October 10th Market Plunge

[HFWR]

It may be a sick way of looking at it, but it is a good way. Only by understanding it in those terms can you appreciate the level of risk being taken. Are you willing to risk 20 years of earnings with a high equity AA?



Maybe some are ok with that. Maybe you have accumulated 100 years of earnings and losing 20 is no big deal. However, my belief is that for the overwhelming majority, losing 20 years worth of earnings would be quite devastating.

I would be broke long before I got to 20...

 

[ESRwannabe]

Most of my money is in Vanguard's US and Foreign High Div Yield indexes (50/50). I looked them up on Morningstar and looked at the top 20+ holdings in each.

For the most part every stock in them has had div growth the last four years (as far back as the data goes). So, that is comforting. Especially the foreign stocks as foreign has not done well the last five years. In fact foreign has been pitiful. VTIAX has a 5-yr total return of only 1.43%.

So even during that pitiful 5 years for the total foreign stock market, my foreign stocks (high div yield) were raising dividends.

My withdrawal strategy is going to be to simply take the dividends every year for each fund and never sell shares (although maybe do some tax loss harvesting).

So far this year my avg div growth across both funds is 12.25% which is fantastic. So, I'm feeling pretty good about my strategy.

 

[NW-Bound]

... Investing takes a certain skill set & personality type to be sucessfull. I think being a sociopath might be helpful. No emotional mistakes.

Interesting theory.

Now, guys and gals on Wall Street like Madoff, Ebbers, and more recently Holmes are most likely sociopaths. But they are scammers, not investors.

I wonder if anyone has seen a study on this subject. I remember about the time of the dot-com crash, there was an article saying women tend to be better investors than men, because they were not so hot-headed.

Don't know if the above is true either.

 

[Free bird]

Women in general are probably more longterm oriented. Which seems to be an advantage. Less likely to hit the sell button at the exact wrong time. I know my risk tolerance is crap. I just don't really know enough about so called investing to think I'm gonna clean up. But history does indicate your gonna make some money in the US stock market even if you don't know diddly.

 

[DeborahB]

My risk tolerance is quite high, as long as it’s a risk I’ve evaluated. Mostly I just wait out the ups and downs in the market. I’m mostly invested in dividend stocks. As long as most of them continue paying, I’m fine.

I don’t know what my living expenses/year are, these days. In the past 18 months I’ve moved, bought a house, had to buy some furniture etc., and right now am having the exterior woodwork painted. Next year possibly a new car.

So that’s how I am in investing. And I’m a woman.

 

[Free bird]

I like Wellesley but those bonds are getting pummeled. 5 years from now it may not matter. If we are in for a bond bear for the next 30+ then the bonds will be a drag on a fund like Wellesley right?

 

[NW-Bound]

... I know my risk tolerance is crap. I just don't really know enough about so called investing to think I'm gonna clean up. But history does indicate your gonna make some money in the US stock market even if you don't know diddly.

Keeping calm is good. But then, when everybody panics and you don't, perhaps you do not know about the tsunami that is fast approaching.

Joking aside, instead of having a psychopath trait to be successful in investing, how about being a psychologist who understands human nature? Of course, that's not me, as I did not take a single class on this subject in college, and only in high school.

I agree that if one does nothing other than just index and buy/hold, he will do well, or a lot better than messing up.

But then, to me it's like saying "just go to restaurants and you will get a decent meal". What if I want to learn to cook, and willing to eat the results?

 

[NW-Bound]

I like Wellesley but those bonds are getting pummeled. 5 years from now it may not matter. If we are in for a bond bear for the next 30+ then the bonds will be a drag on a fund like Wellesley right?

I have never had much bond, and missed out on the bull run over the last 2 decades or more. In return, I did not suffer the recent decline. Still have not made up for the gain I could have had, I don't think.

At this point, I see no point of getting into bonds. People who have had some gains can "afford" to give up some, but I did not get that benefit and have nothing to give back.

Of course, I reserve the right to change my mind anytime.

 

[Free bird]

I agree personality flaw is probably not going to help. But this business of ignoring your emotions is not in most peoples tool box.

 

[Free bird]

Alphabet earnings are way above expectations. I doubt we get a bear market when earnings beats are that big.

 

[Free bird]

Intel beats big too.

 

[Carpediem]

I like Wellesley but those bonds are getting pummeled.

Before the recent 'correction', I was thinking about moving from all Wellington to a 50/50 AA using Wellington and Wellesley but I too had concerns about Wellesley's bond performance. I'm not sure what the "right" move is anymore to get to a 50/50 AA. Haven't given up on Wellesley yet though.

 

[Lsbcal]

I have never had much bond, and missed out on the bull run over the last 2 decades or more. In return, I did not suffer the recent decline. Still have not made up for the gain I could have had, I don't think.

At this point, I see no point of getting into bonds. People who have had some gains can "afford" to give up some, but I did not get that benefit and have nothing to give back.

Of course, I reserve the right to change my mind anytime.

