Confessions From An Aging Active Investor: Outperforming Is Tough In A Volatile Market!

Outperforming the stock market and not losing money

Being an active investor takes way more time and energy than a passive one. You can learn more about active versus passive investing performance here if you're curious.

So far this year, managing my own investment portfolio has been difficult. Trying to be an active investor is exhausting and hard on the nerves. Do you feel the same way? At the end of last year to be more defensive, I did some significant rebalancing by going to 40% bonds / 60% stocks from 20% bonds / 80% stocks. This move was not enough as the NASDAQ corrected by 15% and the S&P 500 by 10% in January and February.

With the latest rebound in the stock market, I've reduced my equity exposure further and now have a 52% weighting in bonds. 60% of my portfolio is under the segment “Macro Bets /Defensive Bets,” with the Gold Miners ETF as my best performer YTD, up 49%. Let's have a look at the portfolio details. I'll also share my thoughts about being an active investor and how it has changed the older I get.

After Tax Investment Portfolio

Motif Portfolio Balance Financial Samurai
Motif Investment Portfolio Review

Key Thoughts

Outperformance so far. As of March 7, 2016 my after-tax Portfolio is up roughly 0.5%. With the S&P 500 down 2%, this is a 2.5% outperformance. If I was a professional money manager, a 2.5% outperformance is actually better than a sharp stick in the eye, putting the performance in the top decile.

You'll see a performance chart below that shows no fund type in the green YTD. I started my portfolio with $10,015 at the end of January 2015 and it's up about 1.65% overall with a current balance of $10,168.90. Sadly, I'm not even outperforming a 5-year CD, but so aren't most fund managers. Don't look down on risk-free money! There's definitely a place for guaranteed returns in your net worth composition.

Being An Active Investor Requires Passion 

Active investing is for people who love to follow the markets and execute investment decisions. That used to be me for 20 years. If you're not excited about the opening bell at 9:30am EST and don't read investment news every day, being an active investor probably isn't for you.

The stress of managing other people's money is why I don't work in the money management business, even though you can make a killing once you manage a sufficient amount of assets. I feel too guilty losing people money, so please don't follow my trades. This portfolio was down about 5% during the worst of the correction.

Temptation to hug the index

I don't know how much longer I'll be able to outperform without spending more time following the markets and making investment decisions that may or may not pan out. A part of me wants to sell all positions and buy SPY, the S&P 500 ETF, and lock in the 2.5% outperformance for the rest of the year.

But a larger part of me believes we'll see another correction some time this year. Because I'm sticking with my -1.4% S&P 500 performance prediction for 2016, my portfolio should continue to outperform the S&P 500 if my prediction comes true. I haven't gone 100% cash because I might be wrong, and I have a belief I'll be able to outperform (ego/confidence/delusion).

Taking advantage of low energy prices

In my quest as an active investor, I like autos and airlines as low oil price plays. You're seeing the results of lower input costs in the latest quarterly earnings releases. Look at Hawaiian Airlines up 141% over the past 13 months. Who would have thought? Fiat/Chrysler was a bomb for me, so I got rid of that dog at the end of 2015. At current levels, I'm also a buyer of energy related stocks. Hence I'm long Exxon Mobile and Icahn Holdings.

Tech/internet giants for growth

I'm sticking with the largest cap technology names in Facebook, Baidu, Netflix, and Amazon (new position). They corrected 20%+ and if things get really bad, these guys will survive, unlike my previous investment in GoPro which gave me a huge uppercut to the chin by declining 50%+ after it had already corrected by 30%.

Renren is a speculative derivative VC play since it owns large stakes in SoFi. But private equity valuations have gotten crushed this year, so who knows. I suspect a management buyout/privatization at some point given Renren's NAV is probably worth more than its current publicly traded market cap.

Building a cash balance

3% of my after-tax portfolio balance is in cash, much like how other large actively run mutual funds can go up to 5% cash if they want to keep dry some ammunition in case of another correction. I plan to let the cash balance grow with dividend payments over the year. I expect June – October to be a terrible time for the stock market. Cash can definitely be considered an investment. Don't let anybody else tell you otherwise.

The path of least resistance.

Most of us put on weight as we age because it's easier to eat lots of yummy food than restrict our caloric intake and run three miles every day. The same trend goes for being an active investor. Researching company cash flow statements, understanding the macroeconomic environment, and getting on company management calls takes work.

