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Old 01-25-2010, 12:48 PM   #61
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How do you know that these aren't already priced into the market?
Because the stock market is generally short-sighted.
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Old 01-25-2010, 12:59 PM   #62
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The only real debate is the time frame over which the on-going credit deleveraging plays out and the itinerant policies employed to fight it. That is happening, and will NOT go away. To not understand that is to miss the big picture.

Figure out the answer to that question (which is trying to guess the actions of domestic and foreign central banks and politicians and how long they can persist in their actions despite being wrongheaded and how investors will react to those decisions) and you will know the near term (0 to 5 years) on the stock market.

Generally speaking it all comes down to which wins out: monetary deflation or inflation. All else is noise.

Me, I'm not sure, so I'm playing it very, very cautious. Like others have said on this thread, I hate losses a lot more than I like gains.
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Old 01-25-2010, 01:07 PM   #63
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I have begun a HUGE stockpile of staples like Beer, whisky, rum, wine, and Cigarettes

Also put some of that cash in my local bank and I have a few grand stashed here in the event of an emergency...
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Old 01-25-2010, 01:40 PM   #64
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Hey can you guys settle down a little bit?
Me and my chemist(son)are trying to make a major decision here.
Like "Which beer are we going to brew now" ?
I mean somethings are priority you know?
Steve
if you can figure out how to make a homemade version of Duvel, let me know the recipe..........
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Old 01-25-2010, 01:43 PM   #65
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Moshe Milievsky has this take- it you have high and stable human capital go ahead and take risks. A retiree with little or no pension is not in this position.
I've read a few of Milevsky's papers and find the concept of income smoothing over a lifetime and including human capital in the asset allocation of Life interesting and persuasive. I just pulled up one of the articles I read from him that was discussed here a couple years ago. CFA Article

In there, he runs a number of different optimization routines showing what an optimized portfolio would look like. For willing risk takers, a portfolio at age 60 could have 50-100% equities, depending on your motivation for current income versus leaving a large bequest (desire to leave a large bequest = higher equities allocation). See tables 5.2-5.4. I would guess the equity percentages increase as the retiree gets younger and the benefits of annuitization decrease as the retiree gets younger.

Milevsky, apparently somewhat a shill for the annuity companies (look at who funds his research and where they get their money from ultimately), even lays out on pg 72-73 in the linked paper that there are two very good reasons not to go heavy into annuities. The first being illiquidity of principal and the second being inflation. You can get easy access to your money when you need it and it may not keep up with inflation.

Now Haha, I'm assuming you're not a huge fan of annuities, so I'm not trying to put those words in your mouth. Just trying to show that even Milevsky has to be intellectually honest and put some disclaimers into his work to show that what the computer model indicates is optimal still has extrinsic considerations (I call "life") to deal with.

Just wanted to throw that out there. Even the very pro-annuity Milevsky indicates that an equities heavy portfolio is optimal for willing risk takers at a traditional retirement age.


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In an environment like today's, unless the 40 year old retiree is certain that he can go back to a good job, his position is weaker than an older retired person. Whle it may seem that he has no choice other than to go full speed ahead, that also increases his risk of hitting the wall.

....

If one experts an inflation like the Weimar Republic, then of course own stocks. Own Cuban cigars or chamber pots, or anything other than cash or bonds.
Realistically, what 40 year old can't return to the labor force and earn a reasonable living? Maybe those worst off would be very high tech oriented careers. It obviously may not be possible to return to your old salary and benefits immediately, but ERing at age 40 doesn't mean you are hanging it up forever and raising the white flag. Spin it as a sabbatical or "mid life crisis" or need to live life, spend time with kids, find yourself, do something crazy, etc.

Live the ER life while it is good, then if the $hit hits the fan and your portfolio tanks, crank up that resume machine and talk about how you found yourself, had life enriching experiences, and gained much perspective, and really recharged your batteries to make a second go at a career (blah blah blah). That's the bet-hedging middle ground approach I plan to take at least. Plenty of stay at home mom's leave the work force for 5-10+ years and somehow manage to transition back into a working life. It may be a little harder sell for a man, but not unheard of.

In terms of how the human capital element would look for a very early retiree, I assume it would be best modeled by a time decay function where the first few years the human capital remains relatively stable, dropping a little in value each year as the remaining years available to work decreases, and slightly dropping due to skills getting rusty and losing one's professional network over time. After a certain period (10 years??) I think the rate of the decay due to technical skills and professional network deteriorating would decrease and the further decay of human capital would be mostly related to losing years available to exploit your human capital.

My point is, human capital is still there even for the 40 year old very early retiree, much as it is for the 50 year old early retiree or 60 year old standard retiree (less so in each case). So one who retires with an equities heavy portfolio still has the human capital to balance things out, more so for the younger retiree, for whom an equity heavy portfolio incidentally also has the highest survival rates.

