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Consumer Reports 12 Money Mistakes
Old 01-06-2008, 09:10 PM   #1
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Consumer Reports 12 Money Mistakes

In the February 2008 issue of Consumer reports there is an article entitled "12 Money Mistakes That Could Cost You $1,000,000 (pg 16)

#1 was....Investing too conservatively during retirement. The Consumer Reports Money lab and Ibbotson Associates, a Chicago investment research firm analyzed how well a range of stock and bond portfolios would have performed using data from 1940 to 2006. They assumed an investor retired at 65 with 500,000 to invest and a 3% withdrawal rate. They ran it over a variety of 20-35 year periods from 1940 to 2006 and found an all stock portfolio provided the investor with $750,000 more than an all bond one.

Their conclusion is that you should weigh your asset mix as heavily toward stock as your comfort level allows during retirement.

So what do you guys think?
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Old 01-06-2008, 09:16 PM   #2
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In the February 2008 issue of Consumer reports there is an article entitled "12 Money Mistakes That Could Cost You $1,000,000 (pg 16)

#1 was....Investing too conservatively during retirement. The Consumer Reports Money lab and Ibbotson Associates, a Chicago investment research firm analyzed how well a range of stock and bond portfolios would have performed using data from 1940 to 2006. They assumed an investor retired at 65 with 500,000 to invest and a 3% withdrawal rate. They ran it over a variety of 20-35 year periods from 1940 to 2006 and found an all stock portfolio provided the investor with $750,000 more than an all bond one.
I saw that article and was amazed (and disappointed) by it. They made no effort to investigate what happens if you withdrew money every month for expenses; how the volatility of an all-stock portfolio would be affected, failure rates, etc.

It was oversimplified to the point of being dangerously misleading. CU usually does much better. I hope someone with financial credibility sets them straight.
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Old 01-06-2008, 09:31 PM   #3
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I saw that article and was amazed (and disappointed) by it....

It was oversimplified to the point of being dangerously misleading...
You're too kind. I could not believe what I was reading. Looks like something from Money Magazine...
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Old 01-06-2008, 10:45 PM   #4
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You're too kind. I could not believe what I was reading. Looks like something from Money Magazine...
My reaction was the same. As a long time subscriber, I've often thought that both the magazine and its readers would be better off without their editorial insight on financial planning.
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Old 01-06-2008, 11:58 PM   #5
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Regardless of how they derived their conclusions, from what I've seen, older retirees, say from the greatest generation, have invested too conservatively. Of course they have. They are from the land of defined benefit plans and health care for life. I think if you look at the retirees on this board and retirees who begin retirement over the next 10 years and beyond you will see a much more aggressive game plan-------and perhaps in a few years CR will take credit for the change.
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Old 01-07-2008, 10:46 AM   #6
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I, too, was disappointed in CU for this article. I subscribe to the CU Money Adviser and find it generally has meatier analysis.

That said, I think CU has dumbed it self down in recent years in search of greater news stand sales.
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Old 01-07-2008, 04:12 PM   #7
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I agree that the article would mislead most people.

But, at a 3% withdraw rate, it probably wouldn't matter. Some of my playing with FireCalc leads me to think of an SWR approaching 3% is a 'forever' portfolio.

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Old 01-07-2008, 05:48 PM   #8
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CU is not such a great publication to acquire financial advice. Stick to the best power drill etc and you will be ok.
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Old 01-07-2008, 10:34 PM   #9
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I just read the article and agree it is too basic and misleading. Also, the comment on NOT RETIRING EARLY really set me off. The author states you can lose money by not working until age 65. Well, Duh! You also lose money if you retire at all.

The point of early retirement is not to not lose money it is to live your life before you can't anymore. Being FI is required to ER. ERing prior to being able to pay for your 30+ years out of bondage is foolish. If one can't afford to retire then don't. Keep at the grindstone until you have reached FI.
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Old 01-07-2008, 10:43 PM   #10
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The point of early retirement is not to not lose money it is to live your life before you can't anymore.
You've made a very valid point!
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12 Money Mistakes - Consumer Reports
Old 01-09-2008, 10:09 AM   #11
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12 Money Mistakes - Consumer Reports

I think for anyone over the age of 50, this was poor advice. Someone in their 20-30's has time to make up a bear market, but when you are in your 50's and beyond you do not have time to make up money lost if you have 80% or more of your money in equities.
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Old 01-09-2008, 10:31 AM   #12
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I think for anyone over the age of 50, this was poor advice. Someone in their 20-30's has time to make up a bear market, but when you are in your 50's and beyond you do not have time to make up money lost if you have 80% or more of your money in equities.
My read of the article is that it clearly and explicitly refers to retirees.
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Old 01-09-2008, 10:32 AM   #13
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I remember one of those old joke calenders() desktop variety:

Meskerman's Corrollary - that which hits the fan is not distributed equally.

Back in the day ala pre 1958 or so - getting 3 to 4% dividends from a 100% stock portfolio was a matter of the Norwegian widow making sure nobody got between her and the mailman delivering the checks.

As time has marched on - ya gotta watch what you own , TWD, RTM, and try not to panic or get jealous of balanced index funds.

Gemme that old time religion can be sung in different keys - Norwegian or Wellington, Dodge&Cox Balanced or pssst Wellesley.

heh heh heh - as usual the devil is in the details.

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Old 01-09-2008, 10:35 AM   #14
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My read of the article is that it clearly and explicitly refers to retirees.
Yep. That's what makes the equity recommendation "dangerously misleading" as you said.
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Old 01-09-2008, 10:56 AM   #15
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Hmmm - Yes I could say more but I would violate my pssst Wellesley rule and make even a Curmudgeon certificate curl at the edges.

My opinion of some of the 'quick' investment advice I read in Consumer Reports, AARP and elsewhere would get me banned in Boston and possibly from this very forum.

heh heh heh -
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Old 01-09-2008, 11:20 AM   #16
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I agree that CR is outside their area of expertise. Their reviews of toasters and cars are good but all this stuff on services, medical, financial is definitely below standard. And it is misleading which is the worst part.

I have supported the organization for 35 years but I am considering dropping them next year.
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Old 01-29-2008, 10:41 PM   #17
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I saw that article and was amazed (and disappointed) by it. They made no effort to investigate what happens if you withdrew money every month for expenses; how the volatility of an all-stock portfolio would be affected, failure rates, etc.
Not to mention. 1) That article was aimed at retirees. 2) They started their analysis with data from 1940. Talk about cherry picking their data. How convenient that they missed, oh, 1929 for instance. Someone should throw them a pillar or two.
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Old 01-29-2008, 11:24 PM   #18
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Not to mention. 1) That article was aimed at retirees. 2) They started their analysis with data from 1940. Talk about cherry picking their data. How convenient that they missed, oh, 1929 for instance. Someone should throw them a pillar or two.
Not only that, but as we've discussed with FireCalc, there is another limit. If you are doing 35 year runs from 1940-2006, you can only use 1940 through 1971 as your starting point. 32 sequences - whoppee.

And that leaves out the dreaded 1973 sequence highlighted in the FireCalc2 background...

FIRECalc: Why another retirement calculator?

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