Poll on Risk taking

[Danmar]

Having other assets to mitigate the risk wasn't the point.

You have a pile of money (nothing else) you can invest in one asset class or the other... play it safe or take bigger risk in hopes of gaining more

Not sure what your point is here? Creating an unreasonable choice that doesn't reflect most(all?) people situation? I didn't vote.

 

[FIRE'd@51]

I guess I'm an adventurous soul. I'm about to move across the country to a new job and several people have said that I'm "very brave". I don't get it. If you don't take a certain amount of risk, you shrivel up and die.

Not questioning your decision, but didn't OP's poll specify that you were assumed to be retired?

Edit - Oh, I guess I misunderstood your post the first time I read it. You added the part I bolded to indicate you were a risk-seeker. My apologies.

 

[East Texas]

I just noticed something. Bonds were pretty far ahead with the early risers. Then stocks started catching up as the night owls got on board. Does this mean early risers are more conservative financially? Must have some hot chocolate and think about this.

 

[audreyh1]

Would you (A) choose the safe path that allows you to maintain the status quo with little risk..

Why do you think option A has little risk? Or even lets you maintain the status quo?

After about 10 years, inflation will start eating your lunch, and you will definitely NOT be maintaining the status quo in terms of cost-of-living. You will have to keep downgrading your lifestyle. And it will get much worse at 20 years and on out.

Audrey

 

[Meadbh]

I just noticed something. Bonds were pretty far ahead with the early risers. Then stocks started catching up as the night owls got on board. Does this mean early risers are more conservative financially? Must have some hot chocolate and think about this.

Or the bonds people live on the East Coast.

 

[REWahoo]

I just noticed something. Bonds were pretty far ahead with the early risers. Then stocks started catching up as the night owls got on board. Does this mean early risers are more conservative financially?

I think it means there wasn't enough disagreement and debate about the issue so the latecomers wanted to stir things up a bit...

 

[Rustic23]

Audreyh1
Because that is how he defined it. It does not matter what happens in the real word. For this poll that is what will happen, and that is what the poll is based on. The OP did not say analyze these two investment opportunities and depending on which you think will come true in the future pick one. The first is 100% risk free. You will retire at your present standard of living or slightly above. The other you may or may not. He did not say why, i.e. you picked bad stocks, the market crashed, you picked great stocks, ... nope just there was a risk and reward option. He did not even say how much risk. I believe the OP tried to define a risk that would put your standard of living at risk, ie. not just buy a dollar lottery ticket, in a language most of us would understand.

I chose 1. I would rather have my present standard of living than risk ending up in a soup line. The reward of driving a Rolls Royce is not worth the given risk, I loose my present standard of living.

 

[ronin]

I can't remember ever participating in one of these polls. Is it because:

A. My memory is shite.
B. I think polls are shite.
C. All the above.
D. None of the above.
E. You don't give a shite.

 

[Moemg]

I voted stocks but frankly in real life I would never go all stocks . A lot heavier in stocks yes but not 100% . I learned my lesson in the last melt down.

 

[haha]

Before I could choose I would need to know gamma, delta, last week's closing VIX and yesterday's 12:01 am temperature at Port Alberni.

With these data my answer would be clear.

Ha

 

[East Texas]

Or the bonds people live on the East Coast.

Then can one assume the right coast is conservative while the left coast leans more to the ...... left?

 

[FIRE'd@51]

Because that is how he defined it. It does not matter what happens in the real word. For this poll that is what will happen, and that is what the poll is based on. The OP did not say analyze these two investment opportunities and depending on which you think will come true in the future pick one. The first is 100% risk free.

I sure didn't read OP's definition that way. What he posted about 100% bonds was:


1) Invest all of it in Ultra-safe Bonds with a realistic chance of making a little over inflation.


This is not 100% risk-free with respect to not running out of money. To me this statement leaves open the possibility of not keeping up with inflation.

 

[Nova]

I just noticed something. Bonds were pretty far ahead with the early risers. Then stocks started catching up as the night owls got on board. Does this mean early risers are more conservative financially? Must have some hot chocolate and think about this.

I was an early poster...insomnia...sigh. I took the poll at face value; there are two choices (risk taker or non-risk taker); care to play?! It's sort of like flipping a coin (agreeing to play), then crying foul when the coin is either "heads" or "tails". There's only two choices. Some people chose to not flip that coin, noting that neither outcome was reasonable.

If the poll had a third option of some combination of bonds and stocks, who wouldn't have selected that? With most people selecting the option of a combination of stocks and bonds, there would have been no basis of judging risk.

If it were my poll, I would only have bonds or stock to choose from, too. I would also include some questions to identify approximate age and whether the voter has/will have a pension of some sort (excluding SS) of if they have/will have only their assets to rely on.

 

[NW-Bound]

Tough two choices. I did not vote.

There should have been a 3rd one: Keep on working.

 

[Rustic23]

I took 'a little over inflation' as meaning it would make inflation thus cover your current expenses and thus 100% with a small chance of doing better. Never did it say 'not covering inflation'. I am beginning to see why new bills in congress are 2,000 pages long. In order to ask a simple question 'are you risk adverse' you have to write a novel to explain the question. Me thinks, too many of us have too much time on our hands, maybe it will get better when it warms up out.

 

[youbet]

Actually, it may be a simple poll that tells us something else - if a significant % choose 100% bonds, it may tell us that the forums members do not understand the risks associated with bonds versus stocks.

That is different from understanding how much risk they wish to take.

-ERD50

+1

OP's "poll" will not measure participants penchant for risk. It will measure their gullibility. The OP imposed definitions of a 100% bond vs 100% equity portfolio are not realistic. The implication that there is no risk with a 100% bond portfolio held for decades is just silly........

