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Re: Go with TIPs or am I crazy?
Old 05-28-2005, 01:41 PM   #81
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by Donner
For all seasons, a good balance of equities gives the best long term returns. Ballasted with bonds to smooth out the volatility a little bit.
I think that's conventional wisdom-- bonds shouldn't be a reflex response against volatility. Another way to handle volatility is to avoid it with sufficient cash for 2-7 years' worth of expenses. I haven't seen that analysis in Bernstein but it pushes farther out on his yield/volatility curve.

Quote:
Originally Posted by Donner
If your investment portfolio is all cushion or substantially cushion, and you don’t need to pull income out of it, or spend down principal, or at least very much of it, to maintain a lifestyle, then a hefty commitment to common stocks is a luxury and a risk one can afford. If one has a nice military, or government, or private pension to pay the monthly bills, or better yet, a working spouse, then one has that much less real skin in the game.
Is that an implication that people in my situation are somehow less credible in the quality of their advice? That ER can only be achieved by pension welfare, spouse charity, and dumb luck? Shouldn't achieving ER make the advice MORE credible? But you don't have to throw stones at the windows, Donner, the door's unlocked. 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. You're welcome to join the party.

I'll point out that once again, like all us other ERs with working spouses, my spouse is working at her own choice. (Maybe they're having a hard time turning it off.) In our situation that P/T Reserves income isn't reliable and will probably end in a few months, so I don't include it in the portfolio. I suspect that th & JohnGalt do the same. If P/T income is required to support a portfolio's SWR then someone is not ER'd.

If you want that "nice" military or govt or private pension then go out and buy one. Mine is roughly the equivalent of $700K of 4.8% I bonds. That's another reason that the rest of the retirement portfolio is nearly all stocks.

We should all have "less real skin in the game" by having portfolios adequately capitalized for all risks-- rising healthcare costs, unforeseen expenses, volatility, & inflation.

Quote:
Originally Posted by Donner
On the other hand ….. let us suppose you are not 44 years old but a little closer to 64 years old. Let’s suppose that your portfolio is not all cushion or even close to cushion. Let’s suppose that you are going to need to consume that portfolio, the income it produces and possibly even the principal itself over time, in order to supply the basics. If that’s the case, then you better examine the potential outcomes of an “all seasons” investment approach pretty carefully. One “bad season” and you may find yourself permanently dead or severely wounded.
Now “bad” is an entirely subjective concept. A bear market is usually declared when we see a decline of 20% from a previous high. That might be bad for one person and a blip for another. I think it largely depends on how much cushion you have in the portfolio. For those with little or no cushion, and not so much time, the real issue is: how bad is bad and how long is the season? If you are 64 the answer to those questions could prove quite problematic for you and your loved one. If you are 64, and the season is 1966 through 1982, you’ve got a problem. Do you have enough cushion to make it through a bad season alive to enjoy the fruits that are going to come to those (young guys) with the cushion and the time (the legs) to see themselves through to a brighter day?
I would think that at age 64 it would be even more critical to retire with adequate cushion. (After all, as you pointed out, the 44-year-old could always go back to work.) Your "bad season" seems limited to volatility (the downward kind) where inflation (especially healthcare costs) and unexpected expenses could be even more devastating. It seems that the portfolio is at risk from not only one bad season but also any unexpected expenses or rising inflation.

All three are largely out of anyone's control-- but the size & diversification of our portfolios is within our control. "How much cushion" is up to everyone's risk tolerance, but FIRECalc at least provides a historical perspective. (Thank goodness for dividends during that 1966-82 period.) Perhaps at age 64 it'd be smarter to do at least one of two things: (1) work longer or (2) reduce expenses both before & after retirement. IMHO attempting retirement on an "uncushioned" portfolio is even more risky than investing heavily in equities. Part of the reason for our high-equity portfolio at age 44 is to make sure that there's some cushion left when we're 64.

While I don't advocate JohnGalt's "Just Do It!" (TM) approach to ER, I must say, Donner, with the obstacles that you've identified it's a good thing you're planning to continue working. Your wagon in the Donner party seems to be unusually large, extremely heavily loaded, and hampered with a bad wheel or two. With the state of the world today and its destructive interference on your ability to achieve ER, I don't think you'll ever find a way to retire.
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Re: Go with TIPs or am I crazy?
Old 05-28-2005, 03:09 PM   #82
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Re: Go with TIPs or am I crazy?

300k, 1993, age49. 6k income from rental duplex - a variety of stuff - sold and ate the duplex proceeds, maybe 2 yrs temp work his and hers, small pension at 55, etc., etc.

