Brad
Hi Brad,

What's done is done. Perhaps, Monday won't be all that RRRR bad,

Victoria
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Re: A good day to take some money off the table

Post by baw703916 » Mon May 06, 2013 7:41 pm

VictoriaF wrote: Hi Brad,

What's done is done. Perhaps, Monday won't be all that RRRR bad,

Victoria
Actually, it was a pretty good day. For my portfolio, and for me as well. Hope your day was good also.

Brad
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Re: A good day to take some money off the table

Post by VictoriaF » Tue May 07, 2013 8:41 am

baw703916 wrote:
VictoriaF wrote: Hi Brad,

What's done is done. Perhaps, Monday won't be all that RRRR bad,

Victoria
Actually, it was a pretty good day. For my portfolio, and for me as well. Hope your day was good also.

Brad
Hi Brad,

Was it a lucky escape or an ingenious strategy?

Victoria
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Re: A good day to take some money off the table

Post by baw703916 » Tue May 07, 2013 9:50 am

VictoriaF wrote: Hi Brad,

Was it a lucky escape or an ingenious strategy?

Victoria
Sometimes it's better to be lucky than good. :)
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Re: A good day to take some money off the table

Post by dhodson » Tue May 07, 2013 10:02 am

baw703916 wrote:
VictoriaF wrote: Hi Brad,

Was it a lucky escape or an ingenious strategy?

Victoria
Sometimes it's better to be lucky than good. :)
luck is definitely better than skill...unfortunately its next to impossible to perfect or reproduce....i guess if you have some of that liquid luck from harry potter then you can count on luck.

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Re: A good day to take some money off the table

Post by YDNAL » Tue May 07, 2013 10:07 am

zed wrote:Bill Bernstein did an interesting interview in Money Magazine last year:
http://money.cnn.com/2012/09/04/retirem ... index.html

The part that really resonated with me was:

"You want to end up with a portfolio that matches your liabilities, meaning the amount you'll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses -- that is, the yearly shortfall you have to make up after Social Security and any pension."
Zed,

That quote above gets overplayed.
  • By "end up at 20-25 times (5%-4% withdrawal)" your residual living expenses, Bernstein can not be saying that this where you "stop" and everything is hunky-dory.
  • Make sure you understand this distinction - in relation to total Assets and overall AA - or you may be looking for potential BIG trouble.
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Re: A good day to take some money off the table

Post by dewey » Tue May 07, 2013 10:27 am

garlandwhizzer wrote:The stock market is inherently unpredictable. As the saying goes, there are two types of investors: those who don't know where the stock market is going and those who don't know they don't know where it is going. Many large hedge fund managers (bear in mind these guys get paid in millions, tens of millions, hundreds of millions, or in come cases billions) have been shorting this bull market all year and have lost many millions of their clients dollars because they believed that the market couldn't keep going up. 13 years of a secular bear market leaves deep psychological scars and many private and professional investors have kept conservative, on the sidelines with the lion's share of their investment assets in cash or bonds even as the total stock market soared 150% in a bit over 4 years. The great rotation out of fixed income has not happened, nor has the rush into equities from money on the sidelines. We tend to prepare for what has happened in the recent and intermediate past rather than for what is going to happen in the future. Ironically, this persistently high level of skepticism helps to keep the market going up because it prevents the euphoric overvaluation that is the death knell to bull markets. Currently in my opinion the market fundamentals as measured by PE, PB, etc., are not overvalued relative to the other possible investment options such as bonds and cash. That of course does not guarantee that the correction that so many market mavens have called for won't finally happen. I believe it will at some point, perhaps soon. But corrections, big or small, are part of the equity investing game and like the ones of 2000 and 2008, they don't last forever.

Garland Whizzer
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Re: A good day to take some money off the table

Post by dewey » Tue May 07, 2013 10:50 am

What a great thread. I'm wondering though, of the more seasoned (veteran?) Bogleheads who have been rewarded nicely over time for owning a broadly diversified portfolio of equities and bonds, assigning an AA suitable to their risk tolerance and re-balancing accordingly, and investing for the long term with a passive approach, how many have done previously what so many on this thread are now doing or recommending, i.e. during a very good run, modify one's plan? I keep wondering "What would Mr. Bogle do at this juncture?" for example. I'm not suggesting it's a mistake to shift one's plan in midstream. But I know those who stayed with their plan during the recent frightening downturn have been rewarded while those who stepped away from their plan were not. How is a market rise different from a market fall in terms of following one's plan?
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Re: A good day to take some money off the table

