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Old 05-14-2013, 03:55 PM   #61
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+1 (It's always a pleasure when we have an area of agreement MichaelB!)
It is indeed. I agree with the rest of your post as well.
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Old 05-14-2013, 04:05 PM   #62
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Disclaimer... its sounds like I'm speaking in absolutes, but all of this is really based in probabilities. No one has a crystal ball.

I'm young, a few years behind you, and I'm staying 100% equities for quite a while. Probably until I'm at least 40, maybe 45. I think the real catalyst for me to transition will be when we hit the next bubble. I'm not talking a bubble like we're in now, where we have great returns from a crash... but a period of exuberance when everyone starts saying stocks and a specific sector are the be all end all for investing (like we saw in the late 90's). Look for that to happen sometime next decade.

[my opinion] Emotionally, if you have trouble sleeping at night with the volatility of the market, it might make sense to buy bonds - if it prevents you from selling when they are down. Logically, it doesn't make sense to own any bonds (even 1%), with nearly 30 decades to go before you'll need the money. If you are not touching the money, then you don't need a smoother ride and all you care about is how fast you recover from a drop (no drop will ever last for 26 years) - you just want what is most likely to leave you with the most money at the end. Even stocks worst 26 year periods rival bonds best 26 year periods... the average case is stocks return way better results over long periods than bonds.

You'll hear people say that over the 30 years from 1981-2011 bonds beat stocks. Sounds nice, if you expect bonds to really give you a 10% or more return for the next decade... go for it. I subscribe to the idea that after something has been way above its historical average, it's about to enter a long long period of under performance.

My opinion is that at our age, bonds only serve to mute or diminish long term results. Look at the following chart: investing 10-20% in T.Bills would make your ride less volatile, but over every 30 year period it's also going to leave you with less money in the end. Even over that 30 year period from 1981-2011, where they did the best they ever have.

Historical Returns

(fwiw: I'm not a Bond Basher. I plan to make great use of them when I'm closer to retirement. They do serve a great purpose in protecting capital while drawing down. )

Someone else suggested moving a portion to cash. That can be a good idea if you're skilled at timing the market. Most investors are not.
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Old 05-14-2013, 04:37 PM   #63
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I am in my late 30's and I am at 50/50. During the accumulation phase, I was often equity-heavy and sometimes very undiversified. But I have now reached a point where the marginal utility of wealth is starting to diminish. So maximizing my returns by keeping a large allocation to equities is becoming less vital while managing risk through very broad diversification and preserving my capital is becoming more important. Including investment real estate, my asset allocation looks like that at the moment:

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Old 05-14-2013, 04:48 PM   #64
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I like the chart, what tool are you using?
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Old 05-14-2013, 04:51 PM   #65
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I like the chart, what tool are you using?
Apple's "Numbers".
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Old 05-14-2013, 04:54 PM   #66
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Here's mine, though what's right for each of us can vary considerably (from 20% to 80% equity or thereabouts).
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File Type: png AA.png (5.7 KB, 43 views)
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Old 05-14-2013, 04:58 PM   #67
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Truth be told, I can't seem to get 100% equities with Vanguard funds. Some of them have cash and bonds even though they claim to be all equity.

Right now Financial Engines says I'm 3% bonds and 1% cash. If I added the cash sitting in my checking account and emergency fund I suppose I'm really at something like 3% bonds and 8% cash. So I guess I'm 89/11
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Old 05-14-2013, 07:50 PM   #68
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Truth be told, I can't seem to get 100% equities with Vanguard funds. Some of them have cash and bonds even though they claim to be all equity.
Well, if you're really that obsessed with getting to 100%, you could always short a bond ETF or two to cancel it out.
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Old 05-15-2013, 06:00 AM   #69
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Thank you, Midpack, for taking the time to answer me.

I would like to answer your post point by point, so this post may be a bit longer than usual by my standards.

1. Like you I had no interest in going back to this thread/topic, but I appreciate your viewpoint because it is different from mine - however you still show patience and respect for other people's views.

