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Old 08-27-2015, 09:49 PM   #141
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I'm likely the one who misunderstood. There are many people who use "you don't loose money until you sell" as a "stay the course." And maybe I don't understand what anyone is saying. Maybe better I just ask, what do people mean when they say "you don't loose money until you sell"? If I understand HA, you mean you don't realize a loss until you sell, correct?
I am struck by how hard it is to be sure that a meaning is understood. IMO, the meaning of these terms depends on what you want to know. It is a fact of the tax code that for many (not all ) assets, you do not realize a loss until you sell. That is what it means to realize a loss. But not every purpose is best served by adherence to the tax code. Even if a security is held in a retirement account, when you pull the plug and give up on it it is a loss. Prior to this a position selling for less than it's basis is a a position held at a loss. The distinction I was trying to make was between a loss, whether realized or not, and a draw down. A drawdown is any condition when the security is not at a new high. I usually refer to loss making positions still in my portfolio as positions held at a loss, to distinguish then from realized losses or mere draw downs.

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Old 08-28-2015, 06:35 AM   #142
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So if you use firecalc or other retirement income planner.... how do you determine what values to use?
Any model, like firecalc, is just a means to speculate about what might happen. And that is how what today's market thinks of your investment is useful, providing a starting point for modeling what might happen.

That's why I like firecalc's monte carlo option; it lets me consider many possible outcomes of my retirement plan in terms of a probability of success. But, none of these outcomes will be exactly what finally happens when I really go to sell shares in order to produce spendable income.
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Old 08-28-2015, 07:00 AM   #143
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Any model, like firecalc, is just a means to speculate about what might happen.
Firecalc (the 'original') doesn't pretend to speculate about what will happen. It merely shows you what has happened. A very important distinction. That's what I like about it.

Predictions about the future are left to the individual.

Per the website:
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How can FIRECalc predict future returns from past performance?


It can't. And it doesn't try. In fact, it tries to predict what will not happen. This might sound confusing, but it's really simple.
Consider an analogy: Suppose you are building a house in Honolulu. No one could predict the temperature for any given future date during the decades the house will be used. But if you know that it has never been under 52 in that location in all of recorded history, you could make an intelligent judgment about how much heating capacity is enough.
Now, if you expect for some reason that Honolulu will drift towards Antarctica soon, you might want to adjust the historical observations once you make the step toward speculating (about future returns).

Maybe I'm being pedantic here .. apologies in that case ..
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Old 08-28-2015, 07:50 AM   #144
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Firecalc (the 'original') doesn't pretend to speculate about what will happen. It merely shows you what has happened. A very important distinction. That's what I like about it.

Predictions about the future are left to the individual.

Per the website:


Now, if you expect for some reason that Honolulu will drift towards Antarctica soon, you might want to adjust the historical observations once you make the step toward speculating (about future returns).

Maybe I'm being pedantic here .. apologies in that case ..
you point out a very important distinction about firecalc from most other monte carlo models. A lot of mc models use draws from a statistical function, but firecalc uses actual historical patterns, a better representation of market performance, IMHO. But, both are used to speculate possible outcomes, that's what any mc model is about.

I work with mc analysis at w*rk, and its hard sometimes to keep folks from running wild with the probability numbers. We all need to remember that any mc model, even firecalc, is only an informed speculation.
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Old 08-28-2015, 08:08 AM   #145
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you point out a very important distinction about firecalc from most other monte carlo models.
FireCALC doesn't use Monte Carlo methods. As you mention, it uses actual historical data. This, IMO, is a big advantage, because it preserves all the relationships between assets classes and any year-to-year data relationships that occurred in real life. The down-side to using historical data is that the data set is limited.
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Old 08-28-2015, 08:19 AM   #146
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Any model, like firecalc, is just a means to speculate about what might happen. And that is how what today's market thinks of your investment is useful, providing a starting point for modeling what might happen.

