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Old 07-28-2013, 07:28 PM   #41
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But old guys like us, who've seen a lot, should be able to step over most of the obvious land minds.
+1

I hate it when someone blows a land mind - a terrible waist.
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Old 07-28-2013, 07:38 PM   #42
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Because I have too much time on hand (in convalescence and all that), I have played some more with historical simulation, and have some more to offer to entertain ya'all.

For a greedy guy like myself who wants to have his cake and eat it too, I am curious to see what chance a guy can live off his portfolio and yet does not draw it down.

So, what are the lucky years when a 50/50 portfolio can start and sustain a 4% initial WR with COLA, and still end up with at least the same value (inflation adjusted too) after 30 years?

The following were the years when those happy times occurred.

1870-1887
1918-1928
1942-1952
1974-1982?

Note the question mark at 1982. It's because we have not yet completed a 30-yr sequence from 1983.

In order to evaluate the recent years, I shortened the period to 10 years. I then found that 1997 was the last year that one would still retain his portfolio 10 years later. This makes sense, because the closer we got to the market top of 2000, the more inflated the portfolio would be, and the more devastation that would follow after that bubble.

Shortening the duration further from 10 years, the simulation showed that recent retirees who bailed out of work in recent years would still be in the red, except for those who started in 2003. Of course that makes sense because of the market bottom in that year.

I only stopped my earned income last year, but some posters have been fully retired for a few years now, and still have more than when they started. I think it was either because 1) they did not compensate for inflation, or 2) they have additional income, or 3) they are good traders or rebalancers, or a combination of the above.
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Old 07-28-2013, 07:41 PM   #43
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Deflation was the savior of a hypothetical balanced portfolio in the 1930s. My data set shows astonishing inflation rates of negative 8.9% in 1931 and negative 10.3% in 1932. So cash and Treasury notes did phenomenally well during the darkest days of the depression (10-year notes had a real return of almost 20% in 1932), and the massive nominal drop in stock prices was somewhat softened.

In reality, I'm guessing that retired people of that era were more affected by their children becoming unemployed, and with their former employers not being able to pay pensions.

Tim
Good point about the pensions. Makes you wonder about nowadays too.

In the 1930's, even in the "recovery" there were huge monthly swings in returns. Some 25% and 30% up months, and some -15% down months. I truly wonder if a retiree could have taken the heat back then and stayed the course --- doubt it. I actually bought this book because it did a good job of talking about the realities from a middle class lawyer's perspective Amazon.com: The Great Depression: A Diary eBook: Benjamin Roth, James Ledbetter, Daniel B. Roth: Kindle Store
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Old 07-28-2013, 07:46 PM   #44
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...(snip)...

Shortening the duration further from 10 years, the simulation showed that recent retirees who bailed out of work in recent years would still be in the red, except for those who started in 2003. Of course that makes sense because of the market bottom in that year.

I only stopped my earned income last year, but some posters have been fully retired for a few years now, and still have more than when they started. I think it was either because 1) they did not compensate for inflation, or 2) they have additional income, or 3) they are good traders or rebalancers, or a combination of the above.
I retired in 2003 but had a bit of income in 2005, 2006. We are just a tad ahead in inflation adjusted terms since 2003. We would have been more ahead if I'd taken SS at 62. We would have been way ahead if I'd been doing my current (backtested) investment approach -- but then what would you expect from such a statement ?
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Old 07-28-2013, 07:48 PM   #45
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I hope most people here are prepared for what experts see as an inevitable stock market crash. Everyone I talked to around 2005 told me no way you could lose if you bought lake property in my area. Ask those who bought in that year how they stand today? I think people are feeling real good about the market again. It sort of reminds me of driving down the road and seeing a terrible car wreck. You drive real slow after you see the wreck. Then you seem to forget it and you are driving at 80 mph again. I am one who has made big financial mistakes. I was offered a very large sum of money for my commercial property in 2000. I wish I could get that today. I will just pass it on to my son when I check out. oldtrig
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Old 07-28-2013, 07:51 PM   #46
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In the 1930's, even in the "recovery" there were huge monthly swings in returns. Some 25% and 30% up months, and some -15% down months. I truly wonder if a retiree could have taken the heat back then and stayed the course --- doubt it. I actually bought this book because it did a good job of talking about the realities from a middle class lawyer's perspective Amazon.com: The Great Depression: A Diary eBook: Benjamin Roth, James Ledbetter, Daniel B. Roth: Kindle Store
Eh, it was a day trader's delight!

