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tony

Why Your Portfolio Needs Plenty Of Stocks

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Typical recommendations nowadays propose greater equity exposure than they did 40 years ago, but it is still the overwhelming view among investment counselors that people should reduce their holdings of common stock and beef up their ownership of bonds as they grow older.

Problem is, it wasn’t very good advice back then, and it’s still poor advice today says the author of this article.

 

 

http://www.nytimes.com/2016/02/06/your-money/why-your-portfolio-needs-plenty-of-stocks-whatever-your-age.html?src=me&_r=0

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"Typical recommendations nowadays propose greater equity exposure than they did 40 years ago, but it is still the overwhelming view among investment counselors that people should reduce their holdings of common stock and beef up their ownership of bonds as they grow older.

Problem is, it wasn’t very good advice back then, and it’s still poor advice today."

 

Okay Mr. "Expert," tell that to all of the Target Date Funds in the Universe that "its still poor advice today", Show me one TDF that shows the allocation to bonds is reduced and equities are increased as one gets older!

 

This is why we need to be DIYers. The experts and the author of this article is just trying to get attention and he is not taking the risk, we are!

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Why not weight a portfolio according to valuations? So underweight stocks when they are overvalued and overweight them when they are undervalued?

If you looked at valuation measures and understood them, it would not be too difficult to change the weightings over market cycles.

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Ken,

Evaluations are a topic for Bogleheads, but even there they put statistics in perspective as all of the background number crunching are taken care of by investing in broadly diversified portfolios with low costs.

 

The audience here are mostly educators. As you know many teachers fall for annuities because few are warning them that annuities are inappropriate for the accumulation stage. They need to learn about stocks, the difference between stocks and bonds, mutual funds, the difference between a active manager mutual funds and index funds, the difference between and 403(b) and a 457(b), constructing a balanced stock and bond portfolio or simply invest in a target date fund, why teachers pension plan use balanced investments (not annuities), and finally the most important topic is why costs matter.

 

Steve

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Steve,

 

I understand that what I am posting is not investing 101 type of stuff. But every teacher client I have now gets it. Teachers are smart and can be educated on investing 101 to 401.

 

Index funds vs. Annuities is a no brainer….switching saves teachers 1-2% a year in fees. (Maybe more in some cases) This site has plenty of information on that topic. So I 100% agree with getting rid of Wall Street's high cost products and using low cost ones.

 

But I can’t get this Jack Bogle article out of my head about a 50% drop. Then I read this topic of this tread "Why Your Portfolio Needs Plenty of Stocks, Whatever Your Age"? I never read an article like that at the bottom in 2003 or 2008.

 

http://www.businessinsider.com/jack-bogle-warns-of-two-50-percent-market-declines-in-next-10-years-2013-4

 

I've been watching markets for +20 year & now I am watching the 3rd stock market bubble blow up right in front of our faces. How much should investors of had in stocks in 2000-2003 or 2008?

 

I can keep my thoughts to myself or try to make investors aware of the reasons behind why index funds might drop 50% again? This does not happen randomly as some Guru's theory states. https://en.wikipedia.org/wiki/Random_walk_hypothesis It is happening for a reason = valuations.

 

So what do you think would be a helpful proactive way to help teachers weather this storm? I do not agree with “doing nothing”. Statistics tell me investors will panic and not stay the course. Low correlations of fund selection is one thing that can help. Raising cash levels is another.

 

Ken

 

PS: I find it interesting that Vanguard is adding new Alternative investments to there line-ups.

 

https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/productoverview?fundId=1298

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Steve

 

Yes you are so right. I enjoy Ken's articles and comments because its all educational but I feel if you set up your portfolio in a thoughful manner and are comfortable with its allocation and understand the ramifications of your portfolio decisions both positive and negative tham staying the course is all you really need to do. I just think too many financial pundits these days are sending panic to the general population of investors which only encourges sell offs and fear.

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Thanks Ken,

 

But this allocation did lose 11.5% in 2008. Of course, that stock market crash was the worst since the Great Depression and averages from analyses programs produces averages.

In real life, since 2008, my portfolio returned between 2.5-10%. The lowest was a minus .005% in 2015. I pay extremely low costs since 2004, and wow has that paid off!

 

Steve

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