too good to be true? please critique

[lazygood4nothinbum]

after i pay off house & buy an unconscionably expensive touring convertible for a few years of road trips, i'll have $180k less than i was counting on. but when i include social security, noncola'd pension & adding $150k (partial proceeds from sale of my house in three to five years) firecalc seems to think i'm still in decent shape.

i have only minimal experience in building a portfolio (within the old 401k) but have been ravenously reading from you guys and others online & from your valuable suggested books.

so i plugged in my numbers and played with distribution to see what makes the swr go up while maintaining at least 95% safety.

this is the distribution so far that gives me the highest swr according to random numbers i've been plugging into firecalc. i assume the higher number means i'm taking on more risk. is it safe to assume though that in this throw of the dice that at least i should land on the table?

please let me know what's wrong with this, because it gives me an swr i didn't think possible....

us micro cap 30%
us large value 35%
us lt treasury 10%
us small value 10%
lt corporate bond 10%
s&p 500 5%

[Meadbh]

This is an aggressive growth portfolio that is entirely US based. Based on historical data, it would have delivered excellent returns and may do so in the future. However, could you withstand a long, deep slump in the US economy? As a retiree, you WILL need to withdraw funds on a regular basis. So preservation of capital assumes an importance that it did not have when you were 25. Hence the need to reduce risk. You might consider adding some international exposure and increasing your bond exposure a bit. And that's without ever thinking about real estate, alternative investments, commodities, etc.

[MooreBonds]

Quote:

Originally Posted by lazygood4nothinbum after i pay off house & buy an unconscionably expensive touring convertible for a few years of road trips, i'll have $180k less than i was counting on. but when i include social security, noncola'd pension & adding $150k (partial proceeds from sale of my house in three to five years) firecalc seems to think i'm still in decent shape.

Did you assume selling that previously-unconscionably-expensive-but-now-depreciated-40%-RV, and having that money available for investment/housing purchase?

[cute fuzzy bunny]

Wooooooo...way too much microcap. Unless you like 20-40% swings in value year to year on that chunk of your portfolio, think of something a little lighter in the microcap and a little heavier in the S&P 500 or large cap value.

Even shifting 2/3 of the microcap to small cap will give pretty good returns with a little less volatility.

Your biggest problem in the microcap area is that theres always the "winner fund of the year", and all the money flies at it...rendering the fund manager fairly helpless to ably invest in microcap companies.

Should market returns mimic what they've done in the past, you'll make money with enormous volatility. If we hit a bad patch in the market, you could lose 50-75% of your portfolio value in a week.

I also wouldnt touch LT treasury bonds or funds unless you held the bonds yourself and preferably bought them at a much higher rate than is available today. Way more interest rate risk than benefit, even in a fund thats got older bonds in it.

[yakers]

Like Meadbh said...

And I prefer shorter bonds, maybe TIPS too, inflation should be an element of the plan although stocks have done OK by inflation given enough time.

[lazygood4nothinbum]

so it isn't ok just because firecalc says it's ok. i suspected as much. thanx for the input. good to know the limits of these tools.

i've still got so much to learn in a subject that frankly doesn't interest me much. but i never liked w*rk much either and always managed to get done what needed doing. i guess for now i have to learn what risk is associated with each investment.

i noticed there was nothing international but i didn't see a place for that in firecalc. will certainly have int'l in final portfolio.

question: if i am planning to sell my house into the near future, can i consider that as part of my (sort of) bond holdings? current value even after downswing probably at least $400k. planning to sell after homesteaded tax laws change here so the "save our homes" exemption becomes portable. then buy either a house for $250 upstate florida or just invest the entire wad and live like a vagabond. maybe head overseas for a few years.

i actually don't know what microcap is. i assume it is smaller than small cap? i was just plugging in numbers and seeing what they do. but certainly losing 50-75% of value of portfolio would freak me out. ok, so i won't be doing that. also don't know what lt treasury is. was just a spot on firecalc so i figured i'd try some. (i used to experiment in college too.)

as to the rv, um, i don't think i'm the rv type. i'm more the 2-seater type weaving between the rv's. i expect depreciation to be at least 60% over 5 years. nothing i'm counting on adding to portfolio. just spent money. might do a liveaboard boat into the future if funds allow though. sure hope the rising oceans don't ruin all the moorage.

ps. man, more to know. what a drag. i know what a tip is but now i need to find out what a shorter bond is.

