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Old 10-27-2019, 07:33 PM   #21
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I hear you and I agree with everything you said. In terms of history , we have had a tremendous bond market the last 20 years so moving a big amount into bonds isn't necessarily going to "save the portfolio" either if the next 10 or 20 arent so great. Inflation and withdrawals could easily eat away at that portion.
You are right about the bond market. The same thing can be said about the equity market, however.
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Old 10-27-2019, 07:49 PM   #22
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You are right about the bond market. The same thing can be said about the equity market, however.

True. However, stocks have out performed bonds 100% of the time if you look back at any 20 year time frame. Even 10 year time frames stocks outperform bonds 84% of the time.
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Old 10-27-2019, 11:59 PM   #23
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Sometimes I use this thinking....not sure if it helps you. It's more of a rule of thumb.

The percentage you have in equities, multiplied by the percentage of drop during a downturn, equals the amount you could "lose".

For example, if you have 50% in equities and the market drops 50%, then you'd lose 25% of your value. 40% equity position with a 50% drop results in 20% loss in value.

One of the largest drops we've had in the markets was in 2008-2009 (recent history). IIRC, the S&P dropped about 35% during that timeframe. So if you had a 50% equity position at that time, you'd have lost 17.5% of your value.

I'd determine the value of loss where you'd start losing sleep, determine the largest drop you think we'd ever see in a downturn, and then gauge where you want to be on equities.

During my *orking years, I had a high risk tolerance....could always work more if I lost money in the market. I was 90% invested in equities most of my working life. But now that I'm FIREd, I'm extremely risk averse...to the point where we "oversaved" so that we could safely have a lower equity position. Yes, I miss out when the market goes up...but I sleep really well when the market drops.

Related motto..."You only have to get rich once"
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Old 10-28-2019, 03:11 AM   #24
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Sometimes I use this thinking....not sure if it helps you. It's more of a rule of thumb.

The percentage you have in equities, multiplied by the percentage of drop during a downturn, equals the amount you could "lose".

For example, if you have 50% in equities and the market drops 50%, then you'd lose 25% of your value. 40% equity position with a 50% drop results in 20% loss in value.

One of the largest drops we've had in the markets was in 2008-2009 (recent history). IIRC, the S&P dropped about 35% during that timeframe. So if you had a 50% equity position at that time, you'd have lost 17.5% of your value.

I'd determine the value of loss where you'd start losing sleep, determine the largest drop you think we'd ever see in a downturn, and then gauge where you want to be on equities.

During my *orking years, I had a high risk tolerance....could always work more if I lost money in the market. I was 90% invested in equities most of my working life. But now that I'm FIREd, I'm extremely risk averse...to the point where we "oversaved" so that we could safely have a lower equity position. Yes, I miss out when the market goes up...but I sleep really well when the market drops.

Related motto..."You only have to get rich once"
100% the above.

Also another way that I personally look at it:

If you have guaranteed income such as SS or pensions then even with a large drop in equities your "income" doesn't have to change that much if you're taking % of portfolio withdrawals.

Eg let's say that pensions and SS make up 50% of your yearly income and you are taking a 4% (or whatever) from your 50/50 stocks and bonds. If the market drops 30%, your yearly income will only drop by 1/4 of that or less, ie 7.5%. Probably less since we hope bonds will rise on such occasions. So if you have enough discretionary spending to handle a 7% drop in income, you're fine.
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Old 10-29-2019, 02:36 PM   #25
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One of the largest drops we've had in the markets was in 2008-2009 (recent history). IIRC, the S&P dropped about 35% during that timeframe. So if you had a 50% equity position at that time, you'd have lost 17.5% of your value.

