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Hi, New & wanting to retire early
Old 04-04-2014, 09:38 AM   #21
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Hi, New & wanting to retire early

Sorry ERD - didn't catch your condition about 'if it keeps up with inflation'. But the original premise of the 4% SWD did assume a minimum stock/bond asset allocation. That's what I thought you were referring to.

And I'm also aware the actual amount people keep in cash varies, but that does not negate the purpose of maintaining a cash account, nor the wisdom of what is currently called a bucket system. You are comfortable with 14 months in cash, I prefer several years.

I'm trying to keep the explanation in general terms.
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Old 04-04-2014, 09:52 AM   #22
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Already mentioned by seraphim, deflation. I have been doing a lot of research, or rather other's I read have. 76-82?=High Inflation; 82-99=Disinflation (Great for financial assets, we saw that.) 2000-date Deflation leading to Depression. Right Bear markets are shorter than Bull markets. Bear market is usually quick & painful. As, most people, sad to day, buy high, sell low. Today, after 5 years individuals are all in, while insiders a cashing out at a very fast rate. Just don't see how we after disinflation, it will bounce at 0 inflation and head back up, why not break 0 inflation to the downside; deflation, then back up?
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Old 04-04-2014, 10:16 AM   #23
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Quote:
Originally Posted by WAVE3 View Post
Thanks for IMO. You wrote "You seem resistant to other peoples' opinions on the matter - so good luck with your chosen AA and hope your crystal ball works better this time." I am open to other ideas, but 58, single, have to take care of myself. Worried about losing 20-30% or more; then back to work at 70? P.S. I'm relying on other investment advisors advise: Prechter, Weiss, Stack, Shiller. I'm just not that savy.
Just my opinion, but you are too focused on the infrequent and short-term. To wit, the market has declined by more than 20% just twice since 1975, and has hit double figure declines just four times. Meanwhile, the average return has been right around +7.0%. The largest individual decline in the market since 1975 occurred recently in 2008-9, but the market recovered its entire value in less than three years.

You cited deflation happening many times since 1800:

Deflation has occurred 54 times since 1800 (26% of the time). Of those, 40 occurred before the year 1900. Prior to 1851, the "CPI" was based on prices paid by Vermont farmers to support their family. CPI didn't even come into existence until 1890.

Since 1890, the "more accurate" (my term) CPI has indicated deflation only 16 times, and only once since the 1950s (in 2009). Conversely, the average inflation over that same period is approximately 2.5%.

If I were you, I would plan for something that is most likely to happen, otherwise you become the financial equivalent of a "prepper" (someone who invests in canned goods and ammunition in the event of the zombie apocalypse). Risk does not just mean "losing principle." Risk also means "losing purchasing power" which can happen either by loss of principle or via the inevitiability of inflation.

The key is to find a plan that can weather tough times in the market, but also ensure you come out ahead of (or at least equal to) the effects of inflation. You sound to me like someone for whom a 60/40 stock/bond allocation would work well. Moderate risk with good potential for growth above inflation. I also suggest the Bogleheads wiki as a good place to start where no one's trying to sell you anything.

Bottom line: inflation is highly likely to erode your portfolio (and thus your standard of living if all-cash) over the course of the next 40 years. While an equity downturn WILL happen again in your lifetime, its effects will likely be short-term, and a properly allocated portfolio will allow you to get through the downturn without going back to work.
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Old 04-04-2014, 10:20 AM   #24
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Many thanks for the detailed response. Have to consider it, your analysis and stats.
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Hi, New & wanting to retire early
Old 04-04-2014, 10:20 AM   #25
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Hi, New & wanting to retire early

"Just don't see how we after disinflation, it will bounce at 0 inflation and head back up, why not break 0 inflation to the downside; deflation, then back up?


Perhaps it will perhaps it won't. No crystal balls of which I am aware. You puts your money down, you takes your chances lol. Best we can do, IMO, is construct a plan which will weather everything except Armageddon, then update our withdrawal and lifestyle activities accordingly, if necessary.

