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and my answer to you is we can all cherry pick funds and combinations of different index's that pan out differently so personal combinations are never used to benchmark .
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So if we cherry pick and find the funds that did well in the past, then they might not do well in the future. I wonder if that works with portfolio allocations. Some portfolios did well in the past, but might not perform so well in the future.
if you built your home to withstand sandy , could not a much stronger hurricane damage it if it happens ? what if long island has a very powerful earthquake instead of a hurricane ? odds are very low of a powerful earthquake here but if it did happen that would require different construction than a hurricane .
so we construct for the most likely scenario's to play out .
as the home is built stronger and stronger at least the hurricanes to date would have not inflicted much damage and those are what we typically see here . so you are dealing with only the chances of a much stronger hurricane then we have had so far devastating you or the remote chance of a powerful earthquake ..
Last edited by mathjak107; 09-24-2018 at 04:42 AM..
The perceived Pain & Fear of loss often outstrips the Exuberance of gains. It is easy to talk about the volatility of the market when the last 9 years have provided such great gains. I have more than quadrupled my savings over the last 9 years, with about 20% of it being influx of principal.
The OPs friend is trying to time the market. Good luck. As mentioned by many, studies have shown that consist cost averaging accumulation has always beat timing. BUT this time, its different, right?
Like many, in both 2001 & 2008 I saw the “ loss “ of about 35% each time. I had not been any kind of saver or investor besides my 401k. I had been using my house purchase as a fixer upper to be the RE portion of my start.
At the time it seemed like a huge amount. In 2001, I had less than $150k invested. And like many, I sold some during the “bloodbath”, like Qualcomm, purchased at around $100, rode it gloriously to about $200 and sold it on the way down at about $30. Other techs that I bought were not as dramatic losses, Cisco, Intel, AMD, Apple & Microsoft. It seemed like all was lost. Until I realized that I was only looking at the losses as viewed from the highs. When I viewed the overall loss from what I had invested, well, I actually had still gained! It was hard to quantify, but when all was said and done, what I had left over was more than I had ever put in. The PAPER loss was what depressed me.
One of the reasons for a late start in the accumulation phase was the previous REAL loss in the ’90s of what turned out to be retention of much debt from not LBYM and costs of fixing and selling that first house after a divorce, but where my 401k got split in half, and the ex saw most all of the little appreciation of the house. After that my NW was about zero. So what seemed like a solid plan, really didn’t pan out. So when I still had postive NW after the 2001 bear, I realized, I wasn’t a real smart individual stock picker, but at keast Instill HAD more NW and decided if I stuck with funds, I’d let the experts make the decisions.
So when 2008 happened, I kept my cool. Well, mostly. Once again, same thing. From the high, the loss was tremendous. But compared to principal, not so bad. In fact, still better than if I had just put it in CDs or Ts. Plus Because I still had some in MM in the 401k, I was able to buyin after the down turn and keep doing the time averaged buying. In early 2009, I decided to track in Excel both my principal influx and gross values. For everything.
If I had just used CDs for the last 9 years, my total egg would be 2/3s less than what it is. The issue with this is the previously mentioned “once you’ve “won”, why continue to play?” DW feels that way. She knows nothing about investing but thinks I am crazy to keep anything in equities because we “might lose it all”, even after acknowledging that we are where we are because of the same equities.
During the “decumulation” phase that fear is even greater for those that can’t grasp the concepts behind the need for real growth. Enough is enough, so why go through it? THIS TIME it is different. Well, in a way, it is, because this time you ARE living off it, not just keeping score.
What it boils down to is do you trust that the “system” will sustain its gyrations as it has historically for the last 100 years. For many, the answer is no. For many a resounding yes. For a whole bunch, somewhere in between.
And that’s the reason for all the variations of answers here. No one knows what the future brings and everything they do is based on their belief of what may happen. I don’t have any better answer than I do knowing when I will die. But to borrow an often used platitude from the early retirement forum, I guess “I should stick with the date that brung me to the prom”
Everybody has to make their own projections. It's easier every year to see what the future will bring, because the future gets closer. If you figure you will live another 20 years, max, you just budget for cost of living and end of life expenses. I took my first RMD last year, and was a little irritated because I didn't need the money, but hey, I spent it anyway. The RMD is still less than earnings, and I have it timed to arrive the same day as the property tax bill. Over the years it will ramp up until it's going to be a serious chunk of change. It will compensate for the drop in my pension, which is capped at a 2% COLA, and whatever chicanery they pull with SS/Medicare. Next year I'm stuck with some maturing bonds. If I can ever convince my wife to get a passport, we'll travel. It's not doing anybody any good unless I spend it.
I don't have any kids, so whatever is left after I croak will go to nieces and nephews. I'm not interested in being the late rich uncle, so if I spend most of it, that's life. After 5 years of retirement, my numbers are still going up, so I don't lose much sleep over it. I will cheerfully decumulate, confident that the bills will get paid longer than I will be around.
it is a very risky game retiring on just fixed income because you have no slack in the draw without taking a very low draw.
I think most of the riskiness is in one's budget, and not necessarily the portfolio. If all of a person's budget is composed of essentials there is no "slack" available to make spending adjustments. This is true at 100% fixed, 100% equities, and anything in between. You've said many times that one needs to be ready to make spending adjustments if the markets do not cooperate, and I agree.
