Investment general discussion thread

In My Humble Opinion
981

The variety of tools for different goals duly noted, I have still found the discussion helpful! Again, going to have the appointment with the estate attorney, hopefully sooner than later, and even this introduction will allow me to be a bit less ignorant going into the conversation. I suspect they will suggest keeping things simple.

I get why my wife’s grandfather did the skip generation (and other) trusts: the exemption limit was much lower back in ‘80s when it was done and it was cutting edge planning for its day. His children were able to benefit from the income while the principal was skipped to the next generation only after his children died. And if I understand correctly would be no tax then as long as left in the trust. Plus he, an immigrant from Russia with nothing and no education, had built himself up something sizable to leave behind. But the current cutoffs are high enough that only a fraction of the 1% has to pay any Federal tax … but maybe the expert will explain other uses that do apply that I haven’t thought about!

Re LTC insurance - actuarially I’ll bet on a long healthspan with little period of infirmity. No dementia either side. Current good health and habits. But there will be enough in the bucket to provide for what might be needed before we kick the bucket just leaving that much less behind.

982

Y’know, that was one of the reasons (though not the main or only one) we moved to the UK a few years ago. The NHS, while far from perfect, is a great improvement over the insurance-driven profit machine that is US healthcare.

One hears a lot of complaints on social media about the NHS, but I have to say it has served us well so far. Mind you, we are middle class people living in a fairly affluent area; the facilities may be more stretched in other parts of the country.

A bit off topic of course: this was an easy option for us since I retained UK citizenship while working in the US.

983

I just found an ETF ticketed as DBMF that uses a trend following, long-short strategy to capitalize on downturns while largely hanging flat during quiet times:

https://www.morningstar.com/etfs/arcx/dbmf/performance

It might be worth looking at more deeply.

984

My investments are doing well but am nervous that the AI bubble will burst. I have a few years until retirement so I have some time to recover, but how long?

985

Yeah, it’s been a while since the last Really Big Crash. But it seems to be an unavoidable consequence of a complex, opaque and not-well-understood system that those things happen from time to time. I don’t think there is any way to predict them: ‘economics’ is I think a bogus pseudescience.

It depends on your age and situation. Long term the trend seems to be upward, but as Keynes said: in the long term we are all dead. Being retired, I have moved a lot of our assets into more conservative instruments.

986

So are you mostly in MM accounts still? I’m young retired, wife is still working. We have a healthy account and no debt, but I’m still paranoid (it’s not paranoia if they’re really coming to get you…). About 8% in a high yield savings account, not much in bonds. Some in Europe and emerging markets, but mostly in the US. It SUCKS to be this wealthy and this worried. Stocking up on ammo and canned goods at any rate…

987

Not mostly, but I have moved a significant percentage of assets into those over the last few years. As we have discussed upthread, I don’t know of any other good hedge against a stock crash. There just don’t seem to be any other asset classes that are not strongly correlated to stocks.

Bonds used to be the recommended ‘safety net’, but they don’t pay enough premium over MMs at the moment to justify the risk, and in any case these days don’t seem to be very decoupled from stock movements anyway.

I don’t have any magic bullet ideas. Even MM accounts will start to look less attractive if the Fed starts lowering rates.

Ammo and canned goods are not going to do you much good in the long run if there is a REAL crash, I fear….

988

Well you can look at the dot com crash to recovery then crash again such that those, as stated in a NYT bit today (not gonna bother linking), “who stuck with the S&P 500 index after the dot-com crash were still hurting a decade later. The numbers are sobering. Those unfortunate enough to have bought S&P 500 index funds at the March 2000 peak were sitting on a loss of 8.3 percent, including dividends, a decade later”. And it took 25 years to recover from the crash of 1929.

Do we need to be prepared to weather those sorts of circumstances?

None of know for sure. That’s the problem. The AI boom could never crash and actually deliver increased productivity in ways we are not even yet imagining. Or it could pop and bring all sectors crashing on the ride. Or it could, and this what I’m guessing, have a significant correction before recovering at a different pace.

I personally ask myself a few related questions:

How long can I wait out a broad downturn in equities without having to go into the seed corn?

How much tolerance do I have for wild swings in each direction?

What are my options to enable me to wait it out longer and/or lower volatility?

How afraid of those things am I vs afraid of missing out on opportunities to grow the amount?

And I recognize that I am lucky. I was dollar averaging all through those down years so they were more opportunity for me than horrific. At 66 my wife and both I enjoy our jobs, and plan to continue working well into the next decade barring some unforeseen event. And more likely than not Social Security will stay intact enough to add to that income at maxed out amounts in a few years.

So odds are I can wait out a decade of 50% downturn without needing to go into savings at all. And by 25 years out I am likely dead.

That allows me to continue my relatively high tolerance of volatility.

But given that I think some correction in the AI sector will happen at some point in the not distant future I am uncomfortable with how much an S&P index is tied to the Mag 7. So I going to overweight to mid cap and more value oriented large stocks. They’ll survive a possible AI correction better. And still maybe something like 20% bond funds of different sorts and 8 to 9% in gold. (Not counting value locked up in business equity, or in a family real estate partnership) Those may enable being able to buy into any possible crash with regular annual rebalancing. Or may not. As noted bonds aren’t as decoupled from equities as reliably nowadays. Gold is a wild card as to how it could go. That it’s biggest attraction! But I won’t go much more defensive than that.

