The 'rules', such as they are, did though. Bubbles don't only impact people who buy into the bubble. It sucks, yes, but it doesn't really invalidate anything.Quote:
Originally Posted by EyeKhan
BTW, I've never heard that "buy as big a house as you can" financial guidance. What I've always heard is more along the lines of "Never buy a house as an investment, they're terrible for that. Buy one to live in it."
Just to be clear, there was no bubble in SE MI at all. Period. Second, the 'rules' I grew up w/ included 'buy a house and take care of it.' You are fortunate with your more savvy Sage.Quote:
Originally Posted by Wraith
Or our unabiding faith in authority and experts.Quote:
Originally Posted by EyeKhan
Tear says it's the same old economy as ever, with wool over our eyes. I saw a stat the other day, that 63% of our GDP is run through just six financial institutions. No, it didn't used to always be this way. And it's never been this bad to have a fricking savings account or CD with returns of 1-2%. What a joke.
The biggest bubble that ties all other bubbles into this massive floating illusion is the explosion in credit and debt. Consumers, businesses, municipalities, states, federal....international and sovereign debt. Trillions and trillions of unfunded 'liabilities'.
Yes, it's frustrating to have done all the right things, saved hard and invested, not loaded up on debt (hell, I haven't used my credit card for about a year now...) But financial "hygienics" won't help the 70 year old whose retirement got busted up, and their time is running out. Golden Years, huh? Not traveling the world, volunteering, or spoiling grandkids, but being a Walmart greeter, or as choobie says---fipping burgers. yay
Well, if this little crisis taught me one thing it is; never buy a new house before you have sold the old one.
Please. That's not an argument against a complex system, it's just an argument for prudent policy and careful investment.Quote:
Originally Posted by Being
*shrugs* Not precisely; investing certainly has an element of risk (as is any 'hoard' of wealth, regardless of where you put it), but it isn't gambling in that any worthwhile investment means you own a chunk of something real - the gamble is generally in the asset allocation and the timing of asset redemption. Anyways, no one has argued that there is anything 'sure' about investing, it's obviously a risky endeavor (even cash is risky in that it's fiat currency, and precious metals or other commodities have bubble/etc. risks as well). We just argue that the basics of wise investing and risk management aren't fundamentally different today than they were a hundred years ago - some people just ignore the wisdom of time.Quote:
Originally Posted by EyeKhan
The 'progression' you're positing is meaningless - they have to do with changing demographics, not changing principles of economics and investing. People don't 'of course' lose in the stock market, and I challenge you to show me how that's true.Quote:
The complexity is aggravated by the constantly changing conditions. A hundred years ago people relied on sticking money in their mattresses and the compassion of their children. Sixty years ago it was the defined pention programs. Twenty years ago it was the 401k. Now what do we have? Bankrupt pension programs because program managers were allowed to gamble - and lose - them in the stock market while shorting contributions based on unrealistic projections of returns. So the solution to that fuck up was to have individuals gamble their own money in the stock market, and of course lose. Hey, I know, lets put social security in the stock market, maybe the third time's the charm.
