Mike wrote:
>very interesting analysis. another aspect of this is that most investors
>aren't all in one or the other (of stock or interest-bearing assets) but
>a combination of both which, if the normal life-cycle investment strategy
>is followed, tends to start ones investment career with a higher
>proportion of stock and end with a lower proportion.
That's a good way of putting it. I have said I was just looking at the
stock portion of a portfolio, and said that an individual needed
stable liquid investments as well to meet unexpected cash needs. That
was met with claims that I didn't live in the real world. Maybe
rephrasing it as splitting the available investment rather than adding
on to the stock investment would get over that perception.
> as a general rule of
>thumb i've always heard that 100-age is the percentage one should have in
>the stock market (vs. more secure lower-yielding assets) as a starting
>point which is then adjusted for each individual's personal preference
>for more-or-less risk with respect to their income expectations (in other
>words everyone wants high-yield but what a person can sleep at night with
>in regard to security is a different story).
I hadn't heard that rule of thumb, but it "feels" right as a starting
point.
>for the selected time period 00-32 this strategy would have had the
>investor more in the interest-bearing assets & less in stock which would
>have reduced exposure to the crash. also, having sufficient non-stock
>retirement assets would allow the investor to not have to sell any of the
>stock while the market was at bottom and as i showed before it was only a
>few years until the market was back up. so the key is having the
>flexibility of a split investment strategy that allows one to make
>adjustments for wild market swings.
My approach is not quite as sophisticated, but in another thread, I
suggested a model for looking at investment over a career, with dollar
averaging of both stock purchases and sales. Specifically, I suggested
investing $100/month, indexed to CPI-U, over a 40-year career. The
stock investor would put that into stocks for the first 30 years, then
into fixed interest. In addition, over the remaining 10 years, stocks
would be sold, 1/120th of shares at the 361st month, 1/119th of
remaining shares at the 362nd month ... with dividends always
reinvested. I challenged anyone to find a 40-year period when that
strategy would not beat investing in fixed interest investments.
Several attempts failed. I thought maybe retiring at 1943 would be a
case, since all stock sales would be post-crash, but after running the
above, I'm sure it wouldn't.
>one last comment is that the data was available to investors in the late
>20's to know that the writing was on the wall (i mean 800%% in 10 years?
>come on who in their right mind really expected that to continue?) so
>with the split investment strategy, all that needed to be done was to
>make some adjustments by progressively moving more stock to interest-
>bearing assets as the market spun more ridiculously out of control.
>didn't have to be an all-or-nothing move, even 10%% would have made a big
>difference (in say '28). although i'm sure, given human nature, most
>didn't move nearly as much as what common sense (in retrospect but based
>on data available at the time) would have indicated. easy to say how
>obvious it was in hindsight,
I had to force myself several times to continue reading this paragraph
instead of stoppling to type a big "BS!" because of exactly that
point. Yes, we'd like to sit today and say that if we had money that
had grown that fast, we would have sold and taken our profits. I don't
buy it. There were lots of smart people caught in the crash. They
thought it was a whole new era, or were just plain blinded by greed.
If I were in their shoes, would my caution prevail or would I look at
folks who "missed the boat" on other changes, and vow I would be part
of this one.?
P.S. I think the dividend point got across. The silence you hear is
about as close as you can expect to an acknowledgment from this crowd.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
