I have the gold (GTU), the bonds (TLT) and the cash but wouldn't you have to be nuts to buy a stock index fund now? Most of my money is in work retirement account (TSP) and I can chose from including S/P 500 index fund, small cap index fund and international stock index fund all of which have been negative for the last 5 months straight. Given Greece, The Euro and US debt it seems very unlikely to me that the dow will be having a bull market next week. If you held a gun to my head and said that I MUST buy stocks now, I'd pick scattered individual stocks e.g. google, amazon, etc, but I know that isn't a great idea either. And yes I know what I am doing isn't PP, and will be glad to buy some index fund if there is some indication of turnaround e.g. even one or two months of positive returns, but 5 straight months of negative returns with current world events?
Thoughts?
Thanks for your time.
Starting PP and hesitant to buy any stock now
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Starting PP and hesitant to buy any stock now
Last edited by Benko on Fri Oct 07, 2011 5:27 pm, edited 1 time in total.
It was good being the party of Robin Hood. Until they morphed into the Sheriff of Nottingham
Re: Starting PP and hesitant to buy any stock now
The main advice you are going to hear on this forum is that the stock market is unpredictable. You have to embrace that notion, and everything that comes with before the PP begins to make any sense.
Also, go ahead and backtest a portfolio of 33% long bonds, 33% gold, and 33% cash. You will find that your portfolio has historically been riskier than the PP. Adding stocks to your portfolio will actually decrease the fluctuations.
It can be hard to shake yourself of a specific narrative, but embracing uncertainty is very liberating. I can confidently say that I have no idea where the stock market is going, and I love the feeling I get when I say it.
Also, go ahead and backtest a portfolio of 33% long bonds, 33% gold, and 33% cash. You will find that your portfolio has historically been riskier than the PP. Adding stocks to your portfolio will actually decrease the fluctuations.
It can be hard to shake yourself of a specific narrative, but embracing uncertainty is very liberating. I can confidently say that I have no idea where the stock market is going, and I love the feeling I get when I say it.
everything comes from somewhere and everything goes somewhere
Re: Starting PP and hesitant to buy any stock now
Look at 2009 and 2010. The economy was on the brink of complete collapse and stock returns were fantastic. It could happen again in 2012, no one knows. There may even be a huge rally before the end of the year. The future is unknowable.
Re: Starting PP and hesitant to buy any stock now
Is there really no period which is GROSSLY more risky than any other? Quiet world event periods can always be punctuated by a negative world event which is unexpected, but periods like now?
"backtest a portfolio of 33% long bonds, 33% gold, and 33% cash. You will find that your portfolio has historically been riskier than the PP. Adding stocks to your portfolio will actually decrease the fluctuations."
How about I backtest that portfolio for time periods after the market has been down for 5 months in row? (not that I know how to do that). That would be a more accurate control.
"backtest a portfolio of 33% long bonds, 33% gold, and 33% cash. You will find that your portfolio has historically been riskier than the PP. Adding stocks to your portfolio will actually decrease the fluctuations."
How about I backtest that portfolio for time periods after the market has been down for 5 months in row? (not that I know how to do that). That would be a more accurate control.
Last edited by Benko on Fri Oct 07, 2011 7:09 pm, edited 1 time in total.
It was good being the party of Robin Hood. Until they morphed into the Sheriff of Nottingham
Re: Starting PP and hesitant to buy any stock now
What is your fixation with 5 month trailing returns?
Besides, let's say that the stock market rallies from here and you miss out. Would you prefer to jump in at higher prices? Why does the market have to prove itself to you before you jump in?
Look at the peak of any bubble, by definition it had performed very well before then. Also, look at any great bottom, by definition it had performed very poorly before then.
Also indices raised a great point. The news in 2009 was pretty awful. I was shocked to see equities rally the whole way up. None of it made any sense to me, but it happened and I am glad I held stocks.
Besides, let's say that the stock market rallies from here and you miss out. Would you prefer to jump in at higher prices? Why does the market have to prove itself to you before you jump in?
Look at the peak of any bubble, by definition it had performed very well before then. Also, look at any great bottom, by definition it had performed very poorly before then.
Also indices raised a great point. The news in 2009 was pretty awful. I was shocked to see equities rally the whole way up. None of it made any sense to me, but it happened and I am glad I held stocks.
everything comes from somewhere and everything goes somewhere
Re: Starting PP and hesitant to buy any stock now
I'm 51 but my only knowledge of investing comes from a coupla weeks reading (though retirement account has 15 years worth of matched contributions).