There's some risk in any retirement scheme, whether it's a defined benefit or a defined contribution. There's no certainty in life; you think the governments can cope with longevity and market risk any more than an individual? The only issue is that a government will fall back on debt to deal with risk, when an individual doesn't really have the option. Obviously, this is an incentive for better risk management on the part of the individual saver than a government or corporation would ever have - it's their retirement that's on the line.Quote:
Maybe people shouldn't have to rely on gambling in a too-complex-to-understand and likely loaded system to provide for their health and welfare when they can't work anymore. This model of retirement care is fundamentally a fucked up joke. Its more about allowing savvy investors to harvest money from the rest of the population. :down:
You're quoting one black swan event as proof of some fundamental change in long-term best practices? It's always possible to cherry-pick results to argue 'things are different this time'.Quote:
Originally Posted by Being
Total lie. No one has argued that buying a house is for everyone - that's an aberration of the real estate bubble. They're not a great investment - highly illiquid, subject to very high taxes (on the principal value and not a realized gain, either!), etc. Sure, in some circumstances they can give high yields, but the market is awfully tough to predict. You also happened to catch the very worst time to sell a house.Quote:
Originally Posted by EyeKhan
*shrugs* It's no secret that in some markets renting is far cheaper than buying.Quote:
Originally Posted by Being
Cherry-picked data.Quote:
Originally Posted by Hazir
This is obviously a tough decision - principle paid down on a debt is sometimes a good idea compared to investing in something illiquid, as it gives you some leeway on future loan payments. This is really only true for limited paydown of the principle, though.Quote:
Originally Posted by ']['ear
Agreed, but I'd say at least 6 months is necessary. We've got 8 months worth of cash plus plenty of principle we can pull out of a Roth IRA penalty-free if need be. It's all about risk management - the cash is paltry compared to retirement savings after a few years, but gives a very hefty margin of safety so you don't need to liquidate assets in a down market.Quote:
PS another good rule of thumb: keep enough money for 3 months of frugal living in a liquid source. You can pay wicked penalties from removing money from retirement accounts, so you need a rainy day fund.
Your interpretation of the rules is what's wrong, either that or someone stupid was advising you. You're bandying about arguments that are functionally no different than the worst of the house flipping advisers back in the boom and claiming it's fundamental rules of investing.Quote:
Originally Posted by EyeKhan
Please show me your investment portfolio.Quote:
Originally Posted by wiggin
My wife and I have two retirement accounts; a 401k from her employer and my Roth IRA. Given our age, we are heavily invested in fairly risky equities. Our primary allocation is split between a domestic stock market index fund with a very low expense ratio, a slightly pricier managed US growth fund, a large and well-known non-US developed world fund, and an emerging markets fund. We have a trivial allocation to a high-quality domestic bond fund. As of now, we have no investments in real estate or other investment vehicles other than a large cash reserve.
Not that it's any of your business, or is even remotely pertinent.
Oh, it is pertinent. Who do you rely on for the ratings of those funds? Or do you do all the research yourself?Quote:
Originally Posted by wiggin
I don't really rely on ratings, though the Morningstar ratings at least use a fairly transparent system so I occasionally look at them. Ratings are unimportant for index funds (my core holding), and we chose the best available options from the wifey's 401(k) plan based on our own rubric and asset allocation strategy. The basic things we looked at included the long-term performance of the fund against relevant indices, time since inception, expense ratios and other fees, longevity and experience of fund managers, asset allocation inside each fund and core holdings, fund strategy, turnover, quantity of managed assets, etc. Primarily, we looked for relatively passive investment strategies based on sound fundamentals in stable funds - with as low an expense ratio as possible and no load.
So you've built a matrix that proves your choices are the best of all your options?Quote:
Originally Posted by wiggin
There's no way to know what the 'best choice' is except by a post-facto analysis. Anything can change - my asset allocation can be off due to unforseen macroeconomic changes, the funds can suffer due to investor panic, requiring selling poorly performing assets in a down market, expense ratios can change, etc. I have established my own weightings on the basis of my personal risk tolerance and beliefs about the world economic system. I doubt I am getting the 'best' option, but I'm getting my best option given the choices.
At the end of the day, I do not expect to significantly outperform the greater market, if at all. I'm okay with that; I think people who think they can consistently time the market or choose the best fund are dreaming, since the majority of funds also fail to do so. I just try to spread the different risks around and change my asset allocation on the basis of a predetermined plan, not transient fluctuations in the market.
What are you getting at? What's your point?
My point is that you are not doing anything different than several million Americans started doing 30, 40, 50 years ago who are now screwed because they invested wisely according to current economic philosophy. If we hit another 20 year lull 10 years before you retire, will you have time to rethink your choices?Quote:
Originally Posted by wiggin
Well, I'm doing things a little bit differently in that my expenses are far lower than people a few decades ago. But in principle my investment strategy hasn't changed, no.
