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Won the Game, take low risk path with $$?
Old 04-29-2017, 10:47 AM   #1
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Won the Game, take low risk path with $$?

How to define won the game (inspired by burned more than once) based on an extremely low risk investment AA and still come up with 100% success rate at age 100?

I would say based on investment AA of 0% stock, using estimated spending (high end of estimate), age to 100 with 100% success rate on Firecalc would meet the "won the game" definition.

Which I guess means you will likely provide a nice pot of $$ to someone later on....

What would you think?
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Old 04-29-2017, 10:52 AM   #2
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There's been a couple of threads like this (won the game) so why take the risk. I'm in that boat too with regards to taking risk with my base. When you say low risk are you taking about CD's and savings accounts?
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Old 04-29-2017, 10:56 AM   #3
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Originally Posted by capjak View Post
How to define won the game (inspired by burned more than once) based on an extremely low risk investment AA and still come up with 100% success rate at age 100?

I would say based on investment AA of 0% stock, using estimated spending (high end of estimate), age to 100 with 100% success rate on Firecalc would meet the "won the game" definition.

Which I guess means you will likely provide a nice pot of $$ to someone later on....

What would you think?
That would be one way with FIRECALC to determine a threshold for having won the game. But you'd want to look at the assumed rate of returns for your bond, CD or other holdings and the assumed inflation rates to make sure you're comfortable with them. None are at historic levels at present, whether the long term averages come back to historic is for the user to decide. There will always be some uncertainty, all you can do is put the odds where you are comfortable with them.

And of course the "success rate" result is based solely on past history, albeit over a century of data. FIRECALC does not predict the future, no one can.
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Old 04-29-2017, 11:31 AM   #4
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An interesting thought experiment. I have never considered not being in equities unless CD rate were >8% and average inflation holds at 3.5%. FIRECalc gives my 44 year ER plan (w/o SS) a 18% success with 0% equities and 3.5% inflation and 54% with CPI inflation. Surprised me how big the gap was between 3.5% & CPI inflation rate. If I add SS benefits then I get 86% success rate with 3.5% inflation and 95% with CPI inflation.... So if the "won the game" requires 100% success rate with 0% equities then I guess my plan does not meet that criteria... I guess we could reduce spending to get the 100% success rate... However, I'm comfortable with our current AA of 55/17/28. Right now I feel stock valuations are high so not looking to put more money to work at these levels. I would be comfortable having a 70% equities if the valuations were in my comfort zone. Unless CD rates reach >6% level I will probably always have >30% in equities.... BTW.. I do feel we "won the game" and I have no plans to ever going back to w*rk ...
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Old 04-29-2017, 11:47 AM   #5
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I have a much more modest "won the game" approach. We're taking moderate risk with the portfolio (~50% equities). But once I draw income from my portfolio, I never return it. Unspent funds are put in short-term, safe investments. I see no need to risk those funds again.

Our portfolio has grown enough that we are only spending about 75 to 80% of what we draw. So we have built a considerable "war chest" of unspent funds over the past several years. But I'm not interested in reinvesting the excess for longer growth.

I figure we already have a big enough portfolio, and I don't need to make it bigger by adding what we don't spend back to it.

Knock on wood! (Portfolios have been known to shrink drastically at times).
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Old 04-29-2017, 11:55 AM   #6
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Really depends on how "elastic" your spending utility function might be, your natural risk aversion attitude, and any legacy objectives. By most people's definition I have won the game, but instead of retreating to a very low risk portfolio and keeping my lifestyle static, I have remained heavily invested in equities and have thus been able to increase my spending/gifting over the 10 years I have been retired. Helps to have a good pension of course. I look at it as really investing for the next generation. Very personal decision.
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Old 04-29-2017, 12:21 PM   #7
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In investment terms, the thread title can be paraphrased to "having achieved a high net worth, is it appropriate to focus on capital preservation?"

For many investors, capital preservation is their #1 priority. These investors are more inclined to be heavily weighted towards cash and fixed income. Frequently, these people have pension income, and wish to leave a legacy to their heirs. The major risk they face is inflation. With little chance of growing their NW in retirement, they need to start with a high amount of capital and to use a low withdrawal rate.