Post by zed » Tue May 07, 2013 11:18 am

YDNAL wrote:
zed wrote:Bill Bernstein did an interesting interview in Money Magazine last year:
http://money.cnn.com/2012/09/04/retirem ... index.html

The part that really resonated with me was:

"You want to end up with a portfolio that matches your liabilities, meaning the amount you'll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses -- that is, the yearly shortfall you have to make up after Social Security and any pension."
Zed,

That quote above gets overplayed.
  • By "end up at 20-25 times (5%-4% withdrawal)" your residual living expenses, Bernstein can not be saying that this where you "stop" and everything is hunky-dory.
  • Make sure you understand this distinction - in relation to total Assets and overall AA - or you may be looking for potential BIG trouble.
YDNAL,

I think the BIG TROUBLE that you are eluding to is inflation -- and if so you're point is well taken.

The above Bernstein quote could perhaps be taken to imply that once one reaches their "number" that they move 100% AA into fixed income. Personally that might make sense for those with lets say an extraordinary asset balance. But for everybody else, myself included, doing so would be IMHO unwise.

As I stated earlier. My asset allocation is 35/5/60 equity/REIT/bond with a small sc/sv tilt. Equity is well diversify between domestic and foreign, large cap and small cap. Bonds (short to intermediate) split between nominal, TIPS and munis.

Which "one" of the above investments will "win" over the long haul? Don't know and don't really care. Working together as a complete portfolio they will take me where I want to go.

zed

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Re: A good day to take some money off the table

Post by YDNAL » Tue May 07, 2013 12:09 pm

zed wrote:
YDNAL wrote:
zed wrote:Bill Bernstein did an interesting interview in Money Magazine last year:
http://money.cnn.com/2012/09/04/retirem ... index.html

The part that really resonated with me was:

"You want to end up with a portfolio that matches your liabilities, meaning the amount you'll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses -- that is, the yearly shortfall you have to make up after Social Security and any pension."
Zed,

That quote above gets overplayed.
  • By "end up at 20-25 times (5%-4% withdrawal)" your residual living expenses, Bernstein can not be saying that this where you "stop" and everything is hunky-dory.
  • Make sure you understand this distinction - in relation to total Assets and overall AA - or you may be looking for potential BIG trouble.
YDNAL,

I think the BIG TROUBLE that you are eluding to is inflation -- and if so you're point is well taken.

The above Bernstein quote could perhaps be taken to imply that once one reaches their "number" that they move 100% AA into fixed income. Personally that might make sense for those with lets say an extraordinary asset balance. But for everybody else, myself included, doing so would be IMHO unwise.
You must then be reading past the "20-25x residual living expenses."
  • ANYONE who takes this 20-25x as "the number" - meaning 5%-4% withdrawal - is the person looking for BIG trouble.
  • The simple fact that under certain conditions - like today comes to mind - this type of withdrawal from ST Bonds, etc. will likely not cut it, and this person is being mislead with unrealistic expectations.
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Re: A good day to take some money off the table

Post by Blues » Tue May 07, 2013 12:24 pm

Landy, as we have previously discussed elsewhere in different threads, anyone who reads the interviews or source material regarding Bill Bernstein's recommendations will readily see that he is not advocating that people withdraw all their money from the market...nor that they stop participating in the market after withdrawing a portion of their portfolio to be segregated in less risky vehicles.

Frequent and ample reference and linkage has been provided regarding these interviews, articles and booklets to avoid exactly the kind of misinformation and misinterpretation of the facts you are warning of. If any responsible investor cares the least bit about their investments and financial future then I'd hope that that they would be intelligent enough not to consign their investment policy to reading one paragraph quoted out of an entire body of work offered by Dr. Bernstein.
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Re: A good day to take some money off the table

Post by VictoriaF » Tue May 07, 2013 12:29 pm

baw703916 wrote:
VictoriaF wrote: Hi Brad,

Was it a lucky escape or an ingenious strategy?

