Getting to Enough

[sgeeeee]

salaryguru,

Have you looked at how following market timing "gurus" either in the media or on the internet affects your portfolio performance?  Following market timing or "switching" strategies how quickly does one have to take on paying employment to avoid exhausting their portfolio?

Thanks for your insight on this.

Hi Hyper,

I haven't figured out a good way to look at this issue other than use other's results. The other thing is that I have not been inclined to consider the strategies I've read about. Wabmester posted an interesting study several months (maybe longer) ago that back-tested a number of switching strategies and found one of them to provide some advantage throughout time. (If wab is still out there and isn't mad at me for debating him about race issues, he might be able to direct us to that study again.)

But as I recall, the amount of portfolio that you needed to switch in order to see an advantage was significant and I didn't feel comfortable doing that.

I haven't looked at JWR1945's switching strategy stuff in a long time. I ran some of his retirement calculators when he first made them available. Again, I wouldn't be comfortable switching that much of my portfolio at a time based on historically back-tested results.

So . . . at least for now I'm avoiding market timing and portfolio switching. But if my portfolio was plummeting toward zero, I would probably change my mind.

 

[unclemick]

SG

At what point does emotion overwhelm math.? The last go round, albiet a minor nit historywise - the 2000 -2003 mini dip had my Lifestragety mod -16.5% one quarter from the 1999 peak. Since my mental back of the envelope break point was - 22%(ala a 73-74 type drop), took no action.

Of course the dividends/interest as a percent yield have been trending down.

As interested as we are in getting to enough in the accumulation phase, how many of us in distribution work the defense.

A 50% market drop in stocks would start to touch my panic button with the balanced index mix I have - depending on what interest rates did. I estimate a 25% drop in overall portfolio would get my attention.

 

[laurence]

Honestly, it's amazing how quickly your stomach loses it's taste for market volatility once you have something to lose! When my portfolio was only worth a cheap car, I was basically in a "let it ride!" mode. Now that it approaches the cost of a house in flyover country, volitilaty can be a 4 figure paper loss in one trading day! That freaks me out! Guess I'll get a thicker skin with experience....

 

[Jarhead*]

SG

At what point does emotion overwhelm math.?  The last go round, albiet a minor nit historywise - the 2000 -2003 mini dip had my Lifestragety mod -16.5% one quarter from the 1999 peak. Since my mental back of the envelope break point was - 22%(ala a 73-74 type drop), took no action.

Of course the dividends/interest as a percent yield have been trending down.

As interested as we are in getting to enough in the accumulation phase, how many of us in distribution work the defense

UncleMick: The 2000-03 woke me up after a long slumber. Hung in there by my fingernails. (Was about 80stk, 20bonds & cash, and vowed when and if I got even to reverse percentages. (Did so a few months back.)
No more wide receiver for me.
Got uncomfortably close to the red-zone.
May get eaten up eventually by a 4 yard and cloud of dust ala Woodey Hayes offense, but too late in the game to get beaten by a long pass.
Let's hear it for the defense.

 

[sgeeeee]

SG

At what point does emotion overwhelm math.?  . . .

Hi unclemick,

I don't think any of us knows the answer to that till it happens. You've certainly had to go through more gut wrenching downturns than me.

I think I'm a pretty disciplined investor compared to many, but I haven't really been tested since retiring 2 years ago. And a 50% drop in equities right now would be pretty hard to be comfortable with. When it comes to my own investments, I would be very happy if I never have to find out how bad things have to get before my emotions overwhelm my rational side.

 

[hocus]

I find it hard to say nice things to someone who has just said nasty things about me.  I'm human.

I've never said anything unkind to you or about you, Arrete. Not once have I done that. At my web site, I have a page where I list 20 of the best savers in the world. Your screen-name is included in that list. Was it an act of unkindness to you to include you on that list? I sure don't think so.

There is one thing that you have done that was unkind. It was unkind to the hundreds of commmunity members who expressed a desire to have reasoned debate about SWRs, but it was especially unkind to interest. That was when you made a decision not to call intercst on the nonsense posting tactics he has used to block reasoned discussion. I believe that you probably thought that you were being kind to him by doing that, and you that you somehow justified the unkindness you were doing to all the others because you considered him your friend. I think you were wrong.

There is no way that we all can continue for all time to engage in deception on the question of how SWRs are calculated. Sooner or later, we are going to have to permit the truth to be told. At that time, intercst is going to have to acknowledge getting the number wrong. Given that he has to do it sooner or later, it is no act of kindness to him to stretch the matter out as long as possible. It is better that it be done quickly and that he get it behind him.

