Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I'm not sure you need to live with that much risk. If you diversify, and make sure that at least 20% of your holdings are in portable tender (10% US physical cash and 10% physical gold), then no matter what happens, you will have a pad, to get you through the early crisis, and enable you to sort out your position and see what you need to do to survive. And, you'll be that far ahead of those who lost everything, which might be most people.
Give up a couple points of income, for security that you'll not be penniless.
for retirees, couple that with zero return on money markets, 1% on cd's and 2-3.5% on bonds and a 40/60 or 50/50 mix is in great danger of failure even if the market does not take a dip. its even more damaging if it does .
thats my point to this whole discussion. like it or not or want to believe it or not we are living that 10% chance of failure you always here about.
A plain vanilla balanced index fund VBINX with 60:40 allocation https://personal.vanguard.com/us/fun...FundIntExt=INT had an annualized return of 5.17% from 2000 to 2010. That's more than the 4% withdrawal rate. That happened during the decade where we had 2 severe recessions.
VBINX is heavy with large caps, and they are all US stocks. If the retiree in year 2000 owned US small caps, REITS, and foreign stocks to round out the 60% stock portion of his portfolio, he would have earned 6 to 7% a year (possibly more, depending on how much small caps/foreign stocks he had).
according to morningstar most investors never got what the funds achieved. the median return is generally 1/3 or so what the fund does as folks bail and try to time things. they would have done better if they stayed the whole time in that fund but unfourtunetly not to many may have doner that but thats a different issue..
Last edited by mathjak107; 04-06-2011 at 03:57 PM..
big point your missing: if you got the 5.15 you didnt do to bad fund wise althought 40/60 to 50/50 i think is more in line with a retiree portfolio. however no retiree would have just a fund . we are talking returns on an entire portfolio including cash. you got funds that were up,funds that were down and hopefully lots of cash to live on.
many retires would have had quite a few years of withdrawls in cash if they planned well . if all your holding is one fund it can be a disaster liquidating shares to live on in a down market
can you imagine how many shares of that fund you would have had to liquidate in 2008 to draw your income?
its the total ball of wax that determines your return and withdrawl rate.
in my own plan i run 7 years of withdrawls but even 1/2 that amount in a 50/50 mix mix brings that return way down. throw in a 4% inflation adjusted withdrawl and you can see that return may actually be negative
after taxes. i did what i consider very well and pulled a 3-1/2% overall return including cash before taxes over the decade .. 4% inflation adjusted would have had me spending down to much in the early years at that
return. i would have had to cut back had i been retired already or risk burning out to much to early.
Last edited by mathjak107; 04-06-2011 at 04:04 PM..
if you got the 5.15 you didnt do to bad althought 40/60 to 50/50 i think is more in line with a retiree portfolio. however,,,,,, many retires would have had quite a few years of withdrawls in cash . in my own plan i run 7 years of withdrawls but even 1/2 that amount in a 50/50 mix mix brings that return way down.
the average return doesnt help much either when spending down a portfolio. its the order of those gains and losses that count.
A 40:60 or 50:50 portfolio would have done even better than 60:40 during the last decade. Those portfolios are more bond-heavy. Bonds did very well during the 2000s. TIPS https://personal.vanguard.com/us/fun...FundIntExt=INT had a 7.06% annualized return.
the problem is your looking at a fund and not a portfolio. your picking out single funds without cash or any other funds that were in a portfolio that may have been down that typically dilute a well designed portfolio in the real world..
good diversified portfolio design should have things going down on those big ralleye days. if they are not your not really diversified.
. . those returns are not accurate at all for a comlete portfolio . your choosing funds that were up not entire portfolios. .. what about the hundreds of funds including the worlds biggest the s&p 500 which was down for most of the deade if not all..
retired folks have years of cash in a bucket for living on if they are smart , thats getting next to nothing . where is that figured in? total return on retirement portfolios werent even close to that return on a single fund if they were planned out well.
like i said my funds did very well for the most part but when the entire nest egg is taken as a whole the returns are very different. my best was fidelity low priced stock fund coming in at almost 12% for the decade ..
but thats only a piece of the puzzle. figure in a cash bucket and some funds that may have been down in your portfolio as well as those that were up and you have a very realistic picture of life. mine came in at 3.5%
on average from 2000-2010 .... my retirement plan calls for 7 yerars of withdrawls in cash and cash instuments, 7 yeears in bonds and un-traded reits, the rest in equities.
that gives me a safe 15 years before having to liquidate equities to live on and never selling into a down market for spending money as i can refill buckets 1 and 2 whenever markets are up. 15 years was chosen as we
just had a crappy decade where it could have involved selling stocks at a loss over that period . 15 years looks like a safe bet so far.
those returns on vanguard for 10 year also include up to now. i bet 2000 to 2009 looked very different as far as average equity returns .
