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Old 06-05-2016, 10:18 AM   #61
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Our timeline is comparatively short, so we won't change the plan we've had since 1989. No "investments" as in the stock market 'cept for a few stocks from an old profit sharing plan.
Ever since we retired much of our "nest egg" has been in CD's (when they were paying from 8% 50 12%), and later, in the early 2000's in IBonds when the base rates were 1.6% to 3.6%. Still many years to go. Incidentally... back in those days each person could invest up to $30,000 in one year. A tiny annuity opened in the 1990's pays a 4% dividend.

While we have nowhere near the amount that many forum members have accumulated, we feel safe, and comfortable. It's much easier to look ahead 5 or 10 years than 30 or 40 years.

So far, between CD's, IBonds and Social Security, we don't feel that inflation has hurt us that much.

Still affected by the experience of a fellow retiree who saw his net worth drop buy half in the last recession. Though his portfolio recovered nicely, I have never found an appetite for watching stocks... particularly at this age. Maybe some vestigial memories of the 1930's and '40's... and knowing about DW's grandfather who lost a significant fortune back in 1931.

We haven't supported the tax system since 1990.
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Old 06-05-2016, 10:30 AM   #62
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Originally Posted by plsprius View Post
Most people can't intellectually/emotionally change their investment biases away from the way the money was made (e.g., the long bull market from 1982 onward--in both equities AND bonds). .....Thanks to the earlier poster for the link and the reminder to what Bernstein said on this topic: http://whitecoatinvestor.com/bernste...-win-the-game/
You are welcome for the link. We don't have a zillion dollar portfolio, but DH and I talked about it and we decided we have a nice life and house in the Bay Area on what we do have (bought the house a long time ago). Plus we have some hobby businesses we could easily ramp up if we needed extra money.

Our retirement goal is to simply not screw up the life we have, and to borrow a phrase from Warren Buffet on the Long Term Capital geniuses, not "make money they didnít have and didnít need, they risked what they did have and did need, and thatís foolish. "

Here is another related link that changed my thinking by the Triumph of the Optimists: 101 Years of Global investing authors:

Irrational Optimism
Irrational Optimism by Elroy Dimson, Paul Marsh, Mike Staunton :: SSRN

"
Although the probable rewards from equity investment are attractive, stocks did not and cannot offer a guaranteed superior performance over the investment horizon of most investors. Furthermore, their prospective returns are lower than many investors project, whereas their risk is higher than many investors appreciate. Investors who assume that favorable equity returns can be relied on in the long term or that stocks are safe so long as they are held for 20 years are optimists. Their optimism is irrational."


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Old 06-05-2016, 10:51 AM   #63
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Seattle:

Congratulation doing a great job building your wealth!

I can understand your need to not take any risk at all. I suggest you buy laddered TIPS from the http://www.treasurydirect.com. You will be taking no risk as along as you hold them till maturity date and will have inflation protected returns as well.

Best Wishes,
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Old 06-05-2016, 11:25 AM   #64
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I actually differ a little bit from the rest. If my stash was sufficient, I would have no problem investing the whole portfolio in CD ladders. I believe that sequence of return risk is huge, both in accumulation and withdrawal.
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Old 06-05-2016, 11:56 AM   #65
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Banks can only pay x% on their CDs if they can get x+% somewhere else. Ultimately and over time, the CD rates can't exceed the rates the bank is earning on the investments the banks have put the money into.

CDs can certainly reduce volatility. Volatility is not a significant issue, in an objective sense, to a retiree with a 40 year time horizon and a portfolio large enough to get them past a bad initial sequence of returns.

As the issue clarifies itself, it appears Seattle is seeking to time the equity markets (buy in when stocks are cheaper), and just intends to use CDs as a place to hold money that will eventually go into equities. Okay, maybe that will work, but just getting in or out based on gut intuition, what the Fed might do, etc does not have a good record of success. There is some evidence that, over the long term, valuation-based approaches can improved overall yields at the same level of risk, but this "timing" can be "wrong" for extended periods of time. I wouldn't use it for "all in or all out" allocation decisions, but using it to vary allocations within a range you are comfortable with could turn out well, if backtesting is any guide. More here: Using Schiller PE to Time the Market.
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Old 06-05-2016, 02:01 PM   #66
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I actually differ a little bit from the rest. If my stash was sufficient, I would have no problem investing the whole portfolio in CD ladders. I believe that sequence of return risk is huge, both in accumulation and withdrawal.


