57

In 1987, this is what we lived thru - A high of 2722 and subsequent drop to 1739. Just over 36% in a few months. My 401(k) was just over $20K at that time, and I 'lost' $7000 between those 2 dates. I recall thinking to myself, that if I were older, and passed the $1M mark, the drop would have been $360K, fully invested. Fast forward to the crash of 2008-...


52

This is a problem that always looks worse than it is. Here's why. When you're young, and your 401k is weighted towards long-term growth, you're going to have large swings. That's expected, and you should never worry about it. Why? Because you're not selling now, you're selling years in the future. You don't realistically care what the stocks at any ...


12

It's called a "Pyramid scheme". Its illegal in almost every country of the Western world. You're not going to earn lifetime income, of course, and these things collapse pretty quickly. Most of the "common folks" don't return the investment, its the organizers who take the money. Sometimes they run, most times they end up in jail. The way these schemes work ...


12

What you are talking about is an idea called "Timing the market". A lot of other people with more time, focus, and education than you or I have attempted to time the market in the past and failed. You are more likely to get in too late, or get too edgy and jump out early, than to consistently navigate the market ahead of millions of other people (all of ...


11

If you have a long time before retirement you don't try and protect losses. You cannot time the market. And in the long run the stock market always goes up. So when it is down you are getting a better value. During your lifetime you will see numerous large drops in the market. What's important when that happens is that you don't panic sell. It is almost a ...


10

When you buy a stock, the worst case scenario is that it drops to 0. Therefore, the most you can lose when buying a stock is 100% of your investment. When you short a stock, however, there's no limit on how high the stock can go. If you short a stock at 10, and it goes up to 30, then you've lost 200% on your investment. Therefore shorting stocks is ...


10

This image is an advertisement from a recent Barron's. The broker would want to put himself in the best light, correct? This shows you that of their current accounts, 53.5% are not profitable. And, keep in mind, these guys have the best track record of the list. Also, their client base isn't random. The winners tend to stay, so even if it were 50/50, the 50%...


8

Although it is impossible to predict the next stock market crash, what are some signs or measures that indicate the economy is unstable? These questions are really two sides of the same coin. As such, there's really no way to tell, at least not with any amount of accuracy that would allow you time the market. Instead, follow the advice of William ...


8

Think of it this way. The stocks you're investing in have just gone on sale. When things go on sale, people usually buy more of them rather than selling. If you don't intend on selling them soon (next 5 to 10 years), then this is great! My retirement date is further than 10 years out, so if the stock market crashed tomorrow (and the companies I was invested ...


8

In the 2008 bear market, with equities, there was nowhere hide. When the market was down 50+ pct from 2008 to March of 2009, the best performing SPDR sector (with dividend reinvestment) was Consumer Staples which lost 31% and the worst was Financials which lost 76%. It's debatable if gold performed well because for the calendar year of 2008, it dropped 30% ...


7

The efficient frontier is drawn from the risk-returns of various combinations of portfolio assets. The general theory is described here: Theoretical Basis Calculating the average return of a basket of assets is fairly staightforward. where Xi is the fraction of the investor's funds invested in the i th asset. The calculation of risk (standard deviation, ...


7

Lazy Portfolios do tend to have a mix of US bonds, US stocks and international stocks as there is something to be said for that international exposure being somewhat mixed in the big US companies. While Coca-Cola's growth may be overseas, there is something to be said for domestic sales playing a role in how well does that work. Same for Apple, Microsoft ...


7

There are already good answers here, so I won't get in to too much depth. You really can't understate how time is the method that protects your 401k. People generally think of their account as a total pot of money with periodic deposits. To your point, sometimes you make your contribution but your account value is down $1,000 (more than your contribution) ...


6

Forex vs Day Trading: These can be one and the same, as most people who trade forex do it as day trading. Forex is the instrument you are trading and day trading is the time frame you are doing it in. If your meaning from your question was comparing trading forex vs stocks, then it depends on a number of things. Forex is more liquid so most professional ...


6

Your strategy fails to control risk. Your "inversed crash" is called a rally. And These kind of things often turn into bigger rallies because of short squeezes, when all the people that are shorting a stock are forced to close their stock because of margin calls - its not that shorts "scramble" to close their position, the broker AUTOMATICALLY closes your ...