We can wing it by just buying what sounds good, but we'd probably not make a very good return, unless we're in a raging bull market or very lucky. A volatile market leads to more passive index investing. At least when a position goes down, you feel better blaming the index instead of yourself. But you're never going to find your unicorn if you don't commit some capital towards hunting for multi-baggers.

Mutual Fund YTD 2016 Performance
No US Equity Fund or Allocation Fund is up YTD according to Morningstar.

Active Vs Passive Investing

So far, roughly 30% of my investable assets are making money because I'm actively managing them. This portfolio is a reflection of my larger active portfolios (Rollover IRA, SEP IRA, Solo 401(k), and wealth management account with my main bank). This means that 70% of my investable assets are losing money because they are indexed to the market.

Given my background and performance, perhaps I should actively manage more of my money. But my passion for investing has waned. It takes so much time and energy to be an active investor. I left the investment world in 2012 to run an online media business, where the correlation with effort and reward is strong. I rebalance my actively managed portfolios once a quarter, and even that feels like too much sometimes.

The older I get, the more amenable I am to paying a fee to have someone invest my money 24/7. Thus, the emergence of wealth advisors like Personal Capital are great. They do all the rebalancing and hard work for you so you can focus on something else. I'd be willing to pay someone up to a 1% fee a year for 90% of my portfolio if they could consistently provide a 5% – 10% net return forever.

If you're a frugal person with strong cash flow, you're going to eventually run into a problem where you have too much money to know what to do with it. The key is to have a proper asset allocation based on your risk tolerance and follow a contribution game plan. Allocate capital to where you think you'll get the best return. And most of all, stay disciplined with your contributions.

Recommendation To Build Wealth

Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Updated for 2021 and beyond

52 thoughts on “Confessions From An Aging Active Investor: Outperforming Is Tough In A Volatile Market!”

  1. Just signed up for Motif – never heard of that but $9.99 for that many trades is a great deal. $150 bucks to put in $2k and do 3 motifs in the first 45 days is great also.

    It is very hard to consistently outperform the market but those kinds of commissions def make it easier!

    1. The ability to trade 30 positions in one go for $9.99 is a game changer. But the real benefit is the interface they have that allows you to construct a portfolio and manage your risk. That’s where you will save yourself a lot of money by not blowing yourself up with overly concentrated positions. They also have rebalance specials for $4.99 etc as well. Just look out for them. You’ll get an occasional e-mail.

  2. I think everyone should be index investing as it’s one of the best ways to get diversified exposure to the markets. I enjoy investing and the process of investing quite a bit. It’s like a second hobby for me. ~80% of my portfolio is in individual stocks (30 stocks totally) and ~20% are in funds only because I have no other choice in my retirement account. I’m right now ~3% cash waiting for some volatility.

    I’m more of the buy, hold and monitor type though I do exit positions when the operating environment warrants it or the company has major issues. I’ve been in the markets since 2005 and have enjoyed every bit of it. As an immigrant, that’s one of the things I love about American capitalism – how even the little guy can get to be a part owner of a successful company if they were willing to sign up for the risks. I’ve never set out to “beat the index” but that seems to have happened so far by small margins though 2014 was the largest margin … lot of it is through chance for sure. I love buying beaten up companies due to market overreactions to specific news events that have no long term impact. Since our household has sizable emergency fund, good cashflow, frugal & budgeted cost of living, volatility has never bothered my investing thesis. The thing I don’t like about indexes is that you just can’t analyze it for valuations. Atleast with individual stocks, you can get a picture of where the company stands, how it did in the past and make assumptions based on growth projections, operating environment and cashflow on what to expect in the future. The initial analysis takes time and once you’ve got that figured out, the quarterly and annual statements along with press releases and analyst reports help get a picture about how the company is doing. I read up on stuff almost everyday because I enjoy it.

    I realized that once you have high income, high networth and lots of cash, “beating the market” is not on your radar anymore. My long term stock investing focus is more on getting descent returns, capital preservation generating growing passive income and maximizing every tax advantaged option. “beating the index” just seems to be a very arbitrary benchmark that was intended for professional money managers to be measured against.

  3. Interesting, are you a fundamental or technical investor or both?

    As coming from a fundamental perspective I cringe when I see the value of teach stocks yet stand in awe as they continue to rise!


