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Old 01-19-2014, 09:45 AM   #41
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... I view going all cash for the long term as the boiled frog approach to financial security. By the time you realize you're in hot water it will be too late.
That is the best description of this scenario I've ever heard! Well done!

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Old 01-19-2014, 10:18 AM   #42
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I view going all cash for the long term as the boiled frog approach to financial security. By the time you realize you're in hot water it will be too late.
With inflation running about 1.5% this past year, why would you invest in cash and lose money instead of choosing products like 3% 5 year Penfed CDs, long term TIPS, which have been yielding around ~1.5% over inflation this past year, I bonds or stable value funds?

The inflation rates and rates on all these products are published daily various places on the Internet, so it you could see which ones were keeping up with inflation and which ones were not.

Maybe I misunderstood how they work, but I thought TIPS and I bonds bought at 0 or a positive yield, always keep up with inflation, if the bonds are held to maturity? Why would someone go all cash instead and lose money to inflation? I have never heard of any investment expert recommending all cash.
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Old 01-19-2014, 10:24 AM   #43
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With inflation running about 1.5% this past year, why would you invest in cash...
I wouldn't.
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I have never heard of any investment expert recommending all cash.
Nor have I - at least not any "expert" I would give credibility.

I think you missed the point of my post, but that's a common problem on discussion boards.
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Old 01-19-2014, 10:50 AM   #44
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I wouldn't.

Nor have I - at least not any "expert" I would give credibility.

I think you missed the point of my post, but that's a common problem on discussion boards.
I meant the generic "you". Perhaps I should have said why would any one go all cash? Sorry I guess I did miss the point. I don't know why any one would go all cash when they could buy TIPS or I bonds or some other investment product yielding the inflation rate or more.
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Old 01-19-2014, 11:53 AM   #45
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I meant the generic "you". Perhaps I should have said why would any one go all cash? Sorry I guess I did miss the point. I don't know why any one would go all cash when they could buy TIPS or I bonds or some other investment product yielding the inflation rate or more.
I think the definition of cash is sometimes different for some people. Many people consider IBonds and CDs as both part of cash.
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Old 01-19-2014, 12:02 PM   #46
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I'm not a pension expert at all but this had me reaching for the latest annual reports from my private pension schemes and they all have less than 15% invested in equities, and are all over 90% funded. Consequently my AA these days is approaching 50% equities which is where I'd like to keep it going forward.
15%, wow, that is interesting. I didn't realize a fund would have such a small allocation. I just checked mine and it's a little over 50%. It also has a good chunk in hedged assets and private equity. I don't like the sound of those words, but then again I like the term I Bonds....
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Old 01-19-2014, 02:01 PM   #47
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I wouldn't.
.

Neither would I. I have a lot of money in a stable value fund but I don't consider that an "investment". Rather, it's a 2008-inspired "won't get fooled again" pile.
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Old 01-19-2014, 03:03 PM   #48
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15%, wow, that is interesting. I didn't realize a fund would have such a small allocation. I just checked mine and it's a little over 50%. It also has a good chunk in hedged assets and private equity. I don't like the sound of those words, but then again I like the term I Bonds....
It looks like ~50% equities is close to the average for Fortune 1000 companies. Possibly a cultural difference between the UK and US? (I have 2 UK private company pensions)