It's not just you who are human, Arrete. We all are human, and that means that we all have weaknesses. One of intercst's weaknesses is an inability to admit mistakes. You don't help him by encouraging him in his reluctance to admit his errors. You make things worse for him by doing so. Can you honestly say that you think that intercst is in a better place for having engaged in the posting tactics that he has engaged in for the past 33 months? I sure don't think that is so.

We are a community. One of the jobs of a community is to extend a hand of kindness to community members who veer out of control. Intercst is out of control and has been for a long time. You can help him, if you can find it in your heart (it takes courage) to do so. I say that you should do so. I say that not out of nastiness. I say it because I think it is true. I think you would feel better about yourself if you did it and I think intercst would end up feeling better about himself too if you did it.

If any other community member got a number wrong in a study, he or she would acknowledge the mistake. When you put intercst in a different class, you are showing a lack of respect for him. You are suggesting that you think he is not capable of living up to the norms followeed by all the rest of us. Maybe that's so, maybe it isn't. The only way we will ever find out is to treat him the same way we would treat any other community member and see how he responds. He deserves that much from you, Arrete. He deserves at least a chance to see whether he can do what all the rest of us have always managed to do, and what all the rest of us have always demanded from all fellow community members but one.

 

[hocus]

Waspish, but you don't have to be nice if you are right.

I don't have any objection to arrete's pointing out the grammer error. But I do want to register my disagreement that one does not have to be nice when one is right. It is when you are right that you have to be especially careful to be nice. When you are right, your words carry more power. There is even more of a responsibility to be nice in such circumstances.

A discussion-board community is two things: (1) it is a place for sharing information bits; and (2) it is a group of human beings interacting. There are two messages conveyed in every single post. There is always the surface message, the information bit being conveyed. And there is always also the tone, the spirit of the post, that part that results from the fact that we are not robots speaking into the air but human beings speaking to each other.

We have to make an effort to be nice because the tone we use affects the community in which we say the things we say. It's not just the information bits that matter. The spirit that is created matters too. When the spirit is good, we see more and more people joining the discussions. When the spirit is poor, we see more and more staying away.

We need to change the spirit of the SWR discussions. We have driven many fine contributors away from them because of the ugliness that we have permitted on them. The level of ugliness that has been permitted on the SWR threads is below the norms of our community. We need to do better, or else the important SWR information bits that needto get out will not be able to get out.

On a discussion board, the information bits and the human element overlap. They are not entirely separate areas of concern. Our community has demonstrated beyond any doubt that it possesses the ability to deal well with the information bits aspect of the SWR question. It now needs to show that it can deal successfully with the human element of the equation. It needs to take steps to create the tolerance of minority views needed so that those community members wanting to share information bits re the minority viewpoint may do so in an effective manner.

 

[hocus]

Bogle, Bernstein, and yes Intercst, JWR have taken a look in their own way at individual stocks - to varying degrees.

That's right. That's why we need fine posters like JWR back posting at this board. Every day that he stays away is another day that we miss out on the insights that he provides. And every day that the scores of others who have expressed a desire for reasoned discussion stay away, we lose the benefits of their insights as well.

We have all lost enough. It is time to take the steps needed to get JWR and the scores of other posters whose contributions we are now missing out on back posting on the SWR question at this board.

 

[hocus]

I haven't looked at JWR1945's switching strategy stuff in a long time.  I ran some of his retirement calculators when he first made them available.  Again, I wouldn't be comfortable switching that much of my portfolio at a time based on historically back-tested results.

That was a fine answer, SalaryGuru. I applaud you for a number of your recent posts. There are a number of community members who do not find merit in the Data-Based SWR Tool. You are showing them the way to remaining true to their convictions without crossing the line that should not be crossed. You have done this on a number of occasions now and you have done it extremely well.

There are of course arguments that can be made against the Data-Based SWR Tool. That's true of any tool discussed at the board, and it is especially true of the Data-Based Tool because this tool is something very new and some of the results it generates are very much at odds with the prevailing wisdom on how to invest successfully.

I am not the least bit interested in having my critics fold and opt out of the discussions altogether. I generally gain more from the input of my critics than from the input of my supporters. I am writing a book on the Data-Based SWR Tool, and I would like to see this community provide the sort of input that makes that book 10 times better than it otherwise would have been (as was the case with my "Passion Saving" book). I need to hear about the weak points of the ideas that JWR1945 and I have put on the table.