Not JG but - if the glass is half full instead of half empty and you are riguously frugal and a reasonble planner. Well?

Depending on your personal situation, single, married, area of the country etc., etc - today 600 - 800k and manage the nugget - my best guess.
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Re: Go with TIPs or am I crazy?
Old 05-28-2005, 04:58 PM   #83
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by unclemick2
Depending on your personal situation, single, married, area of the country etc., etc - today 600 - 800k and manage the nugget - my best guess.
I am not so sure, I am still REALLY Struggling with this. I recon you need at least $1.2m invested in Concervative investments earning at least 5% to last you 30 years. So with that in mind, with todays home prices, you will need at lease $400k for a niceish home in a reasonable area. No I do not want to live in a shack for at least a few mor years so $400k is it (Min actually) So that is a $1.6m net worth. And yes you are buggered (Ooops!) if the market stomps 30% with you in it.

SWR
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Re: Go with TIPs or am I crazy?
Old 05-28-2005, 06:45 PM   #84
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Re: Go with TIPs or am I crazy?

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Originally Posted by ShokWaveRider
I am not so sure, I am still REALLY Struggling with this. I recon you need at least $1.2m invested in Concervative investments earning at least 5% to last you 30 years. So with that in mind, with todays home prices, you will need at lease $400k for a niceish home in a reasonable area. No I do not want to live in a shack for at least a few mor years so $400k is it (Min actually) So that is a $1.6m net worth. And yes you are buggered (Ooops!) if the market stomps 30% with you in it.

SWR
I find this fascinating. I paid $68,000 for our house. Plenty of room,
100 ft. of water frontage, nice views, nice neighbors, good fishing.
Certainly not a "shack". Here is the best part. I expect we could
find a place totally suitable today for well under 100K without even looking very hard.

JG
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 02:38 AM   #85
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Re: Go with TIPs or am I crazy?

This is definitely one of the more helpful threads. I've enjoyed the stimulating debate. I don't know that we have resolved anything, but we have certainly identified many of the issues and generated much food for thought.

This is a challenging time for investors. Every asset class seems to be fraught with risk. For those, like myself, who are getting ready to retire, a misstep now could unwind years of hard work. As for the debate, I find myself agreeing a little with each of the posts -- good points have been made by all.

I'm still mulling over the best course of action for myself. At this juncture I'm not sure what I will end up doing. However, I know that I will be guided foremost by my desire to preserve my nestegg -- it was too hard to build, and I won't get a second chance to build another. With that in mind, I'm more inclined to accept a lower rate of return that to put my capital at risk. On the other hand, I understand the risk of inflation slowly eroding my nestegg. What a choice: death by a thousand cuts, or one quick decapitation.

Thanks to all who have expressed their views . . . this is the type of thread that makes participation in this forum worthwhile.

ZamaGuy
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 06:07 AM   #86
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by Nords

You, John, at least have mitigated the inflation risk with junk & real estate. *In fact over the last couple years your results could have made you look like an investing genius. *And I know that you won't expect any sympathy from ANYONE if your decision turns out badly!
True! I expect no sympathy from anyone on ANY of my decisions
that turn out badly. Thou shalt not whine.....the 11th
Commandment.

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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 07:23 AM   #87
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Re: Go with TIPs or am I crazy?

In 1993 - I toyed with the muti asset model(before ever hearing of Bernstein) then after reading Bogle's 1994 book - went back to the old tryed and true - the mythical pension fund (60/40 ish), Ben Graham's defesive investor 50/50, and the old pie chart with age ajustments.

Today 75% balanced index (lifestrategy) and take what the market gives. Left money on the table in the late 90's and -16.5% at the extreme low point in 2000 - 03 - but I'm satisfied with Ben Graham's 'the middle way' and Bogle's 60/40 - don't just stand there, do nothing.

Still putzing at the margin - it's a hormone thing - incurable.
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 08:13 AM   #88
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by unclemick2
In 1993 - I toyed with the muti asset model(before ever hearing of Bernstein) then after reading Bogle's 1994 book - went back to the old tryed and true - the mythical pension fund (60/40 ish), Ben Graham's defesive investor 50/50, and the old pie chart with age ajustments.
I simply stick with the 60/40 model.
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 08:42 AM   #89
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Re: Go with TIPs or am I crazy?

You guys stick with 60/40 regardless of age? 60/40 throughout accumulation phase or now that you are ER or close to it?
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 09:23 AM   #90
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Re: Go with TIPs or am I crazy?

