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Old 12-29-2015, 07:26 PM   #21
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Advocates of market timing will always attract a flock of winged monkeys. That's what they want.
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Not a market timer but!!??
Old 12-30-2015, 05:45 AM   #22
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Not a market timer but!!??

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Originally Posted by NW-Bound View Post
Does it make that much difference?

From Oct 2007 to Mar 2009, the S&P dropped more than 55% (down to 45 cents on the dollar), while BND (VG total bond index) was roughly flat. A 50/50 portfolio would be down to 72.5 cents on the dollar, while the 45/55 portfolio was 75.3 cents.

If we look at one of the worse corrections of all time it is bound to be scary.

What is the likelihood that you'd exit the market on time and get back in before the run up?
Is your retirement income limited to a portfolio that doesn't have dividends and interest?
Did they stop SS and pensions during that time?

Dow October 2007 1500
Dow today. 2100
Diff 600 or 40% gain in 9 years

Of course that's just based on price but, what about those dividends? Did you know dividends make up roughly 42 % of market returns. Now for a dividend centric guy like me it is probably 60%... My steady Eddies paid them just fine thank you. People still used electric and talked on the phone (probably calling me complaining about the market). Not as exciting as genetic engineering mind you but wonderful in their consistent dividends.

The total return s&p
2008 -36%
2009 +25%
2010 +15%
2011 + 2%
2012 +16%
2013. +32%
2014 +13%

http://pages.stern.nyu.edu/~adamodar...histretSP.html

I remember a phone call back then I received from a recently retired colleague in a panic over the market. Despite my suggestion to stay the course She undoubtably sold everything post dip. I don't keep my head in the sand but I don't pretend know when the next credit crisis will occur.
My plan is too live on my SS and portfolio income. The buying opportunity of the credit crisis made it possible.

The geometric average (calculates impact of big losses on capital better then a simple average) for the s&p total returns is roughly 7.5% for the last ten years. I think that's amazing given 2008. What it says also is if portfolio valuation is your concern AA is critical but if income and Long Term sustainability of same it appears equities and the market are better.

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Not a market timer but!!??
Old 12-30-2015, 05:56 AM   #23
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Not a market timer but!!??

Good link above with data.

I recall seeing it was approx 6 -7 percent per year nominal including dividends or around 4 percent real return after subtracting for inflation

Fairly close ?
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Old 12-30-2015, 06:03 AM   #24
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Originally Posted by papadad111 View Post
Good link above with data.

I recall seeing it was approx 6 -7 percent per year nominal including dividends or around 4 percent real return after subtracting for inflation

Fairly close ?

Spot on.


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Old 12-30-2015, 06:13 AM   #25
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My point was that if one is scared of market volatility, a 5% tweak in AA does not do much even when the market drops as much as it did in 2008. A much larger change in AA is needed, such as 20-30%.

By the way, a $10K invested in VG S&P Index fund on Oct 2007, a market top, grows to $16K now with reinvested dividends, 8 years later. That indeed works out to 6.0%/yr over that period. Inflation runs 13.8% cumulative over that time, or 1.6%/yr, leaving one with 4.4% real return.
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Old 12-30-2015, 06:37 AM   #26
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Great question..DW and I are in the same boat - very close to FIRE (2016 for sure for her, maybe 2016 for me) and are getting increasingly concerned about "sequence of returns" risk as we do not have as much time as we would have in our 20s/30s to come back from a large (30-50+%) dip.

We're in a very good position overall and have enough cash to pull everything out and live off of that, SS and interest from 2.5%+ CDs. The problem is, our purchasing power will drop due to inflation, even low as it is.

This is just a version of Berstein's "when you've won the game, quit playing" approach and it's very tempting. We technically don't "need" to take the risk, so why take it?

The other big concern is an article I read in this month's Money mag yesterday. They are predicting ONE PERCENT PER YEAR return (on average) for US equities for the NEXT DECADE (?!). So, the obvious question becomes..if my "upside" is ONE PERCENT PER YEAR on equities for the next 10 years, why would I want to subject myself to what is sure to be stomach-wrenching volatility for ONE FREAKING PERCENT on average? We'd literally be better investing in CDs and at least getting 2.5X that.

I love investing and have built a pretty decent portfolio - but am wondering if it's time to go all cash, avoid what's sure to be a crap 2016 (given what we saw in 2015, high current US equity PEs, etc) and just call it a day. I know we'd sleep better at night vs. watching our PF drop 10, 20, 30, 40 or even more % in the next crash - and if we are LUCKY, get back to "even" before we're too old to enjoy it, or worse (ie: game over).

Just my $.02, but I see way too much risk in this market and way too little reward. It's turned into Vegas IMHO. (Just look at what happens every day to every little bit of "news").

This ain't our father's stock market, so the "10% return since 1926" averages are not going to hold going forward - instead, I think the ONLY way to make money in this market is short-term trades. Buy on the dips and sell on the rallies. I did that with a small bucket of "play" money and that bucket is up ~10% YTD vs my RE PF that's down -.07% overall.
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Old 12-30-2015, 06:44 AM   #27
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PS: Tempting as going to all cash is, there are some funds that I (stupidly) have an emotional attachment to and just don't want to let go - probably because I have better faith in these than some of the others that they will do decently over the LONG term.

