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in this case we are not talking failure , we are talking your actual balance's . when spending down there is NO RULE THAT SAYS EVEN OVER LONG PERIODS OF TIME MORE EQUITIES PRODUCES MORE GAINS .THAT RULE ONLY APPLIES TO THE ACCUMULATION STAGE , NOT DECUMULATION .
...... .
This makes absolutely no sense. A high equity allocation does better over the long haul. In fact any young person setting aside money for retirement is well advised to invest 100% in equities.
Your idea of accumulation and decumulation is just weird. Regardless of stage in life or financial status, I believe we all want our investments to do well. I have been retired and pulling from my assets for 8 years. I still want to see my portfolio grow...accumulate if you like that word. A larger portfolio means I can do things I could not previously afford. I have a bigger cushion for handling elder concerns including healthcare and possible assisted living for myself or wife. I can also contribute to the education of the grandkids and even pass on some inheritance.
As we get older, we look for less volatility, a smoother ride and we may not have the years to wait out the ups and downs of more volatile investments. A higher percentage of bonds made sense especially years ago when bond returns were high. Even then the smoother ride was not all that much smoother. Firecalc gives us a tool to look at this graphically and to see a large number of scenarios simultaneously. Look at a 60 or 70% stock allocation versus an allocation of 30 or 40%. The ride is still pretty rough, but the potential gains are severely muted.
One difference between accumulation and decumulation is that while you're still working, you still have income to "buy low" when equities are down.
If you're in the withdrawal stage with a heavy equities allocation and the market is down, you're going to be "selling low".
Neither of those ideas fit my situation.
When I was working, I did not have excess income to buy equities. I contributed to my 401k but that annual contribution was relatively small. I could shift between allocations, but I could also do that after I retired.
Since I retired, I have also avoiding selling low. Before I retired, I had a sizeable emergency fund. I maintain that in retirement. I can cover expenses for months or a couple of years without selling off any assets. When the time comes to replenish, I can still avoid selling equities as I have about 30% of my portfolio in bonds and other assets outside of stocks. This is very analogous to my situation before retirement. If I needed to make a major purchase such as a new car or major home repair, I could pull from cash or other non-stock assets.
So accumulation or decumulation has no effect on these situations either.
Since I retired, I have also avoiding selling low. Before I retired, I had a sizeable emergency fund. I maintain that in retirement. I can cover expenses for months or a couple of years without selling off any assets. When the time comes to replenish, I can still avoid selling equities as I have about 30% of my portfolio in bonds and other assets outside of stocks. This is very analogous to my situation before retirement. If I needed to make a major purchase such as a new car or major home repair, I could pull from cash or other non-stock assets.
So accumulation or decumulation has no effect on these situations either.
Sorry, my assumption was that "heavy equity allocation" was referring to a portfolio close to 100% equities.
Personally at any age, I would not want to be at 100% equities. I always wanted and needed an emergency fund. Over the years I lost of great many jobs due to mergers, downsizing and consolidations.
- Dial back your equity allocation to 45% - 50%
- Keep at least 1 year living expenses in a safe savings vehicle at all times (e.g. CD or High Interest Rate Savings)
- Use a broad balanced/diversified fund for a majority of your equity exposure
- Keep a smaller S&P fund allocation going (e.g. 3% to 10%)
- Use shorter and medium term bond funds, income funds
- Keep some cash (1% to 3%) to use for buy opportunities or to fund any emergency needs.
This makes absolutely no sense. A high equity allocation does better over the long haul. In fact any young person setting aside money for retirement is well advised to invest 100% in equities.
Your idea of accumulation and decumulation is just weird. Regardless of stage in life or financial status, I believe we all want our investments to do well. I have been retired and pulling from my assets for 8 years. I still want to see my portfolio grow...accumulate if you like that word. A larger portfolio means I can do things I could not previously afford. I have a bigger cushion for handling elder concerns including healthcare and possible assisted living for myself or wife. I can also contribute to the education of the grandkids and even pass on some inheritance.
As we get older, we look for less volatility, a smoother ride and we may not have the years to wait out the ups and downs of more volatile investments. A higher percentage of bonds made sense especially years ago when bond returns were high. Even then the smoother ride was not all that much smoother. Firecalc gives us a tool to look at this graphically and to see a large number of scenarios simultaneously. Look at a 60 or 70% stock allocation versus an allocation of 30 or 40%. The ride is still pretty rough, but the potential gains are severely muted.