For tax advantage accounts 5 year TIPS are now just above 1% real return. If held to maturity there is near zero risk. Just reinvestment risk.

 

[Free bird]

Pretty long duration on the bonds. I'm inclined to use Value index fund along with short term corporate bond fund. You'll never mimick Wellesleys stock picks but you'll avoid bond losses & the drag. The bond market may be in a long term bear market now. Bonds will bounce when we get a recession but after a counter trend rally rates will head up again. No one really knows but I think theres a better than even chance when we look back 20 years from now bonds will lose people money. Bonds had a nice long bull market but all that is in the past. Could be wrong but I think bonds will be rough sledding for years to come.

 

[W2R]

Before the recent 'correction', I was thinking about moving from all Wellington to a 50/50 AA using Wellington and Wellesley but I too had concerns about Wellesley's bond performance. I'm not sure what the "right" move is anymore to get to a 50/50 AA. Haven't given up on Wellesley yet though.

I still like Wellesley. The graph of Wellesley performance below, from Vanguard, only goes to September 29th. So, perhaps it looks deceptively good.

The same graph looked pretty good when I first started buying Wellesley, too, back before I ever joined the ER Forum. It went down a bit during the bond difficulties back in 2008-2009, as you can see, but not enough to drive me off.

 

[Free bird]

This DIY investment strategy will probably totally disappear once AI is fully rolled out. Future generations will have to solve the lack of purpose for many people. There will be yet another technology to keep human feeling like they're in the game when in reality they're just passengers.

 

[Lsbcal]

Pretty long duration on the bonds. I'm inclined to use Value index fund along with short term corporate bond fund. You'll never mimick Wellesleys stock picks but you'll avoid bond losses & the drag. The bond market may be in a long term bear market now. Bonds will bounce when we get a recession but after a counter trend rally rates will head up again. No one really knows but I think theres a better than even chance when we look back 20 years from now bonds will lose people money. Bonds had a nice long bull market but all that is in the past. Could be wrong but I think bonds will be rough sledding for years to come.

This is not a bond thread but a brief comment. I recently bought those 5 year TIPS at 1.05% real because held to maturity they will not suffer from rising rates. Historical real return is more like 2% or so for 5 years nominal bonds but you risk rates going up too fast in the short run. I also hold other bond types but TIPS are now 22% of our bonds.

 

[NW-Bound]

This DIY investment strategy will probably totally disappear once AI is fully rolled out. Future generations will have to solve the lack of purpose for many people. There will be yet another technology to keep human feeling like they're in the game when in reality they're just passengers.

When computers can really think like people do, what keeps them from trying to outsmart each other, and to front run the adversaries?

Or the trading computers will try to cheat, by connecting with the computers doing the accounting to get advance knowledge of the quarterly report. Yep, a computer is not the same as humans unless it looks to do insider trading too.

Hmmm... I wonder what a computer can offer to another one for bribes. What can a computer do with money, or for sex?

 

[HI Bill]

"This DIY investment strategy will probably totally disappear once AI is fully rolled out." If this is true, then the markets will be functioanlly broken. Or not. Maybe they will just rise and fall in lock step with P/E projections!

Oh, wait...someone will always be there who wants outsized returns and takes outsized risks!

 

[NW-Bound]

"This DIY investment strategy will probably totally disappear once AI is fully rolled out." If this is true, then the markets will be functioanlly broken. Or not. Maybe they will just rise and fall in lock step with P/E projections!

Oh, wait...someone will always be there who wants outsized returns and takes outsized risks!

P/E projections will be made by computers with AI. And they will learn to lie, and stretch the truth, if not outright cook the book. It's to be expected when the computers are programmed by humans to win.

What? You don't want your AI computer to win?

 

[HFWR]

The “bull market” in bonds came about because Volcker took the fed funds rate to 20%, then, over the course of nearly 30 years, rates naturally went lower as inflation subsided, then were forced to zero, or even negative, when considering QE, by 2010 or so. I’m cautiously optimistic that this FED’s desire to “normalize” rates will prevent a recurrence of 70’s style inflation. Though I could be wrong... Keeping my allocation at 20% ST, 20% IT, and 10% cash.

 

[GR111]

It was just a blip but with rates rising there is bound to be a correction at some point - who knows when. I would continue with DCA plan but not be afraid to jump in the deep end and buy if the big sell off hits.

 

[street]

Interesting thread a lot of good responses. I always see a lot of talk on risk. My take on risk, is that there really isn't any risk, if things go south, in time it comes back. So what is the risk that we have and fear??

 

[COcheesehead]

Interesting thread a lot of good responses. I always see a lot of talk on risk. My take on risk, is that there really isn't any risk, if things go south, in time it comes back. So what is the risk that we have and fear??

Google return sequence risk.

 

[HadEnuff]

Interesting thread a lot of good responses. I always see a lot of talk on risk. My take on risk, is that there really isn't any risk, if things go south, in time it comes back. So what is the risk that we have and fear??

the risk is that you will need to spend your money before the rebound happens.