Poll:Are you in the "Won The Game" Club with reference to Fixed Income Investing?

[Freedom56]

We have been 100% fixed income (individual bonds, CDs, preferred stocks, and treasuries for 30 years and some years with rental income and capital gains from real estate transaction). We continued to grow and compound through all the major corrections over the past 30 years. I see no need for any equity exposure given our portfolio size in expense coverage through pension and interest income. At some point in the not too distant future, our portfolio will be CDs and treasuries only, which requires minimum management. I know many early retirees that have never owned stocks or bonds but have an incredible real estate portfolio (residential and commercial) and a steady income stream from rental income.

 

[daylatedollarshort]

Our retirement plan is to live mainly off <= SS, pensions and our TIPS interest or equivalent in retirement. Not too much in stocks. Our net worth should be about the same whenever we die as it is today in inflation adjusted dollars, less extraordinary expenses like extended long term care. Plan B, the rent from our current house would cover all our expenses in a lower cost of living area or we could start dipping into principal for an additional 3.33% withdrawal (100 (zero real interest rate) / 30 more retirement years = 3.33%).

 

[pb4uski]

... Once one has won the game by this definition, it would seem that the next step would be to position oneself for scenarios where the future is worse than the past.

Why? Asteroids?

 

[scrabbler1]

I answered "No" but feel I have still won the game.

 

[sengsational]

I think "won the game", was an unfortunate wording to get to what I think the spirit of the question is. It's more about do you feel the need to forcefully reduce market risk because you have enough to cover anticipated expenses.


I do not. I'm convinced that market risk is going to be rewarded for patient investors as it has been in the past. Some here are depending on market growth to "make it", and they are not candidates for elimination of market risk. But I suspect many of us would make it without market risk, we just choose not to go that route.

 

[Svensk Anga]

I am not much tempted to load up on FI when real yields at 0.5-1.0%. Now if we could get 3.5%+ real like when TIPS and I Bonds were introduced, it would be worth thinking about. I think there is still a reasonably good chance of earning an equity risk premium over our lifetime. In consideration for our heirs interests, we are keeping a good chunk in equity.

 

[mrfeh]

Just thinking about the changes we’ve enjoyed over the past 30 years, I definitely would not want to miss out on the next 30. That means my portfolio needs to provide for inflation + taxes+ withdrawals + SoL improvements. Over a 30-40 year period, this is at least 7% annualized.

It's not clear to me why you've come to this conclusion. It's not like there haven't been technological advances in the past, and yet 4% WR has worked.

 

[RunningBum]

Why? Asteroids?

Is that the only thing you can think of that could be worse than the past?

How about the national debt getting truly out of control?

War weapons can cause a lot more destruction these days, and we really haven't had a war significantly on our soil since the Civil War. How about a limited nuclear war, or all-out terrorism? How well could we take a 9/11 type of attack every few months?

Rising oceans causing coastal cities to have to be rebuilt inland?

A catastrophic earthquake destroying a lot of California?

 

[W2R]

Evaluating the merits of only fixed income without mentioning inflation is like asking about living in SE Florida - but not mentioning hurricanes. Not talking about the risk does not mean it isn’t still present.

+1
And within that context, IMO, the game isn't won until the buzzer sounds.

Both of you phrased your posts so nicely. What you are saying is exactly what I meant in the post that everyone hated so much and I am sorry that I phrased it so poorly. When I wrote it I felt I couldn't mention the "I" word (and explain more tactfully and nicely) according to the parameters of the thread, - - but you all are braver than I am.

But if we are now talking about "I"... then I can say that I feel that any retiree, no matter how well funded, needs some "I" protection in case massive "I" descends; I fear the OP's situation is a disaster waiting to happen, even though it hasn't happened to him yet.

Like many here, I have reduced my equity exposure but not to zero because I need to hedge my bets (as Audreyh1 phrased it).

