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  • hatton1 hatton1 
    Participant
    Status: Physician
    Posts: 2655
    Joined: 01/11/2016

    The best advice that I can give you is to not check your portfolio balances in down markets.  The only reason I have checked them recently is to look for tax loss harvesting opportunities.

    The one comment that I have about the yield curve is it does not always lead to recession.  No one indicator is reliable to predict this.  Usually the stock market needs “to climb a wall of worry” to go higher.  There are a lot of stats that do not look good right now but not all recessions are like 2008 either.

    FWIW my overall portfolio is 60/40 but the new money going into my part-time jobs 401k is 100% equity because it is money I did not expect and do not need!

    #171987 Reply
     Crzyabtmtb 
    Participant
    Status: Physician
    Posts: 3
    Joined: 10/12/2016

    Dr V Investor,

    Thanks for starting this conversation!  As I read through the posts, the take home point that I’m trying to understand is the answer to the question of “what do you do when you’re just about to retire and all your investments tank?”  The underlying issue being the sequence of returns risk and running out of money too soon. The psychology of money and its value also plays heavily because no matter what the math says, the emotional component still weighs on the decision making process.  Now, I am a big baby about getting my sleep, so I want to avoid the pucker factor that keeps me up at night….

    You also bring up a point that, to me, is very critical to this conversation.  Using index funds as the retirement strategy, which relies on the concept of selling shares higher than what you bought it for to avoid the sequence of returns risk (please correct me if I am wrong…)

    So what if we adopt a different mindset right from the beginning?  What if we moved away from index investing and considered a dividend income investing strategy? (The capital appreciation versus dividend income communities are constantly trying to prove each other wrong, so I would prefer to avoid the discussion of which strategy is better for long term growth and returns, please?)

    Again, the thought process is to make sure I get my sleep and minimize any puckering.  Hypothetically, if I have a dividend income stream that still pays the bills without having to sell stocks a low point (i.e preserves the original investment value since it’s just a paper loss), how much of the stress is taken off the plate?  Would you be able to sleep better at night?  Would you be less likely to make a “bad” decision as the market tanks?

    A special shout out to Vagabond MD and hatton1 for sharing your perspectives…One of my attendings would often say, “You only look for what you know…” We all want to be where you are right now and learning how you were able to be successful helps us get the “know”!

    #171988 Reply
    Liked by hatton1
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 4782
    Joined: 01/12/2016

    The thing about the risk tolerance question is its treated as the most important thing. Its very important but not enough. If you say you can stomach any kind of price volatility etc….well, the appropriate response is not a portfolio of TIPS and savings accounts. The appropriate response is to get that person to understand its part and parcel of the deal and that risk can only be transformed not removed. You are always simply trading price volatility risk for longevity risk. We have to have some risk, and often way more than we’d like to reach our goals, just the way it is.

    Theres no holy grail, and often people talk about this kind of thing and the goal is to ‘beat’ the market. Thats not the point. Risk adjusted returns and having some money to deploy into a much more aggressive portfolio at a time when the deck is stacked in your favor is what appeals to me. This most likely means missing some part of the run up at the tail end. And no, you dont have to be right twice, another vapid rehearsed line. You dont even have to be terribly close, you just have to act in some manner.

    I think Neel Kashkari has the most correct view of things and his recent q/a in WSJ was good, but I dont see him being in any kind of control any time soon. The fed is dominated by people who came of age in the late 70s early 80s during that one time in history rates went crazy, a combination of a bunch of other one time factors (demographics, productivity, etc..etc…) and instead of recognizing it for the anomaly it was treat it as de facto normal (in defiance of history) so they dont treat the 2% line as symmetric as they talk it. We could spend years above 2% and barely recoup what was lost with the last decade.

    #171991 Reply
     Tim 
    Participant
    Status: Accountant
    Posts: 600
    Joined: 09/18/2018
    Splash Refinancing Bonus
    The psychology of money and its value also plays heavily because no matter what the math says, the emotional component still weighs on the decision making process.

    Click to expand…
    The underlying issue being the sequence of returns risk and running out of money too soon.

    Click to expand…

    That is what AA is supposed to address. Stocks/Bonds/Cash equivalent being the primary decision point in your strategy.

