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September 25, 2012

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newtt

What a great post! Thanks for sharing!! Looking forward to your follow-up, which I assume will expose your magic formula for deciding which horse to ride, just before it takes off....

Retired Syd

newtt: I hope you are not disappointed tomorrow. I don't bet on a horse. I just bet that most of them will cross the finish line.

Rick

Hi Syd,

I agree, as do many others with substantially more credentials than me, that "beating the market" is a long shot (and, IMHO, accomplished by good fortune and not superior skills). Anyone interested in viewing comments of some of the "experts" advocating a broad based index approach might review the first post at: http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

Your post speaks to the asset side of the equation. We spent a few days last week north of you, in Sonoma, helping to support the wine industry. Great fun!

Take care.

Retired Syd

Rick: Yes, and for a little more in-depth discussion, people might enjoy reading John Bogle's Little Book of Common Sense Investing.

Glad you enjoyed our wine country!

Carole

Hi Syd,

Glad to see you're back to blogging about one of my favorite topics; finances! Your advice is solid. I plan to retire early next year, and will be able to do so because we have carefully saved and planned for our financial future and diversified well over the years.

While my husband (who is retired already) has always been well versed in the financial world, I realized that I needed to be up to speed too. Over the last couple of years I have been reading everything I could to educate myself, and convince myself that yes, financially I am ready.

I also need to pay attention to the other aspects of retirement, such as how to spend all that extra time I will have! Getting some great ideas from you and your fellow bloggers.

Jacq

I can't really comment since I'm anti-Bogle, pro-Graham and Dodd. Unfortunately, some people act like someone having an investing style different than their own is like attacking their religion. It drives me nuts because saying that one method may work doesn't preclude another from working just as well, sometimes better, sometimes worse.

I saw that periodic table on another blog I follow today: http://rpseawright.wordpress.com/2012/09/25/do-you-really-believe-in-diversification/
I don't agree with him either, but appreciate the differing viewpoints since it makes me think a little bit harder. :-)

Retired Syd

Jacq: What's the Graham and Dodd methods? I don't know them.

Jacq

Benjamin Graham and David Dodd wrote the book "Security Analysis" back in the '30's - the original book on value investing. Using that method, 2008-9 was like playing a game of Hearts and having a "shoot the moon" hand.
I know investing isn't supposed to be "fun", but it's like playing a game sometimes so it's my version of fun. YMMV and all that. I need a hobby that's challenging and where I can make lots of spreadsheets for myself and not some mercurial exec. Bonus points for being able to do something for my own benefit that I've been paid to do and enjoyed.

Sightings

I, too, have been expecting interest rates to go up. Actually, I've en HOPING they go up, since like many retirees I have some money in bank CDs. My question: If you think there's any kind of interest rate "bubble," is it really true that "if you weight your portfolio more heavily in favor of bonds, you decrease your portfolio's risk?"

Retired Syd

Jacq: Ok, I admit that part of the appeal of asset allocation an periodic rebalancing is that I'm kind of lazy and it doesn't require much work. But I understand what you are saying about that job being fun. My name is Sydney and I'm a recovering accountant . . .

Sightings: So you will see in my next couple of posts that I ignore things that could be called a bubble. The stock market is near it's all time highs right now, one might think that's a bubble too. Will interest rates "pop" next year or five years from now? I just have no idea, so I don't try to manage my portfolio by what my expectations are because I'm usually wrong. The approach I use is to take my emotion and expectations mostly out of it, mostly because I don't want to study that hard.

As far as risk, mostly, I'm talking about the swings from year to year in my portfolio--the can-you-sleep at night test. If you look at the chart above, the swings in bonds from a high-return year (18%) vs a low return year (-3%) are not as great as say the swings in the S&P 500 (in those years as high as 38% return to a low of -37%.) So including bonds has a muting effect on your portfolio. I'm going for that muting effect by including all the asset classes.

Also, I'm not talking about weighting your portfolio differently from year to year--I'll get to the distinction between rebalancing and market timing in a couple days. (In other words, a conservative portfolio weighted in favor of bonds wouldn't just be for a year or two, it would be the kind of investor that is for the long-term).

Jamesanderson

Investors break the market down into sectors by company business. These sectors make is possible to compare how a stock is doing relative to its peers.

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