Safe margin of 2.5x to 3x income, 100% long bond portfolio, built in inflation offset

[RunningBum]

I found it interesting that, during the period of 1961-1981, you could be 100% in stocks or bonds and it did not matter. Either way, you could barely keep up with prices, which went up 3X over 20 years.

Also kind of funny is that period includes that terrible, awful, must-avoid equities period from 1966, yet does no worse than bonds. So the best times for stocks far exceed bonds, and the worst (given a long-term period that we are talking about for retirement for most of us) seems no worse than bonds. Yet some are afraid of stocks? To each their own, I guess.

 

[eta2020]

Also kind of funny is that period includes that terrible, awful, must-avoid equities period from 1966, yet does no worse than bonds. So the best times for stocks far exceed bonds, and the worst (given a long-term period that we are talking about for retirement for most of us) seems no worse than bonds. Yet some are afraid of stocks? To each their own, I guess.

S&P 500 Dividend by Year

And you would have almost same dividend in 1981 as you had in 1961. This is pretty terrible given that inflation eat up lot of purchasing power during those years.

I would hate to retire in 1961

 

[Andre1969]

And you would have almost same dividend in 1981 as you had in 1961. This is pretty terrible given that inflation eat up lot of purchasing power during those years.

I would hate to retire in 1961

I wonder if there would have been enough rebalancing opportunities in that timeframe to help get ahead? For instance, in '61 the economy wasn't so hot, but then it took off until around 1966, then flattened. I think there was a recession around '69-70. But then '71-73 were great years. '74 was bad, but then '75 saw some recovery, and '76-79 were more years of growth. But then '80 was bad, and '81 was worse, and I think that recession ultimately bottomed in '82.

One big obstacle back then though, I'd imagine, was no internet, and having to make calls to a broker to get anything done.

 

[Zathras]

Just curious Zathras, close are you to retirement? Are you living off that 97% equity portfolio? Because it is quite a game changer when you ARE REVERSE DOLLAR COST AVERAGING and living EXCLUSIVELY off the portfolio seeing your portfolio dessimated 57% peak to trough in 2008/9. I am betting you are no where near retirement, but I could be wrong.

I retired in 2006 with about a 40% equity portfolio which grew to 97% by 2011.
Similar to you, my stocks gave me enough income to cover all my needs, although not 300%.
While the recession wasn't fun, my dividend income took less than a 10% hit. The recovery, on the other hand, was a lot of fun

But at no time would I describe it as stomach churning, nor did I ever loose any sleep over it.

I am not saying your plan won't work for you. I am just saying your plan would cause me more stress than mine does.

 

[NW-Bound]

I wonder if there would have been enough rebalancing opportunities in that timeframe to help get ahead?...

That surely looks like the only way to stay alive, doesn't it? And people do not like volatility.

Volatility is your friend. Embrace it. Pray for it. In a stagnant high-inflation period, it's the only way you can buy low/sell high to make a few bucks.

Yes, it would be a zero-sum game, where the money you make comes off the pocket of some poor souls who panic and sell low. It's brutal, but remember that if nobody bought low, it would go even lower. Life is never fair.

 

[Options]

I retired in 2006 with about a 40% equity portfolio which grew to 97% by 2011.

...

Zathras, how did the EQ portion of your PF grow from 40% to 97%? Did you not rebalance? Did I misread or misunderstand that?

For me, this thread is the kind of dancing on the head of a pin stuff that the engineers do at the BH forum. There is no security. Market timing provides no security. Analyzing to the nth degree provides no security. Think not? Read "The Real Story of Risk" to see how we defeat our own attempts to provide security, financially and otherwise.

Pfau's stuff may be some of the scariest out there, but some of it has been recently questioned. Even Bernstein recently said he believes anything below 3% is safe.

Finally, Scott Burns has written some excellent stuff about the chances of your being dead being far greater than your running out of money.

 

[Zathras]

Zathras, how did the EQ portion of your PF grow from 40% to 97%? Did you not rebalance? Did I misread or misunderstand that?

I apologize, it would have been more clear if I had said 40% public stock/ 57% private company stock which transferred into 97% public stock (all numbers rough numbers off the top of my head).

I agree there is no absolute security. I do feel a lot more secure with a variety of stocks than I would betting it all on a single hand of blackjack

 

[Options]

Got it, thanks. And here I was all set to ask for your secret to success.

 

[Running_Man]

Since I know your aversion to stocks and fear of stocks is real, I suggest that you begin sending $1,000 a month to purchase a stock fund, such as the S&P500 and consider it an expense against your income and budget it as that not an investment, don't even track in your portfolio what the value is, instead just send the money off to an account and let the dividends and capital gains reinvest. The balance is meaningless as this should just be considered an expense and not an investment. By divorcing this in your mind you should be able to withstand any fluctuations in the market.

If you get to the point where you need to cut expenses to make ends meet, this is one easy one to cut, but probably that will be years from now. This will have no direct immediate impact on your portfolio and still allow you to retire with your plan as is.