I Did a Horrible Thing (in Hindsight) [went to cash]

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Investor1986
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Re: I Did a Horrible Thing (in Hindsight)

Post by Investor1986 »

arcticpineapplecorp. wrote: Sun Oct 24, 2021 2:10 pm
Investor1986 wrote: Sun Oct 24, 2021 12:47 pm
arcticpineapplecorp. wrote: Fri Oct 22, 2021 3:57 pm
Image
Please, can you help me understand how there numbers are calculated or direct me in any article on the web?
Taylor Larimore says for a bad bear market the rule of thumb is you should expect to loose half of your stock allocation. The image attached is similar but not quite really. For example, the table shows 100% stocks - 50% loss, but 70% stock - 30% loss and not 35%..
if you have no bonds (i.e., you're 100% in stocks) then you lose whatever the stock market loses.

but if you have bonds, not only do those bonds not lose what the stock market loses, they might actually go up, which may lower your losses somewhat.

for instance in 2008 (Jan-Dec) US stocks fell 38% but US bonds (total bond market) gained 5%.

So you'd have lost 38% in 2008 if you had 100% of your money in US stocks.

But say you had 50/50 in 2008.

you would have lost:

(-.38 X .50) + (+.05 X .50)
( -.19 ) + ( +.025 )
-19% (loss) + 2.5% (gain) =
-.16.5
or
-16.5% for the year 2008 for a 50/50 portfolio.

you lost 38% but only on half of your money.
the other half of your money MADE 5%.

So the stocks contributed a 19% loss overall for your portfolio and the bonds contributed a 2.5% gain on the portfolio.

Add the 2 together and you're left with -16.5%

your 50/50 would have lost 16.5%, not 19%.

So even though you took half the risk, you had LESS than half the loss.

make sense?
It does make sense!... Thank you very much for the detailed explanation. Now I have a different point of view for bonds!
rossington
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Re: I Did a Horrible Thing (in Hindsight)

Post by rossington »

arcticpineapplecorp. wrote: Sun Oct 24, 2021 2:10 pm
Investor1986 wrote: Sun Oct 24, 2021 12:47 pm
arcticpineapplecorp. wrote: Fri Oct 22, 2021 3:57 pm
Image
Please, can you help me understand how there numbers are calculated or direct me in any article on the web?
Taylor Larimore says for a bad bear market the rule of thumb is you should expect to loose half of your stock allocation. The image attached is similar but not quite really. For example, the table shows 100% stocks - 50% loss, but 70% stock - 30% loss and not 35%..
if you have no bonds (i.e., you're 100% in stocks) then you lose whatever the stock market loses.

but if you have bonds, not only do those bonds not lose what the stock market loses, they might actually go up, which may lower your losses somewhat.

for instance in 2008 (Jan-Dec) US stocks fell 38% but US bonds (total bond market) gained 5%.

So you'd have lost 38% in 2008 if you had 100% of your money in US stocks.

But say you had 50/50 in 2008.

you would have lost:

(-.38 X .50) + (+.05 X .50)
( -.19 ) + ( +.025 )
-19% (loss) + 2.5% (gain) =
-.16.5
or
-16.5% for the year 2008 for a 50/50 portfolio.

you lost 38% but only on half of your money.
the other half of your money MADE 5%.

So the stocks contributed a 19% loss overall for your portfolio and the bonds contributed a 2.5% gain on the portfolio.

Add the 2 together and you're left with -16.5%

your 50/50 would have lost 16.5%, not 19%.

So even though you took half the risk, you had LESS than half the loss.

make sense?
Hey A.P.,

When you post the above chart you need to add an explanation header to it that the stock losses are mitigated by bond allocation percentages within an AA. (Or just add the bond allocations...).
It's not clear so people interpret it at face value.

