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Seems to be a lot of indexers here. I am always curious if/how people plan for the volatility risk (and implied personal financial risk when vol spikes) from be

Seems to be a lot of indexers here. I am always curious if/how people plan for the volatility risk (and implied personal financial risk when vol spikes) from being purely indexed in their portfolios...

bsvalley 8y ago
It's called dollar-cost averaging. A lot of people invest in indexes because they put on the research and learned how to invest. When it comes to your own money, don't listen to the crowd... always put on the work and do the research.
- StriverGuy 8y ago
  dollar cost averaging does not in reality mitigate the volatility risk... Consider the scenario where you are invested in 100% indexes and get hit by some black swan event resulting in >70% drawdown. Odds are that you will lose your job during such an event and therefore could not feasibly continue investing at the same pace (there goes DCA as risk-neutralizing strategy). The more likely occurrence in this scenario is that you actually NEED your invested cash to stay in illiquid assets (i.e. house, college tuition etc) and are forced to draw out money at the bottom of the market. Index investing without any hedging for fat tails doesn't seem that smart.
  - bsvalley 8y ago
    Assuming you don’t have any passive income, you have a mortgage and maybe other loans, as well as no savings/cash. I would indeed not recommend anyone to put 100% of their money in index funds :)
marketgod 8y ago
If you bought the S&P with 50% and held the rest of your money in assets that don't fluctuate alongside the market or hedged, you can buy the S&P at the low and it always recovers. Others keep their portfolio completely hedged so when there is a dip they can buy the swing.
- StriverGuy 8y ago
  I agree with the sentiment but you have to be careful about just assuming assets that are uncorrelated will remain uncorrelated in a black swan event. Additionally, you have to assume that your hedge is liquid enough that it can be rolled off in times of need.
  - marketgod 8y ago
    I am not a mathematician or I would be able to do this better. Basically you can buy calls and puts to simplify it. This way a shift upwards/downwards will cause your options to shift inversely. You end up being liquid in that event and can continue to switch your position to the short side or long side. I however only buy options based on my sentiment of the market, bear or bull. Currently it's a bull market, S&P going to $300. Edit: Fixed buy calls and puts.

bsvalley 8y ago

It's called dollar-cost averaging. A lot of people invest in indexes because they put on the research and learned how to invest. When it comes to your own money, don't listen to the crowd... always put on the work and do the research.

StriverGuy 8y ago
dollar cost averaging does not in reality mitigate the volatility risk... Consider the scenario where you are invested in 100% indexes and get hit by some black swan event resulting in >70% drawdown. Odds are that you will lose your job during such an event and therefore could not feasibly continue investing at the same pace (there goes DCA as risk-neutralizing strategy). The more likely occurrence in this scenario is that you actually NEED your invested cash to stay in illiquid assets (i.e. house, college tuition etc) and are forced to draw out money at the bottom of the market. Index investing without any hedging for fat tails doesn't seem that smart.
- bsvalley 8y ago
  Assuming you don’t have any passive income, you have a mortgage and maybe other loans, as well as no savings/cash. I would indeed not recommend anyone to put 100% of their money in index funds :)

marketgod 8y ago

If you bought the S&P with 50% and held the rest of your money in assets that don't fluctuate alongside the market or hedged, you can buy the S&P at the low and it always recovers. Others keep their portfolio completely hedged so when there is a dip they can buy the swing.

StriverGuy 8y ago
I agree with the sentiment but you have to be careful about just assuming assets that are uncorrelated will remain uncorrelated in a black swan event. Additionally, you have to assume that your hedge is liquid enough that it can be rolled off in times of need.
- marketgod 8y ago
  I am not a mathematician or I would be able to do this better. Basically you can buy calls and puts to simplify it. This way a shift upwards/downwards will cause your options to shift inversely. You end up being liquid in that event and can continue to switch your position to the short side or long side. I however only buy options based on my sentiment of the market, bear or bull. Currently it's a bull market, S&P going to $300. Edit: Fixed buy calls and puts.