From the research I have done on FIREcalc runs (and posted about here a couple years ago), most of the ultimate failure scenarios from a portfolio holding significant equities would be known in the initial 5-10 years of a retirement. This 5-10 year period is probably an early enough point in time where the human capital is still large enough that one can exploit it to replenish the investment portfolio. Hence relying on equities and being flexible enough to consider exploiting your human capital should you hit hard times is still a valid approach. Otherwise you will be stuck with working a number of extra years to have a more secure, albeit shortened retirement (ie each year you work you consume some of your "retirement capital" ).
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Old 01-25-2010, 01:53 PM   #66
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if you can figure out how to make a homemade version of Duvel, let me know the recipe..........
Ummm....Duvel....
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Old 01-25-2010, 01:58 PM   #67
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"From the research I have done on FIREcalc runs (and posted about here a couple years ago), most of the ultimate failure scenarios from a portfolio holding significant equities would be known in the initial 5-10 years of a retirement. This 5-10 year period is probably an early enough point in time where the human capital is still large enough that one can exploit it to replenish the investment portfolio."


Firecalc is a great tool, but it's not so easy in the real world...

1 1/2 years into ER here...

I don't put much faith in running numbers based on the past...

The future is likely to be a very different world for a lot of reasons...

All of my work experience is in manufacturing, I don't see much of that happening in the US anymore
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Old 01-25-2010, 02:11 PM   #68
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Markets up again today on low volume...

Keep that $$$ for nothing coming
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Old 01-25-2010, 02:11 PM   #69
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The future is likely to be a very different world for a lot of reasons...

All of my work experience is in manufacturing, I don't see much of that happening in the US anymore
It will be different all right. Not sure how exactly - we'll find out!

Looking back to the 1980's, the Japanese were eating our lunch, stealing manufacturing jobs like crazy. For the 30 year period from 1980-2010, the US stock market still returned roughly 10% on average per year. For some that stuck with manufacturing in certain parts of the country, their income and job prospects withered (ie they didn't diversify their human capital). This story will repeat itself in the next 30 years.
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Old 01-25-2010, 03:34 PM   #70
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if you can figure out how to make a homemade version of Duvel, let me know the recipe..........
There's some info at their web site.
Duvel
Put mouse over ingredients & brewing

Looks like a pretty involved fermenting process. Also some temperature control with several changes during the process. Ends up with 8.5% alcohol.
Very interesting !!!
Lets see what Brewer has to say about it?
He's the board Pro
Steve

PS. Hey SteveO
Don't mind us, we've just got a side line conversation going.
Don't mean to be rude or steal the thread
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Old 01-25-2010, 03:44 PM   #71
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I've read a few of Milevsky's papers and find the concept of income smoothing over a lifetime and including human capital in the asset allocation of Life interesting and persuasive. I just pulled up one of the articles I read from him that was discussed here a couple years ago. CFA Article
He's an interesting guy. I have seen him speak a couple times, and got to talk to him one on one for about an hour at a conference. Also, we have traded emails on a few things..........

Quote:
Milevsky, apparently somewhat a shill for the annuity companies (look at who funds his research and where they get their money from ultimately), even lays out on pg 72-73 in the linked paper that there are two very good reasons not to go heavy into annuities. The first being illiquidity of principal and the second being inflation. You can get easy access to your money when you need it and it may not keep up with inflation.
Interestingly enough, back a few years, Milevsky was an very outspoken critic of the VA industry, even received a few death threats. The reason he changed his stance (according to him) was the fact that defined benefit plans have gone the way of the dinosaurs, and most baby boomers need some sort of guranteed income in retirement. Milevsky is a fan of using a combination of SPIA for immediate needs and VAs as PART of an investment allocation strategy. He thinks most VA companies are UNDERPRICING the cost of guaranteed income, and recommends using a silo approach when allocating money (if you do) to VAs.

Quote:
Just wanted to throw that out there. Even the very pro-annuity Milevsky indicates that an equities heavy portfolio is optimal for willing risk takers at a traditional retirement age.
Further, he recommends very aggressive investing inside the VAs, even while taking income..........

He does say he thiks the M&E expenses and subaccount mgmt fees are too high in most VAs, and sees a day where everything is customizable with a menu of choices. Increased regulation is coming and may change the landcape dramatically..........

Quote:
From the research I have done on FIREcalc runs (and posted about here a couple years ago), most of the ultimate failure scenarios from a portfolio holding significant equities would be known in the initial 5-10 years of a retirement. This 5-10 year period is probably an early enough point in time where the human capital is still large enough that one can exploit it to replenish the investment portfolio. Hence relying on equities and being flexible enough to consider exploiting your human capital should you hit hard times is still a valid approach. Otherwise you will be stuck with working a number of extra years to have a more secure, albeit shortened retirement (ie each year you work you consume some of your "retirement capital" ).

