"experienced" investors: is this time different?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: "experienced" investors: is this time different?

Post by delamer »

KlangFool wrote: Sun May 22, 2022 2:39 pm
delamer wrote: Sun May 22, 2022 1:52 pm
KlangFool wrote: Sun May 22, 2022 1:40 pm
delamer wrote: Sun May 22, 2022 1:31 pm
KlangFool wrote: Sun May 22, 2022 1:12 pm

TN_Boy,

My preparation does not assume that. I believe that if we have a recession with market down turn lasting more than 5 years, it is not longer a money problem. I have some physical gold and silver to prepare for that.

And, if you do not believe that the government cannot bail out the market this time, may I ask how much physical gold/silver did you bought? Or, what is your preparation for that scenario?

KlangFool
I’m curious as to how you expect to deploy your physical gold & silver in the event of an economic catastrophe.

Trade for food?
Why do you think that someone prepared by having physical gold and silver would not stored sufficient food and water too? I am curious why do you think that?

KlangFool
I honestly don’t know what having physical gold/silver prepares you for, other than for bartering for goods if the economic and supply distribution systems collapse.

Sufficient food for how long? Barring owning a farm and having a well, most us can’t store enough water/food for more than a few months. If you are the exception and can be self-sufficient for a year or more, great.
delamer,

A) Do you prefer to be someone that can last at least a few months versus less than a week?

B) Or, you believe that it won't matter anyhow.

C) The choice is yours. I made mine.

"most us can’t store enough water/food for more than a few months."

D) Most people are not prepared anyhow.

E) Many can't. They are living paycheck to paycheck.

F) Most that can, "Don't worry, be happy!".

G) So, what do you choose? Why do you think you need more than a few months?

In many crisis, you have to survive in order to wait for recovery and succeed. Those that are not prepared do not last long enough to survive. If someone does not have enough to last one week, it won't matter if the crisis only lasted one month.

KlangFool

But you never answered my initial question about how you expect to use your store of physical gold/silver in a crisis. If you answered that question, then it might help others on the forum determine if having physical gold/silver would be useful for them too.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
investorpeter
Posts: 609
Joined: Sun Jul 31, 2016 5:46 pm

Re: "experienced" investors: is this time different?

Post by investorpeter »

To me, this bear market feels most similar to 2000 in that the driving force is a reset in excessive valuations from a tech bubble. It took over a decade for the Nasdaq to recover to the bubble highs. There was no Fed support for the stock market, as I recall.

2008-9 was driven by a housing bubble, but there was a second shoe that dropped, which was financial system instability. Fed actions led to a rapid recovery in stocks.

2020 was an extremely short bear market, but there were a lot of unknowns with the entire economy shutting down briefly, so the Fed and Congress provided enormous support for the economy. One could argue the response was excessive and we are paying the piper now.

It’s not clear how the current reset in valuations could destabilize the financial system, or lead to a “second shoe” dropping. An unrelated second shoe could drop if the Ukraine situation became a nuclear conflict, if Russia attacked a NATO member, COVID came back with a vengeance, aliens invaded, etc. But thus far, the damage appears limited to the stock market with nothing new that we haven’t seen before.
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: "experienced" investors: is this time different?

Post by JackoC »

HomerJ wrote: Sun May 22, 2022 2:04 pm
KlangFool wrote: Sun May 22, 2022 1:40 pm
delamer wrote: Sun May 22, 2022 1:31 pm
KlangFool wrote: Sun May 22, 2022 1:12 pm
TN_Boy wrote: Sun May 22, 2022 12:49 pm Assuming the government can and will always bail out the stock market .... I think that is a bad strategy.
My preparation does not assume that. I believe that if we have a recession with market down turn lasting more than 5 years, it is not longer a money problem. I have some physical gold and silver to prepare for that.

And, if you do not believe that the government cannot bail out the market this time, may I ask how much physical gold/silver did you bought? Or, what is your preparation for that scenario?
I’m curious as to how you expect to deploy your physical gold & silver in the event of an economic catastrophe.
Trade for food?
Why do you think that someone prepared by having physical gold and silver would not stored sufficient food and water too?
LOL... the market can be down for more than 5 years without one needing gold coins and a 10-year supply of food and water buried in your bunker as well.

A long market downturn doesn't equal "Mad Max times"
I agree and it's obvious looking at the 'poster child' example of recent decades. Japan never had a very high unemployment rate (somewhat high by their standards) and was a nice place to live throughout the 'lost decades' if you had a job and/or basic assets/pension etc. as great majority did. It was not remotely approaching needing stored food and water, but terrible for home field stock investors for way more than 5 years.

Note, I'm emphasizing the earlier point about 'politicians have proven they'll bail out the stock market'. There's nothing wrong IMO with preparing for total market annihilation, I just think 'govt will solve it in 5 yrs or head for the bunker' is too narrow a view, there's a lot in between.

It's clear why the government has less leeway now to bail things out than it did prior to 2020 or 2009. The people who were 'always wrong' that such bailouts could contribute to undesirably high inflation are not wrong anymore. And those who are still, to a certain way of thinking 'automatically wrong', in worrying the market's patience for uncontrolled US federal deficits might be finite could eventually also prove not to be wrong. And seriously, the Fed puts rates back to zero, balloon its balance sheet and/or Congress is going to pass huge new stimulus spending bills with inflation at 8%? :shock: I don't think so. Which doesn't mean the world is about to end. Even the stock market having pulled back 20% will create a negative wealth effect that helps, along with the higher rates that partly caused it, slow inflation (and the economy, most likely). A cumulative 40-50% pull back from peak would 'accomplish' even more in that respect. There's usually a positive self-correcting aspect to it; although there can also be unexpected vicious circles set off by big asset price drops. But a dramatic reversal based on more monetary/fiscal stimulus seems really unlikely anywhere near the current price level IMO.
blarg
Posts: 9
Joined: Fri Oct 13, 2017 10:49 am

Re: "experienced" investors: is this time different?