5

He's calculating portfolio variance. The general formula for the variance of a portfolio composed of two securities looks like this: where w_a and w_b are the weights of each stock in the portfolio and the sigmas represent the standard deviation/risk of each asset or portfolio. In the case of perfect positive or negative correlation, applying some algebra ...


5

As others have noted, timing the market is very hard. Sure, if you could buy when the market is at its lowest, and sell when it's at its peak, then buy it all back when it's down again, etc, you could make a fortune. The problem is, how do you know when the market is at its high and low points? There was another question on here where someone asked about ...


5

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves. But now for the final ...


5

The unfortunate absolute facts are Lump sums are a huge particular problem1 2 for people with spending problems 3. People with spending problems burn through lump sums instantly. People with spending problems never change. It's impossible to fix the behavioral problem.4 As OP has already stated, OP's option 2 will not happen. There are only two ...


5

Medical insurance in the US is a little crazy because people routinely expect it to cover all sorts of little things, every visit to the doctor's office, every prescription, etc. Let's ignore that for the moment and think just of the more "normal" part of insurance: protection against an unusual but potentially huge expense. Suppose you buy fire insurance ...


4

what is cost of coverage (without insurance) for the things i may need medical assistance with? Cancer costs something in the neighborhood of $1,000,000. A complicated child birth can be $250,000. The issue is that about 70% of claim dollars are paid toward treatment of about 10% of the covered people. The remaining 30% or so of claim dollars will go ...


3

I can't think of a single advantage to this scheme over having an interest-bearing checking account and a traditional credit card. However, there is a big disadvantage that you missed. Overdraft protection typically comes with a per-transaction fee for every overdrawn transaction. With most banks, this fee is at least $10. Even if you find a bank that ...


3

The question "do they?" is a fair one, but the answer, "we can only observe the past, and that's what they did," may not be so satisfying to you. It's safe to say that any longer term view of any market will show far less volatility than a short one. It only takes a glance at the return of the 2000's 2009 27.11 2008 -37.22 2007 5.46 2006 15....


3

The calculation and theory are explained in the other answers, but it should be pointed out that the video is the equivalent of watching a magic trick. The secret is: "Stock A and B are perfectly negatively correlated." The video glasses over that fact that without that fact the risk doesn't drop to zero. The rule is that true diversification does ...


3

John Bensin's answer covers the math, but I like the plain-English examples of the theory from William Bernstein's fine book, The Intelligent Asset Allocator. At the author's web site, you can find the complete chapter 1 and chapter 2, though not chapter 3, which is the one with the "multiple coin toss" portfolio example I want to highlight. I'll ...


3

The other example I'd offer is the case for diversification. If one buys 10 well chosen stocks, i.e. stocks spread across different industries so their correlation to one another is low, they will have lower risk than each of the 10 folk who own one of those stocks per person. Same stocks, but lower risk when combined.


3

Disclaimer - whatever is the antonym of "gold bug," that's me. By most measures, gold is in speculative bubble territory right now. I find it curious that the correlation is high between the rising price of gold and those who want to buy in. If a Ford Taurus were suddenly $50K, would you be more or less inclined to want one? Many (not all, maybe most) ...


3

There are some economic signs as there are in all economic and business cycles, such as interest rates rising. However, a more effective way is to actually look at price action itself. The definition of an uptrend is higher highs followed by higher lows. The definition of a downtrend is lower lows followed by lower highs. So if you are looking to invest ...


3

You would place a stop buy market order at 43.90 with a stop loss market order at 40.99 and a stop limit profit order at 49.99. This should all be entered when you place your initial buy stop order. The buy stop order will triger and be traded once the price reaches 43.90or above. At this point both the stop loss market order and the stop limit profit order ...


3

There is not a lot that you can do to force your wife to spend this money appropriately, but since divorce is one of the options on the table, it may be a good idea to contact a lawyer to write up a postnuptual agreement before the lump sum is paid. This allows your spouse to put the all of her good decisions in writing before the temptation to spend the ...


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