Milevsky uses a graph, showing the difference between a 25% drop in the retirement porfolio in Year ONE versus a normal market year one and a 25% drop in Year TWO..........maybe I can dig up the chart, but in the latter scenario, your money lasted 9 years longer.............quite an eye-opener..........
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Old 01-25-2010, 03:45 PM   #72
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There's some info at their web site.
Duvel
Put mouse over ingredients & brewing

Looks like a pretty involved fermenting process. Also some temperature control with several changes during the process. Ends up with 8.5% alcohol.
Very interesting !!!
Lets see what Brewer has to say about it?
He's the board Pro
Steve

PS. Hey SteveO
Don't mind us, we've just got a side line conversation going.
Don't mean to be rude or steal the thread
Its the best beer I've ever had, and my favorite by a LONG shot!!
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Old 01-25-2010, 03:53 PM   #73
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Its the best beer I've ever had, and my favorite by a LONG shot!!
Wold be challenging to replicate Duvel at home, although you could get into the ballpark I daresay. I am generally a lot happier to let good commercial examples inform my efforts rather than trying to copy specific commercial beers. Having said that, if you want to try there is a book out there called "Clone Brews" that has recipes intended to reproduce many highly regarded commercial beers at home.
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Old 01-25-2010, 05:03 PM   #74
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All Im saying is Id rather sit here wishing I had more invested, than be sitting here wishing I wasn't so invested
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I have begun a HUGE stockpile of staples like Beer, whisky, rum, wine, and Cigarettes
Also put some of that cash in my local bank and I have a few grand stashed here in the event of an emergency...
I see a lot of doom & gloom, but is this all there is of your asset allocation plan? Or do you just drop by here to dump your angst on the rest of the board?

If this is your plan for what you're going to do all day then I'd recommend returning to the workforce before the stress of ER kills you.
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Old 01-25-2010, 05:26 PM   #75
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Well it is January in Chicago, the weather here kinda sucks

I don't plan on "dumping my angst" here forever

No cola'd pension here, I live off of my investments...

I made $$$ during the last crash due to incredibly lucky timing... I made even more during this last run up...

My strategy right now is to not lose a lot of $$$

Returning to the workforce is out of the question

This is a forum on ER right FIRE and $$$...

I figured Id try to gauge sentiment among those who are ER'd on their outlook on the future?

Id love to hear what the bulls reasoning is
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Old 01-25-2010, 06:00 PM   #76
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The only real debate is the time frame over which the on-going credit deleveraging plays out and the itinerant policies employed to fight it. That is happening, and will NOT go away.
Why are you so sure about this?

Actual debt service isn't that high at the individual, corporate or even the federal level. Absent a renewed collapse in asset prices or national income, it's not clear that "deleveraging" needs to mean an actual decline in debt balances but rather a slowdown in accumulation below the rate of income growth. That has already happened at the individual and corporate level. Unless savings rates are going to continue to increase from the recent ~5% area (which is far from certain), consumer thrift has already stopped being a drag on economic growth.
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Old 01-25-2010, 06:15 PM   #77
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How can this board be relevant when just about any political discussion is censored
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Old 01-25-2010, 06:17 PM   #78
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Id love to hear what the bulls reasoning is
So far 70% of reporting companies are beating Q4 earnings estimates. If companies meet 2010 earnings estimates (psst, they've massively beat the last three quarters) the SPX is trading 15x this year's earnings. Corporate margins are huge after some very significant cost reductions in 2009. Any revenue growth at all will cause earnings to explode. GDP growth continues to surprise to the upside. Payroll numbers have been improving for 11 months in a row. The index of leading economic indicators has been straight up since March 2009, the index of coincident indicators has been improving since June. The "leadingest" of leading indicators, the yield curve, is as steep as it has ever been. etc. etc. etc.
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Old 01-25-2010, 06:30 PM   #79
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How can this board be relevant when just about any political discussion is censored
1. As far as I know, you have not been censored. In fact, not a single one of your posts has been moderated at all.

2. Discussions of political and public policy issues directly related to FIRE are, in fact, permitted under the Community Rules. Partisan political bashing or politics unrelated to FIRE is not.

3. If you have a problem with the moderation of the board, you should contact the moderators or administrators directly via personal message, not posting to the thread. Again, a policy spelled out in the Community Rules.

4. You will find a link to the Community Rules and Terms of Service at the bottom of the page. I would suggest you read them. If they make you unhappy, you do not have to stay here.

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Old 01-25-2010, 06:34 PM   #80
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Realistically, what 40 year old can't return to the labor force and earn a reasonable living?

I'd add that you don't need to replace 100% of your pre-retirement income. Anyone who is pulling the plug at 40 is a hyper saver. They won't need to replace the savings portion of their old budget. They probably also earned a high salary and paid high taxes. They won't need to pay those high taxes either. They won't even need to replace 100% of their living expenses. Just the portion that mister-market has taken from them.

So for someone who once earned 100, sent 25 to the government, saved 40, and lost half of their net worth in the market, they probably only need to earn about 20 (a.k.a. 20% of their pre-retirement income) to put their original retirement scheme back on track. Or if they wanted to replace 100% of their expenses to allow their portfolio a chance to recover, they can probably get away with earning just half of what they did before they quit.
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