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we had some nasty nasty times that these draw rates are based on.
so far we have never been as bad as 1965/1966 …
so any one who compares to 2000 or 2008 is off base …i know some like to feel their annuities are secure because they had no issue in 2008 but neither did a safe withdrawal rate ..
as bad as we think things were they were no match for 1965/1966 and all the other failure points .
i will go on record as saying anything as bad as those failures we had will make it tough for insurance companies to be isolated and uneffected .
especially today with credit default swap markets and all the other products used
Unfortunately, I'm caught with higher than needed withdrawals due to RMDs.
I have some mutual funds that are IRA and non-IRA. I withdraw the RMD from the IRA account and deposit the withdrawal in the non-IRA account to keep my asset allocation relatively unaffected by the withdrawal.
we had some nasty nasty times that these draw rates are based on.
so far we have never been as bad as 1965/1966 …
so any one who compares to 2000 or 2008 is off base …i know some like to feel their annuities are secure because they had no issue in 2008 but neither did a safe withdrawal rate ..
as bad as we think things were they were no match for 1965/1966 and all the other failure points .
i will go on record as saying anything as bad as those failures we had will make it tough for insurance companies to be isolated and uneffected .
especially today with credit default swap markets and all the other products used
I’m in favor of diversification, including SPIAs, equities, bonds, IRAs, Roth IRAs, and other investments, as desired (ie., gold, real estate) etc..
some asset classes are not really diversified or consistent enough in what they react to .
as an example reits …they react like stocks do to recession depression …they partially react to high inflation but only within a range .once it goes to high it falls .
foreign stocks and US STOCKS pretty much react the same to recession and depression as well as high inflation .
foreign stocks can even be up in prosperity but down when converted to dollars
.
high yield bonds are joined at the hip to stocks …what ever is good for high yield is better for stocks …
corporate bonds only act like treasuries until they don’t …2008 saw the 30 year treasury soar while corporate bonds were down or flat .
so there is lots of overlap in assets that really do not offer much diversification other then they may do a little better or worse to the same economic back drop.
after 50. years of trying all sorts of assets and seeing how consistently they react to the same economic back drop , only 4 assets actually held true to the economic condition fairly reliably.
after 50. years of trying all sorts of assets and seeing how consistently they react to the same economic back drop , only 4 assets actually held true to the economic condition fairly reliably.
Author Craig Rowland said it pretty Well.
“Strong diversification is not built by looking at asset class correlation data.
Build strong diversification by looking at the underlying causes.
Understand how different assets respond to changing economic conditions
During the 2008-2009 crisis, all stocks dropped, including many bond funds.
Strategy was designed based upon false assumptions about asset class correlations.
IT IS NOT LIKE YOU CAN ASSUME BECAUSE STOCKS WENT DOWN BONDS WILL GO UP
that is a very very important concept to understand.
You can see that despite what the correlation data shows there is no seesaw link to each other that makes one go up when the other goes down .
That is the flaw in the correlation data . It is how those assets respond to what is going on in the economy that determines when they go up or down or move together not correlation data .
Simply relying upon historical asset class correlations is dangerous because many asset class correlations do not explain why the correlations exist, and what might cause them to change in the future. E.g. the correlation between stocks and bonds in the
1970s was 0.51
1980s was 0.32
1990s was 0.54
2000 to 2009 was -0.83, and
40-year period from 1972-2011 was 0.06.
Assets move for very specific reasons having to do with what is going on in the overall economy, and not what each other is doing as asset class correlations assume.
Economic Condition – Prosperity
Condition
Rising productivity and profits, low unemployment, stable or falling interest rates.
Asset classes
Stocks – Good
Treasury Bonds – Good
Gold – Bad, other markets are doing well, inflation is low and stable, gold has no interest or dividends
Economic Condition – Deflation
Condition
Some economic shock (e.g. credit crisis, market panic) sets off a cycle of declining prices (people reduce their spending), falling interest rates (demand for loans dries up), and rising currency value.
Asset classes
Cash – Good
Treasury Bonds – Good
Stocks – Bad, corporate profits decline
Gold – Loses value same as other assets, however can do well if inflationary policies are taken and the market anticipates serious future inflation. Can do well if negative real interest rates are present. However real interest rates are often not negative during serious deflation.
