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Still, you would prefer to not have to dip into your balanced portfolio in the depths of a severe bear market for an unexpected large expenditure.
That is what people fail to understand ...even if a retiree was 100% equities and spent down from equities in good and bad times they would have done just fine ..... the cushion that is developed in the up markets cushions any spending in the down markets ..
Had I believed that I should be far more conservative over the last few years my balance would be way lower then it is ..in fact I have been spending down over 6 figures a year for four years now and thanks to our investing levels we are a few hundred thousand dollars higher then the day we retired ...
So more is made of of spending down at a loss if need be then the actual effect ..... 100% equities failed only 2 more cycles then 50/50 through 118 30 year cycles ..that is through everything from the great depression to wars , to crashes , the high inflation 1970’s and everything flung at us since the 1800’s..
While volatility is high with 100% equities the reality is it is not an issue since if you have been investing for decades then you are in retirement with a far higher balance then had you been much more conservative... in the end MEH
Historically equities have doubled every 8 years ..... today hiding in a money market would take 34 years to double at today’s rates... I would say equities are still at a good risk vs reward set of odds for longer term money if I had to roll the dice.
Last edited by mathjak107; 06-03-2019 at 05:00 PM..
That is what people fail to understand ...even if a retiree was 100% equities and spent down from equities in good and bad times they would have done just fine ..... the cushion that is developed in the up markets cushions any spending in the down markets ..
Had I believed that I should be far more conservative over the last few years my balance would be way lower then it is ..in fact I have been spending down over 6 figures a year for four years now and thanks to our investing levels we are a few hundred thousand dollars higher then the day we retired ...
So more is made of of spending down at a loss if need be then the actual effect ..... 100% equities failed only 2 more cycles then 50/50 through 118 30 year cycles ..that is through everything from the great depression to wars , to crashes , the high inflation 1970’s and everything flung at us since the 1800’s..
While volatility is high with 100% equities the reality is it is not an issue since if you have been investing for decades then you are in retirement with a far higher balance then had you been much more conservative... in the end MEH
Historically equities have doubled every 8 years ..... today hiding in a money market would take 34 years to double at today’s rates... I would say equities are still at a good risk vs reward set of odds for longer term money if I had to roll the dice.
You fail to understand it is prudent to not have to take $ out for large unexpected, non-recurring expenses when the market has dropped say 50%. That is why you need an emergency fund to try to cover such emergencies. This is basic finance.
You fail to understand it is prudent to not have to take $ out for large unexpected, non-recurring expenses when the market has dropped say 50%. That is why you need a sizable emergency fund to try to cover such emergencies. This is basic finance.
I can create all kinds of situations where I can argue yes or no to having large cash buffers in specific situations I dream up ..but actual studies have shown in the real world large cash buffers hurt more then they help because of their weight in the good times which are far more frequent ... mentally they feel good ,, financially their is no evidence having any cash buffers do anything as far as being anymore successful.
as researcher michael kitces points out :
EXECUTIVE SUMMARY
For retirees who fear the impact of a market downturn on their spending, an increasingly popular strategy is just to hold several years of cash in a reserve account to accomplish near-term spending goals. As the logic goes, if there are years of spending money already available, the portfolio can avoid selling equities in a down market to raise the required cash, and clients don’t have to sweat where their retirement income distributions will come from while waiting for the markets to recover.
Yet the mathematics of rebalancing reveals in the truth, even clients following a standard rebalancing strategy don’t sell equities in down markets, rendering the cash reserve strategy potentially moot. On the other hand, some benefits still remain – although aside from an indirect short-term tactical bet, the most significant impact of a cash reserve strategy may be more mental than real.
The problem is, as I examined the approach further, I found that the cash reserve strategy – similar to other ‘bucket’ strategies I’ve written about previously – may be more of a mirage than a reality for protecting clients from selling out in severe downturns."
