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Old 11-22-2017, 08:21 AM   #21
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Itís funny, My mom was always ALL in equities but she kept a cash buffer and had large ss from my dadís record. She never touched the principal other than rmds.
Like LOL! points out your mother was not all in equities since she had a cash buffer. And RMDs are a significant withdrawal amount, starting at 3.65% at age 70, and increasing steadily, exceeding 4% by age 73, 5% by age 79, and 6% by age 83. So saying "She never touched the principal other than rmds" doesn't mean much as clearly she was drawing it down.
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Old 11-22-2017, 09:01 AM   #22
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I see many members keep cash, bonds, cds etc in case of a sharp drop in the markets. ....

This concern gets way overblown, IMO, as it ignores some very real-life numbers:

Someone who is considering a large cash/fixed "bucket" is likely fairly conservative, and probably has a WR of ~ 3.5% or lower. And an AA of no greater than 75/25, probably 60/40 or 50/50?

A 60/40 simple portfolio probably kicks off ~ 2.5% in divs, so they only need to draw 1% or less from the portfolio. That's approaching 40 years of withdraws before they need to touch stocks. Not a full 40 years, as the WD will increase with inflation, bond values probably not, and divs might drop in a recession, but you get the idea - a long time. That also assumes you are not rebalancing from fixed to stocks, but again, a long time.

Relax, you don't need a big "bucket", that is what the fixed portion of your AA is for.

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Old 11-22-2017, 09:42 AM   #23
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Thanks for all of the replies. I was thinking of a bear market really, not a correction, an event that would necessitate NOT touching the money til it recovered. I donít think I will ever be able to set aside 10 years of income! But, 2-5 seems reasonable considering it will be a portion of my income stream, not all.
Plan in a 20% drop the year you retire and see how successful you are. So if you retire with 1mil, instead pretend its 800k. How would you need to adjust? And if you had enough cash on hand for that first couple years of COL the drop wouldn't matter as much as you could protect principle during recovery by drawing off cash.

I presume a lot on this forum would plan around decreasing COL at that time. I think you need to look at longevity, since you cannot take it with you, perhaps a couple year bear market recovery wouldn't be as bad as we think.
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Old 11-22-2017, 09:52 AM   #24
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What is a good fixed income choice to hold in a taxable non ira account? Feel free to be specific. Iíve been buying total bond funds but still nowhere near enough fixed. Iím thinking of moving my roth and my former employer 401 k to vanguard and putting it all in wellington.
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Old 11-22-2017, 12:12 PM   #25
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I don't have my spreadsheets in front of me, so this is just going from memory, but here's an estimate of the rough patches I've experienced...

1) Finished 2000, 2001, and 2002 in the red, for each year, although there were spikes during 2000 and 2001 that pushed me to new highs. I think I hit rock bottom around August or September 2002. Anyway, 2003 was a good recovery year, and I was probably made whole again sometime in 2004.

2) In 2006, I lost about 10% in the course of a month, around May-June. It sticks in my mind because, while 10% isn't a huge deal, by that time I had amassed about $300,000, so losing $30K seemed like a lot. Plus, I had other life-drama going on at the time, which only added to it. Anyway, I think it stayed down for a couple months, then started to rebound, but I was recovered later in the year.

3) During the "Great Recession", I lost a little more than half, from peak to trough. For me, that would be October 2007 to November 2008. Most of the loss was in just three short months...Sept/Oct/Nov '08. I had a pretty big bounce back in December, and into early '09, but then the official bottom hit in March '09. From there, it seemed to go nowhere but up, although I do remember a quick ~10-15% correction in early 2010. But, I'd say I was fully recovered sometime in 2010.

4) In 2011, I lost about 15% in just one month, between July and August. I got a little nervous, thinking it was going to be another market crash, but held tight. By this time, I think I had been up to around $650K which was a new record for me, and was down to $560K in one month. I ended up finishing the year with a slight loss of around $1-2K, which barely registers. I'd guess I was fully recovered from that 15% loss sometime in early 2012.

5) Supposedly, there was a 10% market correction since then, but I think it hit and then corrected so fast that it doesn't show up in any sort of data that only shows month-end to month-end. Late 2014, maybe? I do remember 2014 starting off as a good year, but peaking out over the summer and then sort of fizzing. I made about 5.6% that year.

Anyway, that's the biggest pullbacks I can remember, since I started getting serious about investing in late 1998. There may have been other hiccups here and there, but I guess they sorted themselves out pretty quickly, otherwise I'd remember them.
Edit: Looking at my spreadsheet now, I see another drop, so...

