12-12-2013, 09:24 AM
(This post was last modified: 12-12-2013, 09:26 AM by hendi_alex.)
In the past I tried harder with diversification, but at some point it just gets crazy. I mean, there are market sectors and subsectors, there is value versus growth, there is market cap, diversification by region, and even diversity between various asset classes. The last couple of big market drops, most everything just seemed to drop in tandem, so now I spread the play, keeping a very close finger to the trigger in my more active accounts, but don't have anything other than very loose guidelines for diversity.. Right now my long term account is 100% in equities. Hopefully over time it will be rounded out to include various debt investments.
My biggest concern is how to deal with a 50% drop in markets. That happened to me in 2008/2009 when my portfolio dropped by almost 50%. I stayed long, made some adjustments, and recovered the losses in around a year. But the feeling was most uncomfortable when looking at the huge losses in early 2009. The warm and fuzzy feeling of a dividend stream did little to comfort at that point. Plus, being 100% long, there was no way to take advantage of the heavily discounted bargains that were available. That experience will probably cause me to most always keep some available cash in the future. Lost revenue on the cash will just be a cost of readiness, while wailing for the market's next bout of schizophrenia.
My biggest concern is how to deal with a 50% drop in markets. That happened to me in 2008/2009 when my portfolio dropped by almost 50%. I stayed long, made some adjustments, and recovered the losses in around a year. But the feeling was most uncomfortable when looking at the huge losses in early 2009. The warm and fuzzy feeling of a dividend stream did little to comfort at that point. Plus, being 100% long, there was no way to take advantage of the heavily discounted bargains that were available. That experience will probably cause me to most always keep some available cash in the future. Lost revenue on the cash will just be a cost of readiness, while wailing for the market's next bout of schizophrenia.
Alex