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Re: Question specifically for the older/wiser (50+
Old 02-02-2005, 03:57 AM   #21
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Re: Question specifically for the older/wiser (50+

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Aside from dear old dad, you can handle emergencies from salaries or even credit cards.
Yeah its sort of a nice-to-know thing mainly because I'd exhaust every option before going to him. Its not because he wouldnt freely help me, if not even feel good about helping me in a time of need, its just that I spent 20+ years finally earning his respect as a man and protector of my family, and I wouldn't want to take any action that might lessen his perception of me.
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Re: Question specifically for the older/wiser (50+
Old 02-02-2005, 07:51 AM   #22
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Re: Question specifically for the older/wiser (50+

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Yeah, I've been bouncing mentally back and forth between the commodities and the foreign bonds. *I'm still not happy about the fees on PCRDX though.


.
I'm not thrilled with the fees on PCRDX and I might eventually open an account with Vanguard or someone like that just so that I can get access to PCRIX, but for now it isn't worth the trouble. I am OK with ponying up in the meantime because the data was so compelling, and commodities have a relatively high negative correlation with small caps, which I am heavily over-weighted in.
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Re: Question specifically for the older/wiser (50+
Old 02-03-2005, 08:26 AM   #23
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Re: Question specifically for the older/wiser (50+

Personally, I would never go 100% equities. One look at the 20-year graph of the Nikkei tells me that long term bear markets are possible even in developed economies. I don't believe that this scenario will play out in the US but anything is possible. So, I go for a 50/50 split of US/Intl equities with plenty of other asset classes to balance things out (including various types of bonds).
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Re: Question specifically for the older/wiser (50+
Old 02-03-2005, 01:33 PM   #24
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Re: Question specifically for the older/wiser (50+

Like soupcxcan, I am not comfortable with 100% stock either. I am 31 (planning to retire in early 50's) and I have 75% equities, 25% bonds + GIC as my overall portfolio (plus 3K in chequing and 15K in savings account). My dh though (who is investing for the first time) is 100% stock (we'll see which portfolio comes up ahead in 20 years).

My thinking is that the longer investment period you have, the less risk you need to take.

Jane
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Re: Question specifically for the older/wiser (50+
Old 02-03-2005, 01:48 PM   #25
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Re: Question specifically for the older/wiser (50+

Personally, I do not put much stock in time diversification because I think it rests on the assumption that there will not be any structural changes in the marketplace during your investment horizon. For example, if the equity risk premium declines for some reason (more investors, more intelligent investors, some unforseen external factor) then all the time diversification in the world isn't going to help you. On the other hand, if the risk premium remains constant, then time diversification can help smooth out the noise (volatility) from period to period.

Both sides make convincing arguments and cite interesting data to support their claims.

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My thinking is that the longer investment period you have, the less risk you need to take.
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Re: Question specifically for the older/wiser (50+
Old 02-03-2005, 03:58 PM   #26
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Re: Question specifically for the older/wiser (50+

Jane, conventional wisdom is that the longer the
the investment period the safer it is to have
a higher allocation to stocks. That is because
historically the long term trend in stock prices
has been up. Both Bernstein and Bogle show
in their books that the longer the holding period
the lower is the standard deviation of volatility.

Cheers,

Charlie
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Re: Question specifically for the older/wiser (50+
Old 02-03-2005, 04:19 PM   #27
 
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Re: Question specifically for the older/wiser (50+

Hi Charlie. Wouldn't dispute Berstein and Bogle for a
moment. I no longer have a "long term" to work with

JG
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Re: Question specifically for the older/wiser (50+
Old 02-03-2005, 05:19 PM   #28
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Re: Question specifically for the older/wiser (50+

"I no longer have a "long term" to work with "

Mr Galt-

My dad has been telling me for the last 15 years that he has lived longer than he ever expected to. Don't sell yourself short! 8)

rapoole
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Re: Question specifically for the older/wiser (50+
Old 02-04-2005, 08:48 AM   #29
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Re: Question specifically for the older/wiser (50+

Quote:
Jane, conventional wisdom is that the longer the
the investment period the safer it is to have
a higher allocation to stocks. *That is because
historically the long term trend in stock prices
has been up. *Both Bernstein and Bogle show
in their books that the longer the holding period
the lower is the standard deviation of volatility.

Cheers,

Charlie
Yes, I agree with you that conventional wisdom says that. I am just trying to suggest an alternative way of thinking. Unlike the original poster, some people may not feel comfortable with the ups and down of 100% stock portfolio.

I remember reading an article by Bernstein entitled "The 60/40 Solution". I believe he said that unless you are very, very comfortable for taking great risks, there is nothing wrong with 60/40 (stocks/bonds) portfolio for long-term investors. The future is unknown. Yes stocks have done better than other type if investment in *the past*. Who knows about the future? I will try to look up this article again to confirm. I could be wrong.