I'd determine the value of loss where you'd start losing sleep, determine the largest drop you think we'd ever see in a downturn, and then gauge where you want to be on equities.
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Eg let's say that pensions and SS make up 50% of your yearly income and you are taking a 4% (or whatever) from your 50/50 stocks and bonds. If the market drops 30%, your yearly income will only drop by 1/4 of that or less, ie 7.5%. Probably less since we hope bonds will rise on such occasions. So if you have enough discretionary spending to handle a 7% drop in income, you're fine.
I find these different ways of looking at it to be very helpful. It's all about what makes each of us feel secure. I've ended up spending less in retirement than I expected (so far). Some people in the same position might decide to increase their possible upside by tilting strongly toward stocks. In my case, however, it's led me to think I can stay fairly conservative in my allocation (50/50) and not have to worry so much about stock appreciation.
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Old 10-29-2019, 07:42 PM   #26
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If you believe in historical data, the safest portfolio is 60% stock and 40% bonds. Since 1928, a person with that allocation could have withdrawn 4.5% of their initial savings every year for 30 years and not run out of money. For a portfolio of 40% stocks and 60% bonds, that number drops to 3.9%. Even though there is not much of a difference in the average yearly return of a 60/40 and 40/60 portfolio, investment returns follow a power law. Over a 30 year retirement, seemingly small differences in yearly returns add up to a large difference in outcomes.
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Old 10-29-2019, 09:16 PM   #27
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Current Asset Allocation is 50% stock funds/ 50% bond funds

I attempt to not be swayed too heavily by news and news of an impending economic downtown.

Nevertheless, I am concerned and considering changing my AA to 40% stocks/60% funds.
Going by your comment, if you do have concerns then it may make sense for you to change to a lower stock position. I found that as I got closer to retirement, I was less comfortable with the thought of losing a big chunk to market drops. What gave me comfort was having more in safer accounts (Money Markets and CD's) and less in the stock market. Inflation is a risk though, and I am also looking into TIPS. Have you run your scenarios in FireCalc?
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Old 11-06-2019, 03:54 PM   #28
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I am retiring soon, at the end of 2019, at age 59. Divorced, one adult child, living mostly independently.

Retirement assets consist of a mix of broad based stock and bond funds worth approximately $1.8M

Additionally, a pension of $1K/mo and Social Security at earliest age of 62 will be worth $2K/month.

Current employer will provide retiree healthcare, my cost will be about $180/month to start with.

Planning to live on expenses of +/- $70K/year in retirement.

Current Asset Allocation is 50% stock funds/ 50% bond funds

I attempt to not be swayed too heavily by news and news of an impending economic downtown.

Nevertheless, I am concerned and considering changing my AA to 40% stocks/60% funds.

Any thoughts, advice or comments? Thank you!

You have $24K a yr in pension and SS. Your goal is $70K a yr so your $1.8M must generate $46K per year which is 2.55%. This is close to CD rates online or long term US treasury bonds. Just a thought.

Vanguard has a site to determine your ideal portfolio after answering some questions based on your risk tolerance, time horizon, type of investor you are, etc. Click the following link:

https://personal.vanguard.com/us/FundsInvQuestionnaire

Vanguard will respond with a general advice on your current portfolio.

My specific advice: Get to know bonds. Most investors invest in equity during their career so they know equities. However, bonds are different and they behave differently during a bear market. This is illustrated at:

https://obliviousinvestor.com/what-h...-market-crash/

Morningstar assign specific risk of a specific bond funds versus other bonds and assign specific reward of a specific bond versus other bonds. You should select bonds that has relatively higher reward but relatively low risk.

I guess what I am saying: equities are more important prior to retirement. Bonds are more important after retirement. Your AA are 50/50 which is OK but my question is what type of bonds do you have?

Do you understand the risk and rewards on your bond portion of your portfolio? For example there is a huge difference between junk bonds and treasury bonds so 50/50 portfolios will have different risks depending on the specific type bonds.

Finally, you will be concerned about liquidity. I recommend some treasury bonds for liquidity...based on the second link above.
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Old 11-07-2019, 02:07 PM   #29
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My AA for the last few years has been 45/45/10. That seems to have given me enough growth exposure without assuming too much risk. Is this the right AA for me? Heck, I don't know, but if you ask me how it worked out 30 years from now (when I am 105) I will be glad to present you with a full report.
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Old 11-07-2019, 02:18 PM   #30
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... Is this the right AA for me? ...
Answer has to be "It depends."

What is your objective for the portfolio? Do you want your last check on the day you die to bounce? Or do you want to leave an estate with bequests to people and/or charities. Or ??

How big is the portfolio relative to your spending needs? At 72YO we are 75/25 and the 25% portion, without rebalancing, would meet our spending needs for years.

Remember, too, that over long periods of time (10 years) the volatility of equities is fairly irrelevant. It is not really risk. Risk due to volatility starts to bite only if you have to sell equities/sequence of returns risk.
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Old 11-09-2019, 01:28 PM   #31
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One side note on your $1.8M portfolio...I suggest that you attempt to lower your fees. For example....If your average fee is 0.25%, then you are paying about $4,500 every year.

