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Old 02-08-2013, 07:13 PM   #21
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Looking into the future I see the possibility of hyper inflation much more likely than a complete market meltdown. The cyclic up and down machinations of the market over the last 15 years cerainly makes interesting news but I do not see it as having spoiled nearly as many retirements as the big inflation numbers of the 1980s did.
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Old 02-08-2013, 08:13 PM   #22
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I see the appeal of declaring victory and trying to reduce risk, but you are making a big assumption that your current level of spending will be enough for the next 50 years or so. That's a lot of time for new inventions, lifestyles, life changes and other unexpected events. If I were in your position, I'd still be hedging some against future uncertainty.
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Old 02-08-2013, 08:26 PM   #23
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For someone in 40's age range, protect against inflation risk. 25% equities and at least 25% allocation to TIPS.
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Old 02-08-2013, 08:27 PM   #24
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No one can predict what will happen to the markets, your life, or the world in the next 25 years. By that time you will be 65 years old.

Use your imagination and just think about the price of energy, water, food, transportation, health care etc. etc. 25 years from now.

I will predict that if you do what you say, you will be very sorry when you reach that point in your life. That will be the one decision that you would like to have a "do over" if you could but unfortunately you won't be able to.

But the good news is that you can make that decision now.
You don't have to stay all in but you certainly should not get out and assume that you have the game won at age 40.

There has already been some really good advice offered to you in this thread. I just don't think you have the game won just yet at your young age.
Congratulations, you're doing great on your score up to now, because you are well on your way to winning the game............at some later date.
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Old 02-09-2013, 11:17 AM   #25
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+1
This would be my strategy if I was pessimistic or wanted to be very conservative. Something along the lines of Vanguard Wellesley.
My thinking as well - I'm not necessarily a big risk taker, but I would consider parking my nest egg in Wellesley to be the most conservative move I'm capable of.
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Old 02-09-2013, 04:51 PM   #26
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I am sure this has been discussed over and over. I am 40 yo now and have about 1.2 million in assets in the stock market with a AA utilizing Coffee House style. I am far ahead of where I need to be at my age, and even though I planned on retiring in a few years, I have now been promoted at my job and actually like going to work again. I currently sock away the max to my 401k's and save about 20k extra externally as well. I don't really need any gains anymore and am thinking of just cashing out. My current living expenses are around 38k including taxes. I have 2 years aside from that in cash and can continue to live the same lifestyle that I am happy with. I am seriously thinking that it is time to call the market quits and move to 100% cash and wait for CD's to start to return to the averages again at some point in the future. I plan on working another 10 or so years now given my current job that is very stable and easily transferable to another company in the event of a job loss. I work in high tech field as lead programmer so the ongoing demand is expected to be strong.

My thought is once you have won the game why continue any risk? I understand loss of principal due to inflation, but it looks on paper right now that I could retire with a 3.2% withdrawal rate. Given another 10 years in the industry I my projections will be a 2,144,050.46 ending balance given $45k additions and 3% growth. I know cashing out now will only give 1% growth if I am lucky. But eventually we have to return to the norm.

Thought and Comments?
Reading your post seemed a little like deja vu to me. I was in a realted field for many years, was well compensated and even got a promotion and a better assignment just a few years before I retired. From an investment perspective, I guess I had always felt a lot like you in that "once you have won the game why continue any risk?" (however there are always some risk)

To that end, once I reached what I considered, "more than enough" I moved most (but not all) of my money from "90% in high value stocks" to what most people would consider very conservative investments.
I think you really need to be sure of the lifestyle you want to maintain for the rest of your life, which could be another 50 years or more at your age. I know for me, my retirement plans changed (by choice) from when I was 40 to when I was 60. There are also the endless unknowns which others have pointed out. You just never know what's coming. But you will probably be surprised several times. Hopefully for the better.

