Was there a point during investing when you decided to take on more risk?

[jIMOh]

Curious if anyone other there took on more risk at some point when investing for retirement?

For example, in my case, once I hit 200k, I am considering putting around 10% of portfolio (20k) into a leveraged fund ULPIX. That is ultra bull for anyone not familiar, it gives 2X return of S&P 500.

With less than 200k I prefered a more steady ride, but thought once I hit 200k, 20k was a good enough chunk to take on more risk.


Curious if others increased their risk profile at any time while saving for retirement (increase implies risk profile was X, then you increased it in an effort to boost returns). What triggered the increase in risk? Dollar amount invested? Inheritance? Change at work? More income?

 

[Moemg]

I am the most risk adverse person in everything but investing . I started out real conservative but once I got used to the markets ups and downs I got more and more aggresive . My portfolio has been 95% stocks until 2000 and then I went to 80% . I"ve just turned 60 . By the way it is not for the faint at heart !

 

[Dawg52]

No.

 

[al_bundy]

i started taking on too much risk, than too little and now i try to take on educated risks

 

[akck]

When I first tried to figure out what i would need in retirement, I had no idea what i needed. So I picked $1 million and calculated the return needed to achieve that amount in the timeframe available. Based on that retrurn, I decided to take on more risk in order to meet my goals.

 

[FIREd]

Yes. Our financial advisor had all of our taxable savings in bonds and CDs (the idea was that the money was part of an EF so we had to keep it safe and sound). Through regular contributions over the years, the balance had grown to about $50K and we felt that keeping such a large EF made no sense at all when the biggest emergency we had ever faced at that point cost us less than $3K. Plus once we truly decided to pursue FIRE, we realized that we could not afford to keep so much money on the sidelines. So, after years of dismal returns, we decided to transfer the money to Vanguard and start investing it more aggressively as part of our retirement stash. It is now mostly invested in stocks though we keep about 10% in cash as our EF.

 

[CyclingInvestor]

No. Outside of a few bonds I bought in the early 80's, and a year of playing
with options with tiny $$s around 1980, I have been 100% stocks (mid to
larger cap, domestic) concentrated on long histories of increasing dividends
throughout my career, and now in retirement. Never any interest in futures,
commodities, options (since 1981), mutual funds (except in 401k), foreign
stocks, buying on margin, market timing. It is the only strategy that lets me
sleep well at night, which is the true test of correct asset allocation.

 

[innova]

it gives 2X return of S&P 500

Two times the DAILY return. Do the math, this doesn't work for anyone but traders. As you extend the holding period, the returns diminish to the point where the expenses would eliminate your hopes of beating the straight index.

 

[RockOn]

No, less and less.

 

[W2R]

I went the opposite way. I figured it was "all or nothing" since I was trying to ER relatively rapidly after my divorce, negative net worth, and so on. So, I invested aggressively for the first 7 years, by which time I realized that I was achieving my goals and would be able to ER.

Then, not wanting to lose the profits of 2003-2006, I started pulling back during the last couple of years.

 

[LOL!]

Instead of a 2X S&P500 fund for 10% of your portfolio, couldn't you just reduce your bond exposure by 10% of total portfolio and buy something besides US large cap? Maybe move 10% of portfolio from bonds to emerging markets.

Anyways, I took on more risk in 2003 when I realized that my portfolio was dominated by US large cap. I moved into foreign and especially foreign small cap in a big way then.

 

[jIMOh]

Two times the DAILY return. Do the math, this doesn't work for anyone but traders. As you extend the holding period, the returns diminish to the point where the expenses would eliminate your hopes of beating the straight index.

what?

that sounds like you'll be doing funny math to prove this?

 

[jIMOh]

Instead of a 2X S&P500 fund for 10% of your portfolio, couldn't you just reduce your bond exposure by 10% of total portfolio and buy something besides US large cap? Maybe move 10% of portfolio from bonds to emerging markets.

Anyways, I took on more risk in 2003 when I realized that my portfolio was dominated by US large cap. I moved into foreign and especially foreign small cap in a big way then.

I am well diversified now with 160k when year started, about 20 years to go.

The plan at 200k is to make 1/3 of each allocation (large-mid-small-int'l) a concentrated bet to accelerate returns.

so 1/3 large cap is concentrated, 2/3 is normal, 1/3 mid cap is concentrated, 2/3 is normal, 1/3 small cap is concentrated, 2/3 is normal...

current allocation is 43% large cap, 15% mid cap, 15% small cap, 15% international large cap, 10% international small cap and 2% bonds.

