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Change in Subjective/emotional risk tolerance after FIRE?
Old 02-19-2015, 11:33 AM   #1
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Change in Subjective/emotional risk tolerance after FIRE?

On the seven-years living expenses thread, Chuckanut made the following, sound post:

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Originally Posted by Chuckanut View Post
One thing that must be considered is the human emotional element.

If one's ability to act rationally in the face of a relentless bear market is strong, then keeping a big cash buffer is not necessarily useful.

If one is going to panic and sell low, then having the extra cash security blanket that will reduce or eliminate panicky selling, is a good idea.

Know thyself. Just my 2 cents.
To those of you who have retired, did you find that your "ability to sleep at night" tolerance for swings in the market change much? It is easy for me to think that we have very high fluctuation tolerance, as we never have thought about getting out of 100% (now 95%) equities since we started investing in the mid 80s. But, I suspect that one's tolerance may change when there is no longer a dual-income streaming in.

Thoughts?
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Old 02-19-2015, 11:51 AM   #2
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When I was working, I pretty much had 100% equities. And most of it was in equity in the company I worked for.

As I realized I was FI and could retire if I wanted to, I looked into how to build a diversified portfolio to live off of in retirement, and I concentrated mainly in diversifying away from my huge concentration in company stock.

For many folks contemplating living off of investments and no paycheck is very, very scary and takes some getting used to. It was for us too. It probably took a couple of years to not pay attention to that anymore.

The markets were pretty high (1999) when I retired. I decided to average in to my investment plan, but pretty much stick to an asset allocation that I would rebalance occasionally.

Before retiring we also put aside quite a bit of extra funds for travel in the first couple of years - quite a bit of padding with cash. This eventually became part of a cushion that we maintained for covering a couple of years expenses. That way we could ignore the occasional wild market gyrations because we knew we would could wait it out for a couple of years before drawing on the portfolio, it we chose to do so.

We made it through 2000-2002, then we lived through 2008-2009 which was even worse! And having that cushion really helped me psychologically, especially when I needed to rebalance in the face of a crashing stock market. DH sleeps well at night because he knows I am minding the store.

I understood from earlier investing attempts that personal psychology played a huge role, so I worked hard to figure out what would work for me and what I could stick with.
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Old 02-19-2015, 12:13 PM   #3
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We have a pretty conservative portfolio these days. It is more for contentment issues than purely financial, based on the law of diminishing marginal utility. Simply put, losing half our life savings at our ages would hurt a lot more more than doubling it would bring pleasure.

Our idea of won the game is likely much lower than many posters here, but we feel based on our simple living kind of retirement lifestyle, we've reached a Bill Bernstein level of won the game, we are going to stop playing now kind of investment needs going forward:

http://whitecoatinvestor.com/bernste...ame/?print=pdf
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Old 02-19-2015, 12:36 PM   #4
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The risk of going broke due to a market catastrophe is higher after you cut the cash flow cord. The risks of the withdrawal phase are inherently different from the accumulation phase. It is rational to want to mitigate those risks. Those are the facts, so it is not surprising to feel differently about the situation after retirement.
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Old 02-19-2015, 12:38 PM   #5
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Quote:
Originally Posted by 2017ish View Post
On the seven-years living expenses thread, Chuckanut made the following, sound post:



To those of you who have retired, did you find that your "ability to sleep at night" tolerance for swings in the market change much? It is easy for me to think that we have very high fluctuation tolerance, as we never have thought about getting out of 100% (now 95%) equities since we started investing in the mid 80s. But, I suspect that one's tolerance may change when there is no longer a dual-income streaming in.

Thoughts?
How could it be otherwise? Ha
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Old 02-19-2015, 12:53 PM   #6
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Quote:
Originally Posted by 2017ish View Post
To those of you who have retired, did you find that your "ability to sleep at night" tolerance for swings in the market change much? It is easy for me to think that we have very high fluctuation tolerance, as we never have thought about getting out of 100% (now 95%) equities since we started investing in the mid 80s. But, I suspect that one's tolerance may change when there is no longer a dual-income streaming in.
I retired in 2011, so I'm not really qualified to answer the first question. I'd contend that no one who retired after 2009 is qualified, they can only speculate.

We were essentially 100% equities until I was 51, and we did very well investing fortunately. While that might have continued indefinitely, once you've achieved your own definition of FI (well more than 25x expenses for me), as Bernstein says, "once you've won the game, why keep playing?" While you're almost certainly foregoing the higher returns of an all equity portfolio, once retired, accepting more modest returns in exchange for avoiding a catastrophic loss seems like a smart choice. There's no need to test the limits of your risk tolerance anymore.

For some enough is never enough (why ever retire?), for others it is...
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