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Old 10-30-2015, 11:30 AM   #41
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Originally Posted by daylatedollarshort View Post
If you are risk adverse, check out the liability matching strategy at Bogleheads wiki:

https://www.bogleheads.org/wiki/Matching_strategy
No investment in mutual funds at all? Are you saying a matching strategy is a better bet than being in bond/income/TIPs funds without any equities exposure? Current tax deferred assets are roughly 31% total bond fund, 29% Dodge & Cox Income fund, 21% TIPs fund. and 19% GMNA fund.
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Old 10-30-2015, 11:57 AM   #42
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Great topic even if the thread is old. I have the same problem as the OP. I have thought about Wellington and bringing the capital gains/dividends home every year. It makes taxes simple and I feel better with the extra money.
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Old 10-30-2015, 12:02 PM   #43
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No investment in mutual funds at all? Are you saying a matching strategy is a better bet than being in bond/income/TIPs funds without any equities exposure? Current tax deferred assets are roughly 31% total bond fund, 29% Dodge & Cox Income fund, 21% TIPs fund. and 19% GMNA fund.
I am not saying one is better than the other. Better is in the eye of the beholder. If you are risk adverse it might be a topic to read up on. We wish we had heard about this years ago, like way before 2008 and the dot.com crash, so I bring it up as an option for other conservative investors to consider.

The general idea is your essential inflation adjusted expenses are covered by insurance or inflation adjusted investments with fixed maturity dates and no loss of principal. Fixed expenses, like a fixed 30 year mortgage, can be matched with non-inflation adjusted investments, but also with maturity dates. You can invest your mad money in anything you want, but this way your essential expenses are covered.
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Old 10-30-2015, 02:04 PM   #44
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Very few retirees have enough saved to use liability matching without inflation eating them alive.

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If you buy into Bernstein’s theory, you’d better plan on working a little longer, saving more, or spending less in retirement.
Besides a few short years ago he was advocating a more conventional approach... should we believe him now or then?

If someone has a 2.5% WR and is very risk averse then liability matching might be a good approach, but very few retirees will be able to do it... I'm guessing perhaps 1 in 20 at best.
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Old 10-30-2015, 02:12 PM   #45
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Originally Posted by daylatedollarshort View Post
The general idea is your essential inflation adjusted expenses are covered by insurance or inflation adjusted investments with fixed maturity dates and no loss of principal. Fixed expenses, like a fixed 30 year mortgage, can be matched with non-inflation adjusted investments, but also with maturity dates. You can invest your mad money in anything you want, but this way your essential expenses are covered.
Only if the rate of inflation is the same for your expenses as it is for the index. If CPI runs lower than your expense rate, you will still fall behind.

Based on feedback from member postings here, this is a real risk.
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Old 10-30-2015, 03:10 PM   #46
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Very few retirees have enough saved to use liability matching without inflation eating them alive.....If someone has a 2.5% WR and is very risk averse then liability matching might be a good approach, but very few retirees will be able to do it... I'm guessing perhaps 1 in 20 at best.
According to the Consumer Expenditure Survey, the mean income from "rents, dividends, rental income and other property" for households over 65 is $1,244 a year, so I am not sure if a 1% or so change in portfolio withdrawal rates is going to make a huge difference to most retirees.

http://www.bls.gov/cex/2014/combined/sage.pdf

Liability matching does take into account inflation, as outlined in the Boglehead wiki article I linked to previously. The whole concept is geared towards not losing money to CPI inflation.

Here is an article on using stocks as an inflation hedge:
Investing Error: Don't Use Stocks as an Inflation Hedge - DailyFinance

Even wealthier retirees have a median of $395K in financial wealth, according to a Vanguard study, so I am not sure a 1% withdrawal rate from ~3% for liability matching to 4% for a Firecalc kind of approach would make a huge difference in annual income except for very affluent households. Of course, if you want the chance of growth, then you won't get that with liability matching. If you want less volatility, then a liability matching strategy may suit your household better. There are pros and cons to each approach.
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Old 10-30-2015, 03:20 PM   #47
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Only if the rate of inflation is the same for your expenses as it is for the index. If CPI runs lower than your expense rate, you will still fall behind.

