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Analysis/Paralysis
Old 05-03-2018, 05:58 AM   #1
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Analysis/Paralysis

Help me get over some analysis/paralysis...

2 years out from launching at age 55 with plans (at least financially) to hopefully stay above ground for 30 plus years. While my greed glands were telling me to stay more aggressive with my AA, after much thought and absorbing the knowledge/experience of many of you, my logical/prudent nature kicked in and I ratcheted my AA to 60/40 a couple of years ago, kicking and screaming inside as I bought my bond allocation. At this point, I believe I will ride out RE with a 60/40 AA. While I am currently a once a year re-balancer (1st week of Jan), a combination of some buy orders I put in for equities at the beginning of the year which did not occur and some new money has me sitting on more cash than I would like. My market timing gland is pumping again which has me paralyzed on the sidelines as I am concerned about a big drop in equities. If I find my inner calm place, the logical/prudent side of me says "stay with your strategy, just buy at market for GD sakes, you are investing for the next 30 yrs plus!!!" Short of being dumb lucky and buying at some big bottom, what am I really risking over 30 yr period if I just jump in today? So the answer is obvious, but I need some consoling... talk some sense into me!
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Old 05-03-2018, 06:09 AM   #2
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Get a grip Dawg!

It is hard, but you need to "Believe in the Force, Luke."....rather, make that "Believe in your AA, Dawg."
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Old 05-03-2018, 07:11 AM   #3
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Originally Posted by DawgMan View Post
Help me get over some analysis/paralysis...

2 years out from launching at age 55 with plans (at least financially) to hopefully stay above ground for 30 plus years. While my greed glands were telling me to stay more aggressive with my AA, after much thought and absorbing the knowledge/experience of many of you, my logical/prudent nature kicked in and I ratcheted my AA to 60/40 a couple of years ago, kicking and screaming inside as I bought my bond allocation. At this point, I believe I will ride out RE with a 60/40 AA. While I am currently a once a year re-balancer (1st week of Jan), a combination of some buy orders I put in for equities at the beginning of the year which did not occur and some new money has me sitting on more cash than I would like. My market timing gland is pumping again which has me paralyzed on the sidelines as I am concerned about a big drop in equities. If I find my inner calm place, the logical/prudent side of me says "stay with your strategy, just buy at market for GD sakes, you are investing for the next 30 yrs plus!!!" Short of being dumb lucky and buying at some big bottom, what am I really risking over 30 yr period if I just jump in today? So the answer is obvious, but I need some consoling... talk some sense into me!
Buy if the market breaks out to new highs. Wait otherwise. Takes care of your drop worries and you won't lose a lot if it does break out. (Assuming the breakout is for real )
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Old 05-03-2018, 07:44 AM   #4
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a combination of some buy orders I put in for equities at the beginning of the year which did not occur
? When you say you are 60/40, are you talking about mutual funds? How could a buy order not occur? If you are 60% individual stocks you may want to hold back buying in because individual stocks have more volatility than the market.
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Old 05-03-2018, 07:59 AM   #5
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I can't tell you what to do, but I will tell you how I approach things. I read everyday where some billionaire will say the market is high and he is holding cash. Well, yeah maybe it is high, maybe it is higher than we think, maybe it's not. The point is nobody can just know everything. It's not given to human beings that we can just know everything all the time.

But what we can do is make peace with our plan of investing and trusting in that. For me I am just well diversified in the market and buy when I have money and I don't worry about what I can't control. The market can get scary, we all know that, and since you are still worrying about it, maybe 50/50 is better for you, maybe it's not, only you can decide that. In the meantime, IMO you need to decide what AA you can live with in all market conditions.

You have time to do that. What will let you sleep at night? For me it is roughly 60% bonds and 40% stocks. The question is what AA will let you sleep at night. No one can answer that but you.
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Old 05-03-2018, 08:12 AM   #6
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I think you need a hobby to keep your mind away from the market churn to objectively stay to your rebalancing strategy.

