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Old 01-10-2019, 12:02 PM   #41
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Did he say that before or after 2008/2009.... he was whistling different tunes at different times IIRC.

Far as I know, Bernstein has never changed his tune on that..wouldn't make sense to, as it's a wise strategy regardless of what the market is doing at any particular moment.
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Old 01-10-2019, 01:21 PM   #42
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Quote:
Originally Posted by pb4uski View Post
Did he say that before or after 2008/2009.... he was whistling different tunes at different times IIRC.
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Originally Posted by RetireSoon View Post
Far as I know, Bernstein has never changed his tune on that..wouldn't make sense to, as it's a wise strategy regardless of what the market is doing at any particular moment.
It appears he said it before 2008, and was even more convinced by 2012. But he seems to have radically changed his views on the risk tolerance/ability to 'buy & hold' of clients...

Quote:
Bernstein was asked “How much exposure should people have to stocks?” He answered:
A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take risk by investing in equities.
Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.
I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?
How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.
The reason why stocks aren’t very risky for a young person is that you have a lot of “human capital” (ability to make money working) left. On the eve of retirement, you don’t have any of that.
https://www.whitecoatinvestor.com/be...-win-the-game/

https://esimoney.com/youve-won-game-stop-playing/
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Old 01-10-2019, 01:42 PM   #43
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But "won the game" has to include inflation of which there is no good forecast. I've "won the game" but will only pare down to perhaps 40% stock exposure at the minimum.
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Old 01-10-2019, 03:32 PM   #44
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But "won the game" has to include inflation of which there is no good forecast. I've "won the game" but will only pare down to perhaps 40% stock exposure at the minimum.
If I am not mistaken his "Won the game" stance includes someone in retirement not being more than 50% (That's Fifty) in stocks. So, your 40% stocks is in the neighborhood. I'm pretty sure that's a Bernsteinism from one of his articles on the subject. So, it's not like he thinks at a certain point stocks ought to be abandoned as too risky. He just doesn't jump on the "stocks uber alles" bandwagon as a necessity.

Altho I believe he does state, perhaps in an interview (can't find the link att) when asked about inflation he says something like: "Bonds pretty much keep up with inflation anyway" suggesting that yes, you can forget stocks.

If I can untangle my mass of links on the subject I'll post
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Old 01-10-2019, 03:49 PM   #45
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But if 40/60 is ok in his book and we know that success rates are not significantly different from 40/60 to 90/10, and are actually a tad higher for 55/45 to 70/30, so I'm not sure what the point of his advice is.
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Old 01-10-2019, 05:18 PM   #46
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Text search says "Inflation" has only been mentioned by a couple of posters here and never by the OP.

If we average 30 years of inflation history we get something like 2.4%. At 2.4% going out the OP's 17 years, a dollar's buying power is only 65 cents.

30 years average sounds conservative but the period starts just after the last round of exciting inflation in the late 70s. The 40 year average is about 4.1%. So again looking at 17 years a dollar's buying power is 49 cents.

The politically least painful way for the politicians to "fix" social security will be to include reduction or elimination of the inflation indexing.


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Old 01-10-2019, 08:06 PM   #47
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Yes that is the difference, and not an insignificant one. For the previously mentioned scenario firecalc gives average ending portfolio balances of the following for the given % allocation to equities:


100: 6,926,874
90: 5,600,304
80: 4,401,022
70: 3,344,423
60: 2,435,548


Seems to me firecalc is screaming at us all to keep a higher stock allocation. Yes you'd see more volatility, which I guess would be scary, but losing literally millions of dollars is pretty scary too.




I'm in a similar postion as the OP and these numbers here is what keeps me in a high equity position. That's a heck of a lot of money to leave on the table so you can "sleep better at night" IMO.

If his annual expenses are $40,000 then he has 2 and a half years of expenses in bonds and not stocks. He could draw on that if we have a bear market and given the avg bear is 18 months he would be OK.
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Old 01-11-2019, 03:27 AM   #48
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Far as I know, Bernstein has never changed his tune on that..wouldn't make sense to, as it's a wise strategy regardless of what the market is doing at any particular moment.
He did indeed completely change his tune after many of his clients reacted very poorly to the 2008/2009 market crash.
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Old 01-11-2019, 04:54 AM   #49
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He did indeed completely change his tune after many of his clients reacted very poorly to the 2008/2009 market crash.

