034R | Risk Tolerance & Asset Allocation

034R | What’s Your Risk Tolerance | The Friday Roundup

In today's podcast we discuss our thoughts on Part 2 of the Stock Series conversation with JL Collins, risk tolerance, doomsday scenarios, and re-balancing.

In Today’s Podcast we cover:

  • The Friday Roundup and the episode Part 2 of our discussion with JL Collins from The Simple Path to Wealth and JLCollinsNH
  • What do you do when there’s a large crash in the stock market? Big takeaway from Jim’s episode
  • You can’t sell at the bottom, so you need to steel yourself mentally beforehand
  • If you’re starting investing, one of the best thing that can happen to you is a market crash
  • You can’t time the market
  • There are doomsday scenarios, but since they are so rare it is silly to plan for the absolute worst case and ignore the other 99.9% likelihood
  • Follow the math when making the best decision with the information at hand
  • Question from Kevin about when to “take all your chips off the table”
  • That event would have to be extraordinary and destructive for our country and economy
  • Spend less than you earn and invest in broad based index funds
  • Feedback from Nancy on asset allocation and comfort with volatility and her belief that you shouldn’t take a lot of risk if you don’t need to
  • Jonathan’s example of re-balancing and a hypothetical $1,000,000 portfolio and a 50% market crash
  • Equities will return significantly higher than bonds over the long term. Bonds do “smooth the ride” but lower long-term returns
  • You want to re-balance in accounts like IRAs, 401ks that won’t trigger a taxable event
  • Brad’s example of his parents investing strategy
  • Over the long term which option is truly riskier? Investing in stocks and facing volatility or lowering your expected return by investing in cash or bonds
  • The 4% rule is based on getting a return while pulling out money each year, so you can’t just stick it in cash and expect the money to last forever
  • The power of the ‘perpetual money making machine’ to last forever
  • ChooseFI was mentioned on Forbes as one of three financial podcasts for people of all ages to listen to
  • We need panelists to select the finalists for the business building contest with Alan Donegan
  • Lance on our Facebook group pulled the trigger on FI today – congrats!
  • What did Brad and Jonathan put into place this week as one life optimization?
  • Jonathan’s salad hacks
  • Jonathan is now saying “stimulus and response” out loud when finding something habitual in his life
  • ChooseFI is not just limited to finances. It is a life optimization project
  • Voicemail from Scott (Brad’s brother)
  • Frugal wins of the weeks
  • Itunes reviews of the week

Links from the show:

Books Mentioned in the Show:

Your Financial Resilience Toolkit

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6 thoughts on “034R | What’s Your Risk Tolerance | The Friday Roundup”

  1. Great episode once again, guys! Always good to dig a little deeper into some of the JL Collins material. I moved a good chunk of our retirement funds to VTSAX a couple of years ago.

    Also want to thank you guys for the shoutout! ER is treating me well so far (four days in!) – although the idea still hasn’t fully set in. It still feels like an extended weekend! I AM enjoying it, though!!

    Keep up the great work here – every episode give me new ideas to think about or expand upon existing things I’m doing.

  2. Episode 34 and 34R harped on reasons to own VTSAX, despite the unnecessary risk of 100% stocks. Simply put, VWELX (Vanguard Wellington) beats every broadband index fund since each fund’s inception. Since 1929, it’s roughly 65/35 stock/bond allocation, .25 active management fee (.16 Admiral shares), and premier investment management lay waste to endless hours of podcast promoting one fund by ticker symbol. If one fund, why VTSAX over VWELX? If the counter is index vs active management, then at least note that there is one fund, probably more, open to investors that stand as an exception to whatever “Pillar of FI” number VTSAX holds – VWELX.

    Keep up the good learning.

  3. Enjoyed the podcast. One suggestion. When Brad gave the example of using bonds or cash vs investing over the long term, he used the word “guarantee” when he discussed getting an average of 8% return on equities over the long haul. Of course he didn’t mean that but that is exactly why someone may not want to be in equities. There is no guarantee. In fact there is no guarantee that your savings account can’t go to zero but the risk of that is much lower than the risk of losing money in the stock market. It probably would have been better to say a return that historically has been 8%. I say this as an investor that has been 100% in stocks for 20+ years.

  4. It was a great example of how rebalancing and bonds level out volatility but I had to think about how in the real world it is not a bit more possible to buy in at the bottom than it is to sell at the top. Nobody ever knows if a dip will be 2%, or a 15% correction, or a 35% Bear or a 55% great recession. The only safe system would be to dollar cost average your balancing starting at a pre-set level of maybe 15% and even then it is unlikely you could ever really capture the buying opportunity. This isn’t hypothetical to me, I inherited a very large six figure chunk of money recently and it is sitting in cash waiting for…I’m not sure. It is a small part of my net worth and I’m FI with or without it so it isn’t critical that I avoid a mistake. If I had put it into index funds as soon as I got it it would have appreciated by over $100,000 by now but if the market craters while it is still in cash and I buy at the right time I could easily double the money. I am not normally a market timer, but in this case the money came out of the blue as cash and it is hard to know when to pull the trigger. It is much the same situation as trying to figure out when to rebalance since the inheritance unbalanced my portfolio.

  5. Hyperinflation would actually be bullish for the stock market. You definitely don’t want to take your chips off the table (i.e., sell your stocks for cash) during hyperinflation. In that environment, the value of the dollar would be destroyed, whereas the value of assets (e.g., stocks) hyperincrease rapidly.

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