Please describe this '20 year lull'. If you mean that stocks have underperformed bonds to date, I have two points: 1) You're cherry picking results, and this last bit is a fluke. 2) My asset allocation will shift very heavily towards bonds and other fixed-income securities as I get closer to retirement (I would probably even stay away from bond funds at latter times, opting instead for bond ladders and the like). This will significantly reduce my market risk and cushion any blow to the rest of my portfolio.
People still made plenty of money in the last two decades, despite the fact that we're currently in a trough. Dividends are dividends, and even growth stocks have produced returns. It's just that bond returns have been better, since stocks have been hammered lately. This isn't invalidating anything I said; for that matter, the comparisons you are addressing refer to domestic stocks, which totally ignores my large exposure to international equities, which further mitigates the poor performance of the domestic stock market in recent years.
All I'm hearing is that you're not happy the US stock market has had trouble lately. Boohoo. A sufficiently diversified portfolio wouldn't have been completely trashed by this downturn, and even more importantly, good enough risk management would allow people to ride out a downturn and allow their assets to regain value before liquidation. What's wrong with the basic investing strategy?
Anecdotal maybe, but we are talking about actual results. The 'plan' however tiny was not significantly different from the average pension plan. The result was abysmal given the fact that the plan ran over a total of 15 years. One not a single of my other investments have I ever made any money. With the money I lost before I decided to pull out alltogether I could have bought a nice family car. And FYI; I did check how the funds I pulled out of did after I pulled out, and I can assure you; there is no sign they are doing any better than when I got out.Quote:
Originally Posted by wiggin
IIRC you were locked into a 15 year index fund that matured thereabouts of a few months ago, yes? It's no wonder that you didn't make any money, in the middle of the worst worldwide recession in 80 years. Individual retirement plans don't work like that; you can tailor your asset allocation over time, forgo withdrawals when asset values take a hit, etc. You had no long-term dollar cost averaging, no graded withdrawals, nothing. Just a lump sum in the beginning and end. That's not a very realistic situation, and specifically goes against the received investing wisdom - your investment effectively tried to 'time' the market, which is an awful idea.
That's what I mean by cherry-picked data - it's one data point at a specific time that means nothing about the general assertions Chaloobi and Being et al are making about the viability of basic investing wisdom.
I was just quoting the recommended minimum. We have over 6 months (not exactly sure where we are, actually). We also have a couple of Roths. I'm glad to be there despite my health adventures of the last two years.Quote:
Originally Posted by wiggin
My main financial regret is having done grad school and postdoc in very expensive places, so I could save little. Actually, that's my second regret. My first is that I had no capital at all to buy a condo in either place. Had I done so, I'd probably have a 200-400 extra nestegg at this point. I knew it, too, but just had no money. Proves the adage that it takes money to make money.
How's a senior citizen living on fixed income, with limited future time, supposed to ride it out and regain value?Quote:
All I'm hearing is that you're not happy the US stock market has had trouble lately. Boohoo. A sufficiently diversified portfolio wouldn't have been completely trashed by this downturn, and even more importantly, good enough risk management would allow people to ride out a downturn and allow their assets to regain value before liquidation. What's wrong with the basic investing strategy?
wiggin, the 'cherry-picking' isn't the data. It's the timing, and it matters. (Not to be confused with timing the market...) You may have an unabiding faith in business as usual, but the billions (trillions?) of dollars that left the market say differently. There is too much volatility and uncertainty for the "older" investor.Quote:
That's what I mean by cherry-picked data - it's one data point at a specific time that means nothing about the general assertions Chaloobi and Being et al are making about the viability of basic investing wisdom.
And don't forget that we aren't really known for a populace of financially savvy people---that's why there are advisors, fund managers, planners---even HR depts and 401-K managers. Complexity and innovation itself isn't bad in and of itself, ubt you're missing a key element in what we're bitching about here: even doing the right thing has hammered millions of people. Trust and confidence is lost. People are worried, and for good reason.
