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Old 07-10-2012, 08:56 AM   #21
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Originally Posted by obgyn65 View Post
How can you earn 0% ? Even CDs are at 1-3%.
Perhaps the OP was referring to the real return after taxes and inflation. In that case CD's (and many bonds) are losers even though they have a nominal yield.

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Old 07-10-2012, 12:20 PM   #22
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It is very reasonable in my view to be concerned. Banks being willing to lend at 3.5% for 30 years on homes owned by our little group of posters is unheard of to begin with. This does not happen in a normal environment, so portraying historical averages to this point in time is very perilous. However, being able to forecast as to whether economies will go in a second leg of severe slowdown, an inflationary spiral or muddle along for 10 - 15 years is very difficult to predict. Doing nothing only plans for one of the scenarios and so I have taken a cash flow view of my retirement, about 2 years from now.

I am using in my plans a modified version of the permanent portfolio which is 25% t-bills 25 % long term bonds 25% stocks and 25% precious metals. I view it from an income stream perspective instead of a value perspective.

I determined my retirement income should come from 25% Tbills 25% stock dividends and 25% from long term bonds and 25% from pension/Spousal SS. I am offsetting this total portfolio with a precious metals portfolio with a goal of 8% of the value of my retirement portfolio when I retire and aim to keep that value of gold adjusting in the future for inflation by either buying with excess income from investments or else selling for other investing. -- 80K for each 1MM, adjusting the 80K annually for inflation)

The T-bills I am planning on amortization over a 35 year period so I will have 420K for each 1K of monthly income from T-Bills taking 1/35 of the value of my T-bills the first year 1/34 the second year etc.

Long bonds at present are a problem, no way I would invest in long term bonds at under 4% as 3% is a minimal inflation factor I plan for and current 30 yr yield of 2.6% only covers severe deflation fears. For now if I was setting up this portion of my portfolio (I was fortunate to have invested my Bond portfolio in 30 yr US treasuries in March and April of 2011) I would instead split that portion of the portfolio into fifths with one 5th in 5year notes one 5th in 3 year one with in 2 year one fifth in 1 yr and one fifth in treasures to invest in either 5 years one year from now or in 30 year treasuries if the 30 year pushes back over 4% somehow in the coming year, making a decision each year to either invest in 5 years or 30 yr TBONDS.

For the stocks, I would recommend you begin to get back in 1-2 percent each month, I invest in individual stocks, buying only dividend paying stocks to provide income and all my stocks have to have a history of growing their dividends. My present portfolio of stocks consist of 10 individual companies (CHV,T,MCD,MO,VVC,AMGN,ACN,NS,PEP,KO) and FAX an Australian/Asian foreign bond fund for some foreign bond exposure, in total yielding 4% whose dividends grew in the last year by a little over 7%, and my goal is to maintain stock investments with a growing income base that when added to the TBond income equals an inflation adjusted income. In many ways I find this much more conservative in nature than investing in a Vanguard mutual fund or EFT, as I have very set rules on my investing that have worked for dividend receipts and market pricing should not overly effect my portfolio.

I also have an equivalent portion of income coming from pension/spousal SS and have not included my SS in my spending plans. For my comfortable spending I will need the income from 3 of these 4 sources, 2 of the sources (since at present the annual income is planned to be equivalent from each source) will provide for a liveable retirement.

Good luck to you in whatever you decide, you need to create a plan in any case or else you will just flounder in retirement and circumstances will dictate your actions instead of you.

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Old 07-10-2012, 12:43 PM   #23
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Originally Posted by ShustS6512 View Post
I've become very conservative; retiring next year (age60) but earning 0%. Any thoughts on investing at this point.
You probably need to study and think about asset allocation and how much risk you are willing to accept, understanding that your current strategy has significant risk of the spending power of your nestegg being eroded by inflation to the tune of 3% a year on average (0% investment return - 3% average inflation = -3% real rate of return). If you look at Firecalc or others your WR would need to be extremely low for that strategy to be sustainable.

If you do decide to wade into equities, there is an approach called value averaging that is marginally better than dollar cost averaging and in effects "forces" you to buy more when equities are relatively low and buy less equities when they are relatively high.
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Old 07-10-2012, 04:10 PM   #24
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Some comments on Running Man's post.

