It is not enough to be busy. So are the ants. The question is: What are we busy about?
–Henry David Thoreau
I should like to know which is worse: to be ravished a hundred times by pirates, and have a buttock cut off, and run the gauntlet of the Bulgarians, and be flogged and hanged in an auto-da-fe, and be dissected, and have to row in a galley — in short, to undergo all the miseries we have each of us suffered — or simply to sit here and do nothing?’
-Candide, Voltaire
I’m only happy when it rains,
I’m only happy when it’s complicated,
And though I know you can’t appreciate it,
I’m only happy when it rains.-Only Happy When it Rains, Garbage
Perhaps I’m not completely right in the head because I like a little drama. Life is more fun when there is a little bit of chaos and disorder.
My worst enemies in life are monotony and boredom. Sitting still for any length of time is terrible. I want each year to be a different adventure from the last. I look forward to seeing new places, conquering new challenges and making new friends.
Crap, I’ve really gone off the deep end. All of this is a long winded way of saying that I’ve watched the recent market chaos with great amusement. I wasn’t always this way, but now, the glass always looks half full to me:
- Markets are going up, up, up: Great, my portfolio is making money!
- Markets are taking a dump: Super! If markets correct down 10% or 20%, I’ll jam some cash down the mouth of the bear.
Win, Win.
Time for an update on the Asset Class Battle.
What is the Asset Class Battle?
I rolled my 401(k) over this in 2015. Instead of just putting it all into VTI, I decided to get a little crazy and roll it into different assets. Nothing like experimenting with almost $300,000, right? What could possibly go wrong!! Remember what I said about how I enjoy drama?
I put $30,000 into each of the following investments:
- VTI (same as VTSAX): This is the benchmark (US Total Market Index) and where most people should invest the majority of their money. The other eight investments will be judged based on how well they do against this one.
- VOO (same as VFIAX): This is the S&P 500 index. I had $30,000 dollars still sitting around the account, so I picked this one up during a market dip on 8/24/2015. To make it fair, I bought an equal amount in dollars to what I had in VTI at the time. I’m curious to see how the S&P 500 performs against the US Total Market Index.
- FCNTX (Fidelity Contrafund): This is an actively managed mutual fund that my 401(k) was invested in prior to rolling it over. Giving it a chance against VTI is a worthwhile exercise, although I hate the premium fee.
- VXUS (Vanguard International Stock): This provides exposure to investments outside of the U.S.
- VBR (Vanguard Small-Cap): I have read that small caps beat the bigger guys over time. Besides, Betterment also has this in its portfolio and the folks who work there are smart.
- VNQ (Vanguard REIT): I love real estate, but so far, I’ve been wildly unsuccessful in my attempts to purchase any property. A REIT allows me to own real estate.
- SCHD (Schwab US Dividend Equity): There are no shortage of people obsessed with dividends. I consulted Jason over at Dividend Mantra and this was his recommendation as far as funds go (Jason prefers to buy individual stocks over funds).
- VGT (Vanguard Information Technology): I love technology and feel that this sector has a better than average chance of outpacing the rest.
- BRK.B (Berkshire Hathaway): This is Warren Buffett and Charlie Mungers’ conglomerate. I’m a big fan of them, so why not see how they do?
Here is where my experiment sits as of 1/10/2016:
How is the Asset Class Battle doing among the chaos?
From best to worst:
- VNQ: $28,996
- FCNTX: $28,506
- VGT: $28,502
- SCHD: $28,272
- VOO: $27,451
- VTI: $27,349 (Total US Markets, the measuring stick)
- BRK: $27,078
- VBR: $25,581
- VXUS: $24,606 (International markets continue to suck it)
Here is another way to look at how assets have performed over time:
Observations
- VNQ riding high: The Vanguard REIT jumped from 6th place all the way up to 1st. Don’t get too excited about VNQ though. The main reason it’s #1 is because it didn’t fall off the cliff like the rest of the market:
- VTI fading: The US Total Market Index has been going down with each update:
3rd -> 4th -> 5th -> 6th
This behavior is normal though. In a good year, VTI would be near the top. In poor years, some of the specific sectors are going to have a better chance of outperforming. Over decades, I expect VTI to outperform just about everything else.