  4. I’m a total noob to investment. I’ve only been two months in. Set up my 401(k) where I deposit 20% of my pre-tax paycheck. On top of that I have about 11k split between a Fidelity investment account and Robinhood account. I was getting bored looking at those few positions going up and down, and it wasn’t motivating me to research about the market, so I decided to be a bit more active on Robinhood since I don’t pay any fees. I’ve been looking at under-performing cheap stocks(mainly energy companies), buying and selling them a few days later, trying to get a +10% growth out of them each time. I know, I’m playing with fire here, but I don’t have much to lose, and I better learn now and lose a few bucks, than lose more when my cash flow will grow. So far between the two accounts I have about +25% growth.

    FS, have you ever done day trading, or trading regularly every week? Do you have any model?

  5. Nice job outperforming! That’s easier said than done and you’ve done a great job with your allocations. I haven’t rebalanced recently but I do have a sizeable chunk of my investments in bonds and cash.

  6. A very nice article that sounds very familiar to me.

    My main investments are in index funds or patrimonial funds. This puts me easily in a 50/50 portfolio. My actual goal is to be a little more aggressive.
    I also agree that a part of a portfolio should be in risk free investments, to act as a buffer, to sleep well at night.

    Next to that, I have my play portfolio to be active in the market. This portfolio is small compared to my full assets. The reasons to have this portfolio is to be contrarian, to place bets in the market. I do this because I love doing it. Here, my returns are really great for now. Mainly thx to GDX and KMI. To be honest: more guts and luck than insight. Another ice increase comes from my option selling. I will keep this portfolio small compared to my overall portfolio. I do foresee an accident soon or late.

  7. Crystal Ball

    Hi Sam – I consider myself a newbie in the investing game, so appreciate your advice and nuggets of wisdom from folks commenting. I flipped from around 70/30 stocks/bonds to 30/70 toward the end of ’15. So far in ’16 up a little over 1% overall. Net worth is about 65% stock/bonds/cash vs. 45% real estate. Best performers in Q1 have been commodities-related (oil, metals). I plan to mostly retire in 10 years at 53. I also think market gonna stink into 2017ish and real estate dip likely bottom within couple years after stocks bottom out, so looking forward to discount stock & real estate buys in next 5 yr period. Agree re: munis…will be one of my next buys with after-tax cash.

    I’m curious whether you/others are also generally expecting another 5ish yr cycle of stock & real estate dips, perhaps worse than the 2008 to 2013 cycle and if so, what indicators you think are primarily pointing to that cycle (indicators often thrown around include monetary policy/debt/stagflation, china cooling/unstable, manufacturing & intl trade slowing..manufacturing index, Baltic dry index etc, full time employment trends shaky, GDP growth flat or inconsistent even with QE and cheap energy, declining profits and overvalued stock often driven by stock buybacks via cheap Corp borrowing, demographic trends…boomers spending/investing less in retirement)…

    1. It’s my own belief there’s less than a 20% chance that we go through another 2008-2009 downturn in our investing lifetimes. 2011, 2012, 2013 was pretty good if you bought in 2008 and 2009. We’ll definitely go through future down cycles, just not as violent. Margin and housing debt to equity is much lower now, and tier 1 capital ratios by law for all banks are much higher.

      I do believe retirement withdrawal rates and expected returns should come down since the risk free rate has come down to what seems like a permanent <2.5% level. We're currently at 1.8%.

      I maintain the belief that the ideal withdrawal rate in retirement DOES NOT touch principal under the $5.34M per personal estate threshold until the death tax kicks in.

    2. Crystal, first thing I would do is invest in a calculator (65% + 45% ‘= 100). sorry, couldn’t resist ;-)

      I need to change my handle: “notsonewbie”?, “used2bnewbie”?, “oldbie”?

      1. Sam, if I change my handle is there any way I can keep my assigned emoticon like dude?. I’ve gotten attached to the little bugger.

  8. Sam, you say you outperformed the market for the past 3 months… what about the past 5, 10, or 15 years? In other words, do you feel your active strategy was worth the effort + cost? You have an opportunity cost in here too, as you could have invested in ETFs passively, and spend your time growing your business instead? Genuinely interested in your opinion here.

