Homer, a question - more about psychology than about math or money. Consider two cases: a 50/50 portfolio and a 100/0. Assume that in the 50/50, the second 50 is somehow immune to bear markets. So, along comes a crash, and stocks fall 50%. The 50/50 goes down by 25%, while the 100/0, goes down by 50%. As a practical matter, sure, the 50/50 is more robust and better able to sustain withdrawals. But for portfolios not intended to be spent-down, wouldn't it feel just as bad, to lose 25%, as to lose 50%? Let me clarify... of course a 25% loss is less ghastly than 50%, but isn't it already large enough, that our remaining hair would fall out? In 2008, I was on the floor, curled up in fetal-position, crying. That was already the case in October 2008, when the market hadn't yet fallen that much. I didn't sell, and kept dollar cost averaging from each coming paycheck. But mentally I was a wreck... an utter wreck. 2022 wasn't that much better.Now, if I was 100% stocks this whole time, I'd be even richer... I will admit that's true. But I would lost ALL my hair by this time (instead of just some of it). Instead I felt pretty comfortable the entire time, no stress, and enjoyed all the rebalancing as the market kept going up against all odds.
So the point goes something like the oft-quoted and probably wrongly attributed quip: "A single death is a tragedy, while a million deaths is a statistic". Once the market starts falling, I shut down... whether it's fallen b 10% or 25% or 50%. So if I have a 50/50 portfolio instead of a 100/0... or for that matter, a 25/75 - it won't preclude the hair from falling out. One becomes an emotional wreck, no matter what. Clever asset allocation won't help. And if overly aggressive asset allocation won't alter investor behavior (note the distinction between feelings and behavior!), then what's the harm?
Statistics: Posted by unwitting_gulag — Fri Sep 20, 2024 11:32 pm — Replies 4 — Views 422
