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Thinking beyond glide paths
Old 07-28-2016, 03:21 PM   #1
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Thinking beyond glide paths

There's an excellent new post on the Portfolio Charts site that was originally written in response to a younger investor on the Bogleheads forums asking why they shouldn't just go 100% stocks in the accumulation phase:

https://portfoliocharts.com/2016/07/...mulation-plan/

Elsewhere, in response to the obvious related question of whether the percentage of equities should be reduced over time (i.e. the well-known equity glide path), the author says:

"I personally believe the time to start developing good investing habits is when you first start investing, and one's strategy should not involve taking unnecessary risks before FI or changing portfolios after. For the most part I think the best advice is to pick an enduring financial strategy from the start and focus on maximizing savings rather than returns. If it's too risky to retire on, it's probably also too risky to guarantee with any amount of certainty the retirement date you want so badly. And if the volatility causes you to sell low every few years, it's most likely hurting you more than it helps anyway.

I also believe that much of the equity glide path advice comes from the over-simplified perspective that total stock and total bond funds are the only investing options available and that good returns (important for accumulation) and low volatility (equally important for retirement) are mutually exclusive. Too many people tackle the exclusivity problem for those two assets by adjusting the percentages over time rather than challenging the two-option assumption. Following modern portfolio theory, there are good portfolio options with solid returns AND low volatility with no adjustments required. That's a common theme of the site and the reason that there's an entire section dedicated to portfolio examples."


Among those examples, William Bernstein's Coward's Portfolio, the Golden Butterfly and Larry Swedroe's Larry Portfolio seemed to offer smooth rides and excellent returns. The contrast between any of these and the Three Fund or classic 60:40 in terms of volatility, drawdowns and long-term SWRs is striking to say the least.
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Old 07-29-2016, 06:30 AM   #2
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That IS a great article. I need to spend a few days with it! Thanks.


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Old 07-29-2016, 11:02 AM   #3
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Early in the article:


Quote:
If you’re the type of investor with a rock-solid stable job, few financial commitments, and the personality to ride out both short-term and prolonged market pain without sweating your account balances, then putting all of your money in stocks is just fine. The Total Stock Market portfolio is included on the site because I appreciate that it’s a good choice for many people.
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Old 07-29-2016, 11:10 AM   #4
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Go to the BH forum and search for glide paths and you'll have enough to read on the subject to last a lifetime. The argument for/against/kinda/sorta/maybe are all over the map. As with all this stuff, you read it and come to your own conclusions. Once you do so, sticking with whatever you choose is the key.
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Old 07-29-2016, 01:20 PM   #5
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He writes: "...I personally believe the time to start developing good investing habits is when you first start investing, and one's strategy should not involve taking unnecessary risks before FI or changing portfolios after. For the most part I think the best advice is to pick an enduring financial strategy from the start and focus on maximizing savings rather than returns..."

That's good, but personally, my financial strategies have changed as time, knowledge and opportunities have evolved. I'd hate to think where I'd be if I'd kept the strategy I had 35 years ago.
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Old 07-31-2016, 12:35 PM   #6
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Quote:
Originally Posted by RunningBum View Post
Early in the article:
If you’re the type of investor with a rock-solid stable job, few financial commitments, and the personality to ride out both short-term and prolonged market pain without sweating your account balances, then putting all of your money in stocks is just fine. The Total Stock Market portfolio is included on the site because I appreciate that it’s a good choice for many people.
Yep, that was me and I was 95% stock funds for the entire time I was at MegaCorp, up until the last year before I ER'd. Didn't see any need for substantial amount of bonds while in accumulation phase. YMMV.
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Old 07-31-2016, 02:15 PM   #7
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Originally Posted by marko View Post
That's good, but personally, my financial strategies have changed as time, knowledge and opportunities have evolved. I'd hate to think where I'd be if I'd kept the strategy I had 35 years ago.
+1 on that. Silly to not adapt when circumstances warrant it or knowledge improves.

That said, for a passive investor most changes are net negative once you figure out the basics.

Figuring those basics out are not easy though, as simple as they are: LBYM, stay the course, broad index funds, focus on low cost.
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Old 07-31-2016, 07:15 PM   #8
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That article does have me thinking about more than stock and bond indexes though. And the calculators on that site are very interesting.


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Old 07-31-2016, 07:16 PM   #9
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It's a very well written article, and there is a lot to absorb. You have to read it slowly to pick up on everything they are saying, but it's definitely worth a read.


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