    The second decision point is the tactics you select to fill the buckets.

    Shake well and bake for 30 years and you will find out the results. Yes, is you consider the emotional component of SEQUENCE OF LOSS RISK, many would choose a more conservative AA. Fear is a great motivation factor.

    #172005 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2038
    Joined: 01/14/2017
    Hypothetically, if I have a dividend income stream that still pays the bills without having to sell stocks a low point (i.e preserves the original investment value since it’s just a paper loss), how much of the stress is taken off the plate?  Would you be able to sleep better at night?  Would you be less likely to make a “bad” decision as the market tanks?

    Click to expand…

    Dividend investing doesn’t save you from anything or prevent a pucker factor, though there is a psychological benefit to dividend investing that is not logical.  Dividends can be slashed in recessions.  Some companies have a high payout ratio to begin with, and when the revenues drop naturally so do their cash flows and ability to maintain the dividend (absent taking on more debt).  So no, I don’t advocate for dividend investing to help you sleep at night.

    #172019 Reply
    Liked by Anne, Zaphod
     Tim 
    Participant
    Status: Accountant
    Posts: 600
    Joined: 09/18/2018

    Risk is in the eyes of the beholder.
    1) permanent loss of capital
    2) permanent loss of an income stream.

    Disability, divorce, lawsuits and just life result in losses.
    How much can one afford to lose and what steps can be taken is simply a survival instinct. Divorce has the most risk of occurring. Insurance and diversified portfolios don’t help mitigate divorce. Probably working on the personal aspects of retirement will exceed any gains or alpha from investments.

    #172032 Reply
     Kamban 
    Participant
    Status: Physician
    Posts: 1718
    Joined: 08/01/2016
    The best advice that I can give you is to not check your portfolio balances in down markets. The only reason I have checked them recently is to look for tax loss harvesting opportunities.

    Click to expand…

    I have not actively checked my portfolio in a up market or a down market except once in 2-3 months. But unfortunately Quicken updates stock prices and fund prices on start up and posts my net worth in the bottom right hand bottom.

    I would not be too worried about a fall. I know it will rise at some point.But what is frustrating is to see the net worth remain the same even as I actively put in passive income and income from work into my bank account to replenish the losses in the market. I know it is illogical but somehow I would rather see a fall than be a hamster on the wheel, not moving forward at all.

    By working, I am bringing in in fresh money and not drawing on my savings when the market is down and also my mind is occupied with other things than the markets.

    To the OP – I weathered the Black Monday of 1987 better than I thought and so the declines of 2000 and 2007-08 did not faze me much even though I was 100% in stocks with no bonds.

    #172037 Reply
    Hank Hank 
    Moderator
    Status: Attorney
    Posts: 992
    Joined: 03/27/2017
    also dumped most of my income into said taxable account during all time spent deployed to Iraq, upwards of a year’s income (with the added benefit of tax free status while serving in combat zone).

    Click to expand…

    Please tell me you put the full $10K into the Savings Deposit Program for the risk free 10% and made excess employee contributions from your tax free income to hit the annual defined contribution limit.

    Making a quick assumption, back in 2007 that would have been $15,500 you could have put into the TSP.  With the excess employee contribution in a combat zone, you could have put another $29,500 of tax free funds in to hit $45K.  Better still, upon retirement or separation, the $29.5K could be rolled out to a Roth IRA.

     

    #172106 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 242
    Joined: 10/29/2017

    Theres no holy grail, and often people talk about this kind of thing and the goal is to ‘beat’ the market. Thats not the point. Risk adjusted returns and having some money to deploy into a much more aggressive portfolio at a time when the deck is stacked in your favor is what appeals to me. This most likely means missing some part of the run up at the tail end. And no, you dont have to be right twice, another vapid rehearsed line. You dont even have to be terribly close, you just have to act in some manner.

     

    You might be right.  I honestly believe there is room for a 6-8 figure investor to beat the “big boys” with skill and luck.  There’s certainly significant burden when investing 9-11 digits  that drag down the averages for the large mutual funds.

    Heres the two basic options in front of you:

    A:  You could be a full time healthcare professional making a living most could only dream of, focusing on maximizing your practice and the good you do for my patients, at an increasingly profitable rate.

