Market Philosophy: What You Got?

I’d say my 10 stocks have an 90+% chance to out perform a total market index for the balance of the yr

I don’t like the concept of settling to be average at best

You time horizon is much to long Harv.  You are older than I am and you shouldn’t have a large equity position even if it’s a total market index when you are retired

Z wrote

I’d say my 10 stocks have an 90+% chance to out perform a total market index for the balance of the yr

I don't see the point of making bets for such a short period of time. But you do.  What percent of total networth are you going to bet on those ten stocks?

Z wrote

I don’t like the concept of settling to be average at best

Even if average will meet the goal?

Z wrote

You time horizon is much to long Harv.  You are older than I am and you shouldn’t have a large equity position even if it’s a total market index when you are retired

I always assumed that time horizon addresses the question when and how long will your retirement be.

How do you define it?

For most people who have been working their whole lives there is more in play than just the 401(k)/investment portfolios they’ve put together, most likely.  As such, the old standby of subtract your age from 100 and have that amount in stocks is probably too conservative, unless you are IN retirement, or have a short window on needing those funds.  Without exposure to equities growth won’t really happen.

One of my accounts my advisor recommended 70/30 stocks and bonds before the CV-19 crash, lowering my stock position.  That’s college money I’ll need over the next 5 years.  While I’ve made a few moves in my other (main) account since January, overall I’ve maintained a higher ratio of stocks to bonds than the standby would indicate, although I’ve tried to target funds in the plan I’ve though would weather the storm better.  The Dow (broader market) is down more than 25% this year, whereas my portfolio’s performance is more in line with the S&P results this year, which is down 11%.  I’d like to think I’ve beaten the broader market (so far) during this crisis.

My main account is a company 401(k), and it doesn’t provide me with investment options in individual stocks.  Even if it did, I’m not a good enough stock picker that I’d go that route and give up the diversification options the available funds provide.  It may seem easy (and maybe it is) to pick 10 winners right now, but all you need to do is miss on a couple and the overall results could suffer.  I don’t have the stomach for that.  If I can stay better than average (the broader market) without putting that risk on myself I’m satisfied.  Of course, the more risk, the more reward, so good luck with your individual investments Z, I hope you slay it!

Anyone looking at available options in 401(k) accounts during this crisis?

In January I took out a loan from my RSP.  No tax implications, no penalties/fees.  I pay it back to myself at a fixed interest rate....a guaranteed (positive) return of 5.75%, if you will.  With that money out of my investments it was shielded from the CV-19 crash, which has helped my overall return.  With the loss avoidance combined with the guaranteed return I’m paying myself I’m optimistic that that piece of my portfolio will beat the market over the repayment period.  Not that we carry much debt, but I did use that money to pay down what higher rate debt we had, also helping my overall financial picture.  I hate throwing money away on higher rate interest.  I may take a little more to get my loan amount to the max.  I can either pay down some of the auto loan we took in January, or hold some emergency cash while this crisis plays out.  Or I could solicit Z’s list of 10 and invest a small chunk in that.

The CARES Act does allow people to make penalty free withdrawals from their 401(k) of up to $100k in 2020.  Unless something unforeseen happens I won’t go anywhere near that (that money needs to stay retirement focused), but it could be a nice option for people to have.  Some may need it to stay current on bills and such.  For others carrying debt it could be an attractive option to clean up their financial house.  Of course the tax implications could get complicated, but cutting out high rate credit card or other debt and then using the money that would have serviced that debt to increase your 401(k) and/or IRA contributions....one could potentially avoid throwing money away on interest while replenishing the retirement funds.

Of course I’m no financial advisor, and there are probably flaws in my thinking, but at least I’ve tried to be proactive and I’ve beaten the average market so far through this crisis, so I don’t think I’ve f#%cked anything up too bad, at least not yet.  The would’a, should’a, could’a always gives me regrets, but trying to time a market like ours at a time like this is extremely difficult, so I don’t beat myself up too much.

My wife's 401k only took a 8% hit during this crisis..As we get older we are 57&58 and the kids have graduated college, she has been moving our investments out of equities.. We have a decent bond portfolio and cash..She is not allowed to buy individual stocks due to her job, nor would she anyway..

That said everyone needs to do want makes them comfortable and able to sleep at night..

We don't drive fancy cars and only pay cash for them and have zero debt , besides 6 months left on the mortgage..