Yes, portfolios with equities offer higher expected safe spending rates, and even offer the chance for increasing real spending over time. No arguments there. But personally, I don't think a fixed income portfolio is risky unless one is trying to extract too much from it. Yes, the safe spending rate will be lower, but not so dramatically lower IMO than suggested in some circles.
Quote:
Originally Posted by mathjak107
think about it , using fixed income only starting day 1 of retirement when it has negative real returns , like today as a matter of fact , is like a trader having a string of losing trades early on .
many very low equity portfolio's have negative real returns ytd as well like , wellesly or the fidelity insight income model . the irony is 1 year cd's are down worse than these low equity models are in real return
TIPS have a real yield of not quite 1% today, so if one chooses to go heavy into fixed income there's no need to be resigned to negative real returns. Personally, I think they are a better "safe" choice than CDs, since one can lock in an inflation-adjusted return for a long time. With CDs it's impossible to know what yields will be, either nominal or real, when one's current holdings mature.
Also, I'll point out that the fixed vs equity outlook is not a constant. Even the equity-loving Peter Lynch had a rule of thumb for preferring bonds over stocks, and at one point he had a large Treasury bond position in the Magellan fund.
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Note: when we were doing firecalc, 2008, having some Income from pensions and/or annuities either in deferred/immediate, beyond just SS income, increases success rate, with lower volatility, with greater equity allocation. You can do some optimization.
I think most of the riskiness is in one's budget, and not necessarily the portfolio. If all of a person's budget is composed of essentials there is no "slack" available to make spending adjustments. This is true at 100% fixed, 100% equities, and anything in between. You've said many times that one needs to be ready to make spending adjustments if the markets do not cooperate, and I agree.
Yes, portfolios with equities offer higher expected safe spending rates, and even offer the chance for increasing real spending over time. No arguments there. But personally, I don't think a fixed income portfolio is all that risky unless one is trying to extract too much from it. Yes, the safe spending rate will be lower, but not so dramatically lower IMO than suggested in some circles.
TIPS have a real yield of not quite 1% today, so if one chooses to go heavy into fixed income there's no need to be resigned to negative real returns. Personally, I think they are a better "safe" choice than CDs, since one can lock in an inflation-adjusted return for a long time. With CDs it's impossible to know what yields will be, either nominal or real, when one's current holdings mature.
this is true but but equity based portfolio's rarely have needed adjustment and if they did they were adjusted up , since 90% of the time you died with more than you started with .
on the other hand fixed income has not had that luxury and has failed to last more than 1/2 of all time frames at 4% so fixed income really is about needing a lower draw regardless . it is not about a remote chance of needing an adjustment . it is about the fact the norm is you need to take a lower draw day 1. you need to take 2.75%- 3% or less .
that is more than a 25% pay cut compared to 40% equities in the mix . so you can see you have far less slack with fixed income then equities because odds are pretty good even average outcomes will give you way more .
you really dealing with two issues , one is the safe withdrawal rate of the portfolio and odds of doing better .
then you have the budget side which needs some slack just in case . but this is more critical to have with fixed income only
Last edited by mathjak107; 09-24-2018 at 11:54 AM..
fixed income has not had that luxury and has failed to last more than 1/2 of all time frames at 4% so fixed income really is about needing a lower draw regardless . it is not about a remote chance of needing an adjustment . it is about the fact the norm is you need to take a lower draw day 1. you need to take 2.75%- 3% or less .
that is more than a 25% pay cut compared to 40% equities in the mix . so you can see you have far less slack with fixed income then equities because odds are pretty good even average outcomes will give you way more
If one uses TIPS they don't need to rely on back tested data or guessing. They can simply design the ladder to last however long they want and have an inflation-adjusted income ready for themselves. (Or they can design a "smile shaped" spending profile, starting out with higher spending, then dropping, and then going back up... whatever they desire.)
The method I showed back in post #43 gives a 3.6% draw at today's TIPS yield. Of course the yield has been both higher and lower in the past, and undoubtedly will vary over time. Let's look at what some other yields would provide, using the same method. At a TIPS yield of 0% the draw is 3.2%. At 2% yield it's a 4.1% draw, and at 3% yield the draw is nearly 4.7%. So you see, at some yield TIPS do become pretty interesting.
The biggest drawback in my mind, which I mentioned back in #43, is that one foregoes potential market upside. I don't really consider this "slack", as it's something that is not under my control. I think of it as opportunity, but in the end it all just boils down to semantics.
the biggest drawback even with tips is if you end up needing a lot more to meet your personal cost of living than any inflation adjustment . an excessive declining balance is not good because you lack growth to provide that extra cash flow .
hey , if anyone wants to do it , they can do it , but tips alone with cd's is not something i would ever green light
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The RMD is still less than earnings, and I have it timed to arrive the same day as the property tax bill. Over the years it will ramp up until it's going to be a serious chunk of change. It will compensate for the drop in my pension, which is capped at a 2% COLA, and whatever chicanery they pull with SS/Medicare. Next year I'm stuck with some maturing bonds. If I can ever convince my wife to get a passport, we'll travel. It's not doing anybody any good unless I spend it. 
