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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75811  
Subject: How do you handle volatility? Date: 4/13/2006 1:12 AM
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How do you handle the emotional issue of volatility of investments?

April has been difficult. The market was up during the first part of April and then in it took back much of the gains. The losses looked worse than they were because two mutual funds declared dividends. We also have had $1,800 in dental co-payments and a $1,300 tax bill. Our first paychecks in April won't be until tomorrow. The combination made for an unsettling drop in the bottom line.

I had created a portfolio under Yahoo finance and that may have been a mistake. By 3pm it gives a summary of changes for the day. It is nice on good days and can be distressing on bad days.

My husband is finding his job increasing stressful. An approximate date and a specific goal has been set for him to retire. The goal is reachable, but I find the concept of relying on investments for the rest of our lives unsettling.

Debra
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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51149 of 75811
Subject: Re: How do you handle volatility? Date: 4/13/2006 2:10 AM
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If you are a long-term buy-and-hold investor, then you shouldn't watch it every day, especially if those RED numbers bother you so much. It's gonna happen.

If you have an on-line brokerage account, you can probably set up alerts within whatever limits you want so you will be notified by email if something out of the ordinary happens ... like a large drop in value or a big gain. That way you won't be bothered by the routine ups and downs but will be made aware when something might need some closer attention.

Good luck to you.

Dull



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Author: fredinseoul Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51150 of 75811
Subject: Re: How do you handle volatility? Date: 4/13/2006 2:20 AM
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The way I handle it is not to look.

I have my plan up and running. I am making investments based on that plan. I don't let a big dip or a huge jump bother me either way.

I look about once a month at the balances. I usually only look when I know there has been a day or two of gains. I don't stress about it.

fredinseoul

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Author: PKnudsen Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51151 of 75811
Subject: Re: How do you handle volatility? Date: 4/13/2006 3:33 AM
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How do you handle the emotional issue of volatility of investments?

It's been a tough year. When your investments rise, your brain actually stimulates your body's pleasure center. When they decline, it's the opposite.

I suggest starting to switch to dividend-payers. Then you know that, (barring really bad luck,) the dividend will still get paid no matter what the stock price is.

I personally plan to start switching to mutual funds if volatility gets too worrisome.

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51153 of 75811
Subject: Re: How do you handle volatility? Date: 4/13/2006 8:53 AM
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First, you are right to monitor your positions regularly. In addition to monitoring them, you need a plan of action.

In other words, you need a trading discipline. Nevery buy anything unless you know the conditions under which you will sell it. Set stops - exponential moving average stops generally work well.

Look for news that is bad. Recently, one of my holdings, CIEN, suddenly offered some convertible bonds. The stock tanked, and I must admit that I had not seen the news. I was able to get out at $5.00, and the stock is now $4.33. If I had seen that earlier, I would have been able to get out at a better price, I think.

Read some good books on the market, such as O'Neil's book on CANSLIM, "How to Make Money in Stocks", and some decent books on technical analysis, sich as Achelis "Technical Analysis form A to Z".

The official word from the Fools is that Technical Analysis is Voodoo, but their trading record indicates that a knowledge of technical analysis would have helped their performance. Nobody who practices TA would have watched a stock double and then fall back - finally they sold it for a loss. Really stupid, of course.

The volatility is just part of the game. If you read Mandelbrot "The Misbehavior of the Markets" you will see just how badly behaved the market is.

And, of course, taking the buy and hold attitude is just plain stupid. You should buy a stock in order to be able to sell it at a profit at some point.

Check out Mishedlo's board, and the "It is what it is" board at the Fool Boards. Those guys actually know how to make money. Check out http://www.investnbest.com/ and perhaps the other stuff on my links page: http://www.actwin.com/kalostrader/Links.html





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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51155 of 75811
Subject: Re: How do you handle volatility? Date: 4/13/2006 9:26 AM
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I had created a portfolio under Yahoo finance and that may have been a mistake. By 3pm it gives a summary of changes for the day. It is nice on good days and can be distressing on bad days.

My husband is finding his job increasing stressful. An approximate date and a specific goal has been set for him to retire. The goal is reachable, but I find the concept of relying on investments for the rest of our lives unsettling.


