Author Topic: Emotional (& logical) support for nervous (fledgling but older) investor  (Read 1535 times)

NewDay1

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Hi all - I'm late to the game (in my 40s) but have been maxing my 401K contributions past couple years.  Really tough to look at the loses in my very modest account.  I have a stock/bond mix.

Curious:
(1) did any of you switch to a more conservative allocation in the Fall, when things starting looking more volatile?
(2) when it gets like this how do you "rebalance" your 401Ks/IRAs - if you are in your 40s and no where near FIRE?

Thanks for any advice. 

TheHardenedInvestor

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #1 on: December 26, 2018, 12:48:23 PM »
First off, everything will be fine. Secondly, you rebalance just like you would rebalance any other time. Bring your allocations in stocks/bonds back to where you want them to be.

You seem to be implying that because stocks are falling you should do something different? The only thing you should perhaps be doing differently is buying more stocks. This is the time to buy, not to panic.

tralfamadorian

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #2 on: December 26, 2018, 01:25:52 PM »
Hi all - I'm late to the game (in my 40s) but have been maxing my 401K contributions past couple years.  Really tough to look at the loses in my very modest account.  I have a stock/bond mix.

Curious:
(1) did any of you switch to a more conservative allocation in the Fall, when things starting looking more volatile?
(2) when it gets like this how do you "rebalance" your 401Ks/IRAs - if you are in your 40s and no where near FIRE?

Thanks for any advice.

1) Nope.
2) Follow your IPS on when/how to rebalance. If your portfolio is stocks/bonds, then you would most likely be selling some bonds and buying more VTSAX (on sale!).

Regarding support, I would suggest doing what you need to do to stop checking your investments or market news if the volatility is making you nervous. Block the sites you are using to check the news and delete the apps for your investment account(s).

Eric

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #3 on: December 26, 2018, 01:39:00 PM »
Really tough to look at the loses in my very modest account.

No reason to even check your balances if it bothers you.  Most 401k providers offer a periodic automatic rebalance.  Or you could choose a target date fund.  Set it and forget it for a while.


Abe

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #4 on: December 26, 2018, 01:52:07 PM »
If youíre not retiring in the next few months none of this is relevant. I look at my accounts every few months to see how to rebalance them. Usually adjust my 401k contributions to buy more of whateverís lower % than desired. I find selling from existing accounts a bit of a hassle, thatís how lazy I am about this. So far itís served me well so far. Cutting costs is much more interesting.

NewDay1

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #5 on: December 26, 2018, 03:11:40 PM »
If youíre not retiring in the next few months none of this is relevant. I look at my accounts every few months to see how to rebalance them. Usually adjust my 401k contributions to buy more of whateverís lower % than desired. I find selling from existing accounts a bit of a hassle, thatís how lazy I am about this. So far itís served me well so far. Cutting costs is much more interesting.

Thank you - what do you mean by "buy more of whatever's lower % than desired"?

rubybeth

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #6 on: December 26, 2018, 03:54:37 PM »
If youíre not retiring in the next few months none of this is relevant. I look at my accounts every few months to see how to rebalance them. Usually adjust my 401k contributions to buy more of whateverís lower % than desired. I find selling from existing accounts a bit of a hassle, thatís how lazy I am about this. So far itís served me well so far. Cutting costs is much more interesting.

Thank you - what do you mean by "buy more of whatever's lower % than desired"?

Basically rebalancing without selling anything, just buying more of whatever they need more of to make their asset allocation match what they need.

TheHardenedInvestor

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #7 on: December 26, 2018, 04:22:16 PM »
If you’re not retiring in the next few months none of this is relevant. I look at my accounts every few months to see how to rebalance them. Usually adjust my 401k contributions to buy more of whatever’s lower % than desired. I find selling from existing accounts a bit of a hassle, that’s how lazy I am about this. So far it’s served me well so far. Cutting costs is much more interesting.

Thank you - what do you mean by "buy more of whatever's lower % than desired"?

Basically rebalancing without selling anything, just buying more of whatever they need more of to make their asset allocation match what they need.

He’s saying to adjust your future allocations into the funds to buy more where you need to increase your allocation and less where you need to decrease. He’s suggesting never actually rebalancing via selling but always rebalancing futures only, which is a fine tactic as well.

Abe

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #8 on: December 26, 2018, 09:43:12 PM »
Sorry for not making that clearer, they are correct.

The potential disadvantage of doing it my way (through purchases only) is that it does take time to come back into balance, especially when your investments are large. That's probably only important when you're getting close to retirement, if ever.

For example, the latest drop shifted my asset allocation from 85% stocks / 15% bonds in September (last time I checked) to 75% stocks / 25% bonds now. I would need to buy stocks worth about 20% of my current savings to rebalance through purchasing only.

The advantage of rebalancing through purchases only is avoiding capital gains taxes on sales if you have to sell holdings that are in a taxable account. Tax-advantaged accounts aren't subject to rebalancing.

