Your advise is good but please note that OP has been a BH for 2 decades and has gone through 2000-02, 2008-09, 2011, 2018 and now 2022.Apologies if my assessment of your behavior was perceived as offensive. I tend to be blunt in my assessment and opinion sharing (habit of an engineering background).To that I'd just say be careful how you label people...If presented with actual bad market conditions you find that "it's not as easy" as sticking to your AA and DCA plan, then that may be an indication that your AA is mismatched to your actual risk-tolerance. I've seen other BHs post that doing the exercises on determining AA are all well and good but many overestimate their stomach for staying the course through a steep market decline and you simply can't know until you've personally lived through it. Given that the market conditions post-COVID caused you to abandon your plan, now might be a good time to re-assess your AA such that it is better matched to your risk-tolerance would increase the likelihood you could stick to your plan.I think if you asked me in 2019 what I would've done had I been given a large sum of money, I would've likely said the same thing everyone else is. However when actually presented with it, I guess its not as easy.
The hardest part about the two ideas below for determining your AA, are getting your own personal risk-tolerance right so that you can stick to the plan in the presence of a -50% market decline (worst historically is about -40%, but -50% is well within the realm of statistical possibility).
Control Your Risk
1) Read the Wiki article for Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the asset allocation (AA) that was recommended by the quiz based on your knowledge of your personal risk tolerance having read the Wiki article.
2) Alternatively (or in addition to), ask "How much of a drop in portfolio value as a % of total value can I handle?" cut that % in half to get standard deviation, then lookup that std. dev. on the X-Axis of the chart below, and finally scan up to see what AA that corresponds to. As an example, if you can only stomach a -24% drop in portfolio value, that's a ±12% std. dev, which corresponds to an AA of 60/40. The return you get is an average and you'll get what you get with your unique sequence of returns (there's a lot of variance in outcomes due to the associated volatility of stocks so it probably will NOT be the average, but something more or less).
I concur with all the responses to sell most if not all of these 2 stocks but I do feel there is angle missing from the discussion.
Let me try this hypothetical - I inherit $1M a portfolio all invested in Amazon and Facebook. A month before shares are moved over to my brokerage, US govt for some reason bans internet! Both fall 50-60% by the time shares are settled in my account. What should I do?
Still sell them all and move to VTI/VXUS? Sure index funds will be down too with such a draconian govt action but not same degree as these 2.
Or wait it out a bit and see how things normalize? Surely internet won't stay down for ever.
Covid was once in a life time thing, I think OP did the right thing by not panicking and selling at the bottom. I would have done the same.
Maybe I don't have the the best example but life is more nuanced, we BH seem too rigid at times it seems.
Now that gains are good though, I would definitely take the win and move on, don't let the tax tail wag the investment dog.
Statistics: Posted by todaysBob — Fri Aug 16, 2024 4:31 pm — Replies 42 — Views 1267