Is doing nothing a bad strategy

[RetireAge50]

I like the do nothing plan. 100% stocks while working so nothing to do there. Will continue to do almost nothing in retirement with Wellington, pensions, and one stock fund (75% stock overall).

No plan to move stuff around other than transferring to a stable value fund to be used for spending.

 

[COcheesehead]

70/30 looks great in a rising market, not so good in a falling one, but I am reminded of the old saying: "Bars of soap and portfolios both get smaller with handling."

 

[NW-Bound]

Or has cash set aside knowing such days do arrive.

I always have cash on hand, more than most people (32% right now). But I want even more cash to buy when stocks get cheap. Of course, I would need to overcome my fear at that point.

And to have more cash, I need to know to sell stocks high. And that means being able to control my greed when stocks go nuts.

Some people call it market timing, but do I care? I call it "conquering greed and fear". It takes a Zen attitude that I am still learning. Keep cool, and don't let your emotions take over. Easy to say, very hard to do.

 

[RetiredGypsy]

I've been doing nothing the last decade with anywhere between 70/30 and 83/17 depending on what's doing what. It's been working out well enough that I've averaged a little better from returns on dividends and gains as what I've invested.

I don't do traditional rebalancing, but every month I see what indexes I already own might be trending flat or downward compared to its recent and long-term history. Typically I invest heavier in those, figuring it'll pay off once they rebound. Vanguard shows a 12% average return, so it seems to be working out well.

 

[Live And Learn]

Good discussion. I just finally rebalanced because instead of my 50/40/10 AA I was at 60% equities. I set a 20% band (10% variance in either direction) so that I wouldn't rebalance unless there was a big change. I didn't know what rebalancing was during the Great Recession but I sold some bonds to purchase stock at near all time low prices because it just seemed like a logical move. That obviously worked out well for me. I will decide if my 20% band makes sense in a year or two.

 

[NW-Bound]

... I will decide if my 20% band makes sense in a year or two.

What works out or not, what size of rebalancing band is optimal, is only known after the fact. One is right one time, then wrong the next.

Life is full of uncertainty, and the biggest unknown of all is when we die, and how we die. So, I try to not take things too seriously. It's all a game.

 

[HadEnuff]

street, how old are you? Are you retired? If retired, what is your WR from your portfolio?

I think these are important considerations when asking your question. If you can maintain your lifestyle in the face of an equities crash, then there is no compelling reason to do anything.

I'm retired now, and I look more at "what do I need to maintain my lifestyle" as opposed to "what AA will maximize my portfolio size in 20 years". I think I can maintain a comfortable lifestyle at 40-60, and this minimizes my risk to a big equities correction. IF the correction never happens (unlikely, that) then I'll continue to make a nice buck with the 40. Sure, not as much as if I had a 70-30, but so what? I don't need that extra money. What I need is to not lose my ass in a correction that is slow to rebound.

I think if you examine your situation in that light, it will help you be more comfortable with whatever AA you settle on, and THEN, you can do nothing.

 

[street]

+1

This is wisdom. Once we grasp this, all the controversies about AAs, FAs and SWRs pale into insignificance.

Obi-Wan has taught you well.

Nice! Thanks

 

[TimSF]

"The less that I do, the less that remains undone." Lao Tsu

 

[NW-Bound]

I have not seen that quote from Lao Tsu, but in any case Lao Tsu would have no need of any stinkin' portfolio, let alone managing it.

Nothing concrete is known about Lao Tsu, but legend has it that at the age of 80 he left China to go west on the back of a water buffalo to become a hermit. And his time was even before the age of Siddartha Gautama, the founder of Buddhism.

 

[TimSF]

I was quoting from memory, and I botched it a little. So after a bit of googling, here is the actual quote (from the Tao Te Ching): "When nothing is done, nothing remains undone."

 

[marko]

And to have more cash, I need to know to sell stocks high.

It takes a Zen attitude that I am still learning. Keep cool, and don't let your emotions take over. Easy to say, very hard to do.

I'm not sure if it's a Zen attitude for me but when I sell stocks 'high' I just figure that 5-10 years from now, that sell price will look low.

