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Old 03-16-2015, 07:46 AM   #61
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Most state pensions are still using 7 to 8% expected returns in their calculations. I wonder why that is. Do they know something we don't?
They know they can always raise taxes to cover any shortfall!
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Old 03-16-2015, 09:32 AM   #62
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Originally Posted by haha View Post
Starting fully invested today in a diversified portfolio, this seems very unlikely unless you have an extremely long investing period and will be adding money regularly to the portfolio.

Ha
Just to be clear, you are saying the 5% real return posited by the poster you quoted is unlikely - right? I think we can agree for the purposes of this thread that the timeframe is the next 20 years. I am not sure if you consider 20 years long term, or if the poster you quoted considers 20 years "long term".
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Old 03-17-2015, 12:54 AM   #63
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OK, can you explain then? It does seem to me that using average returns would be roughly equivalent to to a 50% success rate in FIRECalc. Though that is really median success - half succeed, half don't, rather than average, but probably close.



-ERD50

What i expect the market to return does not define my swr. You are making a leap. Swr has to account for volatility among many other factors.


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Old 03-17-2015, 09:37 AM   #64
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What i expect the market to return does not define my swr. You are making a leap. Swr has to account for volatility among many other factors.


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Yes, volatility is certainly a factor, but wouldn't it hold that the average ending portfolio results shown in a FIRECalc run would be pretty representative of average market returns (the most volatile periods are probably included in the low & high ending portfolios).

So therefore (give or take a little), starting at 100% success, about half the ending portfolios will be above, and half below the average (it may be different from the median).

Of course you can vary your WR from that point, but I guess what I'm saying is what do averages have to do with it? I think most of us are concerned about running out of money in our lifetimes, so we want to see what happens in the worst of times, right?

It's like the old saw of the 6 foot tall statistician who drown in a pool of average 4 foot depth.

-ERD50
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Old 03-17-2015, 10:34 AM   #65
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Yes, volatility is certainly a factor, but wouldn't it hold that the average ending portfolio results shown in a FIRECalc run would be pretty representative of average market returns (the most volatile periods are probably included in the low & high ending portfolios).



So therefore (give or take a little), starting at 100% success, about half the ending portfolios will be above, and half below the average (it may be different from the median).



Of course you can vary your WR from that point, but I guess what I'm saying is what do averages have to do with it? I think most of us are concerned about running out of money in our lifetimes, so we want to see what happens in the worst of times, right?



It's like the old saw of the 6 foot tall statistician who drown in a pool of average 4 foot depth.



-ERD50

The number i'm commenting on is "expected" returns, not "worst" case returns. If you only plan for the worst, you are probably selling the present at a steep discount to the future.


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Old 03-17-2015, 10:48 AM   #66
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I agree that it's a comprehensive tool that uses various methods of planning such as conventional, Monte Carlo and upside investing and I've used it on and off since 2011 to figure out SS benefits , spousal benefits, taxes but one problem I have with it is not been able to figure out how to reduce spending if I want to leave a bequest in my estate. It insists on a higher annual consumption smoothing and then recommends you buy life insurance to achieve that end value bequest.
This is incorrect. ESPlanner makes no such recommendations. What it does do is allow you to do is to enter a very large number of inputs in order to evaluate optimal scenarios. Any annual "suggestions" are based solely on your inputs, which you--and not the software---determine.

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The number i'm commenting on is "expected" returns, not "worst" case returns. If you only plan for the worst, you are probably selling the present at a steep discount to the future.

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+1
Chances are quite higher you'll be dead before you'll run out of money. It's a matter of longetivity versus PF failure probabilities, which are highly skewed against longetivity.

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Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.
[Emphasis added]

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Old 03-17-2015, 10:50 AM   #67
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The number i'm commenting on is "expected" returns, not "worst" case returns. If you only plan for the worst, you are probably selling the present at a steep discount to the future.
True. And w/o a crystal ball, I (and many of us) plan for the worst. If I leave money on the table, so be it (like any other true 'insurance').

