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Old 12-06-2011, 12:35 PM   #21
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That doesn't make sense to me. If that were true, I think very few of us would be investing in equities (I don't think that I would)

Vanguard indicates that a 100% stock portfolio would have an average annual return of 10.0%, 25 years with a loss (of 84 years), a 41.3% loss in the worst year (1931) and 54.2% return in the best year (1933) based on historical returns from 1926-2010. So if 41.3% is the worst year during that period, I don't see how it would make sense that there is a high probability of losing 50-100% of the equity portion of your portfolio in any given year (at least based on historical return data).

I could see such large one-year losses being possible (but not even probable) for an individual stock, but not for a diversified portfolio of stocks. The graph posted by Midpack also shows only a couple years with losses that are even near that magnitude.
The other factor is spending. For ER folks that combo of spending and equity/bond losses and inflation is ... a concern.
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Old 12-06-2011, 12:44 PM   #22
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The other factor is spending. For ER folks that combo of spending and equity/bond losses and inflation is ... a concern.
That's what sequence of returns is all about.
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Old 12-06-2011, 03:20 PM   #23
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I feel much more comfortable taking an "income" approach. I invest specifically for creating income. By doing this I always have a pretty good idea of where I stand.

Some will say that anything that diverges from the total return strategy, i.e. modern portfolio theory, is just fooling ones self, but I disagree.
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Old 12-06-2011, 03:34 PM   #24
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That's what sequence of returns is all about.
Right, that's what FireCalc is all about. However, one should do a little simple arithmetic to see what that might mean in terms of short term shocks. Example, your net worth in August of 2008 and then again in late Feb 2009 with all several smart money managers talking about the SP500 going down possibly a lot more.

Somehow all the simulations in the world never prepare me for the emotional roller coaster of what I've signed up for. Everyone is probably a bit different in this regard.
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Old 12-06-2011, 07:34 PM   #25
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That's what sequence of returns is all about.
+1

I know I've posted this before, but Sam Savage's short article on the Flaw of Averages is the best explanation I have found for the non-mathmeticians among us: The Flaw of Averages

His book on the subject also makes for entertaining reading: The Flaw of Averages
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Old 12-06-2011, 07:55 PM   #26
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The use of statistics to describe and predict the future performance of investments verges on numerology as it is practised by many in the financial industry.
Brian Fantana: They've done studies, you know. 60% of the time, it works every time.

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