I Took All My Money Out of the Stock Market and It Feels Amazing

[jollystomper]

If it works for her that is great. I may not completely agree with her, but then I do not completely agree with those my age who have more than 50% of their assets in the market . Someone who had taken her action in 2007 would probably be called a genius, at least for a few years.

But that is just me. My projected retirement SWR will be less than 2.5% even before SS kicks in, I have access to a 3% yield stable value fund in my 401K. With this, in theory I could also get completely out of the market. But I will probably always keep something in the market, probably due to greed.

 

[Danmar]

For those with a solid pension, such as from the government or military, do you keep a higher amount in equities?

That's my plan, as the government has me in a COLA'd pension, offering me a good degree of insulation against a bear market.

Yes, I do. But most people don’t.

 

[kcowan]

The "efficient frontier" is pretty well vetted. The classic shape
of the efficient frontier graph has a very interesting reversal
towards the bottom of the equity/fixed income allocation ratio.
What it indicates is counter intuitive, but pretty well proven.
The least risky allocation is not 0% equities. It is about
~20%-25% equities. If you have "won the game" and are
seeking to minimize risk, it is important to objectively include
all risk. Not just the volatility of equities you are scared of.

The 100% bond portfolio returns 9% on average? I think the data is too old.

 

[pb4uski]

Perhaps, but most likely the entire line has just shifted downward... I'm guessing that the shape of the line is probably not much different.

 

[Totoro]

Not sure I like the X-Axis. Risk isn't equal to a standard deviation. A flat +5% isn't more risky than a few years of +2% and +8%.

Risk is about losing money, not fluctuating gains.

 

[Totoro]

The woman in the article is 62, she has a 50% chance of dying in the next 23 years. She isn't looking for highest absolute returns, she doesn't have a large margin for error with her portfolio and is just trying to avoid big losses. Her long run may not be all that long. Some posters have said she is at risk for inflation. But are stocks the best inflation hedge? Most of the articles I have read and the links I posted do not show stocks as the best asset class for inflation protection, so I would be interested to see more research based answers on why her approach wouldn't work well for her.

Not worried about those first 23 years, but a lot more about the 15 years after that. If she dies relatively early, allocation matters much less.

Over 30-year periods, the return on stocks after inflation is virtually unaffected by the inflation rate.

from: https://www.kiplinger.com/article/investing/T052-C019-S001-stocks-the-best-inflation-hedge.html


As of February 2013, the longest period of negative real returns from US equities was 16 years
From: https://www.economist.com/blogs/buttonwood/2016/01/investing

Of course, as that very same article mentions, no guarantees for the future, bonds have done better over long times too, and the US has been an outlier in world history. But with bonds yielding below inflation I'm pretty sure they won't be the answer for the long run.

 

[daylatedollarshort]

Not worried about those first 23 years, but a lot more about the 15 years after that. If she dies relatively early, allocation matters much less.

Over 30-year periods, the return on stocks after inflation is virtually unaffected by the inflation rate.

from: https://www.kiplinger.com/article/investing/T052-C019-S001-stocks-the-best-inflation-hedge.html


As of February 2013, the longest period of negative real returns from US equities was 16 years
From: https://www.economist.com/blogs/buttonwood/2016/01/investing

Of course, as that very same article mentions, no guarantees for the future, bonds have done better over long times too, and the US has been an outlier in world history. But with bonds yielding below inflation I'm pretty sure they won't be the answer for the long run.

She has already factored in a 0% real return. I don't know how long she has planned to live for in her plan. If she plans for another 40 years she can take out 2.5% at a 0% real return. That withdrawal rate isn't much less and maybe more than some of the financial experts are recommending for the future anyway, since bond rates and dividends are low and PEs are high.

The Triumph of the Optimist authors from the London Business School in a multi-country analysis concluded that investors should not assume stocks are always safe over the long term, even 20 years. Sure odds are very good, but investment gains are no longer her goal.

 

[Yarnstormer]

Short answer - yes. If someone handed me 5 mil tomorrow I’d pay off the house, put it in multiple banks and never worry again! Haven’t run the numbers - maybe just a few mil would do it!

 

[audreyh1]

The 100% bond portfolio returns 9% on average? I think the data is too old.

It's from 1977 to 2011. You have to go through decades to see the AA and rebalancing effect.

What really matters is the shape of the curve and their relative performance both in return and volatility (risk) between asset classes.

 

[audreyh1]

Not sure I like the X-Axis. Risk isn't equal to a standard deviation. A flat +5% isn't more risky than a few years of +2% and +8%.

Risk is about losing money, not fluctuating gains.

They are really talking about volatility. A lot of folks see short-term volatility as risk when you compare asset classes.

 

[ERD50]

Not sure I like the X-Axis. Risk isn't equal to a standard deviation. A flat +5% isn't more risky than a few years of +2% and +8%.