2. sorry if this is going to sound blunt, but the chart you refer to does not mean much to me. The reason ? I do believe we are going to have another huge black swan. How ? Where ? When ? I don't know. But trees don't reach the sky. Five years ago we witnessed the biggest crash in our lifetime. Unprecedented help came from central banks in G7 countries to keep the system afloat. Who knows if these central banks will intervene next time round ? Do you know for sure ? No. I don't either. The system is broken, IMO (not a political comment, my view only). Are debts around the world going to be bigger than the global wealth produced one day ? Something has to give in. This is why I always say to forum particicipants who ask about Firecalc that I would FIRE only when Firecalc results = 100%. I don't settle for less than 100% because I am afraid of future financial crises. And my family was devastated in Europe during Word War II, which does not help my psyche / feelings of security.

3. I agree with you - there are hundreds of detailed AA vs success rate threads. A little story here. I bought my condo in spring 2008. I wanted to pay cash only. Some condo, in a nice area, small but functional. I remembered the real estate agents (ALL of them) telling me "why don't you get a mortgage and get something much bigger ? Prices will keep going up ! You can afford it. EVERYONE DOES IT!" I remember saying to them that I did not buy a condo as an investment, just a place to live - and prices had increased dramatically over the last 20 years. I remember saying "Trees don't reach the sky". They looked at me with incredulity. Six months later, Lehman Brothers imploded and real estate prices are unlikely to get back to the same levels in my lifetime. This was my first real estate purchase ever. Do you see where I am coming from ? I am extra conservative because 1) delayed gratification 2) afraid to lose money 3) state of mind - optimistic, liberal on many topics but conservative, pessimistic in finance topics 4) no faith in the present "system". 5) personal history.

4. Agreed that 0% equity has not been the lowest risk strategy because of inflation. Please look in all my posts and tell me where I have said so in any post ? Nowhere. All I have said is that I tend to be very conservative. I am aware of the inflation risk but it is a risk I am willing to take. At the present my investment in Europe (State garanteed contracts signed 30 years ago) generate close to 4%. On average, my investments in EU + US generate close to 3.5%, still over inflation. Something I can live with.

5. Yes. I have played with FIRECALC or other resources, read many threads here when I could, shared and learned. And this is why I decided last year to buy some Wellesley and also deferred annuities. Baby steps.

6. You are correct. I have never provided any substantial/quantifiable detail post to support my near zero equity AA POV from an actual risk perspective. But do I have to ? I am not here to teach anyone anything, and I freely admit I am not an expert in finance. Only here to share my experience in a respectful way (although not afraid of putting bullies back in their place :-) ), always in an honest and open way. My views may be in the minority here but they carry as much weight as anyone else's in an open forum. This website is a place to share experiences and learn from them, IMO.

7. I do not do market timing. No time for this. I have always been the same with money.

8. I hope you are right about Japan, but it does not mean much to all those who have retired in the last 20 years or so.

9. Many of us were shaken by the US markets in 2009, and I remain justified in my fears. I respect those who rode it out, but it is something I did not have the courage to do. Now - where would you be without federal and central banks intervention in 2008-2009 ? Would the Dow still be at 7,000 and stay there like in Japan ? Would you say the same about your approach then ? You got lucky, and of course that is fine with me.

10. I agree again. There have always been risks in investing, and there always will be. I made the choice of choosing the inflation risk and try to sleep well when I can. Can't afford the stress at work with patients (not FIRED yet) AND the stress about my finances.

11. It is your right and prerogative to go with a probability based on actual past history, and it is my right and prerogative not to go that way (like when I bought my condo - I had a non typical approach or view). I won't repeat my feelings about financial security because of my personal or family history. I can't talk for most members and I don't want to give a so-called "expert financial advice". Again, I am here to share my view and learn sometimes from other views. I appreciate some members don't have the luxury of a low withdrawal and a (near) zero equity AA. I guess I got lucky with my pay, and many others got lucky with houses they bought 30 years ago and now can sell them with 1000% profit. Others got lucky with inheritances. Others got lucky because they bought when the DOW was at 6,500 and now made a 100% profit.

