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Re: Another perspective on a high-equity portfolio
Old 02-04-2006, 09:24 PM   #61
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Re: Another perspective on a high-equity portfolio

Good one.

Guess this just pushed on that old "Ted Special" button where once you retire you're a lump of limp suction with no production.

Try THAT high fastball batman
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Re: Another perspective on a high-equity portfolio
Old 02-04-2006, 09:48 PM   #62
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Re: Another perspective on a high-equity portfolio

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Originally Posted by (Cute Fuzzy Bunny)
Good one.

Guess this just pushed on that old "Ted Special" button where once you retire you're a lump of limp suction with no production.

Try THAT high fastball batman
Rather than "no production", I prefer to think of it as shutting down a couple of assembly lines and no longer operating 24/7. I haven't outsourced customer service to India, but hold times are quite a bit longer.

Maybe I'll send in a pinch hitter. Hey Jarhead! You're up!


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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 06:04 AM   #63
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Re: Another perspective on a high-equity portfolio

It wasn't meant to be insulting. Milevsky appears to define "human capital" as the income derived from working a job that generates earned income. I have been reading this forum for several years and it appears that generally speaking, ER means stepping away from "a job that generates earned income". Of course, many will "retire" from a career job and then open a business for themselves on their own terms.
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 06:14 AM   #64
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Re: Another perspective on a high-equity portfolio

Mr. Galt2U - Per your comment that "No one "has to" stay in stocks, at any age, for any reason. There are always alternatives." Let me explain my thinking..When I say "has to" I am referring to a Safe Withdrawal strategy based on a stock/bond mix...I think this is one challenge of a SWR..If you build it on, say a 4% SWR and a 60/40 stock bond mix, switching straight to a bond portfolio after say, 18 years will have a dramatic effect on what can be taken out down the road... especially after a stock market correction.

I'm just saying that if I retire with a SWR with the plan that I have a 90% probability that the money will last and the market is relatively flat or goes down over 15-18 years..Then I die and my wife needs to take over, she is likely going to struggle with the responsibility of staying in equities once she takes a big hit..When she switches to full bond portfolio, the original SWR is altered. My mother and mother-in-law both have gone through this within the last 2 years once their husbands died. Neither wanted to be in stocks and didn't have the risk tolerance for it..I'm just saying that this should be a bigger part of the conversation..My two cents..
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 07:10 AM   #65
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Re: Another perspective on a high-equity portfolio

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Originally Posted by (Cute Fuzzy Bunny)
Maybe I need a redefinition of what the term "human capital" is. I feel like I have plenty, and I employ all of it.

Whether I work at a job outside of the home or not doesnt seem to me to effect my level of "human capital".
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It wasn't meant to be insulting. Milevsky appears to define "human capital" as the income derived from working a job that generates earned income.
The curse of the housewife. Haven't we heard for years from women who stay at home that their contributions are minimized? My mother, who didn't "work outside the home" died when 4 children were under twelve and two were still in diapers. I remember my father saying years later that it cut his income in half.


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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 07:38 AM   #66
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Re: Another perspective on a high-equity portfolio

Hmmm

1. Sometimes the solution is that there is no solution. After my Father died in 89 - in spite of 'teaching/lectures my er ah my 'Depression minded' Mom dumped the muti asset class portfolio(wasn't slice and dice in those days) at exactly the wrong time. When living with us(94-05) - I lied to her until she passed - told her she was in fixed income when it was actually Vanguard Lifestrategy Income.

2. To paraphase Bogle - 'to hurry up and and just stand there' - takes a lot of work to manage male hormonal urges while those computers at Vanguard rebalance their little hearts out. Being left handed - I consider it 'senior executive management'. My late Father considered anything that didn't put dirt under the fingernails wasn't 'real work'. Except when he was a minor Union official. Didn't like ties - they had a - yuckie Republican look.

3. My current plan is to be close to 100% equities by 84.6 - I expect the Viagra may not work at that age and 'the girls' in the nursing home may not cooperate - soooo I will need a hobby.

heh heh heh
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 08:44 AM   #67
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Re: Another perspective on a high-equity portfolio

We have the problem of portfolio behavior vesus investor behavior. The 4% rule of thumb is based on something like this - 25 yr life expectancy, 60% stock/40% bond, U.S. past 7% stock/2% bond returns, mean reversion, index fund costs.

as opposed to - 35 yr life expectancy, 40% stock/60% bond by late life, international past 5% stock/0% bond returns, maybe no mean reversion, past 2% stock/1% investing costs - you can easily have 0% after tax net real returns by late life.
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 09:38 AM   #68
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Re: Another perspective on a high-equity portfolio

