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Old 08-10-2021, 11:25 AM   #121
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VChan:

Inflation may well occur, that's not the question, the question is whether you can predict it and react to it faster and better than millions of other investors including rooms full of PhDs armed with supercomputers and better data. Study after study says on average active management doesn't work. You have to bet against the market and be right in multiple ways at multiple times - going in "capital preservation mode" at the right time and in the right way (maybe inflation doesn't show up for years, maybe value stocks are the wrong place to hide, maybe SF implements rent control on your properties or a hundred other possibilities) and then correctly guessing whatever is next after that and making those moves right too.

Since you really are playing with commodities futures, I'm not sure why that fits with a "capital preservation mode". Risk is OK when it's compensated risk, but the unlike stocks, where there is an underlying growth trend, commodity futures are a zero sum game before costs and costs are high, so that is non-compensated risk. If you want to gamble with your "fun money", that's great, but just like a trip to Vegas, it's more likely than not to be a negative in your portfolio.

Overall, you have a very concentrated bet with upwards of 75% of your portfolio with non-diversified stocks, non-diversified real estate and some amount of commodity futures trading. If the current stock boom, real estate boom and commodity boom continues, I'm sure you will make bank, just realize there are also lots of possible scenarios where that won't happen. I'm hoping it works for you!
I am a market timer. Does that shock you? Yes I understand that study after study indicates active management does not work but I am an "individual" investor and not a "manager of a actively managed mutual fund". There is a difference. I started out as a passive investor but I discovered you learn almost nothing as a passive investor.

I was a passive investor for 90% of my portfolio and I used 10% of my portfolio in active investments in order to go thru my learning curve so 10% involves less risk. Just like a smart gambler at the casino, I only bet what I can afford to lose. My objective is to acquire knowledge which I could not acquire as a passive investor. Later the 10% became 100% but only AFTER I became confident and successful. You must learn and acquire knowledge and experience first before becoming a full time active investor.

For example: In 2019, I changed my entire 60/40 portfolio to 100% treasury bonds because the yield curve inverted. In 2020, the market crashed, my VUSUX treasuries made 30% in 1st quarter 2020 so I started buying equities after the equity market declined so I made a killing. I was nearly a whole year too early in 60/40 to 0/100 reallocation but better to be early than to be late. Some passive investors stated that I was "lucky". That does not matter because I am laughing about it when I am buying houses with 100% cash which they could not do. I am currently working to buy my 3rd house with 100% cash.

Playing commodities is risky. However, I control that risk by limiting the amount of money. I do not put 100% of my portfolio into commodities. Just enough for me to feel comfortable. Some of the commodities are in precious metals like gold. Gold is consistent with an asset preservation strategy. Finally, I can never recommend to anyone to become a active investor without going thru a learning curve. If you do not have the knowledge and experience, then I always recommend people to be a passive investor. However, if you want to make a killing, you need to acquire the knowledge and experience first and ignore other people that state active investing fails 100% of the time. That statement is only true for people without knowledge and experience.

Finally, thank you for your comment of "I hope it works for you!" . The big takeaway from this: Impossible to time the market to the exact day. However, it is easier to time the market for one or two years prior. I am betting that inflation should hit one or two years from now in 2022 or 2023. If you review inflationdata.com you should note that in the 1973, inflation started to creep up just like it is doing right now. The double digit inflation did not occur until 1974. I re-allocated my portfolio with the assumption that history may repeat itself. If it does not repeat itself and inflation is less than 2% which is the Fed's inflation goal, then my portfolio will "under-perform" which is OK in my position. I also understand that "under-performance" may NOT be OK with other people.

Under-performance does not mean that I will lose everything. For example, I made a bet that the market will crash in 2019. I knew equities made an average of 10 to 12% while LT treasures made an average of 5 to 7%. This is an under-performance of 5%. I gave up the 5% in 2019 and in 2020, I made my killing.
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Old 08-10-2021, 01:11 PM   #122
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I can't answer your question because retirement is a personal decision and there is no formula. It all depends on what type of retirement you want. My own personal goal of retirement is to ensure my standard of living does not decline. I did my own calculations and closely examine my assumptions in order to assess my risks in those assumptions

Also, I noticed your portfolio is not inflation-friendly. I suggest reading the following link on what happens to stock during inflationary times:

https://www.investopedia.com/article...ck-returns.asp

Currently my own personal goal is to make sure my portfolio is consistent with this link and is inflation friendly: This means investing in value fund and not growth fund. Investing in commodities and housing also tends to do well in inflationary period.