The other advantage is dollar-cost-averaging rather than lump sum purchases. For example, when do I rebalance given the current volatility? Now? Exactly on December 31st? (Again doesn't matter in long run, but can make us jittery). For me, the answer is over the next ~6 months, and the jitteriness / urge to market-time is automatically avoided. It's just another way of enforcing discipline and making it seem more like a long-term investment instead of a roller coaster.




 

TomTX

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #9 on: December 27, 2018, 06:32:32 AM »
Hi all - I'm late to the game (in my 40s) but have been maxing my 401K contributions past couple years.  Really tough to look at the loses in my very modest account.  I have a stock/bond mix.

Curious:
(1) did any of you switch to a more conservative allocation in the Fall, when things starting looking more volatile?
(2) when it gets like this how do you "rebalance" your 401Ks/IRAs - if you are in your 40s and no where near FIRE?

Thanks for any advice.

What exactly is your desired stock/bond mix? 80%/20%?

What is the current actual ratio?

How much stock buying would you need to do to get back to your desired ratio?

Stock are ON SALE CHEAP!

wenchsenior

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #10 on: December 27, 2018, 08:06:30 AM »
1) No.

2) Stick to the long term plan, just like I have since the day I started investing back in year 2000.

Dances With Fire

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #11 on: December 27, 2018, 09:24:53 AM »
Really tough to look at the loses in my very modest account.

No reason to even check your balances if it bothers you.  Most 401k providers offer a periodic automatic rebalance.  Or you could choose a target date fund.  Set it and forget it for a while.

^^^ "Don't peek" has been the message of Jack Bogle even though I do check more than most because I am in charge of several accounts. 

Eric, this is one reason I am a big fan of Balanced funds especially for those nearing "retirement" or someone not comfortable doing this on their own. Yes, it should be easy but I have found that many (most) people don't follow through because they start to  second guess themselves and start watching their accounts too much. Set it and forget it, takes a lot of the emotion out of when to re-balance, IMHO you can't beat the simplicity of automatic re-balancing.

Car Jack

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #12 on: December 27, 2018, 09:42:04 AM »
Older......

Let me laugh a while.  I was in college when you were born.

Older <walks away shaking head>

MustacheAndaHalf

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #13 on: December 27, 2018, 10:32:02 AM »
NewDay1 - Check and see if your local library has "A Random Walk Down Wall Street".  Some investment books use decades of stock market history, and those are the ones you want to read - not ideas with no proven history.  Reading that will hopefully show you past drops, and how those recoveries went.  If you invest globally (U.S. + international), even if one country's stock market gets ruined for years, you're still benefiting from the recovery of the rest.

You might also look at Vanguard Target Date 2040 or 2045.  Those funds are intended for people retiring in 20-25 years.  I personally think those funds allocate too much bonds, but it's better for you to see what Vanguard puts it's reputation behind rather than some individual poster.  :)

koshtra

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #14 on: December 27, 2018, 10:58:10 AM »
The only thing that's different is that stocks are on sale. Why would you stop buying them when they're on sale? And, even more, why would you *sell* them when there's a glut on the market?

The only time you care about bear markets is when you're right on the verge of retiring. (There's ways of dealing with that, but you can cross that bridge when you come to it. Three years before you retire you'll want a couple year's expenses' worth of bonds or something so you can "bridge" a bear market.) Right now, when you're in the accumulation phase, the longer stocks stay cheap, the better. You *want* a bear market right now. You want it to last as long as possible. This is a good thing.

PDXTabs

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #15 on: December 27, 2018, 11:04:59 AM »
(1) did any of you switch to a more conservative allocation in the Fall, when things starting looking more volatile?
(2) when it gets like this how do you "rebalance" your 401Ks/IRAs - if you are in your 40s and no where near FIRE?

1. No, I'm 100% equities, although I could probably switch to 90% and get the same returns.
2. I wouldn't.

I highly recommend The Simple Path to Wealth by J L Collins if you want to read more.

BicycleB

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Re: Emotional (& logical) support for nervous (fledgling but older) investor
« Reply #16 on: December 27, 2018, 11:05:05 AM »
Hi, @NewDay1. Great questions!

Early 50s here, FIRE (just barely) since late 40s. Stock/bond mix too. Anyway:


(1) did any of you switch to a more conservative allocation in the Fall, when things starting looking more volatile?
(2) when it gets like this how do you "rebalance" your 401Ks/IRAs - if you are in your 40s and no where near FIRE?

Thanks for any advice. 

1) Not me
2) a. I am lazy so I don't rebalance much
    b. Studies show that rebalancing more often than quarterly and less than annually are slightly less effective. The sweet spot has been the range between once per quarter and once per year, historically.
    c. "Rebalancing" means you maintain your chosen % of stocks vs bonds, either by selling the one that got too high and buying more of the cheap one, or by buying more of the cheap one until you catch up to the target %. Your choice!
    d. I mostly just sell, due to laziness and the fact I need to sell to fulfill my glorious plan of harvesting money for expenses. However, I will buy/sell in tax-advantaged accounts if the balance is out of whack next time I pull out money (a few more weeks, probably, due to property tax bill coming due).
« Last Edit: December 27, 2018, 11:08:45 AM by BicycleB »