A little explanation, please!

S

syd03

Recycles dryer sheets
Joined
Oct 9, 2007
Messages
61
I'd appreciate a bit of insight. I assume what has happened to our overall portfolio the last month plus is a result of bond fund pullback. But I'm not certain. Lately even when stocks are up 400 points in any given day the overall value of my portfolio holds steady or drops. My asset mix is 32 US stock/13 Int'l stock/28 bond/27 cash. Vanguard/Fidelity/T. Rowe. This morning I was certain I'd see at least a modest gain after yesterdays market bump, but alas, slightly down again. I guess I never really thought that at 28%, I'm so heavy in bonds that a pull back there would offset such nice equity gains.

I've been investing for 35 years, and don't recall my portfolio backing up quite so much on days when stocks move north so nicely. Any thoughts? When I was working and throwing more money at investments this wouldn't have bothered me. Now I'm having some trouble enjoying my morning coffee...
 
Yes, bonds were down again yesterday. Even though the Dow was up 306 points, the NASDAQ was down 310. A lot of tech stocks took a beating yesterday. I was also significantly down for the day.
 
Stocks didn't "move north nicely" yesterday, at least not many of them. While the Dow was up almost 1% (only 30 stocks in the index), both the S&P 500 and Nasdaq fell: 0.5% and almost 2.5% respectively.
 
syd03 said:
I'd appreciate a bit of insight. I assume what has happened to our overall portfolio the last month plus is a result of bond fund pullback. But I'm not certain. Lately even when stocks are up 400 points in any given day the overall value of my portfolio holds steady or drops. My asset mix is 32 US stock/13 Int'l stock/28 bond/27 cash. Vanguard/Fidelity/T. Rowe. This morning I was certain I'd see at least a modest gain after yesterdays market bump, but alas, slightly down again. I guess I never really thought that at 28%, I'm so heavy in bonds that a pull back there would offset such nice equity gains.



I've been investing for 35 years, and don't recall my portfolio backing up quite so much on days when stocks move north so nicely. Any thoughts? When I was working and throwing more money at investments this wouldn't have bothered me. Now I'm having some trouble enjoying my morning coffee...
Click to expand...


Not all stocks have been heading north. The tech stocks have taken a beating with the NASDAQ briefly entering correction territory. Bond prices have gone down because of the rise in interest rates, which should not be a surprise considering how low they’ve been for years. I’m hoping they climb a bit more so I can get some interest when I purchase a bond ladder next month with maturing CDs.
If you’re not comfortable with your asset allocation, you can always review it and see if you want to change it. But if I were you, I’d stick to what you have since it’s pretty conservative.
 
Vacation4us said:
The best advice ever!
Click to expand...
Thank you.

Actually, there is solid science behind this. The behavioral economists have studied the investment performance of portfolios held by people who check frequently and people who rarely check. The frequent watchers' performance lags. The explanation for this is humans' baked-in risk aversion. The watchers build up unhappiness by seeing frequent, but completely normal, declines in portfolio value; this causes them to trade more frequently. Ref: Richard Thaler, Daniel Kahneman.

There is a good story, probably apocryphal, that Fido did a study of their mutual fund customers and the ones with the best results were the dead ones. (Edit: https://www.morningstar.com/articles/964493/from-the-archives-in-praise-of-the-dead-investors)
 
Last edited:
Yeah, "stocks" is not the Dow, despite what my DM thinks.

I'm 25% S&P500, 25% US ex-S&P500, 25% Global ex-US, and 25% US Bond Index. That's 75% stocks, but my spreadsheet says I lost 0.67% yesterday. None of those funds was positive for the day.

The Dow is a very small and weirdly constructed sample of "the market". The S&P 500 is a much better index that is nearly as widely reported. For a more detailed look I track ETF's that match the indexes I've invested in.
 
TheWizard said:
Well, if you stop watching, how will you know what to set limit orders at to buy on the dips?
And when to exchange stock funds sideways to TLH?
Click to expand...
I go with the experts: Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

Actually, we "watch" once a year between Christmas and New Years. Maybe one year out of three that look results in a trade. Since all our investments are now tax-sheltered we don't worry about TLH, but that would be the time if we cared.

