Better Stocks Than Bonds in Retirement

Lsbcal said:
Yes, international could have its years in the sun. Also US value stocks have been laggards.

The SP500 has 30% of its value in the top 10 stocks that are dominated by tech (Microsoft, Apple, Alphabet, etc). And the SP500 is what the Shiller chart in the M* article is based on. So my guess is that US value stocks will eventually shine but I don't own them ... yet.
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Good point Lbscal, but you're not alone. At what point do we "wade back into" that pool of Value stocks? Many have been waiting a LONGGG time for the "water to be fine" in Value. I do own value funds but they haven't performed like the growth funds have

Like others have tried to predict interest rate movements next year, we have about as good a chance of an accurate prediction as walking into a Casino and betting on RED or BLACK.
Good luck.
 
Luvtoride said:
Good point Lbscal, but you're not alone. At what point do we "wade back into" that pool of Value stocks? Many have been waiting a LONGGG time for the "water to be fine" in Value. I do own value funds but they haven't performed like the growth funds have

Like others have tried to predict interest rate movements next year, we have about as good a chance of an accurate prediction as walking into a Casino and betting on RED or BLACK.
Good luck.
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My own approach is (roughly stated) to monitor the multi-month trends of large cap growth versus mid+small cap value. The last time value stocks really took off was in the years 2000 to 2006 period. That was a pretty extended run following the dotcom crash. Back then value stocks strongly outperformed the SP500.

Also small international did very well versus the SP500 from 2003 through 2007.

Not saying it will happen again in quite the same way. Some trends go on longer then many expect.

Here is a long term plot of small cap versus the SP500 that I clipped out from an article. The red ovals are mine:

image1.jpg
 
Our largest bond-like investments are stable value, TIAA Traditional and TSP G Fund. The TIAA has a 3% floor, so is worth holding, TSP yields are minuscule.

Nerves got the best of us and we backed off from 45% to under 30% stocks in Spring 2020, after the first step of recovery in prices. Right now we're just under 40% stocks, not including my wife's ESOP. I've always tended towards a significant share in international funds.

We're prepared to rebalance to hold 40%, and reinvest most of the ESOP in stocks as it liquidates over the next five years. The concentration of the market in a few tech stocks still gives me pause.
 
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The Wealth Management company I’m transitioning away from has all/most of their clients in 100% equities portfolio. I’m 49 and about to retire in a couple of weeks and plan to stick with a 100% equity portfolio.
 
bubbabubba said:
........ I’m 49 and about to retire in a couple of weeks and plan to stick with a 100% equity portfolio.
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My brother retired with 100% stocks. When things got really bad in 2009, he took out a home equity loan for living expenses so he didn't have to sell stocks at a loss. Me, I have a few bonds.
 
travelover said:
My brother retired with 100% stocks. When things got really bad in 2009, he took out a home equity loan for living expenses so he didn't have to sell stocks at a loss. Me, I have a few bonds.
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That is an awesome idea! I also know people who take out a HELOC and invest it in the market when it drops. Not sure I could do that personally…
 
Question: For the last 30 yr cycle the top graph shows stock/bonds beating stocks with higher swr. Then why does the Median final values graph show a much higher end value for stocks? Does the volatility of stocks limit the higher swr?
 
For now I am 50/50, but the 50% "bonds" is is CD's and 401k Stable Value of which yields in both is at 3% or a little above that.
So will stay with this allocation until the maturity of the CD's in 2024, then evaluate again.
 
For now I am 50/50, but the 50% "bonds" is is CD's and 401k Stable Value of which yields in both is at 3% or a little above that.
So will stay with this allocation until the maturity of the CD's in 2024, then evaluate again.
 
Dtail said:
For now I am 50/50, but the 50% "bonds" is is CD's and 401k Stable Value of which yields in both is at 3% or a little above that.
So will stay with this allocation until the maturity of the CD's in 2024, then evaluate again.
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Dtail, did the article make you think about having a higher equity exposure than your current AA? I guess that’s what the author was trying to do when writing it originally. Agreed it can’t be done immediately when money is committed to CDs, without penalty.
Good luck.
 
Luvtoride said:
Dtail, did the article make you think about having a higher equity exposure than your current AA? I guess that’s what the author was trying to do when writing it originally. Agreed it can’t be done immediately when money is committed to CDs, without penalty.
Good luck.
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Indirectly yes.
More directly, when the CD's mature, it depends what the interest rates are at that time.
Theoretically, if they matured right now, I would consider a higher equity exposure currently.
 
Luvtoride said:
I know there are many here who tend to have lower equity exposure to help "sleep at night"
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"Sleep at night" is followed closely by "already won the game."
 
aja8888 said:
You mean equities will continue to go up forever? :confused:
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Well yes, equities will go up on average as long as GDP goes up - which it has for a couple of centuries. If equities don't "go up" on average, we have much bigger problems than deciding on AA.