As far as buying a house, the question should be "yes" but you should have done that last year before the prices of real estate has gone up. The reason why the prices of real estate has gone up is probably because old timers like me remember that housing do well during inflationary times and therefore investors are buying houses which drives up the prices.

My current portfolio is roughly 25% equities (value funds), 25% bonds (ST treasuries), 25% income producing real estate and 25% cash and commodies. Recently my equities and real estate have done well while my bonds and cash/commodies are flat. In the long term, this portfolio will likely under perform but if inflation hits, I should be well positioned. Your portfolio will do well in the long term but in the short term and if inflation hits, you may get hurt...in the short term.

Here is my analysis on why inflation is unavoidable: Government is in debt. The government has to pay interest on that debt so it is to their best interest to keep the interest rates low. The Fed is buying treasuries from the treasury department because if they don't, the lack of demand for treasuries decline and the treasury department will have no choice but to raise interest rates in order to increase the demand for treasuries.

However, the Fed has to print money to buy the treasuries to keep the interest rate low. This is manipulating the market which is dangerous. When the government prints more money, this cause inflationary pressures until the bubble burst. If you read up on how the Fed controlled inflation in the 1970's, the Fed raised interest rates! This is the opposite of what they are doing now.

This explains why I put my portfolio in a "capital preservation mode" in case the bubble burst. I could be wrong but I am age 70 so I do not have time for the market to recover like the younger investors. Since you are younger, you really do not need to put your portfolio in a capital preservation mode because in the long run the returns of a capital preservation portfolio are lower. However, there is nothing wrong in exchanging some of your "growth" equities to "value" equities. (not all but some) as noted in the link.
I want a better QOL in retirement. $50k-$75k a year expenses. I don’t have Bonds now. Is there a need to at my age?

I don’t like the labor that comes with owning a house and all the maintenance and repair costs. My rent each year never goes up.

Why does my short term losses matter? I am not withdrawing.
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Old 08-10-2021, 03:54 PM   #123
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I want a better QOL in retirement. $50k-$75k a year expenses. I don’t have Bonds now. Is there a need to at my age?

I don’t like the labor that comes with owning a house and all the maintenance and repair costs. My rent each year never goes up.

Why does my short term losses matter? I am not withdrawing.
My two cents:

Your retirement is 12 to 15 years away if I read your post correctly.

Therefore a portfolio of 100% equities is very aggressive but marginally acceptable because you are at least 12 years from retirement. However, the closer you are to retirement, you should start considering buying bonds as a hedge. Reason: Worst thing you can do is have a 100% equity portfolio and then retire or be close retirement.....and then the market crashes and now you need an additional 3 to 6 years for the market to recover. Bonds can act as your parachute against a hard landing. Bonds can also diversify your portfolio which is a good thing.

Some FA suggest a equity portfolio of 110 minus your age. Since you are 43, this is 110-43=67 which is portfolio of 67% equities/33% bonds. However, this may be conservative IMO. Here is your dilemma: Be aggressive or be conservative?

I can not answer that for you. If you are aggressive, the likelihood of reaching your $2M goal is higher but you have higher risks. If you are conservative, the likelihood of reaching your $2M goal is less. As I stated in a previous post, there is no guarantee in any investment.

OK, You do not want to own a house. That is your choice.

Short term losses generally do not matter since you are 12 years away from retirement. However, avoiding short term losses means your portfolio will likely grow higher than a portfolio that has short term losses. However, this means you have to be an active investor. It does not appear that you have the knowledge or experience to be an active investor.
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Old 08-10-2021, 11:31 PM   #124
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Vchan:
I recommend not getting spooked by talking heads on TV, clickbait headlines and the like. They have been predicting doom forever, because fear makes you watch and gives them clicks - selling fear is their business model, but you don't need to buy.

Any information about inflation has been widely known for months, so there's no advantage in it, it's already priced in to the extent that others believe it will be real; plenty of folks already have driven up the prices of homes. Recognize that most professionals fall behind the market when they try to time it, hard to believe that amateurs like us have special insight, so I recommend not trying.

On a technical point, the Fed does not print money, only bank lending can increase the money supply. Banks have maybe $3 trillion in extra reserves with the Fed paying them 0.15%. The number is so high in part because folks like yourself are holding tons of money on the sidelines. Banks might or might not decide to loan it out which is when the money would be created - after all if they perceive inflation, they don't want to be stuck with a low interest loan. Even if you are right that inflation above what the market currently anticipates is in our future, there is no guarantee that any particular investment will be the right place to be. So your choice of a non-diversified stock fund is riskier than owning the whole market.

