Author Topic: Stocks are not risky  (Read 1568 times)

frugledoc

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Stocks are not risky
« on: July 18, 2019, 11:40:56 AM »
Iím a pretty experienced investor now, and follow the bogleheads way.  I have a one fund portfolio with vanguard all world etf in all our accounts. 

Over the years I did diversify into P2P and crowdfunded property.  I never lose sleep over my equities, and December last year was literally nothing.  I wish the market would do that again and stay down for 10 more years of accumulation.

The other legacy investments have made me decent money, but liquidity is poor and I have found that a lot of the companies offering these investments have turned out to be untrustworthy occasionally fraudulent.

My goal now is to rebalance everything back to a portfolio that only has global equities and maybe some global bonds.  Itís going to take at least 5 years to wind down my other investments and I definitely do not still want to be dealing with them when I retire.

A broad ETF will never go to zero, whereas I have had quite a few P2P loans zero out, even when asset backed.  The crowdfunding property company I invest with has just slapped on a 1% AUM charge after 5 years of 0%

TL:DR equities are the best, come what come may, even a 50% drop.

dandarc

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Re: Stocks are not risky
« Reply #1 on: July 18, 2019, 11:44:24 AM »
If that 50% drop could come in 2-4 weeks, that would be super for me.

SeattleCPA

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Re: Stocks are not risky
« Reply #2 on: July 18, 2019, 11:58:47 AM »

TL:DR equities are the best, come what come may, even a 50% drop.

Hmmm. I'd say the recent "rate of return of eveything" study suggests equities (a) aren't as good as many currently think and (b) aren't always best.

A pretty good choice? Agreed. Best? I think that depends on the investor...

frugledoc

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Re: Stocks are not risky
« Reply #3 on: July 18, 2019, 12:40:43 PM »

TL:DR equities are the best, come what come may, even a 50% drop.

Hmmm. I'd say the recent "rate of return of eveything" study suggests equities (a) aren't as good as many currently think and (b) aren't always best.

A pretty good choice? Agreed. Best? I think that depends on the investor...

Returns arenít everything though.  I want an ultra simple, tidy portfolio that requires pretty much zero management

vand

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Re: Stocks are not risky
« Reply #4 on: July 18, 2019, 12:53:09 PM »
If stocks aren't risky then why don't you leverage up your portfolio by a factor of 300% or 400%?


frugledoc

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Re: Stocks are not risky
« Reply #5 on: July 18, 2019, 01:25:09 PM »
If stocks aren't risky then why don't you leverage up your portfolio by a factor of 300% or 400%?

Too lazy, sounds like effort, and then they could go to zero which is risky

Maenad

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Re: Stocks are not risky
« Reply #6 on: July 18, 2019, 01:29:04 PM »
If stocks aren't risky then why don't you leverage up your portfolio by a factor of 300% or 400%?
Because while stocks aren't necessarily risky, they are volatile.

Laserjet3051

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Re: Stocks are not risky
« Reply #7 on: July 18, 2019, 01:40:51 PM »
If you truly believe stocks are "not risky," then why would you state that moving forward your portfolio would have "maybe some global bonds?" What would the purpose be for including bond funds in this scenario?

frugledoc

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Re: Stocks are not risky
« Reply #8 on: July 18, 2019, 01:45:09 PM »
If you truly believe stocks are "not risky," then why would you state that moving forward your portfolio would have "maybe some global bonds?" What would the purpose be for including bond funds in this scenario?

I probably wonít buy any bonds, maybe 5% just to enjoy a bit of pointless buy the dip.  At the moment I have monthly income from my job and from my alternative assets that Iím rebalancing in.  Iíll miss not having frequent large lumps to invest.

bbates728

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Re: Stocks are not risky
« Reply #9 on: July 18, 2019, 02:02:14 PM »

TL:DR equities are the best, come what come may, even a 50% drop.

Hmmm. I'd say the recent "rate of return of eveything" study suggests equities (a) aren't as good as many currently think and (b) aren't always best.

A pretty good choice? Agreed. Best? I think that depends on the investor...

Hey! I am a CPA in Seattle too! Cool!

Thanks for mentioning that study. It inspired me to take a look at it and I am surprised that real estate and equities have been so close! Quite an interesting read.

vand

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Re: Stocks are not risky
« Reply #10 on: July 18, 2019, 02:07:28 PM »
If stocks aren't risky then why don't you leverage up your portfolio by a factor of 300% or 400%?
Because while stocks aren't necessarily risky, they are volatile.

Why should volatility matter if you don't consider it a risk? Or are you saying that volatility is a risk?

If you are convinced that the market is going to return a certain rate over a period of time and you are 100% certain that you will be remain fully invested, it would make complete sense to borrow money at anything below that rate and then just tune out and forget about everything else and collect your excess return at the end, wouldn't it?

