David Riedel, whom I picked on a while ago in a book review, just made a comment in response to Mark Haines that is potentially very dangerous.
Mark asked about buying emerging stocks if you have a five to ten year time horizon. Riedel said "oh I think you should be very heavy stocks if you have a five to ten year horizon."
A rule of thumb, with a child's college fund as an example; when the child gets to about 13 you should be cutting back a lot on equity exposure.
If someone tells me they need the money in five years I would tell them to be quite light in equities. The odds of a 20% decline occurring within a five year period are pretty good. If it is a fast one like 1998 then there would be no problem but if it was a slow one like 2000-2002 there would be a big problem.
To be fair I think the question was not framed well. In this context, ten years is different than five years. But, again, if you need the money in five years you do not want to go heavy equities.
This is different than starting to draw on a pool of money than needs to last for several decades.
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8 comments:
Roger. Interesting comment. In general, certainly not specific advice, what approximate percentages of stocks, bonds, and cash would you recommend for a retiree who plans to live another 30 years? I don't recall your ever having provided these general guidelines, and I understand if you decline to do so now, given the many individual peculiarities that would impact the guidelines for a specific person. For this purely academic exercise, if you decide to provide guidelines, assume normal health, normal interests, normal market, etc. Thanks, JCarr
Roger, The 2001-2002 we didn't have ETFs...what happens in a
deep dive or crash to them...
are they safe? Just wondering
I have an "attempt at humor" picture to send to you...
where do I find your e-mail
address.
thanks for all that you do!
You nailed it. And since not many folks watch business channels, no harm, no foul.
T
JCarr, sorry you would think a generic answer would be ok but compliance rules do not. I can't explain 'em folks, i can only try to abide.
I'm tired of losing money everyday and decided to cash out all my ETF's and buy 30k WM tomorrow. I need to make back my 50k in losses quickly.
M
@ JCarr (& Roger) ~ Is now a good time to be making long-term decisions? I'm sure in 18-36 months there'll be plenty of ways we'll be told that if we'd had the foresight and nerves of steel to invest in certain equities now we would be sitting pretty, but in these odd markets I haven't seen anyone make predictions with any certainty, except Dr Doom and the gold bugs.
With a 30 year horizon I'd say slowly drip-feed into US and international trackers, which I'm allowed to because I'm a Joe Six-pack.
Hey Roger long time reader, first time commenting.
Was the question about the next five to ten years or any five to ten year period? As you highlighted in you last post, active vs passive, you believe in timing the market. We're in a decline and while we might not be at the bottom, the odds of good returns occurring within the next five year period are pretty good (to borrow your phrase).
I try not to confuse averages and statistics with what is right in front of me now. Stats are interesting reading, though we all need to be careful when and how we apply them.
In general I agree that five years is a short time frame if you absolutely need the money at the end of that time, but I give the next five year period better odds than usual for providing good returns.
BUT
Love your work.
anon, 4:07 and Dean, the post has nothing to do with today's stock market.
This is a planning and risk thing; you need the money in five years, don't buy stocks or the very least be very light.
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