Jump to content
EdLaFave

Potential crash?

Recommended Posts

My rule of thumb:

1. Stocks have a higher expected return in the long term.

2. Assume your stocks will drop 50% in a significant crash. Determine how much of your overall portfolio you can afford to lose. Pick a bond percentage based on that.

A 15% bond allocation gives you a 42.5% loss when stocks drop by half.

It seems DK is a tiny bit of a market timer and heading closer to my 100% stock allocation 😈. Whenever I sort out this renovation fund...I’ll be 100% stock for life!

Share this post


Link to post
Share on other sites

 

It still looks like a correction

2 hours ago, EdLaFave said:

Assume your stocks will drop 50% in a significant crash. Determine how much of your overall portfolio you can afford to lose. Pick a bond percentage based on that.

I like that idea as long as you are really clear on how much you can stand to lose. 

 

Here 's an opinion: It still looks like a correction and not something worse

https://www.marketwatch.com/story/this-still-looks-like-just-a-stock-market-correction-not-something-worse-2018-12-26/print

Share this post


Link to post
Share on other sites

We are officially past correction (10% decline) and into bear market (20% decline) territory.

lol, I like that the article essentially argues, “don’t worry everybody, if it was really bad news then the market wouldn’t be falling with such speed and force!”

As they say, nobody knows nothin...but I sure hope the article is right! If we had irrational exuberance, I’d prefer a return to sanity rather than an over-correction.

Share this post


Link to post
Share on other sites

While nobody knows what comes next, at this point anybody who is struggling emotionally with the decline should seriously consider increasing their long-term allocation to short-term bonds, CDs or something similar.  My (roughly 75/25) portfolio is down 9.5% for the year as of 12/24.  I presume Steve Schullo's conservative (30/70?) portfolio is down less than that, if at all.

Share this post


Link to post
Share on other sites
6 minutes ago, EdLaFave said:

...If we had irrational exuberance, I’d prefer a return to sanity rather than an over-correction.

Sadly, it's hard to see sanity anywhere on the horizon these days.  But when it comes to markets, what historical moment would we return to when sanity prevailed?  Curious swings in price seem to occur in pretty much every period, don't they?

Share this post


Link to post
Share on other sites

My 55 -45 portfolio is down about 8%. My small cap add on to my life strategy fund is what dragged me down more.

I think Mark  Hubbert in the article above  has it right but we will see how it all plays out. I saw on the news today that several large prominent companies posted positive  year end earnings.  

Share this post


Link to post
Share on other sites

My portfolio is also not strictly market cap weighted, and I have a few outlying investments in there (some Berkshire Hathaway shares, a REIT fund and Vanguard's junk bond fund) so I'm sure my results are a little different from a Bogleheads three fund portfolio.

Most of the "Lazy Portfolios" that marketwatch monitors seem to be down between 8 and 10.5%, though I'm not sure whether those figures are updated through yesterday.  https://www.marketwatch.com/lazyportfolio

Share this post


Link to post
Share on other sites
46 minutes ago, whyme said:

But when it comes to markets, what historical moment would we return to when sanity prevailed?  Curious swings in price seem to occur in pretty much every period, don't they?

I thought 2011 to 2016 was a reasonably sane time. Shiller PE ratio was low to mid 20s. I feel really comfortable in that valuation range, yes swings happen, but the prices remain reasonable (to me at least).

I thought September 2018 was unreasonable with the Shiller PE in the mid 30s and around 2000 things were absurd with a Shiller PE in the low 40s. In the other direction I think we hit the low teens during the financial crisis. If we get below 20, I can only conclude we’re collectively behaving in an irrational fashion. If we approach single digits, we’ve all lost our minds....and even I’ll be tempted to market time (leverage, take out loans on the house, get a second job, and buy everything I possibly can).

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×