Life Lessons about Investing and Risk

[Moscyn]

Knowing I'll never get the right balance of stocks and bonds etc at any one period for optimal return, I have told myself before FIRE to have at least 2 things :-

1. excess cash as buffer i.e. if you think 1 million is the number for you, then make sure you have mcun more. How much more will be a balance of how much longer you want to work and how soundly you want to sleep after FIRE.
2. have at least 2 lifestyles you can accept after FIRE - one which is your ideal and the other which you can accept to downgrade to if the numbers don't work.

 

[wildcat]

The vast majority of "broken retirement dreams," among people I know, are due to crashed real estate, not to stocks.

Kind of interesting...

I suspect the avg Boomer is, if anything, real estate rich and stock/bond/cash poor

However, I suspect most Boomers bought their homes/real estate pre-crash so you would think despite drop they would still be able to walk away ok

Maybe it is the dual factor of real estate price drop + unable to liquidate expensive homes

This is, of course, assuming they didn't go bonkers with the equity they had in their homes

 

[wildcat]

I will toss out three items, once of which I have fully licked, another I am part of the way there, and a third I am still struggling with:

- excess concern about tax implications: there are a lot of investors who spent more time worrying about avoiding cap gains taxes than making a return. After I lost a couple of small sums waiting for ST gains to go LT, I now sell when it is time to sell, taxes be damned.

- risk tolerance shifts over time: I went into the recent downturn investing as if I was still 26, not a decade older with kids, a mortgage and a volatile employer. It all worked out in the end due to my belt and suspenders approach to emergency cash and some luck, but I have had to become more disciplined and push back on my gunslinging impulses on a regular basis. This is still a work in progress ("hello, my name is brewer and I am a riskaholic"), but I am getting there.

- excess concentrations: I think this is a common bad habit of stockpickers. I have developed two outsized positions due to appreciation of stuff I bought at the bottom. I cannot quite bring myself to sell off just yet, but I know this is a problem and I will be addressing it in the medium term.

Both of those apply to me

The only change I have made thus far has been include more index funds/etfs

Haven't really jumped into bonds yet

I also got whacked but made a real good comeback off the bottom. I think our biggest issue is if something is working it's hard to tweak it. Of course, stuff works until it doesn't, right?

 

[FUEGO]

If I had a pension that provided a substantial (but less than 100%) coverage of my retirement expenses, then 100% equities allocation for the portfolio might be prudent. As has been pointed out, the pension is like a bond (maybe a junk bond depending on employer's solvency lol...).

 

[rescueme]

Kind of interesting...

I suspect the avg Boomer is, if anything, real estate rich and stock/bond/cash poor.

I belive we ran a poll on this (RE equity vs. saving/investments ratio).

Being an early boomer, I can only speak for myself.

My/DW's home is less than 10% of our gross net worth, when combined with our savings/investments.

Average? I have no idea...

 

[wildcat]

right, as expected, I'm sure the poll results here would be opposite of john/jane boomer

 

[Koolau]

Knowing I'll never get the right balance of stocks and bonds etc at any one period for optimal return, I have told myself before FIRE to have at least 2 things :-

1. excess cash as buffer i.e. if you think 1 million is the number for you, then make sure you have mcun more. How much more will be a balance of how much longer you want to work and how soundly you want to sleep after FIRE.
2. have at least 2 lifestyles you can accept after FIRE - one which is your ideal and the other which you can accept to downgrade to if the numbers don't work.

I think you've put my FIRE approach into words. (1) I'm way low on equities but have countered that with having "way more" cash than I need (assuming other than run away inflation). (2) I already have the secondary life-style staked out (and it's not a bad life-style - just not the one I've dreamed of and am living now). By the grace of God, I'll never have to test either of these approaches - but they are in place, just in case... YMMV