After you have retired, it may be worth your time to research every mutual fund, broker, etc to reduce your current fees and yet have the same portfolio that you are comfortable with. Do some comparison shopping since it is a competitive business. i.e. Vanguard versus Fidelity

I do know some of my investor friends know how to buy stock and bonds directly which may also reduce your annual fees. They also inform me buying stocks and bonds directly are not a problem. However, selling bonds before the maturity date can be problematic. Google : How to buy stock (or bonds) directly. It makes interesting reading for a retiree.

Another interesting link is:
https://www.investopedia.com/article...educe-fees.asp
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Old 11-09-2019, 01:47 PM   #32
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... I do know some of my investor friends know how to buy stock and bonds directly which may also reduce your annual fees. They also inform me buying stocks and bonds directly are not a problem. ...
Be a little careful with this. The issue is diversification.

For stocks, holding a total US market fund means you are diversified across over 3,000 issues. For an individual to achieve diversification buying individual stocks, statisticians will tell you you need 60-100 or more stocks, carefully selected across sectors and geographic locations. IMO this is essentially impossible for an individual investor.

For US government bonds and bank CDs diversification is not a concern because these are considered to be zero risk instruments. Still, there are planning issues with selecting maturities.

For corporate bonds, you are back to diversification as an issue. I am on the investment committee of a nonprofit where we always buy bonds directly and never through a bond fund. We have about $2.5M invested in bonds, mostly $10K positions per issue. So we are north of 200 issuers and pretty well diversified. But, again, this number of issues is tough for an individual to manage.

So, for most of us little investors to achieve diversification we have to be buying mutual funds.
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Old 11-09-2019, 03:08 PM   #33
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I would take a "risk tolerance" quiz...I bet you can find a free one online. Now that I have minimal income, I've become very conservative and won't allow my equity position to go over 40%, and typically I keep it closer to 25-30% unless the market drops 5% or more.

Also you say the remainder will be in "funds"....what type of funds do you mean? Hopefully not stock mutual funds....if so you'd be 100% in the market lol.

I have a large portion of my money in laddered CDs right now. Very low return, but safe and steady. I get a small upside with my equities. I am afraid to own any long-term bonds right now, as a spike in interest rates would cause their value to go down...but if rates get up higher I would consider some. Short-term bonds are ok...look at the "duration" if you're buying a bond fund and this will give you an idea of whether the fund is short-term or long-term. Anything over 6-7 years I won't do right now.

Good job saving and getting to this point!
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Old 11-09-2019, 10:10 PM   #34
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Be a little careful with this. The issue is diversification.

For stocks, holding a total US market fund means you are diversified across over 3,000 issues. For an individual to achieve diversification buying individual stocks, statisticians will tell you you need 60-100 or more stocks, carefully selected across sectors and geographic locations. IMO this is essentially impossible for an individual investor.
For a typical S&P500 mutual fund such as VFINX, the top ten holdings comprise of 21.49% of the fund:

Microsoft CorpMSFT4.29%
Apple IncAAPL3.84%
Amazon.com IncAMZN2.91%
Facebook Inc AFB1.73%
Berkshire Hathaway Inc BBRK.B1.60%
JPMorgan Chase & CoJPM1.52%
Alphabet Inc Class CGOOG1.49%
Alphabet Inc AGOOGL1.47%
Johnson & JohnsonJNJ1.38%

May not be necessary to diversify to 500 issues to match VFINX.

Just enough to match perhaps top 100 holdings should be sufficient in order to avoid the fees. Slightly more risk is involved..but the risk is minimal. For example, if a company comprising about 1% of the fund crashes 50%, then the effect is only 1/2% of the fund.

It all depends on your main objective: Diversification to 500 or more holdings to reduce the risk in a mutual fund...or Slightly less diversification to 100 holdings to avoid the fees.

My investor friend consider fee payments to a mutual fund as "dead" money. For a large portfolio of $2M plus, this dead money can be substantial over the years and the compounding effect is lost.

He claims that the money that he saves is sufficient to lease a brand new sports car every 24 or 36 months. As far as the slightly increased risk of owning about 100 holdings versus 500 holdings in a S&P500 mutual fund, that doesn't appear to bother him a bit. Just another way of investing and it is up to the individual to balance the risk versus reward.
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Old 11-09-2019, 10:30 PM   #35
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.... My investor friend consider fee payments to a mutual fund as "dead" money. For a large portfolio of $2M plus, this dead money can be substantial over the years and the compounding effect is lost.

