Comments on: From the Front Lines: Investors Selling Stocks in Favor of Fixed Accounts http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/ Helping a unique generation achieve financial independence. Fri, 10 Feb 2012 01:03:00 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Asset Manager http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-79296 Asset Manager Sun, 13 Jul 2008 14:45:35 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-79296 This is an interesting situation to debate, but I am on the side of Jeremy as far as being a contrarian. I wrote an article recently that proposed that the market has pushed the 'reset' button, allowing investment into stocks at prices not seen for years... This is an interesting situation to debate, but I am on the side of Jeremy as far as being a contrarian. I wrote an article recently that proposed that the market has pushed the ‘reset’ button, allowing investment into stocks at prices not seen for years…

]]> By: HF Markets - Online Trading http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-79291 HF Markets - Online Trading Sun, 13 Jul 2008 14:29:32 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-79291 Excellent post. Although we mainly deal with short term trading, clients could heed the warning of ignoring the dollar cost averaging scenario. Investing for the long term is the key to a stable portfolio. Times like these need a cool head and not a knee-jerk sell off of your investments. Excellent post. Although we mainly deal with short term trading, clients could heed the warning of ignoring the dollar cost averaging scenario. Investing for the long term is the key to a stable portfolio. Times like these need a cool head and not a knee-jerk sell off of your investments.

]]> By: flowers names http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-79269 flowers names Sun, 13 Jul 2008 08:04:09 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-79269 The post is so comprehesnive for me. It will be of great usage for sure. Ignoring Dollar Cost Averaging is my problem The post is so comprehesnive for me. It will be of great usage for sure. Ignoring Dollar Cost Averaging is my problem

]]> By: Cash Canuck http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-79156 Cash Canuck Sat, 12 Jul 2008 06:10:50 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-79156 Cannonfodder. What happens when interest rates go up? (with inflation rearing it's head, it's not unlikely) Then the interest on your loan increases and the value of your dividend portfolio drops (thereby raising div yields to compete w/higher interest rates). Do you have enough cash to cover your position if a margin call comes in? Don't get me wrong. I agree that some stocks, especially financial stocks, are bargains right now. Bear markets can last a long time, though, and the herd may continue to drive the market down. Are you going to be able to weather the storm? One big mistake people make is about their timeline. If you have time to let the market sort itself out, then more stocks seems to be the order. But if you are saving up for something <5 years away, a much larger portion of fixed-income would help you sleep at night. Cannonfodder. What happens when interest rates go up? (with inflation rearing it’s head, it’s not unlikely) Then the interest on your loan increases and the value of your dividend portfolio drops (thereby raising div yields to compete w/higher interest rates). Do you have enough cash to cover your position if a margin call comes in?

Don’t get me wrong. I agree that some stocks, especially financial stocks, are bargains right now. Bear markets can last a long time, though, and the herd may continue to drive the market down. Are you going to be able to weather the storm?

One big mistake people make is about their timeline. If you have time to let the market sort itself out, then more stocks seems to be the order. But if you are saving up for something <5 years away, a much larger portion of fixed-income would help you sleep at night.

]]> By: Jeremy http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-79121 Jeremy Fri, 11 Jul 2008 17:23:33 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-79121 @ Nick, Right, you don't completely avoid the taxes, but you add that $125 to your current cash flow, which is the mindset these people have anyway. They don't care about the possibility for gains and potential taxes 20 years down the road as they are looking at where their money is going paycheck to paycheck. @ cannonfodder, You're right. While being a contrarian isn't as popular, it can be effective. I'm in this boat myself, and have recently increased all of our regular investment contributions where possible. I have no problem buying more while people are selling and keeping prices down. @ Nick,

Right, you don’t completely avoid the taxes, but you add that $125 to your current cash flow, which is the mindset these people have anyway. They don’t care about the possibility for gains and potential taxes 20 years down the road as they are looking at where their money is going paycheck to paycheck.

@ cannonfodder,

You’re right. While being a contrarian isn’t as popular, it can be effective. I’m in this boat myself, and have recently increased all of our regular investment contributions where possible. I have no problem buying more while people are selling and keeping prices down.

]]> By: cannonfodder http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-79117 cannonfodder Fri, 11 Jul 2008 16:42:00 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-79117 One behavioral characteristic you don't mention is the contrarian. When people are most negative, this is the time to start wading in and buying more. In fact, I'm poised to borrow money and invest it in dividend paying stocks. The after tax return of the dividends will more than pay for the after tax cost of the loan. I'm much happier to do this now than I would have been less than a year ago when we are at all time highs. One behavioral characteristic you don’t mention is the contrarian. When people are most negative, this is the time to start wading in and buying more. In fact, I’m poised to borrow money and invest it in dividend paying stocks. The after tax return of the dividends will more than pay for the after tax cost of the loan.

