Comments on: Principal Protecting Your Investments

By: Monevator

Monevator — Sat, 15 Aug 2009 09:21:11 +0000

Interesting case study, though I agree with Adam that it complicates a simple idea to ensure you hit an exact amount of money in five years time. Then again, investors might like the psychological security.

I certainly prefer it to opaque structured products!

By: Rob Bennett

Rob Bennett — Mon, 03 Aug 2009 22:50:43 +0000

avoiding the market does eliminate the best chance an investor has for growth, but that growth is not guaranteed.

My thought is that all in the investing field should be focused on these questions today. Nobody has all the answers. But my hope is that we all can learn more by putting our heads together and coming up with creative solutions. I believe that the crash will come to be viewed as having been a positive if we take advantage of the opportunities to explore new ideas that it opens up to us.

Rob

By: Adam

Adam — Mon, 03 Aug 2009 20:11:54 +0000

Isn’t this just a verbose way of saying, ‘if you want to protect your principal, put 80% of your portfolio in government bonds?’

By: Mark Wolfinger

Mark Wolfinger — Mon, 03 Aug 2009 20:04:02 +0000

I understand the desire to protect assets. I constantly preach doing just that.

When interest rates are high, this program has appeal because there’s a reasonable sum left to invest in the market, and most investors like the idea of being invested (passive or active). But with interest rates low, does this program have followers? Are people just looking ‘not to lose’?

I’m sure I don’t know the answer.

NOTE to BOB,
Yes, avoiding the market does eliminate the best chance an investor has for growth, but that growth is not guaranteed. The truth is that avoiding the market also eliminates the best chance for negative growth.

By: Rob Bennett

Rob Bennett — Mon, 03 Aug 2009 16:45:18 +0000

There is a great need for discussion of risk-reduction strategies. The risks of stock investing have been greatly understated during the Passive Investing Era and there is a great thirst today among middle-class investors to learn about more realistic long-term strategies than those that have been widely promoted in recent decades.

I am not entirely comfortable with strategies that require that investors lower their stock allocations across the board. The problem is that stocks really are in a general sense the ticket to financial freedom for middle-class investors and lowering your stock allocation means passing up opportunities for growth of your portfolio. Millions are already behind on their plans to finance their retirements. Giving up more growth opportunities is not going to help.

I believe that the future of stock investing advice is learning to distinguish the times when stock investing is an insanely risky thing to do in the long term (times of high prices) and times when stock investing risk is moderate or low for long-term investors (times of moderate or low prices). This approach provides investors the best of all worlds — the great returns generally associated with stock investing without the insane risk taken on by those who invest passively (those who do not adjust their stock allocation in response to big price changes).

Rob