First things first: Create a reasonably diversified portfolio (an index fund would do in a pinch), and then look at it maybe at the end of each quarter. If you spend your life watching the ups and downs of the market, you'll have many bad and distressing days. Enjoy life. Let the market do its thing over time. Second thing: The alternative to living off of investment income is to keep working until you die. I doubt your husband would find that to be an enjoyable way to spend his out years, so you best learn to live with the concept of relying on investments. If you don't understand investments, you should learn about them, since they are going to make up an important part of your life. I'm a buy and hold investor. I have a reasonable mix of mutual funds with Vanguard, and I leave the rest of the driving to them. For me, investing is on autopilot, as it should be. I check things out from time to time, but I don't worry about them. A well balanced portfolio will do as well as 80% or more of the rest of the investing world, and that's good enough for me. There will be ups and downs, and there's nothing I can do about it, so I don't bother worry about it.



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Author: tytthus Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51159 of 75811
Subject: Re: How do you handle volatility? Date: 4/13/2006 11:10 AM
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How do you handle the emotional issue of volatility of investments?

bourbon. of course, i also treat gains with bourbon....

unfortunately for you, volatility creates good buying opportunities for younger folks like me. i welcome volatility.

good luck,
--tytthus

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51162 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 12:35 AM
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I personally plan to start switching to mutual funds if volatility gets too worrisome.

Most of the assets are in our 401Ks and are invested in mutual funds.

Debra


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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51163 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 12:44 AM
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Read some good books on the market, such as O'Neil's book on CANSLIM, "How to Make Money in Stocks", and some decent books on technical analysis, sich as Achelis "Technical Analysis form A to Z".

The official word from the Fools is that Technical Analysis is Voodoo, but their trading record indicates that a knowledge of technical analysis would have helped their performance. Nobody who practices TA would have watched a stock double and then fall back - finally they sold it for a loss. Really stupid, of course.


I ordered "Technical Analysis from A to Z" and will try the websites.

Debra

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51164 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 12:45 AM
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The alternative to living off of investment income is to keep working until you die. I doubt your husband would find that to be an enjoyable way to spend his out years, so you best learn to live with the concept of relying on investments. If you don't understand investments, you should learn about them, since they are going to make up an important part of your life.

Understanding and trusting are to differenct issues. Making the transition to retirement is not going to be easy.

Debra

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51165 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 12:46 AM
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bourbon. of course, i also treat gains with bourbon....

unfortunately for you, volatility creates good buying opportunities for younger folks like me. i welcome volatility.


I don't care for alcohol. Between the market and my job, there are days I wish I did.

Debra

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Author: PKnudsen Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51166 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 1:45 AM
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Most of the assets are in our 401Ks and are invested in mutual funds.

Debra


Glad to know that. I think the original poster would be more comfortable with funds as well.

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51172 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 7:47 PM
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I ordered "Technical Analysis from A to Z" and will try the websites.

Do yourself a favor. If you're going to read something like that, also read "A Random Walk Down Wall Street". Then make up your own mind. Don't only look at one half of the picture though.

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Author: BordLyron Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51173 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 8:20 PM
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I concur with DeltaOne81. Read all you can & make up your own mind. FWIW, I am in the TA is Voodoo camp...

Byron

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51176 of 75811
Subject: Re: How do you handle volatility? Date: 4/14/2006 9:57 PM
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FWIW, I am in the TA is Voodoo camp...

Voodoo, tea leaves, fooled by randomness, whatever you want :)

But I'm more than happy to let people read up and make up their own mind. I do not, however, want them to only read one side and think its just the truth. Especially not the side that costs them way more in commissions and taxes.

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Author: OldOne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51209 of 75811
Subject: Re: How do you handle volatility? Date: 4/16/2006 4:10 AM
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How do you handle the emotional issue of volatility of investments?

We have a significant part of our net worth in real estate, which has done substantially better than stocks over the past two decades.

I am pretty well convinced that one reason it does so well is that I can't look up the price on the internet every day, or every 10 minutes -- and it takes longer than 30 seconds to sell.