Do you know what real estate you own? Real estate returns are very specific to the market and asset type, buying what's hot right now may get you burned.

I don't even understand what you mean by owning commodities. You mean futures contracts, not actually buying a few thousand tons of pork bellies, right? I know little about it other than it's always been taught to me to stay far away -it's a game for professionals - too high cost, high risk for amateurs.
So my funds are ok for me compare to what he is recommending?
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Old 08-10-2021, 11:38 PM   #125
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Investment is a personal thing and I based my investments on three things: (1) data (2) experience (3) my ability to take and accept risks. You should review the data at inflationdata.com and compare the recent inflation data from the last 3 months to the previous months of the last 10 years.

Of course there is no guarantee in investing. I accept the risks of my non-diversified portfolio. You have not cited any data that supports your own position so I assumed your post is just an opinion. I do not agree with your opinion since I have been successful. I defined “success” as buying houses with 100% cash and not borrowing money from the bank. I recently purchased two 1/2 million dollars houses in the SF Bay Area with 100% cash. This answered your question on the location of my real estate. I also been a landlord for over 25 years and I have a real estate license although my day job was an engineer who make decisions based on data.

I do acknowledge that the government does not print money but they do borrow money and put that money into our economy which can be inflationary. If you recall, LBJ did not want to raise taxes to pay for the Vietnam War in the 60’s and inflation hit us in the 70’s. Is the government increasing our taxes lately? Nope they cut taxes which is inflationary. There is a time delay but raising taxes is unlikely due to our political situation. Inflation benefit people who has debts because the debt is usually fixed. Inflation also benefit the government debt but does a number on the economy. You appear to believe the government can control inflation so it does not get out of hand. If inflation can be controlled then my portfolio will underperform which I already stated that an asset preservation portfolio will underperform but I accepted these risks. You have to understand that I already hit my financial goals so I am no longer in a “asset accumulation phase” but in a “asset preservation phase”. Those are two different strategies.

I do agree with you that commodity future contracts are high risk but I like the thrill of victory and the agony of defeat. Since I am financially secured, I like to gamble a little. Commodities are not for everyone and my last post I did not advise people to invest in commodities and I only disclose my own investment strategy and let people know how inflation affects stock. In my last post I only pointed out that some portfolios are not “inflation friendly” and cited a link to support my position. In the final analysis, readers have to decide whether inflation will increase or not and this is a personal decision. You should cite data or evidence that inflation will NOT occur to support your own personal decision so we can have a lively debate.
What funds do you have in your non diversified portfolio? If the interest rates are at historic low why pay cash for it? That cash could be put to use elsewhere for another ROI.
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Old 08-10-2021, 11:41 PM   #126
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Yes, unless you are one of the 5%! Then all bets are off.


The period between Aug, 2000 thru 2012 was not good, the S&P took that long just to get back to even. (does not include dividends)
2000s were a lost decade. After the dot com crash the market was at all-time high in 2007 only to be wiped out in 2008.
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Old 08-11-2021, 11:07 AM   #127
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What funds do you have in your non diversified portfolio? If the interest rates are at historic low why pay cash for it? That cash could be put to use elsewhere for another ROI.
I thought I already mentioned 25% equities, 25% bonds, 25% income producing properties and 25% cash/commodities. I assume you probably want details on my equities and bonds portfolio:

VDIGX - Dividend fund
VVIAX - Value Fund

VFIRX - ST treasuries
VFIUX - MT treasuries
VUSUX - LT treasuries

Please note that my portfolio is biased toward capital preservation rather than potential growth. The Value Fund should perform well during inflation as noted in a previous link that I already posted. Dividend funds focuses on high dividends companies rather than potential growth companies. This means they are making money now. Growth fund means they will be making money in the future. However, growth funds out-perform Dividend funds during a bull market in the long run but during a bear market, Dividend funds holds their value better.

Treasuries are relatively safe and perform well in a bear market but are interest rate sensitive. VFIRX is my safe haven fund. VUSUX is my fund to make money during a crash. I do transfer money from short term to long term and vice versa depending on the economy and interest rates. I have more knowledge on bonds than equities. I do not like corporate bond funds because the rating system of AAA versus AA, A, junk etc funds needs to be down graded according a 2019 Morgan Stanley report. Based on this report, I dumped my corporate bonds in favor of treasuries. It did not make sense to get a lower return on a AAA corporate bond when it is really rated AA and technically I should be getting a higher AA bond return instead. Generally bonds provides an interest rate return plus capital return. Most people understand interest rates but most people are not familiar with the capital return on a bond. If you need more details on bonds, let me know.

