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Originally Posted by
GGT
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:
People who didn't follow sound investing principles got shafted. Everyone else just is having a very difficult time, as with any major recession. If you take any concept of good planning in the middle of the worst economic meltdown in a century, of course it will look like a transiently bad idea. That's why you plan for 'fat tail' events - another part of fundamental investing. People can be as skittish as they want, it doesn't change the validity or lack thereof of an underlying strategy.
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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.
Historical P/E ratios don't really support this argument. If it did, stocks would have been grossly overvalued for quite some time, when in reality it's only been overvalued in recent years.
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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.
Perception is largely irrelevant to long-term investing. Companies will still throw off dividends regardless of the stock price, and bonds will still get paid irrespective of demand for them (in fact, both bonds and stocks are much better deals when no one wants them).
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Originally Posted by
Hazir
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.
I understand, Hazir, I just think that people's strategies were wrong and had very poor risk management. We know people are largely idiots with their money, and throw money into ridiculous bubbles - whether it's bank stocks, tech stocks, real estate, or anything else, people are stupid. That's not a good investment strategy. Even if all they did was keep a higher stock allocation because they figured stocks were doing so well they couldn't go down, that's still an incredibly stupid idea.
I know very few sober-minded and careful investors who have been seriously burned by this recession. Sure, they've taken large hits to their portfolio, but their quality of life is not in significant danger - mostly because they live well within their means.
Pensions have nothing to do with this, as it doesn't fit into investing advice, which is what this thread is about (same goes to you, GG). I understand that someone whose defined benefit has just been slashed is going to be in trouble, since they've been banking on that for the rest of their retirement. But people whose primary retirement is through savings and investing are a whole 'nother story.
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Originally Posted by
Being
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?
*yawns* I have a lot of worries about my future, mostly due to uncertainties about what the world economic situation will look like in 40-plus years when I retire. I'm hardly invincible. That's why I'm saving so aggressively now - over 20% of our gross income, currently, probably jumping to about 40% when I get a real job.
You're wrong about bonds, too, but that's okay. Most people are.
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Originally Posted by
GGT
And what's the "conventional wisdom to older people or those closer to retirement"? Allocate more in government bonds and cash deposits.... :haha: :mad:
Do explain why this is incorrect (though I would throw in an annuity as well).
All you guys have been saying is that there are risks in the market. I agree, but I contend that investing principles takes into account these risks in any decent plan. You have yet to explain why conservative investing and risk management isn't a sound practice.
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Originally Posted by
EyeKhan
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?
A lot of people bought houses who shouldn't have (or spent more than they could afford). Not my problem; doesn't change the basics of investing, but rather supports the fundamentals. I certainly can't imagine I'm going to buy a house for another 5 years at the outside, and maybe not until much later. I want to be able to cover our costs with just one income, and that doesn't leave us with much house-buying ability right now. Hell, in our next likely location the 'buying' premium is quite high, so we'll probably stick with renting for the foreseeable future. That's sound investing, not buying a house just because you can get cheap financing.
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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?
Bond markets may be overvalued right now, agreed. That's why periodic rebalancing is a good idea.
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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.
Do explain the new paradigm.
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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. :|
Uhm, where have I said I have faith in the markets (presumably, to give me a consistent and decent return)? I just realize that I have to accept some volatility risk if I want to get better return.
The worst thing you can do for stocks in a downturn is sell them, yes. That's a waste of a lot of built-up value, follows a herd mentality, and drastically undervalues your actual holdings. Sell during good times is generally a good rule.
All of you condescending 'wise' men are talking a lot, but you have yet to actually point to some fundamental part of investing strategy that is wrong (nor offer an alternative strategy). All you guys have said is that there is risk in the markets, and some people get burned by poor risk management. I agree.