For a second group, income generation is their #1 priority, usually because they have no pensions. They don't care what their NW is, or whether they leave an estate. These investors often focus on fixed income and dividend stocks and may include an annuity at some point in their lives. They face market risk and, if they do purchase annuities, insurance company risk.

For a third group, the #1 priority is growth. These people want more, and are willing to accept volatility in part of their portfolio to get it. They have a higher tolerance for portfolio risk, and are likely to hold a heavy weighting in equities. They face significant market risk, but may end up with the highest NW. If they avoid major losses, they will be well protected against inflation.

We have forum members who fit each of these three profiles, and many, myself included, have mixed priorities. I would say that my #1 priority is generating income, #2 being growth.

All investors face risks. It's a question of choosing one's objectives and corresponding risks.
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Old 04-29-2017, 01:05 PM   #8
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Really depends on how "elastic" your spending utility function might be, your natural risk aversion attitude, and any legacy objectives.
How would you define "spending utility function"? As a naturally analytical person, seems like something I'd be interested in learning about.

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For many investors, capital preservation is their #1 priority. [...]

For a second group, income generation is their #1 priority, usually because they have no pensions. [...]

For a third group, the #1 priority is growth. [...]

We have forum members who fit each of these three profiles, and many, myself included, have mixed priorities. I would say that my #1 priority is generating income, #2 being growth.
I have roughly the same priorities, but with growth ahead of income generation. I remain heavily invested in equities even though FIRECalc and other tools make it clear to me that I've "won the game" and could easily spend more and still have a 100% historical success rate. One of the main reasons for that is that most of my investments are in taxable accounts, and I've been reluctant to pay a lot of capital gains tax in order to do much rebalancing. One day in the fairly near future, though, I'll have to bite the bullet and start doing that.
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Old 04-29-2017, 01:28 PM   #9
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How to define won the game (inspired by burned more than once) based on an extremely low risk investment AA and still come up with 100% success rate at age 100?
....
What would you think?
Too conservative for me.

(1) 100% success rate through asset allocation is a nice dream supported by calculation models based on many, many assumptions. There's always some way that a plan can fail in the real world. Picking a more reasonable success rate (85-95%) and then having backup plans (typically cutting expenses) in case things turn south allows one to have a more realistic idea of what can be managed with their assets.

(2) Living to 100 for the vast majority of people is a pipe dream. Not even worth considering for me or DW given our family history and personal lifestyle.

(3) 100% success rate plus living to 100 is an unbelievably conservative stretch IMHO. Fine to use if it makes one feel comfortable but way to conservative for me.

Edit: We feel comfortable in our position that we've "won the game" with 95% success rate in Firecalc + having 3 or more years of cash / short term bonds to ride out a market downturn + ability to cut expenses by 30%. Assumes both of us live to 92....hardly likely in our case.
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Old 04-29-2017, 01:53 PM   #10
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I'm vacillating between investing in growth or capital preservation. So in short, my AA is fluid, the range can be 25-75%. But I did go 100% in cash in 2015, waiting to transfer my 401k to Vanguard IRA. And 70-80% the beginning of this year. Now much less. I guess I'm a market timer.
I used to swear off individual stocks but now I have them in my after tax account because I can control the capital gain. I have to admit my investment philosophy is also fluid. Im trying to understand myself, my comfort zone. It's easier said then done.
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Benjamin Graham said never less than 25 % equities
Old 04-29-2017, 03:18 PM   #11
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Benjamin Graham said never less than 25 % equities

i think he taught John Bogle and Warren Buffet too, they are heavy weights in my book, 25 % is probably as little as you should go if your in the investing game, otherwise like some one else said 100 & CD's is the safe bet. that being said without social security, but including my pension and putting 100 % of my assests in 5 year treasury gives me 100 % success, FIRECalc looked at the 101 possible 45 year periods in the available data, starting with a portfolio of $x,xxx,xxx and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 101 cycles. The lowest and highest portfolio balance at the end of your retirement was $2,937,271 to $35,504,515, with an average at the end of $9,203,097, i guess if i include soc sec it would be higher. so i guess i should just buy could just get the 5 year treasuries. since im not doing that here is what it says with my 80/20 portfolio without soc sec Here is how your portfolio would have fared in each of the 101 cycles. The lowest and highest portfolio balance at the end of your retirement was $3,740,000 to $159,900,893, with an average at the end of $47,587,503. like i said before, i worked 5 years too long, way too much for our life style, lost 5 prime years worried about safe withdrawal rates . as ive stated before, im 312 pounds like im really going to reach 60 much less 100.
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Old 04-29-2017, 03:28 PM   #12
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To me, won the game is having enough principal that you can afford to buy a COLAd immediate annuity with survivor's benefits (if you are married) that would at least fully cover your entire budget. I am not suggesting that anyone actually do this, but it is a handy bar for won the game.
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Old 04-29-2017, 04:23 PM   #13
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I'm becoming progressively more conservative as time goes on. From 100% equities before retirement to 30/70 just three years later. DW is slightly less conservative with her portfolio, but has a COLA's federal government pension that covers over 60% of our budget.

