Holiday gatherings are tough on The Prudent Man. Because while everyone is happy to tell you how well they’re doing in the stock market, it’s The Prudent Man who knows how fleeting temporary gains can be. The Prudent Man knows his course, his path. He’s not quiet about it. Hardly. He locks eyes with the storyteller, knowing the final chapter’s end before it’s written. Yes, The Prudent Man tells his listeners the way he sees it—his vision—understanding that most investors won’t be able to handle his path. Temptation in markets, especially ones moving higher, is too much for lay investors to … [Read more...]
Happy Easter: A Family Hunt for Dow 80,000
As you prepare for the quarter’s end, let’s reflect on where we’ve been. As the Dow Jones Industrial Average temporarily crossed 40,000 were you reminded of how far we’ve come? Because in my conversations with you, you tell me you remember when it was Dow 10,000, 6,000, or lower. The older we get, the higher the Dow goes, the more astonishing its new highs become. I know this isn’t your father’s or your grandfather’s stock market. But it can feel like it. What has been true at different stages for them might be true for you: Stocks tend to go up, but not on your schedule. Who doesn’t … [Read more...]
Investors Are Fat, Dumb, and Stupid
Let’s imagine it’s 1999. You’re about to retire. You had a good career. And like anyone else invested in stocks, you’ve had a good run. Then, some time goes by, you’re on a European riverboat cruise, and boom, the tech bust hits. That was the exact moment many investors realized their risk tolerance was, in fact, intolerance. Like a food allergy. But it was too late. In my conversations with some investors—not you, of course—expectations today are still through the roof. That’s what a bull market will do. And as you know, the common refrain is “I want preservation of principal and growth.” … [Read more...]
How You Livin’? Crossing on the Queen Mary 2
Happy Friday. As my nephew asked me the other day, home from college and all the stuff one learns: “Uncle E, how you livin’?” “How I’m livin’?” I thought to myself. I haven’t thought about it. But it gets right to the point, doesn’t it? Which brings me to my conversations with you. I know how you’re livin’—quite well—because you tell me. Here’s what you’re doing. Fly fishing the Keys, catching some rays in St. Somewhere, hitting the powder out West, spending plenty of time relaxing on the beach, paying exorbitant prices for boat drinks, building houses and dreams, planning more trips, … [Read more...]
How Your Survival Guy is Investing Today
Your Survival Guy recently made a six-figure addition to my dividend-centric portfolio. Does that mean every single position pays a dividend? Not necessarily. It just means I favor dividend-payers over non-dividend-payers. On the fixed income front, I have plenty for my age (52 years), with some gold as part of the mix. When you’re in your 50s, you want to build in some stability with bonds. As you get closer to retirement, I like the idea of gradually increasing that percentage. You need to figure out the right mix for you as you build your retirement plan. Action Line: In my … [Read more...]
Boiled Frogs: Lulled to Sleep by This Market
Run your finger along the 5-year treasury line in the chart above, and you immediately get a sense of where we’ve been. As you can see above falling interest rates were a boost to bonds and stocks. This efficient frontier is a combination of bond returns based on the ICE BofAML 7-10 Year U.S. Treasuries Index and stock returns based on the total return of the S&P 500 Index from 1978 to 2023. In the above, you’re looking at the 5-year treasury before the tech bust and then when it hit up to now. The efficient frontier above is from the same time period. This one … [Read more...]
Time to Flee Stocks for Bonds? Your Frontier
How you invest in stocks and bonds, in other words, your asset allocation can mean more to your investment success than what you invest in. Let me explain. When you look at risk/reward as measured by my efficient frontier, you can see by the fish hook how having your eggs in one basket can mean more risk. Obviously, 100% in stocks will be riskier as measured by a portfolio’s ups and downs or standard deviation. But what’s not always clear is that having 100% in bonds can be riskier than a mix of, say, 20% stocks/80% bonds. As you see above, this efficient frontier is a combination of … [Read more...]
Your Retirement Life: Traveling the Efficient Frontier
Are you familiar with the efficient frontier? More on this in a minute. First, let’s talk about risk. One of the more helpful exercises in understanding your own risk tolerance is imagining how you will react if your stock portfolio declines by 30% or so. You can do a historical review of how you reacted in times when markets took a beating. How did you feel? And how did you react? Where you are in your stage of life is crucial, too. If you’re soon to be retired or newly retired, this is most likely uncharted water for you in terms of stock investing and your emotions. When you no longer … [Read more...]
What’s the Right Amount to Invest in Stocks?
Your Survival Guy has witnessed it all when it comes to investing. I’ve written to you about the top 10 investing mistakes to avoid and the top 10 investing habits of the fairly wealthy (see below). I’ve told you how I see investors get overweight in stocks like it’s an all-you-can-eat buffet. Then they switch to a strict diet of cash, selling out at the bottom of a bear market, never to get back in. It’s why I don’t try to time the market, nor do I advise it for you because you need to be right twice: when to sell and when to rebuy. Avoid the problem altogether. Don’t get greedy. … [Read more...]
“Survival Guy, How Much Should I Invest in Stocks?”
“How much should I invest in stocks?” It’s a good question. One you might be thinking about. Sure, when you’re working, it’s easy to invest in stocks because you have a paycheck to lean on like a crutch. But what if you’re retired with no paycheck, living on a fixed income? Investing in stocks can be downright scary. The good news is stocks have historically been good inflation fighters. But how much to invest? You’ve seen the brutal corrections so far this century. And chances are there will be more. “So, Survival Guy, how much do we invest in stocks?” When speaking with … [Read more...]
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