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I picked January 1st 2000 because it was the start of the 21st Century. It seemed like a good starting date for my analysis.
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Originally Posted by jrkliny
This is just a ridiculous straw man argument. How about picking 2009 instead. The outcome for 100% stocks would have been spectacular.
The second piece of ridiculous nonsense is selecting 100% allocation in stocks. Even at a younger age virtually no one would make that recommendation. Keeping some reserve to buy in if the market drops can pay off well. Some diversification does indeed protect against risk.
The third piece of ridiculous nonsense is the idea of keeping the same allocation indefinitely. A major idea of investing is to adjust assets and allocations based on trends and returns. Years ago bonds did well and a higher allocation made sense. Maybe those days will eventually return but not for the foreseeable future. Now with bond returns low you are almost as well off to stick some of your money in the mattress.
2000 is still passing but not by much . it is an example of starting a retirement at a time frame that turns out to be a dog in hind site vs walking in to a bull in hind site .
going in to high in the beginning in equities and risking running in to a 2000 would not be worth the gain potential over a 40-60% equity mix early on in my opinion unless i had a pension to cover things so draw is not much if i drew the short straw of time frames .
the day after i retired markets plunged after china devalued their money and things went even worse from there .
luckily by the 3rd year we recovered or i may have been the poor sequencing poster child .
delaying ss made the draw down extremely painful in the beginning as we were drawing all income pretty much from the portfolio . .. .
Last edited by mathjak107; 06-05-2017 at 08:51 AM..
Mentally, I put retirement fixed income (pensions & SS payments) in the same category as bond.
Before retirement, our asset allocation was ~ 5% cash, 13% bonds, 12% international stock funds and 70% US stocks & funds (total 82% in stock).
In retirement, I upped our cash portion, reduced bond and international stock exposures.
Our current asset allocation is 13.5% cash, 8% bond, 8.5% international stock funds and 70% US stocks & funds.
It's interesting that just before retirement, when I entered only my 401K (about 55% stock and 45% bond), Fidelity finance engine analysis showed that I had the correct asset allocation with 100% success rate. When I entered all our assets, the analysis still gave 100% success rate but advised me to reduce the stock allocation!
My retirement planning spreadsheet (income/expense) showed that we can live with our annual income without having to draw down our savings. My 'trust' in the stability of our sources of fixed income is the reason I sort of mentally disengage from all the talk and discussion about 'safe' withdrawal rate.
This does not mean that we will not spend any of our savings. We may have to or want to draw varying amounts at times to pay for expenses (such as getting a new roof, upgrades on current house to make it salable), a down payment on a new home (we plan to buy a new home before selling the current home), new cars or big trips. I plan to make these withdrawal from our US stocks/stock funds over time.
Unless there are major changes in the market, I'm likely to keep our investments in bonds and international stocks at 10% each and US stocks at 70-75% and cash at 5-10%.
Bottom line is that I think there is no one-size-fit-all 'best' asset allocation to both pre-retirees and retirees. Fixed income sources play a big role in one's comfort level. In addition, risk tolerances vary greatly from one person to another and even change in different phases of one's life. If you are happy with your investment decision, good for you. If not, it maybe best to seek help from fee-only financial advisers.
However, if you want to show off your financial acumen/success, analytical skills, superior intellect or just enjoy online debates, carry on ;-)
I picked January 1st 2000 because it was the start of the 21st Century. It seemed like a good starting date for my analysis.
Agreed. By definition, the selection of any single baseline date is "cherry picking". But isn't it the case, that some cherries are more attainable and appealing than others (low hanging fruit... sorry for the salad of metaphors...)?
We're in the 21st century, are we not? As of this writing, about one sixth of the century is already behind us. One sixth of a century, is something like one half of a typical investor's accumulation stage (assuming that only a pittance could be saved in the earliest part of one's career). So, besides the appeal of round-numbers and the turning of the century and so forth, using of the year 2000 as our starting-point for investment-time-frames, is eminently sensible.
Over the past 17 years, the major US indices have risen some 70%. That's 3%/year CAGR - which is far below the historical average. We hear of expectation of diminished return going forward. Sure, predictions are arbitrary and don't brook any serious reliance. Maybe the next 20-30 years will be spectacular; who knows? But the hoopla over the post-2009 "boom" masks the excruciating 2000-2009 bust. Taken as an aggregate, the 2000-2017 period is positive, but lackluster. And if that's cherry picking, well, why even look at history at all?
I picked January 1st 2000 because it was the start of the 21st Century. It seemed like a good starting date for my analysis.
Do this for a hundred different dates (basically a Monte Carlo analysis but only using actual market returns in the actual sequence and not completely randomized) and then report back. Why would you think you could pick one date (very arbitrarily) and have that fully represent your point? Oversimplification can lead to very misleading conclusions - leave it to calculators like firecalc that can look at many more factors than you can.
all that matters is our own time frames and our own balances .
no time frames are in isolation . the results go well beyond the borders .
people say how lucky i was to be invested during the 1980's great bull market .
but what they forget is the time frame leading up sucked . most of us working people couldn't save a thing with double digit inflation , high unemployment , 401k's didn't exist yet .
all well and good the party started but great growth on little money yet is a whole lotta nuttin .
today is the reverse , a mere 7% drop represents in dollars 9 years of me maxing out my 401k at catch up .
that is incredible in dollar terms .
so what happens and on what balance has far greater reaching consequences in real time than index's indicate.
today an extended downturn up front can deplete a portfolio while delaying ss to a point that even the best bull market later may not be able to add much back .
we have not had much in historical down turns day 1 of a retirement time frame that did not recover in under 5 years . not even the great depression . but 2000 came pretty close so that is why it usually stands out from the pack .
2000 is the prime example why starting retirement to high in equities can be hurtful . almost all time frames that were worst case are not based on getting hit hard day 1 without at least an up cycle early on creating a cushion.
it took even the worst case 1965/1966 a few years to develop the double digit inflation that did them in . so the 2000 retiree was one of the few that were hurt from the get go .
there is not a whole lot that can have the 4% rule fail unless we exceed the worst cases to date with one exception . getting hit for an extended period of time early on . all bets are off on success rates when that happens .
Last edited by mathjak107; 06-05-2017 at 11:36 AM..
all that matters is our own time frames and our own balances ....
Well, yes… ultimately the only statistics that matter, are one’s own personal statistics.
I have been an amateur investor for nearly a quarter-century. A rough calculation shows that of my current portfolio balance, some 50% is my contributions, and 50% is gains. That means, very roughly, a cumulative rate of return of around 100%, which works out to just under 3% CAGR. This is actually quite horrible, for a more or less consistent 80% stock, 20% bond allocation, with no panic-selling.
How did it happen? Simple. During the boom years of the 90s, I had very little invested. 25% back-to-back annual returns didn’t matter much cumulatively. When the 2008-2009 collapse hit, I had considerably more invested. And in the ensuing recovery, my results lagged because I had so much invested in international stocks. The freshest money, at my peak earnings, came recently – which means that it hasn’t had much time to benefit from compounding, but it adds to the column of my contributions. 2013 was a great year; I gained more in 2013 alone, than I did in the entire 20th century. But look at international stocks and small-caps. They’re just now retracing where they were at their then-peak, 2+ years ago.
In sum, there can be spectacular disparity, even for a stodgy buy-and-hold investor, between the indices and individual performance – NOT because of panicking market-timing or self-defeating investor psychology, but just because of sequence of capital accumulation. How to improve odds of better CAGR going forward? Simple! Just stop adding money to the portfolio.
International stocks are one of my pet peeves. Several years ago, a couple of my funds started doing poorly versus the markets. I investigated and found that the fund managers had loaded up on Internationals in the hopes of beating the returns on the US stock market. Even after that did not work they kept it up. I had to sell off those funds and switch to different funds.
Personally I have a hard time coming up with any foreign country I would want to invest in. Certainly not any country in south America. It seems there is always a dictator, political unrest and certainly endless corruption and inefficiency. Japan? Absolutely not. The Japanese economy has been suffering for decades with no end in sight. China? No, China has already captured a high percentage of the world's manufacturing and the growth has to slow. Italy, Spain, Greece? No way. India? Don't know; don't care. I have a hard enough time gauging what is happening here. I don't need more uncertainty about foreign investments.
International stocks are one of my pet peeves.... I have a hard enough time gauging what is happening here. I don't need more uncertainty about foreign investments.
It occurred to me, that I can't even gauge what's happening within the US. The point isn't about favoring for investment, that which one happens to know (with due apologies to Peter Lynch). I know nothing. I don't really buy anything, or go anywhere. And yet, somehow I have to invest. Botswana or Brunei are no less foreign to me than Boston - and that's just the B's.
The appeal of international investing has something to do with the allocation of capital globally. This no longer being May 9th, 1945, there are plenty of places of economic vibrancy outside of the US. Eliding them has been a profitable strategy in recent years, but we all know the bromide about past-performance. Dictators are not limited to banana-republics. And besides, one hears that bananas are good business.
Here's hoping for a weaker US dollar, and a stronger recovery in Europe.
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