3 ms·

> Buy and hold forever is generally great advice, until it isn't. That's a truism. I could say the same thing about algorithmic trading. The fact of the matte

> Buy and hold forever is generally great advice, until it isn't. That's a truism. I could say the same thing about algorithmic trading. The fact of the matter is that the median hedge fund manager has negative alpha. It is extremely difficult to pick winners via any strategy. In fact, it's so difficult that for people who can do it, the resulting lifestyle and compensation is so great that the asset management shops that they work out have almost zero attrition. Moreover, the whole point of passive investment is that the odds of that kind of a market-wide crash affecting your money over a 30-year timespan are infinitesimal. If the market actually were to devolve like that, nobody would make money in the market, regardless of strategy. > Investors should be looking for ways to systematically protect themselves from the market's irrational mood swings. Yes, it's called diversification. I won't harp on the backtesting point, but what I will say is this: I'm sure that you understand the risk-reward tradeoff. It would be impossible to participate in any sort of finance and not know this concept. Quite frankly, the probability of 30%+ of your life savings being wiped out in an index fund is unbelievably low. You eat some return at the expense of lower volatility, but we're talking about a 401(k) here. We want that kind of expected stability.

tosseraccount 11y ago
"the probability of 30%+ of your life savings being wiped out in an index fund is unbelievably low" The crash of 69 : 36% The crash of 73: 48% The crash of 87: 33% The dotcom crash 2000: 50% Housing Bubble 2007: 56% [ source : http://traderhq.com/illustrated-history-every-s-p-500-bear-market/ http://traderhq.com/illustrated-history-every-s-p-500-bear-m... ] The odds that at some point a portfolio of S&P 500 stocks will be 30% off a recent high is actually very high. Wars. Panics. Depressions. Plagues. Recessions. Revolutions. They still happen.
- jordan0day 11y ago
  I don't know much about the market, and know even less about actual investing strategy-ish stuff, but what does the loss look like five years later? I guess what I mean is, for an "index fund", crashes don't seem to be... permanent? Perhaps that's small comfort for someone who's set to retire the month after one of these 30% crashes, but I guess that's what the whole "invest more conservatively as you get older" thing is supposed to help with?
  - MaxScheiber 11y ago
    > I guess that's what the whole "invest more conservatively as you get older" thing is supposed to help with? The big index and mutual fund companies offer different allocations between stocks and bonds. You might start out with 80% of your account in an index fund (or other diversified basket of stocks) and 20% in a hedged basket of investment-grade, low-risk bonds. This percentage allocation would change over time as you got closer to retirement. You're not going to get insanely rich off of this, but it is a decent replacement for the fact that savings account interest rates are effectively 0% these days.
- genericuser 11y ago
  'Wiped out' to me implies more than a temporary difference between recent high and recent low which both probably existed for far too little time for you to be the first person to realize to sell at the peek and first person to buy at the bottom.
- MaxScheiber 11y ago
  Yes, they do. I did not dispute that. But as I said (perhaps not sufficiently clearly--my mistake), and as other posters have pointed out, this neutralizes out over the 30-year time horizon of an index fund investment. One dollar invested in the S&P 500 in 1970 would become $43.12 in 2000, for example, despite the crashes of 73, 87, and 2000. I repeat, if the market were bad enough that these crashes actually wiped out your account over a 30 year period, nobody would make money in the market at all. Index funds are a low-risk, low-return investment with low management fees. They're a much better investment choice for a retirement account than algorithmically trading that money. And if you were good enough at algo trading to make solid returns over time, you might as well quit your day job and open a hedge fund or asset management shop.
  - tosseraccount 11y ago
    check out Nikkei 225 past 25 years... http://finance.yahoo.com/echarts?s=^n225+interactive#{%22range%22:%22max%22,%22allowChartStacking%22:true} http://finance.yahoo.com/echarts?s=^n225+interactive#{%22ran...

tosseraccount 11y ago

"the probability of 30%+ of your life savings being wiped out in an index fund is unbelievably low" The crash of 69 : 36% The crash of 73: 48% The crash of 87: 33% The dotcom crash 2000: 50% Housing Bubble 2007: 56% [ source : http://traderhq.com/illustrated-history-every-s-p-500-bear-market/ http://traderhq.com/illustrated-history-every-s-p-500-bear-m... ] The odds that at some point a portfolio of S&P 500 stocks will be 30% off a recent high is actually very high. Wars. Panics. Depressions. Plagues. Recessions. Revolutions. They still happen.

jordan0day 11y ago
I don't know much about the market, and know even less about actual investing strategy-ish stuff, but what does the loss look like five years later? I guess what I mean is, for an "index fund", crashes don't seem to be... permanent? Perhaps that's small comfort for someone who's set to retire the month after one of these 30% crashes, but I guess that's what the whole "invest more conservatively as you get older" thing is supposed to help with?
- MaxScheiber 11y ago
  > I guess that's what the whole "invest more conservatively as you get older" thing is supposed to help with? The big index and mutual fund companies offer different allocations between stocks and bonds. You might start out with 80% of your account in an index fund (or other diversified basket of stocks) and 20% in a hedged basket of investment-grade, low-risk bonds. This percentage allocation would change over time as you got closer to retirement. You're not going to get insanely rich off of this, but it is a decent replacement for the fact that savings account interest rates are effectively 0% these days.
genericuser 11y ago
'Wiped out' to me implies more than a temporary difference between recent high and recent low which both probably existed for far too little time for you to be the first person to realize to sell at the peek and first person to buy at the bottom.
MaxScheiber 11y ago
Yes, they do. I did not dispute that. But as I said (perhaps not sufficiently clearly--my mistake), and as other posters have pointed out, this neutralizes out over the 30-year time horizon of an index fund investment. One dollar invested in the S&P 500 in 1970 would become $43.12 in 2000, for example, despite the crashes of 73, 87, and 2000. I repeat, if the market were bad enough that these crashes actually wiped out your account over a 30 year period, nobody would make money in the market at all. Index funds are a low-risk, low-return investment with low management fees. They're a much better investment choice for a retirement account than algorithmically trading that money. And if you were good enough at algo trading to make solid returns over time, you might as well quit your day job and open a hedge fund or asset management shop.
- tosseraccount 11y ago
  check out Nikkei 225 past 25 years... http://finance.yahoo.com/echarts?s=^n225+interactive#{%22range%22:%22max%22,%22allowChartStacking%22:true} http://finance.yahoo.com/echarts?s=^n225+interactive#{%22ran...