What I don't need is nonsense. In order to profit from the discussions, I need input from a community. There is no way that we can get a large number of community members to participate so long as all threads discussing the Data-Based SWR Tool are poisoned with deception and ridicule and all this other nonsense. That stuff kills us.

I will give one example of where the line has to be drawn. Bernstein says on Page 234 of his book that the SWR (for a high-stock portfolio) at the top of the bubble was 2 percent. That should be accepted as a fact by all community members participating in the debate. There are all sorts of things that can be put forward as implications of that fact. But the fact itself must be acknowledged if there is to be any hope of us gaining useful insights from our efforts here.

Those not willing to acknowledge the basic facts simply should not be given a seat at the table. They have nothing constructive to add, and they should be asked kindly to leave the rest of us to have our discussions of matters of substance in peace.

 

[arrete]

SG and TH

Do you suppose the inflection point is because the "stodginess" of interest rates overwhelms the "volatility" of stock? Curious that it would happen at a particular point.

Higher dividend stocks are nice, but I think they've become so popular that it's a little late to get into them. I'll stick with my guys who increase my capital gains (hopefully).

Can anyone translate unclemick, or do you learn as you go along

arrete

 

[yakers]

You can just tell when you have enough, though not always before that. I have three kayaks. I got rid of two, five was too many. When I had one, that was not enough. Two would do as does three (two singles and one double, allowing different kayaking combinations). But five was too many, could not use them all, atking up space and the like.

There, that was shorter than another poster.

 

[hocus]

There, that was shorter than another poster.

Short posts make sense when the issue being addressed is a kayak question. When the issue being addressed is an SWR question, the safety of people's retirements is at stake. In those corcumstances, I think it makes sense to use up whatever number of words it takes to make things reasonably clear.

There have been a number of issues that have caused confusion during our discussions of the SWR matter. Some have caused confusion for perfectly understandable reasons, some for not so understandable reasons. My goal with my posting when responding to both sorts of confusion is to lessen the confusion. I do that with a short post when I believe that a short post can do the trick. When I see a need for a longer post, I go with something longer.

I think that we need to put more focus on the accuracy of SWR posts and less on their length. SWRs matter. They matter enough for us to want to report what the historical data says accurately. My view is--post short, post long, or post in-between. But post to lessen the confusion and post to get it right. That's where I am coming from re this thing, in any event.

 

[Eagle43]

-------------------
During the 2000-2003 recession, I was working and 100% in Equities. I stayed there, kept contributing and Mega-corp was matching with its stock(50 cents on the dollar I believe). Totals went down but have gradually returned. When I retired, as I've stated before, I moved most of my money to Vanguard index funds. Have a 40-60 ratio stocks/bonds. If the market dived again, I don't think I would be as blase' as I was at start of the century.

Jarhead, I believe your defense correlates to Warren Buffet's dictum of the power of "negative" thinking. Expect the worst, and invest accordingly (defensively). Too many people did the opposite during the 90s and they suffered.

 

[hocus]

Re: Getting to EnoughExpect the worst, and invest

Expect the worst, and invest accordingly (defensively).

I view this as a common sense observation. I've been reading these boards almost daily for close to six years now, and I have seen lots and lots of viewpoints expressed. There are differences in the viewpoints expressed. For the most part, however, a common thread is that the majority of them are rooted in some form of common sense.

I do not think that is so of the claims put forward in the REHP study. That study claims that it is "100 percent safe" to take a 4 percent withdrawal from a 74 percent S&P allocation regardless of the valuation levels that apply. This defies common sense, in my view.

When I began putting together my plan, the REHP study had not yet been published. But there were other studies and analyses out there that said pretty much the same thing. They said that it is always "optimal" to put most of your money in stocks. This was something I just could not buy. It just doesn't make sense to me that there could be one investment class that would always be the best. When something sounds too good to be true, it usually turns out that it is not true.

So I looked at the numbers. I hate numbers. But I felt that I had no choice. I have people depending on me to get this stuff right. So I couldn't afford to just say "Oh, that's what the expert says, so I better just put all my faith in it." I looked at the numbers, I saw where the claims being made fell flat, and I adjusted my investment strategies accordingly.

There are a lot of people who think that SWR analysis is too complicated for them to understand. There are complex aspects to it. But the core stuff is not complex. If I can understand it, anyone can. The reality is that the historical data does not contradict what your common sense tells you, the historical data backs up what your common sense tells you.

