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Old 12-21-2014, 11:22 AM   #21
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My target is 60/15/25 equities/bonds/Real Estate. I'm still working on getting it fine tuned because most of it is in taxable funds and I also don't want to create any major taxable events. But I'm getting there.
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Old 12-21-2014, 12:03 PM   #22
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I forgot that I'd put together a picture of how the markets behaved from 1968 to 1982. This was one of the worst retirement periods in our history including 3 bad recessions and an inflation spike period -- also Vietnam War, Watergate, the Arab oil embargo.

Below is data on how the bond and stock markets did in that period. The "cum bonds" and "cum stocks" columns show the cumulative real returns over those years. You can see that there was really no place to completely hide but bonds were somewhat of a less volatile ride then.

That must have been a very torturous time for people with heavy slants to either stocks or bonds ... but worse volatility indeed for stocks.


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Old 12-21-2014, 01:23 PM   #23
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I am 60/40. My age -10 in bonds in my IRA. I just retired. If I add my emergency fund (muni ETFs) its more like 55/45.

If i include the value of my gov. pension (as recommended by Mr. Bogle and others) i am probably 15/85. :-)
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Old 12-21-2014, 03:02 PM   #24
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One of the most important aspects of determining an AA is one's risk tolerance. For those of us on the cusp of ER, we have sequence of returns to deal with. Pfau recommends the rising glidepath approach (lower equities at beginning of retirement rising gradually from there). Criticism of his approach is it fails to take into account an older retiree's comfort with an 80% equities PF. Cotton recommend also recommends lower equities during early retirement years as partial remedy to dreaded sequence of returns risk. Finally, Bernstein recommends taking your chips off the casino table once you've won the game.

For this reason, I will rebalance to 40/60 in two weeks as I ER 3/15. Yes, it's on the lower end of equities allocation, but it is in line with my more conservative risk tolerance and I already have enough fixed income to cover essentials.
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Old 12-21-2014, 05:35 PM   #25
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I forgot that I'd put together a picture of how the markets behaved from 1968 to 1982. This was one of the worst retirement periods in our history including 3 bad recessions and an inflation spike period -- also Vietnam War, Watergate, the Arab oil embargo.

Below is data on how the bond and stock markets did in that period. The "cum bonds" and "cum stocks" columns show the cumulative real returns over those years. You can see that there was really no place to completely hide but bonds were somewhat of a less volatile ride then.

That must have been a very torturous time for people with heavy slants to either stocks or bonds ... but worse volatility indeed for stocks.


.
I think long term high inflation is the real killer. Once annual inflation gets to the 8-10 +% range and stays there for years I feel one's goose is largely
cooked if one is depending on either bonds and/or stocks. I think (hope) the Fed and other western nations central banks have learned from past experience.
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Old 12-21-2014, 05:45 PM   #26
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I think (hope) the Fed and other western nations central banks have learned from past experiencI think long term high inflation is the real killer.
And realistically, what are the chances of that?
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Old 12-21-2014, 06:00 PM   #27
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I think long term high inflation is the real killer. Once annual inflation gets to the 8-10 +% range and stays there for years I feel one's goose is largely
cooked if one is depending on either bonds and/or stocks. I think (hope) the Fed and other western nations central banks have learned from past experience.
We've definitely learned some lessons. But history will be different going forward with other lessons to learn for us and our central bank. There was high inflation as a result of WW2 spending, another example of what could happen.

Anyway, best to have a conservative strategy that takes into account what we can plan for.
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Old 12-21-2014, 06:51 PM   #28
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And realistically, what are the chances of that?
I dunno. I don't think anybody knows - but I really don't buy into the conspiracy theorists that assume that the Fed and other central banks whole existential purpose is to dig our collective financial graves.
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Old 12-21-2014, 06:54 PM   #29
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We've definitely learned some lessons. But history will be different going forward with other lessons to learn for us and our central bank. There was high inflation as a result of WW2 spending, another example of what could happen.

Anyway, best to have a conservative strategy that takes into account what we can plan for.
Yes, economics theory is not quite settled is it?
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Old 12-21-2014, 06:57 PM   #30
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I dunno. I don't think anybody knows - but I really don't buy into the conspiracy theorists that assume that the Fed and other central banks whole existential purpose is to dig our collective financial graves.
You answered, or appeared to answer, a totally different question. But hey, why not?
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Old 12-21-2014, 07:00 PM   #31
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You answered, or appeared to answer, a totally different question. But hey, why not?
Damn, and here I thought I'd found a soap box...
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Old 12-21-2014, 07:27 PM   #32
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Yes, when there's high inflation there's no place for investors to hide.

Actually, the chart that Lsbcal posted shows that both stocks and bonds were able to keep up with inflation over the long term (see cumulative returns of both), but with stocks having higher volatility. There's just no real gain for you to draw 4%/yr and still see your money stay the same, let alone grow.

I did a step further by asking myself how an investor would fare with a balanced 50/50 portfolio. Making a quick spreadsheet for myself, I see that at the end of the 1968-1982 period, this balanced investor would have a cumulative return after inflation of 3.6%, just a hair better than the pure bond and pure stock investors (1% and -5%). And that is after 14 years.

Then, by curiosity I wonder if active balanced funds would do better. I look at Wellesley and Dodge & Cox Balanced Fund. Wellesley started in July 1970, while the venerable Dodge & Cox goes back to 1931 and Morningstar has data going back to 1960.

