Class #15 Exercises: Simple Investing

Question #1: Do you own the whole market?



Question #2: Is your portfolio rebalanced regularly?


Question #3: Rebalancing in this class is described as the most powerful tool available to individual investors. Why might rebalancing be difficult for an investor to carry out? Does rebalancing get easier or harder the more complex the portfolio is?



Question #4: In this class diversification was defined in a specific way. “A diversified portfolio is one where the investments don’t go up and down at the same time together, or to the same extent.” Anything else is just complexity. What are the problems that mere complexity causes for the investor? Feel free to elaborate at length.




Question #5: When stock markets rise, rebalancing means selling at highs and reaping the profits. But when markets go down, rebalancing means buying stocks after they have already lost value. Which type of rebalancing is (or would be) more difficult for you emotionally?





Question #6: At Vanguard you can use Lifestrategy funds and Target Retirement funds. If you have not done so already, go ahead now and look at those funds. See the justifications for them both in this class and in this site. Are the benefits of ultra-low-cost and ultra-simple investing compelling for you? Feel free to elaborate.



Question #7: Are the benefits of simple investing so compelling that you still want to invest simply, even if you know you could make a little more using more emotionally and intellectually difficult methods? (There is absolutely no right or wrong answer to this question. It’s just important to be honest.) Feel free to elaborate.




Question #8: Risk and return go hand in hand. Stocks go down at the worst possible times. If you were investing in the early 2000’s, how did 2000-2002 feel, and why?




Question #9: How did 2008 feel?




Your experiences of risk tell you a lot about how risky your own portfolio should be.

Question #10: Use the table in part 4 of the class. What kind of an investor are you? What do you think your ideal split between stocks and bonds is?



Question #11: In your own words, what story do you tell yourself about why investing makes sense, why it works, and why you are doing it?






Question #12: From your perspective, do you agree that in the long run, only optimism is rational? Feel free to elaborate.





If you’d like to talk about your answers, feel free to email
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