I wouldn't put my entire net worth on "red" at the roulette table day after day, even if I had done so and won every time up to now, unless I was desperate. That's an extreme example, I know, but I am using it as an illustration because risk is involved. As MichaelB said, not talking about risk doesn't mean it does not exist.

 

[mrfeh]

Both of you phrased your posts so nicely. What you are saying is exactly what I meant in the post that everyone hated so much and I am sorry that I phrased it so poorly. When I wrote it I felt I couldn't mention the "I" word (and explain more tactfully and nicely) according to the parameters of the thread, - - but you all are braver than I am.

But if we are now talking about "I"... then I can say that I feel that any retiree, no matter how well funded, needs some "I" protection in case massive "I" descends; I fear the OP's situation is a disaster waiting to happen, even though it hasn't happened to him yet.

Like many here, I have reduced my equity exposure but not to zero because I need to hedge my bets (as Audreyh1 phrased it).

If one is primarily concerned about inflation, I'd recommend TIPS before increasing equity exposure.

 

[Chuckanut]

Like many I believe in diversification of my investments and sources of retirement income (that includes stocks). Also, I can't read minds, my crystal ball is cracked and my Time Machine is still broken. So, I guess I would have to vote 'no'. But, I do sleep well at night.

 

[pb4uski]

Is that the only thing you can think of that could be worse than the past?

How about the national debt getting truly out of control?

War weapons can cause a lot more destruction these days, and we really haven't had a war significantly on our soil since the Civil War. How about a limited nuclear war, or all-out terrorism? How well could we take a 9/11 type of attack every few months?

Rising oceans causing coastal cities to have to be rebuilt inland?

A catastrophic earthquake destroying a lot of California?

I don't see how having a 0/100 AA advocated by some vs a 60/40 AA is going to be demonstrably better in any of those events... in fact, I could argue that in the long run that some of those events would be good for stocks (economic activity as a result of rebuilding for example).... you can't plan for everything... but no matter what, if the SHTF it will be better to have money than to not have money.

 

[imoldernu]

I think I've posted this before. While we were living in Florida, a best friend retired from AT&T at age 53, and cashed out his pension to invest. He moved to our over 55 park in Florida, in 2008, and within 6 months, his $1.2M pension dropped to just over $700K. Yes... he did eventually recover, within a few years, but some scary moments.

 

[Midpack]

I feel like we won the game, invest in equities, and would never consider a portfolio with only fixed income.

+1. I never interpreted "won the game" to mean ZERO equity, I can't imagine dropping below 20-30% equities no matter how flush we find ourselves.

My Dad was in still in the equity market until he was about 85. That might be my benchmark.

 

[RunningBum]

I don't see how having a 0/100 AA advocated by some vs a 60/40 AA is going to be demonstrably better in any of those events... in fact, I could argue that in the long run that some of those events would be good for stocks (economic activity as a result of rebuilding for example).... you can't plan for everything... but no matter what, if the SHTF it will be better to have money than to not have money.

I didn't think Which Roger was advocating 0/100.

The common definition of "won the game" seems to be a 100% success rate in FireCalc. But FireCalc assumes that the future will not be worse than the worst of the past. Once one has won the game by this definition, it would seem that the next step would be to position oneself for scenarios where the future is worse than the past.

Sounds to me like he was talking about continue to invest in equities, since things could actually be worse in the future than it's been in the past Firecalc cycles. I think we're in agreement that stashing more is better. I'm just pointing out in response to your rather glib asteroid comment that there are many other possible scenarios it could be worse.

 

[RobbieB]

My Dad was in still in the equity market until he was about 85. That might be my benchmark.

My Dad died at age 92 with a 80/20 allocation.

 

[copyright1997reloaded]

This chart shows that a 28/72 stocks/bonds has the lowest risk vs 100% bonds. Not sure how that fits into true 'fixed income' but FWIW

Even more interesting is that a 50/50 carries less risk than 100% bonds.