Volatility, and especially downside volatility is portfolio risk. There are lots of risk metrics that have been devised down the year that do a very good job of quantifying portfolio risk.. Sharpe ratio, sortino ratio, calmer ratio, gain to pain ratio, Value at risk.... There is a whole industry devoted to measuring portfolio risk.

To claim that as an asset class equities carry no risk is naive and, frankly, uninformed.

And that is just portfolio risk I am talking about. What would the community's reaction be, I wonder, it tomorrow's headline was "Vanguard group goes bust?" Not likely, granted, but counterparty risk is never absolutely zero.
« Last Edit: July 18, 2019, 02:11:17 PM by vand »

TheAnonOne

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Re: Stocks are not risky
« Reply #11 on: July 18, 2019, 02:23:18 PM »
If stocks aren't risky then why don't you leverage up your portfolio by a factor of 300% or 400%?
Because while stocks aren't necessarily risky, they are volatile.

Why should volatility matter if you don't consider it a risk? Or are you saying that volatility is a risk?

If you are convinced that the market is going to return a certain rate over a period of time and you are 100% certain that you will be remain fully invested, it would make complete sense to borrow money at anything below that rate and then just tune out and forget about everything else and collect your excess return at the end, wouldn't it?

Volatility, and especially downside volatility is portfolio risk. There are lots of risk metrics that have been devised down the year that do a very good job of quantifying portfolio risk.. Sharpe ratio, sortino ratio, calmer ratio, gain to pain ratio, Value at risk.... There is a whole industry devoted to measuring portfolio risk.

To claim that as an asset class equities carry no risk is naive and, frankly, uninformed.

And that is just portfolio risk I am talking about. What would the community's reaction be, I wonder, it tomorrow's headline was "Vanguard group goes bust?" Not likely, granted, but counterparty risk is never absolutely zero.

I think Vanguard going broke has been discussed, and ultimately, they return the assets to the people invested.

I agree that equities have much risk, but MANY things can be mitigated.

Risk you need to sell when down

frugledoc

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Re: Stocks are not risky
« Reply #12 on: July 18, 2019, 02:23:55 PM »
So I have around $1 million  in vanguard all world stock , how would I leverage it. Itís  mostly  tax sheltered/efficient at the moment. My broker is one of the largest in the U.K. but theyíve never offered to lend me money to invest.  I like to keep it simple.

TheAnonOne

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Re: Stocks are not risky
« Reply #13 on: July 18, 2019, 02:25:00 PM »
If stocks aren't risky then why don't you leverage up your portfolio by a factor of 300% or 400%?
Because while stocks aren't necessarily risky, they are volatile.

Why should volatility matter if you don't consider it a risk? Or are you saying that volatility is a risk?

If you are convinced that the market is going to return a certain rate over a period of time and you are 100% certain that you will be remain fully invested, it would make complete sense to borrow money at anything below that rate and then just tune out and forget about everything else and collect your excess return at the end, wouldn't it?

Volatility, and especially downside volatility is portfolio risk. There are lots of risk metrics that have been devised down the year that do a very good job of quantifying portfolio risk.. Sharpe ratio, sortino ratio, calmer ratio, gain to pain ratio, Value at risk.... There is a whole industry devoted to measuring portfolio risk.

To claim that as an asset class equities carry no risk is naive and, frankly, uninformed.

And that is just portfolio risk I am talking about. What would the community's reaction be, I wonder, it tomorrow's headline was "Vanguard group goes bust?" Not likely, granted, but counterparty risk is never absolutely zero.

I think Vanguard going broke has been discussed, and ultimately, they return the assets to the people invested.

I agree that equities have much risk, but MANY things can be mitigated.

Risk you need to sell when down (main worry for me)
- Carry big enough emergency fund

Risk stocks under perform during your accumulation phase (2ndary worry for me)
-Work longer and invest more

Risk country explodes and stocks do go to 0
-Stocks are pointless here

TheAnonOne

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Re: Stocks are not risky
« Reply #14 on: July 18, 2019, 02:26:10 PM »
So I have around $1 million  in vanguard all world stock , how would I leverage it. Itís  mostly  tax sheltered/efficient at the moment. My broker is one of the largest in the U.K. but theyíve never offered to lend me money to invest.  I like to keep it simple.

Yeah, you can't easily get margin in this situation. Though, you could do a rollover into somewhere you COULD leverage. Again, I am with you, it is an unnecessary risk.

Davnasty

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Re: Stocks are not risky
« Reply #15 on: July 18, 2019, 02:35:48 PM »
To claim that as an asset class equities carry no risk is naive and, frankly, uninformed.

And that is just portfolio risk I am talking about. What would the community's reaction be, I wonder, it tomorrow's headline was "Vanguard group goes bust?" Not likely, granted, but counterparty risk is never absolutely zero.

the word "risky" is subjective and relative. No one said there is zero risk, and if they did, they were wrong. Everything has some amount of risk.