JasonWx wrote

We don't drive fancy cars and only pay cash for them and have zero debt , besides 6 months left on the mortgage..

Winner winner chicken dinner

If all goes as planned 🤞I'll be there sooner rather than later. I'm 5 years away, can just start to see light at the end of the tunnel....lol

JTG4eva! wrote

For most people who have been working their whole lives there is more in play than just the 401(k)/investment portfolios they’ve put together, most likely.

Not me.

JTG4eva! wrote

The Dow (broader market) is down more than 25% this year, whereas my portfolio’s performance is more in line with the S&P results this year, which is down 11%.  I’d like to think I’ve beaten the broader market (so far) during this crisis.

The DJIA is not as broad as the S&P500 (if that is what you mean?). Broader still would be TSM index.

JTG4eva! wrote

I’m not a good enough stock picker that I’d go that route and give up the diversification options the available funds provide.  It may seem easy (and maybe it is) to pick 10 winners right now, but all you need to do is miss on a couple and the overall results could suffer.  I don’t have the stomach for that.

Total agree-age.

Not that I think anyone should consider it as their main retirement vehicle, but do you not plan on receiving social security?  I don’t know about you, but I don’t want to be paying the taxes I’m paying on our family home in NY when I retire, even with the mortgage paid off.  If we downsize, or move to our place in MA....we’ll have equity to bank from our home.  That’s what I was getting at, that in retirement there may be more resources than people are counting on than just the nest egg in their 401(k).  Or not.  Depending on what other assets people will have it may make them more open to accepting more equity risk (and return) in their 401(k) as they move toward retirement.

Yeah, good point, I suppose I should stop falling into the trap of considering the Dow to represent the full market.

JTG4eva! wrote

plan on receiving social security

hope is the operative word for me.

I WANT to build a house in NY.  Not sure if I can do that and have any money left over.

Also not sure I can convince the MRS to do it!

Wise move Jason , your wife is to be commended for her foresight .

. At this stage as close as you are to pulling the plug and  being debt free and paying cash for wheels etc unless its 0 % loan is a sure fire way to guarantee a comfy retirement .

You guys have heard my schtick on this too damn many times . So no need to expound

At the end of the first quarter we were 19.3 k to the plus on our overall corpus since12/31/19 .  in addition to our defined benefit Pensions and SS. i do reinvest the RMD's  and also let the corpus grow.

When we retired years ago i made strategic moves to both allow a very comfy draw rate on our corpus and still exceed inflation at a decent rate of growth on the overall corpus .

Retired now  25 yrs , pulled the plug  at 52 , However We are both fortunate enough to have state  tax free defined benefit pensions and our SS  which is more than adequete to live on while renvesting RMD's and allowing other earnings off 403 to accrue .  

Debt free' ENOUGH And Comfy was the goal : Turtle vs Hare ,  The plan was crafted in my twenties and has surpassed my expectations .     Stay the course , save your coin ,  manage  your expectations , live below your means then you will smile when your finally in leisureland .

Harvey wrote

Z wrote

I’d say my 10 stocks have an 90+% chance to out perform a total market index for the balance of the yr

I don't see the point of making bets for such a short period of time. But you do.  What percent of total networth are you going to bet on those ten stocks?

Z wrote

I don’t like the concept of settling to be average at best

Even if average will meet the goal?

Z wrote

You time horizon is much to long Harv.  You are older than I am and you shouldn’t have a large equity position even if it’s a total market index when you are retired

I always assumed that time horizon addresses the question when and how long will your retirement be.

How do you define it?

10 stocks make up around 15% of total with no one stock more than 2% of total

Avg this yr is going to be a big loss.  No way I’m settling for that when there is huge money to be made off the bottom.

Once you retire your equity positions should drastically shrink and be more focused on income producing div stocks

Right now div stocks are going to strongly out perform.  The world is chasing after yield with bonds paying so little income producing stocks are doing well.  Harv there are index funds and efts based around this segment.  Shifting to overweight these would fit to your low cost method while increasing your return this yr with little increase in risk or costs.  Might be worth looking at for you.  VIG is an eft that I like and own buying it towards the end of March this yr.  

Back to horizon.

From the day before your retirement until the day after, your investment time frame only changes by 2 days.

Choosing your retirement day to make big allocation decisions seems arbitrary or driven by emotion.