The chart a great example and a lot of us get it

But the newbies do get confused until you further clarify...(unless that's what you prefer to do).
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by phantom0308 »

I know the feeling. I was sucked into an internet conspiracy theory rabbit hole and made bad investing decisions for a couple years before snapping out of it. The best thing to do is come up with a well grounded IPS, start implementing it, and make sure you use this as a lesson for the future. In my case I kept a small bit of what I’d invested in so I’d always be reminded of how easy I am to fool. It’s better to stick to a plan than trust my gut b/c my gut is prone to catastrophizing and seeing patterns where none exist.
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by TT »

delete
Last edited by TT on Tue Feb 06, 2024 3:48 pm, edited 1 time in total.
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an_asker
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Re: I Did a Horrible Thing (in Hindsight)

Post by an_asker »

sergeant wrote: Fri Oct 22, 2021 3:59 pm You've been here a long time. You probably know the answer is to go to an AA you are comfortable with. Since you don't seem to need the portfolio to meet expenses I wouldn't stress about the mistake.
Not only that. I would go one step further and question whether this is even a mistake? OP was worried and switched to an AA he was more comfortable with. Does not sound like a mistake to me.

Re: the $200k he missed out on? Heck everyone has FOMO!!!
an_asker
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Re: I Did a Horrible Thing (in Hindsight)

Post by an_asker »

aristotelian wrote: Fri Oct 22, 2021 4:51 pm You didn't lose anything, you just didn't put money at risk. I question whether it was really a mistake. It sounds like you may have been invested in an allocation you were not comfortable with. Probably the correct solution is to pick an allocation between your former one and your current one but you must be willing to stick with it, even if there is a correction starting tomorrow
+1!

This is what I said :-)
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arcticpineapplecorp.
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Re: I Did a Horrible Thing (in Hindsight)

Post by arcticpineapplecorp. »

rossington wrote: Mon Oct 25, 2021 1:34 am
arcticpineapplecorp. wrote: Sun Oct 24, 2021 2:10 pm
Investor1986 wrote: Sun Oct 24, 2021 12:47 pm
arcticpineapplecorp. wrote: Fri Oct 22, 2021 3:57 pm
Image
Please, can you help me understand how there numbers are calculated or direct me in any article on the web?
Taylor Larimore says for a bad bear market the rule of thumb is you should expect to loose half of your stock allocation. The image attached is similar but not quite really. For example, the table shows 100% stocks - 50% loss, but 70% stock - 30% loss and not 35%..
if you have no bonds (i.e., you're 100% in stocks) then you lose whatever the stock market loses.

but if you have bonds, not only do those bonds not lose what the stock market loses, they might actually go up, which may lower your losses somewhat.

for instance in 2008 (Jan-Dec) US stocks fell 38% but US bonds (total bond market) gained 5%.

So you'd have lost 38% in 2008 if you had 100% of your money in US stocks.

But say you had 50/50 in 2008.

you would have lost:

(-.38 X .50) + (+.05 X .50)
( -.19 ) + ( +.025 )
-19% (loss) + 2.5% (gain) =
-.16.5
or
-16.5% for the year 2008 for a 50/50 portfolio.

you lost 38% but only on half of your money.
the other half of your money MADE 5%.

So the stocks contributed a 19% loss overall for your portfolio and the bonds contributed a 2.5% gain on the portfolio.

Add the 2 together and you're left with -16.5%

your 50/50 would have lost 16.5%, not 19%.

So even though you took half the risk, you had LESS than half the loss.

make sense?
Hey A.P.,

When you post the above chart you need to add an explanation header to it that the stock losses are mitigated by bond allocation percentages within an AA. (Or just add the bond allocations...).
It's not clear so people interpret it at face value.

The chart a great example and a lot of us get it

But the newbies do get confused until you further clarify...(unless that's what you prefer to do).
from here:

CyclingDuo wrote: Sun Oct 24, 2021 5:04 pm
dbr wrote: Sun Oct 24, 2021 1:26 pm
Tom_T wrote: Sun Oct 24, 2021 1:21 pm

I assume a modest increase in bonds in the event of a large equity drop. The overall effect of course depends on how stock-heavy the portfolio is. It makes no sense for the table to simply reduce the overall loss by five points at each level of allocation.
Actually the table should show a 5% change in loss for every 10% change in stock allocation when stocks lose 50%. The problem is that starting at 90% stocks, the loss should be 45% and not 40% and everything else up from there shifted by a row.