    1. Actually, the outperformance has been at least a year. I started my portfolio with $10,015 at the end of January 2015 and it’s up about 1.65% overall with a current balance of $10,168.90. The S&P 500 is down about 2.7% since. My Motif portfolio is a reflection of my active portfolio. The main thesis of this article is: the older I get, the more I want to farm out my money for other people or entities like Wealthfront to invest. I’m happy paying a fee if someone can watch and invest my money 24/7 b/c you’ve got to have a passion for active investing. My passion has waned.

      Outperforming consistently is extremely difficult. I’ve had boom and bust years with my active money. For example, the year 2000 was ridiculous due to the 30 bagger in VCSY. Then 2009 crushed my investment portfolio by 35% on a much large capital base. As I’ve written in this article, and pretty much every single investing article, putting the majority of your investable assets in passive index funds/ETFs is the way to go for the majority of people. But I do believe people should carve out at least 5%-10% of their investable assets to hunt for unicorns.

      You might get lucky, like I did w/ VCSY. Or you might be really good at investing. There’s a reason why there are so many wealthy fund managers out there. They didn’t 100% hug the index. I knew I was 90% lucky w/ VCSY, so I sold it and parlayed the proceeds into a SF condo in 2003 after sitting on the gains for a couple years. I wanted to turn funny money into a real asset. It has supposedly appreciated from $580,500 to $1.18M. I don’t know what percentage of my SF property purchase I should ascribe to luck in 2003. Maybe 80%? I feel very lucky that the $120,000 downpayment became a 5+ bagger in terms of equity growth in 13 years. Take a look at these SF Bay Area real estate charts since 2003. It is NUTS!

      Now I expect real estate returns to fade over the next two years.

      Hence, perhaps the real questions are: After all one’s investments and time spent, what does one really have in the end? How is one leading their lives? Are they happy with the assets they’ve accumulated?

      What are your thoughts? Is the means more important than the end? Should one hunt for unicorns to try and potentially outperform?

      1. That’s exactly it. Is hunting for unicorns even worth the effort? I would argue after a certain point it loses its appeal. I hate to get back to this but we are all only here temporarily. How do you want to spend your time? If hunting for unicorns brings joy or the creation of wealth brings you joy, then by all means pursue it with abandon. But life is full of compromises, the time spent hunting for unicorns is taken away from other aspects of life. That being said, the answer to the question depends on the individual.

        1. It starts losing its appeal after you’ve built up a large enough financial nut where you can live off the income. Or, if you’ve beaten yourself up so badly that you’ve cried Uncle and don’t want to both anymore!

  9. I’m a 100% stocks, I buy quality dividend growth stocks when they go on sale. So I’m less worried about market volatility. Unlike most dividend investors I sell on a dividend cut and will take profits.

    1. Robb, same questions above.

      What percentage of your stock portfolio is your net worth given you are 100% in stocks? When do you plan to retire?

      Also, when did you start putting capital to work in the stock market?

  10. Dominic @ Gen Y Finance Guy

    Sam – If you are tired of active management and want to just plunk your money into some index funds with very low fees…why use motif and not open up an account with TD Ameritrade where you have 100 ETF’s that trade commission FREE? One of the more popular ones is Vanguards VTI.

    You get a FREE ticket into the ETF and an expense ratio of 0.05% (or $0.50 per $1,000).

    Personally I am still sitting on over 50% in cash in my brokerage accounts and growing every month. My portfolio is up about +2.2% and at the worst of the correction my accounts were down about -2.7%.

    Sometimes sitting on your hands and a building pile of cash is the best thing to do.

    1. Hola Dom,

      I don’t think you read my post in its entirety! Let me pull out some of the answers for you:

      1) So far, roughly 30% of my investable assets are making money because I’m actively managing them. This Motif portfolio is a reflection of my larger active portfolios (Rollover IRA, SEP IRA, Solo 401(k), and wealth management account with my main bank). This means that 70% of my investable assets are losing money because they are indexed to the market.

      2) Because I’m sticking with my -1.4% S&P 500 performance prediction for 2016, my portfolio should continue to outperform the S&P 500 if my prediction comes true. I haven’t gone 100% cash because I might be wrong, and I have a belief I’ll be able to outperform.

      3) But you’re never going to find your unicorn if you don’t commit some capital towards hunting for multi-baggers.