I have it reversed. 40 equities/60 bonds. That is, with the big money. I have another small IRA which is 50/50. The broker handles that one. Age: 62. I'm not withdrawing a dime; don't need it. Probably should be 100% equities, but I like sleeping at night. Eventually, I will probably put it all into Wellesley, but not just yet.
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 11:34 AM   #91
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by MRGALT2U
I find this fascinating.* I paid $68,000 for our house.* Plenty of room,
100 ft. of water frontage, nice views, nice neighbors, good fishing.
Certainly not a "shack".* Here is the best part.* I expect we could
find a place totally suitable today for well under 100K without even looking very hard.

JG
I find it fascinating too. Imagine, needing a 400k house just to be out of "shack" status. I also live in a 1100 sq ft house and like it just fine. But to each his own. I enjoy low utilities, taxes, and insurance on my shack!
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 12:44 PM   #92
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Re: Go with TIPs or am I crazy?

You'd be lucky to find an 1100 sq ft shack for under 400K in a lot of parts of the country.

My first home in the bay area was 990 square feet. They sell for 500-570k regularly these days.
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 01:21 PM   #93
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by Grand Banks
You'd be lucky to find an 1100 sq ft shack for under 400K in a lot of parts of the country.
I think you are slightly exaggerating.
The median home price (whole US) in first quarter of 2005 was "only" 188k.
Are you suggesting that more than half Americans are living in shacks?
Just because you like expensive real estate, doesn't mean that everybody else does too
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 01:49 PM   #94
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Re: Go with TIPs or am I crazy?

I sure wish my shack, located in one of the top 5 welfare cities in the US, at its current valuation in the ~400k area, was a little more palatial. Unless its cleaning day.
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 01:51 PM   #95
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Re: Go with TIPs or am I crazy?

Built 1985, 1650sf in Dallas 'burb for $113,000 (overpaid slightly); 5 yrs later, now taxed as $133,974. Taxes ~$2900, HOI ~$925.
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 05:47 PM   #96
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Re: Go with TIPs or am I crazy?

$600-800k sounds about right to me if your house is paid for, you
are already into SS, you don't live high on the hog and you don't
live in a high $ city.

Cheers,

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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 05:48 PM   #97
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by sailor
I think you are slightly exaggerating.
The median home price (whole US) in first quarter of 2005 was "only" 188k.
Are you suggesting that more than half Americans are living in shacks? * *
Just because you like expensive real estate, doesn't mean that everybody else does too
To sum up, since we have been here, four (4) waterfront homes and one (1) off the water have come up for sale. * The top waterfront home sold for 125K. *The others sold for 55K to 95K.
I believe the off water home was in the 50s. *No shacks anywhere.

JG
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Re: Go with TIPs or am I crazy?
Old 05-29-2005, 06:15 PM   #98
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Re: Go with TIPs or am I crazy?

Quote:
Originally Posted by MRGALT2U
To sum up, since we have been here, four (4) waterfront homes and one (1) off the water have come up for sale. The top waterfront home sold for 125K. The others sold for 55K to 95K.
I believe the off water home was in the 50s. No shacks anywhere.

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Re: Go with TIPs or am I crazy?
Old 06-02-2005, 10:03 PM   #99
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Re: Go with TIPs or am I crazy?

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


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Re: Go with TIPs or am I crazy?
Old 06-03-2005, 01:15 PM   #100
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Re: Go with TIPs or am I crazy?

Donner,

There are some differences here:
- I don't worry about designing portfolios for low inflation or high inflation. I don't try to design a portfolio to survive nuclear wars or terrorist attacks or wild packs of crazed weasels, either. I design a portfolio that suits our risk appetite and is comprised of assets that so far have survived five four of the above better than anything else. Until we can get a subscription to have tomorrow's newspaper delivered today, that's the best we can do.
- I don't confuse LBYM with deprivation. (Submarines give me the credibility to know the difference.) If one wage earner is saving 10% of their income, two wage earners should save quite a bit more. During one mortgage-free year in our lives we were banking 80% of what we were bringing home. I'd describe that as quality family time with a young kid whose fun didn't come from spending money-- not "pathological".
- If I found a paid avocation then I'd do it forever, too, but so far ER appears to be my avocation. I enjoyed the first 10 years of my last career until it conflicted with family. I suspect that a lot of Young Dreamers are trapped in similar situations and are extricating themselves the only way they see fit. If you're not organizing your life & finances for ER, then for what purpose are you organizing them?
- Dude, I know how to use "periods" and "paragraph breaks".
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