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Old 08-18-2013, 05:41 PM   #21
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My post was meant to be more of a thought experiment on what could happen and how we will deal with it rather than an actual prediction of what might hapoen. I would like to try to be ready for whatever the market throws me. For instance, how would your portfilio hold up as you draw down on it if the overall market goes sideways for 20 years? 30 years?
I have only modeled what has happened in the past since about 1925. I don't think just sideways is in the cards for so long. Most likely a major decline followed by a major rise (or several of these things) that then takes us when looking backwards into a zero gain market. I think I have that covered and it does involve some asset shifts.

I modeled being a Japanese investor using the Nikkei (buy-hold CAGR= -4.6% from 1984 thru 2009) with a possible shift to bonds and/or the EAFE and it came out just OK, not great. I would not eat dog food at least. Worked but we really don't know do we? Makes life a little spicey.
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Old 08-18-2013, 05:45 PM   #22
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This is about like asking about gay marriage at the Southern Baptist Convention. You can be pretty sure what you will hear.

Ha
Yeah, I didn't think it would be all that popular. I guess my point was to get people thinking about what would hapoen to a portfolio during draw down if these broad market index funds stayed flat for 20 years and bond funds did the same. I would rather be invested in cash and a handful of companies I thought could weather the storm and even prosper during a long sideways market. Use the cash to pick up bargins along the way. Just a different approach, but probably not the best method for most.
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Old 08-18-2013, 05:49 PM   #23
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I'm not at all against market timing, but since when is the "consensus" right? If it were so simple one would just tally the boards quarterly and then go with the flow.

Have you tried doing a backtest of the consensus opinions? Did they get the 2008 call correct? How about the 2000 call? Any false calls in the last 10 years or so? That would be about the max time span to study internet boards I would imagine.

I have seen people talk about market timing being easy to develop looking backwards but warning about using it going forwards. This is bunk. Most people (almost 100% I would guess) making that statement have never done any studies and are biased against MT.
Yeah, consesus was probably not the best word-- just quite a few sharp people taking some money off the table.
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Old 08-18-2013, 06:20 PM   #24
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If stock market and bonds stayed flat for 20 years, this would pretty much mean inflation was zero or we were in a deflationary period. As such, I would not need our portfolio to go up at all while withdrawing. The reason is that the 4% rule would still work for 25 years and at 3% withdrawals that would be 33 years. By definition.

For example, elderly Japanese investors are doing great! Their expenses have gone down even if their portfolio haven't gone anywhere.
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Old 08-18-2013, 07:06 PM   #25
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I guess my point was to get people thinking about what would hapoen to a portfolio during draw down if these broad market index funds stayed flat for 20 years and bond funds did the same.
But, how do we define 'flat'? I doubt if any of us would think the stock and bond markets would never vary and open and close each day at exactly the same value day, after day, after day, after day for 20+ years. More likely the market would go up and down, perhaps as much as 10%, but always returning to about the same point within months or maybe a year or two. The hills might not be very high and the valleys not very deep, but they would be there.

If my above scenario is correct, would not that allow our re-balancing tool to take advantage of those ups and downs in the long run to return more than what a perfectly flat market would give us? Add in dividends, and perhaps a 4%return might not be impossible. I imagine the academics have already modeled this. Of course, maybe I am all wrong. My 2.
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Old 08-18-2013, 08:14 PM   #26
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Yeah, I didn't think it would be all that popular. I guess my point was to get people thinking about what would hapoen to a portfolio during draw down if these broad market index funds stayed flat for 20 years and bond funds did the same.
I think most people try to avoid this by diversifying and having multiple equity slices. E.g., international vs domestic, reit, value, small-caps, commodities, etc. Generally something will be up. I don't think there was ever a year in the callan periodic table of returns when everything was down.

If despite diversification, the portfolio is being spent down too fast (because overall return is too low) there's not much one can do beside either cut expenses or get more income (outside of the investment portfolio).
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Old 08-18-2013, 08:26 PM   #27
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TMF: Navigating for the next decade / Berkshire Hathaway

This is from the Motley Fool Berkshire board. The consensus on the board seems to be that the overall market is very overvalued, so if you hold a broad market mutual fund you may want to do some market timing, selling the overall market and increase cash, then buying back in when the market is more reasonably valued.

I understand that most folks who own index funds don't want to try to time the market, but it might be worth doing this time to mitigate the risk 10-20 years of flat overall market returns.
The Berkshire board is the only Motley Fool board I still follow. It has lots of smart guys. But they are value investors. One distinct characteristic of value investor, and I include myself in the category, is we buy too early when stocks are going down (for example I ran out of cash in Dec 08, Jan 09, well before the bottom was hit in March 09) and sell too early when they are going up.
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Old 08-18-2013, 08:27 PM   #28
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If despite diversification, the portfolio is being spent down too fast (because overall return is too low) there's not much one can do beside either cut expenses or get more income (outside of the investment portfolio).
Steady there, big guy. You're getting pretty close to sacrilege!
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