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Old 01-19-2013, 10:03 PM   #21
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But that's so generic!
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Old 01-19-2013, 10:08 PM   #22
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If someone has a small nest egg, they may loath to take on "risk" and seek safety, even though it increases their chances of running out of money in the long run.

If someone has a large nest egg, they might feel like they can take on more risk, because they can "afford" to lose some and still be OK, even though they could actually get away with living off of lower volatility assets.
I guess my nest egg must be small then. But...I think I remember a talk show about Bill Gates and he was very conservative how he saves his money. CD;s and MSFT.

Can't help it but I really am pessimistic, like I was last yr. I'll waiy until the next correction and get some equity funds then. Peeves me off, VIEIX has gone up 5% YTD so hopefully it goes down some.

My stocks in my IRA's are performing well.
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Old 01-19-2013, 10:14 PM   #23
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Can't help it but I really am pessimistic, like I was last yr. I'll waiy until the next correction and get some equity funds then.
But...but...the next time the bottom falls out things will look so bad you'd have to be nuts to buy stocks. And by the time they go up again you'll be right back where you are now.

(I'm better at identifying the problem than identifying the solution... )
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Old 01-19-2013, 10:33 PM   #24
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I don't know about that. We started our grandsons 529 the last time the mkt crashed and it's performing well.

My 401K...I took a big chance and purchased 70% company stock when the mkt crashed because and the stock was at an all time low..just was lucky enough to pick the right time. I made up my losses less than a yr.
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Old 01-19-2013, 11:01 PM   #25
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...Can't help it but I really am pessimistic, like I was last yr. I'll waiy until the next correction and get some equity funds then. Peeves me off, VIEIX has gone up 5% YTD so hopefully it goes down some.

My stocks in my IRA's are performing well.
So if the stocks in your IRA are performing well, why are you pessimistic?

I think the best thing is to decide a target AA, get to it and stick to it until your circumstances change such that the target AA no longer makes sense for you.

If I look back over the past 30 years, all of the investing mistakes/missed opportunities that I have made are the result of not following my AA (or in 2008 having the courage to buy stocks when my AA was telling me to). Cost me a bunch.
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Old 01-19-2013, 11:55 PM   #26
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So if the stocks in your IRA are performing well, why are you pessimistic?

I think the best thing is to decide a target AA, get to it and stick to it until your circumstances change such that the target AA no longer makes sense for you.

If I look back over the past 30 years, all of the investing mistakes/missed opportunities that I have made are the result of not following my AA (or in 2008 having the courage to buy stocks when my AA was telling me to). Cost me a bunch.
++1

The nice thing about AA is it disciplines me to buy lower and sell higher. It beats following my gut instincts.
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Old 01-20-2013, 12:06 AM   #27
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So if the stocks in your IRA are performing well, why are you pessimistic?
I think its because I have more control of the stocks. I can sell immediately, the funds you have to wait until the end of the day to sell.

I have my AA figured out, I just would like to wait until the funds go down some. The stock mkt is the highest its been in 5 yrs. Don't you think it is ready to drop around 100 points?
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Old 01-20-2013, 12:44 AM   #28
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I allocate to my sleeping point.
That's not a bad way of putting it, though it might be phrased a tad better...
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Old 01-20-2013, 05:53 AM   #29
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With nothing better as a basis I used FIRECALC and solved for a 95% success rate over 30 years yields and using $1M as the baseline for a FIRECALC default 75% equity portfolio (and BTW, that's retiring at 65, not even early retirement). Again, the first line is simply to show the results for the presumed discredited 75%/25% portfolio of the past.

HoldingsNest Egg RequiredWR@95% success
75% equity / 25% bonds$1,000,0004%
100% bonds$1,410,0002.8%
50% US LT Treas / 50% LT Corp Bond$1,624,0002.45%

If either of these are in the ballpark, avoiding stocks means you'll have to work 40-60% longer or spend 40-60% less in retirement, or some combination. At current yields, much worse than historical averages, presumably it would be even more difficult.

I hope someone will come along and improve on my crude estimate regarding the cost of reducing/eliminating uncertainty.