Post by blarg »

secondopinion wrote: Sun May 22, 2022 2:09 pm
KlangFool wrote: Sun May 22, 2022 1:19 pm
roth evangelist wrote: Sun May 22, 2022 1:10 pm I don't think it's accurate to say that those who survived March 2020 aren't "battle tested." Sure, in retrospect we see that the stock market didn't stay down and quickly bounced back, but no one actually knew that was going to happen. It was practically a Black Swan event. So if you didn't freak out and sell in March 2020, I think that says something about your temperament as an investor.

As for myself, I had barely started investing in January 2020 when I opened a Roth IRA. I watched the market collapse just months later giddy with excitement as I invested more at lower prices. Maybe I'm just different.
In my opinion, only if the investor was unemployed in a recession/crash, then, the investor could claim to be battle tested. I was laid off in July 2020. I was unemployed for more than 1 year for the Covid crash.

I rebalanced in March 2020 while knowing that I would be laid off by the end of June 2020.

KlangFool
I was unemployed due to COVID; I had a ticking time bomb set in March 2020 yet I bought heavy into stocks (more than just rebalancing). I did not know if I was to unemployed in weeks or months. It ended up being mid-2021 fortunately, but I knew it was coming; I was the last of an shutdown acquired subsidiary to be laid off. Watching the company go from peak to shutdown is gut wrenching when it was pretty much on my shoulders to stay until it was all over. I stayed in a riskier portfolio anyway.

If that does not test someone (knowing that employment that pays enough was very sparse in my area, that I could not truly afford to get COVID, and the main company expressed zero interest to keep me despite my skills they seriously acknowledged), then I really do not know how much more there is to try it without going through prolonged unemployment.

To be honest, the saving grace was my emergency fund; I could stay put without being that worried. My emergency fund is more than just cash; it is more than this.

But yes, it does take a trial to really test the situation.
I completely agree about the emergency fund. Having cash set aside just in case makes a tremendous difference to me, personally, in my ability to weather adverse financial events like market downturns. It's night and day when I have an adequate one and when I don't.
Dusn
Posts: 217
Joined: Thu Feb 15, 2018 8:59 am

Re: "experienced" investors: is this time different?

Post by Dusn »

In my opinion even March 2020 was much scarier than this.

This isn’t even scary. It’s a great time to buy stocks.
MichRoots
Posts: 130
Joined: Sun Apr 03, 2022 2:01 pm

Re: "experienced" investors: is this time different?

Post by MichRoots »

atlguy wrote: Sun May 22, 2022 1:51 pm I think when the Fed flat out tells you interest rates are going up even at the expense of JOBS that is "different" than the last 20-30 years.
This means a bear market in Bonds is a near certainty (can't say how long or how deep but I can say what direction bonds are going). That is "different".
I think there is no "Fed Put". That is "different".

There are other different things as well.

What is not different is that basic economic forces will remain in play. But the playing field has shifted and that should perhaps change ones approach.

I have been 100% stocks (except for a few deviations into real estate and O&G) since the 90's. Rode the market down 40% 2-3 times never blinked.

I am now waiting for the entry point into bonds in a few years and am putting any new money into 6 month T-Bills.
Yes it is "different" in that people are freaking out that the fed has raised the rate to 0.75% to 1% (By the way in 2002 I locked in my 1st mortgage at 6.75% because I was told they would never again be this low!) . Investors are panicking that the fed may raise the rate to 3% to cool inflation. Laughable as the fed rate was 5-6 % during the roaring 1990s. My rose colored glasses feel the fed will stop raising rates when they hit 3% as by that time inflation will have dropped closer to 3-4%.

I would surmise that the 20-30% stock drop is all about investors betting what earnings will be in September 2022. It appears we have already priced in a small recession. I have seen very little drop in spending as the roads/stores/gas stations are packed here in Michigan- I am just starting to decide not to pay the exorbitant prices because I know if enough people band together and slow spending that inflation and prices will begin to drop.
DSBH
Posts: 740
Joined: Tue Jul 21, 2020 3:31 pm
Location: Texas

Re: "experienced" investors: is this time different?

Post by DSBH »

This time is different because nobody knows what’s going to happen.

Yet this time is the same because nobody knows what’s going to happen.

So we as retirees intend to do the only thing we have been comfortable of doing, which is to “stay the course”.
John C. Bogle: "Never confuse genius with luck and a bull market".
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: "experienced" investors: is this time different?

Post by KlangFool »

delamer wrote: Sun May 22, 2022 2:56 pm
But you never answered my initial question about how you expect to use your store of physical gold/silver in a crisis. If you answered that question, then it might help others on the forum determine if having physical gold/silver would be useful for them too.
delamer,

I don't have to answer that question when you assume that I would need to trade the gold/silver for food. That let's me know you which group you are in. You assume that preparation is a waste of time and effort.

As for those that choose to store food and water, they would know why physical gold/silver is the next logical step. I do not need to tell them anything. It is not necessary.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
viveks
Posts: 38
Joined: Wed Apr 24, 2019 10:59 pm

Re: "experienced" investors: is this time different?

Post by viveks »

Having lived through 2000, 2008 so far economic impact of stock market is nowhere close to either of those.

2000 tech bubble bust: employment wise had major impact on tech jobs and on highly inflated retirement and investment accounts but on the overall economy the impact was fairly mild. People learnt "supposedly" expensive lessons.. but again greed took over causing inflated housing market and other assets.

2008-2009: Was scary one and had major impact across global economy and tons to people, even the ones who had nothing to with the stock market, were impacted

2020 - Looking back, more of a black swan event.. things would have come back one way or another, all the spending helped.. but I am sure contributed to the inflation that we will be dealing for a while.

Current one - we have barely lost about a year's gain.. almost full employment, global recovery, financial markets are solid, sooner or later China will be open up, war in Ukraine will come to standstill and hopefully price increases in Oil and a number of out of wack stuff will come back to normal. No one knows how long it will take..

So far in no ways it's neither 2000 or 2008... like before people with savings/emergency funds and patience will be ok and hopefully there will be few lessons :sharebeer
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: "experienced" investors: is this time different?