Otherwise, you could end up one of those serial market timers. Buy and hold, unless your vibe tells you otherwise .
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Old 05-03-2018, 08:13 AM   #7
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Know your numbers. Use all the popular calculators, Firecalc, RPM, etc and know what you need in order to meet your goals. My AA right now is 30/50/20 and that will provide everything I need until my early 90’s and even then I should have a several million dollar cushion. So I don’t worry about having too much in bonds or too much cash, I know with a good degree of confidence that my AA will get me to where I want to go. Know your numbers. Know your numbers.
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Old 05-03-2018, 08:55 AM   #8
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Over time, most of the money lost in the market by individual investors is through flitting and flailing, instead of sticking to a plan. Try to avoid both f-words. You are spot on when you say that you are investing for the long term. Work to believe it.

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Old 05-03-2018, 10:14 AM   #9
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Dawg - take the jump in 2 years. The water is fine and you will never look back.
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Old 05-03-2018, 11:06 AM   #10
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Originally Posted by DawgMan View Post
Help me get over some analysis/paralysis...

2 years out from launching at age 55 with plans (at least financially) to hopefully stay above ground for 30 plus years. While my greed glands were telling me to stay more aggressive with my AA, after much thought and absorbing the knowledge/experience of many of you, my logical/prudent nature kicked in and I ratcheted my AA to 60/40 a couple of years ago, kicking and screaming inside as I bought my bond allocation. At this point, I believe I will ride out RE with a 60/40 AA. While I am currently a once a year re-balancer (1st week of Jan), a combination of some buy orders I put in for equities at the beginning of the year which did not occur and some new money has me sitting on more cash than I would like. My market timing gland is pumping again which has me paralyzed on the sidelines as I am concerned about a big drop in equities. If I find my inner calm place, the logical/prudent side of me says "stay with your strategy, just buy at market for GD sakes, you are investing for the next 30 yrs plus!!!" Short of being dumb lucky and buying at some big bottom, what am I really risking over 30 yr period if I just jump in today? So the answer is obvious, but I need some consoling... talk some sense into me!
You are 53 and nervous? What if you were 74 like me? Hey, I am not nervous as it's all noise.
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Old 05-03-2018, 03:15 PM   #11
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Quote:
Originally Posted by DawgMan View Post
Help me get over some analysis/paralysis...

2 years out from launching at age 55 with plans (at least financially) to hopefully stay above ground for 30 plus years. While my greed glands were telling me to stay more aggressive with my AA, after much thought and absorbing the knowledge/experience of many of you, my logical/prudent nature kicked in and I ratcheted my AA to 60/40 a couple of years ago, kicking and screaming inside as I bought my bond allocation. At this point, I believe I will ride out RE with a 60/40 AA. While I am currently a once a year re-balancer (1st week of Jan), a combination of some buy orders I put in for equities at the beginning of the year which did not occur and some new money has me sitting on more cash than I would like. My market timing gland is pumping again which has me paralyzed on the sidelines as I am concerned about a big drop in equities. If I find my inner calm place, the logical/prudent side of me says "stay with your strategy, just buy at market for GD sakes, you are investing for the next 30 yrs plus!!!" Short of being dumb lucky and buying at some big bottom, what am I really risking over 30 yr period if I just jump in today? So the answer is obvious, but I need some consoling... talk some sense into me!
First the buy orders that did not execute. Why? Did you think you could out think where the market was going? Yesterday I bought a 10% portfolio stake in the SP500 (see my post in this forum for the logic). When I put in the ETF buy order I set it to trigger at 1 cent above the ask price. I've found that this triggers immediately and I get a better price then trying to go between the bid and ask (or some such strategy). There is no way that I will know the next jiggle in the markets so all I can do is get a good execution price.

Second the new money. If I could put in 10% yesterday and I note that the SP500 is down at this moment, then from my standpoint you are getting a bargain right now.

Did I convince you?
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Old 05-08-2018, 06:19 PM   #12
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Buy if the market breaks out to new highs. Wait otherwise. Takes care of your drop worries and you won't lose a lot if it does break out. (Assuming the breakout is for real )
Ding ding ding. I think we have a winner here. The market has been making lower highs and higher lows, aka a symmetric triangle. Eventually, the market will make a break outside of the ever smaller wedge, usually to the prior direction prior to the triangle (in this case up).

