How much passive/fixed income would you need to get out of equities?

[24601NoMore]

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Originally Posted by OldShooter Not sure what your point is. My statement "From history, five years of patience usually gets it back." is accurate.

The point I was trying to make is that there seems to be too much expectation nowadays that markets "usually" come back in <= 5 years based on recent experience, when history shows multiple periods where that is not the case. That appears to lead in some/many cases to people taking on too much equity risk in their later years (or in general overall), when they may not have time for the value of the equity portion of their portfolio to recover. Or, worse - be forced to pull from equities in a protracted down market environment in those later years, which could easily curtail quality of life and ability to spend as one may need/want.

Net, OP does raise a very good point about perhaps not needing a high % of equity exposure when your FI covers a big portion (or all) of your core expenses. I've always had that same approach and it's served us well - maybe we've missed out on some upside and even "lost" some to inflation, but it sure helps us sleep much easier at night also.

[ShokWaveRider]

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Originally Posted by JJpop Older retired people who have no debt are not hurt by inflation as much as a couple with 3 kids in grade school but no one ever mentions this.

Exactly! Inflation is typically based on consumption. One's own consumption rate is still subjective. To say one's personal rate of inflation is what some talking head or statistic says it is, can be very short sited.

Perhaps we should have a poll for those of us who actually keep track of it. I think if one goes back 10 or 12 years, has had no debt, one will find it has been a lot less than folk claim.

We lease cars every 3 years, it cost the same if not less now to lease a mid size luxury car (BMW's for US) over the last 12 years. We allocate $6000 a year for a lease car. It has not changed so our car expense has not changed in those years, thus our car lease inflation rate is very low. Last lease was $5100 a year for a BMW 330i one year ago.

Our house taxes were $7,157.04 in 2008 last year they were $5,558.02 so do the math.

[Badger]

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Originally Posted by JJpop ...Older retired people who have no debt are not hurt by inflation as much as a couple with 3 kids in grade school but no one ever mentions this. Our SS will pay all of our basic expenses,easily,and we will have about 50K in yearly fixed income from investments in a few years when I turn 70. We do not need stocks and will still leave a nice inheritance. If the stock market really tanks big time like 2008 or close to that,I will buy and go up to 25 % equities.Other than that,no thanks.

Wife and I are in our early 70s. Investments/savings (not including the market value of our house) at 50X annual spending. We are still frugal but enjoy our lifestyle and starting to spend more for hobbies and travel but nothing has required using our retirement savings although we do dip into some dividend money to gift the annual maximum to our 2 grown children. Living on SS and pensions. No debt. House paid, cars paid, Medical taken care of with Medicare and Tricare for Life. Somehow I don't think inflation is going to affect us before we die which given our present health condition I figure will be no more than 20 years.



IRAs are in Wellesley, Wellington, and cash. Taxables are in a few individual stocks and cash. I would sell the stocks if it were not for the capital gains and that they provide great dividends. However, I am considering moving more IRA money to cash/CDs.


Other than increasing inheritance (they will have plenty for their retirement) what is the problem with going all cash when you have enough?


Since I am a "bear of very little brain" (a.a. milne) and there are many of you much more learned in economics and many more others in a similar situation then why would it be prudent for us to stay in stocks and amass a greater net worth? I just don't see the point? The generic thinking does not always apply to everyone.


Cheers!

[sheehs1]

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Originally Posted by pb4uski The other side is that if reliable sources of income more than cover expenses that one can easily afford to keep playing or even put more at risk.

There is validity to this statement and while I agree to an extent, I guess the point is that given that situation, where a person is not having to living on the income generated, one does not have "to risk" it. The fixed income should keep up with inflation.
That said, for myself, I doubt I can go to all fixed income due to the unrealized gains in taxable accounts. I don't want the tax bite so will end up with at least 20% equities.
I will hopefully be making strategic moves towards this goal next week.

[pb4uski]

In many cases where one has plenty it comes down to risk appetite and the psychological ability to accept risk/volatility.... volatility doesn't bother me at all as it is long-term money and I "know" that over long periods of time it will all work out... it certainly has in the past 100+ years.... even if it doesn't then not a problem for me... so I'll take my chances.

[OldShooter]

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Originally Posted by pb4uski ... volatility doesn't bother me at all as it is long-term money and I "know" that over long periods of time it will all work out. ...

Exactly! I think Markowitz did investing a serious disservice when he equated volatility with risk.*

Volatility is risk only if one is forced to sell independent of market conditions. Markowitz's focus was large investment funds, like pension funds, where this may be the case. But there is much more to risk for a patient investor; think Sears Holdings, Enron, GE, Digital Equipment Corporation, and hundreds of others.

*I have read that when Markowitz was in graduate school there was a great desire by economists to differentiate themselves from the "soft sciences" by becoming more mathematical. Equating risk with volatility accomplishes this nicely, especially when coupled with his approximation that the distribution of stock prices is Gaussian. Fun with standard deviation then occurs. I have his latest book and, in it, he is still defending the Gaussian approximation. He has the Nobel and I do not, but it is still very clear that market behavior is not Gaussian. It is asymmetric, not centered on zero, and has much fatter tails. How can that not matter to investors?

[Chuckanut]

2008 was certainly scary. 1974 was sheer terror. It took until 1992 to get back the losses in real terms.

[OldShooter]

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Originally Posted by Chuckanut ... 1974 was sheer terror. It took until 1992 to get back the losses in real terms.

Yup. I am too lazy to track it down, but maybe you have the source data? Was that flat spot analysis done on a total return basis, considering the dividends being paid during that period? Usually these analyses are not.

Regardless, what I tell younger people in my investing class is that they need to be prepared for a wild ride during their 20-40 years of accumulation. I give them the copilot checklist: Sit down, shut up, and hang on!

In retirement it becomes different, but the context of this thread is really people who have more money than they need, so to some of us riding the bucking bronco is part of our estate strategy.

[mickeyd]

Even though we have an income stream that is ample enough to pay all of our expenses and have a bit left over each month to save for fun-time I still enjoy managing a 50/50 risk profile even though we could probably make it at 20/80. I like the extra risk that I am taking.


Risk assumption is an individual decision that we all have to make.

[daylatedollarshort]

Quote:

Originally Posted by OldShooter Yup. I am too lazy to track it down, but maybe you have the source data? Was that flat spot analysis done on a total return basis, considering the dividends being paid during that period? Usually these analyses are not. Regardless, what I tell younger people in my investing class is that they need to be prepared for a wild ride during their 20-40 years of accumulation. I give them the copilot checklist: Sit down, shut up, and hang on! In retirement it becomes different, but the context of this thread is really people who have more money than they need, so to some of us riding the bucking bronco is part of our estate strategy.

We did have a much higher allocation in equities at times during our accumulation years and in hindsight we look back on the big loss years and regret that. We both had good jobs, some with modest pensions, and living on one income and saving the other in TIPS or equivalent would have been more than enough for us to retire.