Last year I did several investing-related blog posts called “What’s Your Risk Tolerance?” where I examined how I really felt about our investments. In particular, how I felt about the amount of risk in them.
As I wrote,
I admit, I like to think of myself as willing to be a risk-taker when it comes to investing. I like to think that I am ready to ride that bucking bronco, assured of great rewards on the other side. Yet, when I consider the downside, I don’t feel good. I don’t like the idea of my portfolio losing a lot of value. Yes, I don’t worry about a temporary 20% drop in asset value. I could handle 30%, for that matter. It doesn’t sound fun, but I think I could stomach it.
Yet the prospect of losing 40% or 50%, even for a little while… how would I react to that? Generally speaking, I don’t think I’m quite as emotional about investing as some people might be. Yet I haven’t really lived through a bear market (let alone, an intense, dramatic one like in ’08!) with my money actually invested. I don’t really know what that is like.
Day 311: What’s Your Risk Tolerance?
As it turns out, I followed my instinct then and made several shifts over the next few months to be slightly more concentrated in bonds. In fact, I even convinced my wife to go along with me on this, and we made our portfolio as a whole a bit more conservative at the end of the year.
On the very last day of the year (and the decade), I wrote:
This year I have tried to be honest with myself about how much risk I really want to take. Although I have sometimes gotten very much in my head about this (oops), I have made some rather moderate defensive moves that put a little bit more of our portfolio into bonds while still taking advantage of the bull for as long as it lasts.
We shall see how it shapes up. I’m looking forward to it!
The Fabulous Investing Decade of the 2010s (What’s Next?)
Little did I know I would so soon get to test my own mettle in a severe bear market. Little did I know how quickly …. everything…. would change. While I have experienced the same concerns and ups and downs much of the planet is no doubt going through, as an investor, I have been, overall, quite satisfied with our approach.
The key was that I got honest with myself. Last year, when I started to adjust the portfolio, I started to feel, for the first time, that I could stomach a market drop of 30% or more. I trusted my instincts. So far, it has been beautifully uncanny how helpful this has been.
Because, my oh my, how the bear market has arrived! We are experiencing perhaps the scariest, definitely the quickest and most surprising, all-encompassing economic downturn since the Great Depression.
Yet we are staying the course! We are continuing our usual contributions. In fact, we have even gotten a bit more aggressive in equities (per our plan) to take advantage of reduced share prices!
In fact, I think we are passing the “grin and bear it” test (“bear” pun not intended!) of being investors quite well. This may be the biggest positive so far in this whole situation.
That doesn’t mean the drop is fun. That doesn’t mean the news, with all its implications of chaos and loss and uncertainty, are easy. Yet it is satisfying to feel we may have passed a very substantial test of endurance.
Given these volatile times, it is satisfying to say, “So far, so good.”