But I knew that going in. That’s what doing a risk assessment is all about. Knowing the risk and being willing to assume that risk.

After that, re-balance, and every once in awhile re-assess your testicular fortitude.

I think I would rather be a (capital)Passive Investor than a Reactive investor.

I would classify that as Passive Investing, Alexandra. It sounds to me as though you are deliberately trying to stay at the same stock allocation at all times.

The risk inherent in stock investing is not stable (according to me!). If your stock allocation is constant and the risk level of stocks is ever changing (it changes with changes in valuation levels), your portfolio’s risk level is ever changing. There might be some times when your stock allocation is roughly right. But there will be other times when it will be wildly wrong. My belief (and I argue that this belief is backed by the entire historical record) is that you will pay a big price for having wildly inappropriate stock allocations at many times.

There are many smart and good people who think I am wrong. The vast majority of experts in this field say that it is fine (and even a good idea) to stay at the same stock allocation at all times. And I am of course capable of error, like all the other humans. That’s the other side of the story.

Rob

I am very good at saving money, but I really hate putting a lot of effort into managing my finances. About five years ago I filled out a risk portfolio and have an investment portfolio that matches it. Apparently, it auto-balances for me every month. In other words, I am always purchasing a fixed dollar amount of each fund, but when prices drop in a particular fund, I end up buying more shares of it, and when prices go up in another, I buy less.

I am 35 and cannot see my risk profile changing much over the next few years, so that has remained unchanged. But I will re-assess as I near retirement (I’m only 35).

What would you classify this as: passive or active investing?

I always read the comments before I post and I guess I mistakenly attributed that comment to Mr. Cheap.

Now that I realize it isn’t yours, the article makes so much more sense – LOL.

(my post about beating the market is a joke, although I think there’s an important point hiding in it).

You have to let Mr. Cheap off the hook re that one, Alexandra. That was me!

Let’s agree on something though – Most people would almost always do better just to buy index funds.

Jut for the record, I agree with that particular statement. But only if the investor understands that Buy-and-Hold can never work. Indexes are wonderful. But many indexers follow a Buy-and-Hold approach, which means that they are not lowering their stock allocations when prices go to insanely dangerous levels. My view is that indexing is the best approach out there and that Buy-and-Hold is the worst approach out there. I view it as most unfortunate that many have come to think of these two are being pretty much the same thing. Buy-and-Hold is bad enough to counter all the benefits of indexing (in my view!).

Rob

I have a friend who works in the reserach department of a hedge fund company here in Toronto. He has a business and math degree. He works all day long, investigating and researching possible investments for his company. They pay him six figures to do so. They buy risk-management aseessment software for tens of thousands of dollars, and which provides a service to them for several tens thousands of dollars a year (I work for that software company, so I know). He is one of several people on the research team. This company hires the very best people, and acquires the very best tools to search out stock and financial opportunities. And all the other hedge fund, mutual fund and investment houses do the same. Are you telling me that a guy sitting at home is going to have more knowledge at his hands to see a great stock deal than these guys (at least consistently)? I don’t think so. Or maybe I just don’t understand what you are saying.

You said I view it as a terribly self-limiting mistake for anyone to fall into the trap of thinking that it is not even possible to beat the market.

I was with you until you said that.

I think that it would be pulling the wool over your own eyes to think that you could consistently beat the market by yourself. But hey, some hedge fund managers do. They just have a budget of a million or so a year to do so. So maybe it’s achievable for them. I don’t think it’s achievable for you and I.

Let’s agree on something though –
Most people would almost always do better just to buy index funds.