12. thank you for writing "You're most welcome to your views and your low volatility (not lowest risk/most conservative) approach. We're all unique..." I feel the same about your views which I value and respect equally.

13. Newbies will think what they want to think by reading different views. Even opposite ones.

14. I do care about other members too. I have always corrected medical information when I read something that was wrong, even when I got criticized for giving some advice (read the cholesterol threads again ). I can't read all the posts though. I care about newbies too - do you see all my posts welcoming everyone in the "Hi - I am..." section ? I have always expressed myself openly, no propaganda (as another poster called it), and no hidden agenda. Just a different minority viewpoint. But I wanted to spend the time this morning to give some more background info for you to see where I am coming from. Not to brag about what I do outside work also (I was told I talked too much about it ) , but I spend my spare time also to only care about people...

15. "unfounded" - we just agree to disagree. That's all. In my view, blind faith that stocks will never come down sharply by 50% or more, that another huge black swan won't come up again - is clearly a mistake. While you got lucky five years ago, millions have been ruined either in stocks or real estate. No FIRE for them. And the financial crisis is not over yet.

I don't pretend to have the best answers either (see my signature). Again, I am only here to share my view with others. And I value this site also - like you I am quite prolific with my posts despite working full time still. Last year I learned here about annuities, LTCI, Wellesey, monthly cash flows etc. all of which I implemented.

My post is getting very long. The longest ever for me I believe. Time to stop. Thank you for reading.

And take care.


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Originally Posted by Midpack View Post
I had no interest in going back to this thread/topic, but as you requested a response via PM (attn Mods).

The chart that REW (re)posted above in #33 shows success rates (risk) vs AA from 0% to 100% equity, hopefully that alone will raise questions for anyone. And there have been hundreds of (carefully detailed) AA vs success rate threads, here's just one More FIRECALC Results vs % Equity Allocation. 0% equity has NOT been the lowest risk strategy from 1871 thru present, not even close. Play with FIRECALC or other resources and test for yourself. We have been over this at great length.

Respectfully, have you ever provided any substantial/quantifiable detail to support your (near) zero equity AA POV from an actual risk perspective?

If you want to play "what if", you can justify any POV, it's just another variation on market timing. The final script for Japan has not yet been written BTW, now matter how inevitably grim it seems. I am sure many of us were shaken by US markets in 2009, and those who feared equities felt justified in their fears. But those who rode it out (self included) were repaid and then some. How many threads have there been from buy-n-hold investors here sharing all-time highs for their portfolios, even after withdrawals? Most of us have read the ultimately wrong "death of equities" and "this time it's different" articles all our investing lives. There have always been risks in investing, and there always will be.

I'm inclined to go with probability based on actual past history, and chose a conservative withdrawal/spending rate to deal with volatility instead of avoiding equity altogether. Most members don't even have the luxury of a low withdrawal and a (near) zero equity AA, that you do (congrats). You're most welcome to your views and your low volatility (not lowest risk/most conservative) approach. We're all unique in how we weigh the retirement math/probabilities (relatively objective) vs the emotional aspects (less measurable) of our financial choices. You seem to weigh the latter more heavily than most, and that's your prerogative. Though not understanding the math/probabilities leads many to emotional choices.

Newbies might think zero equity is the lowest risk/most conservative approach, it sounds correct - but it's not based on all past history (thanks largely to inflation).

I'm sure other members will tell me (again) what do I care about newbies or others here I don't even know? A character flaw of mine I guess. I don't pretend to have all the right/best answers, I make myself look stupid often enough. But I value this site because of all the good information and leads it has provided to many, self included. So when I see a post that's seems clearly unfounded - believe me I've learned to not reply more often than not, but sometimes it's just irresistable when it's a POV that's being repeated often.