- VXUS, the bottom feeder: Vanguard International Stocks have been in last place or second to last for almost the duration of the experiment. This will not change any time soon if China continues to struggle.
- Maybe this whole thing is silly. Have a look at the Asset Allocation Quilt below from the really excellent A Wealth of Common Sense blog. The important lesson in this graphic is that it’s silly to try to chase growth by investing in one asset class. Every dog has its year and the winner is ever changing.
Don’t fear the chaos, embrace it!
It’s silly to make predictions, especially short term ones. I’m going to keep plugging money into my 401(k) as I always have. The more drama we have, the better for long term investors. I really love what this guy has to say about 401(ks) in chaotic markets (the last paragraph is a must read).
If the markets continue to fall, I’ll throw some of my cash pile into the fire.
Buy low, sell high. That’s all.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
Hopefully you don’t fully follow the plan of that cat. Stick to dinosaurs and just devour value.
With our mutual fund investments I typically just go for the broadest indexes or quasi-indexes that I have available to me. That pretty much means the VTI and VXUS and their equivalents. I don’t bother chasing the asset classes around because AWoCS’s asset return quilt paints the picture as clear as can be. Who in the world knows what will be the best one next?
I think some allocation to international makes sense.. However, international has done really badly relative to US since 1996 at least ( though long term they should be equal after 20 years)
http://bit.ly/1PrxMVB
I agree it is important to stay the course. Going all in cash might not be the best idea, unless you are great at timing future moves. However, some fixed income could be good for you.
Dividend Growth Investor recently posted…Dividend Investors: Stay The Course
Yikes, look at that chart. America had done great while the much of the rest of world had struggled. I wouldn’t be surprised if it stays this way too. Look at all the innovation that comes out of California alone.
However, times change and empires collapse. I have no idea what the world will look like in 2015.
In any case, my foreign investments will only compromise about 15% of my portfolio.
Fixed income you say? Dividends??? 🙂
Devouring value sound much better than… never mind!
VTI and VXUS are way to go. My experiment is just to have little fun. No more money will be going into most of those assets.
A great ginger-saurus house! I recently reallocated some funds to VTI and VOO. Wow its been fun to watch. Maybe fun isn’t the word. Just keep thinking long term and hoping to free up some cash to jump in more shortly while things are on sale.
Brian @DebtDiscipline recently posted…Creep
I like this. As you sell off the stocks are you going to put those funds into these mutual funds? Good ol fashioned VTSMX?
Jason recently posted…Don’t Lose Your Dinosaur
Yep, VTSMX for the most part. I want foreign holdings to be 15% of my portfolio too, so I’m throwing money into VXUS and VWO now as well.
This dive is killing me!! All of my cash is set aside right now so I can jump on a house when the right one comes along, and I can’t hit the sales … well, OK, that’s not true technically.
So, technically, it’s killing me to not be able to hit the sales outside of my 457 plan, which isn’t nearly as much fun as calling Vanguard and yelling “Buy, BUY, BUY!!!”
Not that I would yell at the nice people there. I’d probably chortle at some point, but chanting… yeah, chanting is a definite possibility – buy buy buy.
It’s hard to say at 5:30 BT (Before Tea).
“BT”
Love it!
Who knows, a lot of folks think the housing market is due for a correction too. Maybe you’ll be able to yell “Buy, BUY!, BUY!!!” on a great home deal??
Well, that would be nice.
But a great deal around here would be $240k for a fixer upper, sadly. I mean, trailers sell for $100k here, in actual trailer parks, with a monthly fee.
As I told my realtor, it could take a year to find the right place. Patience is great. Being patient sucks.