I've been doing a bit of a bond tent, using age in equities (not age in bonds) to mitigate SORR. Bonds were highest in my lifetime at my semiretirement date 55/45. I'm now about 60/40 and will continue to 65 or 70% equities (haven't decided my terminal AA yet).
 
USGrant1962 said:
Well yes, equities will go up on average as long as GDP goes up - which it has for a couple of centuries. If equities don't "go up" on average, we have much bigger problems than deciding on AA.

I've been doing a bit of a bond tent, using age in equities (not age in bonds) to mitigate SORR. Bonds were highest in my lifetime at my semiretirement date 55/45. I'm now about 60/40 and will continue to 65 or 70% equities (haven't decided my terminal AA yet).
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I'm worried about equity and other investment performance falling behind the rate of inflation.
 
Equities are like a "managed fund" in a way. They are working and producing stuff that has a market. As the market changes, so do the companies.

Yeah, some are not so good at this, but at least you are investing in something that is producing something and responding.

Yeah, not a loan, an investment.
 
I kind of buzzed through this, so I think at least a few have reflected my response.
1) Ignoring SORR seems a bit of an ....... issue. (I have no doubt that 90-100% stock portfolios in the vast majority of cases will come out ahead. It is those 2-5 sequences that bother me, as well as remembering 2001-2002.) It's not the highest ending portfolio that I seek but relatively safe high withdrawal.

2) Every time the S&P has outperformed, I seem to recall these arguments, based on 5 or even 10 year outpeformance. I also recall that the outperformance tends to last a lot longer than one would think (in terms of relative pricing), but also that the S&P's outperformance can get destroyed quite quickly (looking forward in retrospect, hee!) and may not recover quickly (SORR).

3) Slowly and methodically scraping some gains into US value and international may not be not a completely stupid strategy, historically, emphasis historically. Maybe we are at that unusual golden turn in history where the S&P will always outperform, as many suggest here I seem to recall periods (after 2000) where the S&P did diddley squat, which is not an issue--unless all your funds are S&P or tech/large growth; then it sucks and can suck for quite a while. If you can tolerate sucking for 5-10 years, this may not be a bad thing.

4) This is not to suggest that an 90-100% S&P strategy should be abandoned, just that if you are looking at the last 10 years, you might want to consider a longer timespan if you think the last 7-10 year outperformance will continue ad infinitum.

Do I know when to optimally rebalance to international/value? Nope; I probably do it at the worst times, until in retrospect (like 2006 looking back), it looks pretty good.

Edit: And I think S&P is priced very richly at this point, similar to 2000. Can it continue to shoot up and outperform? Yes?

Can it continue another 5 years? Yes.

Will the pricing adjustment be brutal, if an when it comes? Probably, historically.

So if you are 90-100% S&P/US large growth just be sure you are strapped in and ready for the ride out of the chute, ala 2001, not 2020, although you have to stay on for longer than 8 seconds. Many of those here have withdrawal rates below 2%, so mathematically, this should not be an issue. If you are above 4%, it could be an issue, unless the recovery is sufficiently fast. If you are 15 years into retirement, it won't matter. I like to add these little caveats, because the answer will highly depend on your withdrawal rate, age, and other factors. I'm still 3.5 years from FSR age, which matters to me. If I were withdrawing 1.5-2% like many here, a 90-100% equity/large US growth would sound pretty good.
 
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I don't invest in bonds but use stocks as bond substitutes meaning I really don't expect much appreciation but collect the dividend. VZ would be a prime example paying 5% presently. Use DX paying 9% paying monthly as well as Lumen Technologies as examples.

Good luck to all.
 
From the first article mentioned in the first post:
"Should the future resemble the past, the lesson will remain valid. Retirees should invest heavily in equities, most likely more than they currently do. But the advice rests upon that initial assumption. Next Tuesday's column will look forward rather than backward, by exploring how the next time might be different."

The next article has arrived:
https://www.morningstar.com/article...ation-for-retirees-what-will-the-future-bring

"After taking a short detour to review the details, I can once again offer straightforward counsel. Retirees who regard the market's lessons as constant should favor equities. They need read no further than Friday's column. However, those who believe that the stock market may have finally exhausted its good fortune, such that any downturn will not promptly be followed by a sharp rally, should invest only moderately in equities. From 30% to 50% seems appropriate."

As I entered retirement in 2020 we went with a target of 50/50. I feel ok going with 60% now. But the bond side has things like CDs and guaranteed income in a 403(b). We'll preserve those, maybe add some. Things have gone awry somewhat, with a wedding and more cash going out. We'll be ok.
 
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