Post by delamer »

KlangFool wrote: Sun May 22, 2022 4:36 pm
delamer wrote: Sun May 22, 2022 2:56 pm
But you never answered my initial question about how you expect to use your store of physical gold/silver in a crisis. If you answered that question, then it might help others on the forum determine if having physical gold/silver would be useful for them too.
delamer,

I don't have to answer that question when you assume that I would need to trade the gold/silver for food. That let's me know you which group you are in. You assume that preparation is a waste of time and effort.

As for those that choose to store food and water, they would know why physical gold/silver is the next logical step. I do not need to tell them anything. It is not necessary.

KlangFool
I see.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
MichRoots
Posts: 130
Joined: Sun Apr 03, 2022 2:01 pm

Re: "experienced" investors: is this time different?

Post by MichRoots »

I was just beginning to invest in 1999. I remember my wedding photographer telling me the Dow Jones was going to grow exponentially because "he had heard something". All of these dot com companies that never made any money (like pets.com) were destined to have exponential growth. I believed it because I had dial up and an internet address was on every product at the grocery store. Internet subscibers would surely double every number of months and bring sales to these internet companies.

In 2000 the Nasdaq imploded and lost like 80% of its value. But the Dow only lost about 35% if I remember right. It was a high of 11,300 and a low of maybe 8,300. So unless you were invested in high flyers that wasn't too bad. September 2001 when the Twin Towers went down that was a bit of a shock. I think the markets were closed for nearly a week and then dropped 6% or so when they finally opened.

2008 was the worst. I told my dad the market will not go to 0. I remember my dad told me this time is different. the market was going to 0. That is when I decided to convert most of my traditional IRA to Roth and to start buying some stock with money i had laying around. Only wish I had done more. But I may have started with $50k in my retirement and at the low I was at $35k so not a huge deal. I was still in my mid 30s.

The 2020 shock had my stomach in knots as the drop was quick. Because everything was shut down. Unemployment went to about 15% overnight. I thought the markets would easily lose 50% of their value or more. The swift drop was gut wrenching. Which is why I was gun shy getting back in as the market just kept going up the past 2 years. I think I was 65-70% invested the past 2 years. Things feel pretty fairly priced for the first time in quite a while.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

KlangFool wrote: Sun May 22, 2022 4:36 pm
delamer wrote: Sun May 22, 2022 2:56 pm
But you never answered my initial question about how you expect to use your store of physical gold/silver in a crisis. If you answered that question, then it might help others on the forum determine if having physical gold/silver would be useful for them too.
delamer,

I don't have to answer that question when you assume that I would need to trade the gold/silver for food. That let's me know you which group you are in. You assume that preparation is a waste of time and effort.

As for those that choose to store food and water, they would know why physical gold/silver is the next logical step. I do not need to tell them anything. It is not necessary.

KlangFool
I think the question is more the logistics of using the gold and silver. Like I know that an ounce bar is hard to break. It is a practicality concern here; the last thing is having to pay a large bar for something just because I cannot make exact change.

I am all for a small amount of precious metal; between the potential crisis insurance and portfolio risk management, gold can be helpful (silver is not so stable as a portfolio holding but it is more convenient for the former for smaller payments). However, I worry about physical bars in that a loaf of bread is not worth a ounce bar of silver, let alone gold.

Maybe I worry about that later; and just be assured that I have the food, water, and precious metal? Maybe in an emergency that making change is not the foremost concern?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
TravelforFun
Posts: 2799
Joined: Tue Dec 04, 2012 10:05 pm

Re: "experienced" investors: is this time different?

Post by TravelforFun »

HomerJ wrote: Sun May 22, 2022 12:13 am
Normchad wrote: Sat May 21, 2022 8:41 pm It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. This whole thing would feel very different is folks were losing their jobs.
This... Until people start losing their jobs, this is nothing.
And homes.

TravelforFun
CloseEnough
Posts: 1290
Joined: Sun Feb 14, 2021 7:34 am

Re: "experienced" investors: is this time different?

Post by CloseEnough »

And you may ask yourself, "Well, how did I get here?"

Same as it ever was. Same as it ever was. Same as it ever was.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: "experienced" investors: is this time different?

Post by KlangFool »

secondopinion wrote: Sun May 22, 2022 5:36 pm
I think the question is more the logistics of using the gold and silver.
secondopinion,

Less than 1 oz gold coins: 1/10 oz, 1/4 oz, 1/2 oz.

https://www.jmbullion.com/gold/gold-coi ... lated-age/

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

KlangFool wrote: Sun May 22, 2022 6:22 pm
secondopinion wrote: Sun May 22, 2022 5:36 pm
I think the question is more the logistics of using the gold and silver.
secondopinion,

Less than 1 oz gold coins: 1/10 oz, 1/4 oz, 1/2 oz.

https://www.jmbullion.com/gold/gold-coi ... lated-age/

KlangFool
Kind of still in high amounts, but that is much better. Hence why silver has some merit here.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: "experienced" investors: is this time different?

Post by KlangFool »

secondopinion wrote: Sun May 22, 2022 6:59 pm
KlangFool wrote: Sun May 22, 2022 6:22 pm
secondopinion wrote: Sun May 22, 2022 5:36 pm
I think the question is more the logistics of using the gold and silver.
secondopinion,

Less than 1 oz gold coins: 1/10 oz, 1/4 oz, 1/2 oz.

https://www.jmbullion.com/gold/gold-coi ... lated-age/

KlangFool
Kind of still in high amounts, but that is much better. Hence why silver has some merit here.
Silver = poor man's gold.

Keep both.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: "experienced" investors: is this time different?

Post by marcopolo »

KlangFool wrote: Sun May 22, 2022 7:28 pm
secondopinion wrote: Sun May 22, 2022 6:59 pm
KlangFool wrote: Sun May 22, 2022 6:22 pm
secondopinion wrote: Sun May 22, 2022 5:36 pm
I think the question is more the logistics of using the gold and silver.
secondopinion,

Less than 1 oz gold coins: 1/10 oz, 1/4 oz, 1/2 oz.

https://www.jmbullion.com/gold/gold-coi ... lated-age/

KlangFool
Kind of still in high amounts, but that is much better. Hence why silver has some merit here.
Silver = poor man's gold.