According to FireCalc, we're good for 60 years - four consecutive 15 year runs, using the lowest portfolio outcome as the starting point for the next run.

We're both mid 50s now, and are expecting to receive CPP and OAS throughout retirement. The latest valuation indicates that CPP is sustainable for another 75 years at the current contribution rate, which is really low compared to US SS (but so are the maximum benefits).

Since we live in Canada, healthcare is not nearly the cost, or concern, that it is for those of you in the US. Thankfully.
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Old 04-29-2017, 04:34 PM   #14
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Having lived through a few years of high inflation and remembering my panic at the changes in prices, I will never be able to feel comfortable with these "won the game" scenarios that go to all or mostly fixed income. If inflation comes roaring back, I want to have some equities (and TIPS) to protect against it, but I also want to avoid concentrating too much on any one investment type because somewhere there's some scenario where that investment takes a beating. It seems too risky to me to stop playing the game and much better to simply accumulate so much that the game cannot hurt me.
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Old 04-29-2017, 05:03 PM   #15
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I think of "Won the game" when you put in 150% of current spending with only pension incomes and you get 100% until age 90; once SS kicks in for both there is surplus with 200% of spending level
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Old 04-29-2017, 05:21 PM   #16
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I have a COLA'd military pension. My wife and I each have SS we took at 62. We are each in the early stages of taking modest RMDs. Most months the SS and RMDs are saved/invested. There is also a nest egg currently invested 45/51/4. I consider that we've "won the game", not because of the nest egg but because of the streams of COLA'd income. The AA above is my best guess at a "Goldilocks" portfolio for our situation. If I predecease my wife, one SS goes away and the SBP on the pension is only 1/3 of the current pension. So, we can't go too crazy with the AA because the port has to reliably make up lost/diminished income streams to keep her going. If it were just me, I would likely go with a 60/40 AA to improve the chances for a nice legacy for my kids and our charities. But, in a solo "won the game" situation, I wouldn't really see any need to be more aggressive than 60/40. Just my opinion for our situation.

BTW, as long as we are both in the picture, I don't see letting equities drop lower than 40% nor grow to more than 50%.
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Old 04-29-2017, 05:33 PM   #17
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The reason Bernstein suggested that his clients put 20 to 25x expenses in short to intermediate-term high quality fixed income, was because he saw many of them panic, sell near the bottom in 2008, and more importantly, never get back in. Thus causing themselves to become permanently way behind in their investments. This changed his mind completely about the people he was advising about their. So he moved to an ultra conservative stance. Now for funds above that 20 to 25x expenses amount, he still thinks is OK to invest in equities if you so choose. You've at least got your basics covered.

If you believe losses are going to be permanent - well, yes, then it's better not to invest in the first place. But an investor can also make losses permanent by panicking and staying on the sidelines.

And notice, Bernstein didn't recommend people put 30% of that 20-25x expenses in equities. He said 0%.

Regardless, it's probably almost impossible to tell if an investor is going to panic or not. Some of us have been through two horrendous bear markets in short order and have been rewarded for staying the course. Who is to say the next one will have a short recovery - it could very well not, and stay down for a very long time, perhaps a decade or more.