He claims that the money that he saves is sufficient to lease a brand new sports car every 24 or 36 months. As far as the slightly increased risk of owning about 100 holdings versus 500 holdings in a S&P500 mutual fund, that doesn't appear to bother him a bit. Just another way of investing and it is up to the individual to balance the risk versus reward.
Vanguard 500 and Vanguard Total Stock have a 0.04% ER... on $2 million... that is $800/year.... probably enough to make one month's lease payment on a brand new sports car each year. Yup... "dead" money for sure.

An initial investment of $2 million would grow in 20 years to be $13.455 million at a 10% return with no expenses.... with 0.04% expenses it would grow to $13.357 million....I guess you could get a nice sports car with the $98k difference but you'll have to wait 20 years to do so.

Let's hope that your investor friend is better at investing than at math.
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Old 11-10-2019, 09:33 AM   #36
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Vanguard 500 and Vanguard Total Stock have a 0.04% ER... on $2 million... that is $800/year.... probably enough to make one month's lease payment on a brand new sports car each year. Yup... "dead" money for sure.

An initial investment of $2 million would grow in 20 years to be $13.455 million at a 10% return with no expenses.... with 0.04% expenses it would grow to $13.357 million....I guess you could get a nice sports car with the $98k difference but you'll have to wait 20 years to do so.

Let's hope that your investor friend is better at investing than at math.
If fees is a focus than Fidelity Zero (FZROX) Fee funds fit. 0.0% fees.
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Old 11-10-2019, 09:45 AM   #37
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True, and we own FZROX.... but the whole point was that fees today are quite modest for a lot of good index funds and nowhere near enough to "lease a brand new sports car every 24 or 36 months" on $2 million... pure hyperbole.... that thinking is stuck in the past on fees... and perhaps also on lease rates for sports cars!
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Old 11-10-2019, 09:55 AM   #38
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Let's see: $4000/mo Social Security + $3200/mo rental property income + $1.2 million in various Vanguard & Wells Fargo funds...hell, we're making as much as when we were working full-time! Plus (or minus), mortgages are all paid off, & only one minor HELOC to pay off. Guess I don't need to worry.
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Old 11-10-2019, 09:56 AM   #39
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... Just another way of investing and it is up to the individual to balance the risk versus reward.
True enough and I don't disagree except to point out that the task of managing a truly diversified portfolio of individual stocks is pretty overwhelming for a retail investor. So I don't see how the "balance" could ever favor that strategy over the pittance than passive mutual funds cost. YMMV, of course.
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Old 11-10-2019, 01:04 PM   #40
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Vanguard 500 and Vanguard Total Stock have a 0.04% ER... on $2 million... that is $800/year.... probably enough to make one month's lease payment on a brand new sports car each year. Yup... "dead" money for sure.

An initial investment of $2 million would grow in 20 years to be $13.455 million at a 10% return with no expenses.... with 0.04% expenses it would grow to $13.357 million....I guess you could get a nice sports car with the $98k difference but you'll have to wait 20 years to do so.

Let's hope that your investor friend is better at investing than at math.

Your math calcs are correct. I need to discuss this issue with my friend on our next fishing trip on my cabin cruiser. The 0.04% is today's but 20 years ago it was higher. He did mentioned his logic: He is a "buy and hold" investor so it did not make sense to him to pay an annual fee every single year in a buy and hold portfolio. Also it could be that he already made the $98,000 difference (or more if the earlier fees were higher) and he is now using that difference for his lease payments.

It is also possible his investment assets are more than $2M since he is also divorced (like me) but he lives in a nicer house with a live-in maid in a granny house. He claims I was foolish to re-marry a young woman 20 years younger when his live-in maid is also 20 years younger. His maid fixes breakfast, dinner, cleans the house, washes his clothes and does his shopping for him. His maid does 80% of what my young wife does but with less risk.

My point: There is an alternative to everything. Fees are a consideration in any portfolio and Vanguard has the lowest fees available unless someone out there can match or better Vanguard's 0.04%. I also decided to throw out my friend's strategy of buying individual stock instead paying the annual fee as an alternative. I do admit his live-in maid alternative is less risky. My next house will probably have not have a built-in heated swimming pool and spa (which has maintenance) but have a granny house which has the potential having maintenance done by someone else.
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