The market is insane, and I'm pulling a Bill Bernstein

[Dont_know_mind]

If he meant stop taking undue risks, I would agree. But if he meant stop all equities and play safe with bonds, I disagree with him.

I plan to have 40-50% in stocks and the rest in businesses that produce income. Does not matter if I won the game or not or if I retire or work.

I’m not sure if I understand the Bernstein quote.

I think what you say makes a lot of sense.

It doesn’t seem to me to be logically coherent to suddenly succumb to loss aversion bias just because you reached a FI target or retired.

The idea that you would go fully into bonds because you won the game doesn’t make sense to me, because there might be just as much risk in bonds as equities (depending on the situation).

I do a double take every time I see US 30 year treasuries are yielding 1.35%...for 30 years ! Guaranteed...

[jfoxcpacfp]

Actually, that sounds like great advice. What are the odds that buying Apple/Amazon today is going to be a bad investment? Yes, I get it, indexing is safer and more diversified. But if you ARE going to choose individual stocks, those would probably be the best ones to choose for safety, maybe Microsoft as well.

define ‘safety’. Our goal is to replicate approximate long-term equity returns for the investment allocation of clients’ net worth. What’s yours?

[Kennyt7]

bernstein feels you should have in safe assets 25x your fixed living expenses
others promote the bucket strategy-5-8yrs of expenses, the rest in equities, re, etc

[Kennyt7]

When every tom, ************************, and harry is playing the stock mkt, buyer BEWARE!!!!

[FIREshrink]

I’m not sure if I understand the Bernstein quote.

I think what you say makes a lot of sense.

It doesn’t seem to me to be logically coherent to suddenly succumb to loss aversion bias just because you reached a FI target or retired.

The idea that you would go fully into bonds because you won the game doesn’t make sense to me, because there might be just as much risk in bonds as equities (depending on the situation).

I do a double take every time I see US 30 year treasuries are yielding 1.35%...for 30 years ! Guaranteed...

If I determine I need $1,000,000 to meet my goals, and suddenly I have $1,000,000, it could indeed make sense to eliminate all risk. One way to do that would be an inflation indexed instrument that returned 0% net of taxes. That would meet all my needs; only greed would motivate me to invest in something else. However that instrument doesn't exist. So I'm forced to take some risk with a portion of my assets to reliably match inflation and taxes. Any additional risk is unnecessary. Why take it? The marginal utility of wealth is low and rapidly diminishing if you have met your goals.

[SwitchPool]

On a casual note, my barista at Starbucks today unsolicited recommended Amazon and Apple stock. She was very adamant. So for anyone so inclined, this may be a call to action!

Yep. At a family gathering right now. Most of our conversations are usually about sports, movies and other general nonsense. Granted, sports is mostly off, but this weekend, everyone is talking about puts and TSLA and Apple and how things are gonna go up / down over the next week(s) and how they plan to profit. Intelligent, college+ educated people but not financially savvy (no 5 year old Civics in the driveway).

Time to pull out.

[FIREshrink]

Perhaps it is good advice, but I suspect that Antares was referring to the proverbial indicator of a market top; to wit, shoe shine boys in the streets (in 1929, baristas in 2020) giving stock tips.

Likewise, a PT and a nurse I know recently quit to become real estate agents. The last time we lost HCWs to RE was in 2007. Wonder how that turned out?

[Tim]

On a casual note, my barista at Starbucks today unsolicited recommended Amazon and Apple stock. She was very adamant. So for anyone so inclined, this may be a call to action!

How much did you tip her?

[Tim]

Actually, that sounds like great advice. What are the odds that buying Apple/Amazon today is going to be a bad investment? Yes, I get it, indexing is safer and more diversified. But if you ARE going to choose individual stocks, those would probably be the best ones to choose for safety, maybe Microsoft as well.

Depends on the price you pay. A great company is not necessarily a great investment.
https://seekingalpha.com/article/437...crazy-like-fox

[Antares]

How much did you tip her?

A lot: I gave her index funds!