    B:  You’ll catapult your surgeons income into a full time profession investing and disappear from this forum because hanging with us rubes is a waste of your time.  The opportunity is there, but the road may be harder than you can realize.

    C.  You could try to do both, not be nearly as good as you think you will be at either, and finish a little ahead or a little behind financially, but without nearly the love in your heart or love from your family and your patients.

    For me?  I realized that every hour I work on the first of the month I lose money, but every hour I work on the 30th I make a ridiculous amount, and that I have no (good) choice but to work those early month hours, and have complete discretion over how many of the profitable hours I work.   I chose to focus on healthcare and reduce distractions as best I could.  I recognized that any hour I spend on “business” that wasn’t directly profitable was better spent as quality time with those of whom I’ve taken the most from to achieve what I have.  I found that investing in a very simple, index based fund portfolio was an easy price to pay for not giving any (more) money to a financial advisor and yet still having the peace of mind to just keep producing, and enjoying the fruits of my labor without the stress of a bad investment.

    There are many in this life who are cursed with having to make the most of every decision, but most of us here honestly don’t.  Similar to those on this forum who choose to pay down advantageous debt for peace of mind, I choose not to take gambles with my investments.  I do enjoy  taking a few hundred bucks (but no ATM card) to our local casino every so often.  I get to enjoy the gamble, but with no real pain the next day, even after the worst night.  That’s good for me.

    #172134 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 242
    Joined: 10/29/2017

    Please tell me you put the full $10K into the Savings Deposit Program for the risk free 10% and made excess employee contributions from your tax free income to hit the annual defined contribution limit.

    Haha.  I was deployed the same year.  I think I “stretched” to put about $7k into my TSP, and sure didn’t max both programs.  Only having 2 months income taxable + two kids (one of which was 6 months old when I returned home) + mortgage interest means I got something like $7,000 as an Earned Income Tax Credit on my six figure income, so that was nice though.  It worked out in the end.

    #172137 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 4782
    Joined: 01/12/2016

    @molarmechanic cant quote on mobile.

    I think you’re misconstruing my main point and for sure the generalizability of it may not be clear enough. It’s hard to get across general thinking and somewhat nuanced wonky musings, and tbf, I’ve been known to flip around those things mid sentence.

    I’m not saying this is what people should do. I’m saying I understand why, their thought process and that typical comebacks like AA, etc…are never going to be enough to placate that fear and anxiety. It’s going to take a bit more.

    Also noting that while chunking money in the market and never looking may work for tons of people, the res a subset of people here that are just too into it that it simply wont be enough to keep them behaviorally safe. We are the tinkerers and while it can be moderated I dont know if it can be eliminated (I’m hoping).

    This is also realizing there is no perfect asset allocation for all times. I certainly dont plan to keep the same one my whole life. I plan to ramp up to a pretty evenly split portfolio at end of career early retirement and eventually back to all stocks for SORR.

    I think people can be pretty blaise when telling a 33 year old to go 50/50, 70/30 or somethunting it go by what amounts to feeling safe. That’s very detrimental to their long term wealth. Worse than selling a chunk of their ultimately tiny portfolio they currently have. We say lots of things as almost knee jerk reactions, but do have to be mindful of their possible long term implications. This is where a good FA would help, keep you in the risk bands appropriate for you, your age and goals, while being able to talk you through tough times, focusing on end game. This is probably the most difficult thing as a DIY.

    Everyone should know if you’re constantly changing or trying to time the market writ large, it’s a disaster. But getting some bond exposure after 2 years of hikes and tightening financial conditions? I dont see what’s wrong with that or that it means you’ve misjudged your risk tolerance. Their respective value propositions have changed, bonds are far less risky than they were in 2016, stocks more so.

    My typical advice for general in this arena is what hatton1 says, if you can, put the account on autopilot and don’t look. That’s the best. Some will though, and they need a bit more handholding, not necessarily 100% bonds.

    #172141 Reply
     Tim 
    Participant
    Status: Accountant
    Posts: 600
    Joined: 09/18/2018

    @zaphod and @molarmechanic,
    “keep you in the risk bands appropriate for you, your age and goals, while being able to talk you through tough times, focusing on end game”.

