Nords--
I think we are pretty much in agreement on most of this.
First, I don’t question the quality of advice you proffer at all. It is quite good, IMO.
Second, I think your management of your portfolio is rightfully shaped by your age, the security of a military pension, robust good health, health insurance, a fine education, ability to rejoin the job market in a pinch, equity in a rapidly appreciating real estate market, and yeah, a little dumb luck in living and investing for the eighteen years from 1982 to 2000, and knowing when to get out. Given your investing experience/aptitude and tolerance ( I would call it appetite) for risk, you have arrived at a place where a 98% stock commitment makes sense. For you. There are others who fit your mold. But I suspect you and your confreres are a fairly unique bunch.
Third, you have stated that you fear inflation risk the most. Me, too. I don’t have a portfolio strategy that will do well coping with a High Inflation scenario. But neither do you. We both should take some comfort from Alan Greenspan’s latest testimony to Congress that inflation is “well contained”. ( He wouldn’t be kidding us would he? --- Naaahhh!) Well, he doesn’t see any and let us both hope that the investment crowd doesn’t see any either. (Looking at less than 4.0% 10 year Treasuries, I guess they don’t). If the U.S. consumer ignores his burgeoning personal debt levels and keeps consuming; if the Chinese, Japanese and the rest of Asia continue to keep pumping billions of dollars of capital investment into this country EVERY DAY; if these people allow us to consume 6 percent more than we produce every year forever (they produce and we consume --nice arrangement, don't ya think?), if interest rates thereby remain preternaturally low; if Chuck Shumer doesn’t foment a trade war, if the real estate bubble keeps bubbling away (oh, yeah, Greenspan doesn’t see any of that either, just a little “froth”, mind you), if business investment picks up, if the trade deficit dissipates, if the Budget deficit reverses course, if the cost of oil stabilizes in say, oh, the mid-fifties, if there are enough commodities in the world to go around, if the dollar halts its seeming never ending decline (it has, for the moment), If Osama stays on the run and we are successful in stopping 100 out of 100 threats instead of 99 out of 100, if that inflation rate remains benign, if GDP growth remains in the 3.5-4.0% range, if productivity growth continues to exceed historical average, if wage growth remains anemic, if corporations can make necessary price increases resulting from higher commodity and energy costs stick and still compete with the third world, if corporate profit growth remains in double digit territory from year to year as a result of the foregoing, if we can trust Wall Street, its analysts, its auditors and its regulators to do the right thing and report the truth, if there really is nothing to worry about with respect to those 8,000 secretive, unregulated hedge funds, if investor SENTIMENT remains bullish and positive, and if, and this is the big one, investors continue to settle for next to no capitalization rate on their investment capital --they continue to take it rather than leave it like good little capitalists should, then, odds are, your 98% stock portfolio will do very well in a Low Inflation environment, given any kind of dumb luck at all. But I will get by with my plodding Intermediate Term Gov’t bonds in a Low Inflation environment as well, without relying on any dumb luck at all. Now, I might agree with you that all this could just be identifying obstacles that are producing a psychologically destructive interference on my ability to ER. Could be. On the other hand, maybe Paul Volker is right and we are skating on thin ice – very thin ice. But I am pretty confident that if you and I have to live through the conditions that would bring about a High Inflation environment, Nords, then we’re both gonna be in trouble – we’re all gonna be in trouble. Greenspan better make sure it’s well contained or they better get Volker warmed up in the bullpen.
Fourth, You are right. Going into retirement with an under-capitalized portfolio is not a good idea at this point in time.
Fifth, I am increasingly intrigued by this statement which I continue to see posted in many different forms by different folks on this Board:
We got here by living well below our means for two decades, saving our assets off, investing nearly 100% in stocks during the world's greatest bull market, investing heavily in real estate in one of the more volatile markets, and now continuing to live within our means.
I’m not singling you out Nords, but I have been pondering this for some time now and I have a few thoughts which might more appropriately belong on a separate thread. The whole stringent LBYM thing, combined with inordinately high savings rates, particularly for really young people, deserves more critical attention, IMO. I am astounded by some posters who claim to be saving 30%-40%- 50% of their income in an almost pathologically feverish chase to ER. Never would have dawned on me in my 20s and even 30s to set ER as a life goal and to organize my life and finances to achieve it. Bothers me some that there are so many people in an awful hurry to end their working careers just as quick as they can. Join the party? No, I think it’s a little too late for that for me.
Finally, you are bang on right that the wagon Ol’ Donner’s going to be hauling into retirement is unusually large, extremely heavily loaded, and hampered with a bad wheel or two. I am taking the long, slow, tedious way around the Equity Mountains to get to Retirement Land. It’s getting a little late in the season for me and Mrs. Donner and our heavy wagon to risk the short cut through Low Cap Pass or the High P/E Mountain routes. Snow’s about to fall according to that old trapper, Paul Volker. Wouldn’t want to get caught up in there this late in the game. You and I are not so much alike after all, Nords. You were a lot smarter than me. You got going early, rode light on some fast ponies, and made it over the Equity Mountains while the sun was shining. Good decisions, in hindsight. No, no ER for me. But you are wrong about one thing. Mrs. Donner and I and our wagon will make it to Retirement Land and pretty dang soon. That’s for certain. For certain. Thanks be to God.
Soooo, for me and Mrs. D it’s: Git Up! Brownie! Git Up! Jake! Haul You Gov’t Bond Mules! Haul! Meet you at trail’s end in good old Retirement Land!
Donner