      I traded with E*TRADE for about 10 years, and stopped once I found Motif. The reasons are as follows:

      1) E*TRADE and the other online brokerage accounts don’t have proper RISK mechanisms in place to build your portfolio. You just bought positions you liked, often in very concentrated form that either did well or blew up. Being able to construct a portfolio and adjust the percentage allocation of each position would have saved me a lot of money, time, and heartache. A lot of traders don’t bother constructing portfolios. They punt stocks, like a gambler. They have their entire position in 1-5 stocks. It usually does NOT end well in the long run.

      2) After the user interface, I like that I can rebalance my entire portfolio, again, using simple percentage allocation sliders for $4.95 when they have a special, and $9.95 max for up to 30 positions. The biggest error individual investors/traders make is LACK OF RISK CONTROL when investing. They don’t have disciplined stop loss positions, don’t know when to take profits, and definitely don’t have the basic principle of construction a risk adjusted portfolio.

      3) Finally, you get free trades at Motif too. But it’s not the free trades I care about. It really is the interface.

      I hope I’ve answered your questions. Again, most of my money is passively invested in index funds and ETFs already (70%+). Several questions for you:

      1) Any suggestions on how to write better to get my points across more clearly? Perhaps write shorter articles or use more bold or color? One of the reasons why I posted this article only 36 hours after the previous article is because I came to the conclusion that instead of spending so much time writing comments, I could use that time to write another post! But you got me, and I need to figure out how to be more efficient.

      2) What positions are you invested in and why? I’m always looking for good ideas.

      3) What is your portfolio size? And do you think your strategy and risk tolerance will change the larger it gets?


      1. Dominic @ Gen Y Finance Guy

        Hey Sam,

        You got to give me more credit than that, I always read through you posts…in their entirety. Your someone I look up to and know that I can learn a lot from both on the financial front and blog front.

        I along with all of your other readers always appreciate the time you put into both the blog posts themselves and all the time you put into responding to most comments.

        Sorry if it came off as I didn’t read the post. I read it, but towards the end the following paragraph triggered the TD Ameritrade idea:

        “The older I get, the more amenable I am to paying a fee to have someone invest my money 24/7. Thankfully, trading fees have plummeted with the likes of Motif allowing you to build an entire 30 position portfolio for only $9.95, rather than having to pay a fee for each trade. Meanwhile, the emergence of digital wealth advisors like Wealthfront charge nothing for the first 15K under management and 0.25% a year for the rest. They do all the rebalancing for you so you can focus on something else. I’d be willing to pay someone up to a 1% fee a year for 90% of my portfolio if they could consistently provide a 5% – 10% net return forever.”

        Anyways, thanks for the extra clarification in points 1-3 above. And additionally on your commentary as to why you switched from E-Trade to Motif.

        Your Questions to me:

        1) I don’t have any suggestion for you on being more efficient. To me as a reader if I had to vote whether we got an extra post every week or more dialogue in the comments, I would vote for more dialogue in the comments.

        2) I have positions in the following Ticker Symbols: CAT, OIH, PG, SPY, VZ, WMT, XLE

        – All of these positions are some combination of short options taking advantage of Theta Decay and short volatility and to some extent are delta neutral. Beta Weighted against the SPY I only have the equivalent exposure of long 40 shares of SPY.

        – OIH and XLE are plays to take advantage of the beating that has taken place in OIL.

        – CAT, PG, VZ, WMT were all initiated after very substantial declines in price and relative to the 1 year price range (in conjunction with volatility spike due to down move) opened some nice opportunities for long term covered calls. I have been able to collect enough option premium to give 12-17% of downside protection from what I had already considered a beating…and as a kicker I get to collect a 3-5% dividend while I wait for the shares to either get called away or for the call options I sold to expire worthless to rinse and repeat.

        – SPY, I consider this my core position and is comprised of short options with a profitability range between $166 and $223. I don’t mind owning the ETF at $166, so if we trade there or below and I get exercised I would happily take delivery. Like you I don’t think this market is going to make any new highs this year, and my risk to the upside beyond $223 is about $160 bucks. I collected about $3,000 in premium.

        you can read more about the position here if your interested:

        3) My portfolio is much smaller than yours and currently is about $140,000 and growing. On top of that I have about $94,000 in cash just sitting in the bank waiting for a home. But again that combined is still only a fraction of your investment portfolio.