I am sure there is no strange assumption going on here that bonds are going to somehow increase in value to offset stock losses. It is just pure dilution.
Here is what Larry said about it...

viewtopic.php?t=18914

First, that table was meant as a guideline--this is not science but art, as it involves the unknowable future.

Second, it was based on the historical evidence SINCE the great Depression. So the worst periods for the overall market were drops of in the area of 50% you can then estimate losses--That of course is no guarantee that it could not be worse in the future, and it was worse in the Great Depression and certainly worse in Japan after 1990. So don't make the mistake of treating the unlikely as impossible. Also note that globally diversified by asset class portfolios have experienced less severe losses but that is no guarantee for the future.

Third, remember that buying and holding is not sufficient, you have to rebalance which is the hard part when markets collapse. Buying in the face of sharp declines when things look bleakest and keeping your head while others are losing theirs is probably the hardest part of investing for most individuals.

Fourth, even if you would not panic and sell and you would even rebalance with the type of losses anticipated in the table IMO that still is not enough--because life is too short not to enjoy it. Therefore you need to also be able to sleep well while those type losses are occurring.

Fifth, that table is just one of three that you should incorporate. It only considers the willingness to take risk. You should also consider your ability which is based on not only your investment horizon but the correlation of your earned income to the risks of equities. And then you should consider your need to take risk--the rate of return you need to achieve your goals (and also consider your marginal utility of wealth, including differentiating if you will from need and desire).

I hope that helps


The table also appears in the sticky thread on the Personal Investments Forum Page at the very top of the page...

viewtopic.php?f=1&t=6211

CyclingDuo
you may use this instead:

Image
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JDave
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by JDave »

This illustrates the problem of going to cash. You must make two correct market timing decisions:

1. When to sell
2. When to get back in the market

Neither of those decisions is easy to make, and they may actually be impossible to make correctly.
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by Call_Me_Op »

I apologize that I have not had the time to read all of the responses. But an all or nothing approach is not the way to do it. You should decide what fraction of your portfolio you are comfortable having in stocks for the long term. Maybe that is only 30%. Once you decide that, implement it and stick with it. If you cannot stick with it, you did not choose the right allocation.

I am quite risk averse, so I hold a low allocation to equities. I sleep well (except for my aggravating physical ailments) even when the market is tanking. It is important that you have something in equities.
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RTR2006
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by RTR2006 »

I want to thank all of you who provided a response to my original post. First of all, you're right... I've been here a long time, and my first portfolio was reviewed and analyzed by none other than Queen Laura herself, and it served me well through the great Recession of 2008 and to the (almost) present.

I agree that while I may not have lost money, I did suffer the 'opportunity cost' of pulling money out of the market when in hindsight (evil mistress that she is) I should have left everything alone. Ah, well...

Fortunately, as some of you have noted, we are doing pretty well. In terms of setting aside money for the kids, I adhere to the belief that, as is said, "Travel First Class, or Your Children Will." We're certainly not leaving them with nothing, and if we believe that our generation will have been the most successful, they'll be quite well off when we finally go to the great gig in the sky, barring any medical disasters.

That all said, I am going to keep a somewhat fair percentage TBD of our extra cash in cash, and have started slowly (slowly) moving money back into the market. Vanguard index funds have been and remain my best friends, and I will go with a bit of VTSAX and VTIAX, which we had and sold (along with some real estate funds). Our bond funds, TIPS, and Short term treasuries have been throwing off dividends for years that we've been reinvesting, and once I retired our AA went from 65:35 to 35:65. Now that we're at like 15:85, I'll move it back closer to 25:75 and see what happens and how that feels. Truthfully, with this AA we're not that far off.

