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Old 11-04-2012, 03:11 PM   #141
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The poor guy made a number of bad investments; he never seemed to learn his lesson there.
How to Start Investing with Inspiration from Mark Twain
Mark Twain was a predecessor to today's high-tech investors, some of them do get rich while many others fail. From the link that you posted,
He invested in a number of inventions, most notably the "Paige Compositor", an automatic-typesetting machine that would have been a fine device if it ever made it to market. However, the investor, James Paige, took 14 years to perfect it and other competitors beat his invention to market.

This failed investment contributed to Twain's bankruptcy in 1891, after sinking hundreds of thousands of dollars into the ongoing development of this machine, estimated to be at least $4 million in today's dollars.
Hundreds of thousands of dollars in those days was a big sum of money! One could retire nicely on $4M of today's money. He was a venture capitalist, who obviously could have done better with stodgy dividend-paying stocks, or by diversification.
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Old 11-04-2012, 04:01 PM   #142
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That is exactly the point made recently by Wade Pfau, a well respected analyst.
Retirement Researcher Blog: An Efficient Frontier for Retirement Income
He advocates using SPIAs instead of bonds. IMHO a SWR for stocks and bond funds is 0%. Your retirement essential income should come from SPIAs, SS a pension or other stable income sources.
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Old 11-04-2012, 10:46 PM   #143
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Another factor that reduces risk is just reducing your retirement income needs. So while you are working I'd pay off the mortgage, buy a new car, do any repairs, just get as many major expenses out of the way while you have earned income. Without a mortgage or car payment $50k/year is a very comfortable income for a single person.
While it's nice to have a new car, etc., purchasing these things shortly before retirement simply results in your retirement portfolio being smaller by that amount. For example, on retirement day #1 you have one million bux and your old car or you have $0.97 Million and a new car.

I did similar to what you described and took care of some house and car issues while still working thinking that would be less to worry about and finance while retired. After retiring, I realized I could have simply put the money aside and taken care of those things shortly after retiring when I'd have had more time to shop, do some of the work myself, etc. In hindsight, I'd just leave the money in the bank (so to speak) and spend it after retirement when I had time to do so most effectively. A new car or a kitchen remodel costs what it costs whether you do it in the year before retirement or the year after retirement. YMMV
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Old 11-05-2012, 09:38 AM   #144
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He advocates using SPIAs instead of bonds. IMHO a SWR for stocks and bond funds is 0%. Your retirement essential income should come from SPIAs, SS a pension or other stable income sources.
SWR for stocks and bond funds is 0% ? I guess if and when society is in a sufficient decline, that could be true. A lot of strange things has happened before in history.

However, when things get that bad, I do not see how SPIA, pensions, and SS would be worth anything. Just ask pensioners of the old Soviet block countries, China, and currently of Greece. These countries still exist, yet a lot of people are miserable, and it was not because they had a lot of stocks and bonds that became worthless.
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Old 11-05-2012, 10:31 AM   #145
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I have not seen anybody here saying that inflation is good for stocks. But other than piling into gold, equities are still a lot better than some fixed-incomes at 10-yr and 30-yr terms. Nobody wins, and we are just trying to minimize loss.

In the 79-82 time frame, I remember people even talked about buying collectibles like arts and rare stamps. Good grief!


Amen.
Actually, here and and elswhere, people don't have to say "inflation is good for stocks", but they say all the time- "you had better have more stocks to guard against inflation". I for one cannot see the operational difference etween these two phrases. And I believe that your choice of 10 to 20 year bonds, vs. stocks, is a rhetorical device proposed to prejudice the answer. Heard of cash? It's the 70s that are being talked about, and during the inflation of the 70s and early 80s, cash was by far the best performing asset. Of course, at that time our Federal Reserve Chairman was not insane, so it's possible that things could be different now. But unlike stocks or longer term bonds, cash has zero duration, which is a great comfort during accelerating inflation.

It is true that in a hyperinflation, like those experienced in Weimar Germany, Hungary just after WW2, and Zimbabwe immediately following their independence (as well as in many other "developing countries"), once that inflation was really roaring, the local stock market worked pretty well for people who could not get foreign hard currency, or farmland, or gold or other directly controlled valuable assets, and certainly better than local currency bonds or cash.

Nuance and detail are very important in economic decisions.

