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Understanding your attitude to risk and learning from mistakes
Comments
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Alexland said:Diplodicus said:Alexland
" Last year we were down a few hundred thousand during the covid crash and it didn't worry me."
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dunstonh said:Try and avoid mistakes to begin with by getting it right first time.
If you are fully aware and understand the volatility of your investments then a crash should not surprise you as your loss will be within your tolerance.
A lot of new non-advised investors do have a habit of investing above their risk profile and panicking at the first minor drop. So, there is some room to improve there.
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jamesd said:I'm also aware of the potential value of cyclically adjusted price/earnings ratios in determining when markets are well or badly priced and in determining projected ten year returns and include that in my decision-making about how much to have in equities in which countries vs other things.I used to do that thing of deciding the market was too expensive compared to historical averages and holding some cash on the sidelines to throw into equities during crashes or corrections when everyone else is in total panic mode. It was satisfying and we have some accounts that have done well from such recovery but I grew increasingly aware that the element of human judgement and timing around almost random short term movements was unsatisfactory. Even at current valuations equities look pretty sure to deliver above inflation long term returns so I decided to just go with it and copy-trade those dead customer investment accounts which tend to perform so well. I'm less greedy now as I can see a clear path to getting to my targets without needing to take market timing risks but as you say valuations do affect asset allocaiton in that I don't see the point holding expensive bonds anymore.2
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Alexland said:jamesd said:I'm also aware of the potential value of cyclically adjusted price/earnings ratios in determining when markets are well or badly priced and in determining projected ten year returns and include that in my decision-making about how much to have in equities in which countries vs other things.I used to do that thing of deciding the market was too expensive compared to historical averages and holding some cash on the sidelines to throw into equities during crashes or corrections when everyone else is in total panic mode. It was satisfying and we have some accounts that have done well from such recovery but I grew increasingly aware that the element of human judgement and timing around almost random short term movements was unsatisfactory. Even at current valuations equities look pretty sure to deliver above inflation long term returns so I decided to just go with it and copy-trade those dead customer investment accounts which tend to perform so well. I'm less greedy now as I can see a clear path to getting to my targets without needing to take market timing risks but as you say valuations do affect asset allocaiton in that I don't see the point holding expensive bonds anymore.
Have carried 10% cash buffers over the last three years to try and buy the dip, which has worked out quite well catching the Q4 2018 falls and the March 2021 sell off, but now that cash allocation is down to 4% simply for the reasons you state: that the investments I have should beat inflation over time and even if buying the dip might be more optimal, simply riding long term equity gains (and applying a conservative rate at that) should meet my needs.
Definitely gives me more time back in the day to think about other things too, which is nice.3 -
tebbins said:I think @Diplodicus's point is about how nice it would be to have a house worth to lose without worrying.
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Alexland said:
So the best thing to do when you start investing is to be fairly adventurous on the understanding that good investments will likely work out fine in the long run.2 -
Bobziz said:Alexland said:
So the best thing to do when you start investing is to be fairly adventurous on the understanding that good investments will likely work out fine in the long run.6 -
Yes it's unfortunate when people need to invest a large lump sum when they haven't had the experience and cumulative gains (which act as a buffer against loss of original contributions) from building investments up gradually. There's no perfect answer or way of getting the money into the market at average prices across a cycle. There's also the psychological aspect of making any changes to a big account where any resulting loss is clearly your fault rather than just the more explainable market movements for which you are less likely to feel regret.
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I suspect you are more likely to worry about stock market volatility when you only expect to have about enough money to meet your objectives
Yes if you have a large enough safety buffer , then it takes most of the worry away .
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A lot of new non-advised investors do have a habit of investing above their risk profile and panicking at the first minor drop. So, there is some room to improve there.
I would imagine that a lot of advised investors , also panic when the news is full of markets plummeting and your phone is red hot !
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