        I think my strategy and risk tolerance will continue to evolve and change as both time passes and as it grows. I would like to think I am opportunistic in taking risk.

        At this point I don’t really see very favorable risk/reward investments to make. Right now the best thing I think I can do is be patient and wait for better deals. In the meantime I will continue to aggressively pay down my mortgage, build up cash, and look for creative ways like cash-in refinances to engineer some nice returns.

        Always enjoy the conversation back and forth.



        1. Thanks for the answers! You have been wise to have some short positions in your portfolio. My “for all to see” experiment in active money management is to try and replicate the large majority of funds, which are long only funds. Although that said, I believe there are some thousands of hedge funds out there as well.

          Perhaps the stress I feel is that a 0.5% return SUCKS, even if it is outperforming. At the end of this experiment.. maybe 3 years, we can determine whether active investing is worthwhile for people. I don’t think it is for the majority of people, b/c you’ve got to really love following the markets. But you can’t find your hidden gem by buying the index. If I didn’t hunt for unicorns, I would be in a worse financial place today b/c I wouldn’t have been able to buy my SF 2/2 condo in 2003.

          You just never know! TD Ameritrade, E*TRADE etc are all old school online investing platforms that don’t do a good enough job with risk control. Protecting investors from themselves is one of the biggest things you can do as a responsible online brokerage. However, they want people to trade more, so does Motif, as that’s how they make money. But if you construct a Motif, I’ve found you trade for less, and that’s good in general imo.

          Appreciate your feedback on writing. I just published another post on Y for bloggers who want to grow bigger! Always be learning.

  11. I actively manage. Long term, dollar cost average investor. Never rebalance. Pretty much 100% stock. Trailing the market for the year at -7 percent.

      1. Around 55 to 65 percent, the remainder real estate and like 5 percent art. Don’t know @ retirement. Before the normal age.

  12. I have 60% equity, 10% real estate, 3% high yield fixed inc and the rest in cash or cash equivalents. I am earning 2% in a GIC in my 401k. 60 percent of my cash is that.

    I use index funds for most of the equity allocation but have begun to focus on closed end funds. My high yield is through HYT. I had BGR and BUI but decided to sell since I had a 10 percent return over a 1 month time hold. I still have BOE. Also bought LXP a few months back for income.

    My focus on closed end funds was due to the wide discounts to NAV. With the exception of HYT, I look for strategies that offer call writing. Cash flow is now an important part of my portfolio. There are other considerations involved but I think closed end funds are often overlooked.

  13. Well articulated post. The more volatile the marketplace, the harder the challenge to exceed the general market returns.

    “I’d be willing to pay someone up to a 1% fee a year for 90% of my portfolio if they could consistently provide a 5% – 10% net return forever.”

    Always the challenge and extremely hard to reach.

    1. It’s during volatile/down markets where the best investors standout. Anybody can make lots of money during a bull market. We all have. The key is to NOT confuse brains with a bull market and continue to make money during bad times.

  14. Our mix is 40% bonds/mortgages and 60% equities. We are also holding 2.5 yrs spending in cash as I’ve just announced my early retirement on 4/1 (@ age 49).

    I think it would be fun to actively manage all our part of our portfolio, but I’m not sure I’m willing to devote the time it takes. Even if I did beat the benchmark index fund, I would probably be working for just a couple $ an hour!

  15. I knew a guy who told me he lovingly tended a portfolio of 30 or so stocks and did very well over several decades. And then he admitted he would have done just as well putting all his money in a Vanguard index fund and leaving it alone.

  16. Ypu ever look at Mebane Faber’s white paper about timing main index etfs using monthly moving aveages to avoid the large drops…the data in the report is pretty good

  17. You’re absolutely right you need to be passionate about investing if you want to actively manage your portfolio. I enjoy reading the occasional investment news piece, but not enough to be an active investor! I’ve been investing passively in stock index funds since about 2009, so my returns have been wonderful. I know that has to come to a stop at some point, but I’m committed to staying in stocks, especially in my 401k, since I don’t plan to need that money for a few decades.

    I know how you feel about Roth IRA’s but I have one with Vanguard that has done well. The yearly max is not too hard to hit, so I will keep at it since you can withdraw any contributions tax free. So if I REALLY need the money for something, I have that option.