Keep both.

KlangFool
I never understood the idea of hoarding precious metals for a doomsday scenario. If things are that bad that you are relying on your stored food and water, what value does a piece of metal have? You can't eat it, can't drink it. Can't use it to threaten/intimidate others. It seems that it's value is only what someone else is willing to give you for it. Just like anything else you have. And in those dire times, someone with a weapon is more likely just to take the gold from you rather than trade anything useful for it. If you want to prep for doomsday, it seem food, water, and weapons/munitions would be worthwhile. Heavy hunks of metal seems a burden rather than a benefit.
Once in a while you get shown the light, in the strangest of places if you look at it right.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: "experienced" investors: is this time different?

Post by dbr »

marcopolo wrote: Sun May 22, 2022 7:44 pm
KlangFool wrote: Sun May 22, 2022 7:28 pm
secondopinion wrote: Sun May 22, 2022 6:59 pm
KlangFool wrote: Sun May 22, 2022 6:22 pm
secondopinion wrote: Sun May 22, 2022 5:36 pm
I think the question is more the logistics of using the gold and silver.
secondopinion,

Less than 1 oz gold coins: 1/10 oz, 1/4 oz, 1/2 oz.

https://www.jmbullion.com/gold/gold-coi ... lated-age/

KlangFool
Kind of still in high amounts, but that is much better. Hence why silver has some merit here.
Silver = poor man's gold.

Keep both.

KlangFool
I never understood the idea of hoarding precious metals for a doomsday scenario. If things are that bad that you are relying on your stored food and water, what value does a piece of metal have? You can't eat it, can't drink it. Can't use it to threaten/intimidate others. It seems that it's value is only what someone else is willing to give you for it. Just like anything else you have. And in those dire times, someone with a weapon is more likely just to take the gold from you rather than trade anything useful for it. If you want to prep for doomsday, it seem food, water, and weapons/munitions would be worthwhile. Heavy hunks of metal seems a burden rather than a benefit.
At risk of getting off track, I think the point would be that gold or other precious items are somewhat portable and universally valuable meaning those things enable one to flee with one's wealth to a more stable situation. How well that works out is a different question.

These days people who have such needs and lots of wealth try to park it somewhere to which they can flee. That also does not always work out so well either.
Topic Author
latesaver
Posts: 273
Joined: Thu Aug 03, 2017 3:35 pm

Re: "experienced" investors: is this time different?

Post by latesaver »

CraigTester wrote: Sat May 21, 2022 9:53 pm I fear it's exactly the same.

Collective denial, that keeps working out fine, until finally it doesn't
Why do you fear it's exactly the same?
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: "experienced" investors: is this time different?

Post by Leesbro63 »

bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Topic Author
latesaver
Posts: 273
Joined: Thu Aug 03, 2017 3:35 pm

Re: "experienced" investors: is this time different?

Post by latesaver »

Marseille07 wrote: Sat May 21, 2022 10:40 pm
freyj6 wrote: Sat May 21, 2022 10:10 pm Haha I love this.

One thing that I find particularly interesting right now, although it probably isn’t one of the major variables, is the “buy the dip”sentiment being so strong among the younger generation. So many people seem so sure that everything, regardless of how speculative, goes back up.

It’ll be interesting to see if/when this sentiment changes, or we run out of willing and able buyers.
It's not just the younger generation though. Even the notion of rebalancing, held strongly by the Bogleheads, is essentially buying the dip phrased differently.
i agree. i am still in my accumulation phase and while i continue to buy whether stocks are "high" or "low", i suppose i am buying the dip, as it were, given the current markets. i am lucky enough to know that following a continuous investment plan, or dollar cost averaging as many call it, in the long run is in my best interest. i can't imagine what it's like being a trend follower or CAPE chaser.
User avatar
btq96r
Posts: 556
Joined: Thu Dec 26, 2019 2:46 pm
Location: Nashville, TN

Re: "experienced" investors: is this time different?

Post by btq96r »

This time is different, because they're all a different in subtle ways.

While my crystal ball is cloudy, I think the hallmarks of *this time* will be an economic adjustment that takes a few years to normalize. So many companies have (or hopefully had by this point) their operating and financial models based on cheap money funding growth & profits. The cost of borrowing made debt too attractive to pass up, and now that variable is flipping everything on its head as growth is arrested, and the firms that are the bulk of institutional investors tweak their risk tolerance. So, I expect some uncertainty and messiness for lack of better terms until companies get the new paradigm built into the way they do things. Some are bound to do this well, others not so much. We'll see casualties along the way, I imagine.

That said, here's what I'm changing about my personal investment habits...nothing. On the top level, I'm keeping my 401(k) and Roth IRA contributions as is, and throwing any excess cash beyond the levels I want my Checking and Savings account to be at into non-taxable investments. Even if this drop isn't over, and the recovery becomes a slug, that's still the best plan for the long term.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: "experienced" investors: is this time different?

Post by Da5id »

Leesbro63 wrote: Sun May 22, 2022 8:07 pm
bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Define gambler and retirement investor.

I think if you define someone buying a target date or balanced fund, which both rebalance continuously, as a gambler we probably don't agree on definitions.
LFKB
Posts: 1264
Joined: Mon Dec 24, 2012 6:06 pm

Re: "experienced" investors: is this time different?

Post by LFKB »

The Japanese market reached a P/E of 70+ in the late 1980s before their collapse. The S&P is currently around 16.5x (think of this as a 6% yield) forward P/E against a ten year treasury at 2.9%.

Stocks can certainly fall further from here, but unless you think the market is going to drop to a lower than historical multiple or that earnings are going to fall off a cliff, there’s not anything that would pointing to excessive exuberance that would result in a Japan style crash. And quite frankly, given the market is 1) more tech/innovation heavy than the past 2) companies have higher amount of recurring revenue than ever and 3) margins are higher than before you would think the market will in general apply higher multiples than it has in the past.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: "experienced" investors: is this time different?