As I mentioned elsewhere, I'm currently 28% cash. But that money is in a secure value account with yields similar to 10 year treasury and the principle is secure. Not everyone has that option these days. That 28% works as bonds for me. Should deflation hit, I reduce my lifestyle and access those cash accounts and let my true bond and stocks weather the storm.

Good luck
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Old 04-04-2014, 10:22 AM   #26
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Originally Posted by WAVE3 View Post
Already mentioned by seraphim, deflation. I have been doing a lot of research, or rather other's I read have. 76-82?=High Inflation; 82-99=Disinflation (Great for financial assets, we saw that.) 2000-date Deflation leading to Depression. Right Bear markets are shorter than Bull markets. Bear market is usually quick & painful. As, most people, sad to day, buy high, sell low. Today, after 5 years individuals are all in, while insiders a cashing out at a very fast rate. Just don't see how we after disinflation, it will bounce at 0 inflation and head back up, why not break 0 inflation to the downside; deflation, then back up?
I think you and most others are talking about "inflation" and "deflation" differently. "Inflation" to me indicates the rise in prices paid for consumer goods (or the decline in the purchasing power of a dollar). You seem to be using the terms in the sense that the equity market (S&P, Dow, take your pick) goes up or down, and the rate at which that occurs?

In the end, it still sounds like you're more concerned with timing the market in the short term than setting up a long-term investment plan that gives a great chance of winning over the long haul.
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Old 04-04-2014, 10:23 AM   #27
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Good response, Nash...
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Old 04-04-2014, 10:26 AM   #28
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One economist has repeatedly said and shown statistically as well, that the 'general public' is always fighting the last battle - inflation. While deflation creeps up and wipes them out. (Prechter, EWI)

His and other's forecast: DOW 6000 next couple years, course many stock will go to zero. Next round of housing 30% down. (Why not Japan went down 90% in real estate and was at 40,000 in market.)

Why has it have to so complex these days, used to by bonds and forget about money and live.
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Old 04-04-2014, 10:28 AM   #29
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Wave

Yes, most people follow trends and 'hot stocks' and end up buying high and selling low. Those folks tend to look short term for immediate gain. Hopefully, we are much better educated here lol.
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Old 04-04-2014, 10:30 AM   #30
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Hi, New & wanting to retire early

There are lies, there are greater lies, and then there statistics. Statistics are easily manipulated to the whim of those quoting them. I ignore forecasts as irrelevant to my plan - right or wrong, they're covered.

And then, if the members of this forum were average investors, we wouldn't have FIRE'd. I don't consider us 'general public'.
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Old 04-04-2014, 10:32 AM   #31
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Good Points

I'm not a good typist, sorry for spelling or missed words.

Yes, I do believe the people on this forum are more advanced with regards to financials. It's why I joined and am asking questions. I never had an investment advisor, always made all decisions myself. Well, lost about $30k speculating in 40 years. Please be sure does not make me brilliant at all, I also did not make as much as you guys & gals, if I did - gone baby gone - lol
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Old 04-04-2014, 10:42 AM   #32
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Originally Posted by WAVE3 View Post
One economist has repeatedly said and shown statistically as well, that the 'general public' is always fighting the last battle - inflation. While deflation creeps up and wipes them out. (Prechter, EWI)

His and other's forecast: DOW 6000 next couple years, course many stock will go to zero. Next round of housing 30% down. (Why not Japan went down 90% in real estate and was at 40,000 in market.)

Why has it have to so complex these days, used to by bonds and forget about money and live.
He's right, but the part that's being ignored in his assessment is behavior. Most people are wiped out because they buy in high, panic and sell out at the low point, then wait to buy in again until it's high. If you ignore timing and stick it out, the dips in the market (the corrections, etc.) end up being a blip on the RADAR.

As I said, you're reading a bunch of noise. YES, the market WILL decline again at some point (this is not deflation, by the way), and people WILL lose money in the short term.

