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First, congratulations on retiring back in early 22.
So, you're 73, and you're at least somewhat conservative. And you want your 401K to grow. I'm a bit surprised you can even execute a Risk Parity strategy inside your 401K.
As you think about risk parity investing - and indeed, in any type of risk-bearing investing - one thing to consider is how much time you and your DW have left, and the implications of what might happen to the total value of all your investments in the unlikely event that the Poop Hits The Fan. If you were 40 years younger, you'd have a long time to recover. But you're 73, not 33.
Please note that some of us in this thread have substantial financial resources, and that has an impact on how we think about risk-parity investing. Absent something dramatic and cataclysmic happening, I will not outlive my investments, and I suspect that is true of others here. Think about the freedom that gives me and people like me to invest in ways we might not do if we only possessed modest means. You didn't mention your overall financial picture. If you plan for your investment portfolio to live long after you and your wife are gone and you are thinking in terms of generational wealth that will be available for your grand- and great-grandchildren, you can take a different approach than if you are concerned about outliving your investments. My point: a risk parity portfolio, according to the data, still subjects us to as much risk as a 60/40 (although with higher expected returns.) Note that Warren Buffet is an investor who has gone to great lengths to control risk, and he doesn't appear to invest this way.
Speaking of Warren Buffett, I watched his Q&A at the televised Berkshire Hathaway shareholder meeting this past weekend. There were the thing she said, and the things he didn't say but were evident if you paid attention. Reading between the lines, Warren was perhaps more cautious than ever. He's raising more cash and comfortable having that in risk-free short term US Treasuries. He can't find a place to put that cash right now either by buying stock in companies or by buying companies outright. There have been several times over the past 60 years where Buffett preferred "to be on the sidelines," and now seems to be one of those times. What does this mean for you personally?
Warren continued with his refrain that we are lucky to have been born in the USA and that the USA has great economic prospects in front of us... but his actions were to sell stock in AAPL and others to raise cash now while Berkshire only pays 20% to Uncle Sam in capital gains taxes.
There is a non-zero chance that federal income tax rates on corporations will increase, and via the price/earnings multiplier, will be reflected in lower price of equities. Warren's forecast was that taxes are likely to go up because of all the deficit spending going on the past several years.
There is a non-zero chance that our personal income tax rates will go up for all the same reasons. With less money in their pockets, how will consumers cut back, and how will that be reflected in future earnings of companies who serve consumers, and via the Price/Earnings multiplier, on the price of equities?
There is a small but non-zero chance the USA will get into a shooting war with Communist China in the coming 5 years. Our two countries are at odds and we are each pushing each other's buttons. What would happen if, say, China were to invade Taiwan? How would the USA respond? As a nation, we are remarkably unprepared for war with China right now. https://features.csis.org/preparing-...ct-with-China/ AND importantly, as an investor, what might that mean for the value of your 401K?
There is a non-zero chance Iran will launch a war against the USA in the coming years. Via its proxies, Iran already has launched a war against Israel and Iran doesn't seem at all reluctant to confront the USA in the region. Events of last October remind us that Iran has a network of terrorists capable of savagery so repellent that Western elites refuse to contemplate it. What might a shooting war with Iran do to your investment portfolio?
Russia is all but guaranteed at least a partial victory against Ukraine as things stand right now. That makes a conflict with NATO all but certain at some point in the coming decade, and of course the USA is part of NATO. What might a shooting war in Europe do to your investment portfolio?
And, of course, Kim Jong Un has been preparing for war for decades. All of this against the backdrop of the USA's humiliating retreat from Afghanistan. What is the implication for your portfolio?
And, of course, the USA's energy policy is a "circular firing squad." What's the implication for your portfolio?
***
There are so many things that could go wrong - yet Buffett is correct that the USA is still the best place for investing.
Are you sure you're well positioned to prevent bad things happening to you? You should think about that in the context of committing funds to a risk parity solution.
OK, I'll get off my soapbox.
The portfolio analyzer showed not only higher gains, but, lower losses for the Reaper with the examples MJ and I went through. If the entire market crashes you are going to lose value. We also do not know how the elements of the Reaper will perform (or if they will break somehow).
I did not watch Warren's meeting yet, but, he was taking money off the table with AAPL and also taking a bit hit on Paramount (Apparently only about ($3) billion washing against the $20 billion (who knows exactly) - but, I think he obviously correctly predicts taxes are going higher on those with taxable income over $400k).
If Amil read the whole thread he would know that The Reaper is only 5-6% of MathJak's total portfolio.
