|
|
09-11-2013, 01:05 PM
|
#1
|
Thinks s/he gets paid by the post
Join Date: Aug 2013
Posts: 1,660
|
Eliminate Portfolio Risk
Let's say you get to the point where your investment assets are more than enough to cover all future expenses (in today's dollars).
Is there any reason to take any more risk? Should you at that point put everything into Ibonds or equivalent and call it a day?
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
09-11-2013, 01:54 PM
|
#2
|
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
|
If that works for you, go for it.
My kids might be upset that I had their inheritance in bonds for 40 years.
And I might be upset if I reached late retirement and couldn't afford the new life extension tech.
|
|
|
09-11-2013, 01:58 PM
|
#3
|
gone traveling
Join Date: Apr 2011
Posts: 3,375
|
And if dollar devaluation exceeds interest rates, then what? Net, all eggs in one basket, any basket, is a big risk.
|
|
|
09-11-2013, 02:24 PM
|
#4
|
Recycles dryer sheets
Join Date: May 2012
Posts: 90
|
Equity is to help hedge inflation. Fixed Income is to help hedge equity volatility. So Ibonds maybe part of your low risk portfolio. But you are limited by the amount each year so even if it had a 3% real year, you can only buy a small amount each year.
|
|
|
09-11-2013, 02:27 PM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,263
|
I don't think there is a substitute for diversification. Still, if Tips or Ibonds make one feel safer, why not put a big chunk in. Isn't there a rather severe limitation on how much one can put in to Ibonds each year? Will the TIPS generate enough growth after taxes? Just a thought.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
|
|
|
09-11-2013, 03:31 PM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2008
Posts: 13,146
|
If you have more than enough for your lifetime, I don't see anything wrong with "burning out the clock"
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
|
|
|
09-11-2013, 03:42 PM
|
#7
|
Full time employment: Posting here.
Join Date: Apr 2013
Posts: 834
|
Makes sense to me. Have no kids so could care less about inheritance (nephews/nieces/ animal shelter will get whats left).
New life extension tech is an interesting thought...................
__________________
The Constitution. It's not just a good idea...it's the law.
|
|
|
09-11-2013, 04:43 PM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
|
Quote:
Originally Posted by gerntz
And if dollar devaluation exceeds interest rates, then what? Net, all eggs in one basket, any basket, is a big risk.
|
I agree even if I had 10 million and could live comfortably on 100K (1%) I wouldn't stick all my money in TIPs, especially if you are planning on retiring at 50. A lot can go wrong in 40+ years even to the US. You should diversify across countries and asset classes. To me the upper limit on any asset class even on US treasury is about 75-80%. The cumulative default rate for AA (the current credit rating of Uncle Sams bonds) over 20 years is about 5% so double that for 40 years.
|
|
|
09-11-2013, 05:15 PM
|
#9
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
|
Quote:
Originally Posted by clifp
I agree even if I had 10 million and could live comfortably on 100K (1%) I wouldn't stick all my money in TIPs, especially if you are planning on retiring at 50. A lot can go wrong in 40+ years even to the US. You should diversify across countries and asset classes. To me the upper limit on any asset class even on US treasury is about 75-80%. The cumulative default rate for AA (the current credit rating of Uncle Sams bonds) over 20 years is about 5% so double that for 40 years.
|
I think if I had 10MM a couple million would be converted to precious metals and deposited in safe places around the world and in my bunker.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
|
|
|
09-11-2013, 05:16 PM
|
#10
|
Thinks s/he gets paid by the post
Join Date: Jun 2007
Posts: 2,657
|
Quote:
If you have more than enough for your lifetime, I don't see anything wrong with "burning out the clock"
|
That seems like a fine idea, but there is no single risk free way to do that. Even TIPS have risk of unforeseen events and a few exotic scenarios. Putting it all on any one bet, no matter how safe it seems at the time, is just too risky over a long time horizon. I'd rather divide it up and spread it over as many things as I can think of, so some may be unsafe, but hopefully at least a few will pull through for me. Seems a lot safer.
|
|
|
09-11-2013, 05:16 PM
|
#11
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2013
Posts: 9,358
|
I wouldn't put everything in I bonds or any single investment, but there are many capital preservation portfolio AAs around to consider. We took our pensions as annuities to give us a separate income stream unrelated to the stock or bond markets. We also have business income outside the investment markets that provide some semi-passive income.
I agree with diversifying across asset classes and countries.
Just some food for thought, but here are the top ten assets held by millionaires with over $2M in net worth, from IRS estate data -
The Top Ten Assets Owned by Millionaires
Workers who aren't retired worry about jobs they have no control over. For me, I don't see putting the majority of my savings into a stock market I have zero control over a big lifestyle improvement over worrying about a job.