Well, you have another in your camp... We all are guilty of injecting our individual situations and philosophies, while backed up with some type of math to support the situation. Everything all sounds good "by the numbers" or "historical terms" until a good minor 10-15% correction punches some in the mouth. It gets harder for some to rely on those historical terms when they emotionally feel it is going to drop another 15% still. And yes, I know many just roll with the punches...But that is not the type of person who questions even being in the market in the first place.
If you have plenty of money and already distrust the market, trust your instincts and stick to the conservative plan. To some, having money is all about security knowing they have enough to live on comfortably the rest of their lives....Not a race to the end to see who has the most, or concerns for leaving unearned money on the table.


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Old 06-05-2016, 02:20 PM   #67
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Have we found a flaw jn tax caster then? It's an app by turbotax

I plug in zero income but 85 k in dividends which is surely above the 15% bracket. I get 0 tax liability from tax caster.

I was surprised at the answer too.
No, the flaw was not adding deductions and exemptions to the top of the 15% tax bracket which is based on taxable income (after deductions and exemptions).
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Old 06-05-2016, 02:23 PM   #68
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Why do so many people listen to this quack?
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Old 06-05-2016, 03:37 PM   #69
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Why do so many people listen to this quack?
IMO, he used to make a lot of sense and published useful books and articles. Then, in the 2008 meltdown, his clients got scared and many sold out near the bottom, causing him to believe that his basic assumptions (not about asset classes or investing, but about people being willing to stay the course) were not valid. So, now, he's taking the course which causes him the least grief: tell people to save up an awful lot, invest anything that you need for living expenses in things that will probably barely keep up with inflation but probably won't go down, and just live on it. By setting the expected growth bar very low and reducing volatility (and resulting investor angst), it will greatly improve his life by reducing the whining. Sure, folks might need to work a decade or more longer, but that's no skin off his nose. In fact, it's more AUM.
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Old 06-05-2016, 04:48 PM   #70
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I am presently taking more investment risk than I think I need to. I would not elect to be 100% cash, as the OP posits, but I agree with his general point -- "why keep playing the game after you have won it?" (His idea of buying stocks when the market goes down sort of undercuts the point, though).

For me, the issue with dialing back risk is how much capital gains tax I want to pay, to achieve that. I can invest new dollars in fixed income (CDs, treasuries, very high quality bonds, etc.), and I can invest stock dividends in fixed income, and I can move my tax deferred accounts to fixed income --- but beyond that I would be paying a high rate of capital gains tax for the privilege of reducing equity exposure. Not sure I am willing to do that. I would guess my situation is not all that unusual.
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Old 06-05-2016, 05:33 PM   #71
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I think the point of advice from people like Zvi Bodie and post-2008 Bill Bernstein is to invest in safe assets for essential expenses and then if your safety net and risk tolerance allows, invest in riskier assets for the wants like round the world cruises or a new sports car, but don't invest the retirement money you can't afford to lose in risky assets.
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Old 06-05-2016, 05:53 PM   #72
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I actually differ a little bit from the rest. If my stash was sufficient, I would have no problem investing the whole portfolio in CD ladders.
You may be different than most who have "responded" to this thread, but there are a good number of us on this board that generally agree with the concept.

Example, for me, I have a one bucket of money allocated for fixed assets (e.g. CD's) that I'm comfortable will last me for the rest of my life with a cushion and in my current lifestyle. Another bucket #2 is for playing the market. Some long term "investments" in equities and some for swing trading. If I lost all of bucket #2, I would not be happy, but bucket #1 is all we really need to live like we want.
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Old 06-05-2016, 06:17 PM   #73
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I think the point of advice from people like Zvi Bodie and post-2008 Bill Bernstein is to invest in safe assets for essential expenses and then if your safety net and risk tolerance allows, invest in riskier assets for the wants like round the world cruises or a new sports car, but don't invest the retirement money you can't afford to lose in risky assets.
That would make the most sense if "risk" meant "flushed down the toilet and never seen again." But the "risk" in equities is volatility, which just means it bounces around a lot. That's something that can be managed in many ways that don't require an investor to barely break even with inflation (which is the more important "risk" an early retiree faces).

