48 wife around 49 (ok 50 ). She is still working at new job. So Net worth is just over $2 mil ( including home equity of $150,000 ). I feel ok, but not sure. I plan on staying 100% invested for a long time in the stock market.
100% in stocks while in retirement?
I am impressed at your risk tolerance.
100% in stocks while in retirement?
I am impressed at your risk tolerance.
You might want to rethink this, because average returns can be misleading. It's also important to look at volatility (or variance).Over a long time period, stocks always provide the best return
Here's an example: suppose you have $100 invested in the stock market. After year 1, the stock declines by 50%. The next year the stock increases by 100%. After two years, you have $100. But the average return is (-50+100)/2 or 25%. If you had invested the stock in a CD earning 1%/year, you would have (roughly) $102. The average return is only 1%. Yet you've earned more money in the second case.
Y.....Here's an example: suppose you have $100 invested in the stock market. After year 1, the stock declines by 50%. The next year the stock increases by 100%. After two years, you have $100. But the average return is (-50+100)/2 or 25%. ...
Unless he was just wanting to share, instead of looking for feedback. There was no specific question in his original post.It seems like what is really missing here is how much the OP spends each year.
Unless he was just wanting to share, instead of looking for feedback. There was no specific question in his original post.
In addition to us "Older" folks people in their 20s, 30s, should be on here Just as Much..
I think that securities companies are required to use a geometric average, as opposed to an arithmetic average, in the reporting of their returns. See What is the difference between arithmetic and geometric averages? for further details.
I was at a whole life insurance sales seminar once where the presenter used an arithmetic average similar to make a similar point. I stopped listening at that point.
Otherwise Fred makes excellent points. You might want to read up about "sequence of returns" risk a few years before DW retires also.
-gauss
Looks to me that Vanguard, at least, appears to use arithmetic means rather than geometric means. As does Morningstar. Not a lot of transparency about how they calculate this on their Web sites, unfortunately.
As somebody else indicated, just using 75% or 80% stocks would have nearly identical benefits, and would present much less risk. Personally, I do not buy in the 60/40 ideas, as I could never find proper evidence in this respect (and I did a LOT of backtesting!), but 75/25, yes, that I am convinced.
Here's an example: suppose you have $100 invested in the stock market. After year 1, the stock declines by 50%. The next year the stock increases by 100%. After two years, you have $100. But the average return is (-50+100)/2 or 25%. If you had invested the stock in a CD earning 1%/year, you would have (roughly) $102. The average return is only 1%. Yet you've earned more money in the second case.
I don't think one can calculate average rate of return using different piles of starting cash and then merging them together into an average. In the above case the 50% loss is on a pile of cash that is twice as large as the 100% gain. That has to be taken into account. When you do so the average return is 0%.
Obviously, you have picked up on that since you were not fooled by the 25% return. I thought I would make it clear why the math does not work.