Post by HomerJ »

KlangFool wrote: Sun May 22, 2022 4:36 pm
delamer wrote: Sun May 22, 2022 2:56 pm
But you never answered my initial question about how you expect to use your store of physical gold/silver in a crisis. If you answered that question, then it might help others on the forum determine if having physical gold/silver would be useful for them too.
delamer,

I don't have to answer that question when you assume that I would need to trade the gold/silver for food. That let's me know you which group you are in. You assume that preparation is a waste of time and effort.

As for those that choose to store food and water, they would know why physical gold/silver is the next logical step. I do not need to tell them anything. It is not necessary.

KlangFool
This is a particularly unhelpful post.
Last edited by HomerJ on Sun May 22, 2022 10:48 pm, edited 1 time in total.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: "experienced" investors: is this time different?

Post by HomerJ »

Leesbro63 wrote: Sun May 22, 2022 8:07 pm
bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
There's really no reason to rebalance into stocks in retirement. If you're retired, it's because you already have enough. You don't need to shoot for extra returns.. It's all about keeping your money intact at that point.

I will not be rebalancing INTO stocks when I'm retired.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
TN_Boy
Posts: 4134
Joined: Sat Jan 17, 2009 11:51 am

Re: "experienced" investors: is this time different?

Post by TN_Boy »

HomerJ wrote: Sun May 22, 2022 10:48 pm
Leesbro63 wrote: Sun May 22, 2022 8:07 pm
bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
There's really no reason to rebalance into stocks in retirement. If you're retired, it's because you already have enough. You don't need to shoot for extra returns.. It's all about keeping your money intact at that point.

I will not be rebalancing INTO stocks when I'm retired.
For what it is worth, I believe the standard SWR studies all assume the portfolio is rebalanced yearly. (This is not to argue that rebalancing is optimal, only that is what the often quoted studies do .. certainly people have come up with other ideas).

Hence it's not clear to me what the impact on the portfolio withdrawal rate would be -- at a withdrawal rate at or near 4% -- if a retiree continually let the stock balance decline without ever rebalancing.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

latesaver wrote: Sun May 22, 2022 8:04 pm
CraigTester wrote: Sat May 21, 2022 9:53 pm I fear it's exactly the same.

Collective denial, that keeps working out fine, until finally it doesn't
Why do you fear it's exactly the same?
Right. There is no need for one to fear unless they cannot withstand the fallout. I can withstand it, so why should I fear it?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
Ocean77
Posts: 800
Joined: Wed Oct 23, 2019 3:20 pm

Re: "experienced" investors: is this time different?

Post by Ocean77 »

LFKB wrote: Sun May 22, 2022 9:36 pm The Japanese market reached a P/E of 70+ in the late 1980s before their collapse. The S&P is currently around 16.5x (think of this as a 6% yield) forward P/E against a ten year treasury at 2.9%.
Good point! And to all here who think that the Japan scenario is possible in the US, I'd say, bring it on! Let the US stock market go up to that P/E of 70, and hopefully we'll all be wise enough to sell our stocks and retire. Until then, keep investing.
30% US Stocks | 30% Int Stocks | 40% Bonds
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

Leesbro63 wrote: Sun May 22, 2022 8:07 pm
bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
No. Here is why: we are trying to maintain a constant level risk (debatable, but close enough). Generally, companies are profitable; therefore, it makes an argument to have stocks at all. Just because we take risk does not make us gamblers; we end up being speculators: those who take risks to hopefully make a profit.

A gambler merely takes risk to make money at the other parties expense with no compensation to that other party. We are not gamblers because the other party did receive a benefit; the other party no longer carries the risk of the stock (or if the company is issuing stock, we gave the company funding to expand). Even option writers are not gamblers because they are providing a contract of taking another's risk at the price of a premium.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

TN_Boy wrote: Sun May 22, 2022 10:57 pm
HomerJ wrote: Sun May 22, 2022 10:48 pm
Leesbro63 wrote: Sun May 22, 2022 8:07 pm
bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
There's really no reason to rebalance into stocks in retirement. If you're retired, it's because you already have enough. You don't need to shoot for extra returns.. It's all about keeping your money intact at that point.

I will not be rebalancing INTO stocks when I'm retired.
For what it is worth, I believe the standard SWR studies all assume the portfolio is rebalanced yearly. (This is not to argue that rebalancing is optimal, only that is what the often quoted studies do .. certainly people have come up with other ideas).

Hence it's not clear to me what the impact on the portfolio withdrawal rate would be -- at a withdrawal rate at or near 4% -- if a retiree continually let the stock balance decline without ever rebalancing.
In theory, we are giving away some of the tail risk of stocks; we cap the maximum we will ever lose to stocks. On the other hand, we eventually remove all potential of upside from these stocks.

As to the SWR (given bonds are perfectly stable), then we would place a floor on the SWR. Pathwise, we could run into trouble; but that floor will save us from further loss. On the flip side, we could see a bull market and continue to build the floor up. It is not optimal to making the highest SWR (in fact, it is rather weak for that), but it is strong in making a minimum SWR.

Stronger possible SWR would come from doing nothing with the stocks (no rebalancing), but we do not build the floor either.

With rebalancing, we are making a weaker floor for the potential of a better SWR in the likely case.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

HomerJ wrote: Sun May 22, 2022 10:48 pm
Leesbro63 wrote: Sun May 22, 2022 8:07 pm
bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
There's really no reason to rebalance into stocks in retirement. If you're retired, it's because you already have enough. You don't need to shoot for extra returns.. It's all about keeping your money intact at that point.

I will not be rebalancing INTO stocks when I'm retired.
You do pose a great argument if bonds were stable; assuming they are, it is a good floor strategy. However, then I ask why to have stocks at that point? The way I see it:
  • No stocks, we essentially fix the floor.
  • No rebalancing into stocks; we set a lower floor in hopes to build a larger floor with stock growth.
  • No rebalancing at all; we set a lower floor in hopes to grow a continuous increase from stock growth.
Not wrong; but we have numerous options to consider. Maybe you are hopeful for a floor improvement but can get by with just the bonds you have on worst case. If the goals match the strategy, feel free to deviate from constant allocations; I know I do (my way, that is).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

Re: "experienced" investors: is this time different?

