Interesting webpage on AA

[mathjak107]

with a 30 year bull market in fixed income winding down its hard to gauge what you can count on going forward.

like i said previously there is a good chance that retirees will experience their first bear bond market and it may leave many income funds hit pretty hard.

its not happening overnight but it certainly looks like a given within the next couple of years when rates rise.

[rbmrtn]

Quote:

Originally Posted by mathjak107 with a 30 year bull market in fixed income winding down its hard to gauge what you can count on going forward. like i said previously there is a good chance that retirees will experience their first bear bond market and it may leave many income funds hit pretty hard. its not happening overnight but it certainly looks like a given within the next couple of years when rates rise.

Agree. Have to go with the odds, most likely rates will rise since they are about as low as they can go. There weren't many bond funds around in '70s but the ones that were took a hit on NAV that didn't come back for many years. But they could stay low for a long time, like Japan has been. With rates as low as they are I would almost use CDs as a replacement for bond funds and avoid the risk.

[mathjak107]

at these levels bond funds are all about capital gains. rates can even turn negative and keep producing gains.

our bond fund portfolio yield is about 3-4% ,nothing to sneeze at but the real money has been in capital gains.

[ERD50]

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Originally Posted by Dawg52 I was basing it on the data provided in the link. An 8.3% rate for a FI portfolio vs 9.5% for an all equity portfolio, what is there not to get?

Sorry, still not getting it. If you want to go to some un-re-create-able hypothetical, and say: 'If anyone can guarantee the next 38 years to be anything like the previous, give me the T-Bill portfolio for comfort sleeping. I'm closer to the 30/70 model to hedge my bets.'

Heck, if it is guaranteed - why not take the 9.5% over the 8.3%? Over 38 years, that's a big difference, > 1.5x.

But closer to reality (well, actual reality, even if it is past reality) - those FIRECALC runs are pretty clear on the increased failure rates of a high fixed income AA. That means more to me than any single time period.

And if I pick that 1970 starting year in FIRECALC, it only lets you select a 30 year time frame, but the end portfolio is ~ 4.6x with 75% Equities than with 100% fixed. I'd sure feel better prepared for the next 10 or 20 years with a 4.6x sized portfolio. And there are only two years that your buying power dips below your starting portfolio , one ~ 13% below, the other a few hundredths of a percent.

The message is - all this talk about 'sleeping well' with a high fixed income AA just isn't born out by FIRECALC. Anything below ~35% equities has seen more failures. If one just can't stand the volatility of equities, how are they gonna feel about a portfolio failure?

-ERD50

[Dawg52]

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Originally Posted by ERD50 The message is - all this talk about 'sleeping well' with a high fixed income AA just isn't born out by FIRECALC. Anything below ~35% equities has seen more failures. If one just can't stand the volatility of equities, how are they gonna feel about a portfolio failure? -ERD50

You don't know everyone's situation. Firecalc shows I have a 100% success rate for a 40 year period using a conservative AA approach, so I'm satisfied. And I'm not even plugging in SS income. I guess I'm lucky enough to have a large enough portfolio to accommodate my modest lifestyle.

If I had to go with a 70/30 AA for FC to give me a 100% success rate, I can assure you I wouldn't have retired early.

[ERD50]

Quote:

Originally Posted by Dawg52 You don't know everyone's situation. Firecalc shows I have a 100% success rate for a 40 year period using a conservative AA approach, so I'm satisfied. And I'm not even plugging in SS income. I guess I'm lucky enough to have a large enough portfolio to accommodate my modest lifestyle. If I had to go with a 70/30 AA for FC to give me a 100% success rate, I can assure you I wouldn't have retired early.

Sure, if the portfolio is large enough at the start it can work out. That's not an option for most. Of course, with that large of a starting point, the volatility of a 100% EQ AA wouldn't be a problem either.

So that's fine - I just cringe a little when people talk about using large fixed income % AAs to reduce 'risk'. It's not really the case, as least as far as FIRECALC points out. I'd guess that it's not the AA that's getting you to 100% success, but the (relatively) large starting point.

But that gives you options, and options are good! And you found one you are comfortable with. All is well.

-ERD50

[Huston55]

Quote:

Originally Posted by ERD50 So that's fine - I just cringe a little when people talk about using large fixed income % AAs to reduce 'risk'. It's not really the case, as least as far as FIRECALC points out. I'd guess that it's not the AA that's getting you to 100% success, but the (relatively) large starting point.

Quote:

Originally Posted by Dawg52 You don't know everyone's situation. Firecalc shows I have a 100% success rate for a 40 year period using a conservative AA approach, so I'm satisfied. And I'm not even plugging in SS income. I guess I'm lucky enough to have a large enough portfolio to accommodate my modest lifestyle. If I had to go with a 70/30 AA for FC to give me a 100% success rate, I can assure you I wouldn't have retired early.

So, it could be large portfolio or modest spending or, a combination of both relative to one another (that's how my Grandmother lived on her own for 40 yrs).

Everyone has to find their own path, and it seems Dawg's found his. Even though others in the same circumstances would have retired earlier with a more heavily equity weighted AA.

[mathjak107]

i have never been a fan of aged based investing at all.

telling a 25 year old he should go 100% equities when he gets scared and jumps ship at every dowturn losing money is wrong..

telling a 65 year old who has a pension that meets his needs and still has long term money he wont touch for 30 years that he has to cut equity exposure is wrong too.
number one criteria should be pucker factor not age.

what brokerages need is not age based criteria but better pucker factor profiling .

a few research companies are offering very comprehensive questionaires to determine risk level and a few investment companies are using them but most don't want to pay the fees for them.2008-2009 showed wall street just what risk meant to many people and age was not a boundery.

even the target funds will learn they have it wrong. loading retirees up on bonds based on age and not by whats happening in the world is wrong.

the risk of being put mostly into bond funds at this point in time because of age may be setting retirees up for a bad drop when longer term rates rise.

it only worked until now because of a 30 year bull market in bonds.