That's why I like firecalc's monte carlo option; it lets me consider many possible outcomes of my retirement plan in terms of a probability of success. But, none of these outcomes will be exactly what finally happens when I really go to sell shares in order to produce spendable income.
I did not intend my question to be about how firecalc does its calculation and the validity of that. One puts in my dollar invested are $X... what ever X is .. say $1MM. So to get that $1MM to put into firecalc is that value just what your brokerage accounts say you have on a given day? Do you average over the brokerage numbers over some period of time (either literally or approximately) and use that number. Or do take the brokerage numbers and subtract out unrealized gains and add back in unrealized losses and use this number? Where do you get the numbers that you put into firecalc.... not what comes out.
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Old 08-28-2015, 08:30 AM   #147
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Do you average over the brokerage numbers over some period of time (either literally or approximately) and use that number. Or do take the brokerage numbers and subtract out unrealized gains and add back in unrealized losses and use this number? Where do you get the numbers that you put into firecalc.... not what comes out.
I'm sure most people just put in the value of their accounts just like they read on the statement (or what they hope they'll be when they retire). If you are concerned that the stock markets are overvalued, I suppose you could put in a number that reflected what your balance would be if stocks were at their historic average P/Es, rather than the "bubbly" prices.
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Old 08-28-2015, 08:51 AM   #148
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I am struck by how hard it is to be sure that a meaning is understood. IMO, the meaning of these terms depends on what you want to know. It is a fact of the tax code that for many (not all ) assets, you do not realize a loss until you sell. That is what it means to realize a loss. But not every purpose is best served by adherence to the tax code. Even if a security is held in a retirement account, when you pull the plug and give up on it it is a loss. Prior to this a position selling for less than it's basis is a a position held at a loss. The distinction I was trying to make was between a loss, whether realized or not, and a draw down. A drawdown is any condition when the security is not at a new high. I usually refer to loss making positions still in my portfolio as positions held at a loss, to distinguish then from realized losses or mere draw downs.

Ha
agreed. one can identify terms for different types of increases and decreases in securities... I'm not implying that these are just made up, look like proper terms. For me when taking a glance at my portfolio it is just a little easier to notice it went up or down. When looking at individual investments there is more information... but I'm not as well versed in the financial speak. The EE speak I do have some background in.

thanks for educating me
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Old 08-28-2015, 09:17 AM   #149
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I'm sure most people just put in the value of their accounts just like they read on the statement (or what they hope they'll be when they retire). If you are concerned that the stock markets are overvalued, I suppose you could put in a number that reflected what your balance would be if stocks were at their historic average P/Es, rather than the "bubbly" prices.
Thank you.
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Old 08-28-2015, 02:42 PM   #150
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I'm sure most people just put in the value of their accounts just like they read on the statement (or what they hope they'll be when they retire). If you are concerned that the stock markets are overvalued, I suppose you could put in a number that reflected what your balance would be if stocks were at their historic average P/Es, rather than the "bubbly" prices.
I wouldn't think subtracting from today's balances would be necessary; FIRECalc will run a scenario where the prices were bubbly and so take that into account. But DO look at FIRECalc's "worst result".

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There are many little sawtooth in that chart, and of less than 10% in magnitude. But if one zooms out, she will see the bigger sawtooths, the less frequent ones that set you back 40 to 60%, like the ones in 2003 and 2008.
Those are the ones I'm insuring against by having 7 years to go without selling equities. When people say 2 years, I'm thinking "not nearly enough". Just looking at the S&P 500, with dividends, it looks like roughly 6.2 years from peak to above that old peak for the 2003, and 5.8 years peak to above that old peak for the 2008. And that doesn't count inflation. If you do, then it's 12.7 years from the 2000 peak to break-even. This is according to S&P 500 Return Calculator - Don't Quit Your Day Job... . I've almost talked myself into selling it all! Since August 2000 to May 2015, the return of the S&P 500 has been an inflation adjusted 2%! It's gone down 4.2% since May (only that figured does not including dividends). That's a lot of years to get back to "even". But the alternative was to lose buying power if you were in bonds instead.
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Old 08-28-2015, 03:21 PM   #151
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Those are the ones I'm insuring against by having 7 years to go without selling equities. When people say 2 years, I'm thinking "not nearly enough". Just looking at the S&P 500, with dividends, it looks like roughly 6.2 years from peak to above that old peak for the 2003, and 5.8 years peak to above that old peak for the 2008. And that doesn't count inflation. If you do, then it's 12.7 years from the 2000 peak to break-even. This is according to S&P 500 Return Calculator - Don't Quit Your Day Job... . I've almost talked myself into selling it all! Since August 2000 to May 2015, the return of the S&P 500 has been an inflation adjusted 2%! It's gone down 4.2% since May (only that figured does not including dividends). That's a lot of years to get back to "even". But the alternative was to lose buying power if you were in bonds instead.
I figure that as long as cash and fixed income cover 7 years of after-tax spending, I'm covered well enough. 4% x 7 years is 28% of portfolio in fixed income. And that case covers taxes too. My fixed income allocation is much higher than that, to that gives me room to buy stocks when down plus still have X years in living expenses not in stocks.

I do have a couple years cash outside the portfolio, but the other years are covered by cash plus bonds that is part of the portfolio AA.

As the portfolio appreciates and you rebalance, the fixed income portion increases in absolute terms. Then it's there for you when you have to make it through market down years.