Victoria
Sometimes it's better to be lucky than good. :)
The best is to have good luck; it beats bad luck any day {smile},

Victoria

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Re: A good day to take some money off the table

Post by MnD » Tue May 07, 2013 3:50 pm

dewey wrote:What a great thread. I'm wondering though, of the more seasoned (veteran?) Bogleheads who have been rewarded nicely over time for owning a broadly diversified portfolio of equities and bonds, assigning an AA suitable to their risk tolerance and re-balancing accordingly, and investing for the long term with a passive approach, how many have done previously what so many on this thread are now doing or recommending, i.e. during a very good run, modify one's plan?
No and have no plans to. That's what re-balancing bands coupled with an age-adjusting AA glide path are for. It takes quite a move to move outside of rebalancing bands using the most popular schemes - and there's good reason for that. Momentum is your friend in major market moves - both for not rebalancing out until you have hopefully captured the majority of the upside and for staying out long enough during big declines before rebalancing in. Having been a net buyer of equity since the S&P 500 was around 220 I have seen a few record highs in the market and have learned that "record high!" is not a knee-jerk sell signal. :mrgreen:

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Re: A good day to take some money off the table

Post by baw703916 » Tue May 07, 2013 5:05 pm

dewey wrote:What a great thread. I'm wondering though, of the more seasoned (veteran?) Bogleheads who have been rewarded nicely over time for owning a broadly diversified portfolio of equities and bonds, assigning an AA suitable to their risk tolerance and re-balancing accordingly, and investing for the long term with a passive approach, how many have done previously what so many on this thread are now doing or recommending, i.e. during a very good run, modify one's plan? I keep wondering "What would Mr. Bogle do at this juncture?" for example. I'm not suggesting it's a mistake to shift one's plan in midstream. But I know those who stayed with their plan during the recent frightening downturn have been rewarded while those who stepped away from their plan were not. How is a market rise different from a market fall in terms of following one's plan?
This is a very good question you ask. What I will say, speaking for myself, is that my portfolio (75% equities) has done quite well recently. Realistically, these kinds of returns aren't going to continue indefinitely, and because of the increase in portfolio value, my need to take risk has gone down. So I have reduced my equity share from 75% to 70%. Not a huge change, but definitely a dialing back on portfolio risk. It's not that my course has changed, just the circumstances.

Brad
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Re: A good day to take some money off the table

Post by jeffyscott » Tue May 07, 2013 5:55 pm

dewey wrote:What a great thread. I'm wondering though, of the more seasoned (veteran?) Bogleheads who have been rewarded nicely over time for owning a broadly diversified portfolio of equities and bonds, assigning an AA suitable to their risk tolerance and re-balancing accordingly, and investing for the long term with a passive approach, how many have done previously what so many on this thread are now doing or recommending, i.e. during a very good run, modify one's plan?
Why can't one's plan be to reduce risk (equity % allocation) as assets increase? Many years ago, I had 75% stocks with a plan to reduce that to 50% as assets increased.That asset level was reached and then we went through 2008/09 with 50% stocks.

Currently at about 37% stocks. However the dollars in stocks now would have been 100% of the portfolio in march of 2008. Even adjusted for inflation, I have about 85% more dollars in stocks now than I did in March of 2008, despite having 37% now vs. 50% then.
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Re: A good day to take some money off the table

Post by Blues » Tue May 07, 2013 6:12 pm

jeffyscott wrote:Why can't one's plan be to reduce risk (equity % allocation) as assets increase?
It's really shouldn't be perceived as any more egregious than using the simplistic "age in bonds" methodology. If one were to follow that precept then they would be reducing exposure to equities annually by taking a portion of their portfolio and reinvesting it into a safer vehicle or vehicles. (Bonds, CD's, I-Bonds, E-Bonds, Money Markets, etc.)

Taking some money off the table as we approach certain milestones only stands to reason. Failing to do so would be tantamount to leaving one's asset allocation static ad infinitum "just because".

However, since the goal is not simply to see how much money one might amass over a lifetime as opposed to putting it to good use at some juncture, (to the betterment of our own as well as the lives of others), it only makes sense to make changes to one's allocation as certain milestones are reached.
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Re: A good day to take some money off the table

Post by YDNAL » Wed May 08, 2013 6:20 am

Blues wrote:Landy, as we have previously discussed elsewhere in different threads, anyone who reads the interviews or source material regarding Bill Bernstein's recommendations will readily see that he is not advocating that people withdraw all their money from the market...nor that they stop participating in the market after withdrawing a portion of their portfolio to be segregated in less risky vehicles.
Blues,

