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Old 12-28-2015, 10:03 AM   #21
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I would be curious to hear what both the pre-FIREs and post FIREs are planning to do different in 2016, if anything, and how you reconcile the 2 logical sides of your brain as you analyze the markets going forward?
Post FIRE - We just retired in 2015 and made some adjustments mid year as we looked ahead for the next couple years. Main concern was having to sell stock for living expenses if the market took an extended multi-yr dive. Second lessor concern was falling bond fund prices negating their returns as Feds raise interest rates. So we kept 3 yrs living expenses in bond funds and cash and shifted all excess of that into dividend paying stocks / index funds. For any individual stocks, stuck with blue chips, mostly dividend aristocrats. This means that 75% or more of our living expenses will now be covered by dividend income. May cost us more in taxes but will not have to liquidate much stock if the market downturns for a few years.
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Old 12-28-2015, 10:21 AM   #22
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interesting enough this is actually quite wrong . if you read jason zweigs book your money your brain they use modern brain imaging equipment to see just what our brain does with money decisions .

when we have no money at risk and make hypothetical scenario's up the brain is quite good at analyzing and handing back very rational logical decisions .

but when we have the stress of actual money at risk a whole different section of the brain takes over .

this section does not chase risk at all , in fact just the opposite , it hates it .

the human brain when under stress hates losing money far more then making it .

in fact it will talk you out of doing most things if you let it or to run for cover when thins get stressful ..

the scans that occurred when money was lost matched those of smelling dog poop or watching someone vomit .

luckily i was aware of this many years ago when i got the chance to buy in to a real estate partnership that would cost us a fortune to be part of .

night after night my brain pounded me with reason after reason why i shouldn't do it .

well i fought back and did the deal .

it turned out to be the deal of a life time and so life changing it let us retire .

the other thing that was interesting and we all experienced this , after the drop the body becomes okay again with it and just looks forward to the rise back .

so it is just the fear of loss that brings the other parts of the brain in to taking over , not the actual loss .

i am forever indebted to jason and his research for making me see i was not being handed a rational even handed view .

I have read this book and I'm not sure why you think I'm wrong. Your argument seems to prove my point. It might help if I clarify that I meant the hypothetical "sides of the brain" referenced by the OP, not physical sides. Either way, YMYB clearly shows that investors are illogical, as you appear to recognize in yourself. The logical thing to do is try to match the market, not time it. Study after study shows the leaving your money long term in an index-matching fund is better than getting in and out of markets.


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Old 12-28-2015, 10:55 AM   #23
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I am still in the accumulation mode looking at about 4 yrs from FIRE. My AA has been about 83/17 (53% Large Cap/20% Small Cap/10% International/15% Short/Intermediate Bond/2% Cash). I am not sure what I will do when I FIRE, but can see the arguments for both going more conservative and also staying relatively aggressive. I learned allot about myself in the last market debacle as for the most part, I rode it out and was rewarded as the market came back. While one part of my logic says stay the course and follow my plan, another part of me says...
What I think a retiree should do is to run VPW and look at the portfolio balance over time. Here is one run of VPW with an asset allocation somewhat like you describe and $1M to start:



Notice the red inflation adjusted balance column in the lower right. I'd focus on this. The year 1968 was a bad year to retire in retrospect. By 1982 the investor had only about 40% left.

VPW does apply a withdrawal strategy which my be more aggressive then some desire. It is not hard to go into the spreadsheet and change this to get what you want. Also one should look at the statistics for other start years to see how variable this sequence is. The easiest thing is to play with the "depletion years" number to reduce the withdrawal rates.

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- The US seems to be the safer place to be and while international stocks are down (one argument is a buying opportunity), should I push some of my international portion back into US (of course you could argue US stocks are more fully priced)?
- Interest rate will most likely only increase 2 - 4 more times in 2016 so why the hell wouldn't I sell my bonds and stay in cash?

You can argue this is all a little market timing approach, but I feel like I have to have these little discussions/arguments with myself before I settle on a final strategy.

I would be curious to hear what both the pre-FIREs and post FIREs are planning to do different in 2016, if anything, and how you reconcile the 2 logical sides of your brain as you analyze the markets going forward?
If you buy-hold why change the 10% international? You've already gone through the pain part a lot. If it turns up you will have sold low. But I personally vary my allocation by a trend following strategy in internationals i.e. market time this with a set algorithm. Currently I have 14% in international small cap and none in international large cap. In any case one should stick with the plan for several years.

