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The average stock market return is 10%, you can get 5% or more in money market funds or CD's right now with no risk.
To say you can get 5% with no risk is absolutely inaccurate. Interest rate risk, duration risk and opportunity cost are all risk you take on at a minimum
more. than 60% of the last 40 years has seen cash instruments have negative real returns after inflation and taxes
How many had to postpone their retirements due to market downturns? There is no guarantee he won't suffer bigger losses holding securities, instead of being in cash. That was my thinking at his age of 55. I would rather be in cash than risk it all to only make 5% more (or lower) on average per year in stocks when an insured CD is paying 5% right now.
likely none had to unless they were speculating in individual stocks which may never come back , and really not investing but speculating .
or they exhibited poor investor behavior .
good planning and a proper glide path into retirement should have equites reduced to 30-35% a few years before retirement.kitces suggests 5-8 years. the 5 years before and first into retirement are called the red zone .
then after 5 years or so through retirement equities can be increased again as high as one wants .
so a diversified portfolio has not failed a retiree sine 1966 even without reducing down pre retirement .
even 2008 was a non event for a retirement as it was quick and vee shaped .
the proverbial red zone glide path suggested by knowledgable advisors would have no problems for sure
on the other hand , know how many retirements failed not using enough equites at a 4% draw rate?
65% of all 30 year retirements we have had to date , 123 rolling 30 year retirement periods, 65% failed using fixed income and trying to draw just 4%
not using equities in retirement has failed so many times at 4% that it is considered unsafe .
FIRECalc Results. zero equities , 4% draw , 1million portfolio
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
FIRECalc looked at the 123 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 123 cycles. The lowest and highest portfolio balance at the end of your retirement was $-526,987 to $2,317,282, with an average at the end of $177,581. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 67 cycles failed, for a success rate of 45.5%.
KNOW WHAT HAS BEEN A WHOLE LOT SAFER , ? 100% equities and NO i am not saying a retiree should be , but if they were ,
100% equities 4% draw 1 million portfolio
FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
FIRECalc looked at the 123 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 123 cycles. The lowest and highest portfolio balance at the end of your retirement was $-931,017 to $8,509,297, with an average at the end of $2,768,141. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 8 cycles failed, for a success rate of 93.5%.
How many had to postpone their retirements due to market downturns? There is no guarantee he won't suffer bigger losses holding securities, instead of being in cash. That was my thinking at his age of 55. I would rather be in cash than risk it all to only make 5% more (or lower) on average per year in stocks when an insured CD is paying 5% right now.
the most conservative portfolio out there is the permanent portfolio.
for someone who went to cash since the first of the year they would have about 3.75-% as a return 9 months in .
the permanent portfolio is up 6.36% ytd
so even compared to as conservative as you can get in a diversified portfolio it still is up 2x .
so yes , diversification will have up and down years but over all the up years are far greater .
so just be careful heading in to retirement with one of the portfolios low on the ulcer index and you will be fine .
you can increase later on once you clear the red zone , but what you don’t want to do unless you have so much money you don’t care about investing it efficiently is hide in just cash instruments.
by the way , cash instruments are 25% of the permanent portfolio and 20% of the golden butterfly
here are some low ulcer index portfolios
Last edited by mathjak107; 08-30-2023 at 03:50 AM..
here is the glide path suggested by kitces to avoid that red zone .
that is the point your portfolio value is highest and subject to the most in dollars changes
you can see we are 100% equities up until about age 55 where we bring it down to about 60% . that is reduced yearly as we get ready to descend into retirement land .
by age 65 we are down to about 30% …we start to ramp up again at age 65 and continue to do so until until age 79 at 60% equities again .
by the way , this glide path is NOT for those who are not going to be using their portfolio for their income .
there is no reason anyone needs to reduce down if that money is just occasional fun money or legacy money .
We are not big investors, but we have a good sum in my husband's 401k. The current risk split is 85% stocks and 14% bonds. He is age 55.
We know ZERO about interpreting what's going on with the global economic climate.
1. Should we change our percentages?
2. Where's the best place to learn, so I don't need to ask?
The Bible of investing: The Intelligent Investor by Benjamin Graham. It was Warren Buffett's Bible.
Personally, I wouldn't have any bonds at age 55. This is still a growth period for that age, unless you're retiring early. Or maybe a lower % of bonds (do you mean bonds....or bond funds?).
I'd pay close attention to funds having very low fees. That's the biggest problem with managed 401k plans.
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