Just joking. During the market wild swings in 2000, I joked with my frustrated friends that we should embrace volatility because that's how a guy who could jump in/out of market would make a lot of money. Then, came 2003 and 2009 market crashes and it was not fun anymore.

PS. I will check at the local library for this book. Oops, it's an eBook.
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Old 07-28-2013, 07:52 PM   #47
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It's hard to imagine someone retiring today being worse off than if they retired in 1929 or in 2000 or in 2008... unless they panic-sold all their stocks in 2008 and watched the equity recovery from the sidelines.
Though there are some doomsayers that there are looming crises still to come.

Student home loans, Medicare. Or China about to crash, etc.
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Old 07-28-2013, 08:05 PM   #48
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I retired in 2003 but had a bit of income in 2005, 2006. We are just a tad ahead in inflation adjusted terms since 2003. We would have been more ahead if I'd taken SS at 62. We would have been way ahead if I'd been doing my current (backtested) investment approach -- but then what would you expect from such a statement ?
I still have a few more years till SS, hence have not even bothered to see what we will get. But I have been thinking that if the market is lousy from here till then, I may start SS early, or at least for my wife.

About back testing, yes, I also develop a strategy that I will deploy at the next downturn. In back testing, it would result in my getting all out of I-bonds and going all in in March of 2009 on the same stocks that I did nibble back then, then riding it up all the way till now.

$5MM? Way past it, baby, and on the way to 10 cool ones!

New bumper sticker: Oh God, another market crash please!
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Old 07-28-2013, 08:35 PM   #49
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Back on the supposedly worse period of 1960-1980, nothing much stood out, but the low growth and high inflation just ground on and on. There were not even wild market gyrations like we have had recently in 2003 and 2009.
Nothing? Maybe you missed 1973-1974 recession. It lasted longer than the Great Recession and the market was down IIRC 45%, seems I have read that recession was really worse than the GR. Then inflation ate you alive in the 70's. I'm not sure but I think the markets did not do that well until 1982 when Reagan started to turn things around after the disastrous 70's and the Carter malaise. The 70's were no picnic.
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Old 07-28-2013, 08:49 PM   #50
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Nothing? Maybe you missed 1973-1974 recession. It lasted longer than the Great Recession and the market was down IIRC 45%, seems I have read that recession was really worse than the GR. Then inflation ate you alive in the 70's. I'm not sure but I think the markets did not do that well until 1982 when Reagan started to turn things around after the disastrous 70's and the Carter malaise. The 70's were no picnic.
I stand corrected. I was too cursory when I made the post. That was before my time to experience it personally. I only started to make a living as a young adult in the late 70s.

Yes, from the market top in Dec 1972, the Dow lost 40% at the bottom in Sep 74, 20 months later. The Dow languished for 10 years and did not set a new high until Dec 1982.

But isn't the period of 2000-2013 like the above? We even had two dips, in 2003 then 2009. The missing thing was high inflation.
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Old 07-28-2013, 08:52 PM   #51
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I hope most people here are prepared for what experts see as an inevitable stock market crash...
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Though there are some doomsayers that there are looming crises still to come.