And I think I've lost any interest in this particular debate FWIW...I am tired as anyone of hearing myself talk about this topic.
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Old 05-15-2013, 07:02 AM   #70
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Obgyn65's AA sounds like something my grandparents might have done. I thought savings accounts and living off interest, as well as pensions and SS, was fairly normal when I was growing up. Stocks were a bit exotic, though my dad was actively investing in them. Mom's living only off his pension, SS, and annuities now. She's saving the stocks to leave to the kids (and no bonds!). So 100% annuity-like income is easily workable. I'm glad obgyn is here to contribute that viewpoint.
That's exactly what my parents did. Seemed to work out for them. And although purchasing power may have dropped drastically in the 70's, interest rates were sky high and that is when they were able to accumulate a nice nest egg even with high inflation. And with zero in stocks.

For me, I do have an allocation to stocks(low by most standards here). Not counting on interest rates skyrocketing like the 70's. But FireCalc says I'm good to go so that must be right. Right?
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Old 05-15-2013, 09:55 AM   #71
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I would like to answer your post point by point, so this post may be a bit longer than usual by my standards.
Indeed, and that's refreshing.
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Originally Posted by obgyn65
4. Agreed that 0% equity has not been the lowest risk strategy because of inflation. Please look in all my posts and tell me where I have said so in any post ? Nowhere.
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Originally Posted by obgyn65, post #26 this thread
I believe I still have the right to express my opinion also without this same individual calling my conservative, low risk views as 'misleading' or 'dangerous' while millions of people have been financially devastated in the last few years by taking so-called 'risks'.
But you have repeatedly, from this thread even - that's the primary concern! Again, nothing wrong with choosing a low volatility, costly nest egg, low withdrawal rate approach - but labeling it "conservative, low risk" without substantial qualifying remarks could easily mislead some readers. Zero equity AA sounds low risk, but it has never been in the past due to inflation as you know.

None of us can predict the future, that's for each individual to consider, but it is market timing.
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6. You are correct. I have never provided any substantial/quantifiable detail post to support my near zero equity AA POV from an actual risk perspective. But do I have to ? I am not here to teach anyone anything, and I freely admit I am not an expert in finance.
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14. I do care about other members too.
I may be mistaken, but I am here to learn mostly. If it was just random unsubtantiated views, I don't know why folks would participate, and constantly ask questions. So when I share information, I do try to substantiate my posts, because I care about other members. Evidently you don't connect the two in the same way. When I post views contrary to yours or others, it's not to challenge the originator - it's out of concern that novices may not see both sides of an issue. Again, some of my attempts will undoubtedly prove to be misguided, but it won't on a casual, unfounded basis if I can help it.

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Originally Posted by obgyn65
You got lucky, and of course that is fine with me.

While you got lucky five years ago, millions have been ruined either in stocks or real estate. No FIRE for them. And the financial crisis is not over yet.
And I got "lucky" in 1987 and 2000 as well. Investing is not about luck, it's about probabilities. Most (not all) who were "ruined" by the last meltdown, were victims of their own predictable mistakes - they panicked at exactly the wrong time. And many (not all) who were "ruined" by dropping real estate prices, we also victims of their own mistakes - entering into mortgages when they should have known better and/or treating their homes as piggy banks with multiple HELOCs.

Let's move on yes? I don't plan to debate zero equity AA again, tempting as it may be...
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Old 05-15-2013, 01:23 PM   #72
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hmmm... Age 59, retired, good db plan, ss (disability), assets $550 (excl house) zero debt (no mtg either), wd rate 2 1/2%. Right now I am 87.5% EQ 12 1/2% bonds.
I have ALWAYS been aggressive, and have suffered big time when things went in the pooper. But I have stayed the course and not veered from my plan.
When I retired I switched to one of the modified "couch potato" portfolios and have even been lazy about re-balancing. Off having too much fun. But it has been doing fine.

BUT you guys have gotten me thinking ... perhaps I should go a tad more conservative. Perhaps. I think I will wait for bonds to cheapen up. Yields are just too low.

