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Old 07-10-2012, 11:49 AM   #21
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So is it a disservice to state one is conservative ?
Well, it is interesting. Is it really 'conservative' to invest in such a way that has historically resulted in more failures? Seems questionable to me.

I've discussed it before, but 'risk' is generally used by many on this forum as a proxy for 'volatility', but they really are not the same thing when we are discussing a 30-40 year retirement. And yes, I think it is best that we be clear about that.


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I'm fine with ObGyn's strategy if his withdrawal rate is very low and he doesn't care about leaving an inheritance. He may just not need market gains.
Agreed. All I'm saying is one should be aware of those conditions. It's not clear to me that is the case here. In an earlier thread, this poster was using the dancing-feet emoticon because someone referenced a study confirming a 3.5% WR as 'safe', and IIRC, he said he was planning on ~ 3.5%. I pointed out that study was using a fairly high Eq% (don't recall the exact number, but I think ~ 60%), and that w/o equities, you probably need to go much lower. I'm not sure if that sunk in or not.

If that poster does not want to listen anymore, that is also their decision. I was only trying to be helpful, and will continue to do so if he ever wants to listen in the future. I don't hold grudges in regards to such things. But if I've worn out my welcome with him, so be it. I do hope his retirement is everything he hopes it to be, but I sure hope he is taking the right precautions.

-ERD50
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Old 07-10-2012, 11:53 AM   #22
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This Vanguard link shows various allocation models and their various average returns plus good/bad years: https://personal.vanguard.com/us/ins...io-allocations

100% stocks: 9.9% return, -43% worst year (in 1931)

100% bonds: 5.6% return, -8% worst year (in 1969)

Of course, most of us are in between in AA. Those numbers are also shown on the link.
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Old 07-10-2012, 11:55 AM   #23
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I'll take that as a no.
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Old 07-10-2012, 12:02 PM   #24
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I'll take that as a no.
I need to work on that 'concise' concept!

But let me elaborate ... It is questionable, and therefore worthy of discussion on this forum. IMO.

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This Vanguard link shows various allocation models and their various average returns plus good/bad years: https://personal.vanguard.com/us/ins...io-allocations

100% stocks: 9.9% return, -43% worst year (in 1931)

100% bonds: 5.6% return, -8% worst year (in 1969)

Of course, most of us are in between in AA. Those numbers are also shown on the link.
Thanks, interesting data, but I really think that FIRECALC provides a lot more useful information. The sequential returns and inflation are a huge components in historical success rates. Those average/best/worst numbers don't really encompass that.

-ERD50
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Old 07-10-2012, 12:07 PM   #25
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Perhaps we can discuss this and also respect each other's view.
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Old 07-10-2012, 12:17 PM   #26
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Perhaps we can discuss this and also respect each other's view.
I thought I was, and I apologize (again) if my attempt at constructive help was seen otherwise.

-ERD50
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Old 07-10-2012, 01:28 PM   #27
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On a break, Sorry for short answer. You have not worn out your welcome with me and I consider everyone on this website to be my friend. No one has made it to my "ignore list". And I do learn a lot from this website. Happy to say that this year, thanks to this website , I have started my own budgeting, designed month by month cash flows and also begun to buy some deferred annuities for example. I expect to buy my first share or stock when I finally retire.... No time to do this now..
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If that poster does not want to listen anymore, that is also their decision. I was only trying to be helpful, and will continue to do so if he ever wants to listen in the future. I don't hold grudges in regards to such things. But if I've worn out my welcome with him, so be it. I do hope his retirement is everything he hopes it to be, but I sure hope he is taking the right precautions.

-ERD50
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Old 07-10-2012, 01:29 PM   #28
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I thought I was, and I apologize (again) if my attempt at constructive help was seen otherwise.

-ERD50
Apology accepted.
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Old 07-10-2012, 02:18 PM   #29
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I'm fine with ObGyn's strategy if his withdrawal rate is very low and he doesn't care about leaving an inheritance. He may just not need market gains. That might change if we see hyper inflation, but he can always adjust later. He also may have worked longer than we would have before retiring.
+1

I think that is why there is no one size fits all AA as what is comfortable for one person may not feel right for another.

The trick IMO regarding AA is whether it is object or subjective, or I suppose a combination of both.
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Old 07-10-2012, 03:05 PM   #30
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+1

I think that is why there is no one size fits all AA as what is comfortable for one person may not feel right for another.

The trick IMO regarding AA is whether it is object or subjective, or I suppose a combination of both.
I agree there are many paths to achieving FIRE. Once you are retired many AA that will keep you there.

However, I think ERD is correct in pointing out that unless you have a very high income (like a doctor) it is very difficult to get to an early retirement without a significant exposure to equities.

If you invest in things that basically keep up with inflation, then you need to save roughly 1/3 of your salary and work 2 years for every year you plan to be retired. This is essentially means working until you are in you mid 60s a perfectly reasonable retirement age but not an early retirement.

In contrast Bernstein did a study which had people save 20% of their salary with 100% invested in the stock market. He then calculated how many years of working/saving they needed before they hit 20x salary or 25x spending (i.e. 4% SWR). The results varied tremendously from 37 years for those starting saving in 1949 to 19 years for those starting in 1980. The class of 1981 (my year) is still working and hasn't hit the 20x mark. The important thing to understand is there is basically no chance to hit the goal with an AA lower than 50% in under 30 years.

