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Old 05-09-2021, 06:57 AM   #41
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OMG that is so Pentagon.

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I have always liked this story:

... possibly apocryphal but worthwhile anyway: One day well prior to D-day, the army Met (meteorological) office received a request from SHEAF for a weather forecast on a specific day a couple of months in the future. "Impossible," they said and this was relayed up the chain of command. Back down came the order: "A forecast is required for planning purposes."
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Old 05-09-2021, 07:15 AM   #42
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Looking at NW chart of the 14 year period really makes me want to get some gold lol.

I think gold went from $40 to $400 during that 16 year period when the market returned -59%

Inflation, Interest rates, P/E, gold, bitcoin, Gamestop, Mars

The correct plan of action is to go to Vegas.
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Old 05-09-2021, 07:19 AM   #43
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Originally Posted by Fermion View Post
Looking at NW chart of the 14 year period really makes me want to get some gold lol.



I think gold went from $40 to $400 during that 16 year period when the market returned -59%



Inflation, Interest rates, P/E, gold, bitcoin, Gamestop, Mars



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I hear Dogecoin is on sale.
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Old 05-09-2021, 07:34 AM   #44
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Reading through this thread is very sobering and concerning. For those that are 15-20 years into retirement, you have had a great run and have had the opportunity to pad their savings. But for those of us who are a few years out and are just hitting our savings target, giving back 30%+ would de devastating, and reduce the number of 'good years' we could enjoy.

I know that 10%+ returns in the market are not sustainable, I know that inflation is well above what the government says it is, and I suspect that the market levels are more of a house of cards than a house built on a firm foundation.

Yet here I sit almost 100% in equities, because there really is no other game in town as far as I can tell. Wondering if I should take my 10% gain this year and go hide......

( It is funny how as you close in on retirement, the perceived uncertainty seems to increase, and the 30+ years of savings and investment seem to provide little solace when facing a few more years before you reach safe harbors)
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Old 05-09-2021, 07:43 AM   #45
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I would not be greatly scared of a extended market drop. The current method of dealing with a downturn in the market is to dump money everywhere, which does seem to work pretty well.

10%, 20% drop, yeah, but 50% drop will always be a V with trillions of dollars pouring in during the right side of the V. There can be no other way now without a collapse of US society.

Inflation eating away though is where my concerns are. You can lose 50% of your purchasing power and not even realize you are being boiled.
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Old 05-09-2021, 07:45 AM   #46
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Reading through this thread is very sobering and concerning. For those that are 15-20 years into retirement, you have had a great run and have had the opportunity to pad their savings. But for those of us who are a few years out and are just hitting our savings target, giving back 30%+ would de devastating, and reduce the number of 'good years' we could enjoy.

I know that 10%+ returns in the market are not sustainable, I know that inflation is well above what the government says it is, and I suspect that the market levels are more of a house of cards than a house built on a firm foundation.

Yet here I sit almost 100% in equities, because there really is no other game in town as far as I can tell. Wondering if I should take my 10% gain this year and go hide......

( It is funny how as you close in on retirement, the perceived uncertainty seems to increase, and the 30+ years of savings and investment seem to provide little solace when facing a few more years before you reach safe harbors)
Well, if you are 3 years from RE and are counting on your nest egg to fund most of your RE spend (as opposed to SS/pensions/annuities), you probably should start ratcheting down your AA, especially if a 30% drop is going to negatively affect your world.

3-4 years prior to my planned RE, I finally made peace with ratcheting down my AA from 80/20 to 60/40 (where I plan to hang out between 50/50 - 60/40 in RE). It was tough buying bonds, but many of those smarter than me on this site got me comfortable with viewing bonds as a ballast as opposed to a reliable yield or return generator. Despite my continual desire to tinker, I'm in a pretty good place now.

You may want to give your AA some thought now and seriously think about cashing in some of your equity chips for bond-ish alternatives.
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Old 05-09-2021, 08:09 AM   #47
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Originally Posted by Sniggle View Post
Reading through this thread is very sobering and concerning. For those that are 15-20 years into retirement, you have had a great run and have had the opportunity to pad their savings. But for those of us who are a few years out and are just hitting our savings target, giving back 30%+ would de devastating, and reduce the number of 'good years' we could enjoy.