My main hesitancy is Greece and less so the euro. If Greece defaults tomorrow I would feel more secure entering the market (even more so if/when the euro is abandoned). Does everyone really think I'm over reacting to this? Remember I have large amount of money i.e. would you really feel comfortable buying large amount of index funds all at once now? I guess that part does not matter with this approach.
My main hesitancy is Greece and less so the euro. If Greece defaults tomorrow I would feel more secure entering the market (even more so if/when the euro is abandoned). Does everyone really think I'm over reacting to this? Remember I have large amount of money i.e. would you really feel comfortable buying large amount of index funds all at once now? I guess that part does not matter with this approach.
Last edited by Benko on Fri Oct 07, 2011 8:02 pm, edited 1 time in total.
It was good being the party of Robin Hood. Until they morphed into the Sheriff of Nottingham
Re: Starting PP and hesitant to buy any stock now
One really important part of investing is the realization that buying and holding are the same thing.
I am managing my parents retirement account (very important to them), and recently I did a rebalance for them. So essentially we have close to the 25% split right now. Us holding the PP today is no different from you buying in today. The market doesn't care when or if you bought something; the investment world does not revolve around nor care about any one individuals actions.
Also, if you have watched the PP carefully lately you will notice that when stocks have been rising gold and/or bonds have gone down. It is entirely possible for stocks to rally and you would be sitting on bigger losses than you might expect. You need stocks to reduce your risk profile.
If this is truly money that you want to preserve, you are taking a serious gamble by holding Treasuries and gold with no stocks as a counter-balance. 30 year Treasuries and Gold are not conservative investments in isolation. They are both very risky.
You are basically making a cookie recipe, and right now you have decided to leave out the flour because you don't like the way flour tastes on its own. Try to think of the whole recipe if you want those delicious risk-adjusted returns the PP provides.
I am managing my parents retirement account (very important to them), and recently I did a rebalance for them. So essentially we have close to the 25% split right now. Us holding the PP today is no different from you buying in today. The market doesn't care when or if you bought something; the investment world does not revolve around nor care about any one individuals actions.
Also, if you have watched the PP carefully lately you will notice that when stocks have been rising gold and/or bonds have gone down. It is entirely possible for stocks to rally and you would be sitting on bigger losses than you might expect. You need stocks to reduce your risk profile.
If this is truly money that you want to preserve, you are taking a serious gamble by holding Treasuries and gold with no stocks as a counter-balance. 30 year Treasuries and Gold are not conservative investments in isolation. They are both very risky.
You are basically making a cookie recipe, and right now you have decided to leave out the flour because you don't like the way flour tastes on its own. Try to think of the whole recipe if you want those delicious risk-adjusted returns the PP provides.
everything comes from somewhere and everything goes somewhere
Re: Starting PP and hesitant to buy any stock now
Benko--
Think of it like this...
Say you don't buy stocks, and suddenly they rally unexpectedly, and gold and bonds tank. How will you feel? What do you think the damage to your portfolio will be?
On the other hand, say you do buy stocks, and they tank by, say, 50%. Your portfolio would only take a 12.5% hit, and that's assuming that the loss is offset by gains in another asset class.
To me, the latter is the easier option to stomach.
Think of it like this...
Say you don't buy stocks, and suddenly they rally unexpectedly, and gold and bonds tank. How will you feel? What do you think the damage to your portfolio will be?
On the other hand, say you do buy stocks, and they tank by, say, 50%. Your portfolio would only take a 12.5% hit, and that's assuming that the loss is offset by gains in another asset class.
To me, the latter is the easier option to stomach.
Last edited by AdamA on Fri Oct 07, 2011 10:21 pm, edited 1 time in total.
"All men's miseries derive from not being able to sit in a quiet room alone."
Pascal
Pascal
Re: Starting PP and hesitant to buy any stock now
Good point. Buying stocks is the more conservative play which is why I am here.
Thanks all.
Thanks all.
It was good being the party of Robin Hood. Until they morphed into the Sheriff of Nottingham
Re: Starting PP and hesitant to buy any stock now
Every period has its projected disasters and popular fears. Sometimes these bad things happen, and sometimes they don't.
I have learned that these different market narratives have a way of grabbing everyone's attention for a while, and then they just sort of fade away as they are replaced by new market narratives.
The key is to build up enough mental discipline to view all market narratives dispassionately and have the courage to keep your own counsel and just buy the whole PP package. Some of the PP assets you buy will go down, and some will go up, and which ones do which will frequently surprise you. The good news is that at the end of this process historically you would have enjoyed low volatility and about 9% average annual returns.
