Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-22-2009, 10:35 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Currently 100% equities during accumulation phase. May tone it down a bit as I approach the target portfolio goal sufficient for ER.

I have considered staying essentially 100% equities during ER (plus a year or so in cash for living expenses). But that is due to ER (hopefully) coming at a very early age (late 30's or 40-ish).

Now that I know what it feels like to experience a 50+% drop in my portfolio, I have reconsidered the 100% equities route but may still end up with something like 80-85% equities with the remainder being in cash/bonds/CD's sufficient to fund 5 years of living expenses. I will probably have a withdrawal rate that is tied to current portfolio value, and it may be less than 4%. The result is that the dividend yield from the equities component plus the interest yield from the fixed income component will be almost enough to pay my withdrawal rate in perpetuity without tapping the equities too much. In really bad markets (like now) the capital portion of the fixed income component can be consumed if dividends or interest drop too much.
__________________

__________________
FUEGO is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-22-2009, 10:38 AM   #22
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,356
I'm 36, and outside of an emergency fund, I am 100% equities.

This downturn has convinced me that I will want some bonds in my portfolio when I retire.

I've got quite awhile before that occurs, though, so I'm continuing with 100% equities.

My emergency fund has gotten larger though
__________________

__________________
Hamlet is offline   Reply With Quote
Old 05-22-2009, 11:36 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Also consider that a paid off house can be viewed as a bond in a way. I know this may be contentious to some and to a certain degree is just semantics. But the imputed rent you receive from a paid off house is a certainty. It is a roof over your head. Some would say not having a mortgage just lowers your expenses, hence allowing a lower withdrawal rate (or smaller portfolio). Either way, one less fixed expense could help to allow 100% equities more easily since you won't be forced to pay a mortgage payment when the equities are doing particularly poorly.

I hope this doesn't revive the pay off the mortgage debate.
__________________
FUEGO is offline   Reply With Quote
Old 05-22-2009, 11:45 AM   #24
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by FUEGO View Post
Also consider that a paid off house can be viewed as a bond in a way. I know this may be contentious to some and to a certain degree is just semantics. But the imputed rent you receive from a paid off house is a certainty. It is a roof over your head.
Agreed. I personally don't put my paid-off house anywhere in my AA, but I also recognize that the cash I have "allocated" in buying the house displaces what would otherwise be an outflow of about 7% of the home's value each year in renting it. In that sense it would be cash-flow equivalent to owning a bond in the amount of the home's value, getting a tax-free 7% on the bond's interest and using that income to rent the house.

Of course, there would be additional expenses above and beyond equivalent "rent" like taxes, insurance and maintenance. For me, these costs have been about 2.5% of the market value per year. So in a total cost of ownership sense, you lose 2.5% of the yield to these expenses so you could almost look at the house as equivalent to owning a tax-free bond yielding 4.5% after expenses. Again, I don't do it this way, but in some sense it we rented instead of bought, this would be the equivalent scenario in terms of cash flow if we rented.

Quote:
I hope this doesn't revive the pay off the mortgage debate.
Ditto. I grow weary of the "payoff mortgage or invest" debate as well as the "rent or buy" debate.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-22-2009, 01:04 PM   #25
Recycles dryer sheets
 
Join Date: Jan 2006
Posts: 70
Thanks everyone for your posts. So the conclusion that I came is that we should all go for equities in the very long term if we can handle the brutal market swings, because it has lower volatility and higher return in the end.

I'm really confused of how to apply this "principle" in my future early retirement. The "normal" asset allocation after retirement (60/40, etc.) is misleading because it uses the risk/return of stocks/bonds in a 1 year horizon, while you only use 3-4% of it in 1 year. However, I can't go 100% equities once I retire because for example in 5 years I will be using a part of my portfolio, and in 5 years the volatility of stocks are still pretty high.

I am convinced that buckets are nothing more than "mental accounting", but what if I use a different asset allocation for each year all the way to 15 years and after that 100% stocks? Than I would sum everthing and see the final asset allocation.

For example, in year 1 let's assume I will use 40k during that time. I would make a graph and would try to get the allocation with the most return per volatility. I assume it would be something like 40% stocks 60% bonds.

For year 2 I would use 41.2k (3% inflation) and look the historical expected returns and SD for 2 years. I would make a graph (already very different from the graph of year 1) and would try to get the allocation with the most return per volatility. Etc. Etc. Etc.

Is that reasonable? Am I speaking non-sense?
__________________
:)
Leonardo is offline   Reply With Quote
Old 05-22-2009, 01:44 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
At some point you are analyzing "how many angels fit on the head of a pin" and splitting hairs.