    Both of you are prudent investors and really really dang smart. How does one deal with failure? Fear of failure is what drives one to deviate from a plan.

    For many, income generation fades or like 2008 disappears. Housing and market drop 30%. Five months into your emergency fund, no FA is going to solve the problem. Putting the situation in context is huge.
    $2mm to $1.4 vs $5mm to $3.5 is whole lot different from a behavioral finance perspective.

    I really tried to explain AA to my wife. Family decision made! Stay with the plan. As usual. Then she kindly reminded me that the plan still included a new CRV next month. GEEEZ! My point is, the capacity to absorb losses depends a ton of unknowns. Fear of failure drives some to make decisions. Set and forget is sometimes not feasible. Plan for the worst, hope for the best.

    #172144 Reply
    Liked by Zaphod
     Dont_know_mind 
    Participant
    Status: Physician
    Posts: 576
    Joined: 11/21/2017

    Dr V Investor,

    Thanks for starting this conversation!  As I read through the posts, the take home point that I’m trying to understand is the answer to the question of “what do you do when you’re just about to retire and all your investments tank?”  The underlying issue being the sequence of returns risk and running out of money too soon. The psychology of money and its value also plays heavily because no matter what the math says, the emotional component still weighs on the decision making process.  Now, I am a big baby about getting my sleep, so I want to avoid the pucker factor that keeps me up at night….

    You also bring up a point that, to me, is very critical to this conversation.  Using index funds as the retirement strategy, which relies on the concept of selling shares higher than what you bought it for to avoid the sequence of returns risk (please correct me if I am wrong…)

    So what if we adopt a different mindset right from the beginning?  What if we moved away from index investing and considered a dividend income investing strategy? (The capital appreciation versus dividend income communities are constantly trying to prove each other wrong, so I would prefer to avoid the discussion of which strategy is better for long term growth and returns, please?)

    Again, the thought process is to make sure I get my sleep and minimize any puckering.  Hypothetically, if I have a dividend income stream that still pays the bills without having to sell stocks a low point (i.e preserves the original investment value since it’s just a paper loss), how much of the stress is taken off the plate?  Would you be able to sleep better at night?  Would you be less likely to make a “bad” decision as the market tanks?

    A special shout out to Vagabond MD and hatton1 for sharing your perspectives…One of my attendings would often say, “You only look for what you know…” We all want to be where you are right now and learning how you were able to be successful helps us get the “know”!

    Click to expand…

    It wouldn’t matter to me, I see money as just money, as I am not near retirement. Some people closer to retirement see it as an income stream for retirement. I can see why dividend investing and some closed end fund (CEF) are attractive to some people nearing retirement.

    Also value investors also seem to value income streams more.

    #172148 Reply
     Dont_know_mind 
    Participant
    Status: Physician
    Posts: 576
    Joined: 11/21/2017

    Theres no holy grail, and often people talk about this kind of thing and the goal is to ‘beat’ the market. Thats not the point. Risk adjusted returns and having some money to deploy into a much more aggressive portfolio at a time when the deck is stacked in your favor is what appeals to me. This most likely means missing some part of the run up at the tail end. And no, you dont have to be right twice, another vapid rehearsed line. You dont even have to be terribly close, you just have to act in some manner.

     

    You might be right.  I honestly believe there is room for a 6-8 figure investor to beat the “big boys” with skill and luck.  There’s certainly significant burden when investing 9-11 digits  that drag down the averages for the large mutual funds.

    Heres the two basic options in front of you:

    A:  You could be a full time healthcare professional making a living most could only dream of, focusing on maximizing your practice and the good you do for my patients, at an increasingly profitable rate.

    B:  You’ll catapult your surgeons income into a full time profession investing and disappear from this forum because hanging with us rubes is a waste of your time.  The opportunity is there, but the road may be harder than you can realize.

    C.  You could try to do both, not be nearly as good as you think you will be at either, and finish a little ahead or a little behind financially, but without nearly the love in your heart or love from your family and your patients.