2012 Asset Allocations in Fortune 1000 Pension Plans - Towers Watson
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Old 01-19-2014, 03:08 PM   #49
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15%, wow, that is interesting. I didn't realize a fund would have such a small allocation. I just checked mine and it's a little over 50%. It also has a good chunk in hedged assets and private equity. I don't like the sound of those words, but then again I like the term I Bonds....
Evaluating counterparty exposures like this is inherently challenging. I think you want to look at a couple of things I think are more important than the pension fund's asset allocation. First and foremost, how well funded is the plan? I would check how things look more recently as the level of long term interest rates affect the measurement of how well funded pension plans are. If the plan is reasonably well funded, you probably don't have much to worry about. The second thing I would be looking at is the condition of the pension sponsor and their interest in keeping the plan funded. Is the sponsor in good shape financially? If they are, is the pension still open to current employees or has the sponsor closed the pension and looking to minimize its exposure to the ongoing liability? I would say only if the plan is materially underfunded and you are unlikely to get any help from the pension sponsor to make it up would it be worth delving into what the plan assets are invested in.
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Old 01-19-2014, 03:23 PM   #50
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Thanks for that Brewer, very interesting.
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Old 01-19-2014, 03:27 PM   #51
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I may be mistaking what you are saying. Do you mean that you start out spending, say, $40K/yr, and 30 years later you are still spending $40K/yr? If so, your financial quality of life will be devastated. Even at 1%/yr inflation, you would be living on less than 3/4 what you started with. And I don't think anybody is predicting ongoing 1% inflation. At a more standard 3% you would be living on the equivalent of $16.5K per year. That's below the poverty level.

But, as I said, I may have misinterpreted your example.
I seem to recall Obgyn saying that a COLA'd pension was in his future. Depending on how big a part of his retirement plan it is, the COLA may just be his savior.
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Old 01-19-2014, 03:36 PM   #52
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For some weird reason, my post ended up in this thread instead of the one it was intended for. As I am not allowed to delete it, I am editing it instead.
Strange
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Old 01-19-2014, 03:52 PM   #53
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Evaluating counterparty exposures like this is inherently challenging. I think you want to look at a couple of things I think are more important than the pension fund's asset allocation. First and foremost, how well funded is the plan? I would check how things look more recently as the level of long term interest rates affect the measurement of how well funded pension plans are. If the plan is reasonably well funded, you probably don't have much to worry about. The second thing I would be looking at is the condition of the pension sponsor and their interest in keeping the plan funded. Is the sponsor in good shape financially? If they are, is the pension still open to current employees or has the sponsor closed the pension and looking to minimize its exposure to the ongoing liability? I would say only if the plan is materially underfunded and you are unlikely to get any help from the pension sponsor to make it up would it be worth delving into what the plan assets are invested in.
It's a teachers pension that is funded with a 14.5% contribution with mandatory district match that occurs simultaneously each month. The annual report came out recently and I was expecting to see the funding ratio of the system jump from the 17% returns it made this year. I was surprised to see that it actually dropped a percent lower to 83% prefunded. They assume 8% as needed to fully fund system. So I guess the 5 year "smoothing out process" average is what is pulling down the number as that 08-09 year is still on the books. It goes off next year so I assume the funding ratio would jump at that point.
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Old 01-19-2014, 04:00 PM   #54
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It's a teachers pension that is funded with a 14.5% contribution with mandatory district match that occurs simultaneously each month. The annual report came out recently and I was expecting to see the funding ratio of the system jump from the 17% returns it made this year. I was surprised to see that it actually dropped a percent lower to 83% prefunded. They assume 8% as needed to fully fund system. So I guess the 5 year "smoothing out process" average is what is pulling down the number as that 08-09 year is still on the books. It goes off next year so I assume the funding ratio would jump at that point.

I guess I would not be too concerned about that situation. The other piece worth looking at is the ratio of incoming contributions to current payouts. If half or more of the payout I covered by incoming funds, it would take a lot to get the fund to expire before you do.
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Old 01-19-2014, 04:16 PM   #55
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I guess I would not be too concerned about that situation. The other piece worth looking at is the ratio of incoming contributions to current payouts. If half or more of the payout I covered by incoming funds, it would take a lot to get the fund to expire before you do.
Brewer, I found that information. I guess you just have to look for it huh? Contributions this past year was 1.5 billion, and out going to retirees like me was 2.3 billion. Investment returns was 3.7 billion with 34 billion in total assets. So based on what you said, that is a positive, correct?
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Old 01-19-2014, 07:15 PM   #56
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Brewer, I found that information. I guess you just have to look for it huh? Contributions this past year was 1.5 billion, and out going to retirees like me was 2.3 billion. Investment returns was 3.7 billion with 34 billion in total assets. So based on what you said, that is a positive, correct?
Seems to me you would have to have a prolonged disaster to run out of money in the next 20 years.
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