I can create all kinds of situations where I can argue yes or no to having large cash buffers in specific situations I dream up ..but actual studies have shown in the real world large cash buffers hurt more then they help because of their weight in the good times which are far more frequent ... mentally they feel good ,, financially their is no evidence having any cash buffers do anything as far as being anymore successful.
as researcher michael kitces points out :
EXECUTIVE SUMMARY
For retirees who fear the impact of a market downturn on their spending, an increasingly popular strategy is just to hold several years of cash in a reserve account to accomplish near-term spending goals. As the logic goes, if there are years of spending money already available, the portfolio can avoid selling equities in a down market to raise the required cash, and clients don’t have to sweat where their retirement income distributions will come from while waiting for the markets to recover.
Yet the mathematics of rebalancing reveals in the truth, even clients following a standard rebalancing strategy don’t sell equities in down markets, rendering the cash reserve strategy potentially moot. On the other hand, some benefits still remain – although aside from an indirect short-term tactical bet, the most significant impact of a cash reserve strategy may be more mental than real.
The problem is, as I examined the approach further, I found that the cash reserve strategy – similar to other ‘bucket’ strategies I’ve written about previously – may be more of a mirage than a reality for protecting clients from selling out in severe downturns."
Bottomline, people need a financial plan/portfolio they're comfortable with since they will reap the benefits OR suffer the consequences. You rely greatly on historical analysis, but what if the future doesn't resemble the past, IN YOUR TIMEFRAME?
I agree 100% with having a plan .. I just don’t believe in this fear mongering about spending down in down markets or driving equity levels down to levels that can actually be a risk to the portfolio success rate because one fears a drop .
Like I said success rates are based on math not the past .. they are not based on average returns or higher interest rates or low inflation ...
They are based only on the fact that every failure in history to hold a 4% inflation adjusted draw for 30 years happened when the first 15 years averaged less then a 2% real return ...
That is just math and has zero to do with history repeating.. all these studies did is identify the failures so they could be analyzed to see what the math was that caused them to fail.
If 5 years in you are not seeing at least a 2% real return a red flag should go up that a pay cut may becoming as you get closer to that 15 year mark ...
Even the most powerful bull markets after that 15 year mark could not hold that 4% level inflation adjusted and it failed to last
Last edited by mathjak107; 06-03-2019 at 05:38 PM..
I agree 100% with having a plan .. I just don’t believe in this fear mongering about spending down in down markets or driving equity levels down to levels that can actually be a risk to the portfolio success rate because one fears a drop .
Like I said success rates are based on math not the past .. they are not based on average returns or higher interest rates or low inflation ...
They are based only on the fact that every failure in history to hold a 4% inflation adjusted draw for 30 years happened when in the first 15 years averaged less then a 2% real return ...
That is just math and has zero to do with history repeating
Hogwash. There are contradictions throughout your response.
Hogwash. There are contradictions throughout your response.
Really .... show me..want to bet you are wrong and failed to comprehend what was said.?
The 4% safe withdrawal rate is not based on average yearly returns being a certain amount in order to pan out or a certain inflation rate holding or a certain interest rate holding or even a certain sequence repeating ...
It is only based on the fact that if you fail to ACTUALLY ACHIEVE A MINIMUM OF a 2% real return over the first 15 years ,mathematically you would have spent down to far to be salvaged..... that is not requiring anything in the past to repeat .... it only mathematically states what you need to survive the future no matter how the results come in...
Any combination in any order is fine as long as the math produces that final amount needed to sustain the draw.. it can be rates ,inflation and return combinations in sequences never seen before
Last edited by mathjak107; 06-03-2019 at 05:53 PM..
You can’t argue it ...the facts are the facts .you just did not comprehend what was said .
that is Michael kitces research that crunched the failures and calculated what the future has to produce in order for the math to hold.. it is simple math and requires nothing in the past to repeat ..
It only requires the future to at least hit a certain real return average in order to hold the income for the time frame. it requires nothing to repeat from the past ..
its like if you need 10 of something it does not matter if the past was always 5+ 5 or 6+4 all the time ... the future can be any combination playing out that equals 10 , 5+5 or 6+4 never have to repeat again for things to work ...
All you need to know is you need to see 10 ..you either get it or you don’t but it does not need the past numbers to ever repeat
Last edited by mathjak107; 06-03-2019 at 06:13 PM..
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