I add 1% to bonds every 6 months in an effort to add that position slowly- I rebalance 2X per year anyway.

 

[Ronstar]

No, i take less risk as I get closer to full retirement

 

[GoodSense]

No, but DH and I talked about when we reach FI (defined as minimum required for us to live on, but very frugally and no luxuries, ie. $1MM), we may work less demanding jobs and take more risk in the portion of the portfolio in excess of $1MM. However, We're still many years away from that so can't really say. Right now we're sticking to about 80/20 stocks/bonds.

 

[innova]

that sounds like you'll be doing funny math to prove this?

Don't invest in something if you don't understand it. Sounds like you don't understand 2x funds / etfs. You cannot expect 2x the annual, or monthly, or maybe even weekly return of underlying fund. Daily, maybe. Back to math class for you.

I'd read up on the 'Constant Leverage Trap' before you attempt this strategy.

Leveraged ETFs: A Value Destruction Trap? - Seeking Alpha

More:
Bogleheads :: View topic - Ultra S&P500
Bogleheads :: View topic - Profunds leveraged ETFs

 

[hankster]

I'm taking less risk as I age. Stocks were 80% of portfolio until about 2 years ago. I backed off to about 70% at that time, then about 65% last year. I just turned 50 and plan to stay in the 60% to 65% range from here on through retirement in 10 or so years.

 

[jIMOh]

Don't invest in something if you don't understand it. Sounds like you don't understand 2x funds / etfs. You cannot expect 2x the annual, or monthly, or maybe even weekly return of underlying fund. Daily, maybe. Back to math class for you.

I'd read up on the 'Constant Leverage Trap' before you attempt this strategy.

Leveraged ETFs: A Value Destruction Trap? - Seeking Alpha

More:
Bogleheads :: View topic - Ultra S&P500
Bogleheads :: View topic - Profunds leveraged ETFs

I don't see any data, other than people's opinions.

 

[innova]

No data?

You clearly didnt read the seeking alpha article, then. You can download the entire dataset used for the study and run it yourself. Linked from article.

How about the objective of one of these 2x funds, SSO?

"The investment seeks daily investment results, before fees and expenses, which correspond to twice the daily performance of the S&P 500 index."

Again, I implore you to seek math lessons in understanding why getting 2x the daily return of the sp500 will not equate to getting 2x the monthly or yearly return. Besides that, at 0.95% ER that fund is not particularly cheap.

From another article: ETFzone: Leverage ETF Review: How do they Stack Up One Year Later?
"
These charts show leveraged ETFs have doubled the 3-month returns of the benchmark. In fact, leverage ETFs seek to provide double the DAILY returns of the benchmark, which is different. In ProShares language the fund's stated objective is the "daily investment results, before fees and expenses corresponding to twice the daily performance" of the index they track. Why is this different than doubling the yearly returns? Looking at the first chart above SPY vs. SSO on a 6-month basis is helpful.

Unlike the 3-month chart above, SSO is not outperforming SPY on this chart. During most of this period in fact SSO underperforms SPY. The chart shows the danger of investing in SSO at the wrong time: the market sell-off in late February took the SPY down 5%, and SSO not double but actually triple that amount, nearly 15%. This happened because each successive day SSO is selling off a lower and lower base. The reverse happens on the way up."

Finally, The Case Against Leveraged ETFs - Seeking Alpha

Just make sure you know what you're getting into. Based on what I'm reading I'd find these instruments most appropriate for short-term (1-3 years) bullish market timing - if anything else happens in the market, sideways or negative they are likely to underperform their plain 1x index.

 

[jazz4cash]

Curious if anyone other there took on more risk at some point when investing for retirement?

For example, in my case, once I hit 200k, I am considering putting around 10% of portfolio (20k) into a leveraged fund ULPIX. That is ultra bull for anyone not familiar, it gives 2X return of S&P 500.

With less than 200k I prefered a more steady ride, but thought once I hit 200k, 20k was a good enough chunk to take on more risk.


Curious if others increased their risk profile at any time while saving for retirement (increase implies risk profile was X, then you increased it in an effort to boost returns). What triggered the increase in risk? Dollar amount invested? Inheritance? Change at work? More income?