I’m much happier to do this now than I would have been less than a year ago when we are at all time highs.

]]> By: Nick http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-79116 Nick Fri, 11 Jul 2008 16:41:19 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-79116 You mentioned that you "saved" $125 in taxes (assuming a pre-tax account). What you've really done is deferred $125 in taxes. You do have to pay taxes at some point and although you might be in a lower tax bracket when you begin withdrawing from your pre-tax account, you will owe something eventually. Individuals who over-react to gains or losses do not have a proper asset allocation for their risk tolerance. It is almost never correct to sell all assets in one class and move them to another class. Advisors have a legal responsibility to put their customers into a portfolio that meets their needs AND their tolerance for the volatility of the market. You mentioned that you “saved” $125 in taxes (assuming a pre-tax account). What you’ve really done is deferred $125 in taxes. You do have to pay taxes at some point and although you might be in a lower tax bracket when you begin withdrawing from your pre-tax account, you will owe something eventually.

Individuals who over-react to gains or losses do not have a proper asset allocation for their risk tolerance. It is almost never correct to sell all assets in one class and move them to another class. Advisors have a legal responsibility to put their customers into a portfolio that meets their needs AND their tolerance for the volatility of the market.

]]> By: Rob Bennett http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-78988 Rob Bennett Thu, 10 Jul 2008 13:45:43 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-78988 This is a great idea for a series, Jeremy. People are indeed today feeling a good bit of confusion and panic. The only way that I know of for people to overcome those feelings is by taking them through. I believe that the core problem is that the vast majority of investors is widly overinvested in stocks today. You can see that by looking at valuation levels. When people get too enthusiastic about stocks in comparison to alternative investment classes, stock prices get too high. People are too enthusiastic about stocks today (not because of how they have been doing for the past eight years but because of how they were doing for the 18 years prior). I agree that many go through the process of lowering their stock allocations in a somewhat irrational way. The problem is that most do not today possess the tools needed to know when to cut back and how much to cut back. Discussions of when to cut back are often disparaged as efforts at "timing the market," as if that were a bad thing. Some forms of timing are certainly bad. Some are good. What is most needed today is solid information of how to distinguish the good forms of timing from the bad forms of timing. Rob This is a great idea for a series, Jeremy. People are indeed today feeling a good bit of confusion and panic. The only way that I know of for people to overcome those feelings is by taking them through.

I believe that the core problem is that the vast majority of investors is widly overinvested in stocks today. You can see that by looking at valuation levels. When people get too enthusiastic about stocks in comparison to alternative investment classes, stock prices get too high. People are too enthusiastic about stocks today (not because of how they have been doing for the past eight years but because of how they were doing for the 18 years prior).

I agree that many go through the process of lowering their stock allocations in a somewhat irrational way. The problem is that most do not today possess the tools needed to know when to cut back and how much to cut back. Discussions of when to cut back are often disparaged as efforts at “timing the market,” as if that were a bad thing.

Some forms of timing are certainly bad. Some are good. What is most needed today is solid information of how to distinguish the good forms of timing from the bad forms of timing.

Rob

]]> By: Adam http://genxfinance.com/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/comment-page-1/#comment-78808 Adam Tue, 08 Jul 2008 17:10:49 +0000 http://genxfinance.com/2008/07/08/from-the-front-lines-investors-selling-stocks-in-favor-of-fixed-accounts/#comment-78808 I tend to have the same initial reactions as you mention in this post. But I have been fighting hard to ignore them for many of the same reasons you talk about. In my case last month (june 08) i lost $7000 on a total account of $127,000, which stings pretty good. What particularly stings is that since I've been growing my account since start of 2005, the gains in the first 3 years have almost been wiped out by 2008 because the total amount has climbed steadily so that average returns of 12% in 2005 through 2007 can almost be cleaned out by a negative return of 10% in 2008 on a higher account value. :( that can make it hard to watch. I tend to have the same initial reactions as you mention in this post. But I have been fighting hard to ignore them for many of the same reasons you talk about.

In my case last month (june 08) i lost $7000 on a total account of $127,000, which stings pretty good.

What particularly stings is that since I’ve been growing my account since start of 2005, the gains in the first 3 years have almost been wiped out by 2008 because the total amount has climbed steadily so that average returns of 12% in 2005 through 2007 can almost be cleaned out by a negative return of 10% in 2008 on a higher account value. :( that can make it hard to watch.

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