Even the traditionally safe bond market is being tested (when govts start buying bonds there's trouble) and muni's are wrapped up in bankrupt states. Banks borrow from a discount window and buy treasurys, instead of lending to each other or consumers. And no--it hasn't always been this way.
Their actual income requirements should be far lower than what they normally pull out; they can drastically reduce their withdrawals. Furthermore, it is frequently cited that retirees should keep at least a year worth of cash reserves, which allows one to slightly 'ride out' collapses in the value of investments. Lastly, someone actually in retirement should have sufficiently diversified assets that a pummeling of the stock market won't kill them - perhaps keeping a small annuity to provide basic expenses, or with larger bond holdings, reverse life insurance plans, whatever. Stocks are obviously a decent part of any portfolio if you want to stay ahead of inflation, but they should *not* be relied upon in retirement.Quote:
Originally Posted by GGT
The specifics of this black swan event do require changed behavior of a transient manner, in accordance with investing fundamentals.Quote:
You may have an unabiding faith in business as usual, but the billions (trillions?) of dollars that left the market say differently. There is too much volatility and uncertainty for the "older" investor.
We can read that kind of traditional analysis at financial/investment web sites wiggin, it's just repeating what financial advisors say, over and over....but that's what Choobie, Being and I are daring to question. After so many experts were wrong, and we challenge how much risk and structural problems they underestimated, it's hard to keep buying their standard line.
But I'm glad you have such confidence in your strategies, and all the fundamentals. Too bad we can't fast forward a few decades to see how well that plays out for ya.
:coffee:
You have yet to explain why my strategies wouldn't have worked, even in this downturn. This downturn has been bad for people's portfolios, but it's only been disastrous for those who (a) panicked and cashed out their assets, missing much of the recovery or (b) didn't have good risk management/asset allocation for their needs. Violating either of those is going against the common wisdom on investing, and is how people get into trouble.
Because retirement is more than just "investing and saving"....there's also changing health status, quality of life, family dynamics, even location. (I'm glad I don't live in Florida or California!) You don't have to take my word for it, just read the news. Plenty of folks planned to retire but now can't, those who were laid off in their 50's and can't find employment, using up that years' worth of savings 'cushion', losing health insurance and/or an illness that bankrupts them....many other factors besides just the market, and strategies. And that's just for people over age 40.Quote:
Originally Posted by wiggin
Add in the new college grads who can't find jobs, in debt up to their ears, having to move back home or stay in school for a graduate degree, etc. It's different than the 80's, because at least back then we didn't carry so much educational debt, and housing was (relatively) more affordable. Even a few years ago, teachers were being added, but now it's...oops
Okay, so people are having trouble in the worst recession in 80 years. That's irrelevant. It has nothing to do with investing.
Funny how we can read the same OP, in the same thread, and come to different conclusions. ;)Quote:
Originally Posted by wiggin
I thought the "relevancy" had everything to do with the worst recession in 80 years; people who had followed traditional investment strategies have gotten burnt. Blindsided. Skiddish. Confused. It's a confidence and trust issue. I really don't know what you gain by ignoring these very real sentiments, wiggin. :confused:
A large part of the growth in investing, and the financial markets, is due to the changes from defined-benefit to defined-contribution pension plans. And the 80 million American baby boomers coming of age under this new scheme. This is relatively new, practically a phenomenon. It may seem like stocks and bonds were part of everyday talk, because this generation was raised with the internet and HFT (plus commercials for eTrade and Scott-Trade, and feeding your 401-K) but that belies real history.
Coupled with the uncertainty (or lack of faith) in SS, and what Washington does moving forward, are you just going to ignore "other peoples' perceptions" because you don't think they matter? It does matter, it will matter, for the overall value of YOUR portfolio.
What is mindboggling is how you are able to not see that we're not talking about 'people having trouble'. We are talking about life-long strategies being undone by the present crisis. This became utterly clear when you started to talk about the strategies retired people should use to deal with a reduced income. This is not about a little setback; this is about pension plans that blew up.Quote:
Originally Posted by wiggin
:up: to Hazir.