I think it's also interesting to note that, according to firecalc, a 3.4% SWR from a 100% equity portfolio had a 100% success rate over 30 years, clearly dominant over the all fixed income strategies in your table.
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Old 01-20-2013, 06:40 AM   #30
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Also note 30% stock had 100% success @ 3.62% SWR

A lot of the success depends on the desired withdrawal rate. And the magnitude of the maximum draw down ( not volatility ) you want to have. My SWR to cover current expense is less than 2%, I don't need to max out GCs to survive. Suffering a huge draw down ( 50%) is what causes many to throw in the towel. If you have a COLA'd pension and paid for health care, then yea let it ride, it's just play money.

Recently we had a post showing Raddrs "hapless Y2K retiree" who is already doomed using the 4%SWR. Then in another someone was making the case that 4% is too conservative and we should be doing 6.5%. So who is right ?
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Old 01-20-2013, 06:42 AM   #31
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I always feel so much better when the financial talking heads are leary, worried, or downright depressed.
+1
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Old 01-20-2013, 07:25 AM   #32
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Recently we had a post showing Raddrs "hapless Y2K retiree" who is already doomed using the 4%SWR. Then in another someone was making the case that 4% is too conservative and we should be doing 6.5%. So who is right ?
Based on when they retired, history (FIRECalc) says they both could be correct.

The hapless Y2K retiree appears to have the misfortune to be in the group of 5% who pulled the plug at the wrong time, riding one of a few squiggly lines on the FIRECalc output chart that drops below zero. Those advocating the 6.5% withdrawal rate are looking at all the squiggly lines that go up, some of them way up.

If we only knew which line we're riding...
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Old 01-20-2013, 10:24 AM   #33
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Based on when they retired, history (FIRECalc) says they both could be correct.
Uh-oh, isn't that market timing
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Old 01-20-2013, 10:35 AM   #34
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I've said it before, but rental income is a nice thing to have. Combine it with a 50/50 portfolio and you've got most bases covered. I currently get $15k a year from a rental and if I need capital I can always sell
Congrats on having successful rental property. Only time I tried I was not so lucky. One bad tenant can wipe out years of pos cash flow
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Old 01-20-2013, 10:48 AM   #35
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Uh-oh, isn't that market timing
Absolutely! And the one time I fully endorse being a Dirty Market Timer!

There is an old thread around somewhere discussing the best time to pull the plug. I think the consensus was in the optimal time was in the depths of a severe downturn - early 2009 for example.

The example Dory36 shows on the intro FIRECalc page illustrates it well: Three individuals with $750k portfolios (with AAs of 75/35 per the FIRECalc default) each retire one year apart - in 1973, 1974 and 1975. Using the classic 4% SWR, the 1973 retiree runs out of money in less than 20 years. The 1974 retiree has roughly half his portfolio left after 30 years while the 1975 retiree ends up with roughly $1.7 million.



This illustrates a number of things, not the least of which is no matter how well we plan or how bulletproof we believe our financial situation to be, retirement timing (and luck) can have a huge impact on portfolio survival.
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Old 01-20-2013, 10:57 AM   #36
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I think its because I have more control of the stocks. I can sell immediately, the funds you have to wait until the end of the day to sell.

I have my AA figured out, I just would like to wait until the funds go down some. The stock mkt is the highest its been in 5 yrs. Don't you think it is ready to drop around 100 points?
While I am in funds, the daily changes are usually not so extreme that timing is a concern for me. I take a much longer view with my portfolio. However, if this bothers you, then you may be able to just buy ETF versions of the funds you want and you will have the same degree of control (at the cost of brokerage fees).

Even if it drops 100 points, on 13000 (assuming you are referring to the Dow) 100 points is a relative pittance (less than 1%). If your reference point is the S&P 500 then it is a bit more (~7%).

If I was clairvoyant enough to know if stocks will drop or rise, I could have retired a lot earlier and richer. WADR, the reasons that you are in this dilemma is because you didn't keep to your AA. If you are worried about buying stocks at a possible high, then DCA or value average in over 6-12 months to get to your target AA.