How so? I read the earlier quote posted and it appears to reinforce the "when you've won the game, quit playing" as Bernstein talks about people who had indeed won the game but kept their equity positions unnecessarily high, only to watch it vaporize in the 2008 downturn. They then compounded the problem by selling into weakness. Seems that's exactly the point - they had won the game, so should have reduced equity to a more manageable / lower risk level. (Bernstein also goes on to say that too many equities in retirement can be "nuclear level toxic", and I agree).

I wouldn't interpret "quit playing" as being TOTALLY out of stocks. But instead to dial back your equity exposure to a much more reasonable level (say, 50% or less). If you follow the very common "age in bonds" mantra, a 50+ YO retiree should be 50+% in some kind of fixed income, which would include Bonds, Bond Funds, CDs, MMs, etc. Some may choose to ignore the "age in bonds" guidance, but that's just taking on risk that is in most cases entirely not necessary given the relatively small variations in average annual portfolio return at different AA allocations. Sure, fixed income is "boring" compared to stocks, but the dividend income can be a big part of what covers your annual expenses, also, without "touching the principal"..

It all comes down to risk, and an investor's ability to take on that risk. Bear markets do not always recover in 18 months, and there's no guarantee the next 10-20 years will be anything like the last 10-20 in terms of equity returns. There are multiple (too many for my comfort) periods throughout the market's history where it can take 5-10 years for the market to recover to it's previous levels. If you start with $1M in equities, and it takes 10+ years to get back to $1M in equities, a question we all have to answer is "am I comfortable selling part of my portfolio when it's worth (potentially much) less than I started with?" I'm personally not wild about finding myself in that scenario in retirement. So, I instead invest a good chunk of my portfolio in CDs, MMs, etc. If the market is down (like in 2018), those more liquid parts of the portfolio allow you to cover spending without having to drawn down the equity part of the portfolio. If, on the other hand, you're many years from retirement, you're still generating income via your human capital and a 5-10 year recovery time is not as big of a deal. In fact, you're buying at lower cost and can also take on much more equity risk with higher % equities overall. But with OP potentially no longer working, the human capital return goes way down (potentially to 0) and the risk being taken with the only other source of income (portfolio) becomes exponentially more important.

A good rule of thumb that I've heard many times is "don't invest a penny in stocks that you expect to need in <10 years". Good advice, IMHO and that's my own plan. The stock portion of my portfolio is my 10+ year money..I only hope DW and I are fortunate enough to live long enough to pull from it. Watching many friends and family in their 50s and 60s not make it to their next birthday, I'm increasingly aware that there might be a scenario where someone else is pulling from that 10+ year bucket.

So, to OPs original question on AA - having multiple "buckets" (as recommended by Christine Benz @ Morningstar) to cover different spending periods in retirement is a pretty good strategy. Unfortunately, 90% equities ties up most of the portfolio in a "10-year" bucket and OP may find himself in a tough situation (selling into a market where the value of his equity portfolio is less than he started with) unless there are other spending buckets established to cover those potentially 5-10 year periods where the equity position of the portfolio is down from where it started..

All JMHO but if OP is indeed retiring, 90% equities seems to be at best a very high risk strategy and building up some other "buckets" (1-3 years, 3-5 years at a minimum) with fixed income assets would be recommended, especially at his age and job status..
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Old 01-11-2019, 05:02 AM   #50
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How so? I read the earlier quote posted and it appears to reinforce the "when you've won the game, quit playing".


I wouldn't interpret "quit playing" as being TOTALLY out of stocks. But instead to dial back your equity exposure to a much more reasonable level (say, 40% or less).
Yes he does. He changed to say to have 20 to 25x income needs in cash, cash equivalents and very high quality fixed income. Only funds above that should be invested in stocks. So someone seeking to retire with typical 25x needs is looking at a 100% conservative fixed income portfolio or is advised to retire with a much larger pile if they want some stock exposure.
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Old 01-11-2019, 05:40 AM   #51
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Yes he does. He changed to say to have 20 to 25x income needs in cash, cash equivalents and very high quality fixed income. Only funds above that should be invested in stocks. So someone seeking to retire with typical 25x needs is looking at a 100% conservative fixed income portfolio or is advised to retire with a much larger pile if they want some stock exposure.
And there is the issue. If one wishes to draw 4% of current portfolio for example, current non equity instruments will not provide that 4% return without taking on high yield risk, etc.
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Old 01-11-2019, 07:19 AM   #52
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The risk we are talking about is not risk of low market returns tanking a portfolio, it's a risk that you as the investor will make poor choices