    1. Ah, to start investing in stocks since the bottom of the market in 2009 is quite a dream come true! To have money through previous down cycles is much less enjoyable.

      I hope the party continues! But I don’t think it will.

  18. Love your strategy! Your are right about how tedious researching a company can be, but I secretly love staring at cash-flow statements, listening to company calls, and trying to find a few bargain stocks or elusive unicorns. I definitely think it takes too much time and it could be better spent trying to grow my side business into a full-time business or just spend more time with loved ones going on adventures.

    I have been copying your strategy of mostly passive investing with a portion actively looking for unicorns. I am using a larger portion of my net-worth to look for unicorns and bargains since I am so young and do not have $10 million to lose! haha

    So far I have been fairly lucky, but it might be because I am stubborn in taking losses. Investing in a few solar stocks has been a wild ride this last couple of years. One day you can be up 50% then a month later you are down 50%, another month goes by and your back at 50%. Man it can be volatile.

    As of 3/8/16, I have only outperformed the market by about 5-7% in my active investments. And this swings pretty wildly from month to month–I think in Feb 2016 I was down a good ~20% when the market was down ~10%. So the risk:reward is not worth it to 99% of people. I am only okay with it for now since I am so young and can make up for any screw ups later.

    When people ask me what to invest in, I say use passive index funds unless you are really passionate about stocks! I am okay with losing 50% of my small net-worth (only ~2x my pre-tax income), but I would feel awful if someone tried to copy me and lost money because they couldn’t stomach the wild swings.

    Thanks for the honest and informative posts Sam, keep it up!

    1. Thanks Casey. It’s been my experience that the MORE of your own money you manage, the LESS risk loving you become. At the same time, you also feel more worried handing over lots more money to someone else to manage and also want to hand over more money for someone to spend their career managing. It’s quite a conflict!

  19. My portfolio is down $258 as of today (about 1.2%). I’m allocated for the long term at 100% stocks (65% VTSAX – Total market, 20% VBR – SC and 15% EM).

    I’m interested in active management of passive investments. Meaning, tilting from the total market in the areas where I believe there will be significant return (Emerging Markets and Small Cap Value). A few weeks ago I was down about $2200.00, but I don’t feel like an adjustment is necessary for the short term since my horizon is 25+ years. Eventually I will add more ‘risk free’ investments.

    It’s probably necessary to add that I keep about 15k in cash for opportunity, emergency and cyclical expenses. Its not really a hedge, more of an emergency fund that I have been meaning to reduce to 10K upon the next major correction (down).

  20. Distilled Dollar

    This is a definitely a year that would test the courage of your convictions. Congrats on outperforming the market by 2.5% over the last year.

    With the way the market opened this year, I wouldn’t be surprised if we see two corrections before 12/31.

    For most people, I would say the time spent in the market could be put to more profitable uses. In your case, the +2.5% return on 30% is still enough to justify the effort.

    Personally, I subscribe to Buffett’s approach — “Time in the market, not timing the market.” I stick with index funds and that frees up my time to focus on boosting my income.

    1. Thanks, although 2.5% outperformance is definitely not something to write home about. This post should be insightful for those who want to develop a career in money management. You’ve got to really be all over the markets, almost addicted in a way to maintain an edge.

      Buffet underperformed massively in 2015, down about 11.5% vs. S&P 500 -0.7%. The irony is, you have probably way more time in the market than Warren, b/c he is so much older.

      1. Distilled Dollar

        True, but if you maintain a +2.5% edge each year, compounded over a career, then you’ll end up in a relatively small camp of successful investors.

        Good points made on Buffett. As for his current investment streak, he’s become such an anomaly. The deals he is able to make in the market do not exist for 99% of investors (ie. Kraft Heinz w/ 3G and any of the preferred stock purchases with high annual dividends).

  21. For the last five years, I’ve invested my 401(k) in only one fund, which was passively managed and mirrored the S&P 500 (SVSPX if you’re curious). It did well in the whole time frame—though not so much last year—since the S&P has done reasonably well. In January, I split it 50-50 between that one and the Vanguard Total Bond Market (VBTLX) because I’m expecting a serious correction in the next year or two. I’ll review and rebalance as needed next January. I realize that this is not a strategy that will beat the market, but neither will it seriously underperform the market. I’m more or less trying to invest the same as the market, to bet on all the horses to place, so to speak. Sound reasonable?