The PP is a very simple concept. Don't let the allure of the market narrative du jour keep you from seeing things more broadly and from a longer term perspective. Once you fully grasp that 99% of financial news is just entertainment, you will be way ahead of most investors, whether or not you choose to use the PP.
I have learned that these different market narratives have a way of grabbing everyone's attention for a while, and then they just sort of fade away as they are replaced by new market narratives.
The key is to build up enough mental discipline to view all market narratives dispassionately and have the courage to keep your own counsel and just buy the whole PP package. Some of the PP assets you buy will go down, and some will go up, and which ones do which will frequently surprise you. The good news is that at the end of this process historically you would have enjoyed low volatility and about 9% average annual returns.
The PP is a very simple concept. Don't let the allure of the market narrative du jour keep you from seeing things more broadly and from a longer term perspective. Once you fully grasp that 99% of financial news is just entertainment, you will be way ahead of most investors, whether or not you choose to use the PP.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: Starting PP and hesitant to buy any stock now
I only have stocks, gold and cash but no bonds. And I'm hesitant to buy bonds now because of the high prices. So either me or the op would prove to be wrong.
If I can stomach the volatility and am in for a long term, wouldn't I have a better chance to come out ahead if I keep buying stocks at dips brining averages down? I know it's easier said than done. But I feel like I keep chasing the best performing asset if buy bonds now.
If I can stomach the volatility and am in for a long term, wouldn't I have a better chance to come out ahead if I keep buying stocks at dips brining averages down? I know it's easier said than done. But I feel like I keep chasing the best performing asset if buy bonds now.
Re: Starting PP and hesitant to buy any stock now
Just buy the package and enjoy the low volatility and solid returns.metta2006 wrote: I only have stocks, gold and cash but no bonds. And I'm hesitant to buy bonds now because of the high prices. So either me or the op would prove to be wrong.
If I can stomach the volatility and am in for a long term, wouldn't I have a better chance to come out ahead if I keep buying stocks at dips brining averages down? I know it's easier said than done. But I feel like I keep chasing the best performing asset if buy bonds now.
The tendency to focus on individual PP assets rather than the package is probably the most common way that the aspiring PPer gets off track.
Who cares what any individual asset does? It's the performance of the whole portfolio that matters. This is so easy to say, and yet for some investors it can apparently be very difficult to fully internalize.
IMHO, it is only when you fully integrate the ideas above into your approach to the PP that PP investing really starts to be a fun and relaxing experience.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: Starting PP and hesitant to buy any stock now
metta "I only have stocks, gold and cash but no bonds. And I'm hesitant to buy bonds now because of the high prices."
I totally feel that sentiment but I think it is sensible to resist it. I added to our (UK based) PP in late september. I had to buy bonds at a near all time record price and really had to hold my nose. Gold and stocks had just had a big slump and so "seemed" great value. Over the subsequent days, the bonds surged 7% and the stocks and gold became "even better value". Japan shows how much further bond yields could fall. There is a lot of space between curent LTT yields and the <1% LTT yields they had in Japan in the early 2000's.
I totally feel that sentiment but I think it is sensible to resist it. I added to our (UK based) PP in late september. I had to buy bonds at a near all time record price and really had to hold my nose. Gold and stocks had just had a big slump and so "seemed" great value. Over the subsequent days, the bonds surged 7% and the stocks and gold became "even better value". Japan shows how much further bond yields could fall. There is a lot of space between curent LTT yields and the <1% LTT yields they had in Japan in the early 2000's.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
-
jackely
Re: Starting PP and hesitant to buy any stock now
For the record, I just converted a retirement account from PRPFX to HBPP at the beginning of this week and the only thing that ended up in the green at the end of the week was the stock fund.
Prior to making the move I read one article in the WSJ predicting the biggest run-up in stocks in 15 years in the next quarter and another one predicting the worse crash ever in just 3 weeks. Similar results researching treasuries and gold. Convinces me more and more that what HB says is correct and nobody really has a clue.
Right now I would liken the PP to a surfer waiting for the next big wave to ride, not knowing when or from which direction it is going to come but having faith that it eventually will. The only thing I know for sure is that if you're not in the water you're not going to catch it.
Prior to making the move I read one article in the WSJ predicting the biggest run-up in stocks in 15 years in the next quarter and another one predicting the worse crash ever in just 3 weeks. Similar results researching treasuries and gold. Convinces me more and more that what HB says is correct and nobody really has a clue.
Right now I would liken the PP to a surfer waiting for the next big wave to ride, not knowing when or from which direction it is going to come but having faith that it eventually will. The only thing I know for sure is that if you're not in the water you're not going to catch it.