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JohnT
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Capitalist
Mar 1999
time: 00:19
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quote:
Originally posted by pchang
JohnT's financial advice is not solid.
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Actually, you said nothing that I didn't say earlier this year in this thread.
That's also the thread I referred to when I mentioned Saras and his Lithuanian bonds (or whatever they were).
However, the way I answered was based upon the way the particular question put to me, and my knowledge of the poster: it seemed that Pekka (and knowing things he has said in other threads about other things) has a rather... risky streak to him. He's going to do the risky investments, regardless of whether they are the best strategy. So, if that's the case, it's best to amerliorate this aspect of his personality as best as possible, without having him think of investing as drudgery, boring, and not worth doing because it isn't satisfying psychologically.
Sure, the best thing to do is to tell him to invest in a conservative mix, rebalance, and let the growth of the worlds market do his work for him. But Pekka will find that unsatisfying, and the fact is that satisfying oneself psychologically is almost as important as satisfying oneself financially: Because if he is unhappy with "the best" investment strategy, the odds are he won't follow any investment strategy.
Sorry Pchang, but even though you seem a disciple of Bernsteins The Four Pillars of Investing, I stand by my statement in response to the question asked.
Last edited by JohnT on 20-12-2004 at 08:03
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Jon Miller
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hmm, if I had invested 20 dollars into it, I would not have the money prolbems I have now
JM
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JohnT
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Capitalist
Mar 1999
time: 00:19
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Read the book I linked to: The Four Pillars of Investing.
The man has a convincing case, and presents it well. In short it goes something like this (allow me to quote myself, from that earlier thread):
quote:
Here is the thing about equity mutual funds: Including survivorship bias, over 95% of all managed funds underperform the market once you account for all fees and taxes. In other words, 95% of the Professional stock pickers out there do worse than the market as a whole. If you include all the funds that have failed and are no longer included in fund comparison charts, you will find that over 99% of all funds have actually underperformed the market.
If these people can't do it, and they have careers and six-figure salaries riding on their ability to pick stocks, why would I even think I have a chance to succeed here? Better to buy a really cheap index fund - that way you are guaranteed to do better than 95% of the professionals. |
Coupled with:
quote:
The key is rebalancing. The point of rebalancing is to make sure your portfolio maintains the same balance of assets throughout the life of the portfolio. Over time the percentages you assign to various asset classes will change (as you grow older, financially you grow more risk averse), but the concept will remain the same.
If you look at my plan, you will note that I have percentages (relative to the portfolio as a whole) which tells me how I want my money invested. For example, I have 60% of the portfolio in stocks, and 40% in bonds. Over the next year, lets say stock funds gain by 5% over bond funds so that now my portfolio is unbalanced to 65% to 35%.
To rebalance my portfolio, I would have to sell the 5% gain in stocks and reinvest that money into bonds to re-achieve the 60/40 balance that I want in the first place.
Note that rebalancing makes me buy low and sell high. It doesn't allow me to foolishly hang onto stocks/funds that have over-appreciated, nor do I avoid purchasing in the market when it is down.
A portfolio that was 60/40 at the beginning of 1982 would've been 79/21 in 2000 if it had not been rebalanced in all that time. Almost 80% of your retirement money tied up into stocks at the height of a bull frenzy... tsk, tsk, tsk.
Otoh, had you been rebalancing you would've continually been cashing in on stock appreciations (for almost 18 years!), while continually buying into a bond market that is likely poised to be the financial leader in the upcoming years. You would've been only invested in 60% stocks when the bottom fell out, and, after the fall, you would've then put yourself into a major stock buying frenzy precisely at a time when everybody else is selling for pennies what you had been selling them for dollars. |
Last edited by JohnT on 20-12-2004 at 21:25
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:19
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Why not . . .
Any gift-giving ideas for a spouse?- OH and I have used up the jewelry, spa day, flowers and clothing angles and am looking for some new ideas.
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:19
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DP
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Flubber
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With a view of the Rockies
Aug 2000
time: 22:19
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Triple
Have no idea why that happened
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20-12-2004 05:19
) or depreciate quite rapidly. There is an element of risk involved, something that doesn't exist (here in the US) if you just stick your excess money in the bank (US bank deposits are insured by the Feds in case the bank fails).
you analyzed me pretty well there.. I see investing as 'saving money' if it's not high risk .. 
for not getting the "joke".
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