6) From a new peak in May of 2015, things got choppy and then dropped down, to where I was down about 7.5% in September. I was mostly recovered by November, but then it dropped back again in January. I was fully recovered by roughly July of 2016. And while things did get scary again around the election, the bounce-back was almost whiplash-inducing!

Also, looking back on my #5...for some reason that correction being in late 2014 sticks in my mind, but the biggest drama I have there is a new peak in August, a 2.5% drop for September, but then recovering enough that I finished the year with August being the peak.
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Old 11-22-2017, 05:49 PM   #26
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We keep 3 years in short term investments for use during a market drop.

A little context - we do this because until 59.5, we will live off of our taxable accounts, which are 100% equities.
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Old 11-22-2017, 06:13 PM   #27
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What is a good fixed income choice to hold in a taxable non ira account? Feel free to be specific. Iíve been buying total bond funds but still nowhere near enough fixed. Iím thinking of moving my roth and my former employer 401 k to vanguard and putting it all in wellington.
Munis if you still have a paycheck that puts you in a higher tax bracket. VGD has several for high tax states and a spectrum of durations for the rest of us.

If tax rate is not a concern, but yield is, a corporate fund with a 5-7 year duration. If you prefer safety over yield, Treasuries.

My holdings are Munis <5 years, TIPS and short Treasuries with a 70/30 allocation.
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Old 11-22-2017, 10:52 PM   #28
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I like that rebalancing rule of not going below a certain amount of fixed income during a bear market for stocks. For me, I think 5 years of fixed income would work, but to each his/her own.

VW
I don't see how this makes any sense. If we're 2 years into a bear market and you've spent 2 years worth of bonds, when you go to bump it up to 5 years you do so by selling stocks. But isn't that the opposite of what we're trying to accomplish by keeping this minimum bonds allocation--selling stocks when they are down?

Every time I work through all the scenarios, the only thing that "works" in all conditions isto just maintain your chosen asset allocation.
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Old 11-22-2017, 10:56 PM   #29
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What is a good fixed income choice to hold in a taxable non ira account? Feel free to be specific. Iíve been buying total bond funds but still nowhere near enough fixed. Iím thinking of moving my roth and my former employer 401 k to vanguard and putting it all in wellington.

You gave the best answer yourself----total bond market fund.
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Old 11-23-2017, 07:11 AM   #30
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I don't see how this makes any sense. If we're 2 years into a bear market and you've spent 2 years worth of bonds, when you go to bump it up to 5 years you do so by selling stocks. But isn't that the opposite of what we're trying to accomplish by keeping this minimum bonds allocation--selling stocks when they are down?

Every time I work through all the scenarios, the only thing that "works" in all conditions isto just maintain your chosen asset allocation.
By not selling all of your bonds to rebalance, you can still draw bonds for income instead of having to sell stocks while they are depressed. I am not talking about selling stocks to buy bonds-just the opposite. At some point you have to stop using your income funds to buy stocks, or you will have to sell stocks for income. Does that make sense?

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Old 11-23-2017, 07:20 AM   #31
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I don't see how this makes any sense. If we're 2 years into a bear market and you've spent 2 years worth of bonds, when you go to bump it up to 5 years you do so by selling stocks. But isn't that the opposite of what we're trying to accomplish by keeping this minimum bonds allocation--selling stocks when they are down?

Every time I work through all the scenarios, the only thing that "works" in all conditions isto just maintain your chosen asset allocation.
The rule applies to rebalancing when selling bonds to buy stocks. Not to drawing on your bonds for income.
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Old 11-23-2017, 07:26 AM   #32
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Like I said, I've run many different scenarios-----and the only thing that makes sense is keeping to your chosen asset allocation.

People come up with all sorts of different plans ... cash buckets, bond buckets, sell bonds/buy stocks, buy bonds/sell stocks, etc. etc. The thing is, two different people come up with the "best, makes sense" plans to do the opposite thing in the exact same market scenario. They can't both be right. That right there is a sign that these plans haven't been completely thought out.

What it amounts to is people come up with a scenario and design a plan that fits. But they ignore how their plan works in other scenarios. Hint: The market will not do what you plan for it to do. You cannot just assume that a bear market will last X years.

Sticking with your AA works in all scenarios. It will never be the best in any certain market conditions, but it will be the best when averaged over all market cycles.
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Old 11-23-2017, 07:29 AM   #33
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Re-balancing to maintain asset allocation is a good idea, and I think most people here would do it.

I think most people in this forum could handle 5-7 years of expenses without selling equities. OP, you need a poll/pol/pole asking whether people can get by without touching equities for 5, 6, 7, 8, 9, 10, 10+ years . Or has there already been a poll like this in the past?
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Old 11-23-2017, 07:35 AM   #34
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Like I said, I've run many different scenarios-----and the only thing that makes sense is keeping to your chosen asset allocation.