Quote:
Originally Posted by REWahoo!
Rather than "no production", I prefer to think of it as shutting down a couple of assembly lines and no longer operating 24/7. I haven't outsourced customer service to India, but hold times are quite a bit longer.
Apparently you dont have a one year old who has figured out how to climb onto stuff. I bought him a very large dump truck which he has learned to push up to something he'd like to fall off of, use it as a staging area, and go from there. Yesterday all went quiet for about a minute, which is a bad sign. When I found him in the bedroom, he had climbed up onto the bed, pulled all the tissues out of two boxes of kleenex, turned the tv on and changed the channel, and swept everything off of both night stands onto the floor.
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 09:56 AM   #69
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Re: Another perspective on a high-equity portfolio

Quote:
Originally Posted by Martha
The curse of the housewife. Haven't we heard for years from women who stay at home that their contributions are minimized? My mother, who didn't "work outside the home" died when 4 children were under twelve and two were still in diapers. I remember my father saying years later that it cut his income in half.
Ding ding ding. I do all the repairs and maintenance on the house and cars, most of the cleaning, most of the shopping, almost all of the cooking, and about 60-70% of the baby care. Basically my wife has to work 2-3 days a week, do a little house cleaning, and watch the baby here and there.

So I'm reducing our need to spend a lot of our income and holdings, and our kid gets to grow up with one parent almost full time and the other around almost all the time. Which may or may not be good considering the parental material.

I guess I'm going to have to take further umbrage with the 'human capital' term. It has a definitive meaning.

Dictionary:

Human:
A person
Capital:
1. Wealth in the form of money or property, used or accumulated in a business by a person, partnership, or corporation.
2. Material wealth used or available for use in the production of more wealth.
3. Human resources considered in terms of their contributions to an economy: “ [The] swift unveiling of his... plans provoked a flight of human capital” (George F. Will).

#3 seems to strike gold...

So Milevsky is either taking some rather extreme editorial repositioning in his definition, or he really needs a better term. Methinks he's made the classic mistake of defining a person by how much earned income they generate. Sort of the antithesis of a group of early retirees. Or maybe Milevsky is a socialist/communist?

I would argue that with a seven figure investment portfolio, expenditures well above the median, and full time parenting of a child such that he becomes as productive as he chooses to be, all have a rather fundamental impact on the economy. Certainly in excess of someone flipping burgers or pushing paper around a desk; who in this context would have greater "human capital" than I do? I think not.

As far as equities, any volatile investment can be frightening. Life itself is scary due to its volatility. We avoid change and very few of us can take on uncertainty.

For those very reasons, an investor gets paid the risk premium. As Nords has said, no other investment allows overcoming inflation AND providing a reasonable rate of return on ones money. You can punt on first down or just run the ball, and play good defense (LBYM) and eke out an existence. I dont think that playing to not lose works for you in any 'game'.

Oddly enough, our fear of change and risk causes us to make grave changes that put us in dire risk or causes us to employ strategies that may not work, and the failure point of those strategies is likely to be when we're very old and cannot recover from them.

As far as "having a dramatic effect on what can be taken out down the road", you're right. You'll be able to take out a lot less with an all bond or mostly bond portfolio.

Unless you can predict the "downturn" or period of poor returns, its a fools game.

By the way, we havent had a period of poor returns in 40 years. We havent had a prolonged downturn in 80. This aint earthquakes and 500 year floods we're talking about where the odds are there waiting for the dice to roll the wrong way.
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 02:34 PM   #70
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Re: Another perspective on a high-equity portfolio

Well, cfb has me convinced- we are all loaded with human capital; though I am not sure where mine lies. Furthermore a sustained downturn in equity markets is extremely unlikely.

Just in case though, I would like to say that the whole idea of risk tolerance as a relatively fixed or slowly changing trait is questionable. I believe that one's risk tolerace can flip almost overnight. It is like courage- before the test, it's hard to know if someone is brave, or merely showing bravado. In fact, what seemed brave or smart will suddenly seem foolhardy. (Especially from the POV of other family menbers!)

I would guess that it will not only be widows, but also many others who may re-evaluate their allocations, if somehow the impossible happens and we experience a true bear market.

No problem if like many here you could live off your pensions, or off some family members earned income. But if the stakes are high, suddenly ideas that seemed so true as to be essentially part of the firmament will first seem questionable, then doubtful, and finally, at just the wrong time, they will seem completely and definitely insane.

I have observed this train in myself over the years. I believe I may see it again.