Post by Wannaretireearly »

Dunno. But it seems there’s more money than ever flowing in from automated savings? Some good summaries above. Otoh GameStop is sill close to $100 for no good logical/financial reason? Stay the course, I guess…
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
CraigTester
Posts: 1488
Joined: Wed Aug 08, 2018 6:34 am

Re: "experienced" investors: is this time different?

Post by CraigTester »

latesaver wrote: Sun May 22, 2022 8:04 pm
CraigTester wrote: Sat May 21, 2022 9:53 pm I fear it's exactly the same.

Collective denial, that keeps working out fine, until finally it doesn't
Why do you fear it's exactly the same?
If you’ve ever been in a car crash, it doesn’t mean you don’t fear getting in another one. In fact, you probably fear it more….
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: "experienced" investors: is this time different?

Post by KlangFool »

secondopinion wrote: Sun May 22, 2022 11:06 pm
latesaver wrote: Sun May 22, 2022 8:04 pm
CraigTester wrote: Sat May 21, 2022 9:53 pm I fear it's exactly the same.

Collective denial, that keeps working out fine, until finally it doesn't
Why do you fear it's exactly the same?
Right. There is no need for one to fear unless they cannot withstand the fallout. I can withstand it, so why should I fear it?
+1,000. Be prepared.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: "experienced" investors: is this time different?

Post by Valuethinker »

ClassII wrote: Sun May 22, 2022 12:28 am
HomerJ wrote: Sun May 22, 2022 12:19 amThis time may be different, but I don't know why CraigTester "fears it's exactly the same". The "same" was very good to long-term investors.
It's all fun and games until someone gets laid off. I used to work for a guy who's grandfather made a kajillion dollars during the Great Depression. All he had to do was buy up a ton of real estate! Helped of course that he had money all the way through the 20s and 30s when everyone else lost everything. Smart guy for sure but also extremely lucky he a) had the business acumen b) had the money when nobody else did and c) didn't manage to step on any land mines along the way.

I remember being in Miami in 2009 and a brand new high-rise right on the water was selling condos for $80k. Man I wish I had bought back then but I was dead broke and living paycheck to paycheck simply happy to have a job. I had friends moving back with their parents, leaving the career they worked hard for in college for good, even had one die in an accident working construction to keep food on the table. The deals were there, I saw them right before my eyes but I was in no position to reach out and grab them.

Its a great thing that so many here are ready to scoop up some amazing deals. Truly you could end up like my boss' grandfather BUT don't think that recessions are for other people. There's a reason everything goes on fire sale.
This is the nub of it.

2008-09 was so devastating because job losses reached right into the middle class, as well as new university grads, as well as "working class" people.

By contrast if you had a service sector job that you could do remotely, you probably sailed through Covid.

2008-09 was more like 1981/2. Where the pressure across the economy was so bad and we saw the first big waves of corporate downsizing of white collar workers (often associated with manufacturing companies that were feeling the pinch - manufacturing was a much bigger proportion of employment in those days). Unemployment for under 25s was something like 20% (I am giving the Canadian figure which mattered rather a lot to me, then). Double digit unemployment.

Those of us working in the Information Technology arena experienced something like it in 2000-03. But compared to 2008-09, it was nothing, in retrospect (even if personally I suffered a lot worse).

Other periods like it were the early 90s in particular regions and industries - aerospace for example, or in New England. Anyone who worked in the minicomputer industry (DEC, Perkin-Elmer, Data General etc).

One can always look back and wish one had bought a house, or a condo, or stocks, at that time. But if one was struggling to put food on the table and pay the rent...

There's a reason why long term Bogleheads here stress personal financial prudence, not gearing up your lifestyle. Because until you are independently wealthy, the rug can get pulled out from under you... just like that.

Most of us are not more from one bad illness or job loss from a significant downshift in our standard of living and financial plans.

(Hopefully by the time you get to your mid 50s you have a Margin of Safety. However then health, and the challenges of keeping career going in an ageist world, start to really bite).
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: "experienced" investors: is this time different?

Post by Valuethinker »

MichRoots wrote: Sun May 22, 2022 4:17 pm

I would surmise that the 20-30% stock drop is all about investors betting what earnings will be in September 2022. It appears we have already priced in a small recession. I have seen very little drop in spending as the roads/stores/gas stations are packed here in Michigan- I am just starting to decide not to pay the exorbitant prices because I know if enough people band together and slow spending that inflation and prices will begin to drop.
My sense is people are going to get really squeezed.

Food price inflation is an issue in a way it hasn't been since the 1970s. And we have not seen anything like the worst.

Gasoline prices are unlikely to drop? My thinking being that we are likely in a long run standoff with Russia, which will be the case even after peace has broken out -- and that isn't likely for weeks or months in any case (the Russians have not had a national mobilization, as yet, and have huge stockpiles of old armoured vehicles, shells etc-- open question how well those work (if at all) but in principle it gives them the materiel to keep a narrow front, firepower-intensive war going. Which is how Russia makes war in the Old Style). Like Iran, Russia is going to be a "rogue state" for a long time to come. It will take considerable time for other oil producers to fill that gap (Russia will still export oil, perhaps in lower quantities, to non-aligned states, India, China etc; that supply will have to be filled by western countries through more production by someone else).

The eventual end of Russian gas supplies to Europe means that gas export prices worldwide will stay high (LNG) and the US now exports enough LNG for that to affect natural gas prices in USA (to an extent).

The price of fertilizer is soaring, worldwide, and that will mean either less food production, or higher prices for food - most likely both.

Things like the price of diesel has soared. And that price will be reflected in the cost of *everything*: because everything uses logistics to get to the door of the business customer or consumer. Trucks and trains and boats - no other alternatives.

Supply chains are still jammed. This is a supply side crisis. The world literally cannot make as many cars as consumers have wanted to buy. That has caused the prices of used cars to soar. Everywhere knock on effects.

This does not tell us what the US stock market will do from here. But just as a general macroeconomic observation. Consumers are going to cut discretionary spending because they are going to be paying more for essentials.