An asset preservation portfolio and an asset accummulation portfolio have separate objectives. The former focuses on lower risk while the latter focuses on higher growth but higher risk. People who is 10 years away from retirement should not use this portfolio. I noticed you have investments in S&P500 which is a growth fund so you should be fine. However, I already suggest looking into a value fund to make your portfolio more inflation friendly and to diversify your portfolio.

For example: If inflation hits, I expect the growth fund to underperform while the value fund to hold their value. As a active investor, I would tend to transfer money from the value fund to the growth fund in order to take advantage of the recovery of the growth fund. However, if you do not want to play this game, then 100% S&P500 is OK too.
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Old 08-11-2021, 11:13 AM   #128
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I thought I already mentioned 25% equities, 25% bonds, 25% income producing properties and 25% cash/commodities. I assume you probably want details on my equities and bonds portfolio:

VDIGX - Dividend fund
VVIAX - Value Fund

VFIRX - ST treasuries
VFIUX - MT treasuries
VUSUX - LT treasuries

Please note that my portfolio is biased toward capital preservation rather than potential growth. The Value Fund should perform well during inflation as noted in a previous link that I already posted. Dividend funds focuses on high dividends companies rather than potential growth companies. This means they are making money now. Growth fund means they will be making money in the future. However, growth funds out-perform Dividend funds during a bull market in the long run but during a bear market, Dividend funds holds their value better.

Treasuries are relatively safe and perform well in a bear market but are interest rate sensitive. VFIRX is my safe haven fund. VUSUX is my fund to make money during a crash. I do transfer money from short term to long term and vice versa depending on the economy and interest rates. I have more knowledge on bonds than equities. I do not like corporate bond funds because the rating system of AAA versus AA, A, junk etc funds needs to be down graded according a 2019 Morgan Stanley report. Based on this report, I dumped my corporate bonds in favor of treasuries. It did not make sense to get a lower return on a AAA corporate bond when it is really rated AA and technically I should be getting a higher AA bond return instead. Generally bonds provides an interest rate return plus capital return. Most people understand interest rates but most people are not familiar with the capital return on a bond. If you need more details on bonds, let me know.

An asset preservation portfolio and an asset accummulation portfolio have separate objectives. The former focuses on lower risk while the latter focuses on higher growth but higher risk. People who is 10 years away from retirement should not use this portfolio. I noticed you have investments in S&P500 which is a growth fund so you should be fine. However, I already suggest looking into a value fund to make your portfolio more inflation friendly and to diversify your portfolio.

For example: If inflation hits, I expect the growth fund to underperform while the value fund to hold their value. As a active investor, I would tend to transfer money from the value fund to the growth fund in order to take advantage of the recovery of the growth fund. However, if you do not want to play this game, then 100% S&P500 is OK too.
There is no need for me to be in capital preservation right?
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Old 08-11-2021, 01:05 PM   #129
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There is no need for me to be in capital preservation right?
No. At your age, you should be in a capital accumulation portfolio which you are already in with your S&P500 investment.

Understand that a capital preservation portfolio is intended to reduce the potential risk of a loss of capital....but it does this at the expense of maximum growth. If your job is secured, then you should also not need liquidity which a capital preservation portfolio can provide. In my case, I already made sufficient money in the stock market so liquidity and capital preservation are more important to me than maximizing my growth.

Like Kenny Roger's song in the gambler: "You have to know when to walk away". I've walked away from a capital accumulation portfolio.

Just remember that when you get close to retirement (within 5 years or so), you will need to think about capital preservation and liquidity. A common mistake: People has no bonds, no capital preservation, no liquidity while nearing retirement and then the stock market crashed forcing them to delay their retirement.
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Old 08-11-2021, 02:12 PM   #130
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No. At your age, you should be in a capital accumulation portfolio which you are already in with your S&P500 investment.

Understand that a capital preservation portfolio is intended to reduce the potential risk of a loss of capital....but it does this at the expense of maximum growth. If your job is secured, then you should also not need liquidity which a capital preservation portfolio can provide. In my case, I already made sufficient money in the stock market so liquidity and capital preservation are more important to me than maximizing my growth.