For me, 1.2 million at age 40 wouldn't have been enough to "get out of the market". You might want to consider waiting a while longer and accumulate a bit more wealth before moving to such a strategy (again depending on desired lifestyle.) Just my 2 cents. (4 cents adjusted for inflation
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Old 02-09-2013, 06:52 PM   #27
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RetirementColdHardTruth,

I think your overall goal, to cash in your chips now, is fine. However, I would not go 100% CDs.

I personally like Vanguard's Intermediate Corporate Bond fund. If you can put this into a tax advantaged account, that is how I would go if I wanted no stocks.

I personally feel a lot more comfortable loaning money to US companies as I think that market is less manipulated.
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Old 02-09-2013, 07:52 PM   #28
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Like you I am also very risk averse and understand where you are coming from. I started to buy deferred annuities this year, as documented in other threads. You may wish to have a look at these financial products.

Quote:
Originally Posted by RetirementColdHardTruth View Post
My thought is once you have won the game why continue any risk? I understand loss of principal due to inflation, but it looks on paper right now that I could retire with a 3.2% withdrawal rate. Given another 10 years in the industry I my projections will be a 2,144,050.46 ending balance given $45k additions and 3% growth. I know cashing out now will only give 1% growth if I am lucky. But eventually we have to return to the norm.

Thought and Comments?
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Old 02-10-2013, 09:36 AM   #29
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I think this piece is worth reading...

"Bonds promoted as offering risk-free returns are now priced to deliver return-free risk."
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Old 02-10-2013, 10:15 AM   #30
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I think it's a workable plan if you can commit to it. Put your money in 30 year treasuries at 3.16%. That, along with your 45000 in additions will give you your number. Put the new money and interest in CDs. I guarantee you will be better off than 70% of the folks who invest in equities.
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Old 02-10-2013, 10:20 AM   #31
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Same source, same discussion from about a year ago FWIW. Buffett: Bonds the Most Dangerous of Assets. Ask yourself, 'is he talking to individual investors, or from the perspective of BRK?' Warren Buffett is one of a kind successful and brilliant, but does that mean individuals should invest just as he does for himself of BRK?
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Old 02-10-2013, 10:24 AM   #32
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Originally Posted by panacea View Post
+1
This would be my strategy if I was pessimistic or wanted to be very conservative. Something along the lines of Vanguard Wellesley.
+1 on Wellesley, like so many others on this forum. Over the past forty years, only 6 losing years, and none worse than -9.6%. Very comforting.
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Old 02-10-2013, 11:24 AM   #33
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I tend to conceptualize this issue somewhat differently. I think of retirement in terms of decades. If I was retiring now at age 49 I would conceptualize my portfolio as follows:

Decade 1: Age 50-60. These are funds I'll be spending over the next 10 years and should be invested conservatively enough to eliminate downside risk

Decade 2: Age 60-70. These are funds I'll be spending 10-20 years out and so should be invested using an asset mix that provides the best combination of safety and earnings for a 10-20 year horizon.

Decade 3: Age 70-80. These are funds that I will be spending 20-30 years from now. I can afford to be somewhat more aggressive here because because that has historically been far more than enough time to recover from even the worst bear market. It's a tradeoff between inflation risk and market risks.

Decade 4: Age 80-90. These are funds that I'll be spending 30-40 years from now. Really no different than Decade 3 as a 30 year horizon and 40 year horizon are basically the same thing for investment purposes.