Ha
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Old 11-05-2012, 10:44 AM   #146
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Stocks might not do well in the 70s, but at least they kept even with inflation (I need to double check). Would that not be still better than bonds?

About cash, sure, I have 25% right now, and can raise it anytime with some mouse clicks, being a so-called "tactical asset allocator". I have no dogma in any matter.
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Old 11-05-2012, 10:59 AM   #147
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Stocks might not do well in the 70s, but at least they kept even with inflation (I need to double check). Would that not be still better than bonds?
Stocks did not keep up with inflation. They lost money compared to cash in the mattress, and compared to cash in the bank or cds. Bonds also did poorly. I was actively investing at this time, and buying any longer term bond would not have entered my consciousness until the amazing interest rates of Paul Volcker's reign. So I do not have data on bonds, but they sucked. Unlikely they sucked worse than stocks, but I cannot say. At any rate, why would anyone in possession of his faculties have bought either?

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Old 11-05-2012, 11:01 AM   #148
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[QUOTE=Leon44;1245719]I heard an interesting discussion on SWR on a radio financial talk show today. One of the host's was suggesting that we can no longer consider 4% a safe long term withdrawal rate. He did suggest that you may be able to still take 4% a year off your "new" balance at the end of the year after the effects of the market performance adjusted your portfolio one way or the other.

But he went on to say that his best option for at least a portion of your nest egg was annuities. He said let the insurance company take the market risk. Then instead of worrying about the long term safety of a 4% withdrawal you can receive more then 4% safely without shouldering the risk.
/QUOTE]

Dr. Wade Pfau has written an article that seems to indicate stocks and SPIA's would make a better combination for retirement that stocks and bonds, at least for some people. I am not an annuity fan, but it has made me think about investigating them in the future.

Here is the link: http://wpfau.blogspot.com/2012/09/an...l#.UJfxP4WmDfY
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Old 11-05-2012, 11:08 AM   #149
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Stocks did not keep up with inflation. They lost money compared to cash in the mattress, and compared to cash in the bank or cds. Bonds also did poorly... At any rate, why would anyone in possession of his faculties have bought either?
The 70 period was before my time, so I have no personal experience to tell. But I guess a lot of people might not be accumulating more stocks or bonds, and rather were just sitting on them, thinking it was already the bottom and would improve soon.

In the early 80s, even the credit union at my megacorp was paying 14% interest or more. I had my money in there, and never did think of taking it out until much later, when the market already moved up. Yes, one has to stay alert, which I failed to do, being so busy with starting a family.
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Old 11-05-2012, 11:11 AM   #150
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The interest rate environment of the '70s is very different from that today. A century of data says that when 10-year Treasuries yield above 5% (most of 1970s), stock prices move the opposite direction of yield changes. When the 10 year yield is below 5% (today) stock prices move in the same direction as yield changes. Since the 10-year is currently below 5% and expected to rise, stocks will rise concomitantly. Once the 10-year reaches 5% and increases further, stocks will falter.
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Old 11-05-2012, 11:17 AM   #151
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SWR for stocks and bond funds is 0% ? I guess if and when society is in a sufficient decline, that could be true. A lot of strange things has happened before in history.

However, when things get that bad, I do not see how SPIA, pensions, and SS would be worth anything. Just ask pensioners of the old Soviet block countries, China, and currently of Greece. These countries still exist, yet a lot of people are miserable, and it was not because they had a lot of stocks and bonds that became worthless.
In a Greek, or worse scenario, everyone will be in deep trouble whatever your AA, but needing in 0% WR from your stock and bond portfolio is useful through market down turns that fall short of the apocalypse and it's always nice to reinvest the dividends and gains in the good times.

Paying off the mortgage while you are working so that you have a 0% WR in retirement just lets me sleep well at night.
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Old 11-05-2012, 11:23 AM   #152
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The interest rate environment of the '70s is very different from that today. A century of data says that when 10-year Treasuries yield above 5% (most of 1970s), stock prices move the opposite direction of yield changes. When the 10 year yield is below 5% (today) stock prices move in the same direction as yield changes. Since the 10-year is currently below 5% and expected to rise, stocks will rise concomitantly. Once the 10-year reaches 5% and increases further, stocks will falter.
When interest goes up to approach double digit, P/E contraction will hurt stocks like crazy, that's for sure!
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Old 11-05-2012, 02:20 PM   #153
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Looks like wiki has Dow flat for the most part from 1970-1980. If I remember correctly, while yahoo finance shows 10 year treasury at about 8%. However, look at 1990 to 2000 and treasury rates show up to 12% so I'd think inflation was worse in second decade and wiki shows Dow up from 1000 to 3000 in that time. I've heard that stocks do better in high inflation cause they can raise prices as needed. Just wanted to add some real numbers to memories
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Old 11-05-2012, 02:32 PM   #154
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Let's not forget that in order to compete with high interest rates, stocks had to pay a lot higher dividends that they do now. That helped lessen the pain.