 

[FIRE'd@51]

I took 'a little over inflation' as meaning it would make inflation thus cover your current expenses and thus 100% with a small chance of doing better. Never did it say 'not covering inflation'. I am beginning to see why new bills in congress are 2,000 pages long. In order to ask a simple question 'are you risk adverse' you have to write a novel to explain the question. Me thinks, too many of us have too much time on our hands, maybe it will get better when it warms up out.

"Not to beat a dead horse", but it was the phrase "realistic chance" (not a "little over inflation") that left the opening for not keeping up with inflation.

 

[easysurfer]

Where is your evidence of this? - ERD50

Evidence?...Evidence? ...... The Playoffs?

As devil's advocate...do you have 100% in bonds or 100% in stocks? If not, why not?

 

[NW-Bound]

Me thinks, too many of us have too much time on our hands, maybe it will get better when it warms up out.

The weather where we are is NICE. Sunny and 64F. We usually go for a long hike on both weekend days, but my wife is out of town to attend a funeral on her side of the family. So, I am still inside BS'ing with ya all.

 

[BTravlin]

ERD50 laid out the research that seems to clearly indicate that, for the same withdrawal rate, (A) is not only not safe, but dominated by (B)?

Why do you think option A has little risk? Or even lets you maintain the status quo?

After about 10 years, inflation will start eating your lunch, and you will definitely NOT be maintaining the status quo in terms of cost-of-living. You will have to keep downgrading your lifestyle. And it will get much worse at 20 years and on out.

Audrey

Because the OP laid out the parameters saying so. Yes, in the real world you would be correct but according to the rules established by the OP I think not.

 

[ERD50]

... I took the poll at face value; there are two choices (risk taker or non-risk taker); care to play?! ...

Well, if that was the intent (and I'm not sure it was), it was really poorly worded:

1) Invest all of it in Ultra-safe Bonds with a realistic chance of making a little over inflation.

It wasn't stated as some hypothetical investment guaranteed to keep up with inflation. It wasn't even stated as "probably making a little over inflation". So I'd interpret it as a less than 50-50 chance of keeping up with inflation.

And have Ultra-safe Bonds historically kept up with inflation? I don't know, but I'd think not.

So to be any measure of one's risk tolerance, it would have to be stated as some thing like :

1) Invest all of it in a portfolio guaranteed to provide an inflation adjusted X.X% WR for life(*), or...

2) Invest that same portfolio all in the Stock Market. You could go broke... You could maintain your lifestyle There is chance you might impair lifestyle ... but! You could wind up rich....

Further, we'd need to define that X.X% (and we'd expect it to be very low) to determine how big a portfolio that would equate to. And based on my earlier FIRECALC runs, I'd expect stocks to beat out this hypothetical portfolio. There would be no 'guarantee' with stocks, but unless you can find a hypothetical bond portfolio that really comes with a guarantee and can provide a reasonable inflation adjusted WR, it's all kind of silly anyhow. I might as well change #2 to say the stocks are guaranteed to go up faster than inflation.

What do we learn from unequal choices?

(*) - can you say "annuity"?

PS - sorry if I covered some old ground, or hurt any dead horses, I didn't see the posts after Nova's when I hit submit

-ERD50

 

[FIRE'd@51]

Because the OP laid out the parameters saying so. Yes, in the real world you would be correct but according to the rules established by the OP I think not.

Geesh. One of us must lack reading comprehension.

This is beginning to remind me of the grade school game, in which 20 students stood in a line and the teacher whispered something to the first student in line and told him to pass it on, and so on. It was astonishing how much different from the original statement what got to the end of the line was.

 

[East Texas]

Even though my spouse and I both have pensions (mine has a COLA), retiree health insurance, social security eligible (not quite there yet), and lots and lots of money from 401Ks, I am a financial conservative. I was very poor early in life and learned it was hard enough to be young and poor that being old and poor would simply be unacceptable. I was lucky enough to ride the stock market in my 401K in the '90s and made lots of money off it.

We moved two of our 401Ks to a USAA IRA last year and one to their Global Opportunities Portfolio. Our living expenses will be less than half our income once we start collecting social security and monies off the other instruments. We have no debt.

I will not stay awake at night wondering if I'm going to turn into an older person without financial security. Not gonna happen. I'll stay conservative and take a very calculated risk with a small portion of the overall portfolio. I have people who manage that for me and I have, and will always have, complete faith that USAA will do the right thing at the right time for the right reason. They can stay up at night figuring things out while I sleep.

 

[BTravlin]

This is a made up scenario.... but please take it seriously... as if it were a real life choice you were making.

Here is the scenario: You are going to FIRE... age does not matter... you have the assets to do it. You have enough PV assets to live your current lifestyle for the rest of your natural life. All you need to do is keep up with inflation.

You have two options that cannot be changed later (one time decision on the asset class):

1) Invest all of it in Ultra-safe Bonds with a realistic chance of making a little over inflation.

2) Invest it all in the Stock Market. You could go broke... You could maintain your lifestyle There is chance you might impair lifestyle ... but! You could wind up rich....


What would you do?

Geesh. One of us must lack reading comprehension.

This is beginning to remind me of the grade school game, in which 20 students stood in a line and the teacher whispered something to the first student in line and told him to pass it on, and so on. It was astonishing how much different from the original statement what got to the end of the line was.

Maybe it's me but I read the bolded part to say that you will most likely stay just ahead of inflation. I agree that in the real world this is unlikely but that doesn't seem to be chinaco's intention here. I'm sure the OP will correct me if I'm wrong.

 

[Rustic23]

Erd50,
If someone agrees to give you 'a little over a dollar' would you say you have a 50/50 chance of receiving less than a dollar?

And, I am not going to write 2,000 pages to explain what the risk category, of the person, or there health, intent or anything else.