Actually I did the same thing you did (hit x threshold and put 10% in a swing for the fences strategy). My weapon of self-destruction was a managed index options (straddle) strategy. I don't recall exactly, but I think I increased the cash allocation in the remaining portfolio to offset the increased risk. I held the account for approx 26 months during which time volatility was benign, the returns were impressive, but most of it went to commission and they were trading like crazy. I got out Sept 06 just before the strategy went south. I was really lucky, tho I give myself a wee bit of credit for getting out when I did. With the current high level of volatility in the market, this strategy is doing well. Broker called me two weeks ago asking if I wanted back in...no way. Here's the performance results:

Ace Investment Strategists - Yu DEE - Money Management

 

[clifp]

I have the opposite problem. I seem to always want to take more risk than I need to take.
Load up on company stock check
Short internet stocks in 99 check
Trade Options check
Buy individual stocks not funds check
Invest in start ups check
Trade Government TIPs bonds for Sallie Mae inflation bonds check
Take out a Home equity loan to invest in the market check.
Buy financial stocks in the last 4 or 5 months check
Sell the riskiest financial stocks even when the dividend newsletter says to NOPE

Nords has a saying "you've won the game now you are just running up the score" I keep that in the back of the mine everytime I make another risky investment and it has some impact. So I am careful to leave the majority of my assets in safe stuff Berkshire, index funds, GNMA bond funds, but my 10% mad money is 40-50% and probably will always remain that way...
Until I get really burned.

 

[haha]

I don't see any data, other than people's opinions.

Innova is right; I figured this out a while back with respect to double short funds from ProShares.

Not only that, this whole thread has a big flaw. "I need a greater return, therefore I will take more risk."

Better to say "I need more money, therefore I will save more."

Risk is what it is, it cares not what you need. You may be lucky, you may be unlucky.

Ha

 

[megacorp-firee]

I started out risky and got progressively riskier. Individual stocks, then options trading. As I got nearer to retirement I got religion and went from stopped options trading (well almost ... the occasional covered call when I still had individual stocks), then lately got rid of the individual stocks. Then I went way to the right and actually went from 95/5 AA to about 60/40. I do get antsy now and then but resist the temptation.

I now am an confirmed kool aid drinker. I believe I am one of the few actual buy and holders on this forum.
... but check this spot after I start messing around with converting my 401k over to an IRA

 

[freebird5825]

always a medium to high risk 70/30 in pre-FIRE days (age < 47)

gradually moved to medium risk 60/40 in year before FIRE (age 47)

currently at moderate to low risk 50/50 during FIRE (age 48 )

will stay at 50/50 for a while. riding it out...may change once expenses are analyzed for current income and prevailing overall market conditions

 

[jIMOh]

No data?

You clearly didnt read the seeking alpha article, then. You can download the entire dataset used for the study and run it yourself. Linked from article.

**snipped to keep this short**

In the 3 links provided, 2 were forums and one was a blog. I hardly call those reputable sources.

Back to math class for you.

I'd watch the person you question without knowing more.

Consider 3 sets of 6 data points, representing returns of a fictitious investment.

There is a simple mathematical reason why a 2X fund will NOT match the yearly returns even though each day it met it's objective. Exponential math and volatility.

1%
2%
3%
-3%
-2%
-1%

if these were returns of an investment, the end result would be a .14% loss if taken straight up. If each return was *2, then the loss would be .55% (4 times bigger).

The look at more negative situation

-1%
-2%
-1%
-3%
-1%
-5%

first loses 12%, other loses 24%. Because returns were on same side of zero, the 2X leverage held true.

repeat on plus side
5%
1%
3%
1%
2%
1%

the first gains 13.66%, the leverage fund actually is more than double at 28.69%.

There are 3 key forces working on math side
1) exponential functions do not mean 2X is 2X. The same way as an ice skater reduces their radius 1/2 when spinning, it increases their speed 4X. That is math and physics.

2) We cannot predict returns. If enough data points exist, the 2X number will close to what a person sees if invested in the leveraged fund.

3) The sequence of returns matters. If someone has $100 and loses 25%, they need a 33% gain to break even. If same person has a 33% return and then the 25% loss, they are ahead.


A position like this (1/3 aggressive and 2/3 diversified) requires constant rebalancing (I am thinking 4X per year, maybe 12, maybe 24). I need the stomach for the risk. If market generally goes upward, this strategy will work well, if in a volatile market, I need enough cash to keep rebalancing in and the brain to know that when the bull comes, I will get better returns.

24X rebalancing is because I get paid 24X per year, and this is my 401k at work (in a self directed brokerage).