I'd rather just save more / work more / cut my expenses to not have to take huge risks with the savings it took me a life time to accumulate.
|
|
|
09-11-2013, 05:18 PM
|
#12
|
Recycles dryer sheets
Join Date: Jul 2013
Posts: 162
|
I also believe in never put everything in anything. So many things can change in the long term. I would do a more diversify low risk portfolio.
|
|
|
09-11-2013, 05:23 PM
|
#13
|
Moderator
Join Date: Oct 2010
Posts: 10,723
|
Quote:
Originally Posted by RetireAge50
Let's say you get to the point where your investment assets are more than enough to cover all future expenses (in today's dollars).
Is there any reason to take any more risk? Should you at that point put everything into Ibonds or equivalent and call it a day?
|
There's one smart guy that would answer that with a flat "yes", if he's still answering the same way his book reads. That guy would be Dr. Larry Kotlikoff and his book "Spend 'till the End". Before I read that book, I was much farther from accepting the "yes" than I am now. But I don't see anything wrong with a TIPS bond ladder for "all" your assets. If the US economy becomes less than it is today, it will probably happen slowly enough that as your bonds mature, you can buy something more secure, if there is something that fits the bill in the future.
|
|
|
09-11-2013, 05:33 PM
|
#14
|
Recycles dryer sheets
Join Date: Jan 2013
Location: Northern IL
Posts: 140
|
Quote:
Originally Posted by brewer12345
I think if I had 10MM a couple million would be converted to precious metals and deposited in safe places around the world and in my bunker.
|
Man I have always wanted a bunker. Ever since my schoolboy days of practice drills of hiding under our desks. I'm jealous... Talk about ignoring volatility. I'm a big fan of laying low.
__________________
I have the nature of a polymath and the memory of a Commodore 64
|
|
|
09-11-2013, 05:42 PM
|
#15
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
|
Quote:
Originally Posted by sengsational
There's one smart guy that would answer that with a flat "yes", if he's still answering the same way his book reads. That guy would be Dr. Larry Kotlikoff and his book "Spend 'till the End". Before I read that book, I was much farther from accepting the "yes" than I am now. But I don't see anything wrong with a TIPS bond ladder for "all" your assets. If the US economy becomes less than it is today, it will probably happen slowly enough that as your bonds mature, you can buy something more secure, if there is something that fits the bill in the future.
|
I'd suggest reading Berstein's Deep Risk. Plenty of countries had a great economy and then a decade latter were in shambles. While this is often the result of war, it isn't always. If you extend that to look at changes over 20-40 years it is even worse. I am not sure there was a good obvious exit point for Greek, Iceland, or Ireland bond holders, or folks who had money in Cyprus banks since 2008.
|
|
|
09-11-2013, 05:51 PM
|
#16
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
|
Quote:
Originally Posted by Sittingduck
Man I have always wanted a bunker. Ever since my schoolboy days of practice drills of hiding under our desks. I'm jealous... Talk about ignoring volatility. I'm a big fan of laying low.
|
I don't own a bunker now, but I would if I were a decamillionaire.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
|
|
|
09-11-2013, 06:02 PM
|
#17
|
Moderator
Join Date: Oct 2010
Posts: 10,723
|
Quote:
Originally Posted by brewer12345
I don't own a bunker now, but I would if I were a decamillionaire.
|
You could put in an all electric brewery for when the world wasn't falling apart, hehe.
|
|
|
09-11-2013, 07:27 PM
|
#18
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,303
|
Quote:
Originally Posted by RetireAge50
Let's say you get to the point where your investment assets are more than enough to cover all future expenses (in today's dollars).
Is there any reason to take any more risk? Should you at that point put everything into Ibonds or equivalent and call it a day?
|
No one needs to take more risk than necessary, so your approach can be workable. Reducing equity exposure can be wise if possible, but less than 20% equity is another kettle of fish. A few members here plan on (large) no equity portfolios.
But most people find it very difficult to amass a nest egg with a reasonable probability of success assuming an asset allocation with 30-70% equity (funds) and the rest fixed income. If you assume no equities, you'll need another 50-60% in $ for your nest egg. So if $1M at a 60/40 AA gives you a 95% of success, you'll need about $1.5M in fixed income/cash equivalents according to FIRECALC or any similar calculator. And with today's historic low yields/interest rates, you might need considerably more to be ultra conservative in the decades ahead.
Inflation will wreak more havoc on a portfolio with no equity holdings as well, what then when the portfolio fails in your advanced years.
So yes, it can be done, but it's requires a considerably larger nest egg, and you assume other risks. How many more years are you willing to work? Or can you live on 33% less to make your ultra conservative portfolio last?
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
|
|
|
09-11-2013, 07:41 PM
|
#19
|
Moderator Emeritus
Join Date: May 2007
Posts: 12,901
|
I do not believe it is possible to eliminate portfolio risk entirely.
|
|
|
09-11-2013, 08:59 PM
|
#20
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
|
Quote:
Originally Posted by FIREd
I do not believe it is possible to eliminate portfolio risk entirely.
|
Well, theoretically you can, but those "other risks" are still out there:
Opportunity cost risk
Interest Rate risk
Currency exchange risk
Hedging risk
And on and on and on........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|