Or, the OP can simply money cost average the money in over time and use that to make the decision less based on any given day.
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Old 05-08-2018, 08:50 PM   #13
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I'm 56 and semi-retired last year, four days after my 55th. The shift from accumulation to decumulation mode on a portfolio is a major break that does not get enough attention, IMO. I was 90%+ in stocks most of my life, and was fortunate to ride the secular bull from the 1980s. As ER became a reality over the last two years, I furiously shifted to an approximate 60/40.

As I tried to figure out AA moving from accumulation to decumulation, I settled on "age in stocks". Now, that sounds kind of weird if you follow traditional AA advice, e.g., age in bonds. But five things influenced me to take this approach:

1. Studies by Pfau, Kitces, and other show that a rising glidepath in retirement produces better results (SWR and residual portfolio) than fixed AA.

2. The retirement red zone (Otar) or bond tent (Kitces) ideas suggest low risk AAs in the ER period to mitigate sequence of returns risk.

3. DMT (dirty market timing) suggests that equities are above historical pricing (i.e., CAPE) and it is a good time to be under-weighted in equities.

4. For longer retirements you need a larger equity component to ensure that you keep up with inflation (see various studies of >30 years where higher stock AAs outperforrm, i.e., ERN), so AAs less than 50% equities are not recommended.

5. SS kicking in. SS is for all practical purposes a Fixed Income asset (better really because it is inflation adjusted). If you have an average or better SS benefit in your future you can count on (most of) that contributing to your cash flow with little risk.

So I'm at ~56/44 right now and am comfortable. Your 60/40 is all good as far as I'm concerned.
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Old 05-09-2018, 07:43 AM   #14
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I'm 56 and semi-retired last year, four days after my 55th. The shift from accumulation to decumulation mode on a portfolio is a major break that does not get enough attention, IMO. I was 90%+ in stocks most of my life, and was fortunate to ride the secular bull from the 1980s. As ER became a reality over the last two years, I furiously shifted to an approximate 60/40.

As I tried to figure out AA moving from accumulation to decumulation, I settled on "age in stocks". Now, that sounds kind of weird if you follow traditional AA advice, e.g., age in bonds. But five things influenced me to take this approach:

1. Studies by Pfau, Kitces, and other show that a rising glidepath in retirement produces better results (SWR and residual portfolio) than fixed AA.

2. The retirement red zone (Otar) or bond tent (Kitces) ideas suggest low risk AAs in the ER period to mitigate sequence of returns risk.

3. DMT (dirty market timing) suggests that equities are above historical pricing (i.e., CAPE) and it is a good time to be under-weighted in equities.

4. For longer retirements you need a larger equity component to ensure that you keep up with inflation (see various studies of >30 years where higher stock AAs outperforrm, i.e., ERN), so AAs less than 50% equities are not recommended.

5. SS kicking in. SS is for all practical purposes a Fixed Income asset (better really because it is inflation adjusted). If you have an average or better SS benefit in your future you can count on (most of) that contributing to your cash flow with little risk.

So I'm at ~56/44 right now and am comfortable. Your 60/40 is all good as far as I'm concerned.
IIRC the "rising glide path" model has one starting with a low equity allocation (30-35%)

Since the primary objective is to mitigate sequence of return risk.
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Old 05-09-2018, 08:25 AM   #15
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IIRC the "rising glide path" model has one starting with a low equity allocation (30-35%)

Since the primary objective is to mitigate sequence of return risk.
It does, but I don't feel a need to go that low based on the size of my portfolio. A 35% drop in equity prices still leaves me at my "number" with my current AA and a bunch of other conservative assumptions.

And SS is out there on the income side of the ledger https://www.kitces.com/blog/valuing-...balance-sheet/

I guess I'm in more of a bond tent than a rising glidepath, but in either case my fixed income allocation is at its highest right at retirement (the infection point between accumulation and decumulation). Bottom line is that I'm nominally 60/40 (like OP) and just playing around the edges.
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Old 05-09-2018, 09:14 AM   #16
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If you're a home owner, you could put some money into a home improvement that you'll enjoy and -hopefully- will add value.
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Old 05-09-2018, 09:47 AM   #17
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I'm 56 and semi-retired last year, four days after my 55th. The shift from accumulation to decumulation mode on a portfolio is a major break that does not get enough attention, IMO. I was 90%+ in stocks most of my life, and was fortunate to ride the secular bull from the 1980s. As ER became a reality over the last two years, I furiously shifted to an approximate 60/40.

