48 and forced out

[mjgruber]

48 wife around 49 (ok 50 ). She is still working at new job. So Net worth is just over $2 mil ( including home equity of $150,000 ). I feel ok, but not sure. I plan on staying 100% invested for a long time in the stock market.

 

[RunningBum]

Welcome. I was eased/forced out around the same time, with no one to provide another income. Good luck to you! 70-80% stocks does almost as well as 100% with a lot less volatility, just something to think about. At the very least, diversify among stocks. 10 years earlier I nearly left on my own, but blew up with the tech bubble burst.

 

[ziggy29]

Welcome from someone forced out in April at 47. I think we're going to be fine and it sounds like you may be set more than we are.

 

[MRG]

Welcome from someone who ran away from work at the end of April at 56.

Enjoy your new found life.

MRG

 

[hsv_climber]

100% in stocks while in retirement?
I am impressed at your risk tolerance.

 

[jclarksnakes]

100% in stocks while in retirement?
I am impressed at your risk tolerance.

It would seem more risky to me if the OP's DW was not still working.

 

[mjgruber]

100% in stocks while in retirement?
I am impressed at your risk tolerance.

Over a long time period, stocks always provide the best return

 

[Fred123]

Over a long time period, stocks always provide the best return

You might want to rethink this, because average returns can be misleading. It's also important to look at volatility (or variance).

Here's an example: suppose you have $100 invested in the stock market. After year 1, the stock declines by 50%. The next year the stock increases by 100%. After two years, you have $100. But the average return is (-50+100)/2 or 25%. If you had invested the stock in a CD earning 1%/year, you would have (roughly) $102. The average return is only 1%. Yet you've earned more money in the second case.

That's why you'll often see recommendations for something like 60/40 stock/bond portfolios. You trade off returns for less volatility and reduce your risk of running out of money. Other factors also come into play (lack of correlation between stock returns and bond returns, though probably not the case right now).

 

[gauss]

Here's an example: suppose you have $100 invested in the stock market. After year 1, the stock declines by 50%. The next year the stock increases by 100%. After two years, you have $100. But the average return is (-50+100)/2 or 25%. If you had invested the stock in a CD earning 1%/year, you would have (roughly) $102. The average return is only 1%. Yet you've earned more money in the second case.

I think that securities companies are required to use a geometric average, as opposed to an arithmetic average, in the reporting of their returns. See What is the difference between arithmetic and geometric averages? for further details.

I was at a whole life insurance sales seminar once where the presenter used an arithmetic average similar to make a similar point. I stopped listening at that point.

Otherwise Fred makes excellent points. You might want to read up about "sequence of returns" risk a few years before DW retires also.

-gauss

 

[pb4uski]

Y.....Here's an example: suppose you have $100 invested in the stock market. After year 1, the stock declines by 50%. The next year the stock increases by 100%. After two years, you have $100. But the average return is (-50+100)/2 or 25%. ...

In the situation described the return that would be reported for the 2 years (if it was a mutual fund) would be 0%, not 25%. The one year returns would be -50% and 100%.

But I agree that sequence of returns is important.

 

[Major Tom]

Due to the way your original post was worded mjgruber, I'm assuming that you're not so much looking for feedback, as merely introducing yourself. So hello there

I wasn't exactly forced out. My company closed when I was 45 and I was laid off as a result. I do have a very minor part-time gig, but it only provides about 10% of my ER income.

Welcome to the club. I do agree with previous comments regarding volatility of equities. If you are 100% in stocks, perhaps DW's income gives you the psychological protection against the volatility of a 100% equities AA?

Have you run your numbers through any kind of a calculator? Firecalc can be quite useful as a guide for what kind of income to expect.

Anyway, hello and welcome!

 

[Fermion]

It seems like what is really missing here is how much the OP spends each year.

If you spend $30K a year then you both can retire right now...could have retired 2 years ago.

If you spend $100K, it is going to be tight no matter how high % stocks you own.

 

[Major Tom]

It seems like what is really missing here is how much the OP spends each year.

Unless he was just wanting to share, instead of looking for feedback. There was no specific question in his original post.

 

[mjgruber]

Returns

Unless he was just wanting to share, instead of looking for feedback. There was no specific question in his original post.

Yes that is correct, annual returns are not calculated by simply adding up annual returns and dividing by the number of years. There is also No 10 year period where stocks did not provide the best return. The Stock Market is a long term deal ( 10 years ), anything short of 5 years is gambling.

Nice to meet you all...Great Website...

In addition to us "Older" folks people in their 20s, 30s, should be on here Just as Much..

 

[Fermion]

In addition to us "Older" folks people in their 20s, 30s, should be on here Just as Much..

Great. So I just turned 43 and now am lumped in with the "old folks"

At least I still feel sort of young....but have been discussing bowel movements more and more...and actually paused on wheel of fortune while flipping through channels...

 

[siamond]

Hi there. Well, it's never pleasant to be 'forced out', but this could turn in an excellent opportunity to totally re-assess your life for the better. You do have an impressive cushion of money. You have plenty of choices in front of you. Lucky you!

Now since you have plenty of time on your hands, I'd respectfully suggest that you spend some of it analyzing the 100% stocks assumption. As somebody else indicated, just using 75% or 80% stocks would have nearly identical benefits, and would present much less risk. Personally, I do not buy in the 60/40 ideas, as I could never find proper evidence in this respect (and I did a LOT of backtesting!), but 75/25, yes, that I am convinced. But hey, don't take the word of anybody, just do some analysis by yourself (using Firecalc, Excel or whatever), and I'm pretty sure this will be enlightening. My 2 cents!

 

[Fred123]

I think that securities companies are required to use a geometric average, as opposed to an arithmetic average, in the reporting of their returns. See What is the difference between arithmetic and geometric averages? for further details.

I was at a whole life insurance sales seminar once where the presenter used an arithmetic average similar to make a similar point. I stopped listening at that point.

Otherwise Fred makes excellent points. You might want to read up about "sequence of returns" risk a few years before DW retires also.

-gauss

Looks to me that Vanguard, at least, appears to use arithmetic means rather than geometric means. As does Morningstar. Not a lot of transparency about how they calculate this on their Web sites, unfortunately.

 

[Fred123]

Looks to me that Vanguard, at least, appears to use arithmetic means rather than geometric means. As does Morningstar. Not a lot of transparency about how they calculate this on their Web sites, unfortunately.

Oops, switched that -- wanted to say Vanguard (and Morningstar) use *geometric* rather than arithmetic means. Sorry.

 

[papadad111]

As somebody else indicated, just using 75% or 80% stocks would have nearly identical benefits, and would present much less risk. Personally, I do not buy in the 60/40 ideas, as I could never find proper evidence in this respect (and I did a LOT of backtesting!), but 75/25, yes, that I am convinced.

I am scared to hold bond funds. Even individual bonds are putting principle at risk if you dont intend to hold to maturity given the
current interest rate environment and risk of rising rates on QE driven fed action. Risk is to most bond funds that hold a range of maturities and so is it safe to presume the allocation of 25% could be either bonds or cash at this stage.... ?? (a question).

After QE gets pulled off the table, and interest rates rise to a more reasonable long term level (10 year at 4.5% or so) then one could probably justify holding bonds again, agree?

 

[mjgruber]

Carry on

Trying to figure out how the various issues will impact the Market is almost impossible.....My plan is stay invested, dollar cost average into the Market into low cost Mutual Funds....I am confident 5,10, 20 years out, that should be a winning strategy.

 

[Chuckanut]

Here's an example: suppose you have $100 invested in the stock market. After year 1, the stock declines by 50%. The next year the stock increases by 100%. After two years, you have $100. But the average return is (-50+100)/2 or 25%. If you had invested the stock in a CD earning 1%/year, you would have (roughly) $102. The average return is only 1%. Yet you've earned more money in the second case.

I don't think one can calculate average rate of return using different piles of starting cash and then merging them together into an average. In the above case the 50% loss is on a pile of cash that is twice as large as the 100% gain. That has to be taken into account. When you do so the average return is 0%.

Obviously, you have picked up on that since you were not fooled by the 25% return. I thought I would make it clear why the math does not work.

 

[Fred123]

I don't think one can calculate average rate of return using different piles of starting cash and then merging them together into an average. In the above case the 50% loss is on a pile of cash that is twice as large as the 100% gain. That has to be taken into account. When you do so the average return is 0%.

Obviously, you have picked up on that since you were not fooled by the 25% return. I thought I would make it clear why the math does not work.

My bad. I'd always assumed that mutual fund returns were reported as arithmetic rather than geometric means, but it turned out to be one of those "facts" that you think are true but aren't true at all. And learning that is one of the many advantages of participating in these forums!