View attachment 31363

I would like to better understand this chart. What does High Risk mean - the axis is not given any numeric values. Where is this sourced from?

 

[pb4uski]

Perhaps, but many who believe that they have won the game, however one defines it, then go conservative and no equities (as in the poll questions)...so there is a connection. I'm skeptical that under any future scenarios that 0/100 (see poll question) will be demonstrably better than 60/40... but I can foresee a bunch of scenarios where 60/40 is demonstrably better than 0/100. So I'll take mv chances and in 25-30 years we can compare notes.

 

[samclem]

I would like to better understand this chart. What does High Risk mean - the axis is not given any numeric values. Where is this sourced from?

I'm pretty sure the graph is the standard "efficient frontier" depiction for some time period.
"Risk" is shorthand for "portfolio volatility expressed as standard deviation in portfolio value."


As seen in the chart below, things can vary a lot depending on what time period is chosen. (in the chart below, "B" = 100% bonds, "S" = 100% stocks. Each dot on each line is a 10% increment: 10/90, 20/80, etc)

 

[athena53]

I do not. I'm convinced that market risk is going to be rewarded for patient investors as it has been in the past. Some here are depending on market growth to "make it", and they are not candidates for elimination of market risk. But I suspect many of us would make it without market risk, we just choose not to go that route.

I feel the same way. I'm 66 and have about 70% equities and am starting to reduce that in an orderly manner, but if I can get extra yield and can tolerate the volatility, why not? I could easily meet the regular expenses with SS and my 2 pensions (non-COLA, total $1,800/month) but I want my life to be more than the basics. I can cut back on the "wants" in a bad market.

 

[MBAustin]

I feel like we won the game, invest in equities, and would never consider a portfolio with only fixed income.

+1

 

[Rdub]

We won. I have a mix of rental income and investment income. About 1/3 of our spend comes from rental income, the rest from int/dividends from our investment portfolio. The investment portfolio is about 60/40, +/- 5pts. A large chunk of the 40% bonds is in CA munis. I’m comfortable with the risk profile on a 60/40 mix knowing that I have a long retirement ahead.

 

[marko]

Sorry. I could say that I won the game 35 years ago on my 32nd birthday (trust fund) but I just don't buy the whole 'won the game' framework. Even the phrase grates me. (yes, I've been out drinking in the hot tub just now, so forgiveness, please)

Maybe it's semantics but I really think it's a bad way to put it and maybe a little too self-congratulatory. I really don't think you can claim victory until you and your spouse are both six feet under.

Looking out 20 or 30 years there are just too many variables and things that can go wrong to just sit back and let things take care of themselves with bonds and CDs as noted within the context of the OP (inflation included)

Just yesterday, DW and I were talking about how to thread the needle between leaving a big pile and dying broke. I said that I'd rather leave $20M when the buzzer sounds than to be 90 and not knowing where my next meal was coming from.

Just IMHO.

 

[MarieIG]

Sorry. I could say that I won the game 35 years ago on my 32nd birthday (trust fund) but I just don't buy the whole 'won the game' framework. Even the phrase grates me. (yes, I've been out drinking in the hot tub just now, so forgiveness, please)

Maybe it's semantics but I really think it's a bad way to put it and maybe a little too self-congratulatory. I really don't think you can claim victory until you and your spouse are both six feet under.

Looking out 20 or 30 years there are just too many variables and things that can go wrong to just sit back and let things take care of themselves with bonds and CDs as noted within the context of the OP (inflation included)

Just yesterday, DW and I were talking about how to thread the needle between leaving a big pile and dying broke. I said that I'd rather leave $20M when the buzzer sounds than to be 90 and not knowing where my next meal was coming from.

Just IMHO.

Yep, I have to agree. I really am not worried about leaving money on the table. Eating cat food, in a box, under a bridge however, is something I'd prefer to avoid.

 

[RobbieB]

And if you are dead you lost the game anyway eh?