Risk is about losing money, not fluctuating gains.

They are really talking about volatility. A lot of folks see short-term volatility as risk when you compare asset classes.

I'm with Totoro, that the financial world using "risk" and "volatility" as synonyms can be misleading. But they ain't gonna change.

I think the article from this recent thread addresses this (I didn't take the time to study the article thoroughly, but a quick skim seems like a fit?).

http://www.early-retirement.org/forums/f28/the-ulcer-index-89080.html#post1957707


-ERD50

 

[kcowan]

It's from 1977 to 2011. You have to go through decades to see the AA and rebalancing effect.

What really matters is the shape of the curve and their relative performance both in return and volatility (risk) between asset classes.

Agreed. The curve is probably much steeper now thanks to The Fed making money cheap since 2008. That has been a major change that has impacted all of us.

 

[Midpack]

I can't afford the taxes to do this.

That was my first thought, the taxes would be a killer. We’re very slowly reducing equity exposure, but I doubt we’ll ever go to zero.

 

[Ally]

Our retirement savings are in a guaranteed 3% account that I was able to get working for a nonprofit. When we retired close to 3 years ago, we transferred everything to that account. We haven't had to take anything out, although I know we will be required to when we hit 70. My husband has a great pension, plus we have the two social securities. Our Medicare advantage plan is through his former govt employment, so we don't have copays for anything. I'm an anxious type person and having the 3% is good for my mental health. Those of you who like to invest probably think we're crazy, but it works for us. Plus we have no debt.

 

[Free bird]

Do people view running out of money as a fate worse than death?

 

[Koolau]

I thought the original article was well reasoned and showed the author had thought her options through pretty thoroughly. She still has the option to change her mind should inflation begin to tick up - though her TIPS strategy may work. She has the option to either continue to w*rk or do pick up w*rk (neither are possible for me nor are they something I'd consider except under very unusual circumstances.) So as much as many of us, she seems to know what she's doing and understands the parameters. Black Swans aside, I'm guessing she'll die at 98 with plenty of money.

I keep my assets at about 30% equity - mostly because I want the diversity rather than the growth. I do sometimes feel as if I've "won the game" and could simply divide my port by 30 and start spending. Still, old habits die hard. I guess there's still that little piece of me that thinks "Hey, if the stock market goes nuts - I might start flying first class!"

I can barely run my own life, so I won't tell this lady how to run hers. YMMV

 

[pb4uski]

Do people view running out of money as a fate worse than death?

No, but I view having no choice but to move in with one of my kids as a fate worse than death.

 

[REWahoo]

No, but I view having no choice but to move in with one of my kids as a fate worse than death.

From your perspective or theirs?

 

[pb4uski]

Yes!!

 

[Free bird]

LOL

 

[flyingaway]

I wish I could do the same, but I am too greedy.

 

[Free bird]

You say greedy like it's a bad thing.

 

[Danmar]

You say greedy like it's a bad thing.

I view it more as “leaving money on the table”. Whether it is easy money or not, we can debate.

 

[RISP]

Our retirement savings are in a guaranteed 3% account that I was able to get working for a nonprofit.

Guaranteed by whom, if you don't mind me asking? It's probably not FDIC insured, is it?

3% guaranteed sounds great, but personally I would be nervous having all my eggs in one basket, unless it was a SUPER-SAFE basket. Actually even then.

 

[mathjak107]

I thought the original article was well reasoned and showed the author had thought her options through pretty thoroughly. She still has the option to change her mind should inflation begin to tick up - though her TIPS strategy may work. She has the option to either continue to w*rk or do pick up w*rk (neither are possible for me nor are they something I'd consider except under very unusual circumstances.) So as much as many of us, she seems to know what she's doing and understands the parameters. Black Swans aside, I'm guessing she'll die at 98 with plenty of money.

I keep my assets at about 30% equity - mostly because I want the diversity rather than the growth. I do sometimes feel as if I've "won the game" and could simply divide my port by 30 and start spending. Still, old habits die hard. I guess there's still that little piece of me that thinks "Hey, if the stock market goes nuts - I might start flying first class!"

I can barely run my own life, so I won't tell this lady how to run hers. YMMV

you really can't just divide by 30 because inflation is what creates the biggest sequence risk , not market returns .

just based on sequence risk the difference between the best and worst outcome with the same real returns can vary by up to 15 years according to milevsky

in fact what made 1965/1966 so bad if you retired in to those years was inflation , not market returns .


inflation was 2.50% -3.50% . who would have guessed in 3 years time it would have doubled and by 1974 it would be 11%. it was crushing to a retiree. but with inflation so low who ever expected a 4x increase coming .

inflation proof investments like tips do not help much either . being linked to the cpi which is just a price change index on a basket of goods and services for the 1500 mini economies that make up our country has little in common with your own personal cost of living. they do not track each other well at all .