If guy A and guy B both have 100K to invest. A has 20 years to invest while B only has 10 and both would like to double their investment at the end of their investing period. Guy A will need a compounding rate of return of 3.6% while B will need 7.2%. Assume stocks return 6% and bonds 3%. A will need 20%/80% stocks/bonds while B, well even if B has 100% stock, he will not achieve his objective.

Obviously I am not trying to convince original poster that he should reduce his stock exposure. Not at all. If you are comfortable with the risk and you would like to shoot for 100% stock rate of return whatever that will be, then go ahead. However, if you are not comfortable with the risk but lucky enough to start your investment in your 20's or 30's or even teens, then what is wrong with letting your portfolio chug at slower speed? It's weird but in investing, sometimes even a tortoise can win the race.

My 2 cdn cents,
Jane
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Re: Question specifically for the older/wiser (50+
Old 02-04-2005, 09:38 AM   #30
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Re: Question specifically for the older/wiser (50+

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However, if you are not comfortable with the risk but lucky enough to start your investment in your 20's or 30's or even teens, then what is wrong with letting your portfolio chug at slower speed? It's weird but in investing, sometimes even a tortoise can win the race.

My 2 cdn cents,
Jane
Jane, very well spoken. I think this POV is unassailable no matter at what valuation stocks may be selling.

When US stocks are collectively more expensive than at any time other than the market top of 2000 your approach has even more to recommend it.

Many people who blithely talk about "stock returns" may be ignoring the most important aspect of return- the value at which one makes his/her investment.

Mikey
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Re: Question specifically for the older/wiser (50+
Old 02-04-2005, 11:46 AM   #31
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Re: Question specifically for the older/wiser (50+

This thread has piqued my interest. I wish I knew more about close-ended ETFs (CTFs?) and exactly how they interact with preferred stock. Brewer seems to be down on PF and usually he knows what he's talking about...but I wonder if a PF CTF might still have a place in one's portfolio, situated inbetween the debt and equity. Unfortunately, most of the websites I've seen are hawking these products so it's hard to get an unbiased opinion about them.
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Re: Question specifically for the older/wiser (50+
Old 02-04-2005, 12:40 PM   #32
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Re: Question specifically for the older/wiser (50+

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This thread has piqued my interest. I wish I knew more about close-ended ETFs (CTFs?) and exactly how they interact with preferred stock. Brewer seems to be down on PF and usually he knows what he's talking about...but I wonder if a PF CTF might still have a place in one's portfolio, situated inbetween the debt and equity. Unfortunately, most of the websites I've seen are hawking these products so it's hard to get an unbiased opinion about them.
What you are thinking of is closed end funds (CEFs) which can hold just about any asset class, including preferreds. These are basically actively managed ETFs, and they typically have higher expense ratios (1% and up) and trade at a discount to NAV (although they can trade at a premium too). In the case of preferred CEFs, many of these funds use leverage (borrow money). This gooses payouts, but typically leaves the investors in the fund MUCH more exposed to interest rate related movements. I'm not a fan of the leveraged ones because of the interest rate risk. If you want to own preferreds anyway and you can find an unleveraged CEF without too high an expense ratio that trades at a discount and isn't poorly managed, you probably have a winner.
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Re: Question specifically for the older/wiser (50+
Old 02-04-2005, 12:42 PM   #33
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Re: Question specifically for the older/wiser (50+

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..but I wonder if a PF CTF might still have a place in one's portfolio, situated inbetween the debt and equity.
Soupxcan, just curious, but why would you need or desire something "between debt and equity?"

The only use I can see for preferred stocks in a non-corporate portfolio is to speculate on distressed companies' cumulative preferreds. It still probably isn't a great idea.

The main purpose of fixed income in a run-off portfolio is to hedge against the need to sell equities for living expenses when they are down. Long term bonds aren't very good for this, and preferreds are even worse.

Mikey

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Re: Question specifically for the older/wiser (50+
Old 02-04-2005, 02:04 PM   #34
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Re: Question specifically for the older/wiser (50+

Currently stocks are not yielding very much in dividends, and I am concerned that the next decade may show dismal returns via capital gains due to inflated prices at the current time. If this scenario plays out, I think that it would be wise to hold some proportion of dividend generating assets (preferred stock) that would kick out a decent yield, even if the market in general continues to move sideways. This would hopefully offer higher yields than the bond portion of the portfolio by itself. Is this not a reasonable plan?

I was looking at JQC - yield of 8.4%, trading at a 8.6% discount to NAV. Expense ratio of 0.96% but it is 30% leveraged. I'm not thinking of betting the farm on it, but could it be another component in my (hopefully) well-diversified portfolio? And I noticed it trades on both the NYSE and the NASDAQ - is there any advantage to buying it in one market over the other?