    For me?  I realized that every hour I work on the first of the month I lose money, but every hour I work on the 30th I make a ridiculous amount, and that I have no (good) choice but to work those early month hours, and have complete discretion over how many of the profitable hours I work.   I chose to focus on healthcare and reduce distractions as best I could.  I recognized that any hour I spend on “business” that wasn’t directly profitable was better spent as quality time with those of whom I’ve taken the most from to achieve what I have.  I found that investing in a very simple, index based fund portfolio was an easy price to pay for not giving any (more) money to a financial advisor and yet still having the peace of mind to just keep producing, and enjoying the fruits of my labor without the stress of a bad investment.

    There are many in this life who are cursed with having to make the most of every decision, but most of us here honestly don’t.  Similar to those on this forum who choose to pay down advantageous debt for peace of mind, I choose not to take gambles with my investments.  I do enjoy  taking a few hundred bucks (but no ATM card) to our local casino every so often.  I get to enjoy the gamble, but with no real pain the next day, even after the worst night.  That’s good for me.

    Click to expand…

    I’m not sure if it is such a dichotomy.

    I think to become a good investor takes a long time. Also to become a good clinician. Why can’t you do both ? Don’t you need to do both to succeed ?

    I think it is a common excuse of bad investors that they say they didn’t do it well because they didn’t do it full time. Well maybe, but perhaps if you were a bad daytrader doing it 2 hours a day, you’d also have the same results doing it full-time. Thank goodness I didn’t become a full time investor earlier in my life ! We will probably all become full time investors at some stage anyway when we retire.

    I think experience and time and failure at investing teaches some essential lessons. I would always start as early as I could with investing. Perhaps you will make more mistakes but mistakes are essential. “Warren Buffett got into the investing game early. He bought his first stock — shares of Cities Service for $38 apiece — at age 11.”

    I think these lessons are universal – losing, winning, controlling risk, overconfidence, fear. You can learn this at age 11 and lost 30% of your money or when you’re 20, 30, 40, 50 or 60 with a much larger portfolio. Some of us have to learn these lessons repeatedly.

    I think a balance is best. I spent 5 years focusing on being efficient at making money clinically. I think I would have been better off spending 90% of my time clinically and the other 10% looking at my investments a bit better.

    You still have the question 5 or 10 years down the track once you have made your your money clinically – how are you going to invest it and how are you going to become a better investor ? That problem will be there…Even if you decide that index investing is the way to go.

    #172151 Reply
    Liked by Zaphod, hatton1
     Dont_know_mind 
    Participant
    Status: Physician
    Posts: 576
    Joined: 11/21/2017

    @zaphod and @molarmechanic,
    “keep you in the risk bands appropriate for you, your age and goals, while being able to talk you through tough times, focusing on end game”.

    Both of you are prudent investors and really really dang smart. How does one deal with failure? Fear of failure is what drives one to deviate from a plan.

    For many, income generation fades or like 2008 disappears. Housing and market drop 30%. Five months into your emergency fund, no FA is going to solve the problem. Putting the situation in context is huge.
    $2mm to $1.4 vs $5mm to $3.5 is whole lot different from a behavioral finance perspective.

    I really tried to explain AA to my wife. Family decision made! Stay with the plan. As usual. Then she kindly reminded me that the plan still included a new CRV next month. GEEEZ! My point is, the capacity to absorb losses depends a ton of unknowns. Fear of failure drives some to make decisions. Set and forget is sometimes not feasible. Plan for the worst, hope for the best.

    Click to expand…

    The ability to absorb losses without losing your nerve is an acquired skill that comes from experiences of drawdowns, that gets imprinted in your memory over multiple market cycles based on your experiences of your own strategy. I think it would be hard to be confident of this in 1 cycle.

    When I bought my first stock, I freaked out when I lost $100. Now I would not bat an eyelid if I was down 100k. Down 1-2M I might start sweating. 3-4M down I would be very worried. I would survive as long as I had 1M, as I know I could start again and I would be able to make it back. I think I could cope with up to a 80% drawdown. At 80% I would think about folding. I would certainly fold at 90% drawdown, because I would need to preserve the 10% to live to play another day. But that is just my current estimation. Maybe I would fold at 70% down ?

    #172152 Reply
    Liked by Zaphod, Tim, hatton1

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