Income producing stocks certainly make up a significant part of TSM.  Be interesting to see how much they throw of in 2nd quarter this year.

There is that old deduct your age from 100 and that is your equity %.  That probably is good advice for you Harv since you are limiting your risk and return while working.  My risk and returns are higher now while I can afford to actually have losses and make them up before retirement so that in retirement I can go to a heavy income producing portfolio in retirement that is much lower risk.  In retirement The less I have to have in the market the more I can have creating income to live on without dipping into the principle as much.  See where I am now going with this?

This goes to your enough comments.  I don’t think our Two versions of enough are that different.  I just plan to have my enough before retirement and you will have to have a riskier retirement equity allocation.  The way I see it if we both saved the same then sometime in our life times we would need to be exposed to X amount of risk to get Y returns.  We just are choosing to experience that risk at different times of life. But through the magic of compounding of interest I see getting the gains early is a better way to go.

By the 100 minus rule I should be at 40/60, instead of 60/40.

This makes the point comparing risk between different people/ages isn't really possible.  I see my approach as less risky than yours. But the truth is neither of us understands the risk the other is taking.

I learned the other day that my almost 87 year old parents are also at 60/40. My dad explained that their time frame was the lifespan of their grandchildren, our kids.

The 100 minus your age rule does not account for the potential that when you reach retirement age, the odds are high that 1 person in a married couple will live to 90+. If you are too light in equities, inflation can eat  your principal over a 30 year stretch.  

x10003q wrote

The 100 minus your age rule does not account for the potential that when you reach retirement age, the odds are high that 1 person in a married couple will live to 90+. If you are too light in equities, inflation can eat  your principal over a 30 year stretch.

This is a good point. My parents are both in their mid eighties and just sick enough to require full time care. The amount of money it takes to continue living at home past eighty can be be ridiculous. On the other hand. My dad always thought he was a good stock picker. Long story short, I just committed to driving to Albany every weekend to cut their lawn so they can stop paying a landscape company to do it

Cramer souring on index investing:

CNBC: Warren Buffett's exit from airline stocks is a wake-up call for index investors, Jim Cramer says:

https://www.cnbc.com/2020/05/04/jim-cramer-warren-buffett-exit-from-airline-stocks-was-a-big-deal.html

That is pretty much what I’ve been saying for like 6 months and I think it’s especially true now with the Covid mess

Key quote from Cramer
“If you’re in individual stocks and they can grow even in tough times, then you should be in much better shape than the index-fund investors who are really stuck holding the bad with the good, because right now there’s a lot more bad than Wall Street seems to think,” he said.

I’m a big fan of Buffett.  I worked for one of his opcos for 7 years.  Funny thing to me is he says invest in index funds but his own stock picking is no where like that.  He is the king of buying low and holding.  When he sells like he just did pay attention

I've got a feeling that is a chance for another bottom as deep as the 18 or lower.  At my age, I'd say there is an argument for doing as Z recommends, hunker in the bunker.  But for 35 years I have done the opposite. Plow ahead.

Maybe it's different this time.  

Just can't bring myself to act on it, it's against my nature.  I'm going with all the crappy stocks in the index.

Z... time to post your ten stocks man.

Harv

I bought coming off the bottom and I’m now up considerably ytd in my trading acct.  you may have missed the boat a bit

My biggest gain was in Dexcom which was up another 10% today as it got added to the S&P500 and all you index funds have to buy it next week.  Not sure it’s still a buy at this price though.  I’m holding it

What are still buys are Microsoft, Lab Corp  Roche, and maybe Amazon and Resmed and I’ll hold these for sure

I have not bought anything since April 29 and am sitting on cash but haven’t pulled trigger on anything.  Was looking at UPS

Others I bought are DHR, Intel, AMAT, Texas Instrument and Apple.  May sell some of these to raise cash for next dip.  I don’t think we are going back to Dow 18500 but may see a 10% drop to around 22000 or 21500

I’d consider for you selling some index funds now and wait for next dip to buy.  Microsoft is the no brainer here.

Z wrote

.  I don’t think we are going back to Dow 18500 but may see a 10% drop to around 22000 or 21500

I’d consider for you selling some index funds now and wait for next dip to buy.

Here is the difference between Z and us.

He thinks a small 10% correction is worth trying to time the market so that maybe he can limit his losses to like 6% (and bump up the risk of losing 12%).

We don't want to make that trade.