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

[pb4uski]

Quote:

Originally Posted by daylatedollarshort .....Many here favor a Vanguard type mutual fund approach heavy on equities, but if minimizing your losses is more of a goal than higher potential returns, the Vanguard type recommendations may not be the best fit for your AA.

You think a 30/70 AA is "heavy on equities"? That is the AA of the Retirement Income fund. It declined 18% during the great recession in 2007-2008 and has a 10 year average return of 5.7%.

[Elbata]

Here's an article that might relate to your situation.

Not trying to push someone else's blog, but I'd be curious is this is helpful at all. Thanks.

[brewer12345]

I think the scariest thing about OP's proposed portfolio is the lack of diversification into an asset class with specific and potentially severe risks. If you wanted to construct a low risk portfolio, 100% in long term corporates would absolutely not be the way to do it.

I manage a portfolio for my FIL. He has other accounts which are more equity heavy and he has a relatively low capacity for taking risk. That said, returns greater than what CDs offer are required. The portfolio has fluctuated over the last decade or so I have managed it, but equity exposures have always been modest (typically 20% or less) and usually are in a specialty area that presents an opportunity. The challenge is to find other places to put the money that are not equities and still have return. At one point, commodity futures were an attractive option. At another point junk bonds were a good buy. I usually keep a big slug of merger arbitrage funds as they are generally low volatility and return something like T bills plus 3 to 5% over time. Sometimes sitting in cash is the place to be. It pays to be nimble and when an asset class gets overvalued it is time to move on.

[daylatedollarshort]

Quote:

Originally Posted by pb4uski You think a 30/70 AA is "heavy on equities"? That is the AA of the Retirement Income fund. It declined 18% during the great recession in 2007-2008 and has a 10 year average return of 5.7%.

I did not see where I commented specifically on a 30/70 retirement income fund or even referred to any of your posts in this thread.

I am bringing up the Zvi Bodie alternative type thinking to the OP to consider. If the Vanguard / Fidelity mutual funds approach to retirement works for you that is great. It seems like the OP is looking for an alternative type of AA.

Bill Bernstein has been advocating an approach similar to Zvi Bodie recently:

http://whitecoatinvestor.com/bernste...ame/?print=pdf

[pb4uski]

Quote:

Originally Posted by daylatedollarshort I did not see where I commented specifically on a 30/70 retirement income fund or even referred to any of your posts in this thread. ...

So I guess it was just a coincidence that I suggested a few Vanguard funds to the OP and asked the OP what the Vanguard financial planning folks had suggested and then in the very next post you were dissing Vanguard.

[brewer12345]

Quote:

Originally Posted by pb4uski So I guess it was just a coincidence that I suggested a few Vanguard funds to the OP and asked the OP what the Vanguard financial planning folks had suggested and then in the very next post you were dissing Vanguard.

Passive-aggressive posters end up on my ignore list in short order.

[daylatedollarshort]

Quote:

Originally Posted by pb4uski So I guess it was just a coincidence that I suggested a few Vanguard funds to the OP and asked the OP what the Vanguard financial planning folks had suggested and then in the very next post you were dissing Vanguard.

If I was referring to your post I would have quoted your post. Most posters here seem to be big on stock and bond mutual funds from either Vanguard or Fidelity. I do not think you are the only Vanguard equity / bond mutual fund investor here. My post was:

"You may want to read some books or sites by Zvi Bodie for a more low return, low risk / won the game stop playing approach than what you will likely hear about from reps at place like Vanguard and Fidelity. "

"Many here favor a Vanguard type mutual fund approach heavy on equities, but if minimizing your losses is more of a goal than higher potential returns, the Vanguard type recommendations may not be the best fit for your AA."

If that is a diss or passive aggressive, please let me know a more diplomatic way I could have phrased it. I thought "may not be the best fit for your AA" was rather neutral. It could be the right approach for some, but maybe not the best fit for what the OP is looking for.

[Katsmeow]

Quote:

Originally Posted by Quantum Sufficit Hello all, I am aware of Firecalc but I decided, why use random monte carlo style numbers when I can use my own honest to God numbers??

If you think that Firecalc uses random monte carlo style numbers then I would submit that you are not familiar with how Firecalc works.

As for your investments all in one long term bond fund, I don't find the idea of putting all of my eggs in one basket particularly comforting.

[Earl E Retyre]

This is an interesting thread. I used to have a similar approach as OP only I was thinking of 100% long term muni-bonds at the time. After advice on FIRE and other resources, I have changed my approach. Having said that, I can relate with the OP that the stock market ups and downs (mainly the downs) gives me a lot of trepidation. I currently invest much of my bond allocation in Vanguard BND which is low risk (and at the same time relatively low reward) and balance that with domestic and international stock ETFs. Here is my question for the OP. I looked up Vanguard Long term Corporate bond fund – I assume we are talking VCLT – so I could compare it to BND for my own edification. It appears that VCLT invests 46.5% in baa rated bonds (does not give me a warm fuzzy), has an average maturity of 24 years (not great for inflation), holds only 1333 bonds (relatively low compared to BND), and has been around for less than 5 years (not long term data). If you are putting 100% of your eggs in one low risk basket/fund, is this one really low risk?