[lswswein]

Hi lazygood4nothinbum
If you are going to construct a aggresive & unconventional portfolio you need to start reading a lot more. I think you should atleast read The Intelligent Asset Allocationhttp://www.efficientfrontier.com/BOOK/title.shtml It is a complicated book but it does layout most of the implications of a aggresive portfolio. Also you should look into the need for you to take lot of risk.

-h

[Alex]

FROM FIRECALC:

Quote:

It's awfully tempting to try to tweak settings to get the results you want. But keep in mind that a tool like FIRECalc is intended to help you see if your plan pushes too close to the edge, decades from now. You can try 1001 different combinations of investments and timings to see what happens, but don't fall into the trap of measuring something with a micrometer when you'll be cutting it with an axe

good avdice if you ask me.

PS: a "microcap' portfolio can be very detrimental to your net worth, not to mention nerve racking. Unless you have a grudge against yourself, don't do it......

[SteveR]

Buy some Vanguard index funds in that cover the various areas you want to be in including some off shore stuff.

Forget about it and drive your car into the sunset. Unless you really want to do the individual investments on a daily basis then go with the set it an forget it approach. Sounds like you might like it better that way.

I have different accounts for different uses. Some are set it an forget it while others are to feed my testosterone habit. Don't ask which ones have the best record but I am sure you can guess.

I don't like to wheel and deal and with working 12 hour days and having some amount of caretaking and doing all the financial stuff takes up a lot of my time so I don't have the time to do the research that should be done with each investment. Set it and forget is my only good choice right now. Maybe after I retire I will want to do more on my own....doubt it but if I get bored I might want to "play" with some amount of money...much like a Las Vegas retiree with their SS check. But only if I have the "extra" play money to do so.

[unclemick]

Hmmm - as alluded to by other posters - charging into the future looking into the rear view mirror at the best performing asset classes of the past - might not be the best plan.

Heretical - but still worth considering under the right circumstances - pssst Wellesley, over 4% current yield, self rebalancing, gives you time to putz and read.

New Era - the appropriate life cycle fund - benchmark and add side dressing as you like.

heh heh heh heh - Target Retirement 2015 (60% of income) with defined non cola pension and early SS (40%)

After forty years of reading - 15% in individual stocks - still trying to hit the big one. Make sure you party while you read - the clock is ticking.

[cute fuzzy bunny]

Quote:

Originally Posted by lazygood4nothinbum so it isn't ok just because firecalc says it's ok. i suspected as much. thanx for the input. good to know the limits of these tools.

Just to be clear, such a portfolio will do exactly what the tool says it'll do. Its more the limits of the investor that came to mind when I looked at it. This portfolio, if properly diversified, managed and balanced will quite likely give you very good returns over 20+ year time frames.

But the average person watching it gyrate will have a couple of mini heart attacks in that 20 year period.

To frame it more succinctly: I'm a fairly aggressive investor thats ridden a few ups and downs over the last 20 years. This portfolio would scare the crap out of me in under 5 years.

[unclemick]

Quote:

Originally Posted by Cute Fuzzy Bunny This portfolio would scare the crap out of me in under 5 years.

Yep. Ditto. Amen.

heh heh heh - even thirty years younger with a (dare I say it?) job - rebalancing discipline for me would be problimatic/somewhat emotional.

[Jarhead*]

Quote:

Originally Posted by Cute Fuzzy Bunny To frame it more succinctly: I'm a fairly aggressive investor thats ridden a few ups and downs over the last 20 years. This portfolio would scare the crap out of me in under 5 years.

As well it should, Fuzzy.