Student home loans, Medicare. Or China about to crash, etc.
All I can do personally is to diversify to foreign stocks. But with globalization, the entire world may go down the tube together. If I suffer, the consolation will be that I will have lots of company.
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Old 07-28-2013, 08:59 PM   #52
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You know, I bought my dads business in 1979 and never knew things were bad. I worked many seven day weeks back then. I made more money in 1980 than I ever made in my life. I paid taxes on $125,000 that year. That was a lot of money 33 years ago. I guess I was to dumb to even know things were bad. I remember paying my dad 7% interest when he sold me the business. Wow, that was not a very smart move on my part but a good one on his part. I remember him getting 18% on his money in bank cd's in 1980. I think I am correct on that amount. He retired and had it made. I was paying him $600 a month. He had about $200,000.00 in the bank and was drawing his SS. I thought what a nice way to retire. I wish now he would have took that $200,000.00 and bought lake property. oldtrig
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Old 07-28-2013, 09:31 PM   #53
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All I can do personally is to diversify to foreign stocks. But with globalization, the entire world may go down the tube together. If I suffer, the consolation will be that I will have lots of company.
Depends a lot on the dollar which is followed by trillions of dollars of currency investments second to second. So no clue to it path.

One of my best backtests involves moving between US large value and a general foreign equity index based on just momentum on a monthly basis. Has done better then buy-hold over 40+ years.
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Old 07-28-2013, 09:50 PM   #54
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The problem with any back testing is that the political and historical events that influence the markets are one-time events, such as the industrialization of the US, the Cold War, and the Peace Dividend that followed, the technology boom, etc... What is coming down the line?

Abroad, now that China has surpassed Japan as the 2nd economic power, they are already projecting the year it will surpass the US. But I do not see China as an investable market because of its closed nature. It's nothing like the US in the past.

I have invested a bit in emerging and foreign markets, but all that has done is to hold me back behind the S&P index the last 12 months. However, there has been some action lately, so I will patiently wait.
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Old 07-28-2013, 09:56 PM   #55
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I'm not so patient but there are "many paths to Dublin" as one Bogelhead is fond of saying.

I've been running that backtest real time for 4 years now so it's not just theory. However, I just mention it as a curiosity and probably because it's been working fine so I'm cocky now.
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Old 07-28-2013, 10:15 PM   #56
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I did not mean to pick on your method. What you are doing is probably a lot safer than what I am doing, which is a bet on a macroeconomic level, which I should not be doing as I am no economist. It has not "worked" yet and I am still waiting, while yours is apparently working already.

So, I thank you for an idea, and may investigate on my own sometimes.
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Historically worst time to retire
Old 07-29-2013, 12:43 PM   #57
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Historically worst time to retire

As we contemplate retirement, we don't know what inflation will be, what earnings will be or how long the retirement will last. I think that dying before one retires would be the worst time and dying right after retirement to be just as bad. Historically speaking of course.
Bill
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Old 07-29-2013, 01:38 PM   #58
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I will repeat the story of a guy at megacorp who retired on Friday. On Monday, his tearful wife called work to let know that he died of a heart attack on Sunday. By the way, had he died a few days earlier, his widow would get some additional money for term life insurance that megacorp provided free.

Anyway, to balance that risk out, a long retirement in poverty is something one should avoid too.

It's a good thing, I think, that we do not know when we are going to die. Suppose you know for certain you will die at the age of 55, when you are still very young. What would you do? Work till 40 before throwing everything to the wind and take off to see the world? Or do it at 30? Why not start at 20?
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Old 07-29-2013, 02:30 PM   #59
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But isn't the period of 2000-2013 like the above? We even had two dips, in 2003 then 2009. The missing thing was high inflation.
Yes and no, no time range is like another as there are some things that'll be different. In many respects it was.

I can't recall the unemployment rate but I suspect it was as bad as the past 4-5 years but, and this is a big but, the gubmint has changed the way they count this so the real rate is probably more like 14-18% and for minorities perhaps 25% so the rate is not 7.5% is my point nor was it back then.

Another thing was interest rates were astronomical, CD's paid 14 or 15%, 30 year Treasury bonds were 15 or 16% but that may have been by 1985 but mortgage rates were brutal. A co worker in 1980 had a 21% mortgage, yes 21%, though that was the end of the range we are comparing.

From 1970 to about 1986 things were really not so rosy but it would have been a fabulous time to pour money into equities - 1982 to 2000 the longest bull market in history that rose 1400%.
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Old 07-29-2013, 03:38 PM   #60
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I'm hoping this bull market has a few more years. We'll see.
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