"Buying on the dips" is market timing, of course, and it requires that one has cash on the sidelines uninvested and missing out on the steady but volatile growth of a diversified stock portfolio. In most cases, I think rigorous benchmarking would show that the benchmark wins. There was a great quotation posted here a few months ago: "Your portfolio is like a bar of soap. The more you handle it the smaller it gets." I spent around 30 years figuring this out.
 
OldShooter said:
I go with the experts: Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

Actually, we "watch" once a year between Christmas and New Years. Maybe one year out of three that look results in a trade. Since all our investments are now tax-sheltered we don't worry about TLH, but that would be the time if we cared.

"Buying on the dips" is market timing, of course, and it requires that one has cash on the sidelines uninvested and missing out on the steady but volatile growth of a diversified stock portfolio. In most cases, I think rigorous benchmarking would show that the benchmark wins. There was a great quotation posted here a few months ago: "Your portfolio is like a bar of soap. The more you handle it the smaller it gets." I spent around 30 years figuring this out.
Click to expand...
There's definitely some truth in what you say.
Some folks, for example, try to sell stock funds in time to avoid a crash. Not me.
Starting year nine of retirement now, my taxable account is growing month by month while my tax deferred account is at the mercy of Mr Market and starting next year, RMDs.

So my taxable account is nominally 100% stock funds, no bond funds or long-term MM funds, aside from my settlement fund.

So what I'm dealing with then is new money (excess retirement income) going into my taxable settlement fund, on the order of $2000 or more per month.

If my various index fund investments are pushing new highs, as they have been at times recently, will I buy $2500 of one of them immediately?
No.

Instead, I set up a limit order(s) for those ETFs at something between 1% and 5% below today's price, depending.
Will stock funds ever fall to a level 2% or more below today's price? I highly suspect they will and when they do, my orders will execute.
A few of them just did, on Friday and yesterday (Monday).

My approach likely won't work for folks who get nervous and fearful when markets decline...
 
TheWizard said:
There's definitely some truth in what you say.
Some folks, for example, try to sell stock funds in time to avoid a crash. Not me.
Starting year nine of retirement now, my taxable account is growing month by month while my tax deferred account is at the mercy of Mr Market and starting next year, RMDs.

So my taxable account is nominally 100% stock funds, no bond funds or long-term MM funds, aside from my settlement fund.

So what I'm dealing with then is new money (excess retirement income) going into my taxable settlement fund, on the order of $2000 or more per month.

If my various index fund investments are pushing new highs, as they have been at times recently, will I buy $2500 of one of them immediately?
No.

Instead, I set up a limit order(s) for those ETFs at something between 1% and 5% below today's price, depending.
Will stock funds ever fall to a level 2% or more below today's price? I highly suspect they will and when they do, my orders will execute.
A few of them just did, on Friday and yesterday (Monday).

My approach likely won't work for folks who get nervous and fearful when markets decline...
Click to expand...
Everyone needs a hobby and it sound like you are dealing with relatively small amounts of money. I have no issue with that. It would be interesting to know over a year or two what kind of internal rate of return you get from that strategy vs your main buy-and-hold tranche.
 
OldShooter said:
Everyone needs a hobby and it sound like you are dealing with relatively small amounts of money. I have no issue with that. It would be interesting to know over a year or two what kind of internal rate of return you get from that strategy vs your main buy-and-hold tranche.
Click to expand...

I foresee my taxable account total getting up into the mid 6 figures in a few years especially starting in January when monthly RMD amounts get added to what's going in presently.

And I feel it's important to develop a mindset where a decline in market indexes is viewed more as a buying opportunity rather than a calamity to be escaped from.
Cheers...
 
RobbieB said:
Yeah. I look at the monthly statements when they come in, monthly.
Click to expand...

Most times, I'll look at my quarterly MF statements. Not always. I don't see a reason to change my strategy at this point, so looking at the quarterlies is more to be certain someone hasn't stolen my ID.:facepalm: YMMV
 
TheWizard said:
... And I feel it's important to develop a mindset where a decline in market indexes is viewed more as a buying opportunity rather than a calamity to be escaped from. ...
Click to expand...
Yes. Volatility is not risk. I teach an Adult-Ed investing class and devote a couple of slides to situations where stocks are on sale. This is especially potent medicine for savers in the accumulation phase where DCA is their friend.
 