I know that 10%+ returns in the market are not sustainable, I know that inflation is well above what the government says it is, and I suspect that the market levels are more of a house of cards than a house built on a firm foundation.

Yet here I sit almost 100% in equities, because there really is no other game in town as far as I can tell. Wondering if I should take my 10% gain this year and go hide......

( It is funny how as you close in on retirement, the perceived uncertainty seems to increase, and the 30+ years of savings and investment seem to provide little solace when facing a few more years before you reach safe harbors)

You said it, but with skyrocketing inflation, there's is no place to hide.
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Old 05-09-2021, 08:23 AM   #48
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10%, 20% drop, yeah, but 50% drop will always be a V with trillions of dollars pouring in during the right side of the V. There can be no other way now without a collapse of US society.
I wouldn't be so sure that a 50+% drop will be a "V" or recover quickly.

There are plenty of periods throughout US history where that has not happened. In fact, some of the big downdrafts have taken 10-15+ years to recover from. See upthread for some examples..
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Old 05-09-2021, 08:31 AM   #49
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I wouldn't be so sure that a 50+% drop will be a "V" or recover quickly.

There are plenty of periods throughout US history where that has not happened. In fact, some of the big downdrafts have taken 10-15+ years to recover from. See upthread for some examples..
The fabric of society is more woven into the market now than in the past so you cannot use the past history as an indicator of what might happen. A 50% drop without a recovery destroys local and state economies and creates a problem for people who need to get elected.

I mean anything *can* happen, I just think anything but a V shaped recovery is unlikely now.

But going forward, I do think we will get lower *real* returns, getting back to the OP. I think we might get 5% to 10% a year in the market but experience 5% to 8% of inflation each year as well.
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Old 05-09-2021, 08:40 AM   #50
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^This is probably the simplest way to measure a "win" year after year, provided of course, you have not sacrificed your desired spending habits during any given year due to being consumed with seeing your pot grow. If a retiree can 1) spend year after year as planned, and 2) see his pot keep up with inflation (at least over some reasonable period), then I would say he/she has "won the game"!

On another note, I am starting to warm up to your concept of banking any excess annual withdrawal that is not spent as opposed to reinvesting it in the annual portfolio rebalance. Mentally, one more lever to pull in a down market to plug a hole!
We went through a long period where net worth did not keep with inflation - it took from 2008 through late 2012 to break even inflation adjusted. Much of that time we were down only 10% or less, which is not bad at all. I wouldn’t sweat falling behind 10% for a few years.

Pulling ahead of inflation after spending and taxes just seems incredible!

Banking unspent funds - that goes with my spend it now (in the next few years) rather than later philosophy. It certainly can help weather a rainy day.
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But, Should We Really Expect Lower Returns Going Forward?
Old 05-09-2021, 08:57 AM   #51
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But, Should We Really Expect Lower Returns Going Forward?

I’m still waiting for someone to define “going forward.” Is that the next 18 months, 3 years, 5 years, 10 years, 20 years or forever? Admittedly, I’m of the persuasion that “Nobody knows nothin’” when it comes to predicting systems as complex as the global economy.
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Old 05-09-2021, 09:06 AM   #52
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I would not be greatly scared of a extended market drop. The current method of dealing with a downturn in the market is to dump money everywhere, which does seem to work pretty well.

10%, 20% drop, yeah, but 50% drop will always be a V with trillions of dollars pouring in during the right side of the V. There can be no other way now without a collapse of US society.

Inflation eating away though is where my concerns are. You can lose 50% of your purchasing power and not even realize you are being boiled.
A quick drop of the market will spur "helicopter money", as happened already twice in the last 20 years. Actually, it was not the market that prompted such action, but the horrendous shock to the economy. And there was really no alternative, although some may deny it.

A slow and steady inflation is really something else. As mentioned earlier, wages will generally keep up. Workers will be compensated for their effort. Investors, the rich fat cats on the other hand, will not have so much sympathy (and do they deserve it? ). That is what a retiree living on his investment needs to think about.

What can one do about it?

As USGrant1962 pointed out earlier, FIRECalc shows that a 3.6%WR would still succeed for that terrible inflationary period of 1966-1982. Success here means one would have enough to exactly die broke after 30 years.