I will keep monitoring your responses, complaints and compliments, and am most grateful for **all** words that you have shared that have given me good cause to stop and reflect on what we've done, what we're doing, and what we want to get done in the months and years ahead.

Thanks again,

RTR
NS_Bane
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by NS_Bane »

tarheel91 wrote: Sun Oct 24, 2021 12:56 pm I see 50% being referenced comes from the (relatively) recent memory ... 2008. Great Depression tells us a different story, 90% loss.
Just to be clear, the 4% rule would have worked during the Great Depression. That's assuming an investor didn't convert to cash after the market crashed - those investors would not have done so well.
Morik
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by Morik »

RTR2006 wrote: Fri Oct 22, 2021 3:54 pm Question: now that the Dow is at an all-time high...
Any asset that has positive expected growth over time (such as stocks) will often be at an all-time high, just because of how the math works out.
RickyGold
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by RickyGold »

RTR2006 wrote: Mon Oct 25, 2021 5:03 pm I want to thank all of you who provided a response to my original post. First of all, you're right... I've been here a long time, and my first portfolio was reviewed and analyzed by none other than Queen Laura herself, and it served me well through the great Recession of 2008 and to the (almost) present.

I agree that while I may not have lost money, I did suffer the 'opportunity cost' of pulling money out of the market when in hindsight (evil mistress that she is) I should have left everything alone. Ah, well...

Fortunately, as some of you have noted, we are doing pretty well. In terms of setting aside money for the kids, I adhere to the belief that, as is said, "Travel First Class, or Your Children Will." We're certainly not leaving them with nothing, and if we believe that our generation will have been the most successful, they'll be quite well off when we finally go to the great gig in the sky, barring any medical disasters.

That all said, I am going to keep a somewhat fair percentage TBD of our extra cash in cash, and have started slowly (slowly) moving money back into the market. Vanguard index funds have been and remain my best friends, and I will go with a bit of VTSAX and VTIAX, which we had and sold (along with some real estate funds). Our bond funds, TIPS, and Short term treasuries have been throwing off dividends for years that we've been reinvesting, and once I retired our AA went from 65:35 to 35:65. Now that we're at like 15:85, I'll move it back closer to 25:75 and see what happens and how that feels. Truthfully, with this AA we're not that far off.

I will keep monitoring your responses, complaints and compliments, and am most grateful for **all** words that you have shared that have given me good cause to stop and reflect on what we've done, what we're doing, and what we want to get done in the months and years ahead.

Thanks again,

RTR
OP, thank you for getting this thread started, lots of great comments from the Boglehead community! FWIW, I'm at 35/65 allocation and am quite happy. Good luck on your investing journey!
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Bogle101
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by Bogle101 »

You're in retirement, so I would be careful going right back in to equities.

Perhaps dollar cost average into a 50/50 balanced fund.

[OT comment removed by admin LadyGeek]
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by LadyGeek »

I removed some off-topic comments. As a reminder, see: Politics and Religion
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
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  • Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
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rockstar
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by rockstar »

When did you go to cash?

This is the psychological bit about investing that is super hard, and you made the decision based on gut feel, rather than something you can quantify. This will likely happen again in the future.

What you need to figure out is if you're capable of managing your own money. And if you realize that you're not capable, then you need to come up with a plan. A lot of people here manage their own. Some use advisors. Some use managed funds. Some experiment with different AAs. You need to figure out what you can handle mentally and stick with throughout retirement. This is hard.
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by PickitPaul »

General question for anyone: It was mentioned the hardest thing about investing is adding back to asset allocation when others are selling. But in record high markets - how should you be trimming back excess of whatever your asset allocation is in stocks? How often and what percentage 3%, 5% to start doing it?