    1. Seems reasonable. I just don’t know your risk tolerance and current net worth composition and amount to give an informed opinion.

      I have an intensive desire to protect the large majority of capital that took 17 years of aggressive savings to build. Hence, I’m much more defensive in general. I would put 90% of my money in a 5% returning fund forever if there was such a thing.

      I really like how Wealthfront gives you 10 different investment portfolio compositions to choose from based on your risk tolerance of 1-10. They’ve got their quants, PHDs, and Burton Malkiel coming up with their investing models and doing regression analysis, so it’s fascinating to see how they would invest people’s money.

      1. ” I’m much more defensive in general. I would put 90% of my money in a 5% returning fund forever if there was such a thing.”

        VWELX; Not forever but, since 7/1/1929; 8.17%;cumulative 90,048%;from the Vanguard website.

        No work,lazy way to invest,dollar cost invest 40 yrs,go enjoy the beach or whatever is your pleasure!

        Just my thoughts.

  22. Sam,

    Interesting post, I am even more defensive than you are with a 30% Equity position and 70% Bond allocation. That is dictated by my risk aversion and a need to preserve my capital base. It’s interesting that you may not need to sacrifice a huge amount of return by going increasing your bond allocation. A great mutual fund to be in over the past 10 years has been a Vanguard-Wellington Investment Fund (VWINX). It had a comparable return to the SP 500 with a 40/60 equity / bond split. Part of that return is secondary to rising interest rates but it shows you won’t do to bad taking a passive approach as long as you commit to a strategy don’t panic during the downturns.

    1. You are right that having a strategy and sticking to it during panic mode is important. It’s too bad so many people got their faces ripped off during 2008 and that only lasted 1.5 years.

      So far I have been great at sticking with my plan and it seems to be working, but I sometimes wonder what I would do if we ever had a really extended stagnant or bear market like Japan. My plan is to keep investing even if it stays level or down for 10+ years since I am only 26. If you think about it, I should be happy if the market stagnates for 10 years, because over the next 10 years I will only be buying stocks, not selling them. But 10 years is a long time to stick to a seemingly ‘losing’ strategy, ya know?

      Just wondering how close to retirement you are to have a 30/70 split like that? Are you totally past the accumulation phase and into the preservation? Do you currently need any income from your investments?

      1. Hi Casey,
        I am actually not very close to retirement but I have been fortunate enough to build some capital so I am more interested in capital preservation then greatest return. Because of this I am more risk averse. I also don’t want to attempt to “time” the market. Because of this I think low cost index strategy with a high allocation to bonds works for me. I attempt to re-balance with every paycheck through purchases of the lagging portion of the portfolio. The tax advantage of muni bonds definitely levels the playing field. Think about this, if you were able to purchase a muni bond yielding 4% over 20 years and your income placed you in 39.6% tax bracket your pre-tax equivalent return would be 6.62% over that 20 year period with possibly little risk to your principal (if you bought in a fiscally strong municipality). What’s been your strategy?

        1. Hey HFW,
          That’s awesome that you got yourself a bit of a financial nut built up, good work!
          The tax exemption from the muni bonds is pretty fantastic for high income earners–I think John Bogle even uses them! Do you keep most of your stocks in tax advantaged account like a 401k? It might be hard to re-balance large sums of money if most of your stocks are in a 401k and the muni bonds are in taxable accounts. Other than that, I love the strategy.

          I am towards the top of the 25% tax bracket, so muni bonds are just OK for me. I still love low-cost stock index funds and my 401k is 100% index funds. I love a unicorn hunt like Sam, so my IRA is a punt account solely hunting for unicorns. My taxable accounts are mixed with index funds, actual rental properties, and I try to put any dividend paying stocks in taxable accounts for their favorable tax treatment. I actually own zero bonds right now and I am just saving cash instead.

          Since I only have 2x my pretax income saved, I am pretty aggressive and feel I can make up for any mistakes later. Better to try now and learn while the stakes are low.

          If anyone asked me though, I would say only investing in index funds is best for 90% of people.

        2. As you can see from my holdings, 40% of my portfolio is in a muni bond fund. If I’m going to hold bonds, I have a bias towards tax-free dividends. For those in the 33% tax bracket or higher, I suggest doing the same and seeing what local state muni bonds there are to avoid federal and state income taxes on dividends.

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