Last edited by mathjak107; 04-06-2011 at 04:42 PM..
AIG - once one of the largest, most powerful insurance companies in the world - was almost destroyed by the financial crisis of 2008. The only reason it is still around is because it was bailed out by the federal government and - ultimately - the American taxpayers.
So if the argument is that insurance companies can never fail because the government will be there to bail them out, I suppose that is true only in the trivial sense. The argument exposes the joke for what it is. The true insurance company is really the government. The government is the insurance company of last resort. AIG and others are merely pretenders who are skimming your fees.
So why not bypass these pretenders, avoid paying their fees, and go directly to the real mccoy? Instead of buying annuities, why not just buy TIPS or I-bonds? That way, you'll get your income stream with inflation protection which is backed by the the full faith and credit of the US government to boot.
Every policyholder at AIG was paid, really its pretty simple. AIG owed >100 Billion and they had less then that so they went bankrupt.
You have to understand in what order different parties are paid. Policyholders are paid first, and what they are owed is held as a liability that is matched by the company's reserves. This is calculated and recalculated on a regular basis.
There has been no insurance company that has ever renegged on a promise to pay an annuity or death benefit. Putting your money in an annuity is probably the safest of any investment.
the problem is your looking at a fund and not a portfolio. your picking out single funds without cash or any other funds that were in a portfolio that may have been down that typically dilute a well designed portfolio in the real world
..
Ummm....not really. I gave you VBINX as an example because it is a 60:40 balanced index fund which serves as a proxy for a complete portfolio that a retiree might have owned starting year 2000. A gave you VIPSX to illustrate that a 40:60 portfolio would have done even better since bonds did very well, and 40:60 has more bonds in it. I'm not merely picking out "single funds" that did well. I'm giving you examples of how 60:40 or 40:60 portfolios would have performed the past decade. They did reasonably well, exceeding the 4% withdrawal rate.
Quote:
. . those returns are not accurate at all for a comlete portfolio . your choosing funds that were up not entire portfolios. .. what about the hundreds of funds including the worlds biggest the s&p 500 which was down for most of the deade if not all..
Wrong. See my comments above. Actually you are the one who's singling out funds as a kind of strawman argument. The SP500? Which retiree in his right mind would have owned only the SP 500 to the exclusion of everything else?
i dont want to beat a dead horse so maybe someone else can explain it to you. your spending down alot of principal in the early downturns of 2002 as well as spending your dividends so your not getting that return vanguard shows you and your not earning what you were earning in dollars and cents before you sold shares off
those returns on vanguard have dividends re-invested and not a declining balance as you spend down to live. as you spend down principal in those early years like the drop in 2002 you have even less shares working for you.. before those shares got a chance to recover and grow your principal took another huge hit trying to generate your income again in 2008 you had to sell a whopper amount of shares ,way more then normal.. so when markets recovered your now down alot of principal so you didnt benefit. the fund had a decent return for the decade but your shares werent there to enjoy it anymore.
thats the part your not grasping. its not the same as sitting thru downturns early on and just re-investing your dividends and you still have all your shares.
Last edited by mathjak107; 04-06-2011 at 06:36 PM..
i dont want to beat a dead horse but wheres the cash ? where are you getting the money to live on from your one example? your missing the point. you would have had to liquidate a ton of shares in 2002 and 2008 ,2009 to live on . your tracking gains on shares that are gone and sold off and that effects your return big time.
you didnt have the growth you think you did when your liquidating because even though the market went up you didnt have those shares anymore... your getting confused about the difference in selling off shares at a loss vs keeping them and recovering with the markets.
maybe someone else can explain it to you.
LOL....you're the one who doesn't get it. What I gave you were examples of basic portfolios that a typical retiree would have owned. The cash you are looking for doesn't have to be a separate category. It is embedded in the bond portion of the portfolio. T bills are nothing more than ultra short term bonds. You seem hung up on the example of VBINX I gave you. I merely used VBINX as a proxy for a balanced portfolio. I could have used this instead: 30% VTSMX (total stock market), 30% VGTSX (total international stock), 15% VIPSX (TIPS), 15% VBMFX (total bond market), and 10% money market. That gives you 60% equities and 40% fixed income/cash. The principle is the same. You spend the cash first. Then replenish that by selling longer term bonds. Leave the stock portion alone, allowing it to ride out the volatility. If you need to, you may sell some stocks. But the 40% bond/cash holding should provide enough cushion to prevent you from selling any stock. Of course it depends on how large your portfolio is. Modesty aside, mine is in the mid 7 figures, so running out of cash has never been an issue.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