Stock volatility is handled by looking at changes in percentages rather than absolute numbers. Sure it is not a good feeling to lose $10k in a single day, but it seems less as a percentage. And, it usually comes back.

If you really want to insulate yourself, teach Excel to calculate a 50 day moving average of your net worth and only look at that...



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Author: brndnsdad Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51210 of 75811
Subject: Re: How do you handle volatility? Date: 4/16/2006 9:03 AM
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We also have had $1,800 in dental co-payments and a $1,300 tax bill. Our first paychecks in April won't be until tomorrow. The combination made for an unsettling drop in the bottom line.

I sense you may not have a sufficient emergency fund to meet your needs. You may want to build your cash reserves so you will feel better about the market's volatility. I recommend 6 months of living expenses with half in a high yield money market and half in 13 week treasury bills through Treasury Direct. I think you'll find this provides more piece of mind for the fluctuations of your other investments.

You may also want to evaluate your mutual fund investments to see if they meet your goals and risk tolerance. I suspect right now it doesn't meet the ladder.

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51214 of 75811
Subject: Re: How do you handle volatility? Date: 4/16/2006 5:19 PM
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We have a significant part of our net worth in real estate, which has done substantially better than stocks over the past two decades.

I am pretty well convinced that one reason it does so well is that I can't look up the price on the internet every day,


OldOne,
You are behind the times.
Look up your real estate here:
http://www.zillow.com/

The value of my house has dropped enough to buy a luxury car in the last week!

Vickifool

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51317 of 75811
Subject: Re: How do you handle volatility? Date: 4/21/2006 6:17 PM
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Debra:

You do not give an expected retirement date -- or your ages -- and those make a difference. At least I did not see that info. Care to share?

First, it sounds as if you have enough stress in your life without watching "market" ups and downs -- especially if you do not have any real idea how to take advantage of either. I do not mean that in a bad way, only in a practical way. If you're not "trading" (and you should not be, unless you have studied how to do that for quite a while), you should, as others have said, only check your investments at reasonable periods -- quarterly or perhaps monthly, though even the latter will again be stressful, I suspect.

Second, I hope that, if retirement is imminent, you have quietly sat down and truly examined your goals and hopes and plans -- financial and otherwise. I was laid off at 57, and my wife had to stop teaching a year later to care for her ill mother, which kind of pushed us into retirement prematurely!

As the bill-payer, I had (and use) a system I like, using a 3-ring binder and a one-page Word sheet that lists all usual monthly bills, the dates paid, check numbers, and amounts paid, plus a plastic page to hold the "stubs", with monthly tab separators. This lets me look quickly at previous months and plan for future months.

Several years back, with retirement looming, I did a "plan" for what we expected to have to pay out monthly. It was a lot less than what we had to pay when we were working, because we moved to a less expensive part of the country, into a smaller home, and were finished with college loans and such, etc. I then had my wife look it over, too, naturally, and we discussed what may have been overly realistic, etc., and adjusted things where we could.

---

I have to say that my heart goes out to you because it sounds as if there are other factors that are upsetting you AND your husband, beyond money. Try to get rid of some of those stresses, if you can. Maybe you can list them (though that may be stressful, too!) and tackle one at a time. (Looking at ALL of them at once can be very daunting!)

I do hope your husband and you find retirement pleasurable, now after about 6 years of being job-free and together most of the time. We certainly do, even if we're far from rich. We have "enough", especially with Social Security, which you two should have, too, especially if retirement is imminent.

Please post again or, if you prefer, email me. I care, as I am sure others in here do.

Best wishes,

Vermonter

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51318 of 75811
Subject: Re: How do you handle volatility? Date: 4/21/2006 8:55 PM
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OldOne,
You are behind the times.
Look up your real estate here:
http://www.zillow.com/

FYI, I just sold my house for double what this website says its worth. It's the site that is behind the times, not OldOne.

Hockeypop

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Author: lethean Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51319 of 75811
Subject: Re: How do you handle volatility? Date: 4/21/2006 9:28 PM
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Debra

We're not retired yet. But we will be at the end of the year. And we will be living off of our investments thereafter. I do check the "port" everyday, but that's silly - really. I like my holdings a lot. I'm reasonably informed about them.