YOU ARE TALKING ABOUT 2 DIFFERENT STAGES . I ALREADY SAID A YOUNG PERSON SHOULD BE 100% EQUITIES .
the decumulation stage is a whole other story .neither time , nor higher equity allocations GUARANTEE YOUR RESULTS WILL GIVE YOU A BIGGER BALANCE and it is not rare . we already had two back to back recessions the last 17 years .
it is not about average returns anymore nor time , it is mostly about the sequences of return you happen to get .
the last 17 years has seen 30/70 give you a bigger balance if you were spending down 4% than either 100% equities and 60/40.
that is fact , so neither the fact you had 17 years and more equities did any better for you . it actually ended up not doing as well because of sequence risk.
all you had was a heck of a wilder ride up and down with no more to show for it than had you just driven to the same point directly 17 years later .
in fact 17 yeaars later your balance was actually less because volatility is not your friiend when trying to draw off 4% inflation adjusted . so balance wise you ended up with less for your efforts and stress from the wild ride.
the best results over the widest range of outcomes when spending down has been by smoothing out the volatility by taking a bit less gains in the up market and more gains in the down market .
you are not recognizing the fact that when the cycle completes as it ALWAYS DOES your balance is not going to be what you are now looking at
if you don't understand the difference's ands why i suggest you read the link i posted because you don't seem to be getting it .
Last edited by mathjak107; 08-15-2018 at 11:24 AM..
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,080 posts, read 7,527,706 times
Reputation: 9819
Quote:
Originally Posted by DaveinMtAiry
I handle the money in our family. My wife has a small IRA that along with her SS will provide her pocket spending money in retirement in about 5 years. It's current value is about 68 grand and I am considering purchasing an immediate annuity at that time that will make her monthly check larger.
Currently this money is about 62% stock ETFs and 38% bonds. The breakout (I rounded the figures):
[...snip]
So here's the question. If we need to access this money to buy the annuity 62% in stocks is way too high. I hate trying to time the market but it seems we need to dial back and look at preservation. I don't want cash, that's too conservative, and I'm not sure I can ladder CDs in a Schwab IRA account. So more into the bond funds?
JMO, I think your conditions have put handcuffs on your choices and limited wife's IRA to just a bond-stock blend.
the last 17 years has seen 30/70 give you a bigger balance if you were spending down 4% than either 100% equities and 60/40.
....
You are either very confused or intentionally trying to mislead people. Those who were heavy invested in stocks and picked around 2000 as a retirement date were screwed by the dot com bust and the stock losses when they needed to pull expenses from their portfolios. Anyone retiring around 2000 would have done better with a low stock allocation. That is not true of anyone retiring since then. They would have done much, much better with a higher stock allocation. That included those who retired in 2008.
So those who retired in 2000 did a bit worse with a high stock allocation and could not keep up with the 4% rule. Everyone else at virtually any other time would have done much better. Do you really think trying to plan a portfolio based on one year makes sense?
it is all about sequences and not averages . the more losing or flat years you have the more you will spend paying bills , it is a simple process .
look at the charts i posted for any time frame you like , that is why i posted them . see all the red and white boxes in 60/40 regardless of time frame ? . those hurt your balance when you are spending down . see how few there are in the butterfly ?
those are the great equalizers those red and white boxes . they eat up capital when spending down at a faster burn rate .
if you get enough of those red and white boxes and they will tend to equal out your return which may have been much higher .
you are arguing that more equities and a long term time frame has little risk and i am telling you that is incorrect thinking when spending down .
you have to now overcome two obstacles unlike the accumulation stage . you have returns to deal with but more important the same returns in a different order can give you quite different results .
hey you can run any model you like and ride it in to the valley , frankly that is something you have to deal with eventually . i and quite a few others rather smooth out the ride and potentially even have a higher return then that 60/40. heads and we get to keep close to the gains we have and tails we may even end up with more than putting those gains at additional risk . the downside too is we too may be down but far less than that 60/40 will and you can take that to the bank . most losses on the permanent portfolio have been under 5% in the worst downturns .
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