BB knows the truth (he wrote about it well and frequently pre-2008-nothing fundamentally changed that year to negate a century of data), but now his interests are best served if investors would just save more, bury their money in the back yard, and stop pestering him when the markets burp.
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Old 06-05-2016, 06:35 PM   #74
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That would make the most sense if "risk" meant "flushed down the toilet and never seen again." But the "risk" in equities is volatility, which just means it bounces around a lot. That's something that can be managed in many ways that don't require an investor to barely break even with inflation (which is the more important "risk" an early retiree faces).

BB knows the truth (he wrote about it well and frequently pre-2008-nothing fundamentally changed that year to negate a century of data), but now his interests are best served if investors would just save more, bury their money in the back yard, and stop pestering him when the markets burp.
This kind of advice is not unique to BB. Zvi Bodie and others may not be in the majority of financial pundits but they are out there:

How to avoid sequence of returns risk
http://www.marketwatch.com/story/how...isk-2013-09-28

If it doesn't suit your portfolio or investing style, that is fine. YMMV. I think the only "truth" is not every investor needs to invest in stocks or even bonds to retire comfortably, which was the OPs question. BTW - BB doesn't suggest avoiding stocks for every client (from the article in the previous link):

"Bernstein defines a risk-free portfolio as one adequate for a basic retirement—a so-called liability-matching portfolio. With a liability-matching portfolio, you earmark certain assets to pay for your basic retirement expenses, or liabilities. “Anything in excess of that can be invested in risky assets,” said Bernstein. “For some folks, that’s going to mean a 100% fixed-income portfolio, and for wealthier clients, something far more aggressive.”
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Old 06-06-2016, 10:20 AM   #75
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Would you still invest if you didn't have to? If so, why?
I don't have to invest in equities. I keep 25% there because my taxable account qualified dividends are taxed at 0% instead of the ordinary income rate. The fixed income assets would cover expenses if the equities went to zero.

My fixed income side is mostly 401k Stable Value Fund. I could invest the remainder in a CD ladder but currently use a combination MYGA/'AA' rated corporate bond ladder.
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Old 06-06-2016, 10:48 AM   #76
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BTW - BB doesn't suggest avoiding stocks for every client (from the article in the previous link):

"Bernstein defines a risk-free portfolio as one adequate for a basic retirementóa so-called liability-matching portfolio. Ē
Sorry, but that's ridiculous, and i doubt Bernstein said it. By that "definition" nearly everyone reading this board has risk-free portfolio, which is not at all the same as his "liability-matching" portfolio.

I wonder how many people will find out that they've really created a "liability-causing" portfolio by following his advice, conflating "volatility" and "risk."
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Old 06-06-2016, 11:01 AM   #77
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Sorry, but that's ridiculous, and i doubt Bernstein said it. By that "definition" nearly everyone reading this board has risk-free portfolio, which is not at all the same as his "liability-matching" portfolio.

I wonder how many people will find out that they've really created a "liability-causing" portfolio by following his advice, conflating "volatility" and "risk."
I see it is not your style, but not everyone needs or wants to invest in stock and bond mutual funds in order to retire, and some posters were or are actively looking for alternatives.
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Would you still invest if you didnt have to?
Old 06-06-2016, 11:29 AM   #78
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Would you still invest if you didnt have to?

Yes, because I think/hope that investing will provide at least some buffer against heavy inflation, should that occur.
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Old 06-06-2016, 11:37 AM   #79
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I would probably still keep at least 30% in equities and ignore it.

You're talking about a pretty large ratio of funds to expenses/needs if you can live off a CD only scenario and still beat inflation. And you can probably live quite well on 80% of it. So putting 30% in stocks to combat long-term inflation far more efficiently than CDs ever will, seems prudent. You have so much that ignoring the volatility in 30% of it should be relatively easy to do. So that chunk goes up and down by 50% now and then - so what.

Another way to put it: to live off CDs and adjust for inflation requires that you take some of the CD income you are paid each year and reinvest it to let the CDs grow with inflation.

Alternatively, you could just take all the CD interest as income, and leave the 30% invested in stocks grow over time to make up for inflation. You could probably even take dividend income from this portion (but be sure to reinvest all capital gains) and it would probably take care of inflation for you over the long term. You can rebalance occasionally and buy more CDs, if you decide the % invested in equities has crept up too high.

Important issue: if CDs are paying say 2.5%, and inflation is running 1%, you only have 1.5% left after inflation as income. AND you have to pay income taxes on that total 2.5% interest paid, so you have even less available to live off of after taxes.
This was going to be my answer --- thanks Audrey, you said it better than I would have. You never know what inflation might do over a decades long retirement, better to have some hedge by investing in equities.
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