In my last post I mentioned that the 400 point drop in the market yesterday didn't bother me and I wasn't planning any trades because of it. My husband, on the other hand, came home and said that the drop and Greenspan's prediction of a recession indicated we should watch the volitility of the market and be ready to move some or all of our holdings into cash, and to sit on the sidelines for some time (how long was unclear to me). We got into a minor argument about investment philosophy -- the same one we had 5 years ago that shut down our communication on investing. It was never resolved and we've only contributed to our separate retirement accounts since then. This is a mistake I don't want to make a second time, so I asked him to promise me we'd talk more this weekend.
My investing philosophy to date has been buy and hold and hold and hold and hold...to a fault. I had some AT&T stock (from an employee stock purchase plan) that went way way up, split into many companies, and collectively went way way down before I cashed out at a loss. I should've paid more attention to it and cashed out years sooner. I also tend to let money just sit in my funds, not rebalancing them or making moves based on performance. To be honest I don't find investing all that interesting. I've realized that I do need to understand my investments better and be more proactive about them.
DH's investing philosophy...I guess I don't really understand it. We don't even agree on what the definitions of "market timing" and "long-term" mean. When he says we should hold off on investing because the market is high or move into cash because a recession is coming, that sounds like market-timing to me. He says it is not because he is not proposing moving in and out and in and out of the market on a monthly basis. I think "long-term" means a minimum of ten years. I'm not sure what he thinks is "long-term", but he has said he doesn't believe in holding things for ten years. DH does not believe in "buy-and-hold" -- he blames that philosophy for influencing him to hold on to a stock that he knew was on the way down, and ultimately resulting in a $20k loss. It's hard for me to judge DH's investing philosophy -- he hasn't been actively managing much money since we married. On the other hand, he pursuaded me to do some rebalancing in my IRA, and the funds he picked have been the best performers of the lot.
I don't feel like I understand what we have and why we have it. I want to understand it before making any moves. DH listens to the market news and wants to act quickly. And so every conversation we've had about investing turns into a minor argument.
I just started reading a book called The Intelligent Asset Allocator. I've seen it recommended by some people who seem to be the kind of prudent investor I want to become. DH says he doesn't know anything about asset allocation theory. I am hoping it helps us to find some common ground.
Disagreement after the market drop
March 2nd, 2007 at 12:17 am
March 2nd, 2007 at 12:25 am 1172795158
I sold all but 25 shares. Lucky for me. It also spun off Agere,NCR,and a bunch of others that made me MAYBE $25.00. Then along came wireless and Comcast and we made buck$ again. Now,all I have are Comcast and AT&T Options which will probably expire before it ever reaches the set price.
March 2nd, 2007 at 12:58 am 1172797084
perhaps if you started small on a separate investing account that you both were involved in. come up with a game plan and a maintenence schedule, just like you would paying down debt or taking car of your car/house. decide up front what your diversification strategy will be and where you'd like the assets located (tech, REIT, commodities, international etc). agree upon a schedule on when to check on the account and when to rebalance. maybe you both decide to check on the status once a quarter and consider rebalancing once every 6 months to a year.
by determining what your desired asset allocation is and by knowing what your mutual funds invest in, it'll be pretty obvious to know when you 'should' rebalance. if you've decided no more than 15% international, and this year one of your mutual funds just upped its int'l allocation and now you're at 20% total, that would be a time to rebalance. by agreeing on these percentages up front you would both have a clear benchmark on when to hold and when to rebalance...
March 2nd, 2007 at 01:18 am 1172798321
Question for everyone:
How do you define "market-timing" and "long-term investing"?
March 2nd, 2007 at 01:27 am 1172798835
now with that said, allocation is always up for discussion based on where one is in life. opting for a riskier strategy early on and agreeing to update it every 5 years to be more and more conservative in addition to rebalancing to maintain the current agreed upon allocation is, IMO, a healthy strategy...
March 2nd, 2007 at 04:57 am 1172811451
If you own stocks at a gain, I would take some profits now... makes sense (get cash). If you have cash, this is an opportunity to buy low.
Do 2 things- sell some winners and buy something new. A compromise, which could patch things up.'
Buy Low sell high is the argument you both should use.
gains are "high", lock them in
the drop is a low, buy something cheap.
As for not cashing out on ATT, remember if you have paper gains, expect to retire in a paper house (LOL).
March 2nd, 2007 at 05:01 am 1172811697
Long term investing is using equities to get a 10% growth or similar return with risk to principal.
The more individual stocks you hold, the more you need to time. Why? because name the 10 best companies (for investments) of the 1960's... name the 10 best for the 70's... the 80's ... the 90's... 2000-present?
The list is probably 40 companies covering 5 decades. Because top performing companies change, you cannot hold a stock forever.
Or if you do, sell some at some point to lock in long term gains.
March 2nd, 2007 at 08:34 pm 1172867677
To me, market timing means frequent buying and selling over the short-term, like less than one year. Long term is going to mean something somewhat different for different people, depending on what their time horizon is for their own goals, but generally long term would mean 10 years or more, in my opinion.
March 3rd, 2007 at 12:54 am 1172883287
Thanks for all the comments, great input!