My plan for handling volatility in retirement is to maintain 5 years of living expenses in cash-like investments, i.e., MMF, Treasuries, TIPS, etc.

You really never know how you're going to react until the schit hits the fan, but I'm hoping that 5 years worth of cash-like investments will allow me to take the market as it comes.

My port can swing $30K on a given day. Ugh, and Wow. I think - there goes the new furniture, or new car, or whatever. It's a lot of swing.

Not to mention that a terrorist attack would change things more than that - maybe 10Xs. I must say that I'm comfortable with my holdings even in that scenario.

I TRY to think in terms of "if I died" (I manage our investments so I follow the KISS principle as regards my spouse); or "if the market closed" for 5 years: - what would happen to the "port".

I'm committed to BRK and reasonably knowledgeable about it. I'd be lost/panicked actually without THAT holding. Have a few other stocks and mutual funds that I like a lot. I may buy or sell once or twice a year.

But if YOU have some "decent" holdings, maintaining 5 years worth of cash-like investments might allow you to weather the ups and downs of the market.

I agree with a previous poster, that it sounds like you don't have enough of a cash cushion. The next paycheck should be a moot point. Easy to say, but maybe you can figure out how to fix that.

And of course, mutual fund(s) distributions shouldn't affect AT ALL the "bottom line". You've either got the cash, or it was reinvested in the fund.

I wonder how you track MFs? If the NAV drops, you either have more shares or CASH. So what is distressing about that?

But, I understand. This investing stuff isn't easy at all. And emotions play a BIG part in it. Expenses do, too.

I hope that you have GOOD solid holdings. If you do(?), then a 5 year cash-like position MIGHT mitigate the emotional rollercoater that the market presents from time to time.

Best to you ....... Lethean








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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51330 of 75811
Subject: Re: How do you handle volatility? Date: 4/23/2006 12:41 PM
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Do yourself a favor. If you're going to read something like that, also read "A Random Walk Down Wall Street". Then make up your own mind. Don't only look at one half of the picture though.

There are two sides. I have A Random Walk Down Wall Street.

Debra

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51331 of 75811
Subject: Re: How do you handle volatility? Date: 4/23/2006 12:47 PM
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I sense you may not have a sufficient emergency fund to meet your needs. You may want to build your cash reserves so you will feel better about the market's volatility. I recommend 6 months of living expenses with half in a high yield money market and half in 13 week treasury bills through Treasury Direct. I think you'll find this provides more piece of mind for the fluctuations of your other investments.

We do have a sufficient emergency fund. It is still unsettling when there are large bills at the same time the market drops.

The last time I checked Treasury Direct, it wasn't possible to title the account to a trust.

You may also want to evaluate your mutual fund investments to see if they meet your goals and risk tolerance. I suspect right now it doesn't meet the ladder.

I am working on this. It isn't a trivial goal to define and achieve.

Debra


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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51332 of 75811
Subject: Re: How do you handle volatility? Date: 4/23/2006 12:56 PM
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The value of my house has dropped enough to buy a luxury car in the last week!

Actually, it shows our home increased $4,600 last week and the rental property increased by $1,400.

The estimate for our home is reasonable. I am not so certain about the rental estimate. The neighborhood has a wider variety of homes and the estimate seems high.

Debra

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Author: brndnsdad Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51334 of 75811
Subject: Re: How do you handle volatility? Date: 4/23/2006 1:30 PM
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The last time I checked Treasury Direct, it wasn't possible to title the account to a trust.


If the trustee is a financial institution they would be able to purchase T-Bills, but there would be a fee involved.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51335 of 75811
Subject: Re: How do you handle volatility? Date: 4/23/2006 1:41 PM
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Vermonter,

I am 51 and my husband is 56. Tenatively, we are planning on him retiring in 3 years. He doesn't like his new responsibilities. We have set a specific investment goal that would allow him to retire. Realistically, it would allow both of us to retire. I am not certain that I am going to want to retire. Much of the time I enjoy my work. I also want to remodel. It would be best to complete that before I retire.

It will be awhile before we will eligible for Social Security. I am planning based on receiving half of our estimated Social Security benefits. Also, at the same time we will be eligible for small pensions (total about $800 a month).