[clifp]

Quote:

Originally Posted by Earl E Retyre This is an interesting thread. I used to have a similar approach as OP only I was thinking of 100% long term muni-bonds at the time. After advice on FIRE and other resources, I have changed my approach. Having said that, I can relate with the OP that the stock market ups and downs (mainly the downs) gives me a lot of trepidation. I currently invest much of my bond allocation in Vanguard BND which is low risk (and at the same time relatively low reward) and balance that with domestic and international stock ETFs. Here is my question for the OP. I looked up Vanguard Long term Corporate bond fund – I assume we are talking VCLT – so I could compare it to BND for my own edification. It appears that VCLT invests 46.5% in baa rated bonds (does not give me a warm fuzzy), has an average maturity of 24 years (not great for inflation), holds only 1333 bonds (relatively low compared to BND), and has been around for less than 5 years (not long term data). If you are putting 100% of your eggs in one low risk basket/fund, is this one really low risk?

Excellent points, the one lesson I have learned (often over and over again) is in the world of investing all investment have risk. If you think otherwise you don't understand the investment.

A couple of years ago, a Warren Buffett described bonds as offering "return free risk". As a general rule if you find your doing the opposite of Warren Buffett suggests, you'd be very well advised to ask yourself what do I know about investing that Oracle of Omaha doesn't.

The other thing I am really curious to find out from the OP and to a less extent Earl is why is having a modest say 1/3 (like Wellseley) of your assets in stock so terrifying? I am not arguing I am just trying to understand why it's scary.

[eta2020]

Quote:

Originally Posted by Quantum Sufficit Tell me, why do I need the stock market in MY PARTICULAR SCENARIO?

On a long run Dividend yield is much much safer then bond yield that you have. You will have less and less income every year.

But you have nice nest egg. You will not live on street

[pb4uski]

Quote:

Originally Posted by daylatedollarshort If I was referring to your post I would have quoted your post. Most posters here seem to be big on stock and bond mutual funds from either Vanguard or Fidelity. I do not think you are the only Vanguard equity / bond mutual fund investor here. My post was: "You may want to read some books or sites by Zvi Bodie for a more low return, low risk / won the game stop playing approach than what you will likely hear about from reps at place like Vanguard and Fidelity. " "Many here favor a Vanguard type mutual fund approach heavy on equities, but if minimizing your losses is more of a goal than higher potential returns, the Vanguard type recommendations may not be the best fit for your AA." If that is a diss or passive aggressive, please let me know a more diplomatic way I could have phrased it. I thought "may not be the best fit for your AA" was rather neutral. It could be the right approach for some, but maybe not the best fit for what the OP is looking for.

I was responding to the "heavy on equities" portion of your post and was quite specific on that in my response (BTW, a question that you never answered). IME most posters here favor a low to moderate (30-60%) equities allocation, although I concede that 30-60% equities may be considered "heavy" on equities by some people who are generally uncomfortable with equities. I've been an equity investor for over 30 years and returns from equities is part of the reason that I was able to retire early, so I'm planning to continue to include equities in my retirement portfolio (60% in my case).

I'm not totally sure what a "Vanguard type mutual fund approach" is unless you are referring to no-load, low-cost index funds, be them from Vanguard or Fidelity or others. In any event, a total bond approach as the OP proposes is suboptimal for most people, although the OP may be able to pull it off because their WR is so low, and as brewer points out, a total corporate bond approach is even more risky than a total bond approach.

A total bond approach has a lower success rate in Firecalc than a low to moderate equities mix. Assuming a 3% WR and 30 year time horizon 0/100 AA = 87.7% success rate; 30/70 AA = 100% success rate; 60/40 = 100% success rate.

[pb4uski]

Quote:

Originally Posted by brewer12345 Passive-aggressive posters end up on my ignore list in short order.

I have yet to put someone on my ignore list although I have been very tempted a couple times.

[Earl E Retyre]

Quote:

Originally Posted by clifp Excellent points, the one lesson I have learned (often over and over again) is in the world of investing all investment have risk. If you think otherwise you don't understand the investment. A couple of years ago, a Warren Buffett described bonds as offering "return free risk". As a general rule if you find your doing the opposite of Warren Buffett suggests, you'd be very well advised to ask yourself what do I know about investing that Oracle of Omaha doesn't. The other thing I am really curious to find out from the OP and to a less extent Earl is why is having a modest say 1/3 (like Wellseley) of your assets in stock so terrifying? I am not arguing I am just trying to understand why it's scary.

I will answer Clifp's question and I hope OP chimes in from his perspective.

To begin with, I do today invest in Wellseley, VTI US stock and VXUS Intl stock. I am not 100% bonds any more.

To answer your question, what is "terrifying" is when the market takes a big dip (often for no big reason) and I see my hard earned portfolio lose thousands of dollars each day it dips. I now realize, stay the course, and it will go back up.