If it helps, I’m in the same boat. I’m torn between continuing to try to save for the house, or shoveling cash into the market right now. 🙂 But I’m further complicated by being in oil and gas country, which is not a fun place to live right now. It’s certainly adding a lot more question marks to the mix of “what to do”.
Yikes – A renter of mine was downsized from a big O&G company last summer. I hope you make it!
You both should just be patient. Wait for the right deal, but start looking now so you know it when you see it.
We’ve been waiting almost 3 years to buy a rental!
“Over rolling twenty-year periods – starting in any month of any year over the last century – you’ve never lost money in stocks. Didn’t happen in the 20’s, 30’s, 40’s, 50’s, 60’s, 70’s, 80’s, 90’s or the 2000’s. Some twenty-year rolling periods have been better than others, but none have been outright losers. ”
Patience is a virtue, and when it comes to retirement investing, the absolute best advice to heed. It’s in times like these I wish I had more cash to plug into the market.
That 20 year period is an awesomely powerful lesson.
“It’s in times like these I wish I had more cash to plug into the market.”
I know, right???
I love it when you quote lines from Candide. Anyways, I just read an article where RBS said to SELL EVERYTHING!! except high quality bonds. Apparently we’re back to 2008 again and the panic that came from that. I try to ignore the noise and will continue to investing unlike in 2008 when I joined the panic crowds running around screaming that the world was about to end. Oh and I have Vanguard’s emerging markets index fund…man that has taken a beating!!
Andrew@LivingRichCheaply recently posted…Consumers Beware
The funny thing is that RBS had a somewhat accurate bearish article in June 2008, which was mostly a correct call.
Of course, whether their current article is right on the money or not, is yet to be seen.
Dividend Growth Investor recently posted…Dividend Investors: Stay The Course
I know next to nothing about RBS, but have they made other correct calls?
Andrew, you may be the only other person on earth who gets my Candide lines!
Amazingly – the Santa-saurus is actually less scary than the Elf on the Shelf! I love the updates. We have most of our investments in VOO because the first article I ever read on index funds said that was the one to do. 🙂 Several years later, I just haven’t changed it. Maybe I’ll actually start putting new investments in VTI…? Undetermined.
Maggie @ Northern Expenditure recently posted…The Power of a Good Cleanse
I talked to Jim Collins about VOO versus VTI once and I think he said that they should perform almost the same, but VTI may come out slightly ahead over the very long term.
Fascinating – maybe I’ll do half and half and see which one wins. 🙂
Maggie @ Northern Expenditure recently posted…The Power of a Good Cleanse
>> “I’ve watched the recent market chaos with great amusement.”
Totally agreed. I think that’s the sign of being financially secure and flexible — and accepting the inherent risk of the stock market. There’s sure been a big media firestorm over the market turbulence to start the year, even though the S&P 500 is down a mere 5.5% YTD as I write this. If you can’t handle those kinds of fluctuations, stocks are probably not for you!
Matt @ The Resume Gap recently posted…I Quit
Yeah, as Buffett says over and over again, proper temperament is a lot more important that intelligence when it comes to successful investing.
Congratulations on quitting! Do you mind giving me a kick in the ass sometime?
Haha, thank you! When we pass through Colorado, it would be my honor to buy you a beer (and slap you around a bit about continuing to work).
Matt @ The Resume Gap recently posted…I Quit
Awesome! I can’t wait for that kick in the ass if I’m still working when you come through. And beer is on me; especially if I’m still working. After all, you’ll be on retiree income.
The Fed telegraphed their Dec ’15 interest rate hike several months in advance. It was impossible to not see this downtrend coming. Markets are an artificial construct. They’re man-made and completely subject to human foibles. Thinking of equity markets as absolutes, like the laws of nature, is detrimental to financial well-being. Consider astro-physics: The Sun will always rise in the East (until it explodes or the Earth collides with another body which reverses its rotation or knocks it out of orbit), but that doesn’t mean that markets will always behave rationally.