When I walk out my front door there is a risk that I will trip, hit my head, and die. I do not consider walking out the door a risky activity.

Davnasty

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Re: Stocks are not risky
« Reply #16 on: July 18, 2019, 02:41:07 PM »
If you are convinced that the market is going to return a certain rate over a period of time and you are 100% certain that you will be remain fully invested, it would make complete sense to borrow money at anything below that rate and then just tune out and forget about everything else and collect your excess return at the end, wouldn't it?

If you know of somewhere I can get a fixed rate, non callable loan then yes.

vand

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Re: Stocks are not risky
« Reply #17 on: July 18, 2019, 02:45:05 PM »
So I have around $1 million  in vanguard all world stock , how would I leverage it. Itís  mostly  tax sheltered/efficient at the moment. My broker is one of the largest in the U.K. but theyíve never offered to lend me money to invest.  I like to keep it simple.

Open a trading account and buy future contracts on margin would be the most simple way.

frugledoc

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Re: Stocks are not risky
« Reply #18 on: July 18, 2019, 03:03:09 PM »
So I have around $1 million  in vanguard all world stock , how would I leverage it. Itís  mostly  tax sheltered/efficient at the moment. My broker is one of the largest in the U.K. but theyíve never offered to lend me money to invest.  I like to keep it simple.

Open a trading account and buy future contracts on margin would be the most simple way.

That sounds risky for a volatile but otherwise non risky asset class

vand

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Re: Stocks are not risky
« Reply #19 on: July 18, 2019, 03:11:45 PM »

I think Vanguard going broke has been discussed, and ultimately, they return the assets to the people invested.

I agree that equities have much risk, but MANY things can be mitigated.

Risk you need to sell when down

I was just throwing that "Vanguard going broke" thing out there really. Ultimately there's not much precedent for something like that happening despite what the intended protocol is. Just like to point out that most people who believe they own stocks technically own a credit with their platform provider, Vanguard or whoever. The "buying a tiny piece of every company" yarn is appealing but it's not quite the ultimate truth.

"Risk you need to sell when down" is hitting the nail on the head for me, because life tends to throw curveballs at you, especially as you get older. Ask 1000 investors if they plan on selling in the next bear market and you will get 1000 replies saying "no, I'll buy more". Of course actions tend to speak louder than words and the number of those who actually do that is small. You many have absolutely no intention of selling when the market tanks, but even if you still have unswerving faith in your strategy you may find yourself becoming a forced seller.


TheAnonOne

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Re: Stocks are not risky
« Reply #20 on: July 18, 2019, 03:27:21 PM »

I think Vanguard going broke has been discussed, and ultimately, they return the assets to the people invested.

I agree that equities have much risk, but MANY things can be mitigated.

Risk you need to sell when down

I was just throwing that "Vanguard going broke" thing out there really. Ultimately there's not much precedent for something like that happening despite what the intended protocol is. Just like to point out that most people who believe they own stocks technically own a credit with their platform provider, Vanguard or whoever. The "buying a tiny piece of every company" yarn is appealing but it's not quite the ultimate truth.

"Risk you need to sell when down" is hitting the nail on the head for me, because life tends to throw curveballs at you, especially as you get older. Ask 1000 investors if they plan on selling in the next bear market and you will get 1000 replies saying "no, I'll buy more". Of course actions tend to speak louder than words and the number of those who actually do that is small. You many have absolutely no intention of selling when the market tanks, but even if you still have unswerving faith in your strategy you may find yourself becoming a forced seller.

Great minds man, great minds.

vand

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effigy98

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Re: Stocks are not risky
« Reply #22 on: July 18, 2019, 07:44:40 PM »

Radagast

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Re: Stocks are not risky
« Reply #23 on: July 18, 2019, 07:49:32 PM »
I think stocks are very risky. I also think that every alternative, in isolation, is at least as risky or even worse, but generally with lower returns. Real estate may be an exception but that is more work. A stock heavy balanced portfolio seems like a good compromise.

Worth a read, this:

https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio?fbclid=IwAR2YCu58WDJwbqCJKu2LMxuA8WAgBRG1eR2gRrYE820fWQ2eO77ctZNr0F8

Thanks for the link! It was a decent read. I wondered why gold type things suddenly exploded starting yesterday morning, apparently Mr. Dalio caused it personally.

markbike528CBX

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Re: Stocks are not risky
« Reply #24 on: July 19, 2019, 05:09:27 AM »
Worth a read, this:

https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio?fbclid=IwAR2YCu58WDJwbqCJKu2LMxuA8WAgBRG1eR2gRrYE820fWQ2eO77ctZNr0F8

I read blah blah blah, then without a shred of confirmatory evidence, GOLD.

Not terribly original.
The Money Bubble by James Turk and John Rubino (2013) is a book length version, and does show the why gold part of the argument.

edit to add authors and dates
« Last Edit: July 19, 2019, 05:19:09 AM by markbike528CBX »