What's your plan 'B'? And I'll be proactive here to avoid another round - if Plan B is 'cut spending if things go South', I'd be really interested in seeing how you determine when to do that, and by how much and for how long, and how that would work historically. When I've looked at it, it took drastic cuts for a long time to recover. Just to think of it in general terms - if the market tanks and your portfolio is down 40%, cutting from 6% WR to 2% WR is pretty small in comparison.

And cutting that drastically as soon as the market drops, like recently, can mean not doing a lot of things you planned on, and may never get the chance. For some a variable spending plan might be attractive, but I think they underestimate the effect. I'd rather plan on a lower WR, and keep it steady through the typical peaks and troughs, knowing I should be able to withstand the worst that history has thrown at us, plus a little buffer.

If someone really doesn't want to save up the ~ 33x portfolio that requires, then they have to take on more risk of failure. I don't think there's any way around it.

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Old 03-17-2015, 08:47 PM   #68
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True. And w/o a crystal ball, I (and many of us) plan for the worst. If I leave money on the table, so be it (like any other true 'insurance').

What's your plan 'B'? And I'll be proactive here to avoid another round - if Plan B is 'cut spending if things go South', I'd be really interested in seeing how you determine when to do that, and by how much and for how long, and how that would work historically. When I've looked at it, it took drastic cuts for a long time to recover. Just to think of it in general terms - if the market tanks and your portfolio is down 40%, cutting from 6% WR to 2% WR is pretty small in comparison.

And cutting that drastically as soon as the market drops, like recently, can mean not doing a lot of things you planned on, and may never get the chance. For some a variable spending plan might be attractive, but I think they underestimate the effect. I'd rather plan on a lower WR, and keep it steady through the typical peaks and troughs, knowing I should be able to withstand the worst that history has thrown at us, plus a little buffer.

If someone really doesn't want to save up the ~ 33x portfolio that requires, then they have to take on more risk of failure. I don't think there's any way around it.

-ERD50

I really don't get why you are continuing this. Please let it go, i haven't shared my SWR with you, you are extrapolating what you think my preferences are and mathematically applying your preferences instead.




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Old 03-17-2015, 09:52 PM   #69
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I really don't get why you are continuing this. Please let it go, i haven't shared my SWR with you, you are extrapolating what you think my preferences are and mathematically applying your preferences instead.
Oh come on - admit it. You guys like each other
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Old 03-17-2015, 10:29 PM   #70
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I really don't get why you are continuing this. Please let it go, i haven't shared my SWR with you, you are extrapolating what you think my preferences are and mathematically applying your preferences instead.

...
I'm just trying to understand the statement you made. I learn by trying to understand different points of view. It wasn't adding up to me, and I'm just curious what the thought process was behind it, and was interested in an explanation. Regardless of what your WR rate is (none of us will know if it was a SWR until it's over).

There, I have let go of it.

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Old 03-17-2015, 10:57 PM   #71
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Most state pensions are still using 7 to 8% expected returns in their calculations. I wonder why that is. Do they know something we don't?
Sure, they know there is one sure way to get reelected, and that is to buy the loyalty and votes and vote getting of the workers, and they know the easiest way to do this without a taxpayer revolt on their watch is to pad pensions, and make unrealistic assumptions about returns.
Easy peasy.

Ha
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Old 03-17-2015, 11:15 PM   #72
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I saw some examples of low end and very pleasant living today. Unless it is raining hard, I walk to and from downtown, then if I am going elsewhere I take a bus. Today I took the bus from downtown to Costco on South 4th Avenue. Coming back on the bus there were lot of older Chinese women. Like very limited English older Chinese women. They all had crates or boxes or nylon sacks full of Costco food. One woman asked me if I would carry her sack of watermelons onto the bus for her. She asked me to heft it to be sure I could handle it. She had brought it and another sack of food across the street in a Costco cart, which stayed behind I suppose to be gathered near day's end by some employee. Other women hauled their stuff in things like milk crates lashed to a rolling frame similar to rolling luggage only stronger looking. The buses on this route are "kneeling buses". They kneel like a camel so you just step on, rather than step up. This makes it seamless to haul the groceries. The bus was packed with Costco shoppers heading north to downtown. A very happy group too. More smiling than a group of business people could do in a week. My new friend (So Yung is her name) was very appreciative, and kept patting my arm and saying thank you and smiling. Another even older Chinese lady decided to help us both out-she gave to So Yung and me each a little bag of chips. Anyway, So Yung lives in an apartment near 3rd Avenue and Virginia Streets, right in the middle of a very handy, high rent and hip section of town, on about 20 bus lines and 2 blocks from the subway that goes to SeaTac and some south Seattle destinations, and very soon will go to Capitol Hill and the University District

I'm thinking that if you can get along with people, and operate in information and help-sharing groups, life is usually pretty good in modern America.

