Investing 102

[GregWeld]

Originally Posted by Vegas69

Happy Thanksgiving fellas!

What do you think? I ran across this ALL WEATHER portfolio by Ray Dalio in Tony's book. Seems like it could be a good strategy for those close to retirement if nothing else.
https://youtu.be/c0ARb1N-3kM

My only thought on this -- is that TONY is about RISK..... rather than making money - he really only continues to hammer "risk". As I've said on here many times -- in a big ass downturn -- like 2008 (which he mentions many times) you have to realize there was NO ASSET CLASS that didn't get pounded! Housing - bonds - stocks - commercial real estate.

Here's the biggest take away ---


The ONLY people that lost money from 2008 are the idiots that SOLD what they had. The "weak hands" got killed when they gave their assets away. People like me - made a killing BUYING those "distressed" assets. Your loss is my gain.


The key to investing is to invest steadily -- and NEVER invest money that'll you're going to need to live on.... and to buy MORE assets when they're cheap. Whatever those "assets" are. Diversification is great - should be done - and no... all of your assets shouldn't be just in the stock market. But first you have to build a nest egg to start with - and that's the key!

[DBasher]

Originally Posted by GregWeld

The key to investing is to invest steadily -- and NEVER invest money that'll you're going to need to live on.... and to buy MORE assets when they're cheap. Whatever those "assets" are. Diversification is great - should be done - and no... all of your assets shouldn't be just in the stock market. But first you have to build a nest egg to start with - and that's the key!

Damn you Weld!! Why do have to make so much sense?
Thanks again

[Woody]

Originally Posted by Vegas69

Happy Thanksgiving fellas!

What do you think? I ran across this ALL WEATHER portfolio by Ray Dalio in Tony's book. Seems like it could be a good strategy for those close to retirement if nothing else.
https://youtu.be/c0ARb1N-3kM

The thing that scares me about this the most is being heavily allocated in bonds right now. The allocation has worked in the past 20-25 years because bond rates have been on a long term downward trend. If you have 50+% of your portfolio in bonds and interest rates start increasing on a long term basis, what do you think your returns are going to be? That asset allocation will not work well in a rising interest rate environment. Especially if you use mutual funds for your bond allocation because the NAV of the mutual fund will be declining.

I can not pretend to know what is going to happen to interest rates in the future, but it seems to me there is a greater potential for rates to increase than to continue the downward trend. We may have already hit the lows in interest rates.

[GregWeld]

Originally Posted by Woody

The thing that scares me about this the most is being heavily allocated in bonds right now. The allocation has worked in the past 20-25 years because bond rates have been on a long term downward trend. If you have 50+% of your portfolio in bonds and interest rates start increasing on a long term basis, what do you think your returns are going to be? That asset allocation will not work well in a rising interest rate environment. Especially if you use mutual funds for your bond allocation because the NAV of the mutual fund will be declining.

I can not pretend to know what is going to happen to interest rates in the future, but it seems to me there is a greater potential for rates to increase than to continue the downward trend. We may have already hit the lows in interest rates.

The very very last place a person wants to be is in BONDS.... Period. Unless they're 10% triple tax frees... THEN I'd be in bonds.

[Vegas69]

Updated facts a few posts down...

One of my key takeaways is that most folks close to retirement go into 60% bonds and 40% stocks. They can have their principal murdered in a soft market in both stocks and bonds. Lets be real here, a majority (95%+) of Americans live off their principal plus interest. They aren't wealthy enough to live off dividends alone and must draw on their principal to live. A recession like 2008 destroys their retirement income and their just isn't enough time to recover.

If anyone is interested in more info, it's in the book "Money" master the game by Tony Robbins.

[GregWeld]

Originally Posted by Vegas69

I believe one of the bonds is inflation protected. Supposedly they analyzed it over 75 years and it averaged 10% with the largest loss being 3.6%. We've had the inflationary periods in the last 75 years. I have a book that discusses it in much greater detail. Portions of it thrive in all four seasons which are: leveraging, de-leveraging, deflation, and inflationary markets.

One of my key takeaways is that most folks close to retirement go into 60% bonds and 40% stocks. They can have their principal murdered in a soft market in both stocks and bonds. Lets be real here, a majority (95%+) of Americans live off their principal plus interest. They aren't wealthy enough to live off dividends alone and must draw on their principal to live. A recession like 2008 destroys their retirement income and their just isn't enough time to recover.

If anyone is interested in more info, it's in the book "Money" master the game by Tony Robbins.

All good points Todd!