I guess you're saying that something like VWEHX (vanguard high-yield corporate, yielding 7.1%) would be a better choice than JOC?

Somehow I posted my original comment in the wrong thread. It was supposed to go in the one about preferred stock. Oh well.)

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The main purpose of fixed income in a run-off portfolio is to hedge against the need to sell equities for living expenses when they are down. Long term bonds aren't very good for this, and preferreds are even worse.
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Re: Question specifically for the older/wiser (50+
Old 02-05-2005, 08:11 AM   #35
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Re: Question specifically for the older/wiser (50+

Before you jump into a leveraged fund, see if you can find out what the adjusted duration is. I bet its pretty high (over 10). You would get the stuffing beaten out of you with even a modest rise in rates.
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Re: Question specifically for the older/wiser (50+
Old 02-05-2005, 09:54 AM   #36
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Re: Question specifically for the older/wiser (50+


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Currently stocks are not yielding very much in dividends, and I am concerned that the next decade may show dismal returns via capital gains due to inflated prices at the current time. If this scenario plays out, I think that it would be wise to hold some proportion of dividend generating assets (preferred stock) that would kick out a decent yield, even if the market in general continues to move sideways. This would hopefully offer higher yields than the bond portion of the portfolio by itself. Is this not a reasonable plan?
Soupx-your plan may be fine. I was responding from the standard efficient market POV. I too am a long term market timer, which is what you seem to be suggesting that you are also.

When I am negative on stocks, I also try to avoid things that I think may be well correlated with stocks. Many times, one of those things is junk and or preferred stocks. And, as Brewer pointed out above, since these are marketed for yield seekers, they often use leverage, so when you get kicked kicked in the butt, you get kicked hard.

Not my cup of tea.

Mikey
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Re: Question specifically for the older/wiser (50+
Old 02-05-2005, 11:34 AM   #37
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Re: Question specifically for the older/wiser (50+

I hear ya mikey...but then were to put my cash? If equities, preferred stock, and long term bonds are out, what does that leave? Short term bonds and real estate? I can't imagine that this is the time to get into the RE market either...and the returns on short term bonds are so low...what to do?

I checked on a few websites and couldn't find any duration info for the Nuveen funds. But you are right, rising rates will hurt twice as much with leverage and the long duration.

Quote:

Soupx-your plan may be fine. I was responding from the standard efficient market POV. I too am a long term market timer, which is what you seem to be suggesting that you are also.

When I am negative on stocks, I also try to avoid things that I think may be well correlated with stocks. Many times, one of those things is junk and or preferred stocks. And, as Brewer pointed out above, since these are marketed for yield seekers, they often use leverage, so when you get kicked kicked in the butt, you get kicked hard.

Not my cup of tea.

Mikey
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Re: Question specifically for the older/wiser (50+
Old 02-05-2005, 01:43 PM   #38
 
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Re: Question specifically for the older/wiser (50+

Hello soupxcan! Any time is a good time to get into real estate IMHO.

JG
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Have a long horizon or sleep at night?
Old 02-05-2005, 05:41 PM   #39
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I hear ya mikey...but then were to put my cash?
Hey, you're in good company. Warren Buffett claims to be sitting on $38B.

What about putting it in a money market until you find something you're comfortable with-- a low P/E like MRK (admittedly a low P/E for some very good reasons) or a sector with a lower P/E than the rest of the S&P or TSM. Or try a different screener like P/B or P/S.

I guess you have to decide which makes you sleep better at night-- being in cash while the market keeps rising despite poor fundamentals, or being fully invested while it's turbulent, sideways, & falling.

Disclaimer-- our retirement portfolio is 98% equities. Last month that looked like a bad idea, this week it's been very profitable. FWIW, my personal portfolio is locked up in last month's "losers" like Nortel (NT), Sun (SUNW), Las Vegas Sands (LVS), Overstock.com (OSTK), & Cascade Microtech (CSCD). I'm also short Build-a-Bear Workshops (BBW) & Greenfield Online (SRVY).
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Re: Question specifically for the older/wiser (50+
Old 02-05-2005, 06:41 PM   #40
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Re: Question specifically for the older/wiser (50+

My problem with sitting on cash is that I worry I'll be sitting in cash forever. There's always a reason to avoid investing...a fear of whatever lies just over the horizon. I don't want to get stuck in "perpetual bear" mode...Come on! Making things worse is the fact that I have low expenses with a decent salary - I have too much free cash flow (I know, a terrible problem).

As for JG, I would agree with you, but the only way I can invest in RE right now is through a REIT because I have to move all the time. And articles like this only confirm my suspicion that some markets are ludicrious:

http://www.nytimes.com/2005/02/03/ga...pagewanted=all

Properties appreciating $40k in 8 hours? Someone's in for a rude awakening.
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