What I did in bonds is to upgrade my credit risk in light of what is going on in the high yield market with possible spill over effects. For intermediate bonds I currently have VFIDX (investment grade) and BND (total bond market). Pretty standard stuff.
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Old 12-28-2015, 10:56 AM   #24
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US equity valuations are high whereas international and EM are much lower. This implies better *expected* returns abroad. So you could argue for increasing your international allocation not decreasing (if you wanted to market time).
It seems the managers of Vanguard Life Strategy Funds (a global fund of index funds) agree since they recently increased international equities and added international bonds, while reducing US exposure. I hope they are right since the Growth fund is a core holding for us. I don't like to tinker but, heck, they are.
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Old 12-30-2015, 11:18 AM   #25
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Yes, our AA changed during a transition.

A year ago I was still working and 100% in equities. We planned to stop working, so I sold about half as the plan was (and still is) to live off savings and cash for three years until I turn 70, converting almost all of traditional IRA to Roth by then to avoid the Tax Torpedo from SS, MRDs and other income.

Equities are being turned to cash then converted to Roths and then into equities in the Roths. (Three Roths tanked horribly and are being recharacterized as we speak. We will get back the taxes withheld when we file and will spend that to live on first next year.)

I will probably go back to 100% equities in the Roths but am thinking about going 50/50 SCV/bond fund for growth and some stability for the bulk of it. I don't see a need to buy a bond fund until interest rates get higher, though. Still learning.

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Old 12-30-2015, 11:57 AM   #26
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Our last year AA was 30% in equities, 30% rental, 40% bonds/cash. This year I increased equities from 30% to 35% at bonds/cash expanse and by the end of the year all newly purchased stocks are in the red.
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Old 12-30-2015, 12:31 PM   #27
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...

I will probably go back to 100% equities in the Roths but am thinking about going 50/50 SCV/bond fund for growth and some stability for the bulk of it. I don't see a need to buy a bond fund until interest rates get higher, though. Still learning.
...
Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.
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Old 12-30-2015, 12:52 PM   #28
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It seems the managers of Vanguard Life Strategy Funds (a global fund of index funds) agree since they recently increased international equities and added international bonds, while reducing US exposure. I hope they are right since the Growth fund is a core holding for us. I don't like to tinker but, heck, they are.
Wait.. does this mean Vanguard is timing the market?

I am making some changes to AA and playing with a small amount of $ on a test strategy to so slow shifts in AA
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Old 12-30-2015, 01:08 PM   #29
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It's not timing, it's "enhancing diversification" (wink, wink, nudge, nudge)... https://personal.vanguard.com/us/ins...ement-02262015



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Old 12-30-2015, 06:14 PM   #30
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In order to simplify things I am selling off 4 funds and buying 2 to replace them. The AA remains the same.
So, my answer is no. No Real changes.


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Old 12-30-2015, 07:07 PM   #31
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Pre-fire here. Yeah, I tinker a bit.
In my current company's 401K, the choices just suck and I can't really build the portfolio I want. So I do the best I can and realize that right now because I've only been with the company 1.5 years, it's growing significantly more due to deposits than to growth (or lack thereof this year)

I have a deferred compensation account from a former company which is about to pay me my 4th check (out of 10 total) this January. The choices also suck. Here I tell myself that because the amount of money isn't much and because I take the check and deposit it into my taxable account where I can do what I want, it'll all be OK.

In my regular taxable accounts and my rollover IRA's I'm preparing to tweak the first week of January.
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Old 12-30-2015, 07:22 PM   #32
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Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.

My asset allocation is simple... All of my baby bonds, trust preferreds, and Reit preferred stocks are in my Roth and HSA. My qualified preferreds are in regular taxable account. That is about all I own.


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Old 12-30-2015, 07:50 PM   #33
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Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.
Not quite the question you're asking, but my taxable accounts and my deferred accounts have different AA's. Taxable is 55/45 and deferred accounts are 70/30 since I don't plan to touch them for a while. Might ratchet the deferred accounts down over the years...
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Old 12-30-2015, 08:35 PM   #34
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Originally, I had a risk-based all-in-one fund. Then in 2015, I went 3-fund (ETFs actually), then Coffehouse, then FundAdvice Ultimate Buy and Hold. After I got tired of slicing and dicing and having to set up limit orders every month, I went back to all-in-one funds. My retirement portfolio now consists solely of Vanguard Target Retirement 2040 VFORX.