I am unsure why a 73 year old would want to take on more risk (and I think they view the Reaper as less risk). However, there was a 77 year old in another thread who had his money 90% in QQQ since the 80's and was complaining about having to sell some because he needed some cash (wish I had done that in retrospect).
Last edited by Lizap; 05-07-2024 at 09:36 PM..
Reason: Deleted off-topic comment
I am unsure why a 73 year old would want to take on more risk (and I think they view the Reaper as less risk).
I agree - I think a 73 year old would do well to consider if even less risk is appropriate.
Quote:
Originally Posted by Wile E. Coyote
However, there was a 77 year old in another thread who had his money 90% in QQQ since the 80's and was complaining about having to sell some because he needed some cash (wish I had done that in retrospect).
The first rule of running a marathon is once you cross the finish line - stop running.. The investing corollary to this is, why take a risk you don't have to take? It's OK to take that risk so long as you're doing it with eyes wide open.
I agree - I think a 73 year old would do well to consider if even less risk is appropriate.
The first rule of running a marathon is once you cross the finish line - stop running.. The investing corollary to this is, why take a risk you don't have to take? It's OK to take that risk so long as you're doing it with eyes wide open.
I agree, but, that's how he got to 77 with 90% in QQQ is embracing risk. I would call it good enough with 45 years of returns. Maybe the account is for his kids or something. I think he had to sell some to pay taxes.
I agree - I think a 73 year old would do well to consider if even less risk is appropriate.
The first rule of running a marathon is once you cross the finish line - stop running.. The investing corollary to this is, why take a risk you don't have to take? It's OK to take that risk so long as you're doing it with eyes wide open.
A 73 year old may still have a 25 or more year time horizon. Takes you to 98. In that time stay the course with a 60-30-10 portfolio of stock, bond, cash. If you only take out RMD at 98 still have plenty of funds in the portfolio. Over the 25 years maybe take 6.5% average for RMD, following the rules.
Over the 25 years take an increasing distribution in RMD. But watch the portfolio continue to grow & never run out of money.
I appreciate all the feedback. I'm going to stay in this for a while and see how it goes. If it performs like it has in the past with shallower losses then I will be happy. Right now it's making money so that's good.
About the "compress" thing, I wonder if one can analyze a group of equities or other investment vehicle with a plan to sell in 7 or 10 years? Like I said it was mostly a philosophical or abstract question.
I agree - I think a 73 year old would do well to consider if even less risk is appropriate.
The first rule of running a marathon is once you cross the finish line - stop running.. The investing corollary to this is, why take a risk you don't have to take? It's OK to take that risk so long as you're doing it with eyes wide open.
the problem is without knowing how long we will live or the unexpected spending we will do the finish line is a moving finish line .
the only time you know you reached it is when your dead
Last edited by mathjak107; 05-08-2024 at 01:40 AM..
First, congratulations on retiring back in early 22.
So, you're 73, and you're at least somewhat conservative. And you want your 401K to grow. I'm a bit surprised you can even execute a Risk Parity strategy inside your 401K.
As you think about risk parity investing - and indeed, in any type of risk-bearing investing - one thing to consider is how much time you and your DW have left, and the implications of what might happen to the total value of all your investments in the unlikely event that the Poop Hits The Fan. If you were 40 years younger, you'd have a long time to recover. But you're 73, not 33.
Please note that some of us in this thread have substantial financial resources, and that has an impact on how we think about risk-parity investing. Absent something dramatic and cataclysmic happening, I will not outlive my investments, and I suspect that is true of others here. Think about the freedom that gives me and people like me to invest in ways we might not do if we only possessed modest means. You didn't mention your overall financial picture. If you plan for your investment portfolio to live long after you and your wife are gone and you are thinking in terms of generational wealth that will be available for your grand- and great-grandchildren, you can take a different approach than if you are concerned about outliving your investments. My point: a risk parity portfolio, according to the data, still subjects us to as much risk as a 60/40 (although with higher expected returns.) Note that Warren Buffet is an investor who has gone to great lengths to control risk, and he doesn't appear to invest this way.
Speaking of Warren Buffett, I watched his Q&A at the televised Berkshire Hathaway shareholder meeting this past weekend. There were the thing she said, and the things he didn't say but were evident if you paid attention. Reading between the lines, Warren was perhaps more cautious than ever. He's raising more cash and comfortable having that in risk-free short term US Treasuries. He can't find a place to put that cash right now either by buying stock in companies or by buying companies outright. There have been several times over the past 60 years where Buffett preferred "to be on the sidelines," and now seems to be one of those times. What does this mean for you personally?