Our jobs have been unstable for quite a few years. I have back problems that I thought might force me into retirement. It is not to the point of being able to collect disability, but makes it difficult to change jobs. My father has health issues and lives in another state. It has been difficult to plan on how much risk we could tolerate, knowing that we both could lose our jobs at any time.

I use MS Money to track spending and investments. At least for the first few years, I see expenses increasing when we retire. Travel and health insurance would account for the increase.

We won't be moving in the near future. Before I retire we will sell the rental, but we need to convert it back to a primary residence. I no longer want to be a landlord. AMT would take a significant bite, plus California taxes capital gains the same as regular income.

We are also in Silicon Valley. Real estate prices are ridiculous (but still stable and slightly increasing) and it is the anniversary of the 1906 earthquake. Long term I don't want the risk of having to handle repairs of two houses.

One of the major stesses is that my husband doesn't like his current job, but changing jobs (if possible) would result in more stress. There are other stresses. We have listed the obvious ones: inflation risk (especially health care), budgeting, his family, my family and the rental.

Debra



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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51336 of 75811
Subject: Re: How do you handle volatility? Date: 4/23/2006 2:00 PM
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My port can swing $30K on a given day. Ugh, and Wow. I think - there goes the new furniture, or new car, or whatever. It's a lot of swing.

Not to mention that a terrorist attack would change things more than that - maybe 10Xs. I must say that I'm comfortable with my holdings even in that scenario.


This is exactly what I am trying to handle. I am not there yet.

And of course, mutual fund(s) distributions shouldn't affect AT ALL the "bottom line". You've either got the cash, or it was reinvested in the fund.

I wonder how you track MFs? If the NAV drops, you either have more shares or CASH. So what is distressing about that?


Money automatically down loads the current NAV, but not distributions. The distributions are not included until the next time I balance the account. I normally go through a balance all accounts when we receive our paychecks (every two weeks). Checking accounts and credit cards are normally reconciled weekly.

I agree with a previous poster, that it sounds like you don't have enough of a cash cushion. The next paycheck should be a moot point. Easy to say, but maybe you can figure out how to fix that.

We have sufficient cash cushion. Realistically, we have too much in fixed income investments and I am trying to shift to an appropriate balance for retirement.

Large unusual expenses, a short term rise and drop in the market, regular expenses, timing of paychecks, and mutual fund distributions conspired to create a significant drop. I have to learn to handle violatility and it is not going to be easy.

Debra



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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51354 of 75811
Subject: Re: How do you handle volatility? Date: 4/23/2006 8:24 PM
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The last time I checked Treasury Direct, it wasn't possible to title the account to a trust.

If you have a trust, what you need is a Legacy Treasury Direct account. The difference is that you have to fill out and send in paper to open it, and they send you paper statements. Just about everything else, you can opt to do on-line. You can even download the forms.

Vickifool -- just opened a Legacy Treasury Direct trust account.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51369 of 75811
Subject: Re: How do you handle volatility? Date: 4/24/2006 5:15 PM
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If you have a trust, what you need is a Legacy Treasury Direct account. The difference is that you have to fill out and send in paper to open it, and they send you paper statements. Just about everything else, you can opt to do on-line. You can even download the forms.

Thank you, I didn't know that Legacy Tresury Direct existed.

Debra

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51404 of 75811
Subject: Re: How do you handle volatility? Date: 4/25/2006 6:52 PM
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FWIW, I am in the TA is Voodoo camp...

TA is voodoo (hedge funds can paint the tape)... FA is voodoo (corrupt companies can cook their books)... Indexing is voodoo (the markets as a whole are rigged)... and MPT is voodoo!

Find a strategy that makes sense to you and that you can implement. Make sure to keep track of what assumptions you're making so you can be flexible if those assumptions are wrong.

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51473 of 75811
Subject: Re: How do you handle volatility? Date: 4/28/2006 4:06 PM
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FYI, I just sold my house for double what this website says its worth.

Zillow values all the houses in my neck-of-the-woods at their tax assessed value (which is 10-15 years out of date). Doesn't use any comps at all.

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