Economic Condition – Recession
Condition
This is a “tight money” recession. Central bank elected to repeatedly raise interest rates to help tame high inflation in an economy that is already weak, leading to a recession.
This usually lasts 12 to 24 months, until consumers begin spending again or the economy adjusts to a lower level of overall demand.
Asset classes
Cash – Good, can purchase assets at depressed prices
Treasury Bonds – Bad, interest rates rising
Stocks – Bad, economy contracting
Gold – Bad, inflation is slowing down, stopping, or coming back down
Economic Condition – Inflation
Condition
Too much money circulating in an economy relative to the available supply of goods and services. Prices go up, accompanied by rising interest rates because lenders demand higher returns on borrowed money to compensate for the reduced purchasing power of future dollars.
Wage-price spiral
Too much currency in circulation
Currency worth less. Business costs escalate
Prices go up to compensate
Workers can buy less, so they demand higher wages
Process repeats
Asset classes
Gold – Good, especially if the value of currency dropping
Treasury Bonds – Bad, rising interest rates
Stocks – Tread water, often match inflation growth
Cash – Bad, high inflation destroys purchasing power
there really are not that many assets that offer diversification as far as economic outcomes go .
what people call diversification is just buying a whole bunch of different assets that pretty much react to the same underlying conditions, they just hope that one goes up more than the others ….
it becomes DIWORSIFICATION …
If i was in my accumulation stage my diversification would be large caps , mid caps and small caps .
but in retirement i want diversification that protects in the different economic outcomes we can have.
if you notice , more and more portfolios today utilize long term bonds and gold
... But my favorite tax tool has been my DAF (donor advised fund) started when I was in my 30s. It's been a pleasure to distribute those tax free highly appreciated funds during ~20 yrs with no wage income. The DAF will last until QCDs, or possibly forever. Been distributing 10%+ annually since 1990 from self managed DAF, and it keeps growing, so I upped withdrawal to 20% to sustain balance through my lifetime.
I've used my Donor Advised Fund to fund a full-ride scholarship from my high school to the college from which I earned my first degree, and also to endow professorships at that college and also at my graduate school, and scholarships at Mrs. moguldreamer's undergraduate as well.
Quote:
Originally Posted by mathjak107
well i am not about to give more money away to charity then i want to just to save the taxes …
Certainly a valid point. One thing the DAF allows you to do is "bundle" say a decades worth of charitable contributions into one tax year. The money sits in the DAF which in turn is invested by the entity (say, Fidelity) and is available to you to parcel out its contents over the coming decade to the charities you were going to give money to anyway. Along the way, the value of the DAF grows (presumably) as it has been invested along the way (by, say, Fidelity).
With this strategy in mind, I funded my DAF in one tax year with a large chunk of stock acquired through employee stock ownership programs and employee stock option programs, each of which had a share basis of a few pennies.
Last edited by moguldreamer; 05-20-2023 at 01:46 PM..
Unfortunately, I'm caught with higher than needed withdrawals due to RMDs.
I have some mutual funds that are IRA and non-IRA. I withdraw the RMD from the IRA account and deposit the withdrawal in the non-IRA account to keep my asset allocation relatively unaffected by the withdrawal.
I've heard more than one person nonsensically lament how they were being forced to spend money they didn't want to because of RMDs. As you demonstrate, being forced to recategorize is not the same as spending.
I've heard more than one person nonsensically lament how they were being forced to spend money they didn't want to because of RMDs. As you demonstrate, being forced to recategorize is not the same as spending.
Forcing to recharacterize RMD money as income does mean having to pay taxes on it though - what you do with the money is another matter.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by ddeemo
Forcing to recharacterize RMD money as income does mean having to pay taxes on it though - what you do with the money is another matter.
Or use QCD's (non-taxable RMD (charitable designation) to manage your RMDs to a desired tax rate threshold. Then there is the QLAC option for RMD (of limited use and value).
We're basically splitting $1 for me, $1 for others, and with the large std deduction, we no longer itemize, so QCDs will work for us. If we have a big tax year (investment RE sale or similar) we'll use our DAF to obtain desirable effective tax rate. (Usually<12%, 8.7% in 2022)
Last edited by StealthRabbit; 05-21-2023 at 02:56 AM..
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