The historical data indicates that stocks are a wonderful asset class to invest in. But the historical data also indicates that valuation levels matter. Both of those things are so. That's what your common sense tells you, isn't it? Well, that's just what the historical data tells you too when you examine it using an analytically valid methodology.

 

[arrete]

You can just tell when you have enough, though not always before that. I have three kayaks. I got rid of two, five was too many. When I had one, that was not enough.

I'm actually curious about this, though it may have been answered in some other kayaking thread. Do you use different kayaks for whitewater than for oceans?

arrete

 

[hocus]

Do you use different kayaks for whitewater than for oceans?

I don't know anything about that. But I was reading an article the other day about Cloud Kayaking--it's all the rage on the West Coast--and it said to be sure to get a specially made Kayak for that. Do not, I repeat do NOT, try to use a whitewater kayak for Cloud Kayaking. It's not safe.

 

[Jarhead*]

-------------------
 

Jarhead, I believe your defense correlates to Warren Buffet's dictum of the power of "negative" thinking.  Expect the worst, and invest accordingly (defensively). Too many people did the opposite during the 90s and they suffered.

Eagel43: Have had many light-bulb moments in my life, and the last one reinforced my current frame of mind that without a pension, and my age, and a very bad habit of playing a lot of tournament golf I would be much more able to handle "being nibbled to death by ducks", than taking a big hit.
Distribution is a whole lot different than accumulation.
Most of the advise on this board, or any other board should be digested, and the hard decision will have to be made on your personal situation.

 

[yakers]

I'm actually curious about this, though it may have been answered in some other kayaking thread. Do you use different kayaks for whitewater than for oceans?

arrete

Basicly there are two kinds of kayaks, whitewater and ocean kayaks (maybe like stocks & bonds?). Within each kind there are several subgroups. It gets down to hull shape and the shape of waves you will be dealing with. Both forms of kayaking are fun. I am primarily an ocean kayaker, prerhaps Riverrat can say more about river paddling.
Kayaks may be more safe than they appear. One fellow crossed the Atlantic iand another crossed from California to Hawaii in a kayak. Both a bit nuts but some people crave risk. If you are taking a long trip you have to be able to sustain an average daily distance (sort of like a SWR) if you don't you may not make your destination.
Then, if out on the ocean, you have to be prepared for bigger waves than those graphed from the Great Depression. A rogue wave/tsunami can give you a great ride or a final resting place depending on how well prepared and whether you see it coming.
Finance--kayaking--its all the same to me.

 

[unclemick]

Hmmm

Sounds like Yakers experienced a 'kayak bubble' and emerged all the wiser.

 

[cute fuzzy bunny]

SG and TH

Do you suppose the inflection point is because the "stodginess" of interest rates overwhelms the "volatility" of stock? Curious that it would happen at a particular point.

Higher dividend stocks are nice, but I think they've become so popular that it's a little late to get into them. I'll stick with my guys who increase my capital gains (hopefully).

Can anyone translate unclemick, or do you learn as you go along

arrete

I'd like to give a better answer, and in context, except the thread is so loaded with troll crap its hard to see where the original line of discussion was running. So I guess its been successful once again.

To give a generic answer, i'm not happy with either stocks or bonds right now, but considering the size of my cash position I dont want to keep any more money "out of play". I'm finding it interesting and curious that some members would bail out or make conservative changes if they experienced a drop...thats exactly when you want to stay in, or increase your holdings.

To once again borrow that quote..."Its an interesting business that when things go on sale everyone runs away"...

 

[hocus]

the thread is so loaded with troll crap its hard to see where the original line of discussion was running.

You don't say.

 

[sgeeeee]

SG and TH

Do you suppose the inflection point is because the "stodginess" of interest rates overwhelms the "volatility" of stock?  Curious that it would happen at a particular point.

Higher dividend stocks are nice, but I think they've become so popular that it's a little late to get into them.  I'll stick with my guys who increase my capital gains (hopefully).

Can anyone translate unclemick, or do you learn as you go along

arrete

Hi arrete,

TH has already given you an answer or I would have missed the question. I had to kayak back two pages to find your post.

There are two different plots that show an inflection point for stock/bond allocation.

The one TH brought up is a plot of return vs risk using stock/bond allocation as a variable. Risk is defined in terms of investment beta (variation). For this case, stock performance has higher returns and higher risk than bonds. In general, the more stock you have in the mix, the higher the return but the higher the risk. However, if the stock portion gets small enough, the variations it imposes (risk) affect the mostly bond portfolio more than the improvement in returns. So going from 85% bonds to 95% bonds not only drops returns, but increases risk. You can define functions on a spreadsheet (superimpose a sine wave and a line with positive slope) for a bond like and stock like performance and add them to observe this effect. You have to play around with variables, but if you want to understand how it happens you can see it. I couldn't see any reason why this would happen, in general, for any two mathematical series, but for historical stock and bond performance, it is true.

