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11-09-2015, 02:29 PM
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#41
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Thinks s/he gets paid by the post
Join Date: Apr 2008
Posts: 2,003
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Quote:
Originally Posted by REWahoo
Fixed it for you.
If you don't need that money for a few years, what's the worry. The dividends those bond funds pay will continue, and will increase over time.
Chill.
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From some of the articles and books I have been referred to the past week, there is a belief that some of the loss of NAV on bond funds can be permanent because of the nature on how the individual bonds themselves are bought/sold within the fund. If there is even a moderate flight from a given bond fund, the fund managers may have no choice but to sell some of their more attractive bonds, potentially locking in a loss.
Or maybe my understanding isn't complete enough.
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11-09-2015, 02:38 PM
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#42
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,003
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Quote:
Originally Posted by statsman
From some of the articles and books I have been referred to the past week, there is a belief that some of the loss of NAV on bond funds can be permanent because of the nature on how the individual bonds themselves are bought/sold within the fund. If there is even a moderate flight from a given bond fund, the fund managers may have no choice but to sell some of their more attractive bonds, potentially locking in a loss.
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Could be. Or maybe this is the way it will work: http://www.advisorperspectives.com/a...interest-rates
Truth is, no one knows. Even if there are "permanent" losses to bond funds they probably will be relatively small compared to the magnitude we see when equities swoon.
I choose to be optimistic and think positive until things play out. The end result won't change but I'll enjoy myself in the interim far more than the gloom & doom crowd.
__________________
Numbers is hard
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11-09-2015, 02:46 PM
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#43
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,808
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There can be some "liquidity events" in the bond market. Nobody can completely rule out a run on the banks.
In 2008 there was a lack of liquidity in the US government TIPS market. Some hedge funds (so it was rumored) had to sell something and they sold the most liquid stuff they could which meant temporary price distortion in the TIPS market. If you look at a chart of VBTLX (total bond mkt), VFITX (intermediate Treasury) and VIPSX (TIPS) you see it in 2008:
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11-09-2015, 02:48 PM
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#44
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by Bikechuck
I do have two decent Bond alternatives. 1) TIAA traditional with a guaranteed minimum return of 3.5%, however that is in an old plan and I cannot add to it.
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I'm using TIAA-Traditional instead of bonds. I'm currently getting 4% from my vintages. It's a great alternative because it pays guaranteed interest, you usually have a number of withdrawal options and you get to keep your principal.....although you can only get at it through a 10 year payout plan.
Quote:
2) An IRA with a fixed annuity contract that I can add to that pays a guaranteed minimum of 4.5%. I opened the IRA approx. 30 years ago, I can add to it and withdraw from it at any time. I just want to limit how much I put into it to $300K or so because it carries risk related to the health of the insurance co. that owns the investment. The insurance co. is very highly rated though so the risk is low. There are no fees with this IRA, the insurance co. has to make their money off of spread income.
I meet with advisors from TIAA and Lincoln financial a couple of times a year at no cost and they both advise me to take advantage of the IRA that pays the minimum 4.5% return.
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I don't know about the Lincoln Products....is the 4.5% return a payout rate or an interest rate? Is it truly an annuity or one in name only like many TIAA accounts?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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11-09-2015, 02:51 PM
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#45
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Thinks s/he gets paid by the post
Join Date: Apr 2008
Posts: 2,003
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Quote:
Originally Posted by REWahoo
Could be. Or maybe this is the way it will work: http://www.advisorperspectives.com/a...interest-rates
Truth is, no one knows. Even if there are "permanent" losses to bond funds they probably will be relatively small compared to the magnitude we see when equities swoon.
I choose to be optimistic and think positive until things play out. The end result won't change but I'll enjoy myself in the interim far more than the gloom & doom crowd.
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I am trying to step away from the ledge myself. Moving to equities at this time seems risky, but it can't be worse than being 0/53/47 (stocks/bonds/cash) for the next 30 years. Or can it?
I am looking at between 30-40% equities. Part of this plan involves finally rolling over my 401(k) balance into my tIRA for consolidation and better access to investment options. I just can't see us being less than 60% bonds/cash, no matter how bad reports make the future bond markets look.
If we don't need to touch principal until the RMDs start. we should be able to stomach the ride. It may be fortunate my wife is 6+ years older than I am (64 vs 57.5 at retirement next year). Her RMDs will hit 7 years later, while mine won't start for an additional 7 years after that.
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11-09-2015, 03:11 PM
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#46
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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Quote:
Originally Posted by Lsbcal
There can be some "liquidity events" in the bond market. Nobody can completely rule out a run on the banks.
In 2008 there was a lack of liquidity in the US government TIPS market. Some hedge funds (so it was rumored) had to sell something and they sold the most liquid stuff they could which meant temporary price distortion in the TIPS market. If you look at a chart of VBTLX (total bond mkt), VFITX (intermediate Treasury) and VIPSX (TIPS) you see it in 2008:
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Wow! Ever an aspiring market timer, I do not follow bonds (and indeed own very little) hence did not know about the above effect between VFITX and VIPSX. This is one of those $20 bills laying on the sidewalk that EMH proponents say is a mirage. When one spots a market inefficiency like this, he should pounce.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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11-09-2015, 03:12 PM
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#47
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,003
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Quote:
Originally Posted by statsman
I am trying to step away from the ledge myself. Moving to equities at this time seems risky, but it can't be worse than being 0/53/47 (stocks/bonds/cash) for the next 30 years. Or can it?
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Good question.
You almost certainly will be considerably better off over the long run moving to an equity allocation of at least 40%.
However, and this is a VERY BIG however: reading over some of your posts makes it clear you are extremely risk averse. This leads me to believe you may purchase those equities only to shoot yourself in the foot during the next inevitable downturn.
Your lack of risk tolerance has you in a lose-lose situation unless you can figure out a way to force yourself to sit on your hands when the market goes down. Those of us who held on for the ride in 08/09 know how tough that is to do but we understood that those losses were only "permanent" if we sold during the downturn and were out of the market when it came back. I was not comfortable at all watching my nest egg shrink by almost 40%, but I knew if I sold I'd never recover. Like old age, investing during volatile periods ain't for sissies.
Sorry to be so blunt, but you seem to be really trying to change your mindset, and that's what it will take for you have a reasonable chance your portfolio will survive and support you in retirement. As one of our long-term members here was once fond of saying, you need to grow a pair.
__________________
Numbers is hard
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11-09-2015, 03:16 PM
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#48
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,001
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Quote:
Originally Posted by statsman
Better to be primarily in intermediate term bond funds for the long haul (greater than 5 years) than the total market bond funds which are spread out amongst short, intermediate, and long bonds?
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No - I don't see a problem with a range of durations, though I tend to stay lighter in long. I keep some cash, some short, most intermediate, and a little long myself.
__________________
Retired since summer 1999.
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11-09-2015, 03:21 PM
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#49
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Recycles dryer sheets
Join Date: Jun 2014
Posts: 440
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It's never a good time to buy stocks and bonds.
It's always a good time to buy stocks and bonds.
Choose your bias and then read the news .
Sent from my HTC One_M8 using Early Retirement Forum mobile app
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11-09-2015, 03:23 PM
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#50
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,001
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Quote:
Originally Posted by Lsbcal
There can be some "liquidity events" in the bond market. Nobody can completely rule out a run on the banks.
In 2008 there was a lack of liquidity in the US government TIPS market. Some hedge funds (so it was rumored) had to sell something and they sold the most liquid stuff they could which meant temporary price distortion in the TIPS market. If you look at a chart of VBTLX (total bond mkt), VFITX (intermediate Treasury) and VIPSX (TIPS) you see it in 2008:
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It does seem crazy that something as safe as a US Govt long bond would go down during periods of market turmoil/uncertainty. Even that effect, as serious as it was, was still temporary.
A rebalancer would have been able to take advantage.
I don't own TIPs as an asset class myself (I see them more as a long bond) but I always hope my fund managers are taking advantage of market (mis)pricing.
Several other bond asset classes were hit hard too. They also came back.
Will everything always come back eventually? Who knows, but that is the way I bet.
Stay diversified. Rebalance when things get out of whack.
__________________
Retired since summer 1999.
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11-09-2015, 03:35 PM
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#51
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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Quote:
Originally Posted by REWahoo
Your lack of risk tolerance has you in a lose-lose situation unless you can figure out a way to force yourself to sit on your hands when the market goes down. Those of us who held on for the ride in 08/09 know how tough that is to do but we understood that those losses were only "permanent" if we sold during the downturn and were out of the market when it came back. I was not comfortable at all watching my nest egg shrink by almost 40%, but I knew if I sold I'd never recover. Like old age, investing during volatile periods ain't for sissies.
Sorry to be so blunt, but you seem to be really trying to change your mindset, and that's what it will take for you have a reasonable chance your portfolio will survive and support you in retirement. As one of our long-term members here was once fond of saying, you need to grow a pair.
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This is where a single all-in-one/balanced fund would probably work very well regardless of tax inefficiency. It's easier to ignore market volatility of, say, a 30/70 to 40/60 portfolio when you're only seeing aggregate loss of 10-20% instead of forcing yourself to rebalance and buy more stocks when your equity holdings are down by 40-50%.
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11-09-2015, 03:41 PM
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#52
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,003
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Quote:
Originally Posted by hnzw_rui
This is where a single all-in-one/balanced fund would probably work very well regardless of tax inefficiency. It's easier to ignore market volatility of, say, a 30/70 to 40/60 portfolio when you're only seeing aggregate loss of 10-20% instead of forcing yourself to rebalance and buy more stocks when your equity holdings are down by 40-50%.
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+1
Yes, my mix of Wellesley and Wellington (both in IRAs) worked well at helping to buffer the pain of the downturn. I didn't have to sell or buy anything to rebalance, the funds did all the work. Still hurt like hell though...
__________________
Numbers is hard
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11-09-2015, 03:45 PM
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#53
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,808
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Quote:
Originally Posted by audreyh1
It does seem crazy that something as safe as a US Govt long bond would go down during periods of market turmoil/uncertainty. Even that effect, as serious as it was, was still temporary.
A rebalancer would have been able to take advantage.
...
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I kind of agree with your sentiment and there are various strategies that will work. Buy and hold usually has worked but one needs time and patience. For me, bonds are suppose to be the *safe* part of the portfolio. In 2008 stocks were tanking and who wants to have some of their FI tank too? Not me anyway. And I was holding TIPS and did have to be patient but it was very upsetting. Also, note that the VIPSX fund did not just hold long dated TIPS and had an average duration of intermediate (not long) bonds -- a similar duration to that VFITX Intermediate Treasury fund.
I don't want to go through and 2008 again. As we retirees get older, we do not necessarily have decades to recover. The next decade is really important to me. I'm not planning on kicking up my heals in my 80's . So "temporary" declines of unknown durations can become a planning nightmare. The 1930's are an excellent example of that sort of scenario.
So that is why my FI will be in safe bonds like Treasuries. But I'm playing it kind of close by only going to those when the yield curve starts to flatten with the consequent systemic stress to business. Kind of a bit of having your cake and eating it too. Hope it works.
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11-09-2015, 03:45 PM
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#54
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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Quote:
Originally Posted by hnzw_rui
This is where a single all-in-one/balanced fund would probably work very well regardless of tax inefficiency. It's easier to ignore market volatility of, say, a 30/70 to 40/60 portfolio when you're only seeing aggregate loss of 10-20% instead of forcing yourself to rebalance and buy more stocks when your equity holdings are down by 40-50%.
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Quote:
Originally Posted by REWahoo
+1
Yes, my mix of Wellesley and Wellington (both in IRAs) worked well at helping to buffer the pain of the downturn. I didn't have to sell or buy anything to rebalance, the funds did all the work. Still hurt like hell though...
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I like to see the inner workings of the market. I want to see what goes into the sausage.
But of course that's just me.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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11-09-2015, 03:49 PM
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#55
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,808
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Quote:
Originally Posted by REWahoo
+1
Yes, my mix of Wellesley and Wellington (both in IRAs) worked well at helping to buffer the pain of the downturn. I didn't have to sell or buy anything to rebalance, the funds did all the work. Still hurt like hell though...
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Who would have thought that this combo would decline 40%. Or was that because of your spending too?
We were spending from FI then and did not qualify for SS yet. That is when I appreciated the dilemma of being a retiree on a declining "fixed income".
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11-09-2015, 03:57 PM
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#56
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,003
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Quote:
Originally Posted by Lsbcal
Who would have thought that this combo would decline 40%. Or was that because of your spending too?
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We were living entirely off our portfolio at the time. Excluding spending, our decline was 36%.
Quote:
Originally Posted by Lsbcal
We were spending from FI then and did not qualify for SS yet. That is when I appreciated the dilemma of being a retiree on a declining "fixed income".
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I wouldn't describe my mood at the time as appreciative of anything.
__________________
Numbers is hard
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11-09-2015, 04:04 PM
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#57
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,001
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Quote:
Originally Posted by Lsbcal
I kind of agree with your sentiment and there are various strategies that will work. Buy and hold usually has worked but one needs time and patience. For me, bonds are suppose to be the *safe* part of the portfolio. In 2008 stocks were tanking and who wants to have some of their FI tank too? Not me anyway. And I was holding TIPS and did have to be patient but it was very upsetting. Also, note that the VIPSX fund did not just hold long dated TIPS and had an average duration of intermediate (not long) bonds -- a similar duration to that VFITX Intermediate Treasury fund.
I don't want to go through and 2008 again. As we retirees get older, we do not necessarily have decades to recover. The next decade is really important to me. I'm not planning on kicking up my heals in my 80's . So "temporary" declines of unknown durations can become a planning nightmare. The 1930's are an excellent example of that sort of scenario.
So that is why my FI will be in safe bonds like Treasuries. But I'm playing it kind of close by only going to those when the yield curve starts to flatten with the consequent systemic stress to business. Kind of a bit of having your cake and eating it too. Hope it works.
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I don't have all of my FI in super high quality bonds, but a good chunk of it is, so that I have at least a piece that goes up when everything else tanks.
__________________
Retired since summer 1999.
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11-09-2015, 04:20 PM
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#58
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Thinks s/he gets paid by the post
Join Date: Apr 2008
Posts: 2,003
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Quote:
Originally Posted by REWahoo
Sorry to be so blunt, but you seem to be really trying to change your mindset, and that's what it will take for you have a reasonable chance your portfolio will survive and support you in retirement.
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Exactly. I also need to gear up from being in an accumulation phase to a retirement phase. The first part is getting past the loss of yearly "net worth" based on dropping mutual fund prices. The second part is investing for a 1-1.5% WR based on our low volatility tolerance. Up until recently, I figured 30/70 or 40/60 would have been more than sufficient for that. But to listen to the experts and read the numerous articles on retirement investing these days, a lot of doubt is being promoted.
But back to your main point: I am trying to change my mindset and that of my wife's. Ideally, if all we spent was my pension, her SS, and whatever dividends/capital gains the investments generated (at least until she needs to start taking her RMDs), we can live with that. But if a 30/70 portfolio can't do it or fails too often, then we're scr*wed.
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11-09-2015, 04:23 PM
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#59
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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Quote:
Originally Posted by REWahoo
We were living entirely off our portfolio at the time. Excluding spending, our decline was 36%.
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Interesting. I'm guessing Portfolio Visualizer probably doesn't show the nuances of daily movements then. For a 50/50 portfolio, it only shows 25.82% max drop.
https://www.portfoliovisualizer.com/...Amount=1000000
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11-09-2015, 04:29 PM
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#60
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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Quote:
Not sure how much better I feel though, as I do believe that bond funds will temporarily lose value as interest rates rise...
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Why would a bond fund loss be temporary? Buying a bond directly, and having interest rates go up, would permanently reduce the price of the bond.
The only way it would be temporary is the bond fund manager swaps out the lower yielding bonds for higher yielding ones. Or if rates go down.
There is no way anyone would pay the same for two bonds if they had different yields.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
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