I am not a gold fan so I never think of the permanent portfolio. That being said historically it is great portfolio for those looking to preserve wealth in the face of economic uncertainty. You wouldn't get rich with this portfolio but if you are already pretty wealth, this is probably the best way of ensure you don't end up poor.

Running Man is not a frequent poster, but I read his posts with great care. For a very simple reason back in 2007 not only did he predict the coming financial crisis. Unlike most doom and gloomers he provided a cogent analysis of what was going to happen and why. Partly because he was a new poster, and mostly because I am such a fan of stocks I ignored his warning. Events in 2008 unfolded more or less as he predicted. Even partially heeding his advice would have saved me many hundreds of thousand (not selling all my stocks just dialing back on my aggressiveness)

I have also come to respect his ability to analyze individual stocks. Again the stocks he owns aren't going to make you rich, just keep you from getting poor. The advantage of choosing conservative dividend stocks like he vs an index fund is you don't own any of the Zynga, Groupons etc who's real value could be near $0.
So for newer members who aren't comfortable with sticking 1/2 your money or more in a stock mutual fund or ETF and are looking at a way of sleeping better a night, pay attention. His approach to retirement is different than most of the forum regulars, and while it isn't for me (too conservative) for the folks with lower risk tolerance it is probably an excellent approach and vastly better than all cash.
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Old 07-10-2012, 04:43 PM   #25
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A very wise investor, Benjamin Graham I believe, once said that investors should never be less than 25% in equities. I believe the S&P500 pays about a 2.5% dividend.
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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Old 07-11-2012, 05:17 AM   #26
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Originally Posted by ShustS6512 View Post
I've become very conservative; retiring next year (age60) but earning 0%. Any thoughts on investing at this point.
ShustS6512, you don't give us much to go on. Not prying, but without a few details, it's difficult to offer many suggestions. For instance, if your yearly need for cash is $50K and your total stash (at 0% return) is $100MM, I wouldn't sweat the conservative bent to your "plan". If, however, you need a 4% withdrawal rate to meet your yearly cash-flow needs, 0% return will mean you will run out of money long before your estimated life-span runs out.

I consider myself very conservative as well. I made up for this by waiting a while to retire until I had a stash which does not require a 4% withdrawal rate to meet my needs. My philosophy is not to maximize my retirement income, but to have adequate income for as long as I may need it. If that means taking only a 2% withdrawal, I'm okay with that. I realize, I'm probably living on less than I could if I were more aggressive, but I am happy with my cash-burn rate and it is NOT 4% of my stash. Therefore, I'm happy with less than the more typical 60/40 stock/bond split on which most of the 4% SWR is based.

I too am impressed (along with clifp) with Running Man's approach. However, I'm too lazy to do the research and worry about all of the tax nuances of using individual stocks. So, most of my stash is in mutual funds within IRA/401(k) vehicles (makes taxes much easier that way). Otherwise, I'm attempting to move as much as possible (within the bounds of tax efficiency) to ROTH IRAs. Once your stash is in ROTHs, the taxes get VERY simple, heh, heh.

My back-up to my conservative approach is not to consider becoming more aggressive in the future, but rather to be in a position to lower my spend rate. I have several options along these lines, so I sleep well at night. I only occasionally envy the folks here who show 20% gains from time to time. If I can eek out 3 to 6% returns on a routine basis (and almost NEVER show a loss) I am extremely happy. Full disclosure: I do have a modest pension and DW collects a small SS on her own. I'm waiting until 70 for SS which will be a significant boost in spendable income for us. THAT is how I cover longevity risk. YMMV
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Old 07-11-2012, 09:21 AM   #27
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I wouldn't feel too bad, I listen to a lot of financial porn, and ALL the experts on the radio were saying to get out last August, and those same experts were saying to get back in Jan. and then were saying to get back out in May around the time of the low. Apparently going with the buy high, sell low strategy :-)
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Old 07-11-2012, 10:02 AM   #28
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OP has not really shared their idea of risk. If I were him, I would take a chunk and buy blue chips like PG, XO, etc, and just let the divedends reinvest, or take them as cash if he wants.........

Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)

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