Also with changing Fed policy consumer finance will likely be tougher - higher interest rates & stricter lending (as chargeoffs on credit cards etc increase as people go to the wall).
TN_Boy
Posts: 4134
Joined: Sat Jan 17, 2009 11:51 am

Re: "experienced" investors: is this time different?

Post by TN_Boy »

secondopinion wrote: Sun May 22, 2022 11:26 pm
TN_Boy wrote: Sun May 22, 2022 10:57 pm
HomerJ wrote: Sun May 22, 2022 10:48 pm
Leesbro63 wrote: Sun May 22, 2022 8:07 pm
bikechuck wrote: Sun May 22, 2022 1:47 pm I will be 69 next month so I have seen all of the previous referenced market declines and they were all a bit different just as this one is.

For me, the biggest difference is that this recent decline comes in my deaccumulation phase. For retirees without pensions, like me, this decline is exceptionally scary. That said, my plan is to rebalance and maintain my chosen allocation.

If I were 42 as the OP is I would be happily buying all the way down and all the way back up as I did during all of the previous declines. That strategy is what allowed me to accumulate enough to retire.
Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
There's really no reason to rebalance into stocks in retirement. If you're retired, it's because you already have enough. You don't need to shoot for extra returns.. It's all about keeping your money intact at that point.

I will not be rebalancing INTO stocks when I'm retired.
For what it is worth, I believe the standard SWR studies all assume the portfolio is rebalanced yearly. (This is not to argue that rebalancing is optimal, only that is what the often quoted studies do .. certainly people have come up with other ideas).

Hence it's not clear to me what the impact on the portfolio withdrawal rate would be -- at a withdrawal rate at or near 4% -- if a retiree continually let the stock balance decline without ever rebalancing.
In theory, we are giving away some of the tail risk of stocks; we cap the maximum we will ever lose to stocks. On the other hand, we eventually remove all potential of upside from these stocks.

As to the SWR (given bonds are perfectly stable), then we would place a floor on the SWR. Pathwise, we could run into trouble; but that floor will save us from further loss. On the flip side, we could see a bull market and continue to build the floor up. It is not optimal to making the highest SWR (in fact, it is rather weak for that), but it is strong in making a minimum SWR.

Stronger possible SWR would come from doing nothing with the stocks (no rebalancing), but we do not build the floor either.

With rebalancing, we are making a weaker floor for the potential of a better SWR in the likely case.
I'm just making the point that the classical studies showing SWRs rebalance.

If your SWR is low (2%, 3%, whatever) then it probably doesn't matter. Then again, if your SWR is low, keeping plenty of money in stocks is highly unlikely to backfire badly, and is mostly likely to bring you and your heirs happiness ...

MClung's book describes several harvesting strategies (like his Prime harvesting) that do not use rebalancing. It may be that HomerJ will be doing something like that. The ERN website looks at his strategies and a couple more as well. I would look to specific strategies that someone has tested to decide how to implement "never rebalancing into stocks."

I confess to not knowing what "bonds perfectly stable means." Obviously they can lose money. We are currently seeing bonds getting beaten up pretty good in real terms. Also, different backtests use different bond mixes. I think McClung uses 10 year treasuries.
bikechuck
Posts: 1473
Joined: Sun Aug 16, 2015 9:22 pm

Re: "experienced" investors: is this time different?

Post by bikechuck »

Leesbro63 wrote: Sun May 22, 2022 8:07 pm Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: "experienced" investors: is this time different?

Post by Leesbro63 »

bikechuck wrote: Mon May 23, 2022 9:33 am
Leesbro63 wrote: Sun May 22, 2022 8:07 pm Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

Leesbro63 wrote: Mon May 23, 2022 9:46 am
bikechuck wrote: Mon May 23, 2022 9:33 am
Leesbro63 wrote: Sun May 22, 2022 8:07 pm Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
As I have said before, taking risks is not gambling. Taking too much risk is just foolish. Gambling requires taking risk with an intention of making money off of the other party without giving meaningful compensation to the other party.

Could you please stop associating investing with gambling (and even speculation with gambling)? If you insist it is gambling, then so is insurance, lending to others, annuities, saving money, and many other unintended consequences.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
KyleAAA
Posts: 9498
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: "experienced" investors: is this time different?

Post by KyleAAA »

To answer the original question, this feels fairly routine. Not worried. If inflation is still at 8% this time next year, I will worry.
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: "experienced" investors: is this time different?

Post by Leesbro63 »

secondopinion wrote: Mon May 23, 2022 10:11 am
Leesbro63 wrote: Mon May 23, 2022 9:46 am
bikechuck wrote: Mon May 23, 2022 9:33 am
Leesbro63 wrote: Sun May 22, 2022 8:07 pm Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
As I have said before, taking risks is not gambling. Taking too much risk is just foolish. Gambling requires taking risk with an intention of making money off of the other party without giving meaningful compensation to the other party.

Could you please stop associating investing with gambling (and even speculation with gambling)? If you insist it is gambling, then so is insurance, lending to others, annuities, saving money, and many other unintended consequences.
I get your point. But I’m gonna stand my ground that the willingness to “rebalance into possible poverty” at least approaches the limit of prudence and straddles the line into “gambling”. I’m probably going to do rebalances if necessary, but it doesn’t alleviate my concern and doesn’t make it not approaching gambling with retirement.
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: "experienced" investors: is this time different?

Post by Leesbro63 »

As to my post just above, has anyone done a year by year analysis of annually rebalancing a 60/40 or 50/50 portfolio through the 1930s?
bikechuck
Posts: 1473
Joined: Sun Aug 16, 2015 9:22 pm

Re: "experienced" investors: is this time different?

Post by bikechuck »

Leesbro63 wrote: Mon May 23, 2022 9:46 am
bikechuck wrote: Mon May 23, 2022 9:33 am
Leesbro63 wrote: Sun May 22, 2022 8:07 pm Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
What is your definition of "safe bonds". My bond funds have lost money this year due to increased interest rates and those increasing rates are more likely than not going to continue for the foreseeable future.

One way or another I plan to maintain my equities between 40 and 45 percent of my portfolio. So far I have not had to do very much rebalancing other than choosing which funds to withdraw from to fund living expenses.