You have chosen an AA that mitigates volatility overall. This has muted your gains. But the good news is that when the market moves the other way, it likely will mitigate your losses. Classic risk/reward tradeoff. Also keep in mind that not all stock funds move the same way/amount. We have quite a bit in a Russell2000 index and it moves way more aggressively than an S&P 500 fund.
 
The Dow having a good day usually has no bearing on my portfolio. After all it’s only 30 stocks in the index. I was down quite a bit yesterday because of Nasdaq. And today it recovered everything from yesterday plus some. So I pay more attention to Nasdaq and S&P 500 movements than Dow movements.
 
Good question. I had been wondering the same exact thing. Since retirement, I look at our balances a lot more frequently. However, the good news is I am a bit of a sloth so I don’t overreact to the dips or highs. Also, reading this site and BH reinforces the stay the course mentality.
I do rebalance at most once a year to our desired AA %.
 
TheWizard said:
Well, if you stop watching, how will you know what to set limit orders at to buy on the dips?
And when to exchange stock funds sideways to TLH?
Click to expand...

While I watch and review every single day, I might make a buy/sell once every two years or so; mostly dip-buying or reallocating.

I did take advantage of last year's dip (mid-April) and re-arranged my holdings just a tad (about 3%) on a fund I had been coveting and have made 61% on that piece to date.
 
Bond Funds - Timely Question!!

Bond funds have no maturity thus, are perpetual and valuations are based off of NAV (Net Asset Value - value of last sale of bonds totaled - those listed)

So, rising rates exponentially crush NAV as money chases new paper issued at higher yields and selling the older paper with lower yields at discount
(meaning at a loss vs. purchase price) - For the fund managers to keep their jobs, they have to preserve the money in the fund and avoid redemption request (sell of shares) so they have to replace old paper (lower yields) with new issue bonds (higher yields). While you may enjoy a higher current income on your portfolio in a Bond Fund, the NAV will suffer exponentially (depending on the "tail" - time duration of debt) anywhere from 8% to 22% loss in NAV per 1% increase in rates. (generalizations fairly common on %'s)

Few if any money managers alive today know how to invest in a continual rising rate environment (i.e. typically rates run in 31 to 32 year cycles) last cycle turn was late 1970's - from highs. We were due to bottom - at lows - in 2009 maybe 2010, but we deterred that with the mortgage bailouts and thus artificially suppressed the inflation increase on money - but not on all other goods and consumables (check prices vs 2008-9) - fed policy being what it is today.

Summary, create a latter'd bond portfolio and hold each position to maturity. The blended yield will give you a healthy income all the while preserving your capital. No more than 3% in any one position (go for investment grade only) for safety measures - not all eggs in one or two or a few baskets.

Expect more conversations like your questions in the short & near time future as we've just set up an inflationary environment with the 3 plus trillion (and more to follow) printing press spending. What happens when PPP - or some other gifted named program - is spent and Virus stimulus is spent? Look at historical inflationary times and interest rates (same rates that dictate your NAV inside of a "Bond Fund" - funds that didn't exist before 1980). Does the switch flip that easy - from shut down to full speed:confused:

Google or DuckDuckgo all the above stuff for more explanation(s) and make the deductive reasoning for yourself.

Hope this helps
Good Luck
 
You must log in or register to reply here.

Similar threads

S
Bonds Suc&k...
6 7 8
Replies
177
Views
11K
Out-to-Lunch
Out-to-Lunch
D
How to deal with taxable holdings with large gains
2
Replies
26
Views
2K
Texas Proud
T
Jerry1
Moving to Fidelity and going with a simple portfolio.
2
Replies
36
Views
3K
target2019
target2019
D
Guidance with withdrawal plan
Replies
15
Views
799
mathjak107
M
B
transition from saver to spender
Replies
9
Views
1K
Bigdawg
B

Latest posts

Back
Top Bottom