On the flip side, when market is tanking you should be buying up to your allocation back into stocks. But how often do you look to do this if market is continually going down?
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by 1789 »

PickitPaul wrote: Wed Oct 27, 2021 1:42 pm General question for anyone: It was mentioned the hardest thing about investing is adding back to asset allocation when others are selling. But in record high markets - how should you be trimming back excess of whatever your asset allocation is in stocks? How often and what percentage 3%, 5% to start doing it?

On the flip side, when market is tanking you should be buying up to your allocation back into stocks. But how often do you look to do this if market is continually going down?
I can answer the 2nd part. When market starts to go down 10-20-30% regardless of how much it does i put more money to market from each paycheck/cash reserve. I don't have any quantitative rule. First question is harder as markets can go up up up long time. If you are looking to imitate what Mr Bogle did at 2002, you need to understand he got "lucky".
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by Itster »

I did something similar. I got out of the market on the way down. The market hit bottom afterwards and bounced before I expected it might. I got back in at a slightly lower point than where I exited, albeit with a somewhat reduced AA in the market as a hedge in case it was just temporary. It wasn't, so I now have a reduced AA, but haven't totally missed out. It was the risk I was willing to bear at the time. I've always been frustrated that I never had the extra cash to buy in on a correction -- now I do. Ha.
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Re: I Did a Horrible Thing (in Hindsight)

Post by invest2bfree »

RTR2006 wrote: Fri Oct 22, 2021 3:54 pm So... a while ago when I thought the world was coming to an end (leaving the politics out of it), I sold much of our holdings. Yes, I have probably lost a runup of $200,000 or more. Now I am sitting on about $250,000 in cash doing nothing. We own a bit of AT&T, a bit of GE, and a bit of Chevron (totaling about $75,000), but mostly bonds and fixed assets in my IRA account (adding up to about another $575,000).

I retired four years ago but have not had to withdraw cash from anything other than from a cash account, which is winnowing down, and we started collecting SS earlier this year (I am 67, wife is 68). With the 5.9% increase scheduled for 2022 we'll be netting around $4600/month, and can for the most part live off of that. (Home is paid off, no car loans or credit card debt).

Question: now that the Dow is at an all-time high, do I try and put some or all of that cash back into the market, or just move it into a safer investment (such as Vanguard Admiral class intermediate and long-term bond funds), or something different?

Your thoughts are welcome.

Please don't beat me up... I've been doing that to myself for the last two years.

Thanks,

RTR


Just the fact that you want to jump back in makes me nervous about the market.

Can you handle a 20% correction like 2018?
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by delamer »

PickitPaul wrote: Wed Oct 27, 2021 1:42 pm General question for anyone: It was mentioned the hardest thing about investing is adding back to asset allocation when others are selling. But in record high markets - how should you be trimming back excess of whatever your asset allocation is in stocks? How often and what percentage 3%, 5% to start doing it?

On the flip side, when market is tanking you should be buying up to your allocation back into stocks. But how often do you look to do this if market is continually going down?
There are different strategies.

Some rebalance when their allocation is off from the target by a specific number of percentage points, like 10. So if your target is 40% stocks and the actual percentage falls to 30%, you’d rebalance.

Or they rebalance at specific times, like every April and every October.

I rebalance in September, but only if I’m off my target but at least 5 percentage points. I also do a check at other times when there has been a big run-up or drop-off in stocks.
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Re: I Did a Horrible Thing (in Hindsight) [went to cash]

Post by sschullo »

EdNorton wrote: Sat Oct 23, 2021 6:31 am Stay the course. You've stayed the course this long, if you put the cash back into the market, you know we'll have a major correction, and then you'll really be depressed.

:sharebeer
I agree. What will stop you from "getting out again" if the market takes a nosedive, say 40% and stays down for a couple of years? How will you feel then? You already experienced the limits of your risk tolerance.
I am sitting on 19% cash from the sale of a home last July, and it's going to sit there longer. I might purchase some iBonds but my AA is very safe and appropriate for my risk tolerance, 30%/70%. I am a little older than you and have a lot more to lose if a major correction occurs.
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