The days of working hard and being loyal to a company for 30 years, to retire with a modest "old-age pension" and a gold watch died a long time ago. BUT, not all of the people raised in that sphere are dead, they're just older now. They still have to buy food, pay for utilities, and Medicare premiums plus OOP costs for their hip replacement or heart medications. After their pension tanked (because the company stock tanked, or they went bankrupt or closed shop), many are left with not much but SS.
Wealthy folks can absorb this. They can lose lots of "value" in their savings, even make mistakes, and still be okay. So can the very poor, because our safety nets will help them. But the middle class can't. Millions of folks who thought they'd attained middle class status have found they're really hadn't. Some of the folks who were strongly middle class have lost ground and become the working poor.
In reality, everyone has "moved one rung down". That doesn't make the American poor as poor as Somalians. But it does change the optimism and behaviors of the middle class. It's the middle class that runs and feeds our economy. Lose the middle class and we may as well kiss it all goodbye.....
I can understand where Wiggin is coming from though. He is young and invincible; as long as he doesn't do anything foolish he will be fine. It's the same way millions of retired or near-retired Americans felt 30, 40, 50 years ago. I really feel that government bond funds have become as risky as mutual stock funds; taxpayers can't possibly bail themselves out while still paying the interest on the bonds. And with tax revenue falling, well, how long can we even continue paying the interest?
Yes. We've all been there. ;)Quote:
Originally Posted by Being
I agree. And who bails out government debt, after they bailed out everyone else, by buying their debt?Quote:
It's the same way millions of retired or near-retired Americans felt 30, 40, 50 years ago. I really feel that government bond funds have become as risky as mutual stock funds; taxpayers can't possibly bail themselves out while still paying the interest on the bonds. And with tax revenue falling, well, how long can we even continue paying the interest?
"Printing" money is costly to people holding government bonds.Quote:
Originally Posted by GGT
Quote:
Originally Posted by Being
And what's the "conventional wisdom to older people or those closer to retirement"? Allocate more in government bonds and cash deposits.... :haha: :mad:
I can talk from both sides of my mouth, because I invest for myself (as an old geezer) as well as my sons (who have more time and risk tolerance). Totally different portfolios and strategies.
At some point it becomes like watching a great movie a second or third time around, in another language, with subtitles. I know how it ends, with diminishing returns, but my kids could really give a crap. Yet. They won't care until it's archived and revived, for its "uncanny prophecy".
Not just worried. A whole lot of people who've been saving for decades are fucked. No job, house underwater, and a crumpled 401k. Now what?Quote:
Originally Posted by GGT
Heard an interview with the editor of the Wall Street Journal just this morning who was making noise that the bond market is bubbled up now. Guess who's going to get fucked next?Quote:
Even the traditionally safe bond market is being tested (when govts start buying bonds there's trouble) and muni's are wrapped up in bankrupt states. Banks borrow from a discount window and buy treasurys, instead of lending to each other or consumers. And no--it hasn't always been this way.
He keeps the paradigm that makes him feel safe and comfortable. We all do that.Quote:
Originally Posted by GGT
Relatively? Its completely different and a first time ever. That was part of the point. People point to this phenomenon and start dispensing life-advice like its the way civilization has run since the beginning. Then the whole thing falls apart and its like WTF.Quote:
This is relatively new, practically a phenomenon.
Its not just perception. Its reality. Wigs has a level of faith in the Markets that has not been rewarded by reality. There's no reason to believe this whole monstrosity isn't regularly and continuously manipulated by insiders for their own benefit. And remember everybody, no matter what happens, no matter how bad it gets, the worst thing you can do in your 401k is sell. :|Quote:
Coupled with the uncertainty (or lack of faith) in SS, and what Washington does moving forward, are you just going to ignore "other peoples' perceptions" because you don't think they matter? It does matter, it will matter, for the overall value of YOUR portfolio.