Based on feedback from member postings here, this is a real risk.
True, but then again your personal inflation rate may also be less than CPI-inflation. I'm not aware of any alternative investments that would have more of a guarantee of keep up with one's personal rate of inflation. Stocks may or may not be a good inflation hedge, depending on other economic variables, per the article in the previous post.

I used the government inflation calculator to check my starting salary after college compared to what kids today make in the same major, 35 years later, and they were pretty close, so that was my reasonableness test that for me CPI inflation probably isn't wildly off the mark.
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Old 10-30-2015, 10:21 PM   #48
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Originally Posted by daylatedollarshort View Post
.....

Here is an article on using stocks as an inflation hedge:
Investing Error: Don't Use Stocks as an Inflation Hedge - DailyFinance.....
Great link.

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That's why some experts have even recommended that retirees or near-retirees hold 60% or more of their assets in stocks -- terrible advice, and it destroyed many people's finances and peace of mind during the crash a couple of years ago.
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And if you're worried about inflation, you should take some of that money -- and sell some of your bond holdings, too-- to buy some asset classes that have better track records as inflation hedges....

Such as? "In periods of high and increasing inflation, gold and commodities are definitely something you want in your portfolio,"
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So, what should you do? I'd take some profits in your stock and bond holdings and buy small positions (maybe 5% of your portfolio each) in gold, commodities, REITs, and TIPs ETFs, preferably when they've sold off a bit, too.

Then, I'd keep 40% to 50% in stock, 20% to 30% in bonds, and another 10% in cash. That way, you'll have some protection against inflation, deflation, and just normal life.
So according to the moron who wrote this article, 60% in stocks is "terrible advice" and destroyed many people's finances and peace of mind during the great recession, but 50% in stocks is fine. Talk about a distinction without a difference.

Oh, and by the way, invest the proceeds from the stock sold in gold and commodities, REITs and TIPs.

Sounds like to me.
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Old 10-30-2015, 11:24 PM   #49
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Oh, and by the way, invest the proceeds from the stock sold in gold and commodities, REITs and TIPs.

Sounds like to me.
The Dailyfinance article had links to academic research studies on the value of stocks as an inflation hedge, such as:

"Elroy Dimson, Paul Marsh, and Mike Staunton of the London Business School have one of the world's deepest databases on the performance of stocks, bonds, bills, and currencies, as well as inflation. It covers 19 different markets and goes all the way back to 1900....In an article in the 2012 Credit Suisse Global Investment Returns Yearbook, they found that during periods of "marked" inflation, equities easily outperform bonds, probably the worst investment to own during inflationary episodes. Yet equities gave a real return of -12% during those periods, while bonds lost 23.2%. Double ouch."

That particular link was not an example of a liability matching portfolio. Liability matching portfolios do not recommend gold or REITS. The LM Boglehead wiki article explains this:
https://www.bogleheads.org/wiki/Matching_strategy

I don't really get the need for the feces picture and foul language. If you don't want to invest in a liability matching portfolio no one is suggesting that you personally need to do so. Not everyone can handle the stress of losing 30 - 50% of their life savings at retirement age in a down market, and for some the LM strategy may be a better choice. We prefer it. There are many interesting discussions on the BH site on this strategy for those retirees interested in something less volatile than a mutual fund approach.
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Old 10-31-2015, 12:18 AM   #50
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....That particular link was not an example of a liability matching portfolio. Liability matching portfolios do not recommend gold or REITS. ...
Then what was the point of attaching the link if it isn't relevant to the topic?
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Old 10-31-2015, 12:43 AM   #51
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Then what was the point of attaching the link if it isn't relevant to the topic?
See my full response above your last question. Sorry, but I don't think I can make my points any clearer. If you want to know more about liability matching, there are many interesting discussions on the BH forum and smarter people than me over there who can explain it better.
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