Quote:
A lot of people had won the game before the [2008] crisis happened: They had pretty much saved enough for retirement, and they were continuing to take risk by investing in equities.
Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.
I began to understand this point 10 or 15 years ago, but now I’m convinced: When you’ve won the game, why keep playing it?
How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren’t as risky as they seem. For the middle-aged, they’re pretty risky. And for a retired person, they can be nuclear-level toxic.
This class of risk is an entire different beast than what people normally call risk. I'm not going to pretend at my young age that I'm some kind of super rational entity that would never make such a mistake myself, but I think it's worth noting that when we are talking about holding a lower equity allocation we are talking about protecting ourselves not from the market, but from ourselves.


Also it's worth nothing that this protection only exists in the earlier portion of retirement, it's like sequence of return risk. After a decade, a 100% equities portfolio drawing 4% a year is on average 1.74 times as big as a 100% bond portfolio doing the same, meaning the equity scenario could at that time withstand a 42% drop, and you could then sell all equities for fixed income, and you'd be no worse off than if you had been in the bond scenario the entire time. And of course if you don't sell at the bottom you are in a much better position.



Also, those people who 'won the game' by 2008 but were high in equities then, got to that winning position by being in equities. (unless someone had been sitting on fixed income their whole life then sold for equities in 2007). So arguing that they should have not been in equities anymore as of 2008, I don't see how that's not just arguing for market timing. Unless these people were supposed to have crossed an imaginary portfolio number, and then switched AA drastically down to more fixed income because they hit their number, there was nothing significantly different from their perspective going in to 2007 and going in to 2008. It's very easy in hindsight to say people should have had more fixed income in 2008, but is it as easy to say that about 2005?
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Old 01-11-2019, 07:33 AM   #53
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Yes he does. He changed to say to have 20 to 25x income needs in cash, cash equivalents and very high quality fixed income. Only funds above that should be invested in stocks. So someone seeking to retire with typical 25x needs is looking at a 100% conservative fixed income portfolio or is advised to retire with a much larger pile if they want some stock exposure.



That's a pretty extreme stance. I don't see in firecalc how to include cash in the portfolio, but using other calculators, having 25x times spending in 50/50 bonds/cash is a pretty clear recipe to go broke. Maybe if you are retiring at age 75 that would work...
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Old 01-11-2019, 08:00 AM   #54
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Here's a thread discussing Bernstein's "won the game" ultra-conservative AA recommendation for retirees:

The Worst Retirement Investing Mistake
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Old 01-11-2019, 08:02 AM   #55
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Good point.
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Old 01-15-2019, 05:09 PM   #56
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Does Firecalc take into consideration that you have to pay taxes on your withdrawals that you have to live on and on SS and so forth? So you actually have to take out more money from your savings/investments than just what your net expenses are?
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Old 01-15-2019, 05:28 PM   #57
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Does Firecalc take into consideration that you have to pay taxes on your withdrawals that you have to live on and on SS and so forth? So you actually have to take out more money from your savings/investments than just what your net expenses are?
You need to estimate what your taxes will be and treat them as an expense. There's no way for firecalc to do that, because the effective tax rate will vary greatly from person to person.
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Old 01-15-2019, 05:48 PM   #58
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I like the Boglehead rule of thumb: "keep your age in bonds".
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Old 01-15-2019, 05:59 PM   #59
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I like the Boglehead rule of thumb: "keep your age in bonds".
Some folks have modified that concept to 110 or 120 minus age equals stock allocation, as the concept of keeping up with inflation related to stocks has received more press.
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Old 01-16-2019, 05:48 AM   #60
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Thank you! I have to think about that. That would equate to like $330,000 in bonds. I've always been a big stock guy, but I get the logic.
I have a little less than you (765k) but have a monthly State Pension (+ free healthcare) that begins in 23 months. I retired in 12/2017. I followed the previous posters advice and purchased CDs and Bonds (40k each) that mature each year over the next 7 years.

Having some fixed income due annually allows me to either use the money as needed OR strategize annual transfers from my IRA to my Roth (at least for the next two years.)

Oh, I also picked up a side hustle - 10-15 hour weeks with maximum flexibility.

Cheers,
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