Like Kenny Roger's song in the gambler: "You have to know when to walk away". I've walked away from a capital accumulation portfolio.

Just remember that when you get close to retirement (within 5 years or so), you will need to think about capital preservation and liquidity. A common mistake: People has no bonds, no capital preservation, no liquidity while nearing retirement and then the stock market crashed forcing them to delay their retirement.
I read that the year I retire say the market drops 50% then either I continue to work or cut my SWR.

Would cutting SWR be ok and not work until market recovers?

I also read that I shouldn’t be in Bonds until I am 5 years from retirement.
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Old 08-11-2021, 06:25 PM   #131
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I read that the year I retire say the market drops 50% then either I continue to work or cut my SWR.

Would cutting SWR be ok and not work until market recovers?

I also read that I shouldn’t be in Bonds until I am 5 years from retirement.
The problem with cutting SWR is your QOL will decline and you will be selling shares at low prices. Remember to "buy low and sell high". Here is a chart on how stock and bonds behaved during the 2008 bear market.




The blue line represents a stock fund, the green and yellow represents a High Yield or Junk bond fund and Investment grade bond fund and the orange represents an intermediate treasury fund.

Note that the stock fund decline during a bear market. No surprise there. The corporate bond funds also decline but not as much. The treasury actually increased in value. This is because a bear market drives up the demand for treasuries since stocks become too risky and investors are looking for a safe haven.

If a guy has 100% stock then his entire portfolio will generally follow the blue line. If a guy has 75% stock and 25% treasuries, he can liquidate only his treasuries since the value of treasuries has increased and he is selling treasuries shares at a relatively high price. He maintains his QOL and let his stock investment recover and then start selling his stock shares after recovery.

This also explains why I prefer treasuries over corporate bonds because they are a better hedge. However, corporate bonds do better than treasuries in the long run in a bull market. But stock do better than corporate bonds in the long run in a bull market. In any case, this is how diversified investments work and the benefits of having a hedge. Some retired investors have 20 different investments: large cap, mid caps, small cap, corp bonds, treasures, etc so he can pick and choose which fund to liquidate regardless of the market situation.

Just remember to "buy low and sell high".

in my case, if there is double digit inflation, the stock market may take a hit so my treasuries should do well. My properties should also do well. ditto my gold investments. If there is no double digit inflation, my portfolio will under-perform but I accept an under-performance outcome in exchange for another possible killing on my investments.
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Old 08-12-2021, 09:55 PM   #132
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Hopefully OP is legit and we are not just his entertainment.


So assuming he's real, then he really needed help on his journey of learning about money management and the group here provided that, though we may have lost some hair doing it.
Right - big assumption, HAL? >.....daisy, daisssyyy....
lost hair => "Do not feed the wildlife"

This thread chalks near compulsivity which is what makes it so comical - ala "What about Bob?". Be careful not to become Dr. Marvin.
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Old 08-13-2021, 11:06 AM   #133
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The problem with cutting SWR is your QOL will decline and you will be selling shares at low prices. Remember to "buy low and sell high". Here is a chart on how stock and bonds behaved during the 2008 bear market.




The blue line represents a stock fund, the green and yellow represents a High Yield or Junk bond fund and Investment grade bond fund and the orange represents an intermediate treasury fund.

Note that the stock fund decline during a bear market. No surprise there. The corporate bond funds also decline but not as much. The treasury actually increased in value. This is because a bear market drives up the demand for treasuries since stocks become too risky and investors are looking for a safe haven.

If a guy has 100% stock then his entire portfolio will generally follow the blue line. If a guy has 75% stock and 25% treasuries, he can liquidate only his treasuries since the value of treasuries has increased and he is selling treasuries shares at a relatively high price. He maintains his QOL and let his stock investment recover and then start selling his stock shares after recovery.

This also explains why I prefer treasuries over corporate bonds because they are a better hedge. However, corporate bonds do better than treasuries in the long run in a bull market. But stock do better than corporate bonds in the long run in a bull market. In any case, this is how diversified investments work and the benefits of having a hedge. Some retired investors have 20 different investments: large cap, mid caps, small cap, corp bonds, treasures, etc so he can pick and choose which fund to liquidate regardless of the market situation.