As I tried to figure out AA moving from accumulation to decumulation, I settled on "age in stocks". Now, that sounds kind of weird if you follow traditional AA advice, e.g., age in bonds. But five things influenced me to take this approach:

1. Studies by Pfau, Kitces, and other show that a rising glidepath in retirement produces better results (SWR and residual portfolio) than fixed AA.

2. The retirement red zone (Otar) or bond tent (Kitces) ideas suggest low risk AAs in the ER period to mitigate sequence of returns risk.

3. DMT (dirty market timing) suggests that equities are above historical pricing (i.e., CAPE) and it is a good time to be under-weighted in equities.

4. For longer retirements you need a larger equity component to ensure that you keep up with inflation (see various studies of >30 years where higher stock AAs outperforrm, i.e., ERN), so AAs less than 50% equities are not recommended.

5. SS kicking in. SS is for all practical purposes a Fixed Income asset (better really because it is inflation adjusted). If you have an average or better SS benefit in your future you can count on (most of) that contributing to your cash flow with little risk.

So I'm at ~56/44 right now and am comfortable. Your 60/40 is all good as far as I'm concerned.
I agree with most of what you have written except the allocation percentages, but that is up to the individual. I am 2 years out from retirement and have a 30/50/20 allocation. I plan to increase equites over time, but now I am hunkered down in the capital preservation bunker.
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Old 05-10-2018, 07:14 AM   #18
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I've more or less set DM on a rising glide path.

Mostly because as time goes by, uncertainty drops in terms of remaining life and needed funds + sequence of return risk. And it takes a while to get used to ups and downs of a stock market if one hasn't done that before, as in her case.

Another factor is that if happy scenario pans out, more and more of the funds will actually end up in the hands of the heirs, which means you're actually investing for someone with a 60+ year time horizon.
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Old 05-13-2018, 04:35 AM   #19
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Even if a crash will occur - what are your odds of being more right about it than everyone else? That's a reason to go with the current market prices, and buy back in.

Watching too much financial news can give you the impression that market crashes are devastating and permanent. They seem to neglect how most crashes recover within a few years - and point out only truly dramatic crashes to stir your imagination. Those vivid events are actually biased information - try and give them less weight.

Almost no financial news mentions inflation. Inflation eats cash slowly, so it's not a news story - but over 30 years, inflation is a serious problem. Stocks have historically been the best way to deal with inflation. So I'd suggest buying back in so you're fighting inflation with stocks, not with cash.
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Old 05-14-2018, 05:32 PM   #20
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Help me get over some analysis/paralysis...

2 years out from launching at age 55 with plans (at least financially) to hopefully stay above ground for 30 plus years. While my greed glands were telling me to stay more aggressive with my AA, after much thought and absorbing the knowledge/experience of many of you, my logical/prudent nature kicked in and I ratcheted my AA to 60/40 a couple of years ago, kicking and screaming inside as I bought my bond allocation. At this point, I believe I will ride out RE with a 60/40 AA. While I am currently a once a year re-balancer (1st week of Jan), a combination of some buy orders I put in for equities at the beginning of the year which did not occur and some new money has me sitting on more cash than I would like. My market timing gland is pumping again which has me paralyzed on the sidelines as I am concerned about a big drop in equities. If I find my inner calm place, the logical/prudent side of me says "stay with your strategy, just buy at market for GD sakes, you are investing for the next 30 yrs plus!!!" Short of being dumb lucky and buying at some big bottom, what am I really risking over 30 yr period if I just jump in today? So the answer is obvious, but I need some consoling... talk some sense into me!
Well, I guess the first thing I would ask is being that you are 2 years from ER how would you respond if the market drops 50% during that 2 year period? If the answer is that retirement would be delayed "until market recovers" then it might be your AA is still too high for equities at 60/40 and maybe a 50/50 would fit better. Also, is the extra cash part of the 40% (of the 60/40) or is it outside?

For whatever is worth my 15 year ER experience has shown that a 50/50 split with wide 10% rebalance bands ( not time but value triggers) works best for me. Obviously everyone is different and I'm basically lazy so I don't want to be actively buying/selling slicing and dicing when I could be having quality nap time instead. But some people enjoy "the action" so YMMV
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