Actually, I thought the recent declines had more to do with China slowing than the rate increase. As you said, that’s been expected for months, so that was all baked in a while ago.
I think what you say is very true in the short term. For the long term investor though, the truth will eventually rise to the top. Reminds me of one of my favorite investing concepts from Benjamin Graham: http://news.morningstar.com/classroom2/course.asp?docId=142901&page=7
My approach to investing is eerily similar to you. When the market dips or even corrects, I see nothing but opportunity. It’s in the volatility of the market that real value and buying opportunities are created.
Yeah, volatility is a friend of the long term investor. My friend Munger has some wise things to say about it: http://25iq.com/2015/09/05/a-dozen-things-ive-learned-from-charlie-munger-about-risk-2/
I do notice when the markets go down (thanks Personal Capital) but it doesn’t effect me. I have a long term view and my plan doesn’t change whether markets are up or down. For those wondering, my plan is extremely complicated and consists of shoveling as much money as possible into two Vanguard index funds 🙂
Fervent Finance recently posted…2015 Net Worth and Expense Recap
I like your plan!
Lol poor cat, I laughed so hard when I saw that picture. The market will go up and down, but if you have time, you can wait it out and just accumulate more shares.
Tawcan recently posted…Dividend Income – December 2015 update
Smart cat I say!
I like the Asset Battle. I prefer Small Cap because I like the underdog….that and the reason you mentioned over time they beat the big guy. I’d just like to be winning the whole time, but wait it out.
I’m not a huge cat person, but the picture got me as well. Nice work.
Steven recently posted…My Season of Wins and Losses in Fantasy Football
You like underdogs of course you’re not a cat person.
I’m not a cat or a dog person, more of a cephalopod person. What does that make me?
Omg all those red arrows…better sell everything before its too late!!!
Jk.
Love the asset allocation quilt. Even if the asset class battle doesn’t give any takeaways as far as where to find growth, its interesting to see how different asset classes react to the market.
Nate recently posted…Why You Shouldn’t Sell During A Stock Market Panic
Yeah, I love the reactions. So many moving parts. I fascinates me to death!
Mate, fascinating tracking, but what happened to the other $30,000?
You had $300,000 and you bought 9 positions for $30,000 each.
Or did I read this wrong as the markets head to zero!!! Ahhhhh! 🙂
S
Financial Samurai recently posted…Real Estate Is The Next Asset Class To Fall And Why I’m Not Worried
I was a little exhuberent in my rounding. I started off with 275K, not 300K: https://www.1500days.com/what-i-did-with-my-275000-401k-rollover/
1500 Days: Not audited by PricewaterhouseCoopers or anyone else for that matter!
I always have the same conversation when I talk to to people about when to invest. I get mixed responses, some people tell me to buy when a good stock is high in anticipation that it will continue to rise, while other like you say to buy low sell high. This little market crash this past week has taken a big toll on my portfolio. I made the mistake on not having any liquid cash available to invest when everything is down, now im hoping i can get some of my stocks back up to get my portfolio back up. Good luck!
Formative Fortunes recently posted…Saving Money Through Gift Cards
“I made the mistake on not having any liquid cash available to invest when everything is down…”
I don’t think this is a mistake; this just means that you are investing everything which is what you should instead of timing the market!
So I have the same thought as you that when the market goes down substantially it seems like a good buying opportunity, but reading up on the “buy the dips” strategy some are saying it’s basically some form of market timing. The theory being that if you have extra cash sitting on the sidelines you are missing out on potential gains in the interim and it requires you come up with some type of threshold of what determines a buying opportunity.
this is quote that probably sums it up better than I am trying to:
The problem, as I see it, is this: If you plan on having investable money with which to buy on a dip, then that money that does not participate in growth while not invested.
Now, the other thing to think about is – what if there are going to be multiple dips in a row? If a dip appears and you have cash reserves, do you plow all your cash reserves in at once? The market could slide downward for the next month.