As discussed, you don't have to defend Bill Bernstein every time "the quote" pops-up and I expand on it - since I don't do it for my benefit (or your benefit) but do it for others whom may be mislead. As such, I find it counter-productive to rehash this conversation multiple times. I'm not convinced ALL readers "readily" understand what "20-25x residual expenses" should mean (or shouldn't mean).
zed (OP) wrote:Bill Bernstein did an interesting interview in Money Magazine last year:
http://money.cnn.com/2012/09/04/retirem ... index.html

The part that really resonated with me was:

"You want to end up with a portfolio that matches your liabilities, meaning the amount you'll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses -- that is, the yearly shortfall you have to make up after Social Security and any pension."
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: A good day to take some money off the table

Post by Blues » Wed May 08, 2013 8:15 am

YDNAL wrote:Blues,

As discussed, you don't have to defend Bill Bernstein every time "the quote" pops-up and I expand on it - since I don't do it for my benefit (or your benefit) but do it for others whom may be mislead. As such, I find it counter-productive to rehash this conversation multiple times. I'm not convinced ALL readers "readily" understand what "20-25x residual expenses" should mean (or shouldn't mean).
Fair enough, Landy, but it's not defending Bill that is my goal in responding to these posts...nor is it any perverse desire to debate the issue with you personally. Rather, it's an attempt to ensure that folks reading these threads understand that the slicing and dicing of the information provided via Bernstein's interviews and his own published material is often being offered out of context by some members.

So, let's just agree that the warning which I am sounding is equally on target as those which tend to criticize the body of work based upon the fact that they feel an offered quote was either insufficient or misleading. There are those, in fact, who seem to revel and persist in intentionally misunderstanding the material despite subsequent clarifications but their reasons for such remain beyond me.

I've tried to be as clear and on point as I could be in this thread for the benefit of those members who actually might profit by this approach to risk management in their own affairs.

My last words on the topic, offered with no malice intended. Carry on.
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Re: A good day to take some money off the table

Post by The Wizard » Wed May 08, 2013 8:38 am

jeffyscott wrote:
dewey wrote:What a great thread. I'm wondering though, of the more seasoned (veteran?) Bogleheads who have been rewarded nicely over time for owning a broadly diversified portfolio of equities and bonds, assigning an AA suitable to their risk tolerance and re-balancing accordingly, and investing for the long term with a passive approach, how many have done previously what so many on this thread are now doing or recommending, i.e. during a very good run, modify one's plan?
Why can't one's plan be to reduce risk (equity % allocation) as assets increase? Many years ago, I had 75% stocks with a plan to reduce that to 50% as assets increased.That asset level was reached and then we went through 2008/09 with 50% stocks...
"You" (generically speaking) can have whatever money-management plan you want.
Asset-based is fine for minimalists.
My own plan has and continues to be age based, with only a small change at retirement...
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Re: A good day to take some money off the table

Post by YDNAL » Wed May 08, 2013 9:24 am

Blues wrote:
YDNAL wrote:Blues,

As discussed, you don't have to defend Bill Bernstein every time "the quote" pops-up and I expand on it - since I don't do it for my benefit (or your benefit) but do it for others whom may be mislead. As such, I find it counter-productive to rehash this conversation multiple times. I'm not convinced ALL readers "readily" understand what "20-25x residual expenses" should mean (or shouldn't mean).
Fair enough, Landy, but it's not defending Bill that is my goal in responding to these posts...

My last words on the topic, offered with no malice intended. Carry on.
Fair enough, Blues, my posts are not to attack Bill, but to emphasize that NO ONE should think that 20-25x residual expenses in savings means anything other than one piece of the total picture.

Whomever thinks this is 20-25x in savings somehow means "total portfolio (savings)" should realize this represents 5%-4% withdrawal - which I personally consider today (and near future) to be an unrealistic and dangerous expectation.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: A good day to take some money off the table

Post by jeffyscott » Wed May 08, 2013 6:34 pm

The Wizard wrote:
jeffyscott wrote:
dewey wrote:... during a very good run, modify one's plan?
Why can't one's plan be to reduce risk (equity % allocation) as assets increase? Many years ago, I had 75% stocks with a plan to reduce that to 50% as assets increased.That asset level was reached and then we went through 2008/09 with 50% stocks...
"You" (generically speaking) can have whatever money-management plan you want.
Asset-based is fine for minimalists.
My own plan has and continues to be age based, with only a small change at retirement...
Well the point I was making is if this (reducing risk after a very good run) is your plan, then you are not modifying your plan by doing it.
press on, regardless - John C. Bogle

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