Ha
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Old 03-18-2015, 12:08 AM   #73
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I saw some examples of low end and very pleasant living today. Unless it is raining hard, I walk to and from downtown, then if I am going elsewhere I take a bus. Today I took the bus from downtown to Costco on South 4th Avenue. Coming back on the bus there were lot of older Chinese women. Like very limited English older Chinese women. They all had crates or boxes or nylon sacks full of Costco food. One woman asked me if I would carry her sack of watermelons onto the bus for her. She asked me to heft it to be sure I could handle it. She had brought it and another sack of food across the street in a Costco cart, which stayed behind I suppose to be gathered near day's end by some employee. Other women hauled their stuff in things like milk crates lashed to a rolling frame similar to rolling luggage only stronger looking. The buses on this route are "kneeling buses". They kneel like a camel so you just step on, rather than step up. This makes it seamless to haul the groceries. The bus was packed with Costco shoppers heading north to downtown. A very happy group too. More smiling than a group of business people could do in a week. My new friend (So Yung is her name) was very appreciative, and kept patting my arm and saying thank you and smiling. Another even older Chinese lady decided to help us both out-she gave to So Yung and me each a little bag of chips. Anyway, So Yung lives in an apartment near 3rd Avenue and Virginia Streets, right in the middle of a very handy, high rent and hip section of town, on about 20 bus lines and 2 blocks from the subway that goes to SeaTac and some south Seattle destinations, and very soon will go to Capitol Hill and the University District

I'm thinking that if you can get along with people, and operate in information and help-sharing groups, life is usually pretty good in modern America.

Ha
Great story, Ha, thanks for sharing!
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Old 01-10-2017, 04:19 PM   #74
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Here is the Expected Returns chart updated as of 12/31/2016.

Emerging Markets are still the big winner, if one can ride out the volatility, and if the researcher is correct.

https://www.researchaffiliates.com/e...llocation.html
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Old 01-11-2017, 04:30 AM   #75
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Ex-US would have about the same volatility as US stocks with 6% higher returns. Quite a statement.

The chart would probably look even more nightmarish for the US if it was from EUR perspective (my home currency).
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Old 01-11-2017, 05:48 AM   #76
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Here's Blockrock's crystal ball. It's for the next 5 years and the returns are given as nominal returns.
https://www.blackrock.com/institutio...et-assumptions
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Old 01-11-2017, 08:46 PM   #77
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I can't figure out why anyone who is retired cares about expected returns? The most important decision is your SWR and this will almost certainly depend on your actual results and spending needs. I guess if you are trying to leave a certain size legacy? Even if you were certain about future expected returns, sequence of return risk would still be important. and drive your SWR. Maybe AA?

Agree that those in accumulation phase would have more interest.
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Old 01-11-2017, 09:06 PM   #78
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If the returns are expected to be higher, I may feel more confident going to a higher WR.

If the returns are not going to be that hot, that helps me write more covered calls with a strike price set just high enough that they will expire worthless and I keep the premiums, hence goosing my total return.
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Old 01-11-2017, 09:23 PM   #79
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I have no interest in "expected returns", only real ones.

I don't use a crystal ball and I don't look at other peoples either. I look at my monthly statements and go from there.

Don't read blogs, don't read financial forums, don't buy newsletters either.
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Old 01-12-2017, 08:32 AM   #80
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If the returns are expected to be higher, I may feel more confident going to a higher WR.

If the returns are not going to be that hot, that helps me write more covered calls with a strike price set just high enough that they will expire worthless and I keep the premiums, hence goosing my total return.
Perhaps, but you have a lot more confidence in the forecasts than I would.
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