Ditto some of the individual equities I own, like Realty Income (O).

So, I could sell my "non-core" and hang on to core. Basically significantly adjust AA to really lower overall exposure to equities and reduce our overall risk..still keep "some" like O, Wellesley, etc but jettison many of the rest, especially dogs like HRTVX that I've foolishly held onto WAY too long thinking they'd "eventually" come back (they haven't, and watching year over year drops has been no fun..)
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Old 12-30-2015, 06:45 AM   #28
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The other big concern is an article I read in this month's Money mag yesterday.
I think I've identified the source of your problem...
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Old 12-30-2015, 06:46 AM   #29
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Originally Posted by RetireSoon View Post
...
The other big concern is an article I read in this month's Money mag yesterday. They are predicting ONE PERCENT PER YEAR return (on average) for US equities for the NEXT DECADE (?!). So, the obvious question becomes..if my "upside" is ONE PERCENT PER YEAR on equities for the next 10 years, why would I want to subject myself to what is sure to be stomach-wrenching volatility for ONE FREAKING PERCENT on average? We'd literally be better investing in CDs and at least getting 2.5X that...
The low expected return on stocks is after inflation. CD rates are before inflation.

Yes, we have had several recent threads about Bogle and Shiller prognostication on low market returns in the years ahead. But it is still better than CD.
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Old 12-30-2015, 07:21 AM   #30
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Wanting to permanently change your asset allocation to something more conservative as one nears retirement, is not like market timing really. Maybe you need a more conservative AA in order to not get cold sweats when thinking of a market turndown. Some here have 50/50, and then some really chicken-hearted members like me settle on 45/55 (equities/fixed) in retirement.

A 2-5 year cash buffer can be calming during a market turndown as well, although these are not so popular right now due to relatively low interest rates.
+1

The idea of changing AA in synch with a life change is perfectly legitimate; you might sleep well knowing your W2 income would carry you through X years of downturn, but worry if lack of that income might cause selling low.
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Not a market timer but!!??
Old 12-30-2015, 07:24 AM   #31
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Not a market timer but!!??

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Originally Posted by RetireSoon View Post
Great question..DW and I are in the same boat - very close to FIRE (2016 for sure for her, maybe 2016 for me) and are getting increasingly concerned about "sequence of returns" risk as we do not have as much time as we would have in our 20s/30s to come back from a large (30-50+%) dip.

We're in a very good position overall and have enough cash to pull everything out and live off of that, SS and interest from 2.5%+ CDs. The problem is, our purchasing power will drop due to inflation, even low as it is.

Wow I must be in my own world.. Why take the risk you ask? Let me use myself as an example. The Mrs is 59, her grandmother lived until her 90s. I'm ok but I'm sure I just won't make it that long (but I'll enjoy every darn day). 30 years of inflation could leave her to be a burden on our kids. I'm in the game because I don't want that to ever happen.

An Expert says returns will average 1% over the next 10 years. Well guess what I've been saving and investing for over 30 years and I don't buy it. As sure as the sun rises and falls the market will be up, down and flat but in the long run the empirical evidence strongly suggest in the long run it will rise.

I'm in the game because as a long term investor it has been very good to me.
Look at the chart I posted the 50 year geometric average is nearly 10%...

"Experts"
1) rated some of those terrible MBS Triple A didn't they? Right before they were worth pennies on the dollar
2) nearly bankrupted the country - Long Term Capital Management (Hedge Funds) oh so smart PHDs!

The only expert worth listening to starts his suggestion with "No one knows what will happen..."



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Old 12-30-2015, 11:43 AM   #32
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My current AA is pretty average for someone approaching 60 at 55/45 equities to bonds. After doing well by trusting AA for the past 30 years or so one would think I would feel more secure staying this way indefinitely. Even though my numbers are reasonably well padded the thought of a major sustained downturn after the paychecks from w*rk stop coming gives me the cold sweats. Didn't understand this feeling completely until very recently even though I have heard it expressed in many other threads.
I have the same allocation. So I was curious how a 55/45 would do against a 45/55 (suggested by W2R) in the past.

I ran 2 of the VPW simulations. VPW allows one to set a start percentage withdrawal so this is set at 4.0%. First a 55/45 and look particularly at the inflation adjusted balance column (circled red):



Then I ran a 45/55:



Looks like the 45/55 came out ahead. Probably because interest rates were coming down a lot during this period so bond returns were exceptional. Anyway, not a huge difference with these allocations. BTW, VPW has an algorithm that has the user withdrawing a higher percent as he ages but one can reduce this affect by increasing the "Last Withdrawal" age.

To really explore this one would want to look at many of the start periods and VPW does allow you to see this pretty quickly. FIRECalc also has some good info on this sort of thing but VPW allows one to see the details on particular bad periods.