But I will guarantee that your current plan will do markedly WORSE in the long term as inflation insidiously erodes your purchasing power.

You sound exceptionally risk-averse, so equities may not be your thing. By what you're reading and what you're saying, you sound like the type of person who would do exactly what I mentioned in my first paragraph: buy high, sell low and get wiped out. This is the folly of market timing: you think you can do it because you're smart, but you fail to account for your emotions and risk tolerance.

My only advice for you is to consider the risk of lost purchasing power in your cash/equivalents. While the number in your account will remain stable, you WILL lose significant purchasing power in the long run, most likely far more than if you invested a portion of your money in equities and ignored the short term fluctuations.

Stop reading the noise.
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Old 04-04-2014, 10:55 AM   #33
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Nash031, like your historical write-up, recommended to the person in thread "fed-up". A lot (not saying you) of people get inflation /deflation incorrect. Inflation is an increase in the money supply, e.g., QE. Deflation, is a decrease in money supply (default on debts, other losses deflate supply of money, so it's worth more and buys more, no change in price of goods, they are just cheaper because your money is worth more. That's, after some years what I (with much help from others) concluded.
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Old 04-04-2014, 10:57 AM   #34
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Hi, New & wanting to retire early

"Stop reading the noise"

+1 Nash. Big time.
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Old 04-04-2014, 11:06 AM   #35
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"A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum."

Investopedia
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Old 04-04-2014, 11:06 AM   #36
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Nash031 " By what you're reading and what you're saying, you sound like the type of person who would do exactly what I mentioned in my first paragraph: buy high, sell low and get wiped out. This is the folly of market timing: you think you can do it because you're smart, but you fail to account for your emotions and risk tolerance

If got it right, if your trading above your risk tolerance you will trade emotionally and lose. That's why 90+% day traders so. I don't trade and am basically a contrarian. Not a favorite at the party.
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Old 04-04-2014, 11:10 AM   #37
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http://www.morningstar.com/cover/vid...aspx?id=620292

Bob Johnson is an analyst - not a FP- whom I follow weekly. Morningstar - in general - is an excellent analytical site. They should be. They sell data and analysis, not funds. A free account accesses all the info most investors will need. They have an excellent portfolio manager - again, free.
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Old 04-04-2014, 11:15 AM   #38
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Hi, New & wanting to retire early

"If got it right, if your trading above your risk tolerance you will trade emotionally and lose. That's why 90+% day traders so. I don't trade and am basically a contrarian. "

You don't have to be a trader to exceed your risk tolerance, panic, and accrue losses, IMO. A coworker once told me he lost $80k in the last depression. He was a buy and hold investor, not a trader. I asked how he managed such a realized loss, when he had no need to withdraw the funds. He replied, "I chickened out."
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Old 04-04-2014, 11:15 AM   #39
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Thanks, I'll look into it. You all will get me moving yet. But check this site, maybe you know it: Elliott Wave International: Expert Market Forecasting Using the Elliott Wave Principle At min. interesting read. Prechter is a psychologist and musician (Yale, if important?) by training, but has spent most of his life forecasting market trends. Lot's of interesting free info. on his site as well.
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Old 04-04-2014, 11:25 AM   #40
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Hi, New & wanting to retire early

I'll check them out, but Morningstar does not FORECAST. Therein lies the root of our disagreements, I think. It's foolish to rely of forecast - that leads to market timing, and even the best 'forecasters' are sometimes right, sometimes wrong. As Nash words things better than I, go back to his comment that people market time because they think they are smart enough to do so successfully.

You seem willing to gamble on the some forecasters' predictions of deflation for immediate disposition of investments. I prefer to keep looking 20 years down the road. My plan has succeeded successfully for 36 years - since I was 21. I don't read the forecasters. I read analysts because I enjoy learning and understanding. Everything I read reaffirms I'm still on the right track. I wonder how many of those forecasters have been as financially successful lol.

Investing is not quick and easy. There no algorithms, statistics or magic trends that will predict upcoming performance.
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