Now of course I wouldn't break my portfolio into 4 separate portfolios managed separately for each decade. But the mental exercise does allow one to better conceptualize investment strategies. Putting everything back together I would come up with a portfolio in the neighborhood of 50% equities and 50% fixed for early retirement at age 40 or 50 and somewhat more conservative for traditional retirement at age 65.
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Old 02-10-2013, 11:35 AM   #34
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Wait, you want no risk and so will move to 100% cash? I can't think of a riskier approach than zero diversification.
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Old 02-10-2013, 12:29 PM   #35
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I think it's a workable plan if you can commit to it. Put your money in 30 year treasuries at 3.16%. That, along with your 45000 in additions will give you your number. Put the new money and interest in CDs. I guarantee you will be better off than 70% of the folks who invest in equities.
I wouldn't be foolish enough to make any guarantees about the various markets over 30 years, but I'm betting my own future on a mix of equities and bonds, perhaps with an SPIA in my later years.
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Old 02-10-2013, 01:49 PM   #36
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I wouldn't be foolish enough to make any guarantees about the various markets over 30 years, but I'm betting my own future on a mix of equities and bonds, perhaps with an SPIA in my later years.
I'm not making guarantees about the various markets. My bet is that he will outperform 70% of the humans who invest in equities. The average investor lags the index by a wide margin. And that includes index investors. lol
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If you Won the Game, Stop Playing
Old 02-10-2013, 05:05 PM   #37
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If you Won the Game, Stop Playing

The Federal Reserve is sitting on ~3.1 Trillion dollars they have to unwind by raising interest rates sooner killing the stock market rally or later and tolerating increased inflation. Since history suggests they won't time this correctly this cannot end well.

Bonds are in a one of the biggest financial bubbles in the history of finance. When rates rise in 2014, 2015, 2016 people holding bonds with take a severe hit on principle they do not seem to understand.

I sold my Wellesley Fund last week. With a holding of ~60% bonds the risk is too high. Bonds are in a major bubble.

I am in a similar situation as the original poster but I have twice as much in assets. Sometime, probably in 2014, I will be at a minimum 70% cash and 30% equities which is for me is defensive. I have been in 95%+ stocks for over 35 years.

Capital preservation is the key in the next few years and the Federal Reserve has sown the seed so fhe next financial crisis. This graph nicely sums up in a picture what is will drive the next crisis..too much money in the economy.


Graph: St. Louis Adjusted Monetary Base (AMBNS) - FRED - St. Louis Fed
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Old 02-10-2013, 05:07 PM   #38
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Very nice. Thanks for pointing this link out. When you start to think about it in terms of fixed vs income producing it does start to take on a whole new meaning. I guess I have to stop looking at the balance and start looking at what that balance can generate. As buffet points out there are a lot of companies (and for my liking ETF's that limit single company risk) that provide nice dividends year in and year out.

I guess markets hitting new highs, and all the talking heads got me worried about the market will "Crash" again. All this talk of 1 last run before the market completely melts down and never comes back. Talk of peak oil, energy prices, high unemployment, gap between the rich and poor, youtube conspiracies, and the like.

Maybe I should turn the internet off! Might make me sleep better at night. I will plan on taking about 200k out into a cash position, but let the rest ride. I am looking at those High Dividend ETF's as a place to start moving into income producing vs my coffee house gowth style.

Thank you all for reiterating what I have read many times over from many threads, you guys have certainly made me re-evaluate my go to cash strategy.
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Old 02-10-2013, 06:56 PM   #39
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Ask yourself, 'is he talking to individual investors, or from the perspective of BRK?'

My guess is the piece he edited for the magazine was targeted at their readership, primarily individual investors rather than fund managers.

Warren Buffett is one of a kind successful and brilliant, but does that mean individuals should invest just as he does for himself of BRK?

No.
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Rising Rates
Old 02-10-2013, 07:32 PM   #40
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Rising Rates

I guess markets hitting new highs, and all the talking heads got me worried about the market will "Crash" again. All this talk of 1 last run before the market completely melts down and never comes back.

Markets are hitting new highs because the Federal Reserve is pumping trillions into the economy along with 38 other countries around the world. At some point these policies will have to come to a halt causing rates to rise and markets to come down...imo...very hard. I believe the market will meltdown but not necessarily this year. Now the question I ask is simple:

Why would you or anyone else buy an asset at $50, see it rise to $100, and watch it come back down because of increasing rates, at some indeterminable point in the future? It makes no sense.

Imo, it is better to stop playing the game early, take your profits, watch the market meltdown, and reenter at some later date. And if you perceive you have won better to stop playing altogether and enjoy the money you have earned.
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