Seeing this is not the same as experiencing it, but that's the best we can do I guess.
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Old 12-30-2015, 11:50 AM   #33
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Originally Posted by rayinpenn View Post
...An Expert says returns will average 1% over the next 10 years. Well guess what I've been saving and investing for over 30 years and I don't buy it. As sure as the sun rises and falls the market will be up, down and flat but in the long run the empirical evidence strongly suggest in the long run it will rise.
...
The only expert worth listening to starts his suggestion with "No one knows what will happen..."
...
I like your attitude.

One possible path for the market is up ... a lot. If we get to nose bleed territory, I just might lighten up. My ideal scenario would be a big run up and lighten up where I miss maybe worst 70% of the decline. Not saying this will happen, just that a roller coaster ride does not have to be all bad.
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Old 12-30-2015, 03:51 PM   #34
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I have the same allocation. So I was curious how a 55/45 would do against a 45/55 (suggested by W2R) in the past.

I ran 2 of the VPW simulations. VPW allows one to set a start percentage withdrawal so this is set at 4.0%. First a 55/45 and look particularly at the inflation adjusted balance column (circled red):

Looks like the 45/55 came out ahead. Probably because interest rates were coming down a lot during this period so bond returns were exceptional. Anyway, not a huge difference with these allocations. BTW, VPW has an algorithm that has the user withdrawing a higher percent as he ages but one can reduce this affect by increasing the "Last Withdrawal" age.

To really explore this one would want to look at many of the start periods and VPW does allow you to see this pretty quickly. FIRECalc also has some good info on this sort of thing but VPW allows one to see the details on particular bad periods.

Seeing this is not the same as experiencing it, but that's the best we can do I guess.
Also because your scenario covers a secular bear market period when stocks performed poorly compared to averages. Apply the same to the 15 years before 2000, and you'll get a much different result even though interest rates were dropping.
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Old 12-30-2015, 03:58 PM   #35
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You are right Audrey. I did not show it but there is a chart on the sheet that shows outcomes for a wide range of start years.
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Old 12-30-2015, 04:44 PM   #36
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The other big concern is an article I read in this month's Money mag yesterday. They are predicting ONE PERCENT PER YEAR return (on average) for US equities for the NEXT DECADE (?!).

I don't intend this as snark whatsoever but my opinion, which is not original, is that there is probably no better way to check the pulse of the herd than the latest copy of Money Magazine. And we know how often the herd is right.


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Old 12-30-2015, 05:23 PM   #37
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I have never purposely timed the market in anticipation of major market swings. That strategy has served me well. With FIRE on the near horizon and a growing number of "experts" predicting an major and sustained correction I am questioning the wisdom. what do you all think??
You are questioning the wisdom of what?
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Old 12-30-2015, 07:27 PM   #38
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Great, how do you know exactly when/how to buy back in? I stayed in throughout the meltdown and just kept DCA'ing new $ in and reached new portfolio highs in a few years, but I assume you did better.

Ever back tested your IP?
My brother and I got out at ~S&P 1350, he got back in at 720 and I got back in at 810. So that time, timing worked... for him super big time.

I think it would be almost impossible to model the 2009 bottom. I mean the 667 threshold was a strong threshold that was known to most people who chart; however, it was hit intraday (closed at 720) and it never got re-tested, which makes it extremely odd. I had told my brother if we held, to put it all back in, he did that exact day so he put it all on red at close at 720. I was waiting for the back test, but by the time we hit 790 with nothing but upward momentum, I conceded and put back in around 810 (ie don't fight the market direction). It doesn't seem like a lot, but that's 12% more upward market swing before I re-entered waiting for that re-test which didn't happen... and that's where most people got stuck, waiting for the re-test... any day now.. people are STILL waiting for that re-test.


Given the same principles as last time, I would have been sitting on the sidelines by the time we hit S&P 1820 in Sept... luckily the pullback didn't get that far and the buys I made as we dropped have paid off garnering me some profit for the year.

I think all principles are fluid as you have to remember we also got slammed by tsunamis that took out sections of countries (Honda plants being completely flooded, the nuclear disaster in Japan,). Don't know of any algorithm that will really catch all that
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Old 12-31-2015, 01:04 AM   #39
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You are questioning the wisdom of what?

In an indirect manner I was questioning my own wisdom. My rational mind understands basic financial principles and the value of a steady hand. In fact until very recently I didn't give much thought to changing anything about my investing strategy except a gradual shift in AA to my current 55/45 from 75/25. Now with a visible horizon I panic about the "what ifs". At some point between now and pulling the trigger I will have to make peace with the possibilities a worst case scenario presents. My numbers say at worst my lifestyle will have to be cut way back. That does not scare me. My fears are irrational but from time to time they still creep up sort of like I was sometimes afraid of what might be under my bed or in the closet.
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Old 12-31-2015, 03:07 AM   #40
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Seems like if you are aiming at an AA adjustment as you approach some predefined point, such as a particular age or investment total, now would be a great time to go ahead with that adjustment. IE , if you just turned 50 and plan to retire at 55 with 55% stocks, but are still at 60% today, now would be a good time to move 5% into bonds.

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