I do feel fortunate, through historical accident, to own some "dreaded" fixed annuities paying a blended average 4% for a portion of my bond space. Unless I annuitize them these are fully liquid and inheritable by my heirs. One of these pays a guaranteed minimum 4.5% and the other 3%. I might annuitize a portion of them when I reach my mid to late 70's depending on economic conditions, my health and the interest rate environment at that time.
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: "experienced" investors: is this time different?

Post by Leesbro63 »

bikechuck wrote: Mon May 23, 2022 10:22 am
Leesbro63 wrote: Mon May 23, 2022 9:46 am
bikechuck wrote: Mon May 23, 2022 9:33 am
Leesbro63 wrote: Sun May 22, 2022 8:07 pm Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
What is your definition of "safe bonds". My bond funds have lost money this year due to increased interest rates and those increasing rates are more likely than not going to continue for the foreseeable future.

One way or another I plan to maintain my equities between 40 and 45 percent of my portfolio. So far I have not had to do very much rebalancing other than choosing which funds to withdraw from to fund living expenses.

I do feel fortunate, through historical accident, to own some "dreaded" fixed annuities paying a blended average 4% for a portion of my bond space. Unless I annuitize them these are fully liquid and inheritable by my heirs. One of these pays a guaranteed minimum 4.5% and the other 3%. I might annuitize a portion of them when I reach my mid to late 70's depending on economic conditions, my health and the interest rate environment at that time.
I agree that bonds became unsafe. Some of us took Dr. Bernstein’s advice and kept maturities short. In my case, “shortish”. My fixed income is still painfully down, especially when you consider the cash is 8.5% “worth less”. But over long periods, fixed income has been the balance to more uncertain stock returns.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: "experienced" investors: is this time different?

Post by secondopinion »

Leesbro63 wrote: Mon May 23, 2022 10:17 am
secondopinion wrote: Mon May 23, 2022 10:11 am
Leesbro63 wrote: Mon May 23, 2022 9:46 am
bikechuck wrote: Mon May 23, 2022 9:33 am
Leesbro63 wrote: Sun May 22, 2022 8:07 pm Doesn’t rebalancing turn you from a retirement investor into a gambler? What if you do 3 or 4 rebalances into poverty into a long, deep, bear market? I ask not to irritate you but because I’m struggling with the same problem.
Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
As I have said before, taking risks is not gambling. Taking too much risk is just foolish. Gambling requires taking risk with an intention of making money off of the other party without giving meaningful compensation to the other party.

Could you please stop associating investing with gambling (and even speculation with gambling)? If you insist it is gambling, then so is insurance, lending to others, annuities, saving money, and many other unintended consequences.
I get your point. But I’m gonna stand my ground that the willingness to “rebalance into possible poverty” at least approaches the limit of prudence and strattles the line into “gambling”.
A gamble does not even rely on luck per se; consider a wager between two players in a game of chess. I stand a firm stance that gambling requires more than just risk, but I think we are at an impasse. I do not think this will go anywhere.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: "experienced" investors: is this time different?

Post by Da5id »

secondopinion wrote: Mon May 23, 2022 10:29 am
Leesbro63 wrote: Mon May 23, 2022 10:17 am
secondopinion wrote: Mon May 23, 2022 10:11 am
Leesbro63 wrote: Mon May 23, 2022 9:46 am
bikechuck wrote: Mon May 23, 2022 9:33 am

Owning any equities is a bit of a gamble. You need to decide whether you believe that rebalancing mitigates or exacerbates that risk. My wife and I plan to rebalance.
You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
As I have said before, taking risks is not gambling. Taking too much risk is just foolish. Gambling requires taking risk with an intention of making money off of the other party without giving meaningful compensation to the other party.

Could you please stop associating investing with gambling (and even speculation with gambling)? If you insist it is gambling, then so is insurance, lending to others, annuities, saving money, and many other unintended consequences.
I get your point. But I’m gonna stand my ground that the willingness to “rebalance into possible poverty” at least approaches the limit of prudence and strattles the line into “gambling”.
A gamble does not even rely on luck per se; consider a wager between two players in a game of chess. I stand a firm stance that gambling requires more than just risk, but I think we are at an impasse. I do not think this will go anywhere.
I'm also baffled by his definition of gambling. I guess everything to do with investing is gambling if one chooses to define it as such. I think balanced funds and target date funds are an excellent default choice for investing. And they both rebalance continuously. Any definition that hits those with the pejorative "gambling" is odd to me.
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: "experienced" investors: is this time different?

Post by Leesbro63 »

Da5id wrote: Mon May 23, 2022 10:35 am
secondopinion wrote: Mon May 23, 2022 10:29 am
Leesbro63 wrote: Mon May 23, 2022 10:17 am
secondopinion wrote: Mon May 23, 2022 10:11 am
Leesbro63 wrote: Mon May 23, 2022 9:46 am

You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
As I have said before, taking risks is not gambling. Taking too much risk is just foolish. Gambling requires taking risk with an intention of making money off of the other party without giving meaningful compensation to the other party.

Could you please stop associating investing with gambling (and even speculation with gambling)? If you insist it is gambling, then so is insurance, lending to others, annuities, saving money, and many other unintended consequences.
I get your point. But I’m gonna stand my ground that the willingness to “rebalance into possible poverty” at least approaches the limit of prudence and strattles the line into “gambling”.
A gamble does not even rely on luck per se; consider a wager between two players in a game of chess. I stand a firm stance that gambling requires more than just risk, but I think we are at an impasse. I do not think this will go anywhere.
I'm also baffled by his definition of gambling. I guess everything to do with investing is gambling if one chooses to define it as such. I think balanced funds and target date funds are an excellent default choice for investing. And they both rebalance continuously. Any definition that hits those with the pejorative "gambling" is odd to me.
I guess we’ll have to just agree to disagree. I won’t belabor my thinking and will stand back to see how this conversation evolves. Seeing the 1930s numbers (a 60/40 portfolio rebalanced annually) might help clarify the potential issue. Thank you all for keeping this civil despite not agreeing with my concern.
Post Reply