If we both hated our jobs and wanted to stop? The specter of a possible crash would scare me more. If I hadn’t been the beneficiary of dollar averaging in during the dot com and financial crash times, I would be less sanguine.

Point being that even among people with similar assessments of the risk of a major downturn at some not distant point, and same age, there is not a one size fits all approach.

989

yes, but that is not a particularly realistic investment plan, at least for an accumulator. I mean, if you invested $10000 in 2000, and then $100 per month every month until 2010, you had an annualized return (CAGR) of almost 10%. That’s…pretty good actually. Yes, if you had a ton of money in the market in 2000 and did not add to it at any point after that, then the 2000-2010 period was not good. But if you were an accumulator at that point and were making periodic investments, you came out ok at the end of that decade.

990

Yes. That was part of my point of my being lucky: having been in the accumulation phase, dollar averaging in, those years were me, and likely quite a few of us, buying low. It is why some of us are relatively sitting pretty now

But it was shared in reference to those at or closing in on planned retirement:

How long might a recovery take after a bubble bursts? Related to the sequence articles upthread.

And much of the discussion in this thread has been related to very realistic concerns about that risk and sharing our individual perceptions and assessments of, and reactions to, those risks.

991

That’s more for my increasingly dire evaluation of societal collapse. Trying not to turn full prepper but current events make that difficult. Taking some of our investments and turning it into tangible assets, like the solar+batteries we are installing that could take us off-grid… Plus giving lots of money to the local food bank, domestic violence shelter and abortion rights/providers.

992

I mostly lucked into it. In 2000, I didn’t have a tremendous amount of money in my retirement account; perhaps $40k. And in most of that down period I was self-employed and foolishly didn’t contribute. But in 2008 I started a 15 year stint with a company with very good matching and vesting, and got to take advantage of dot-com and GFC downturns to catch up a bit.

993

So limiting our concern to bubble burst bear market scenarios, occurring sooner than later, and to those of us who nearing or at retirement - in thinking of that contingency, how long of a wait for recovery are you planning to be able to weather, and how are you placing your positions for that possibility? (Not in this question wanting to debate how likely or unlikely it is. The question is relevant even if it was not Trump and tariffs and AI concentration pulling the cart.)

994

Sorry, I’m jumping into this late.

What if retirement is a ways off?

I just checked our investment balances, and holy shit!

Since April the total value of our investments has risen about 25%. And if you look at the last three years, even higher. I’ve never seen anything like this.

I can see why so many investors don’t want to pull out of the market yet.

I have no idea what to do. I’m 42. I don’t think we’re where we need to be for retirement, although we’re a hell of a lot closer now. (I’m also skeptical we will retire at 65 even if we could.) Our non-retirement investments are apportioned more or less equally according to risk into four separate accounts. We didn’t orginally set that money up to be for retirement - more like a down payment on a house, buying a car in full, that sort of thing. But I think we need to reserve at least some of it for retirement. Sadly I don’t see us buying a house until we can pay for it in full.

How much risk can we afford to take on?

995

I keep saying to my wife: things just can’t keep going up like this for ever. Which is why I’ve been pulling assets out of stocks for the last year or two. Eventually I’m sure I will be right, but the bull run has lasted a lot longer than I expected….

Assuming you’re in good health and have a job which you don’t hate, I’d say you’re probably in reasonable shape. Just keep dollar cost averaging into index funds, as DSeid (and Warren Buffet) say.

996

I sent this one to my husband, who has been putting it off for years, and I am about at my limit of patience. We have a child with special needs. For some reason everything that has happened in the last five years is more important and urgent than getting this done. We’ll see if guilt works.

997

I would say that the 20+ years you’re planning to work is enough time to weather more than one downturn. If I were where you are, I’d just keep the faith.

998

I hate the fact that “risk” is the word chosen by all the experts for what is actually “volatility.” With more than two decades before you may be taking from any retirement funds you can afford to tolerate huge amounts of volatility and there is little risk that that will leave you in a bad position in 20 plus years. Trying to avoid volatility will very likely leave you worse off in 20 plus years. Strongly risk your not being able to retire if you want or need to retire.

You likely would be much better off if there was a major and prolonged bear market at this point. Again that is how many of us older farts are in a good position now: when we were your age the market crashed, recovered, crashed, and recovered again over a decade. We were continuously buying on plan and what we bought during the crashes, on the way down, at the bottom, on the way up … worked out well. Pick your volatility tolerance, have a modicum of diversity in your classes, and rebalance regularly. Then enjoy crashes as your chance to accumulate what will be wealth in 20 plus years.

Fully fund the kid’s 529 too btw.

999

According to my observation bubbles seem to rise the fastest just before they pop, but still nobody knows when they pop. Alan Greenspan talked about irrational exuberance in december 1996. The stock market crashed, but only after more than three years - and what years those were! During that period the Nasdaq more than trebbled again. Had you sold in december 1996 you would forgone more or less the same gains than what you would have lost in the burst: December 1996 (Greenspan speech) ~ 1,200 points, March 2000 (maximum) ~ 5,000 points, September 2002 (local minimum) ~ 1,200 points again.
Had you bought a Nasdaq ETF in december 1996 you would have made a good deal at almost any moment afterwards. In march 2000 not so much.

1000

Probably true, but not very useful in practice. It’s a bit like the ‘technical analysis’ illusion. Trying to time the market is basically gambling: at what point do you conclude that the rate of rise has become pathological? Hindsight is wonderful, but unless the flux capacitor in your DeLorean is working properly, it’s not going to make you rich. :slight_smile: