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Old 09-11-2017, 02:28 PM
 
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Quote:
Originally Posted by mathjak107 View Post
of course one could actually use 100% equities through retirement but in practice that did not do as well as 50/50 or 60/40 success rate wise over 30 years .

but for longer retirements 100% equities did do the best when you stress test them against the worst of the past .

i don't think many of us retired people could stand the volatility of 100% equities if it was not mostly legacy money and our income was heavily dependent on it .
I think the people who can best stand 100% equities are the people who don't need the money from equities. If you need the money, then the markets will find a way to scare you out of equities.
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Old 09-11-2017, 03:06 PM
 
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absolutely . i was always a very aggressive investor , but i had a job and an income .

today i am far more protective of that goose laying those golden eggs . sure things are very likely going to bounce back if you are 100% in equities but do you really want that roller coaster ride in the last down of the game ? not me !

my interest in growing richer is over at this point for the most part . today i am more interested in not growing a whole lot poorer , even if it is only for a few years until it bounces back .
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Old 09-11-2017, 03:39 PM
 
Location: Near San Francisco, CA
184 posts, read 114,230 times
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Quote:
Originally Posted by mathjak107 View Post
of course one could actually use 100% equities through retirement but in practice that did not do as well as 50/50 or 60/40 success rate wise over 30 years .

but for longer retirements 100% equities did do the best when you stress test them against the worst of the past .

i don't think many of us retired people could stand the volatility of 100% equities if it was not mostly legacy money and our income was heavily dependent on it .

According to a simulation using Portfolio Visualizer from 1987-2017 the CAGRs for stock/bond portfolios are:

50/50: 8.45% - $10,000 grows to $119,616
60/40: 8.85% - $10,000 grows to $133,791
100/0: 10.12% - $10,000 grows to $190,591
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Old 09-11-2017, 04:20 PM
 
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that does not have anything to do with success rates when spending down .totally different discussion , that is about the accumulation stage before spending down to generate an income .

averages don't mean a thing once you are spending down and drawing an income , since the sequence of gains and losses can have the exact same average return fail up to 15 years sooner


this is what you are interested in when it comes to safe withdrawal rates .

4% over 30 years, 50/50 has a 96% success rate , not 106% , that is a typo , 100% equity 93% success rate

over 40 years 50/50 85% vs 100% equity 89% . both are to low for 4% and about 3.50% would be better .



Last edited by mathjak107; 09-11-2017 at 04:39 PM..
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Old 09-11-2017, 07:12 PM
 
Location: Near San Francisco, CA
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Ah yes, for success rates, i.e., survival, during drawdown, that's true. But, nothing that a little cash/short term reserves wouldn't take care of.
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Old 09-12-2017, 02:06 AM
 
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nope . cash buckets can make survival rates worse by a bit !!!!!!

the extra drag of cash takes away from your performance .

despite the bull you see about it protecting you in down markets there is little logic to it .

conventional rebalancing between stocks and bonds works just fine . you are not selling stocks in down markets since it is likely bonds went up and you are selling bonds to generate spending money as well as likely buying more stocks too in a bad downturn , not selling them as you rebalance .

in effect when you use a cash bucket you are taking some of the money out of the higher yielding bond bucket and putting it in the lower yielding cash bucket . that does nothing for sequence risk .

cash buckets are a mental thing not financial . natural rebalancing already has a short/intermediate term bucket in bonds which have the potential to increase in value in a down market for stocks ,cash does not . so there is a bit of a reduction in lifetime cash flow using cash buffers over long periods of time .

for 30 years 50/50 is pretty much optimal . the updated trinity showed as low as 35% equities would hold 4% but the balance left at the end is kind if iffy .

i am comfortable at 46/46/8 but the 8% gets reduced as it is spent down to live on .

if you have not heard the interview with michael kitces on cash bucks it is worth a listen .

http://www.morningstar.com/cover/vid...aspx?id=601506

Last edited by mathjak107; 09-12-2017 at 03:08 AM..
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Old 09-12-2017, 02:03 PM
 
71,463 posts, read 71,652,652 times
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an interesting look at using cash buckets by kitces .some advisers recommended very high allocations to stocks , no bonds and a cash bucket instead to use when markets were down .



"In the end, the reality is that while cash reserve strategies appear psychologically appealing, their actual benefits as an enhancement for retirement income sustainability appear to be a mirage upon closer inspection.
These bucket gimmicks are just a way of skewing your asset allocation in a more conservative direction. There's no magic to it. However, if you're pulling withdrawals from the cash reserve during a declining market, you're making a tactical decision to reallocate toward riskier assets.

"if indeed you experience a poor initial sequence of investment returns – so that you have been forced to liquidate all your cash investment--you might find yourself with a 100% equity exposure well into retirement and possibly deep into a bear market. This is in contrast to the non-bucketer... who is maintaining the same exact asset mix and hence the same risk profile over time. Sure, the market may recover by the time you have to tap into the equity portion – or it may not.

Either way, you have neither reduced nor mitigated financial risk but simply taken a bet on scenarios you believe will not happen. Safety is just a mirage."

Another author & financial advisor said that he sometimes found it necessary to "construct a client's portfolio to reduce the emotional impact of volatility by dividing the client portfolio into a portion to meet short-term needs and a portion to build long-term wealth. The short-term portfolio is built with little or no volatility. ... Sadly, the current infatuation with short-term volatility mitigation has us forgetting about returns, the most important driver of long-term wealth." -- M. Kitces
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