If you can't buy low and sell high, the next best thing is to buy high and sell higher still.

Looking at history I'm a big believer in the market being--over time--an inexorable positive tide.
I think it was our long-lost poster eta2020 who said "standing 20 feet away from the historical Dow chart, all I see is a straight line trending up"

 

[NW-Bound]

Over a long time, stocks have been observed to be up. That has been true, and most likely continues to be true.

A retiree's problem is that he may not have a lot of time left, plus being in the distribution phase means he wants to do the stock-to-consumable conversion when the exchange rate is more favorable.

About standing back to see the stock chart as nicely going up and up from a distance, it is very true. However, if one has only a couple of decades to be concerned with, he moves closer to the chart for a scrutiny, then suddenly all those wiggly movements become large sawtooth waves that look very bothersome.

In my case, I don't think I will be in dire straits even if another Great Depression hit; I am frugal and can survive on little. But understanding and dodging market declines then moving in aggressively when stocks are on sale is something I would love to be able to do. It is not for survival, but it's a quest.

To be able to say I have got the market figured out to some extent, that would be my last accomplishment to take to the grave.

 

[NW-Bound]

I again forgot to add some music.

The Impossible Dream
To dream the impossible dream
To fight the unbeatable foe
To bear with unbearable sorrow
To run where
The brave dare not go
To right the unrightable wrong
To love pure and chaste from afar
To try when your arms are too weary
To reach the unreachable star
This is my quest
To follow that star
No matter how hopeless
No matter how far
To fight for the right
Without question or pause
To be willing to march into hell
For that heavenly cause...​

 

[UnrealizedPotential]

My asset allocation is 30/70. I like the idea of an income stream coming in that when the stock market corrects , my income stream allows me to buy into cheaper stock prices. It's hard to sit there with a lot of cash and do nothing. On the other hand, it really stinks to not have cash when opportunities are everywhere during a bear market. Having a little cash is good.

 

[Markola]

My asset allocation is 30/70. I like the idea of an income stream coming in that when the stock market corrects , my income stream allows me to buy into cheaper stock prices. It's hard to sit there with a lot of cash and do nothing. On the other hand, it really stinks to not have cash when opportunities are everywhere during a bear market. Having a little cash is good.

A few posters above suggest portfolios of 100% equities as long as one has adequate "emergency cash" on hand to live on when equities tank. To me, that's not a position of 100% equities but an equities/cash AA. I guess my quibble is that an AA stated as equities/bonds/cash percentages, with substantial cash for either living expenses or timing opportunities implies a different strategy than remaining 100% invested at all times, as I prefer to do. Then there's the head scratcher of fitting home equity, businesses and rental units into a true AA formula. I know that someday when I'm elderly, if I really need to, I'll be thinking about liquidating home equity in some manner, so home equity does have a place somewhere at the AA table to me.

 

[NW-Bound]

Some may have a stash large enough relative to their expenses that their small emergency cash gets refilled often from the stock dividends. They can have a stock AA approaching 100%, and still feel confident that they will not have to sell low.

 

[kcowan]

I do garbage collection once a year and am forced to make some new acquisitions. But other than that nothing.

In business I would always sleep on the tough problems until a solution became obvious.

 

[street]

Some great thoughts and takes on how the rich work their money. I always enjoy going back and reading posts in different threads and spending the time to actually listen to what people are telling us.

 

[street]

As the bull market continues I hear and read it would be a good time to save the gains made. I will stand pat and weather the storm when it happens I don't have to sell any to live. I feel I will lose at some time but will gain it back in time. I have done all right through about 40 years in the market doing nothing.

 

[Red Badger]

Agree philosophically with street. Do little or nothing.

I maintained an 80/20 allocation during my earning years. Only re-balanced as needed, and shifted investments when lower fee options surfaced in my plan. Also, only held two stock and two bond index funds. They served me well (low fees, easy to re-balance; never chasing returns - the ultimate losing game).

Since I am retiring this year, I opted to move to 60/40 (equities/assets). Once I (and DW) start drawing SS, I may move back to a higher equity position.

Good luck!