So once again we are back to defining risk. Based on the OP question I define risk as not being accumulate $2.5 million by the time he is in in his 50s. I think any AA under 80% (and possible less than 100%) adds to the risk.
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Old 07-10-2012, 03:16 PM   #31
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I remember back when learning about investing, one of my favorite books, "Making The Most of Your Money", by Jane Bryant Quinn said something like, for investing while young, if you can stomach the risk, for most gains is to put 100% in equities. Over the course of many years, equities should perform better. I wonder though, how many starting out said, "Yeah, I can take the risk." But during a big bear market like in 2008 ended up running for cover.
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Old 07-10-2012, 05:58 PM   #32
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Back when I was first learning about investing it was comforting to see the wide range of investment allocations and the rationale for each. Heck, we cover a range from 0/100 to 100/0 equity/bonds right here. There is no obvious right answer, and many of the seemingly disparate strategies made sense given the investor's needs and feelings. While that seemed confusing at first, it was also clear that professional advisors had no particularly compelling investment advantage (especially if you asked "why?" often enough). At that point I was happy to do it myself.

From M*'s investor return (cash flow adjusted fund returns) numbers it seems clear that the averge investor chases performance or bails/jumps in at inopportune times, since average investor returns are invariably lower than nominal fund returns. They should be higher on average for anyone that simply properly rebalances, much less anyone that could jump in and out successfully.

So although there are plenty of arguments against buy and hold, it is clearly better than what the "average" investor has been doing. Rebalancing improves a strict buy and hold scheme. Beyond that I'd be very careful assuming you can do better.
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Old 07-13-2012, 07:13 PM   #33
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... however I am one of the most conservative investors in this forum with 0% stocks...
You are not alone. It's one thing to intelligently understand why having some equities exposure is preferable, even in retirement. It's quite another matter to stay committed to the plan and not lose sleep over it. Even though my wife and I shifted to an ultra-conservative asset allocation back in the spring of 2008, not a day goes by that I don't think about shifting some of it back into stocks. Having been on layoff notice 8.5 of the previous 12 months and a pending layoff in 1.5 months unless I find another position in the company, hard to imagine making the change now.
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Old 07-13-2012, 07:30 PM   #34
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Aerohokie, if you are still hanging around, I will say that I have basically done exactly what you are suggesting. 100% equities, the majority of which are rather volatile (58% of my portfolio invested in some form of small cap, small cap value, emerging markets, international small cap or value, or domestic or international REITs).

We started saving aggressively for FIRE right out of college. We are in our early 30's right now and are closing in on the magic figure that we need to be FI. We figured that we don't really care if FIRE is delayed a few years or more due to crappy markets, and in the mean time we might as well boost our potential for growth as much as possible. We did face major losses in the 2008 crash but have since recovered and then some, and we were buying severely depressed asset classes at fire sale prices back then.

Since we are now a few years from FI, I would like to move some portion of the portfolio into fixed income. However at today's paltry rates of return barely above zero in real terms, I'm not a taker at these levels. I'll take the 3% or so dividend yields from our equity investments since they have a greater potential to provide long term real growth and beat the big enemy - inflation.
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Old 07-14-2012, 09:32 PM   #35
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I agree with Fuego's last post, except I find it helpful to hold a little bit of fixed income for rebalancing.

In 2008, we were at 90/10 and as things went down, I kept buying. We went to about 95/5 before I didn't feel like buying anymore. We were down close to 40% at the worse, but since then we've nicely recovered.

Right now we're about 80/20, which is probably where we'll stay for awhile, but if the markets crash again, then I can easily see us going back to 90/10.

It's always nice to have a little bit of cash on the side to buy when the markets are down.
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Old 07-15-2012, 03:21 PM   #36
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I agree with Fuego's last post, except I find it helpful to hold a little bit of fixed income for rebalancing.

In 2008, we were at 90/10 and as things went down, I kept buying. We went to about 95/5 before I didn't feel like buying anymore. We were down close to 40% at the worse, but since then we've nicely recovered.

Right now we're about 80/20, which is probably where we'll stay for awhile, but if the markets crash again, then I can easily see us going back to 90/10.

It's always nice to have a little bit of cash on the side to buy when the markets are down.
People cite experiences like this almost as if they were a law of nature-when markets go down, they will come back.

Glance at Japan, which was #2 economy in the world, and widely thought about to bury the US. The Nikkei 225 peaked in December 1989 north of 39,000, and 22.5 years later it closed Friday at 8401.72. And dividends have not amounted to much either.

A market may come back, and many often will- but is isn't even remotely foreordained.

Ha
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Old 07-15-2012, 04:17 PM   #37
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People cite experiences like this almost as if they were a law of nature-when markets go down, they will come back.

Glance at Japan, which was #2 economy in the world, and widely thought about to bury the US. The Nikkei 225 peaked in December 1989 north of 39,000, and 22.5 years later it closed Friday at 8401.72. And dividends have not amounted to much either.

A market may come back, and many often will- but is isn't even remotely foreordained.

Ha
True. There is always the risk that a market doesn't come back. This is one reason why you diversify across different markets.

This is a strategy that can work well if you are accumulating assets. This is not one that works as well if you may need to live off of the assets (generate income).

Plus, if you are accumulating, then odds are you may be able to save yourself out of any single market that doesn't recover. If all markets are down for 10+ years, well, that sucks. Not much you can do about that though. There is a bit of luck in total return investing, mostly timing related. Bernstein has covered those scenarios fairly well. For our situation, where we are working for 10 more years, we can easily work more if the markets are bad and less if they are good.

I suspect that our outlook will change as we get closer to hitting our number. At that point, we'll change our portfolio to focus on income. Maybe that will be increasing our fixed income and keeping the same equity mix or focus on dividend investing. The latter has always held an interest to me and I always appreciate reading those threads on this forum.

But until we hit that number, investing aggressively isn't a bad strategy if you can deal with the volatility.
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