Ha
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 03:59 PM   #71
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Re: Another perspective on a high-equity portfolio

ReWahoo: No pinch hitting for me. Just noticed your post. It has been in the upper 60's in the last couple of days, and I have been taking full advantage of it, by playing golf both days.

Somehow, that seems to me to make better sense than arguing with a 30 something year old about his "perceived" disadvantages of the time frame of his D.0.B. (My oldest youngster is pushing 40, well adjusted, enjoys her job, and
I'm thankful she has never given me any idication that "Early Retirement" is a goal of hers.
Not that there's any problem with that thought.

I've got Seattle plus 4 in the Super Bowl, (I expect to lose that bet, but as a West Coaster, had to go that way).

Jarhead


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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 04:19 PM   #72
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Re: Another perspective on a high-equity portfolio

Quote:
Originally Posted by Jarhead*
I've got Seattle plus 4 in the Super Bowl, (I expect to lose that bet, but as a West Coaster, had to go that way).
So what embarrassing signature line are you going to have to use for the next month?
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 04:48 PM   #73
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Re: Another perspective on a high-equity portfolio

To quote the master:

Great Warren Buffet Quotes
"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."

"Someone's sitting in the shade today because someone planted a tree a long time ago."

"Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway."

"Risk comes from not knowing what you're doing."
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Re: Another perspective on a high-equity portfolio
Old 02-05-2006, 09:50 PM   #74
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Re: Another perspective on a high-equity portfolio

Quote:
Originally Posted by Nords
So what embarrassing signature line are you going to have to use for the next month?
Trust me, that won't happen again.

Just a small $20.00 wager with a guy I play golf with. No further requirements.
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Re: Another perspective on a high-equity portfolio
Old 02-06-2006, 10:15 AM   #75
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Re: Another perspective on a high-equity portfolio

Ha -

I'm not saying theres no risk and no chance of a downturn. Aside from people who simply have so much money it doesnt matter where they invest it, they can never spend it...if you dont include a good sized chunk of equities in your portfolio then you're simply playing to not lose. And maybe you wont lose. But the odds of winning arent that great either.
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Re: Another perspective on a high-equity portfolio
Old 02-06-2006, 04:08 PM   #76
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Re: Another perspective on a high-equity portfolio

Hi Gang .... long time no see, etc.

I think playing not to lose has its place as you get older.

We just transferred my wife's IRA from Vanguard Wellington
to a 6% 7 year CD at PenFed. This money will compounded at
a guaranteed rate for the next 5 years until RMD starts. In
5 years her IRA will be worth exactly $143,190 and she can
start drawing an RMD of $435.49/month (3.65% annual rate)
and still get a principal growth of 2.35%/year. If inflation kicks
in and CD rates rise, she can cancel her CD with no penalty
and reinvest at the higher rate.

What a sweet deal ......it has all the benefits of an inflation indexed
annuity but our children inherit instead of the insurance company.

Of course there is an opportunity cost if the market really booms,
but, IMHO, at this point in life, I would rather have the bird in hand
rather than the "maybe 5-7%" bird in the bush.

Cheers,

Charlie
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Re: Another perspective on a high-equity portfolio
Old 02-06-2006, 05:47 PM   #77
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Re: Another perspective on a high-equity portfolio

Hey charlie, welcome back!

So what happens if (and I hope this happens), you and the wife both live to 100+ in good health?

Not that I'm discounting getting more conservative once you're an old phart And you dont need the extra returns...

I'm discounting people in their 40's and 50's going with all or mostly cash or an all bond portfolio in fear of a stock market drop. The stock markets not going to get them. Inflation will though. Absolutely, positively.
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Re: Another perspective on a high-equity portfolio
Old 02-06-2006, 07:29 PM   #78
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Re: Another perspective on a high-equity portfolio

Quote:
Originally Posted by (Cute Fuzzy Bunny)
I'm discounting people in their 40's and 50's going with all or mostly cash or an all bond portfolio in fear of a stock market drop.* The stock markets not going to get them.* Inflation will though.* Absolutely, positively.
As the latinos say, "Vamos a ver, vamos a ver"

Ha
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Re: Another perspective on a high-equity portfolio
Old 02-06-2006, 08:07 PM   #79
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Re: Another perspective on a high-equity portfolio

We will, wont we...

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Re: Another perspective on a high-equity portfolio
Old 02-07-2006, 08:11 AM   #80
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Re: Another perspective on a high-equity portfolio

The great thing in Charlie's situation is that there is no penalty for early withdrawl from the 7 year Penfed CD because it is in his wife's IRA. So if the market drop and there are better opportunities, he can cash it in for no penalty and buy something else. Can't beat that.
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