Cut it down to 3%WR or less, and you will be OK. Throw in some SS, and you will not eat cat food. Simple!
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Old 05-09-2021, 09:12 AM   #53
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I have no idea what will happen in the future , but the fact that most people seem convinced we are going to see lower returns in the next 10-20 years tells me we probably won't haha



The most important consideration is your investment time frame ( not your age). A 60 year old today in decent health, barring a tragedy, has a very good chance at a 20-30 year + time horizon. That is a really long time. If you want or need growth you will want stocks as a high % of your AA. Cash flow needs and your own mental tolerance for volatility is a factor as well.
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Old 05-09-2021, 09:50 AM   #54
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I would not be greatly scared of a extended market drop. The current method of dealing with a downturn in the market is to dump money everywhere, which does seem to work pretty well.

10%, 20% drop, yeah, but 50% drop will always be a V with trillions of dollars pouring in during the right side of the V. There can be no other way now without a collapse of US society.

Inflation eating away though is where my concerns are. You can lose 50% of your purchasing power and not even realize you are being boiled.

Agree with the whole post above,l but especially the last sentence I bolded to point out. Inflation is the unfortunate consequence we are already starting to experience and I fear will become more of a factor in future. Gov't spending huge amounts on what seems like everything is only making it worse; far more than just the Fed quantitative easing as regarding propping up the markets.
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Old 05-09-2021, 10:37 AM   #55
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Rental properties is an absolute hedge against inflation. As mentioned above wages will always keep up with inflation, so raising the rent would be the way to beat it. But some work is involved, for sure. What do you think?
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Old 05-09-2021, 10:58 AM   #56
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The fabric of society is more woven into the market now than in the past so you cannot use the past history as an indicator of what might happen. A 50% drop without a recovery destroys local and state economies and creates a problem for people who need to get elected.

I mean anything *can* happen, I just think anything but a V shaped recovery is unlikely now.

But going forward, I do think we will get lower *real* returns, getting back to the OP. I think we might get 5% to 10% a year in the market but experience 5% to 8% of inflation each year as well.
There's no reason whatsoever to think "this time will be different" in terms how long it could take to recover from a 30-50% drop. Markets aren't controlled by politicians, and if FedGov continues to do the sorts of things that have been done lately (ie: flooding the system with cash) in an attempt to influence market recovery, that's only likely to make things worse - potentially a LOT worse.

So back to the original question..I do think we should expect lower returns going forward than we've seen this past decade. My own plan in fact ASSUMES this will happen, because it's just basic math. A 30-50+% drop that many pretty smart folks are expecting near-term (next 12-18 months) pretty much guarantees lower total returns over the next decade, unless you're prescient or lucky enough to pull off some good market timing and avoid the meltdown..

US equity valuations by all normal measures are at least 2X "typical". That simply can't - and won't - last as corporate earnings don't support the multiples we're seeing almost across the board (aside from perhaps Value stocks). Eventually, the party is going to end. And when it does, it's probably going to start a stampede like we haven't seen in a very long time..maybe even on the order of 1929 bad. Guess it all comes down to one's own comfort level as to whether that is likely to happen or not. I'm pretty confident in a 30-50+% drop over the next 12-18 months so am acting accordingly on my own investment strategy. But others may reach a different conclusion. If so, that's fine - but whatever conclusion one reaches should be based on hard data and the hard data at this point (eg: current S&P P/E of 37.89 [!!] vs historical average of ~19.4) is not pointing to things continuing and the greater likelihood, IMHO, is a reversion to mean - or perhaps an overshoot to the downside since psychology and group think tend to take over when something like that does start..
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Old 05-09-2021, 11:24 AM   #57
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You know, there are two ways for P/E to normalize...
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Old 05-09-2021, 12:12 PM   #58
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There's no reason whatsoever to think "this time will be different" in terms how long it could take to recover from a 30-50% drop. Markets aren't controlled by politicians, and if FedGov continues to do the sorts of things that have been done lately (ie: flooding the system with cash) in an attempt to influence market recovery, that's only likely to make things worse - potentially a LOT worse.

So back to the original question..I do think we should expect lower returns going forward than we've seen this past decade. My own plan in fact ASSUMES this will happen, because it's just basic math. A 30-50+% drop that many pretty smart folks are expecting near-term (next 12-18 months) pretty much guarantees lower total returns over the next decade, unless you're prescient or lucky enough to pull off some good market timing and avoid the meltdown..