Just remember to "buy low and sell high".

in my case, if there is double digit inflation, the stock market may take a hit so my treasuries should do well. My properties should also do well. ditto my gold investments. If there is no double digit inflation, my portfolio will under-perform but I accept an under-performance outcome in exchange for another possible killing on my investments.
Safe to go the Bonds route 5 years from retirement?
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Old 08-13-2021, 12:13 PM   #134
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Safe to go the Bonds route 5 years from retirement?
Let's look at the bear market historical data from the Hardfordfunds.com
________________________________________________


Bear Markets Have Been Common S&P 500 Index declines of 20% or more, 1929–2020

Start and End Date % Price Decline Length in Days

9/7/1929–11/13/1929 -44.67 67

4/10/1930–12/16/1930 -44.29 250

2/24/1931–6/2/1931 -32.86 98

6/27/1931–10/5/1931 -43.10 100

11/9/1931–6/1/1932 -61.81 205

9/7/1932–2/27/1933 -40.60 173

7/18/1933–10/21/1933 -29.75 95

2/6/1934–3/14/1935 -31.81 401

3/6/1937–3/31/1938 -54.50 390

11/9/1938–4/8/1939 -26.18 150

10/25/1939–6/10/1940 -31.95 229

11/9/1940–4/28/1942 -34.47 535

5/29/1946–5/17/1947 -28.78 353

6/15/1948–6/13/1949 -20.57 363

8/2/1956–10/22/1957 -21.63 446

12/12/1961–6/26/1962 -27.97 196

2/9/1966–10/7/1966 -22.18 240

11/29/1968–5/26/1970 -36.06 543

1/11/1973–10/3/1974 -48.20 630

11/28/1980–8/12/1982 -27.11 622

8/25/1987–12/4/1987 -33.51 101

3/24/2000–9/21/2001 -36.77 546

1/4/2002–10/9/2002 -33.75 278

10/9/2007–11/20/2008 -51.93 408

1/6/2009–3/9/2009 -27.62 62

2/19/2020–3/23/2020 -33.92 33
Average -35.62 289

Past performance does not guarantee future results. Investors cannot directly invest in an index. As of 8/31/20. Source: Ned Davis Research, 9/20.
________________________________________________



5 years is 1825 days and since the longest bear market is 630 days, 5 years is safe and conservative in my opinion because if the crash happens when you are 100% stock, there is a good chance of recovery before you retire based on the above data However, be aware of the "Past performance does not guarantee future results" statement which means there is no guarantee in investing.

The other subject is how much bonds?

Let assume a portfolio of $1.5M and your annual expense is $50K per year. Let's also assume that you want a 3 year hedge. This is a bond of $150K which is a 90%/10% portfolio. Some FA suggest a 60%/40% portfolio which is conservative since this is $600K or a 12 year hedge.

Let's estimate the cost of under performance: Typical average S&P500 return is about 10% and corporate bonds is about 7%. This is an under performance of 3%.

3% x $150K = $4,500 per year of under performance for a 90/10

3% x $600K = $18,000 per year of under performance for a 60/40

There is no right answer. It all depends on your risk tolerance. Some investors are very conservative while other are very aggressive. Investors should balance the safety of bonds with the under performance cost of bonds compared to equities. Afterwards, you should consult other investors and FA to verify your decision is a sound one. My advice is to learn all you can before you reallocate.
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Old 08-14-2021, 12:26 PM   #135
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Let's look at the bear market historical data from the Hardfordfunds.com
________________________________________________


Bear Markets Have Been Common S&P 500 Index declines of 20% or more, 1929–2020

Start and End Date % Price Decline Length in Days

9/7/1929–11/13/1929 -44.67 67

4/10/1930–12/16/1930 -44.29 250

2/24/1931–6/2/1931 -32.86 98

6/27/1931–10/5/1931 -43.10 100

11/9/1931–6/1/1932 -61.81 205

9/7/1932–2/27/1933 -40.60 173

7/18/1933–10/21/1933 -29.75 95

2/6/1934–3/14/1935 -31.81 401

3/6/1937–3/31/1938 -54.50 390

11/9/1938–4/8/1939 -26.18 150

10/25/1939–6/10/1940 -31.95 229

11/9/1940–4/28/1942 -34.47 535

5/29/1946–5/17/1947 -28.78 353

6/15/1948–6/13/1949 -20.57 363

8/2/1956–10/22/1957 -21.63 446

12/12/1961–6/26/1962 -27.97 196

2/9/1966–10/7/1966 -22.18 240

11/29/1968–5/26/1970 -36.06 543

1/11/1973–10/3/1974 -48.20 630

11/28/1980–8/12/1982 -27.11 622

8/25/1987–12/4/1987 -33.51 101

3/24/2000–9/21/2001 -36.77 546

1/4/2002–10/9/2002 -33.75 278

10/9/2007–11/20/2008 -51.93 408

1/6/2009–3/9/2009 -27.62 62

2/19/2020–3/23/2020 -33.92 33
Average -35.62 289

Past performance does not guarantee future results. Investors cannot directly invest in an index. As of 8/31/20. Source: Ned Davis Research, 9/20.
________________________________________________



5 years is 1825 days and since the longest bear market is 630 days, 5 years is safe and conservative in my opinion because if the crash happens when you are 100% stock, there is a good chance of recovery before you retire based on the above data However, be aware of the "Past performance does not guarantee future results" statement which means there is no guarantee in investing.

The other subject is how much bonds?

Let assume a portfolio of $1.5M and your annual expense is $50K per year. Let's also assume that you want a 3 year hedge. This is a bond of $150K which is a 90%/10% portfolio. Some FA suggest a 60%/40% portfolio which is conservative since this is $600K or a 12 year hedge.

Let's estimate the cost of under performance: Typical average S&P500 return is about 10% and corporate bonds is about 7%. This is an under performance of 3%.

3% x $150K = $4,500 per year of under performance for a 90/10

3% x $600K = $18,000 per year of under performance for a 60/40

There is no right answer. It all depends on your risk tolerance. Some investors are very conservative while other are very aggressive. Investors should balance the safety of bonds with the under performance cost of bonds compared to equities. Afterwards, you should consult other investors and FA to verify your decision is a sound one. My advice is to learn all you can before you reallocate.
So if 5 years if too conservative to hop into Bonds of any AA then maybe 3 years?

So you are saying I can be 💯 stocks like I am in now till very near of retirement?
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Old 08-14-2021, 01:15 PM   #136
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So if 5 years if too conservative to hop into Bonds of any AA then maybe 3 years?

So you are saying I can be 💯 stocks like I am in now till very near of retirement?[/QUOTE]

VChan has been very patient with lots of great material that I hope people read. I don't want folks to misunderstand the data about bear markets. Those durations are to the bottom of the bear market, at times it took 15+ years to get back to the previous high after adjusting for inflation. Most people that are 100% equities during accumulation would start adding some bonds when they are about that far away from retirement, ramping up to their chosen retirement bond holding over that time. But it depends on their tolerance to handle a a downturn.

A creative thinker that you should read before we get another rapid-fire round of questions is Big ERN's safe withdrawal series, specifically this about pre-retirement glidepaths:

https://earlyretirementnow.com/2021/...eries-part-43/

You don't have to follow all the math to get the idea that since stocks do better on average, that on average, you do better to wait to add bonds. But we don't get to live the "average", just one shot, so bonds are significant insurance against future bad outcomes. As many folks here have told you before, no one can tell you what you should do.
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Old 08-14-2021, 01:31 PM   #137
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So if 5 years if too conservative to hop into Bonds of any AA then maybe 3 years?

So you are saying I can be 💯 stocks like I am in now till very near of retirement?
VChan has been very patient with lots of great material that I hope people read. I don't want folks to misunderstand the data about bear markets. Those durations are to the bottom of the bear market, at times it took 15+ years to get back to the previous high after adjusting for inflation. Most people that are 100% equities during accumulation would start adding some bonds when they are about that far away from retirement, ramping up to their chosen retirement bond holding over that time. But it depends on their tolerance to handle a a downturn.

A creative thinker that you should read before we get another rapid-fire round of questions is Big ERN's safe withdrawal series, specifically this about pre-retirement glidepaths:

https://earlyretirementnow.com/2021/...eries-part-43/

You don't have to follow all the math to get the idea that since stocks do better on average, that on average, you do better to wait to add bonds. But we don't get to live the "average", just one shot, so bonds are significant insurance against future bad outcomes. As many folks here have told you before, no one can tell you what you should do.[/QUOTE]

Vchan’s comments are gold. Member knows a lot.
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Old 08-14-2021, 06:52 PM   #138
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So if 5 years if too conservative to hop into Bonds of any AA then maybe 3 years?

So you are saying I can be 💯 stocks like I am in now till very near of retirement?
I already stated that some investors are conservative and some investors are aggressive. I was an aggressive investor during my asset accumulation period. This is why I also post what a typical FA would recommend because it has been my experience that most FA are conservative. You should balance my posts, as an aggressive investor, with posts from a conservative investor.