[SSLance]

We were in that boat in 2007-2008, had over 3/4s our portfolio in high yield muni bonds that got hammered... What killed me is the muni's got hammered in net asset value mainly because of "mark to market" rules and they got drug down by association, not by any fault of their own. Imagine a 45% loss in the net asset value loss of a "safe" investment.

Thankfully we had the foresight to double down, we sold all the munis and bet big on small and large cap stocks and made it all back in less than 6 months...and then some. Many people later in their lives did not make that bet and lost bigly...

The taint of that loss has kept me from EVER even thinking about Munis again, even though I see the attractive looking yield returns on them from time to time.

[Vegas69]

I broke out the book and here is the breakdown:

7.5% Gold
7.5% Commodities
15% US Intermediate Bonds
40% US Long Term Bonds
30% Stocks/Index Fund

The portfolio must be rebalanced every year, minimum.

He claims there are four economic seasons this strategy is based on:
1. Inflation
2. Deflation
3. Rising economic growth
4. Declining economic growth

The average return from 1984-2013 was 9.72%.

I'm not even close to being an expert on this stuff or utilizing this strategy at this point. I just thought it was interesting and it got me thinking about taking advantage other types of markets with different strategies and buckets.

"Bull markets start at the time of pessimism. The rise on the time of skepticism. They mature at the time of optimism, and they end at the time of Euphoria!"-John Templeton

[GregWeld]

I shouldn't have to remind any of you that today is the first day of DECEMBER --- and why is that important??

Because you need to get your rebalancing - if you do any - done this month and you can't wait til the very end of the year. Remember there are SETTLEMENT dates, and holidays... and weekends....

Be sure to check for dividend EX dates before you punch the sell button...

Be sure you're not setting up a "wash sale"!

Don't be afraid to TRIM if that makes you feel good or you still need to diversify.

REMEMBER WE ARE IN A RISING INTEREST RATE MARKET!!!! Anything with lower dividend rates can get taken down.... So no point in riding a nice gain into the sunset because you couldn't pull the trigger! In other words --- I've been out of ALTRIA (MO) except in the longer term retirement accounts.

DO NOT make the mistake of just looking at what the shares are paying on TODAYS share price -- and make the decision they don't pay enough!! CALCULATE YOUR OWN RATE OF RETURN ON YOUR COST BASIS.

Now -- look at your gain or loss if any -- what does the return look like going forward.... IT'S A GUESS! Will the EARNINGS be higher -- thus causing the P/E to stretch it's valuation?? Will rates rise faster than their ability to raise the dividend rate? It's ALWAYS about EARNINGS. But it's also about rate of return and money moves away from lower rates of return to keep up with current "scenario". Don't forget that.

Markets ARE ALWAYS CYCLICAL! Try to move WITH the market - you're too late.... the move that finally told you that the train left the station - the big money already moved there. You're going to sell something low to buy something high.... and that is trying to TIME the market... or rather what it really is CHASING the market.... <Buzzer here> Be certain when you're doing that - that there is MORE left to run and that doesn't mean just this afternoon!

[GregWeld]

Originally Posted by Vegas69

I broke out the book and here is the breakdown:

7.5% Gold
7.5% Commodities
15% US Intermediate Bonds
40% US Long Term Bonds
30% Stocks/Index Fund

The portfolio must be rebalanced every year, minimum.

He claims there are four economic seasons this strategy is based on:
1. Inflation
2. Deflation
3. Rising economic growth
4. Declining economic growth

The average return from 1984-2013 was 9.72%.

I'm not even close to being an expert on this stuff or utilizing this strategy at this point. I just thought it was interesting and it got me thinking about taking advantage other types of markets with different strategies and buckets.

"Bull markets start at the time of pessimism. The rise on the time of skepticism. They mature at the time of optimism, and they end at the time of Euphoria!"-John Templeton

Todd ---- I'm not "disputing" any of the information in the book or tape or anything else. But INVESTING 102 is about SIMPLE - reliable - relatively safe - understandable basic saving and growing money. People can barely recite the 10 stocks they own or want to own..... Let alone keep track of "asset allocation" and all it's nonsense. Sorry.

The below info has been factual for years and years.... and, of course, are AVERAGES -- and don't account for many years of LOWS or spectacular rises (like 2008 to present).



Siegel found that stocks have been returning a long-term average of about seven percent for 200 years.

If you’d purchased one dollar of stocks in 1802, it would have grown to more than $750,000 in 2006.

If you’d instead put a dollar into bonds, you’d have just $1,083.

And if you’d put that money in gold? Well, it’d be worth almost two bucks — after inflation.

Siegel’s findings aren’t unique. In fact, every book on investing shows the same thing. Over the long term, the stock market produces an average annual return of about 10%.