UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next
Author: TMFMurph Big gold star, 5000 posts Old School Fool Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35361  
Subject: Re: A Thought-Experiment Date: 10/21/2009 9:36 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 8
Why not try to become as good an investor as one can be?

Hi junkman02!

Within the context of your remarks, I certainly see your point. However, being the "best investor you can be" may give rise to opportunity cost issues. For example, to be the best I can be might require more time...time I must take away from other pursuits.

Here is a post that speaks to those "other" pursuits:

http://boards.fool.com/Message.asp?mid=22454138


And from an investing standpoint, I suppose I may be guilty of heresy, in that I don't try "to maximize my returns":

From a post I made in April of 2007:

....Now, back to the ( I think ) referenced article about the mathematical odds of running out of money over "X" years depending upon the PE quartile ( quintile ) you purchased stocks at.... ( OK, English teacher.."at which you purchased stocks.") ;-)

First of all, I hope anyone that is remotely older ( let's say 45 and up ) is not 100% invested in stocks. Real estate? Bonds and other fixed income? Precious metals? REITS, MLPS, etc. I'm sure that stock market returns over the long term are better than any other class...but then, one man's "long term" is radically different from another....and if you happen to need your money when "the market" is in a multi-year swoon, well, you might end up eating more beans. ;-)

Personally at age 60, I'll take lower average returns due to asset allocation in return for a higher probability that I won't run out of money. I approached that task by taking my detailed, year-by-year, inflation-adjusted financial needs and dividing them up into 3, 5- year "pools" and one longer term ( i.e. 16+ years ) pool. Then, based upon the time frame and the amount of money needed ( net of any income ), I selected investments most suited ( IMHO ) to the task.

Now, I'm lucky in that my needs are relatively modest ( I live "small" ) and ( despite two divorces ) I have managed to save/invest more than average. So the weighted average pre-tax return I need to meet my ( hopefully ) conservatively estimated financial needs to age 90-95 is a bit north of 7%..... I have gradually been reducing the overall risk level of my portfolio, while still managing to achieve returns well beyond my goals ( but, let's face it, the market has been great the past 3-4 years ).

This risk reduction has primarily taken the form of more fixed income investments and a greater weight in large cap dividend paying stocks ( including some REITS and MLPS ), along with about 5% in precious metals. I know at some point, the non-fixed portion of my portfolio will dramatically under perform ( i.e. major market crash/decline ), but I've built some fairly conservative assumptions into the weighted average returns over time....at least I hope so! ;-).

Importantly, I review the status of this long-term plan ( both performance and risk level ) annually...and then make any needed adjustments. Also please note that the "pools" become annual "rolling" time periods, with the last pool gradually shrinking in time size as the years pass.

Interestingly, recent market above-plan returns have allowed me to lower my portfolio risk a bit more....and still achieve 100% of my goals ( while "banking" some of the over-performance to allow for the inevitable stock market multi-year disaster). Please note that regardless of the return you may need, the basic process remains the same....but the investment mix you need to meet your goals could vary greatly.

Now folks that are out to make "the highest return they can" will NOT like this approach...it flies in the face of "truth, justice and the American way" of getting as much as you possibly can. Well, to each his own...but I'll just settle for having "enough". ;-)



All of which just point out that there are different investing strokes, for different investing folks....with different financial circumstances, goals, risk tolerances...and "other pursuits". ;-)

Cheers!
Murph
Income Investor Home Team Fool
( and a great admirer of all the fine work you have been doing here to educate your fellow Fools about bonds and fixed income investments )
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Macro Economics

U.S. Stable, Europe Stalling
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement