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Old 12-23-2020, 07:29 AM   #41
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I know it's come up before. It's call tactical asset allocation.

https://www.thebalance.com/what-is-t...cation-2466851

That article definitely makes sense from a practical point of view. However, I think human nature and emotions usually take over and when stocks do go down significantly most don't increase their stock exposure ( which is where TAA makes sense and has its intent) but rather they decrease their stock holdings as they "wait for clarity" or "things to calm down".
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Old 12-23-2020, 10:37 AM   #42
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I normally don't keep that much in cash but in lieu of the new administration I feel more comfortable having enough cash until I begin to get a better view of the business/investment policies. Presently I feel there has not been any transparency. Until then I will stay mostly on the sidelines.

This comment is not a "market" call. Only a "comfort" call.
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Old 12-23-2020, 01:28 PM   #43
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jlcollinsnh proposed something similar here (in this case, it's 3 years in cash and the rest in stocks): https://jlcollinsnh.com/2012/05/12/s...p-your-wealth/

You can read it, plus the comments, and evaluate the logic for yourself. I think it may help to provide a sounding board for your own thoughts, even if the proportions are a little bit different.

Personally, I'm not sold on that approach, but somebody in a different life stage may want to consider something like what you're proposing here, or what Jim Collins suggests in the link above.
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Old 12-23-2020, 02:09 PM   #44
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Our plan is slowly moving that way. In January 2018 we were 80/15/5. Now we are 80/7/13.

Stock share prices have appreciated and kept that percentage flat. Maturing bonds & all dividends into cash have increased our cash level while reducing our bond level. Right now the only bonds and fixed income we own are in Wellesley, Puritan, and Fidelity FFNOX.

With a WR under 3.5% the cash is enough for four years. If the SHTF we can start our second SS, cut back, and make the cash last for 8-10 years. If I get run over by a beer truck then DW will have a long time before she has to make any moves with the portfolio.

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Old 12-23-2020, 02:44 PM   #45
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jlcollinsnh proposed something similar here (in this case, it's 3 years in cash and the rest in stocks): https://jlcollinsnh.com/2012/05/12/s...p-your-wealth/

You can read it, plus the comments, and evaluate the logic for yourself. I think it may help to provide a sounding board for your own thoughts, even if the proportions are a little bit different.

That's a great article. I remember reading it years ago. I have to laugh at the commentators who try to rebut the strategy with references to "too much debt" and how the market is "overvalued". Been hearing comments like that literally since 1988. The bottom line is that is you have a 40,30, 20 or maybe even 15 year time horizon the stock market , with all the volatility, is the best liquid asset class to invest in.
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Old 12-23-2020, 03:42 PM   #46
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5 years of cash would be a sizable amount not earning any returns, I don't think I could do that when the markets are (currently) soaring. It is all up to how risk averse you are, and how much you need for a long retirement.

To me, when someone mentions "cash" I think of a bank checking/savings account type scenario, and cringe !
We were sitting on more than 5 years of expenses in "cash" (CDs, MMs and traditional Savings/Checking) back in March and were pretty darn glad that we were. And while the market HAS come back since then, it's come back under pretty unusual circumstances including unprecedented Fed pumping and spending that will likely cripple our country's economy for decades to come. That obviously doesn't always happen, and most of the time, does not happen. History is full of 10+ year periods of stocks being underwater or at best flat. That's something to be cognizant of when determining how much cash you want to hold, and how much risk you ultimately want to take with equities.

My ER strategy has been < 30% stocks..probably 25+% bonds. Rest in cash. Of course, I also am not wanting to leave big piles of $$ to my heirs, either. The $s we saved are for US to live off of. If there's $$ left at the end, we have a number of charities in addition to family in mind..but that's not what drives the portfolio and Asset Allocation decisions, either. In our case, it's all about minimizing risk while having "enough" - not just driving the number up as high as we can get it..because as we all saw in Mar/Apr of this year, stocks "take the stairs up, and the elevator down". And when the elevator heads south - it can do so very, very quickly. (Hopefully most here remember the multiple days per week of "circuit breakers" kicking in on 1,000 - 1,500 - 2,000 point drops back in ~April-May). And we are currently in a VERY over-priced market relative to historical averages. Whether that is justified or not is a subject for other threads

Perhaps the most valuable lesson I learned pre-ER is determining what YOU think of as "enough". If "enough" means funding your current expenses plus reasonable inflation, that's a good goal IMHO and what we chose to focus on. Of course to others, "enough" includes all sorts of fancy and opulent spending like first-class air travel, frequent trips to exotic locations, etc. Only you can determine the answer to what is "enough". But once "enough" is achieved, it makes sense to reduce risk, also.

Rick Ferri wrote an excellent paper some time back that said the "sweet spot" for those in ER is something like 35% equities, though YMMV based on personal willingness to take risk. Wise words, IMHO.
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Old 12-25-2020, 10:04 AM   #47
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We are keeping enough in cash (CD’s, stable value) to get us through until SS and pensions arrive. All of our expenses from now until death are covered by pensions, SS, and this “gap” cash.
Our AA is now 76% stocks and 24% cash. Later I expect it to go to 100% stocks.
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Old 12-26-2020, 11:43 AM   #48
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That's a great article. I remember reading it years ago. I have to laugh at the commentators who try to rebut the strategy with references to "too much debt" and how the market is "overvalued". Been hearing comments like that literally since 1988. The bottom line is that is you have a 40,30, 20 or maybe even 15 year time horizon the stock market , with all the volatility, is the best liquid asset class to invest in.
Thanks FREE866! Two thoughts on the matter:

1. Arguably, those commentators may be right in the long term, at least if you view things through the lens of the Austrian School of economic theory. The 80s were an unusual economic time, with high interest rates and enormous growth stemming in large part from deregulation and tremendous government spending. Some argue that a fair amount of this growth comes from foolish and unsustainable federal policies.

Nobody who makes this argument could possibly know when the current debt-funded economic system will collapse under under the weight of a lack of investor confidence, but their point is that the current system is not sustainable indefinitely. And I think that's true, just like anything else under the sun--nothing lasts forever.

Now, the current system might continue to do well until 2050 or beyond. Who knows?! And, of course, nobody knows who will win and who will lose in the next economic system, either. Probably the best/most balanced summary that I've seen is here: https://www.lynalden.com/fraying-petrodollar-system/

2. It's said often that stocks are the best investment vehicle, but that's not necessarily accurate. I may be quibbling over a few tenths of a percent, but I've seen data on REITs going back as far as the mid 1990s (alas, I can't remember where). And depending on the start and end dates, REITs sometimes even outperform the S&P 500 over long periods!

And the correlation between stocks and real estate is moderate (~0.60, if memory serves), making REITs a solid, high-yield diversification tool.

I've spent some time looking into REITs in anticipation of putting some of my own money in one. For some reason, people seem to think they are riskier than stocks, but I can't figure out why that would be. They're less tax efficient because of federal regulations about dividends, but that would hardly matter in a tax-sheltered account like a 401k or an IRA. Maybe people are still shell-shocked from 2008 ¯\_(ツ)_/¯

Anyway, Paul Merriman writes about REITs in a pretty matter-of-fact manner for MarketWatch: https://paulmerriman.com/10-things-need-know-reits/
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Old 12-26-2020, 12:21 PM   #49
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Thanks FREE866! Two thoughts on the matter:

1. Arguably, those commentators may be right in the long term, at least if you view things through the lens of the Austrian School of economic theory. The 80s were an unusual economic time, with high interest rates and enormous growth stemming in large part from deregulation and tremendous government spending. Some argue that a fair amount of this growth comes from foolish and unsustainable federal policies.

Nobody who makes this argument could possibly know when the current debt-funded economic system will collapse under under the weight of a lack of investor confidence, but their point is that the current system is not sustainable indefinitely. And I think that's true, just like anything else under the sun--nothing lasts forever.

Now, the current system might continue to do well until 2050 or beyond. Who knows?! And, of course, nobody knows who will win and who will lose in the next economic system, either. Probably the best/most balanced summary that I've seen is here: https://www.lynalden.com/fraying-petrodollar-system/

2. It's said often that stocks are the best investment vehicle, but that's not necessarily accurate. I may be quibbling over a few tenths of a percent, but I've seen data on REITs going back as far as the mid 1990s (alas, I can't remember where). And depending on the start and end dates, REITs sometimes even outperform the S&P 500 over long periods!

And the correlation between stocks and real estate is moderate (~0.60, if memory serves), making REITs a solid, high-yield diversification tool.

I've spent some time looking into REITs in anticipation of putting some of my own money in one. For some reason, people seem to think they are riskier than stocks, but I can't figure out why that would be. They're less tax efficient because of federal regulations about dividends, but that would hardly matter in a tax-sheltered account like a 401k or an IRA. Maybe people are still shell-shocked from 2008 ¯\_(ツ)_/¯

Anyway, Paul Merriman writes about REITs in a pretty matter-of-fact manner for MarketWatch: https://paulmerriman.com/10-things-need-know-reits/



interesting...is there a REIT ETF?

just looked at a couple publicly traded ones...vornado and jbgs..theyve really gotten slammed this year though...
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Old 12-26-2020, 12:38 PM   #50
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interesting...is there a REIT ETF?

just looked at a couple publicly traded ones...vornado and jbgs..theyve really gotten slammed this year though...
Yes. Had to look it up, because all I could remember was the Vanguard mutual fund ticker, VGSLX. The ETF equivalent is VNQ; ER of 0.12%. Fidelity is FREL; it's got an even lower expense ratio of 0.08%.

I should note here that I am still far from retirement--even ER--so I am worried about setting up a well-diversified asset allocation that I can stick with for the next 20+ years. I'm also worried more about growth & accumulation than about capital preservation, so if any particular asset class takes a beating next month, it doesn't bother me. In fact, I'll buy more

Regarding REITs, YMMV depending on where you're at in life. A retiree, or near-retiree, would be wise to be cautious with making REIT investments; maybe 5% or so if anything.

I'm personally considering a slightly larger proportion, because bonds are likely to be a huge drag on my portfolio for the foreseeable future.
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Old 12-26-2020, 12:58 PM   #51
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Yes. Had to look it up, because all I could remember was the Vanguard mutual fund ticker, VGSLX. The ETF equivalent is VNQ; ER of 0.12%. Fidelity is FREL; it's got an even lower expense ratio of 0.08%.

I should note here that I am still far from retirement--even ER--so I am worried about setting up a well-diversified asset allocation that I can stick with for the next 20+ years. I'm also worried more about growth & accumulation than about capital preservation, so if any particular asset class takes a beating next month, it doesn't bother me. In fact, I'll buy more

Regarding REITs, YMMV depending on where you're at in life. A retiree, or near-retiree, would be wise to be cautious with making REIT investments; maybe 5% or so if anything.

I'm personally considering a slightly larger proportion, because bonds are likely to be a huge drag on my portfolio for the foreseeable future.

In looking at VNQ it looks like since inception in 2004 it's up ~7.5% annually. If my research is correct that is roughly half what the S and P has done over that time.



And yes, if you're 20+ years out from retirement you'd be very wise to consider 100% equity.
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Old 12-26-2020, 12:58 PM   #52
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Also, for the OP @FANOFJESUS.

Sorry for getting kind of off-topic here in the replies, but you may want to read and consider this link as well, regarding sequence-of-return risk: https://www.kitces.com/blog/url-upsi...-final-wealth/

The overarching message is that, due to asymmetries in things going up or things going down, there's a very real possibility that your portfolio will grow substantially, even after drawing on it for 30 years. And that's even without going 100% stocks! [Kitces said he used a 60/40 portfolio that was 60% large-cap stocks/40% intermediate-term bonds.]

So it's probably a mostly academic question anyway. If it helps you sleep better at night, 80/20 or 60/40 has good odds for you over the long run, and you won't need to keep quite as much cash on the sidelines. Unless you want to.
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Old 12-26-2020, 01:44 PM   #53
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In looking at VNQ it looks like since inception in 2004 it's up ~7.5% annually. If my research is correct that is roughly half what the S and P has done over that time.
VGSLX goes back a little further, to November of 2001. It's yielded 9.68% since inception, according to the Vanguard webpage. From that same page, after-tax returns are just under 8%.

A quick look at the S&P 500 from Nov. 2001 to Dec. 2020 shows me a starting value of 1671 and and ending value of 3703. I plugged these values into an investment performance calculator at MoneyChimp, and got an annualized rate of return of 4.28%. This figure, of course, does not include dividends. Or taxes. And so on...

It really depends on the timeframe you're evaluating. Apparently, Paul Merriman's data stretches back to the 1970s (see the link I provided above). From that article:

Quote:
From 1975 through 2006, U.S. REITs had an annualized return of 16.7% — hence their popularity in 2007. From 1975 through 2014, the figure was almost as favorable: 14.1%.
Further reading on the matter: https://www.reit.com/news/blog/marke...r-long-periods
^This should probably be taken with a grain of salt. Considering that this is a REIT website, it's likely that they cherry-picked a good time period for REITs. But the author states that from 1978 to 2016, REITs outperformed the Russell 3000--12.87% to 11.64%; a difference of over 1% annually.

With such multi-decade figures in mind for REITs, it would seem that REITs would make sense for a young-ish investor such as myself. I'm thinking in the neighborhood of 10-20% of one's portfolio. Maybe not quite so much for someone who's closer to retirement, or if volatility keeps that person from sleeping well at night.

But over very long periods, REITs have yielded largely comparable returns to stocks. And they don't always do well at the same time, hence why I like them for high-yield diversification.

I've found this conversation to help clarify my thinking on the matter, FREE866. So thanks!
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Old 12-26-2020, 02:38 PM   #54
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VGSL ... A quick look at the S&P 500 from Nov. 2001 to Dec. 2020 shows me a starting value of 1671 and and ending value of 3703. I plugged these values into an investment performance calculator at MoneyChimp, and got an annualized rate of return of 4.28%. This figure, of course, does not include dividends. Or taxes. And so on...
With respect, all this has done is to get you a number that is not good for much of anything. Dividends are a big part of total return and dividend rates can vary significantly from portfolio to portfolio. There are S&P total return calculators available, though a bit hard to find. https://dqydj.com/sp-500-return-calculator/ seems like a reasonable one, but I would cross check its results with another calculator also claiming to include dividend reinvestment.

You can also get pretty close by researching the total return of a low-cost S&P fund, adding back the expense ratio. Sometimes this is easier.
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Old 12-27-2020, 11:42 AM   #55
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We keep about 4-5 years living expenses in cash/MMKT/CDs. The rest is in ETF funds, approx 90% domestic 10% Int'l.

We try to replenish the cash "bucket" before it gets down to 2-3 years, selling some ETFs when the market is strong. Works for us.
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Old 12-27-2020, 04:54 PM   #56
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No, I'm not a bucketeer and don't keep investments in cash, beyond about $10k in checking.
I retired in 2013 and will continue with this concept indefinitely.
Excess retirement income from SS + pension/annuity gets reinvested in my taxable account, in stock index mutual funds or ETFs.

Now when indexes are pushing all-time highs, I do keep new investment funds in my settlement fund for a while, waiting for the eventual drop...
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Old 12-28-2020, 02:56 PM   #57
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Just retired, I've three years in cash (MM) and the rest equity.
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