Diversification Overrated?

[BilltSuperTester]

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]

Maybe that life's a little TOO simple.

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

"Whatcha doing with that cute bunny, honey?"

Good luck...

 

[Spanky]

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]

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]

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.

 

[Bill Clinton]

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?
:-/

 

[Jimmy Carter]

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

 

[Spanky]

What other presidents should partiicipate in ER discussion? We have Bill C and Jimmy C so far. Should we add George Bush, SR? He is retired.

 

[Bill Clinton]

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

I would recommend tobacco stocks. You know me and cigars......

 

[brewer12345]

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

Personally, I only start to get spooked when a single stock is over 10% of my portfolio, but I am in the accumulation stage and will be for some time.

 

[haha]

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

To ask these questions is a strong hint that you should stay broadly diversified.

Mikey