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In Response to A Case of Two Investments by wanjie
>>Initially, I invested in index funds and into individual stocks the last three years. That's when I lost the bulk of it. This A/C has me stumped. I have picked good stocks, but I always replay 2008 when stocks start going down. I can't seem to leave the stocks alone.>>
Think about what you're doing. If you buy a good rental property, do you look at it a week later and think, "hmm, this other rental property for sale looks a little better, I think I'll get rid of this one and get this replacement instead"?
And then two weeks later, do the same thing, on yet another property for sale.
NO - of course you don't! You realize that selling costs make that a losing proposition. Appreciation takes time, especially in today's market, so flipping ASAP would be contrary to your long-term perspective.
RE is like a bond. It is relatively illiquid and has a long timeline for payback. If you try to sell in a bad market (yes, bonds have lost money at times also) you may find yourself underwater. You are **hoping** that when you do finally go to sell, the market will be good and your asset will have grown in value.
You wouldn't buy RE without investigating the market, the neighborhood, the structural condition. Nor should you buy equities without doing the same thing in defining your intentions. Do you want income? Now, or later? What's your risk profile? Would you be better off purchasing a no-load balanced mutual fund and having a good funds manager do the work of balancing your portfolio allocation and risk analysis?
If you have bad investing instincts - and many people do, frankly - then take your emotions out of it and put the money where a good funds manager will be paid to do what you have not been able to do yourself. There is no shame in this: if you aren't good at something, then hire someone who is, to do it for you.
Did we lose money in 2008? Sure we did. Did we gain most of it back in the 2009 'dead cat bounce'? Yup, did that too. Currently we're about 10% down from the heights, which is small enough to be a blip in our portfolio's 25 yr history (and yes, we should have saved more when we were younger, LOL).
We are long term investors and only use mutual funds. Our costs are at NAV and there are no trading costs at all, with an extremely low management fee. OTOH, the pension fund offers a good but limited choice of funds to pick from. Yes, often we miss 'the next hot thing.' We don't chase fads, however. We understand that the financial markets are back on their normal cyclical routine, albeit at increased speed due to hi-speed trading and sophisticated new financial products.
Therefore, we look at trends. In 2008 we converted our international fund gains over the 2006-7 market. In 2009 we converted our equity gains into a huge position in bonds. In 2010 we converted some of the bond profits back into a modest proportion of equities for long-term appreciation. I look at the portfolio periodically but only rebalance when I consider the fundamentals have changed.
This has made us contrarian investors, by default. When the media hype is loudest and most shrill, then I know the trend is already passing. When we total up our contributions over the last 25 yrs, it is less than 30% of our retirement account balance. That is a good ROI, and a validation that our personal investing style balances all aspects of our overall financial planning. Life doesn't stop when you retire - one can have another 30 yrs or more ahead, almost as long as one's total working career.
We have to look at all aspects of our finances in a holistic manner - legal issues, inheritance issues, elderly care issues, insurance, risk profile, asset management style, personal health and longevity history - in order to plan properly for the future. Without this, we are flailing blindly away, thinking that the 'deck is stacked against us.' Yes, the little investor doesn't have the weight of a John Paulson or Warren Buffett, but to invest blindly and emotionally in equities, when you are giving more time to researching what car to buy or where to vacation, is a worse gamble than going to Vegas and playing blackjack with a blindfold on.