There have been a few threads here in the last few years that dealt with different withdrawal strategies. Buckets a la Ray Lucia, stocks first vs. bonds first (see link below). Search around and see what you can find. Bottom line is that the more stocks you own and the longer you own them increases your AVERAGE expected portfolio value. With more volatility. Hence consuming bonds first and/or using a bucket approach where you deplete a fixed income bucket before consuming any equities can make you wealthier long term on average. If you don't have a portfolio failure in the mean time!

Buckets and Bears

And I have laid out a little bit of planning I have done here in post #19 and #23: 2% swr
__________________
FUEGO is offline   Reply With Quote
Old 05-22-2009, 02:43 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by Leonardo View Post
Thanks everyone for your posts. So the conclusion that I came is that we should all go for equities in the very long term if we can handle the brutal market swings, because it has lower volatility and higher return in the end.

I'm really confused of how to apply this "principle" in my future early retirement.
Be wary of promoting the dubious musings of internet forum members to the status of a principle.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 05-22-2009, 03:50 PM   #28
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,685
http://www.indexuniverse.com/docs/ma...2/2009_149.pdf

Robert Arnott writes a very good article describing why not. Including the reality that at the bottom of the 1932 market share prices adjusted for inflation were no higher than in 1802 meaning the only return was dividends over a 130 year period.
__________________
Running_Man is offline   Reply With Quote
Old 05-22-2009, 04:11 PM   #29
Recycles dryer sheets
 
Join Date: Jan 2006
Posts: 70
Quote:
Originally Posted by Running_Man View Post
http://www.indexuniverse.com/docs/ma...2/2009_149.pdf

Robert Arnott writes a very good article describing why not. Including the reality that at the bottom of the 1932 market share prices adjusted for inflation were no higher than in 1802 meaning the only return was dividends over a 130 year period.
In this link Jeremy Siegel presents some very good arguments against the Arnott article.
__________________
:)
Leonardo is offline   Reply With Quote
Old 05-22-2009, 04:50 PM   #30
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,685
Jeremy Siegel is missing the main point of the article, which despite it's title is not arguing for bonds per se over stocks, it is that stocks actually suffer through very prolonged periods of virtually no growth in value offset by periods where it explodes upwards, not that they consistently provide solid growth. Jeremy Siegel does not even address that point, instead as he has since January 2008 with the Dow at 14,000+ continues to argue for outsized stock gains. Even arguing the best values were in financial stocks.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

But most telling to me is a sentence that Jeremy Siegel writes in this article discussing the advantage that stocks have over bonds (and in this article he argues that stocks earned 6.9 percent real world return the long run and present bonds can only earn you 2 percent which equals nearly the 5 percent Arnott is arguing:

Neither I nor any other economists have uncovered precisely why investors have received this return and cannot promise they will receive it in the future.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

That Jeremy Siegel argues stocks, stocks, stocks is indisputable, he is the cheerleader of the don't think just invest in stocks movement. To merely assume that thought really cuts down on the amount of thought you need to put into a position, you merely take current data and slice it into your thesis.

This is all Siegel has done for years. However, I believe all investments need to take into context the enviroment into which you are investing. Siegel has shown absolutely no instincts. Invest in financials at their very peak, housing at it's peak? Keep it! it's safe keep a second house!

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More
__________________
Running_Man is offline   Reply With Quote
Old 05-22-2009, 05:23 PM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by Running_Man View Post
Jeremy Siegel is missing the main point of the article, which despite it's title is not arguing for bonds per se over stocks, it is that stocks actually suffer through very prolonged periods of virtually no growth in value offset by periods where it explodes upwards, not that they consistently provide solid growth. Jeremy Siegel does not even address that point, instead as he has since January 2008 with the Dow at 14,000+ continues to argue for outsized stock gains. Even arguing the best values were in financial stocks.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

But most telling to me is a sentence that Jeremy Siegel writes in this article discussing the advantage that stocks have over bonds (and in this article he argues that stocks earned 6.9 percent real world return the long run and present bonds can only earn you 2 percent which equals nearly the 5 percent Arnott is arguing:

Neither I nor any other economists have uncovered precisely why investors have received this return and cannot promise they will receive it in the future.

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More

That Jeremy Siegel argues stocks, stocks, stocks is indisputable, he is the cheerleader of the don't think just invest in stocks movement. To merely assume that thought really cuts down on the amount of thought you need to put into a position, you merely take current data and slice it into your thesis.

This is all Siegel has done for years. However, I believe all investments need to take into context the enviroment into which you are investing. Siegel has shown absolutely no instincts. Invest in financials at their very peak, housing at it's peak? Keep it! it's safe keep a second house!

Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More
Jeremy Siegal knows one thing only-never dilute your brand.

He is a dope, but a dope with his eye on the ball.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 05-22-2009, 07:59 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Moemg's Avatar
 
Join Date: Jan 2007
Location: Sarasota,fl.
Posts: 10,029
Quote:
Originally Posted by brewer12345 View Post
. But here is the important part: I know my risk tolerance and it is quite high. Yours may or may not match mine and figuring out exactly what your risk tolerance is can be difficult. It also changes over time and the changes can be slow enough that you suddenly wake up one morning to the realization that you are terrified of your portfolio. So high equities (or anything else) may suit you, but spend a lot of effort thinking about your risk tolerance before you conclude that this is the case.

When I was working I was 100% stocks until late 1999 when I decided things were a little nutsy so I went to 77% stocks and slept well until last year when the stock market taught me a lesson about risk . I now am at 65% to 67% stocks and that is were I will stay .
__________________
Moemg is offline   Reply With Quote
Old 05-22-2009, 08:18 PM   #33
Recycles dryer sheets
 
Join Date: Jan 2006
Posts: 70
Running Man, first of all thank you for your reply.

Quote:
Originally Posted by Running_Man View Post
Jeremy Siegel is missing the main point of the article, which despite it's title is not arguing for bonds per se over stocks, it is that stocks actually suffer through very prolonged periods of virtually no growth in value offset by periods where it explodes upwards, not that they consistently provide solid growth. Jeremy Siegel does not even address that point(...)
I don't agree with that, because in the article that I've linked he shows that there has never been a 20 year period that the real stock return was negative, and that the WORST real 30 year stock return (+2.6%) was almost the AVERAGE of bonds real return. That's very different from "very prolonged periods of virtually no growth".

Quote:
Originally Posted by Running_Man View Post
But most telling to me is a sentence that Jeremy Siegel writes in this article discussing the advantage that stocks have over bonds (and in this article he argues that stocks earned 6.9 percent real world return the long run and present bonds can only earn you 2 percent which equals nearly the 5 percent Arnott is arguing:

Neither I nor any other economists have uncovered precisely why investors have received this return and cannot promise they will receive it in the future.
I agree that no one can promise what will happen in the future, or explain exactly the equity premium, but we can only learn from what happened in the past and act accordingly, hoping for the best. I know that there aren't any guarantees, but this is the best we can do. If stocks had 99% of the time a better return than bonds and you know you will hold for that long period, what else can you do?
__________________
:)
Leonardo is offline   Reply With Quote
Old 05-22-2009, 09:53 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Q: Why not 100% equities?

A: 2008
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 05-22-2009, 10:04 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Were that I was once again at age 21, young, strong, fearless and still sure that: 'God Looks After Dunkards, Fools, and The United States of America.'

I might expand my vison in memory of December 1968, Apollo 8 and Earthrise over the moon.

Vanguard has rolled out the Total World Stock Index 6/26/2008.

For the young and strong in the 21st century - faith and time in the market.

No guts, no glory - belly up to the bar and save as much as you can, as early and often as you can.

heh heh heh - buy yer bonds when you get old and chickenhearted like me.
__________________
unclemick is offline   Reply With Quote
Old 05-22-2009, 11:28 PM   #36
Recycles dryer sheets
Lawrence of Suburbia's Avatar
 
Join Date: Mar 2009
Location: Newcastle, WA
Posts: 109
100% stocks?? That thought terrifies me now, after what's happened to my portfolio since Oct. 2007 (when I was about 70/30 stocks/bonds, with NO appreciable emergency fund.)

Now, I'm approx 1/3 cash, 1/4 bonds, 1/4 stocks and a smattering of gold, silver etc. (my pathetic IRA is now mainly in PRPFX.)

I'm also guessing that any of you has got more $ invested than I (I really got killed. )

Here's my new idea - feel free to laugh at me, or abuse me with text. My plan is, all new contributions go into cash; or maybe a TIPS fund (TCILX, current yield 4.5% or so) in my workplace 403b plan. Something safe, and I'll just suck it up and keep working 'til I've got enough saved to fund the 5 or 6 years of life I'll have left at that point. My risk tolerance is kerplunkt, as they say.

What do you think of my evil plan? Not investing, more like old-fashioned saving is what I have in mind.
__________________
Don't just do something; stand there!

- Jack Bogle
Lawrence of Suburbia is offline   Reply With Quote
Old 05-23-2009, 07:34 AM   #37
Recycles dryer sheets
 
Join Date: Oct 2008
Posts: 295
Well..maybe, but using The S&P Index of VFINX vs a Blanaced Fund OAKBX since 1996? Maybe not..Using M8 New Beta Chart per a $10k Cost basis and their Tot. values...