The fact that we've had a 25 year unprecidented bull market in both stocks and bonds is probably enough to give someone the idea that we may be due for a pause in the action.

[cute fuzzy bunny]

Ding! Ding! Ding!

(sorry, thats my kid ringing the doorbell)

Given the slip-slide of real estate prices in my local region, I've been seriously pondering taking a chunk of our taxable account currently in Windsor II (which left me unthrilled with a huge capital gain last month) and buying a fixer house on a large lot with it. Hell, homes in my immediate neighborhood were pushing 400k and up and they're now down towards 280-320. Most would run 180-240k to build...a little more slipping on that side and a little more upside in the market the next few weeks and I might take a chunk off the table.

Lazy...heres a good way to look at it without any harm done...do a 'detailed report' from firecalc of your proposed portfolio and then do one at 60% total stock market/40% total bond market. Look at the portfolio balance for each year - heck, pull it into excel and chart the two and overlay the two lines. You should see a fairly smooth line with some lumps and bumps on the 60/40...you should also see wild oscillations in the proposed port.

If you arent particularly adept at excel, post a link to your firecalc runs for your proposed port (upper right corner theres a link on the summary page) and i'll do it...wont take me more than a minute.

One you see the roller coaster ride, you can decide whether it looks like what you could handle.

[Nords]

Quote:

Originally Posted by Cute Fuzzy Bunny Given the slip-slide of real estate prices in my local region, I've been seriously pondering taking a chunk of our taxable account currently in Windsor II (which left me unthrilled with a huge capital gain last month) and buying a fixer house on a large lot with it.

So, life's just not busy enough and the portfolio's not big enough, right?

We're struggling with the same conflicting feelings grown from a lifetime of value investing. At some point enough (in either category) has to be enough...

[cute fuzzy bunny]

Oh its plenty busy! However, had I known I'd be married with a son and have six animals kicking around, I might have bought a bigger house with a bigger yard. What we're in is 'satisfactory' and we love the neighbors, but one just moved out and two more are moving out this coming year.

Thinking might snag a bargain fixer, poke it with a stick for a year or so until its good enough to live in, use it for some storage and take gabe & the dogs there to play in the yard while I do some fixering.

Just a small blinking red light on the dashboard. If it blinks faster or brighter, something might happen.

[lazygood4nothinbum]

really, i wasn't constructing anything. i was just playing with numbers. i was the guy at w*rk who used to push all the buttons to see what they did. usually i'd figure out how something w*rked pretty quickly though sometimes things did break. oooops.

seems my little failed experiment is giving me a very good lesson. great to be able to model & review this stuff before putting money down. see, i had no idea i was on the line for mr. toad's wild ride. i didn't realize that just because firecalc says 95% safe that my car would come that close to going off the road that often.

while i might drive on the shoulder if forced there and while under my control, there is a big difference between driving on the road and being 95% safe with me in control or driving on the shoulder 95% safe but with the road in control.

to mix a metaphor, interesting how that five percent margin seems smaller when hanging at the margins instead of staying within the body of the page. thanx cutefb very much for the offer to help me visualize, but i think your comments and others have already got me there.

per stever, i think i will be indexing my way into the sunset.

edit: g-rated the o's in those w*rk w*rds.

[Jarhead*]

Quote:

Originally Posted by Nords We're struggling with the same conflicting feelings grown from a lifetime of value investing. At some point enough (in either category) has to be enough...

Well, my semi-educated guess is that you've arrived at that point.

So, the question is, what are you going to do with your time now that you can retire?

[Nords]

Quote:

Originally Posted by Jarhead* So, the question is, what are you going to do with your time now that you can retire?

Funny you should ask... I just answered a half-dozen Christmas letters!

[unclemick]

Hmmm

This year for sure - gotta buy that kayak. After forty years of putzing with a few individual stocks trying to hit 'the big one' beat my balanced fund/index benchmark - it's an addiction.

Kayaks are 'more healthier' or so I've been told.

heh heh heh - if I get 'real religion' - maybe I'll swear off remodeling or evil thoughts of building on my two vacant lots.