US equity valuations by all normal measures are at least 2X "typical". That simply can't - and won't - last as corporate earnings don't support the multiples we're seeing almost across the board (aside from perhaps Value stocks). Eventually, the party is going to end. And when it does, it's probably going to start a stampede like we haven't seen in a very long time..maybe even on the order of 1929 bad. Guess it all comes down to one's own comfort level as to whether that is likely to happen or not. I'm pretty confident in a 30-50+% drop over the next 12-18 months so am acting accordingly on my own investment strategy. But others may reach a different conclusion. If so, that's fine - but whatever conclusion one reaches should be based on hard data and the hard data at this point (eg: current S&P P/E of 37.89 [!!] vs historical average of ~19.4) is not pointing to things continuing and the greater likelihood, IMHO, is a reversion to mean - or perhaps an overshoot to the downside since psychology and group think tend to take over when something like that does start..
OK, you’ve painted the picture. Forgive me if I missed it but what do you recommend we all do? How have you positioned your assets?

There have already been hundreds of posts pointing out stocks are relatively expensive, bond yields can only go up which lowers fund NAVs and cash has been returning next to nothing for quite a while. Most here are well versed on market history & behavior. Tell us something we don’t know…
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Old 05-09-2021, 12:33 PM   #59
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OK, you’ve painted the picture. Forgive me if I missed it but what do you recommend we all do? How have you positioned your assets?
I'd love to hear people's answers to these questions. Are any of you changing anything? Have you altered your AA? Have you sold off any greatly appreciated stock, and if so where did you park the money?


The only recent move we made was donating some appreciated stock to our synagogue. Our cost basis was very low as it was a stock that had been a 2nd generation spin off from 2 other companies so our cost was a couple of dollars per share and it is now over $60/share. I figured that slightly lowered our equity position and saved us a few hundred in taxes. It wasn't enough to move the needle on our AA though.
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Old 05-09-2021, 12:37 PM   #60
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OK, you’ve painted the picture. Forgive me if I missed it but what do you recommend we all do? How have you positioned your assets?
Well, I wouldn't presume to make recommendations to anyone as I don't have insight into anyone else's goals, AA, expenses or financial position. That said, I do think answering the question of "should we expect lower returns going forward" can only logically be done by looking objectively at current valuations which then leads to a "probably so (at least over the next decade or so)" answer to the original question..

In terms of my own strategy (FWIW and YMMV)..I've reduced equity exposure to ~25% of total portfolio value. Of that, roughly 1/3 is in Internationals with a heavy tilt to International Value. Also increasing AsiaPac and US Value exposure where I can find much more attractive PE ratios.

I've also bought Inflation Protection assets, a Gold ETF, REITs and a very flexible PIMCO fund that is a "go anywhere" Inflation Response fund that can hold TIPS, Emerging Markets Currency, Gold, Real Estate and similar assets. (My thinking on that one is to let the PIMCO experts - all of who are far smarter than me, determine what the right mix of inflation protection assets may be as inflation increases).

In terms of Fixed Income, I've increased exposure to short duration bond funds and have considered dialing back my longer duration funds, knowing that they're going to get hammered as rates go up.

All that said, I realize others may have totally different goals and none or little of this may be of help to anyone else's unique situation, but since you asked ..it's also worth mentioning that I'm not looking to run up the score at this point, but instead to fund ER with the lowest possible amount of risk that I can take, as a big drawdown is not something I want to go through at this point. Someone who wants to leave assets to others after death, or live more extravagantly than us in ER may have different goals and a need to take significantly more risk. All comes down to what you're trying to accomplish..

ETA - an AA that's heavy on US equities (especially Large Growth) is likely going to crush what I described above..at least in the short term until things eventually "reprice". But I'm looking to minimize risk and comfortably pay the bills, not shoot for the moon in terms of total returns or capital appreciation. And in the long run, the diversification I've described should achieve exactly that although there are of course no guarantees..lastly, on the topic of "don't take more risk than you NEED", there was a great piece (which I've posted before) by Rick Ferri originally published in Forbes where he makes a strong case that the "center of gravity" for retirees or those approaching retirement is a roughly 30/70 AA, although that can be dialed up or down based on individual circumstances and need..FWIW..https://www.forbes.com/sites/rickfer...h=100e5e85dae9.
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