-

Zoom: 1M 3M YTD1Y 3Y 5Y 10Y Maximum



Oakmark Equity & Income I:37,558.66



Vanguard 500 Index Investor:17,129.15
__________________
Dennis is offline   Reply With Quote
Old 05-23-2009, 07:58 AM   #38
Recycles dryer sheets
 
Join Date: Oct 2008
Posts: 295
Not sure if this will post right..but got this off another Board and not sure if Figures are correct, so ck them out yourself..


1981-2009 is familiar to most of us. Below is a spreadsheet that compares nominal returns of five strategies over this period: on a $10k Cost Basis since End of 1980.
  • Stocks only
  • Bonds only
  • Balanced 60-40
  • PE (overweight stocks when cheap; underweight when pricey)
  • PE+Market Action (consider both PE and Market Action)
Year
Shiller PE 10Factor PEStocks PE
Rating MStocks M
Stocks PE+M
VTSMX Total Return10-Year T-Bond Return

CPI
$10K Stocks$10K Bonds$10K Bal$10K PE$10K PE+M
2008
24.00.6820%
5%1%
5%
-37.0%20.1%0%
$189$170$204$237$406


Average % Rtns:

Stks Bnds Bal PE PE+M


11.3%9.9%10.7%11.1%13.5%

After Tax
Stocks = 9.6%
Bonds at -21% tx = 7.8%
Bal Port = 8.7%

*PE + M After Tax = 11.07%

*Ave. of Top 5 ranked Investment Firms with Min. $500,000 Req'd to Open an Account
ave 0.50% Mgmnt. fee. Most are now closed to the Public and require Sponsorship to be Considered to be accepted as a client..
Ave.

> I was given a heads up on this Type of Fund/Investment a few yrs prior to my Retiring from a VP of a Investment firm..back in 1998 and been adding more to it every yr..vs owning Global Bond Funds and many Equities as well. Now have over 30% Allocation in my port..( only lost about -17% in 08' ) and has way outperofrmed most Bond Funds and other Equities I have in my Port.. But, I'd start with a max 5% allocation and go from there...adn Don't Rebalance and just let if Grow and Compound RI Divs and Yields.. ( now 8.8% )

One of the Best kept secrets by Investment Firms & Pro's > Investing in Emergeing markets
EMD's Bonds such as IShares or For Public > FNMIX since 1996 = $44,867 per $10k
S&P 500 = $17,129

And EMD's are mostly Insured by the International Monatary Fund toBoost Investment into thos countries without having to provide $ to them directly and inturn that has had a lower risk than even investing into US Corp. or Global Bond Funds..of individual countries..
__________________
Dennis is offline   Reply With Quote
Old 05-23-2009, 08:38 AM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,614
Quote:
Originally Posted by Lawrence of Suburbia View Post
What do you think of my evil plan? Not investing, more like old-fashioned saving is what I have in mind.
It can certainly work, and many people have done it over the years. But, as you probably know, you're still taking a big risk. Stocks (price appreciation and dividends) have historically outperformed every other common investment in the US over long periods of time. By leaving them out of your portfolio, you're betting against this historical record and significantly increasing the likelihood (if the future resembles the past) that you'll have to work more years and/or save more every year to get to retirement. Less likely to ER, will probably just R or maybe LR.

And, if inflation takes off, it could get ugly unless you've got a lot of TIPS. If TIPS continue to keep their promise over the years.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 05-23-2009, 09:13 AM   #40
Thinks s/he gets paid by the post
 
Join Date: May 2006
Location: Largo
Posts: 1,945
We moved to 60/40 in late 2007 (thank god!) when we engaged our current financial planner. We had been 100% equities which he said was crazy given we were considering at least semi-retirement in the next 5 years. I wouldn't have been able to accept his advice if I had not recently read Bernstein's Four Pillars. There's one chart in the book that showed me there wasn't much reward for the additional risk one assumed holding over 60%-70% equities.
__________________

__________________
Buckeye is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
100-0 ! wrigley Other topics 46 01-06-2010 05:46 PM
individual stocks vs index funds,stocks poor choice mathjak107 FIRE and Money 31 09-12-2006 01:12 AM
Retired at 100 REWahoo Other topics 6 03-23-2006 03:33 PM
Just Wasted $100 TromboneAl Other topics 8 05-27-2005 02:22 PM
$100 per Day or Less Eagle43 FIRE and Money 33 04-26-2005 11:48 AM

 

 
All times are GMT -6. The time now is 02:04 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.