Regarding the high inflation period, you left out the decade 80-90. It was in the early 80s that interest rates peaked up. The 30-yr mortgage for my 1st home was at 14%, closed in April 1980. It was after Volker raised fed fund rates up to 20% in 1981 that the inflation subsided, and stocks started to take off. The prime rate reached 21.5% in 1981 also.

PS. I just looked up the inflation rate in the early 80. The peak was at 14.76% in March 80, right at the time I bought my 1st home, but was generally around 14% for all of 1980. It lingered above 10% for most of 1981, before succumbing to Volker's bitter medicine. In 1982, it was about 6-7%, and dropped to the 3% range in 1983. Stocks rocketed after that, allowing many of the boomers to happily retire into the sunset. What a poetic ending!

PPS. Of course, the rise of stocks in the 1982-2000 period was also attributed to the peace dividend after the end of the Cold War. How lucky are the boomers? Of course, they had to suffer through it and the Vietnam War first.
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Old 11-05-2012, 02:46 PM   #155
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Looks just the opposite to me. 10yr peaked in '81 at almost 16%. It started in '90 at about 8.5% and has been declining since. Inflation was out of control in the '70s mostly driven by commodities/energy prices. It was mild during the 90s, plus declining interest rates made a perfect time for stocks.
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Old 11-05-2012, 03:18 PM   #156
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IMHO a SWR for stocks and bond funds is 0%. Your retirement essential income should come from SPIAs, SS a pension or other stable income sources.
Still trying to make sense of this - I can understand low, but 0% makes no sense at all. If you're going to withdraw 0%, you don't need any portfolio at all...
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Old 11-05-2012, 03:23 PM   #157
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Old 11-05-2012, 03:25 PM   #158
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Still trying to make sense of this - I can understand low, but 0% makes no sense at all. If you're going to withdraw 0%, you don't need any portfolio at all...
Maybe he means not spending down the assets but living off dividends/interest ?
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Old 11-05-2012, 03:31 PM   #159
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The interest rate environment of the '70s is very different from that today. A century of data says that when 10-year Treasuries yield above 5% (most of 1970s), stock prices move the opposite direction of yield changes. When the 10 year yield is below 5% (today) stock prices move in the same direction as yield changes. Since the 10-year is currently below 5% and expected to rise, stocks will rise concomitantly. Once the 10-year reaches 5% and increases further, stocks will falter.
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When interest goes up to approach double digit, P/E contraction will hurt stocks like crazy, that's for sure!
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Looks like wiki has Dow flat for the most part from 1970-1980. If I remember correctly, while yahoo finance shows 10 year treasury at about 8%. However, look at 1990 to 2000 and treasury rates show up to 12% so I'd think inflation was worse in second decade and wiki shows Dow up from 1000 to 3000 in that time. I've heard that stocks do better in high inflation cause they can raise prices as needed. Just wanted to add some real numbers to memories
I'm impressed with the high-definition clarity of your crystal balls. It almost makes me want to give up asset allocation and be an active trader.

Nah, sounds like work.
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Old 11-05-2012, 04:08 PM   #160
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I'm impressed with the high-definition clarity of your crystal balls. It almost makes me want to give up asset allocation and be an active trader.

Nah, sounds like work.
Well, since you quoted me... Of course when we looked back at history, which were what we talked about, it was so clear.

About AA, I do that too, but reserve the right to modify it as I see fit. Active trader? Nah. Things usually do not happen that fast. Though I have nothing against day trading, I do not see how I can make money that way. Year trading, or even decade trading, now that's different. I have the patience, you see.

About it being work, I do not mind the work, but the question I ask is, does it pay? I guess time will tell.

PS. I really, really need to log off to go to Home Depot now. See ya all later.
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