What I found was the following. Both funds ran neck-to-neck from July 1970 to Jan 1983. So, it's safe to say that they would be quite similar for the period of 1/1968-12/1982, where DODBX's performance is on Morningstar.

The answer is: 8% cumulative return after inflation over 14 years! A tad better than do-it-yourself rebalancers, but not significant.

So, no wonder that FIRECalc shows the above period was where a 4% WR would cause unbelievably shrinking portfolios.
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Old 12-21-2014, 07:36 PM   #33
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Sooo, what is one's conservative plan?

For me, that's my modest 25' motorhome, which I can drive off to camp out on New Mexico state land. Ah, they charge less than $300/year for a camping permit, and with $4/day they will let me plug in the electric cord to have A/C in the summer.

Ah, such an easy life, with an open blue sky above, and vast terrain to the horizon. What's not to like?
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Old 12-21-2014, 07:46 PM   #34
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Sooo, what is one's conservative plan?

For me, that's my modest 25' motorhome, which I can drive off to camp out on New Mexico state land. Ah, they charge less than $300/year for a camping permit, and with $4/day they will let me plug in the electric cord to have A/C in the summer.

Ah, such an easy life, with an open blue sky above, and vast terrain to the horizon. What's not to like?
I think investors in really high inflation countries - Argentina, Brazil? have largely relied on real estate and investments outside (other currencies /countries). But, if one has no debt and owns land I think one can take comfort in the old adage "this too shall pass"
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Old 12-21-2014, 09:26 PM   #35
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... in the old adage "this too shall pass"
and so does our life. We do not live forever, so there's no need for our stash to remain indefinitely.

OK, seriously, I do not think I have to resort to living in my motorhome out of necessity. Even if I merely keep up with inflation, a 3.5%WR means I can live off my stash for 30 years, and I do not think I will live that long. Of course if it gets tough, I will cut back spending (selling the 2nd home is the 1st thing to do), and I also have SS.

But I am so used to seeing my stash grow that it is going to be very tough watching it shrink and shrink. I am a scrooge, and I know it.
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Old 12-21-2014, 09:45 PM   #36
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But I am so used to see my stash grow that it is going to be very tough watching it shrink and shrink. I am a scrooge, and I know it.
I share this problem too. Good for the heirs but a not a wise thing to do. Time to change and grow?

And there is no guarantee that it will shrink, as the up and to the left FIRECalc lines show. For me I have to push myself to enjoy the present and luckily I have a willing accessory to the crime (DW bless her heart).
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Old 12-21-2014, 10:39 PM   #37
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I would not be so scroogy to deny myself some materialistic pleasures. But I do not have snobby tastes, nor expensive habits. If my stash suddenly grows 2x, I would not spend 2x more, even though that still means a WR of 3.5%.

I can only eat, drink, or travel so much, so the pleasure that I can buy and consume is limited (one can spend a lot of money on luxurious and frivolous goods and services, but my nature will not let me enjoy that). On the other hand, my counting pleasure will be enhanced if I can ever get to a 8-figure portfolio. And I do not think I would be tired of counting money ever. The pleasure of consumption can get old and I get used to it, but the pleasure of counting money never ends, if you understand me. And to see it shrinks, man, that will really hurt.
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Old 12-21-2014, 11:16 PM   #38
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I would not be so scroogy to deny myself some materialistic pleasures. But I do not have snobby tastes, nor expensive habits. If my stash suddenly grows 2x, I would not spend 2x more, even though that still means a WR of 3.5%.

I can only eat, drink, or travel so much, so the pleasure that I can buy and consume is limited (one can spend a lot of money on luxurious and frivolous goods and services, but my nature will not let me enjoy that). On the other hand, my counting pleasure will be enhanced if I can ever get to a 8-figure portfolio. And I do not think I would be tired of counting money ever. The pleasure of consumption can get old and I get used to it, but the pleasure of counting money never ends, if you understand me. And to see it shrinks, man, that will really hurt.
Well, Sr. Rico McPato may you forever enjoy counting!
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Old 12-21-2014, 11:44 PM   #39
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If I convert my stash to Kruggerands, at the current price I may get a couple of shovels.

Come to think about the love of money, I guess I share this trait with the well-known billionaires, though I do not have their knack of making money. Wouldn't Buffett love to count money, though he is not running Quicken at the end of the day to tally up like I do? He probably has a personal bean counter whose job is to add up all his assets, then to report the final number daily by a text message. "Sir, today you are up two billion, three hundred and fifty four millions."

Buffett does not amass this fortune with consumption in mind like we do. His wealth is so far above consumption. It is purely for the pleasure of counting it. I don't think he even spends $10M a year, which is less than a WR of 0.02%.

PS. Many years ago, I read about Bill Gates looking for a personal wealth manager. He found a MF manager, and vetted him carefully to be sure he was cleaner than a whistle, not even having a traffic ticket in his life. This MF manager got the job of managing a fortune larger than most MFs. For example, Wellesley is only $41B while the top billionaires including Gates and Buffett have more than this.
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Old 12-22-2014, 04:57 AM   #40
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i run 35-40% equities . i believe in investing to meet my goals not grow richer anymore.

the rest of the portfolio is in various bond funds.

the portfolio has always been dynamic changing over time as the big picture changes.

one day the bond money will shift to more appropriare investments when rates rise back towards their norm.

but for now it is a mix i am comfortable with and severe hit right before i retire in july will not be devastating .
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