Warren continued with his refrain that we are lucky to have been born in the USA and that the USA has great economic prospects in front of us... but his actions were to sell stock in AAPL and others to raise cash now while Berkshire only pays 20% to Uncle Sam in capital gains taxes.
There is a non-zero chance that federal income tax rates on corporations will increase, and via the price/earnings multiplier, will be reflected in lower price of equities. Warren's forecast was that taxes are likely to go up because of all the deficit spending going on the past several years.
There is a non-zero chance that our personal income tax rates will go up for all the same reasons. With less money in their pockets, how will consumers cut back, and how will that be reflected in future earnings of companies who serve consumers, and via the Price/Earnings multiplier, on the price of equities?
There is a small but non-zero chance the USA will get into a shooting war with Communist China in the coming 5 years. Our two countries are at odds and we are each pushing each other's buttons. What would happen if, say, China were to invade Taiwan? How would the USA respond? As a nation, we are remarkably unprepared for war with China right now. https://features.csis.org/preparing-...ct-with-China/ AND importantly, as an investor, what might that mean for the value of your 401K?
There is a non-zero chance Iran will launch a war against the USA in the coming years. Via its proxies, Iran already has launched a war against Israel and Iran doesn't seem at all reluctant to confront the USA in the region. Events of last October remind us that Iran has a network of terrorists capable of savagery so repellent that Western elites refuse to contemplate it. What might a shooting war with Iran do to your investment portfolio?
Russia appears guaranteed at least a partial victory against Ukraine as things stand right now. That makes a conflict with NATO all but certain at some point in the coming decade, and of course the USA is part of NATO. What might a shooting war in Europe do to your investment portfolio?
And, of course, Kim Jong Un has been preparing for war for decades. All of this against the backdrop of the USA's humiliating retreat from Afghanistan. What is the implication for your portfolio?
And, of course, the USA's energy policy is a "circular firing squad." What's the implication for your portfolio?
***
There are so many things that could go wrong - yet Buffett is correct that the USA is still the best place for investing.
Are you sure you're well positioned to prevent bad things happening to you? You should think about that in the context of committing funds to a risk parity solution.
One book I suggest you read: "Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least" by Antti Ilmanen, published in April 2022. This book is an update to Ilmanen's 2011 book and provides a blueprint for investors facing lower future expected returns. Antti worked at Applied Quantitative Research with Cliff Asness. Both Antti and Cliff earned their PhDs at the University of Chicago studying under Nobel Laureate Gene Fama (as did I).
the problem with following buffetts thinking is berkshires needs are different then a retiree .
berkshire isn’t spending down it’s assets to live on .
berkshire can ride out the market cycles and has a long term goal of capital growth .
a retiree living off their money needs capital preservation and growth .
a retiree may actually need more equities to insure that as time goes on , not less as old school thinking thought
which is why the red zone concept is becoming more and more popular .
the popular ranges are 40-60% equities for retirement.
however not all equities or bonds are the same .
big difference between the 40% equities being fidelity blue chip growth which is 20% more volatile then the market vs fidelity equity income which is 25% less volatile then the market .
so how you allocate and what you buy can make a difference in your volatility and risk vs reward .
the reaper fits in to the growth and income bucket …that is money not needed to eat for maybe 7-12 years out .
it is much easier to have different buckets for different time frames , that way a portfolio can be optimized for its intended time frame .
some like to organize their bucks by actual holdings. , so the bond portion of a 60/40 may be in the short term bucket or the intermediate term bucket depending on maturity or duration of a bond fund . the equity portion goes in the long term bucket .
i dont do it that way …i use specific portfolios in each bucket optioned for short , intermediate and long term growth .
so far the reaper has demonstrated very decent behavior compared to conventional investing ,especially while the two most popular defensive portfolios , the permant portfolio and ray dalios all weather portfolio crumbled under the conditions we just saw in 2022
so it can take more then just stocks and bonds to hedge a portfolio since rising rates and inflation can be kryptonite to both
Last edited by mathjak107; 05-08-2024 at 03:11 AM..
so how you allocate and what you buy can make a difference in your volatility and risk vs reward .
the reaper fits in to the growth and income bucket …that is money not needed to eat for maybe 7-12 years out .
it is much easier to have different buckets for different time frames , that way a portfolio can be optimized for its intended time frame .
(Sorry, I can't figure out how to make attribution to a quote so I'll type it in.)
This is exactly what I was talking about when I used the term "compressed".
Right now I have a good part of our money in 3-month bills. At 5.3 whatever percent, they are actually increasing our principal which will suffer an RMD this year so we will still be ahead. Of course that is definitely not aggressive but with the 65/35 target date and the small amount of individual stocks it should grow slowly instead of depleting.
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