I think the trepidation comes from my past experience. Back in the dotcom bubble era I lost literally hundreds of thousands of dollars. If I had stayed the course, it would have all bounced back (in hindsight now). Back then I sold close to the bottom and it took many years for me to get back in to the stock market. Since I was still working full time back then, while it was emotionally devastating, I was able to get all the losses back. I also had an awful financial advisor (another story). Now, I realize it is wasteful to pay 1% of your portfolio to someone else (especially if they give you bad advice).

Fast forward to today, and I am still getting adjusted to the whole balanced portfolio approach. I do keep funds in cash and when the market takes a big enough dip over enough days, I now view this as a good thing (it is a buying opportunity!). I am quite happy with my overall returns and somewhat comfortable with market swings. It has been about 2 years and I think the more time, the more I will get comfortable, and perhaps the more I will add to the equities component of my asset allocation.

I also now use ETFs instead of mutual funds. This allows me to avoid the dotcom nightmare happening to me again. If the market dips too long for too many executive days, the ETFs will automatically sell (still at a profit to me based on my price to sell). So, I cannot lose. If this ever happens then the trick would be to know when to buy back in. I know many would disagree with that approach since it sounds like market timing, but if it allows one to sleep at night then it has to be good. I also hope the sell never triggers.

So, bottom line is that I do agree that a balanced portfolio is the way to go - especially if one can meet their SWR targets on 30% (or less) equities. But wanted to answer Clifp's question and see if others feel the same way.

[REWahoo]

Quote:

Originally Posted by Earl E Retyre If the market dips too long for too many executive days, the ETFs will automatically sell (still at a profit to me based on my price to sell). So, I cannot lose. If this ever happens then the trick would be to know when to buy back in. I know many would disagree with that approach since it sounds like market timing...

The reason it sounds like market timing is that it is market timing.

Good luck on the bolded part of your quote if you do go this route.

[pb4uski]

The decision to get out is usually easy to see because the sky is falling.... the decision to buy back in is much more subtle and the Achilles heel of market timing IMO. Hence my view is that it is best to select an AA and stick to it and rebalance as needed.

[Andre1969]

I can understand being afraid of the stock market. I'm invested fairly risky, and since I started back in 1998, I've seen two 40%+ hits to my portfolio. The first was somewhat long and drawn out, during the tech bubble burst, 9/11 tragedy, and ensuing recession. I lost about 5.4% in 2000, then another 30% in 2001, and 23% in 2002. It took about 2 1/2 years to gain back those losses.

The second time was in the "Great Recession", where I lost about 42% in 2008. But, this time, I recovered in maybe a year and a half, if that.

But, what about a strategy of investing, a little at a time, into stocks that pay around 3-5% annually in dividends? They usually keep growing the dividends over time. And, while the stock values will rise and fall, they tend to go up over time, as well.

In general, stocks in that range tend to be less volatile than growth stocks that pay very little dividends, like Apple and such. And also less volatile than stocks that pay higher dividends. Of course, there's always the possibility you can lose your shirt. So, just don't put your whole portfolio into them!

[target2019]

Quote:

Originally Posted by Andre1969 I can understand being afraid of the stock market. I'm invested fairly risky, and since I started back in 1998, I've seen two 40%+ hits to my portfolio. The first was somewhat long and drawn out, during the tech bubble burst, 9/11 tragedy, and ensuing recession. I lost about 5.4% in 2000, then another 30% in 2001, and 23% in 2002. It took about 2 1/2 years to gain back those losses. The second time was in the "Great Recession", where I lost about 42% in 2008. But, this time, I recovered in maybe a year and a half, if that. But, what about a strategy of investing, a little at a time, into stocks that pay around 3-5% annually in dividends? They usually keep growing the dividends over time. And, while the stock values will rise and fall, they tend to go up over time, as well. In general, stocks in that range tend to be less volatile than growth stocks that pay very little dividends, like Apple and such. And also less volatile than stocks that pay higher dividends. Of course, there's always the possibility you can lose your shirt. So, just don't put your whole portfolio into them!

You made the point I was going to raise about investing in solid companies. There will be plenty of opportunity...

The OP is in a good position for the next few years. In a conservative position for Earl retirement, and able to invest for growing equity side according to a plan.

[sengsational]

Quote:

Originally Posted by daylatedollarshort You might want to read up on owning individual TIPS ladders and and I bonds that can be held to maturity. They are indexed to inflation. ...

+1

I wouldn't try to talk the OP into any % equities...that's not in the cards. The game has been won, it's time to eliminate as much risk as possible.

If all of that is true, then a TIPS ladder seems like a perfect fit and would isolate the portfolio from the risks associated with lending money to corporations. There is a lot of overlap between corporate and government bonds, but if the game has been won, and corporate equity risk is too high, why not eliminate corporate lending risk too?

[brewer12345]

Quote:

Originally Posted by pb4uski I have yet to put someone on my ignore list although I have been very tempted a couple times.

IMO, it is always open season and there is no bag limit.