5 years is a safe period for you to hop into bonds. However, that opinion is from an aggressive investor. Other investors have bonds a lot earlier. Your 3 years suggestion would exceed even my risk tolerance because delaying retirement would be a disaster for me personally. On the other hand, if delaying retirement is acceptable to you, then 3 years would be OK. That is the point of taking risks. If the risks of failure is acceptable, then it is OK to take those risks. Taking risks will depend on that individual.

You are invested in the S&P500. The S&P 500 with an average market return of 10% is the "gold standard" that I use for my risk analysis. It is very hard to beat the S&P500 in the long term so you made the right investment. You can only beat the S&P500 in the short term by active investing and timing the market.

Having all your eggs in one S&P500 basket is usually frown upon by most FA due to lack of a diversified portfolio. A Diversified portfolio lowers your risk. However, time also lower your risks. Since you have over 10 years to go, there is no reason to lower your risk "twice". When you get close to retirement, you no longer have that time element so you need to lower the risk by diversification. Generally most people have two types of investments: IRA and taxible. Taxible investment is usually a shorter term investment so diversification is necessary to lower the risk.

Some investors have a diversified portfolio with 10+ years to go. A guy with 50% S&P500 and 50% value fund is more diversified than a guy with 100% S&P500. However, Value funds tend to lag the S&P500 by 1% so the guy with 100% S&P500 comes out ahead in the long term. I only suggest the value fund because in the value fund may beat the S&P500 in the short term. This is my other point: Long term investing and short term investing are completely different.

Investing in bonds means there is an under performance cost in the long term. Investing in a diversified portfolio, there is also an under performance cost when you compare each asset class with the S&P500. In exchange for the under performance cost, you get a lower risk and liquidity.
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Old 08-14-2021, 07:01 PM   #139
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VChan has been very patient with lots of great material that I hope people read. I don't want folks to misunderstand the data about bear markets. Those durations are to the bottom of the bear market, at times it took 15+ years to get back to the previous high after adjusting for inflation. Most people that are 100% equities during accumulation would start adding some bonds when they are about that far away from retirement, ramping up to their chosen retirement bond holding over that time. But it depends on their tolerance to handle a a downturn.
.
Yep...I stand corrected as far as the data of bear market duration which is the duration to the bottom and does NOT include recovery. In my haste, I posted the wrong data. Thank you Exchme for correcting my error.
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Old 08-15-2021, 10:28 AM   #140
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I already stated that some investors are conservative and some investors are aggressive. I was an aggressive investor during my asset accumulation period. This is why I also post what a typical FA would recommend because it has been my experience that most FA are conservative. You should balance my posts, as an aggressive investor, with posts from a conservative investor.

5 years is a safe period for you to hop into bonds. However, that opinion is from an aggressive investor. Other investors have bonds a lot earlier. Your 3 years suggestion would exceed even my risk tolerance because delaying retirement would be a disaster for me personally. On the other hand, if delaying retirement is acceptable to you, then 3 years would be OK. That is the point of taking risks. If the risks of failure is acceptable, then it is OK to take those risks. Taking risks will depend on that individual.

You are invested in the S&P500. The S&P 500 with an average market return of 10% is the "gold standard" that I use for my risk analysis. It is very hard to beat the S&P500 in the long term so you made the right investment. You can only beat the S&P500 in the short term by active investing and timing the market.

Having all your eggs in one S&P500 basket is usually frown upon by most FA due to lack of a diversified portfolio. A Diversified portfolio lowers your risk. However, time also lower your risks. Since you have over 10 years to go, there is no reason to lower your risk "twice". When you get close to retirement, you no longer have that time element so you need to lower the risk by diversification. Generally most people have two types of investments: IRA and taxible. Taxible investment is usually a shorter term investment so diversification is necessary to lower the risk.

Some investors have a diversified portfolio with 10+ years to go. A guy with 50% S&P500 and 50% value fund is more diversified than a guy with 100% S&P500. However, Value funds tend to lag the S&P500 by 1% so the guy with 100% S&P500 comes out ahead in the long term. I only suggest the value fund because in the value fund may beat the S&P500 in the short term. This is my other point: Long term investing and short term investing are completely different.

Investing in bonds means there is an under performance cost in the long term. Investing in a diversified portfolio, there is also an under performance cost when you compare each asset class with the S&P500. In exchange for the under performance cost, you get a lower risk and liquidity.
The only thing left to decide is when I should hop into Bonds. I have always been an aggressive investor and plan to be. No I would not want to delay my retirement. I want to RE by ages 55-60. Anything more would defeat the purpose of RE.
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