Now, I don't need to worry about placing orders or rebalancing or anything. All I need to do now is increase my contributions every year. No muss, no fuss and no more tinkering for me.
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Old 12-30-2015, 10:22 PM   #35
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Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.
Interesting point. I could have gone that way. My thinking was that the short-term needs should be in cash and I did not want to risk value decline in that time. In any case, I found that with Vanguard, converting trad IRA to Roth should be done with cash. Sell an equity in the trad IRA, convert the cash from trad IRA to Roth, buy equities (the same equities) in the Roth with the cash. Trying to convert stocks as-is was a headache. It took much too long, especially at the end of the year. Vanguard gets very busy then and I learned to keep it simple.

In addition, to withdraw cash for a distribution, selling an equity would take about three days for settlement, then another three days for the cash to get to my bank. Since those are business days, that means slightly over a week before I see the cash. For all these reasons, I had a bunch of cash. I am taking distributions as needed every month.

The long range stuff is in equities both in the trad IRA and the Roth(s) at the moment. I was moving O&G stocks into the Roths, then oil tanked--perhaps for a long time. I recharacterized this week, but I am still stinging from the loss of value. Going back to diversified funds with my tail between my legs. By the way, the taxes I had withheld for the conversion will come back as tax refund when I file. They do not go back into the trad IRA.

Like I said, still learning.

Oh yes, no taxable assets, everything is in tIRA or Roth. Still trying to hold to 50/50 US/intl.
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Old 12-30-2015, 10:31 PM   #36
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Originally, I had a risk-based all-in-one fund. Then in 2015, I went 3-fund (ETFs actually), then Coffehouse, then FundAdvice Ultimate Buy and Hold. After I got tired of slicing and dicing and having to set up limit orders every month, I went back to all-in-one funds. My retirement portfolio now consists solely of Vanguard Target Retirement 2040 VFORX.

Now, I don't need to worry about placing orders or rebalancing or anything. All I need to do now is increase my contributions every year. No muss, no fuss and no more tinkering for me.
I am continuing to simplify as well. Coffeehouse and Ultimate Buy and Hold were too complicated for me, but I did like the 50/50 US/non-US equities (but looking at reducing non-US fraction).
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Old 12-30-2015, 10:42 PM   #37
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Ed I know it must hurt to loose a lot. It will hurt even more should your previous O&G go up without you on board. I sure don't have any words of wisdom on that one. Experts disagree on the trends.

I think we all have to spend some time trying to deeply imagine how we will feel under various scenarios. Some of the ladies around this forum seem to have figured out where their efficient frontiers are. Many of us guys are dealing with dreams that can lead us too close to the edge.

I think your Roth conversion strategy is a good one. We converted a lot some years back. Now we are spending from the IRA and Roth. It is currently tax nirvana but in 2 years it is RMD + SS tax time. So I get to join the taxpayers again as a full fledged member.

I'm far from a buy-hold type but any strategy that is not buy-hold has to pass some research and back testing. Else I think the more standard Boglehead ways are best. That testosterone poisened investing may get me yet.
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Old 12-30-2015, 11:57 PM   #38
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17% bonds and cash and only 4 years from RE. I think your a risk taker. What if the market tanks in 2016 like it did in 2008. For the next several years you will be thinking " well I guess I gotta wait til I'm 57 or 58 now. Crap. IMO you should be buying bonds, not thinking about selling them.


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Old 12-31-2015, 03:10 AM   #39
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4 years from FIRE - probably not too early to start gradually transitioning to the AA you plan to use during retirement.

Although I admit I didn't do that until after I reached my magic number for FIRE.
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Old 12-31-2015, 02:00 PM   #40
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I think your Roth conversion strategy is a good one. We converted a lot some years back. Now we are spending from the IRA and Roth. It is currently tax nirvana but in 2 years it is RMD + SS tax time. So I get to join the taxpayers again as a full fledged member.
Lsbcal, I ran Taxcaster for projections and found that I should convert almost everything into Roth before I take SS (I will get max SS) no matter what the tax rate today. If I let MRDs happen, the Tax Torpedo will hit the survivor (that will happen some day) with about a 40% (if memory serves--and it doesn't matter exactly what it is, the difference is HUGE) marginal tax rate with no escape.

With our existing assets, if I convert almost all of the tIRA to Roth, when I start to take SS at 70, we will never pay income tax ever again and may not even have to file which would simplify life for one or two old codgers in dementia. If one of us dies at 70 (our worst case) and the survivor lasts into their 90's (very possible), this strategy could save the survivor several hundreds of thousand dollars in taxes and the pot will be bigger throughout. (This last is important as I am concerned with the potentially crushing cost of long term care.)

You may want to look at converting as much as you can even beyond the classic 15% rate while you still have the chance before MRDs are forced on you. You may want to take current living expenses only from the trad IRA and leave the Roth alone.
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