I do have thoughts of going to all cash, but that just goes against my natural tendency. If It do anything major, that is the move I will make. Cash - until **THE** correction comes that everyone expects.
When the dot.com bubble burst I was 100% equities and took a lickin' but stayed in the market. I was then determined to accumulate cash minimum of $100K in cash of ANOTHER BIG DECLINE - GLAD I DID!
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Old 05-16-2013, 05:39 AM   #73
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Delighted to read, Midpack, that there is nothing wrong with choosing "a low volatility, costly nest egg, low withdrawal rate approach". Nothing dangerous with this except accepting an inflation risk, IMO. Again, my investments generate about 3.5% per year (better than some of those who buy and sell stocks), and I can live with that. We all have different views of what "acceptable risk", or what low or high risk is.

A few months ago, at some readers' suggestions, I changed my signature to include my AA for forum participants to see my profile. No hidden agenda, no consciously misleading posts. Maybe I should include "qualifying remarks" in my signature also, as I cannot really spend time to justify my position in every thread discussing risk or AA.

In the future, I may refer readers to this thread for them to see where differences are about AA and risk perceptions. This is one of the reasons why I am willing to write longer posts under this thread now, to try to explain my position better. I apologize to you if in the past I did not clarify my opinion better, with short posts only, mainly for lack of time.

Thank you for trying to substantiate your posts, but here is the problem in my view : the "world view" of those buying or selling shares might be limited to the model they might want to see or believe in. Did you read my story above about all the real estate agents telling me in Spring 2008 that house prices were going to continue to go up ? All of them were saying the same. No exception. Their time horizon was about 30 years. Their world view was limited to one model, the one model where prices could go up or down, but never collapse. They believed in the invincibility of their models. Like those trying to "sell" the idea of owning stocks today, IMHO. Call it blind faith. We know what has happened since 2008. It is clear that crises have been asymmetrical (latest crises with the EU debt and Cyprus banks depositors being wiped out - never heard of that possibility before). Non predictable crises. Not "patternable" (if such a word exists in English). Therefore, it would not surprise me to see the Dow dropping to 7,000 one day and stay there for 10 years. Like in Japan. Or, in 20 years from now, the US dollar dropping by 50% because of our debt.

You like facts and substantiation of views. OK, so do I. Here is one : Half of Americans don't own any stock, so I am not the only one to feel very pessimistic about our financial future : Stock Markets Rise, but Half of Americans Don't Benefit - NYTimes.com This is not propaganda. This is a fact. Surprised ? Therefore, is it really caring about readers to advise about stocks allocation [U]while knowing that half of the US population don't own any ? Some people here have been successful financially thanks to stocks and speculation. Good for them. But owning stocks is not just for everyone. So let's respectfully accept everyone's views, even if they differ. Novices will make up their minds independently of what you or I believe in. But at the end of the day, reading different viewpoints might encourage these novices to do more research and do only what they feel comfortable with. People may invest in stocks IMO if they can stand losing 50% without panicking and be able to sustain such a loss for years. And that is not me :-)

Happy you got lucky in 1987 and 2000, but I disagree there is not luck involved. Many of these people buying houses in 1980 got lucky, whereas those who bought in 2000-2008 (even in cash only, like me, no speculators or investors) were not.

Happy to move on.


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Indeed, and that's refreshing.
But you have repeatedly, from this thread even - that's the primary concern! Again, nothing wrong with choosing a low volatility, costly nest egg, low withdrawal rate approach - but labeling it "conservative, low risk" without substantial qualifying remarks could easily mislead some readers. Zero equity AA sounds low risk, but it has never been in the past due to inflation as you know.

None of us can predict the future, that's for each individual to consider, but it is market timing.I may be mistaken, but I am here to learn mostly. If it was just random unsubtantiated views, I don't know why folks would participate, and constantly ask questions. So when I share information, I do try to substantiate my posts, because I care about other members. Evidently you don't connect the two in the same way. When I post views contrary to yours or others, it's not to challenge the originator - it's out of concern that novices may not see both sides of an issue. Again, some of my attempts will undoubtedly prove to be misguided, but it won't on a casual, unfounded basis if I can help it.

And I got "lucky" in 1987 and 2000 as well. Investing is not about luck, it's about probabilities. Most (not all) who were "ruined" by the last meltdown, were victims of their own predictable mistakes - they panicked at exactly the wrong time. And many (not all) who were "ruined" by dropping real estate prices, we also victims of their own mistakes - entering into mortgages when they should have known better and/or treating their homes as piggy banks with multiple HELOCs.