The second plot is a SWR plot vs stock/bond allocation. In this case, stocks have outperformed bonds for every 30 year period in US financial history. But a portfolio will fail if the short term stock drop depletes your money early in the cycle. Some bonds protect you from early bankruptsy, but too many keep you from earning enough to stay ahead of inflation.

 

[cute fuzzy bunny]

I agree completely. With a 30 year horizon and stainless steel or brass reproductive organs, a high or all stock portfolio will do ya

A small dose of bonds will take out some of the stomach wrenching if (god forbid) we hit a long, severe rough patch.

On the flip side, inflation will eat you alive if you dont have something that gives you better than the usual intermediate bond return. A dollop of stocks can help fix that.

The 20% thing on both sides is interesting though, but I guess it has to have a break somewhere.

 

[hocus]

stocks have outperformed bonds for every 30 year period in US financial history.

If I am not mistaken, what you are getting at here is what Jeremy Siegel was getting at when he came up with the title of his book "Stocks for the Long Run." I am rejecting the "Stocks for the Long Run" paradigm. I think that it is important news to aspiring early retirees if in fact the "Stocks for the Long Run" paradigm does not hold water. That's why I spend so much effort trying to get a place at the table for discussion of the Data-Based SWR Tool.

There is no dispute over the fact that what you say above is so in a limited, technical sense. I'm obviously not saying that Jermey Siegel (or intercst) failed to look at one of the 20-year or 30-year periods in the historical record. So what am I saying? I am saying that the conclusion implicit in your words above is a misleading one. Siegel goes places with that statement where I don't think he should be going (Siegel does this a little bit) and intercst goes places with that statement where I don't think he should be going (intercst does this a lot). The question at the root of all this is--Is it reasonable to look only at the historical record in forming an assessment as to what is likely to happen in the future?

That's what you are doing here. You are looking at earlier 30-year time-periods, making a statement as to what happened in them, and then suggesting that something else is so. The "something else" is that it is reasonable to believe that stocks will also do well in the next 30-year time-period. I am rejecting that suggestion. I am saying that it does not logically follow from the words quoted above. I am saying that you are failing to consider a critical variable in the analysis, and that, had you considered that critical variable, you would have arrived at a very different assessment of what is likely to happen in the next 30-year time-period.

Stocks did not do equally well in all of those earlier 30-year time-periods. In some of them, stocks did moderately well. In some, amazingly well. There is a varaible that you could have used to tell you at the start of those 30-year periods whether stocks were likely to do only moderately well or amazingly well. That variable is the valuation level that applied at the start of the 30-year period. There is a strong correlation between the valuation level that applies at the start of a 30-year returns sequence and the long-term return obtained from a stock investment.

Add that variable into your assessment, and you get a very different answer for what is likely to happen in the next 30-year time-period. We have never before been at the valuation levels we entered in the late 1990s. So obviosuly you cannot just look at what happened in earlier 30-year periods to develop an informed assessment of what is likely to happen in the 30-year period now coming up. What you need to do is to examine how much starting-point valuation levels affected the result in the past and then factor that effect into your analysis as to what is likely to happen this time. When you do that, you come to a conclusion that a 4 percent take-out for a high-percentage stock portfolio is not at all safe for those retiring today.

I know that you do not agree with me, SalaryGuru. I am not seeking agreement here. What I would like from you is an honest assessment of whether the question I am putting on the table is a question of sufficient importance to those seeking early retirement that we should be engaging in reasoned discussion of it at this forum.

 

[hocus]

The question at the root of all this is--Is it reasonable to look only at the historical record in forming an assessment as to what is likely to happen in the future?

I would like to reword that. I think that is is reasonable to look at the historical record as a whole in forming an assessment as to what is likely to happen in the future. I think it is analytically invalid to look at one aspect of the histroical record and ignore other critical aspects.

The returns sequences that we have experienced in the past are one aspect of the historical record, and I think we need to look at those. The effect that changes in valuation levels have always had in the past is a second critical aspect of the historical record, and we need to look at that factor as well in order to draw informed conclusions. To look only at one factor and ignore other critical factors is an analytically invalid approach, in my view.