People come up with all sorts of different plans ... cash buckets, bond buckets, sell bonds/buy stocks, buy bonds/sell stocks, etc. etc. The thing is, two different people come up with the "best, makes sense" plans to do the opposite thing in the exact same market scenario. They can't both be right. That right there is a sign that these plans haven't been completely thought out.

What it amounts to is people come up with a scenario and design a plan that fits. But they ignore how their plan works in other scenarios. Hint: The market will not do what you plan for it to do. You cannot just assume that a bear market will last X years.

Sticking with your AA works in all scenarios. It will never be the best in any certain market conditions, but it will be the best when averaged over all market cycles.
We all have our different schemes. Psychology matters, and different people have different psychology.

Personally, I won't go below X years after-tax expenses when rebalancing from bonds to buy stocks. I did it in Jan 2009, and I'd do it again. It worked for me. It gave me the fortitude to go ahead and rebalance most of the way.

What would have happened if I hadn't used that criteria? I probably wouldn't have rebalanced and bought stocks at all. Many folks didn't. It was a very difficult thing to do psychologically under those circumstances.

That's my scheme and I'm sticking to it under all conditions.

Maybe I can get some credit for retiring in 1999, having been through two very nasty bear markets and retired over 18 years now. I know how I react psychologically to various scenarios. So my "schemes" are designed to help me get through them in a reasonable way.
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Old 11-23-2017, 07:55 AM   #35
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"Maybe I can get some credit for retiring in 1999, having been through two very nasty bear markets and retired over 18 years now. I know how I react psychologically to various scenarios. So my "schemes" are designed to help me get through them in a reasonable way."

This is the most important sentence!!! You have been there and have the experience of making the tough decisions. I couldn't agree with you more on this one. Thanks for the insight and real world experience.

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Old 11-23-2017, 08:31 AM   #36
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There is theory, and there is practice. Once I started taking my personal psychology into account I became a far better investor.
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Old 11-23-2017, 08:44 AM   #37
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I don't rebalance and really just watch what happens to my portfolio. I don't need my investments to live or retire on or too. The question asked in this post got a little off track but I have more in cash then most the way it looks. I'm talking cash as cd, savings accounts, etc.. I have enough at my present expenses to not ever have to touch equities or bonds in my life time. When I start taking SS I will have a WR of my cash funds of .3%.

This is the way I have planned for when I retired not sure if it is good or bad but I can say if the market hit a 10-20 bear market I still wouldn't have to sell any stock or bonds to live. To have that much in cash (which is make income) I did sacrifice 18% of my portfolio to live on in retirement. The other 82% is invested and working each day and always hoping it is working in the positive direction.
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Old 11-23-2017, 09:08 AM   #38
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I don't rebalance and really just watch what happens to my portfolio. I don't need my investments to live or retire on or too. The question asked in this post got a little off track but I have more in cash then most the way it looks. I'm talking cash as cd, savings accounts, etc.. I have enough at my present expenses to not ever have to touch equities or bonds in my life time. When I start taking SS I will have a WR of my cash funds of .3%.

This is the way I have planned for when I retired not sure if it is good or bad but I can say if the market hit a 10-20 bear market I still wouldn't have to sell any stock or bonds to live. To have that much in cash (which is make income) I did sacrifice 18% of my portfolio to live on in retirement. The other 82% is invested and working each day and always hoping it is working in the positive direction.
Also a great plan, because it works for you.

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Old 11-23-2017, 10:17 AM   #39
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About 20-25% of my portfolio is in cash, or rather low-yielding instruments. The difference between its yield and bond yield is low, and it does not bother me.

At the 2.5% spending rate of the last 12 months, that would last me 10 years. In case of trouble, I would draw SS early, or cut back my spending. Just a quick look, and I could see that cutting back to 2% WR is easy. And then, the stock's dividend also helps generate some cash in that 10 years of drought.

So, perhaps I could go more than the current 70% stock AA. However, being a market timer that I am and seeing that the market is near topping out with high P/E, I am not going to throw it all in. But then, I never had the courage to throw it all in, certainly not at the bottom in March 2009.
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Old 11-23-2017, 10:21 AM   #40
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Some people sold at the bottom in 2008 or 2009 no matter what their plan/intentions had been prior to that. Some of them did not buy back in either.

Thus Bernstein's huge about face in investing advice and his new "won the game" philosophy. https://www.whitecoatinvestor.com/be...-win-the-game/
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