If you rebalanced when the S&P was way down, you didn't have to wait as long for your portfolio to break even.
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Old 08-28-2015, 03:22 PM   #152
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Where do you get the numbers that you put into firecalc.... not what comes out.
I just use what I get that day. That said, Firecalc works from the assumption that it is being used as of January 1. So my Firecalc numbers that I use are usually January 1 of the year in question with spending adjusted or toward the end of the year if I run it I project what it will be in the next January. As a practical matter, I mostly use the Firecalc numbers I get at the beginning of each year.
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Old 08-28-2015, 03:36 PM   #153
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I just use what I get that day. That said, Firecalc works from the assumption that it is being used as of January 1. So my Firecalc numbers that I use are usually January 1 of the year in question with spending adjusted or toward the end of the year if I run it I project what it will be in the next January. As a practical matter, I mostly use the Firecalc numbers I get at the beginning of each year.
effectively mark to market. Thanks
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Old 08-28-2015, 09:27 PM   #154
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I did not intend my question to be about how firecalc does its calculation and the validity of that. One puts in my dollar invested are $X... what ever X is .. say $1MM. So to get that $1MM to put into firecalc is that value just what your brokerage accounts say you have on a given day? Do you average over the brokerage numbers over some period of time (either literally or approximately) and use that number. Or do take the brokerage numbers and subtract out unrealized gains and add back in unrealized losses and use this number? Where do you get the numbers that you put into firecalc.... not what comes out.
bingybear, I apologize; that's what I get for trying to answer questions on the way out the door to w*rk...

Yes, really all you can do is to start with the market value you know, today.

For those that pointed out that Firecalc doesn't do what they consider to be real Monte Carlo, I'd just assert that using historical data to predict future performance is simply using a better draw. Typical MC models use draws based on statistical functions; e.g., the normal distribution of annual rates of return described by a mean and standard deviation. BTW, S&P500 history is mean ~10%, stdev ~18%. I believe the market has more complex behavior than that, so I appreciate Firecalc's use of historical data to provide more relevant rate-of-return sequences. However, the model approach is still monte carlo in the sense that using historical market patterns is just speculation with regard to how the market will perform in the future.
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Still on the Sawtooth Pattern
Old 08-29-2015, 01:02 PM   #155
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Still on the Sawtooth Pattern

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There are many little sawtooth in that chart, and of less than 10% in magnitude. But if one zooms out, she will see the bigger sawtooths, the less frequent ones that set you back 40 to 60%, like the ones in 2003 and 2008.
Without rebalancing, the S&P 500 looks pretty dismal since the peak of 2000 if one adjusts with the CPI. TIPS are looking better to me after seeing this.
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Old 08-29-2015, 01:54 PM   #156
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Without rebalancing, the S&P 500 looks pretty dismal since the peak of 2000 if one adjusts with the CPI. TIPS are looking better to me after seeing this.
Yes, thank you. I have been trying to remind folks of what a terrible period we have just been through. They do not call it the "Lost Decade" for nothing.

Now, people who rebalanced did well. I came out having more than I started, but I did not do strict buy-and-hold.

The people still working with fresh money to buy would do well too, as they were in the accumulation phase. But retirees, hello are you there, had to sell to eat. Selling low, and with no money to buy, you are in trouble!
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Old 08-29-2015, 02:00 PM   #157
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Yes, thank you. I have been trying to remind folks of what a terrible period we have just been through. They do not call it the "Lost Decade" for nothing.



Now, people who rebalanced did well. I came out having more than I started, but I did not do strict buy-and-hold.



The people still working with fresh money to buy would do well too, as they were in the accumulation phase. But retirees, hello are you there, had to sell to eat. Selling low, and with no money to buy, you are in trouble!

For those accumulators that U path journey back to even par works out great for them. Now if the past 15 years had been a giant arch shape, not so much. I assume the retirees would have faired better in that type of scenerio than the accumulators? Or at least you would have had 15 years to die before it went bad and then it wouldn't have mattered I guess.


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Old 08-29-2015, 02:19 PM   #158
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For those accumulators that U path journey back to even par works out great for them. Now if the past 15 years had been a giant arch shape, not so much. I assume the retirees would have faired better in that type of scenerio than the accumulators? Or at least you would have had 15 years to die before it went bad and then it wouldn't have mattered I guess...
Arghh!

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Old 08-29-2015, 02:42 PM   #159
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Also, being invested in a much wider range of stocks, including international stocks made a big difference, in addition to holding asset classes other than stocks. Bonds did very well over tht time period.
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Old 08-29-2015, 08:17 PM   #160
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Without rebalancing, the S&P 500 looks pretty dismal since the peak of 2000 if one adjusts with the CPI. TIPS are looking better to me after seeing this.
Thanks you for that chart. I just put those same start/ending dates into my trusty Quicken investment performance calculator and it came up with 4.5% over that time. Not great but I guess the 4% WR is alive and well with a diversified 50/50 portfolio with a value tilt.
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