If you think you can successfully time the market, you are better than I.
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Old 01-20-2013, 11:10 AM   #37
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...(snip)...
The example Dory36 shows on the intro FIRECalc page illustrates it well: Three individuals with $750k portfolios (with AAs of 75/35 per the FIRECalc default) each retire one year apart - in 1973, 1974 and 1975. Using the classic 4% SWR, the 1973 retiree runs out of money in less than 20 years. The 1974 retiree has roughly half his portfolio left after 30 years while the 1975 retiree ends up with roughly $1.7 million.



This illustrates a number of things, not the least of which is no matter how well we plan or how bulletproof we believe our financial situation to be, retirement timing (and luck) can have a huge impact on portfolio survival.
I was looking at this and wondering why the Blue guy was just flat while the Green guy had such a nice upward slope starting around year 10. Of course, it's got to do with how one manages their retirement withdrawals during the retirement years.

The Blue guy would have been smarter to cut back on spending for some years maybe by the time he'd lost 1/3 of the starting portfolio around year 5. On the other hand, both the Blue and Green guys supposedly enjoyed the same standard of living assuming they were doing the "withdraw an inflation adjusted % of starting portfolio". The Blue guy might have lived with more fear though.

So maybe it's just the Red guy who really was miserable. But as we've discussed in other threads, he probably would have cut back spending before running out of money.

I define my own "failure of portfolio" as being about 50% of the starting portfolio. It's because I don't really want to be the Blue guy. I'm not sure I want to be the Green guy either as he's leaving an awful lot on the table. I think the optimal might to be a Blue-Green guy.

I'm not saying anything particularly new here. The idea of "leaving the principle intact" has been around for centuries. Just some thoughts.
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Old 01-20-2013, 11:23 AM   #38
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Absolutely! And the one time I fully endorse being a Dirty Market Timer!
Thanks, I is one...

Really it is frightening isn't the difference a year can make. One retires at market top and one at the market bottom. Those back to back down years is the biggest killer. Most don't grasp if you take 50% loss it take 100% gain just get back to even, that takes time and if still pulling out the "SWR" it compounds it.
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Old 01-20-2013, 12:04 PM   #39
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I was looking at this and wondering why the Blue guy was just flat while the Green guy had such a nice upward slope starting around year 10. Of course, it's got to do with how one manages their retirement withdrawals during the retirement years.

The Blue guy would have been smarter to cut back on spending for some years maybe by the time he'd lost 1/3 of the starting portfolio around year 5. On the other hand, both the Blue and Green guys supposedly enjoyed the same standard of living assuming they were doing the "withdraw an inflation adjusted % of starting portfolio". The Blue guy might have lived with more fear though.

So maybe it's just the Red guy who really was miserable. But as we've discussed in other threads, he probably would have cut back spending before running out of money.

I define my own "failure of portfolio" as being about 50% of the starting portfolio. It's because I don't really want to be the Blue guy. I'm not sure I want to be the Green guy either as he's leaving an awful lot on the table. I think the optimal might to be a Blue-Green guy.

I'm not saying anything particularly new here. The idea of "leaving the principle intact" has been around for centuries. Just some thoughts.
I woul like to be Green guy. At 25 years, I would go on a world cruise and put a chunk of money into my charitable foundation.
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Old 01-20-2013, 12:31 PM   #40
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...(snip)...
I hope someone will come along and improve on my crude estimate regarding the cost of reducing/eliminating uncertainty.
This is going to sound a little weird or maybe a little divergent and/or pedantic. Uncertainty is a fundamental of our physical universe and by extension our financial futures. Thus we can never eliminate uncertainty entirely.

A somewhat simple way to think about this is embodied in the Heisenberg Uncertainty principle. It says that uncertainty of a particle's position and momentum is fundamental, not just an outcome of our ability to measure such things. Since all things and even thoughts have a physical basis this implies a basic uncertainty to our future.

Link: http://www.early-retirement.org/foru...eply&p=1272623

Having said this, I try my damnedest to eliminate uncertainty . I've mentioned my approach in other threads. Midpack's table seems to show the tradeoffs well. We each have to decide when to reduce our exposure to stocks and bonds. There probably is no right answer as it depends on the individual's particular variables he/she has to juggle.
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