[Kennyt7]

The goal for we retirees is to preserve capital and not outlive our money. Seeking the highest returns is not paramount

[hightower]

Actually, that sounds like great advice. What are the odds that buying Apple/Amazon today is going to be a bad investment? Yes, I get it, indexing is safer and more diversified. But if you ARE going to choose individual stocks, those would probably be the best ones to choose for safety, maybe Microsoft as well.

True, but it’s not just that investing in index funds is safer, it’s also about not missing out on potential opportunity. If you have all your eggs in the FAANG basket and I have all mine in VTSAX, and there’s a surprise in the market where suddenly FAANG does poorly for the next 10 years (not likely but not impossible either) but some other sector does great, the VTSAX investment will still capture some of that other sectors success. It’s like the whole Tesla run up, I feel less like I’m missing out when I know that technically I do own some Tesla indirectly through VTSAX. Same with Apple and Google, etc. Getting what the market as a whole returns is a pretty good deal historically speaking. Sure there will always be some people who got lucky with their individual stock picking or options trading, etc, but there will always be a lot more who weren’t so lucky and would have been better off sticking with a big index fund.
But good luck explaining that to the kid behind the starbucks counter, lol

[hightower]

The NASDAQ has rallied about 60% in four months, to record after record, despite clearly grievous economic damage; the entire fate of the US market is dependent on about five tech stocks; the growth/value dichotomy is at near historic highs.

Bernstein says when you've won the game, stop playing. I'm at 72% stocks now and planning to move to 60% this week. Most of what I rebalance will be TSM, into bonds and to a lesser extent international, value, and small.

This is all monopoly money anyway. No way to justify these insane valuations.

JMO.

I personally don’t see anything wrong with making changes to your asset allocation based on your comfort level with the market. You’re still heavily exposed to equities even at 60%. You need to adjust it to where you can sleep well at night. Sometimes that means making relatively small adjustments (such as going from 70/30 to 60/40). Is it market timing? Yes, but on a less extreme scale than the people who go from 100% equities to 100% cash when they’re spooked. I feel better knowing I’ll be able to take advantage of cheap stocks when the market drops unexpectedly so I keep some cash as part of my overall AA. If I were 100% equities or even 90/10 or something that aggressive, I would worry about not having any buying power during a down turn, especially if my income went away or even decreased (which many healthcare workers experienced this year). I know I’m missing out on some returns on that cash portion but I also know those funds are shielded from the losing value. Some people dont feel the need to do this and can stay more heavily exposed than me. It’s a personal choice you have to make.

[Kennyt7]

Can you afford a 50% or greater loss in equities in retirement and not outlive your money,, sleep at night, or maintain lifestyle
ITS THAT SIMPLE
In my mind you gotta take some chips off the table with this economic mess and whats coming down the road if congress stalls

[Tim]

Can you afford a 50% or greater loss in equities in retirement and not outlive your money,, sleep at night, or maintain lifestyle
ITS THAT SIMPLE
In my mind you gotta take some chips off the table with this economic mess and whats coming down the road if congress stalls

A person’s own risk profile is extremely important, that basically risk capacity and risk tolerance. One needs to invest in a manner that suits their profile.

Even a “preplanned” AA that accommodates wide market fluctuations would suffice. It may not fit the mathematics, but it fits your profile.
The goal is to eliminate the behavioral finance reactions that have been shown to cause damage to retail investors. Someone might say 90/10 until a 10% drop, then 10/90. Then switch back to 90/10 when it’s back to even. Will it work? Depends on what the market does.
Emotions drive mistakes, fear and overconfidence.
Maybe 60/40 handles the FOMO and fear of loss.

It has been been a long time of low interest rates. Rates “have to go up” has been around for a decade. They are going up, just don’t know when. Congress will stall, and has stalled. Actually one school of thought is a stalled Congress is the very best. Nothing gets screwed up. There is no certainty when things will get better or worse.
Pick an appropriate AA not based on emotion or market. A new lesson for many that have been investing for 10-15 years.