Let's move on yes? I don't plan to debate zero equity AA again, tempting as it may be...
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Old 05-16-2013, 07:50 AM   #74
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You like facts and substantiation of views. OK, so do I. Here is one : Half of Americans don't own any stock, so I am not the only one to feel very pessimistic about our financial future : Stock Markets Rise, but Half of Americans Don't Benefit - NYTimes.com This is not propaganda. This is a fact. Surprised ?
Not at all. Equity ownership is down from 62% to 52%, that's not earthshaking or surprising. Has nothing to do with pessimism for about 40% of the population (no savings, no knowledge of investing and/or fear of the unknown for many) and the other 10% are addressed in your link. We really can read whatever we want to into articles like this...
Quote:
Lydia Saad of Gallup suggests that Americans’ withdrawal from the stock market may be “more a function of their ability to buy it, than of whether its value is soaring,” and notes that high unemployment seems to correlate with low stock ownership rates.

There are signs that the appetite for risk is returning among more sophisticated investors and institutions, but that may not extend to the median American, who did not not recover as quickly or as fully (if at all) as the finance industry did.
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Old 05-17-2013, 04:13 AM   #75
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Hello Midpack

Thank you again for your answer. Just two last questions for you as these questions have not been answered from my two posts above.

1. Where would you be without the federal and central banks interventions in 2008-2009 ? Would you say the same about your approach if the Dow was still at 7,000 since 2009? Would you go back to work ? Would you decrease your annual spending ? Would you buy an SPIA ? Would you ask for money from your kids ? I have no family here, on my own. No inheritance either. Condo value down 20% since 2008. Clearly there are financial risks I cannot take.

2. you write "So when I share information, I do try to substantiate my posts, because I care about other members. Evidently you don't connect the two in the same way." My question to you : is it really caring about readers to advise about stocks allocation knowing that half of the US population don't own any, and also knowing that millions of people have been financially ruined in the last few years ? There seems to be some consensus among us in this forum about not getting too much debt, use tax deferral plans, SPIAs better than VAs, etc. But IMO the jury is still out regarding owning stocks and shares.

Looking forward to your answers. This is my last post under this thread, which I may refer to in the future when discussing risk perception or AA.


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Not at all. Equity ownership is down from 62% to 52%, that's not earthshaking or surprising. Has nothing to do with pessimism for about 40% of the population (no savings, no knowledge of investing and/or fear of the unknown for many) and the other 10% are addressed in your link. We really can read whatever we want to into articles like this...
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Old 05-17-2013, 07:23 AM   #76
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With all due respect, I'm done with this thread...
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Old 05-17-2013, 07:31 AM   #77
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There seems to be some consensus among us in this forum about not getting too much debt, use tax deferral plans, SPIAs better than VAs, etc. But IMO the jury is still out regarding owning stocks and shares.
Your perception of reality view of consensus on this forum regarding stock ownership differs considerably from mine.
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Old 05-17-2013, 08:29 AM   #78
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My view of consensus regarding stock ownership was not related to this forum, but rather nationally where only half of the population owns stocks.
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Your perception of reality view of consensus on this forum regarding stock ownership differs considerably from mine.
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Old 05-17-2013, 08:37 AM   #79
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My view of consensus regarding stock ownership was not related to this forum, but rather nationally where only half of the population owns stocks.
Just to clarify, you believe that half the population does not invest directly in equities, and they choose not to, as opposed to other reasons, such as not having enough assets to invest, or having pensions that do invest in equities, and that this represents a specific consensus view about equity ownership?
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Old 05-17-2013, 10:52 AM   #80
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I'm quite certain that far, far less than half the people who buy condos pay cash. Does that make it a bad idea, or somehow inappropriate to discuss the pros/cons, since so few people pay cash?

Popularity isn't always a good measure of what is optimal. Plenty of people pay high interest rates on credit card debt. If paying a rewards card in full each month is a minority position, so be it, but that doesn't justify doing the opposite, does it?

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