I think when it comes down to it, “buying on dips” is synonymous with market timing. You have to have non-invested money in order to buy on the dips, which means you have to “not buy” what you would have otherwise bought, which is equivalent to selling at a specific time because you think you can buy at a better time.
-https://www.bogleheads.org/forum/viewtopic.php?p=1026743&sid=14a40ed6d3fc77256cc51281f7c4c2e9#p1026743
“The problem, as I see it, is this: If you plan on having investable money with which to buy on a dip, then that money that does not participate in growth while not invested.”
I think you’re exactly right. You shouldn’t save up cash just try to time the market. In my case, I’d throw my emergency fund into it. I’m OK with that because we are currently a 2 income household that can get by fine should either of us lose our job. I agree with you that you shouldn’t hold cash on the side just to try to time the market.
“Now, the other thing to think about is – what if there are going to be multiple dips in a row? If a dip appears and you have cash reserves, do you plow all your cash reserves in at once? The market could slide downward for the next month.”
This very situation may happen to me now. The last (only time) I bought on a dip was at the end of August. However, the market is close to seeing that low again. I have no great answer. In my head, I consider throwing some money in at the time of a 10% correction. If there was a 20% correction, I’d probably throw most of what I had in and then also put every extra dollar in.
In the long run, I acknowledge that all of this probably won’t make much difference in two decades.
I also never time anything with my solo 401(k) which is the bulk of my savings these days ($50,000/year). The day that check clears my account, I log into Vanguard and deploy the money into VTI or VXUS (actually, their equivalent in fund form since the solo 401(k) doesn’t allow ETF holdings).
One other thing which I’m adamant about is that I do any of this on the sell side. I like Buffett’s advice that the ideal time to hold a stock is forever. With that said, I am lowering positions in individual stocks because I’m overallocated and wish to move to safer waters (again, VTI/VXUS).
I would sell at least 10% of the experiment and invest it in vintage nintendo and sega video game machines. I hear 2016 will be a comeback year for the original titles…
Vawt recently posted…December Travel Points Update
Metroid! The Legend of Zelda! Man, I loved those old Nintendo games…
Please say there is an investment with the ticker DOO. There is, excellent.
You should go all into VOO & DOO. It CAN’T go wrong.
There is a company at $DOO!!: http://stocktwits.com/symbol/DOO
It’s only money… My portfolio is way down too, and I am all index ETFs like your 300K. Mostly IVV, IVW.
It will come back, that is unless it’s different this time. Luckily I have rental income.
No Nonsense Landlord recently posted…How to Fix a Delta Shower Faucet Leak
There is no shortage of drama in 2016. Things fall of the cliff, worst start ever off a year, the collapse of China, the bull is dead, the bear crushes wall street… That would make great movie titles.
One of my core beliefs is that monthly investments in the market is the best way to avoid behavioral mistakes. And for the behavioral mistakes, I have my play money… That should do the trick.
For now, we live below our means, invest the surplus, make sure the emergency fund is doing ok… Next to that: lets enjoy life!
It’s hard to swallow dips in the market when you see your total investments decrease. I remind myself it’s a long term strategy and the more shares I buy, the more dividends I get.
Savvy Financial Latina recently posted…EOY 2015 Kitchen Reveal
Great post…. Haha my portfolio isn’t doing any better. Well this is what it is… My investing horizon is another 10-20 years so why bother. If I think this way, the cheaper the stocks get, the better I will be. Thanks god, I have a day job to reserve cash and keep buying stocks.
Cheers!
BeSmartRich
Hey 1500D,
Interesting to see how you set up a battle of asset classes here, actually very helpful. Also cool that REITs hold the top positions at this time, that’s where I started investing heavily into first – turned out it was a bad idea with the Fed constantly going on about rates.
Definitely going to be embracing the chaos with you and parking some money into great long-term assets which are currently dropping in price due to the fickle, scared investors.
Thanks for sharing,
DB
Dividend Beginner recently posted…Dividend Cut: Pengrowth Energy Corp. (PGF)