For me, having adequate investments not in equities is the way to go. And a moderate AA currently covers me for over 20 years of expenses without cutting back too much, and that doesn't include the short-term pile of cash/CDs etc. I hold. If equities get cut in half, some of that fixed income would be used to rebalance, so my fixed income stash would shrink. At that time I can decided how much fixed income I can let go of to rebalance.
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Old 04-29-2017, 07:20 PM   #18
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For me, "won the game" does not have a single definition. Is it 95% plus success in Firecalc? Is it 150+ score in Fidelity's planning website? Or is it "I can live better than I am today on a 3% WR with other income sources included". or is it my own personal Excel spreadsheet working as many scenarios I can think of. All give me very different numbers. All give me numbers that I can be happy with. So I say I have "won the game" but I have noticeably different results from each one. In my spreadsheet, I also plan on only one of us, either DW or me, surviving the other starting tomorrow. And also both of us living to 100.

For me, I consider SS a secure income with inflation built in just like a pension only better. Maybe I shouldn't. I simply feel better counting on SS than I would with a pension. None of this is guaranteed. SS might be taxed more, or have a needs based reduction in benefits. Pension plans can be underfunded or go into solvency. Planning on costs/inflation carries its own unknowns.

Since I can live as I do now successfully (by all the various calculators and rules of thumb) with both of our SS covering ~80-90% of our nut, even if the market crashes, I feel I can still survive the roller coaster. I plan on living off DW's SS @66, my restricted SS @ 66, our 401K's and IRA's until I (the bigger breadwinner) claim at 70. This higher SS amount will be available to whoever outlives the other, with lower monthly costs.
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Old 04-29-2017, 07:22 PM   #19
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The reason Bernstein suggested that his clients put 20 to 25x expenses in short to intermediate-term high quality fixed income, was because he saw many of them panic, sell near the bottom in 2008, and more importantly, never get back in. Thus causing themselves to become permanently way behind in their investments. This changed his mind completely about the people he was advising about their. So he moved to an ultra conservative stance. Now for funds above that 20 to 25x expenses amount, he still thinks is OK to invest in equities if you so choose. You've at least got your basics covered.

If you believe losses are going to be permanent - well, yes, then it's better not to invest in the first place. But an investor can also make losses permanent by panicking and staying on the sidelines.

And notice, Bernstein didn't recommend people put 30% of that 20-25x expenses in equities. He said 0%.

Regardless, it's probably almost impossible to tell if an investor is going to panic or not. Some of us have been through two horrendous bear markets in short order and have been rewarded for staying the course. Who is to say the next one will have a short recovery - it could very well not, and stay down for a very long time, perhaps a decade or more.

For me, having adequate investments not in equities is the way to go. And a moderate AA currently covers me for over 20 years of expenses without cutting back too much, and that doesn't include the short-term pile of cash/CDs etc. I hold. If equities get cut in half, some of that fixed income would be used to rebalance, so my fixed income stash would shrink. At that time I can decided how much fixed income I can let go of to rebalance.
Probably the most "interesting" year in the last decade or so is 2008 when it seemed to many (myself included) that things were looking remarkably like the start of the Great Depression all over again. Like many here I held on and did not panic. It's still interesting to see the investment results for that year for some representative Vanguard Funds:

For instance, suppose you had invested $100,000 in each of the following Vanguard funds at the beginning of 2008. Could you afford to lose these amounts?
Vanguard Fund
2008 Gain/Loss
GNMA
$7,220
Treasury Money Market
$2,100
Wellesley (1/3 in stock
($9,840)
Wellington (2/3 in stocks)
($22,300)
S&P 500 Index (all stocks)
($37,020)
REIT Index
($37,050)
FTSE All World Ex-US Index
($44,090)

It certainly looks like Unclemick's advice from long ago (Wellesley) held up remarkably well considering it's 1/3 stock allocation. Personally over time I've just drifted to Wellesley and Vanguard's Target retirement ( a relatively poor performing index alternative) from many other earlier and more aggressive choices and I'm thinking I'll get along with these two funds for the bulk of my investments into my late years (currently 67).
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Old 04-29-2017, 07:48 PM   #20
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To me, won the game is having enough principal that you can afford to buy a COLAd immediate annuity with survivor's benefits (if you are married) that would at least fully cover your entire budget. I am not suggesting that anyone actually do this, but it is a handy bar for won the game.
An excellent decision point, but likely also a high bar for most of us. Of course by far the most certain way to come up with this outcome is get thee to a fed job at the earliest opportunity.

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