Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 09-11-2013, 10:41 PM   #21
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,036
Quote:
Originally Posted by FinanceDude View Post
Well, theoretically you can, but those "other risks" are still out there:

Opportunity cost risk
Interest Rate risk
Currency exchange risk
Hedging risk

And on and on and on........
Yep, that was the point I was trying to make.
__________________

__________________
FIREd is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-12-2013, 05:57 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,968
Quote:
Originally Posted by FinanceDude View Post
Well, theoretically you can, but those "other risks" are still out there:

Opportunity cost risk
Interest Rate risk
Currency exchange risk
Hedging risk

And on and on and on........
+1. Thought it might be worth adding geopolitical risk too The Retirement Calculator from Hell, Part III. Another risk that cannot be eliminated...
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 09-12-2013, 05:49 PM   #23
Thinks s/he gets paid by the post
 
Join Date: Jun 2003
Location: Historic Florida
Posts: 1,647
What if losing ~20% of your portfolio is not an option as it would set you back to not being comfortable and may not be recoverable in a suitable timeframe?
__________________
"Arguing with an Engineer is like rolling in the mud with a pig. Just remember that the pig likes it."
ShokWaveRider is online now   Reply With Quote
Old 09-12-2013, 07:49 PM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,264
Quote:
Originally Posted by ShokWaveRider View Post
What if losing ~20% of your portfolio is not an option as it would set you back to not being comfortable and may not be recoverable in a suitable timeframe?
I don't think you present a realistic scenario. You are searching for unicorns, IMO.

Even if you are 100% fixed income, and you don't withdraw a single $, that portfolio has dropped over 35% in the past, in just 4 years.

here's a FIRECalc run to illustrate:

FIRECalc: A different kind of retirement calculator


Real Estate can certainly drop by 20%. And I'm sure some of that drop in the above example is due to inflation. How do you hope to avoid a 20% drop? If you avoid equities in an attempt to side-skirt volatility, inflation may take you for a ride. No place to run to, no place to hide.

Short answer - you need a bigger portfolio.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 09-12-2013, 10:05 PM   #25
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
If I remember my William Bernstein from long ago, a portfolio with 15% equities gives a smoother ride than no equities at all. Though that is probably all bonds and not all CD's or annuities. Same thing at the other end, 85% equities was better than 100%.
__________________
Animorph is offline   Reply With Quote
Old 09-13-2013, 08:42 AM   #26
Full time employment: Posting here.
 
Join Date: Jun 2013
Posts: 620
Since we can't predict the future, how much is "more than enough" can only be determined based on what has happened in the past. One reasonable definition of "more than enough" would be a 2% withdrawal rate. At this rate, FireCalc will give 100% success rate for just about any portfolio mix, from all stocks to all bonds.

So the question then becomes, "what if the future is worse than the worst case from the past"? For bonds, envision a case where we have inflation like the 1970s, it persists throughout the investor's lifetime, and interest rates are kept artificially low so governments can inflate their way out of debt. A 100% bond portfolio would not survive this scenario, even with a very low withdrawal rate.

For stocks, envision a case where they drop by 89% (like in the US during the depression) and stay at that level for the investor's lifetime. If this happened, the 100% stock portfolio would not survive very long even with a low withdrawal rate.

So, if you have "more than enough", and the future is no worse than the past, then asset allocation really doesn't matter, since any asset mix will survive. But if the future is worse then the past, you need to be diversified, because you cannot predict what this "worst" scenario will be.
__________________
Which Roger is offline   Reply With Quote
Old 09-13-2013, 09:37 AM   #27
Thinks s/he gets paid by the post
RetireAge50's Avatar
 
Join Date: Aug 2013
Posts: 1,119
I am blown away by this forum. The insight, knowledge, and thoroughness is incredible. The opportunity cost of just letting the money do nothing is probably what will drive me to keep it invested.
__________________
RetireAge50 is online now   Reply With Quote
Old 09-13-2013, 09:56 AM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,326
Quote:
Originally Posted by Which Roger View Post
So, if you have "more than enough", and the future is no worse than the past, then asset allocation really doesn't matter, since any asset mix will survive. But if the future is worse then the past, you need to be diversified, because you cannot predict what this "worst" scenario will be.
I think it is also helpful to have low fixed expenses in retirement. Financial security doesn't just come from portfolio return, but also other factors such as how many years of living expenses a household has saved up and how many diversified sources of income there are.

If your fixed expenses are half or less of what you could spend in a given year, then in retirement you can still be saving money, or at least cut back easily on discretionary spending during low investment return periods.
__________________
daylatedollarshort is offline   Reply With Quote
Old 09-13-2013, 09:59 AM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,264
Quote:
Originally Posted by RetireAge50 View Post
...The opportunity cost of just letting the money do nothing is probably what will drive me to keep it invested.
Going back to your OP, the ironic thing is, if one has a very large portfolio (relative to expenses), it really makes no difference if the AA is 0/100 or 100/0. If the portfolio is large enough for a 0/100 AA to survive inflation, then a 100/0 AA will survive volatility.

More money is always better.


-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 09-13-2013, 10:46 PM   #30
Recycles dryer sheets
 
Join Date: Dec 2011
Posts: 388
To the OP,

You might like to read "Worry-Free Investing" by Zvi Bodie which makes the case for the approach you are considering. IMO, you are right to reduce risk if you don't need it.
__________________

__________________
Khufu is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 05:44 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.