Diversification Overrated?

[Nords]

Quote:

In terms of what it takes to get to ER, does it depend on how much you save more than how much you diversify? *Your thoughts?

I think it's quicker & easier to raise your savings rate (by cutting expenses or working for more income) than it is to raise your investment returns.

Of course long-term, unless you enjoy working, it's probably better to develop financial & investment skills. But many ride the razor's edge by hoping to accumulate enough ER funding from working & saving before burnout.

But what's between your ears has everything to do with how successful you'll be at working, saving, or investing. If ER's not a top-three goal then it won't happen...

[sgeeeee]

I've read enough success stories on enough retirement boards to have learned that there are a multitude of paths to ER. Some people make it with concentrated equity portfolios, some people make it with broad index funds, some people make it with real estate and some people make it with nothing but bonds. All of them seem convinced that their way is the right way and that everyone else is a fool.

Since each person's situation is unique, there seems no way to draw conclusions about the optimum solution . . . especially when you consider that we are speculating about what the best technique will be in the future.

I think the most important thing is LBYM. If you get that right, you will have money to invest. And as long as you don't do anything too terribly stupid with it, you'll reach retirement okay. I think the most important factor in choosing what to invest in is probably your comfort with that investment. 8)

[wabmester]

Here's a crazy idea. If two approaches seem equally reasonable, allocate 50% to each approach.

Salaryguru,

I agree . . . LBYM is the safest, surest route to ER. My investment skills are horrific, but my wife and I are wizards at LBYM. Because of LBYM, my wife and I are about 2 years shy of the $1M nestegg we figure we need for FIRE. For the past 6 years we've been saving 50 - 75% of our salaries. Half of it is tucked away in EE and I-Bonds (as I said, my investment skills are pathetic). However, LBYM has "saved our bacon." I just hope that between now and the time we pull the plug I learn enough about investing to make the nestegg last.

RH

I agree 100% about LBYM being the "safest and surest"
method. Wish I had done it.

On a related topic,
for those of you who read the Dolly Freed book
(link posted by Blackhillsbob), you realize
that if I go "all the way"
to possumism, you will be deprived of my pithy
commentary, wry
observations and insightful recommendations
I will be selling my computer and other doodads.
(Guess I could still post at the library). I think
this possumism concept really appeals to my Luddite/minimalist
tendencies. Have not pitched the idea to DW as yet.
That should be interesting

JG

[BilltSuperTester]

Quote:

I agree . . . LBYM is the safest, surest route to ER

LBYM reduces the return rate one needs to earn on their investments which in turn reduces the risk they need to take. My reading seems to indicate there are many paths to get 6-8% returns on investments over time. Once you need more than 8% returns the risks you need to take go up exponentially with each extra 1% you need. If you need 10+% a concentrated approach might be the only way to get there.

[Nords]

Quote:

Have not pitched the idea to DW as yet. That should be interesting JG

"Whatcha doing with that cute bunny, honey?"

Good luck...

[Spanky]

Quote:

Salaryguru, For the past 6 years we've been saving 50 - 75% of our salaries. RH

You must be making a lot of money or you have a very, very, very low expense.

[cute fuzzy bunny]

I believe many smart people have noted that most really, really rich people got there through concentration.

After that, most of those really, really rich people stayed that way through diversification.

Given the rash of statistics around concentration, I believe one can presume that getting rich through a handful of equities is as much luck as it is skill.

I made many equity purchases with deep inside knowledge (like...being friends with the founder/chairman/ceo), and many on my own company, that I knew as much about as anyone. The market never reacted the same way twice. Sometimes a beaten down company with good numbers got beaten down some more. And then more. Sometimes good news from a good company resulted in a selloff. Sometimes admission of bad news from a bad company resulted in a buying spree.

I got here on 80-90% luck with a few good decisions and a whole lot of amazing coincidental stuff thrown in.

[eleighj]

Quote:

Salaryguru, I agree . . . LBYM is the safest, surest route to ER. *My investment skills are horrific, but my wife and I are wizards at LBYM. *Because of LBYM, my wife and I are about 2 years shy of the *$1M nestegg we figure we need for FIRE. *For the past 6 years we've been saving 50 - 75% of our salaries. *Half of it is tucked away in EE and I-Bonds (as I said, my investment skills are pathetic). *However, LBYM has "saved our bacon." *I just hope that between now and the time we pull the plug I learn enough about investing to make the nestegg last. RH

Just for infomation, where is the other half of your nest egg invested? By the way, you are LBYM is the fastest way to ER.

eleighj

[rapoole]

Apologies if I missed the explanation in this thread, but what does "LBYM" stand for? "Living beyond your means" comes to mind, but doesn't seem like a great path to early retirement.

Thanks,
rapoole

[smooch]

Living Below Your Means - Big difference!

[wildcat]

The general idea I am getting from everyone -

Play offense - invest with a level of risk you are comfortable with & there is more than one way to invest money (real estate, stocks, businesses) to make it ER. But many that have posted feel concentrated investing is the best way to make it to ER sooner than later if you can handle the risk.

Play defense - saving and LBYM is the fuel for the offense. Also LBYM can reduce the return needed from offense in case you turn out to make a few "doggy" investments along the way.

Both apply at any age

[Cb]

For what it's worth I'm betting our retirement on the following:

Investment portfolio:

- 40% US Total Market Index
- 40% Total International Index
- 20% US Total Bond Index (to be split 10% TBM + 10% TIPS after we roll 401Ks to IRAs upon retirement)

I've cut SSA's benefits projections by 25% (we're 44 & 45)

I'll also get a ~$2500/mo (non-indexed) pension at 60

We own a $250K home and have no debt, and the kids are on their own. My wife and I are both healthy, both have MBA's & >20 years in professional positions in Fortune 500 companies, so I figure we could find work to supplement our incomes should a 95% safe x 55 year (also 95% "safe") WR per FIREcalc prove inadequate.

Cb

[soupcxan]

Quote:

For what it's worth I'm betting our retirement on the following:

But slicing and dicing is just so much fun! It's like turning your portfolio into a pepperoni factory.

What about adding a fixed annuity as part of a retirement strategy? I never planned to to buy one because of the low return, but I read more articles that favor them. I wouldn't put much money into one, just enough to cover my basic monthly fixed expenses. Looks like if you live 30+ years the returns are just over 5% for a fixed one.

Anyone here using one for cash flow purposes?
:-/

Bill Clinton made millions off his book so why bother with annuities....I recommend a second book

[cute fuzzy bunny]

Oh Jeez Louise...
:

[cute fuzzy bunny]

Ok, I give up. In the name of fairness, heres your sub:

[Spanky]

If diversification is overrated, is concentration a better strategy in current market conditions? If so, what is an acceptable concentrated portfolio for the short-term (3 years or less)? What are sectors, country funds, alternative investments, commodities, etc to hold now? In what proportation should each of these be allocated?


Spanky