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Old 01-18-2018, 02:26 PM   #61
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Currently we are approximately 93% equities, have brought it down from the 95% or so, but it went back up

Here is part of the problem, some stocks are in regular accounts, so that means large LTCG if we want to covert them en mass to bond(ish) things. But we are doing ROTH conversions too, so that does not work.

We could convert more in IRA without tax issues, and that is where most of the action has happened.
Still it's emotionally hard to do when bonds pay low interest , are projected to decline or at best stay flat while stock ETF's pay out 2% or more and will grow over the next 7 years.

So how do we avoid the problem of 50% drop in the market lasting a few years?
By having 4-5 years worth of spending (when you add in the stock dividends that will continue) available.
Plus lots of cushion in spending to chose between vacation in Europe or not eat Alpo.
Yep your last three sentence's are paramount.
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Old 01-18-2018, 03:11 PM   #62
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Originally Posted by Texas Proud View Post

But, if you think you have won then you can lower your equities to 20% to 30%.... that would not put you too much into the market and also have some insurance in case of higher inflation...
Yeah, that is basically what I have done. DW and I could live off of my pension and her part-time work if we had to (with just a few minor lifestyle adjustments), so I really see no need to invest a lot in equities at this point in my life.

I know that inflation is a concern when you are talking about a long retirement, but in the last decade or so it has really not been an issue. I think the likelihood of inflation in the 7-10% range coming back anytime soon is pretty slim, really. Of course, I could be wrong about that. If inflation does start to creep back up, we will make some portfolio adjustments. Until then, I sleep pretty well at night with a minimum equity exposure.
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Old 01-18-2018, 03:26 PM   #63
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If inflation does start to creep back up, we will make some portfolio adjustments. Until then, I sleep pretty well at night with a minimum equity exposure.
Careful there! It can be a tough thing to do while in the midst of it all.

I think 1974 is the year that is frequently referenced. 12% inflation, -30+% drop in stocks. Brutal. This kind of thing can cause paralysis if not entered into before hand.
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Old 01-18-2018, 03:48 PM   #64
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Careful there! It can be a tough thing to do while in the midst of it all.

I think 1974 is the year that is frequently referenced. 12% inflation, -30+% drop in stocks. Brutal. This kind of thing can cause paralysis if not entered into before hand.
I'm not too worried about it, given our situation. Since 1991, the CPI has been 4% or less. That's 26 consecutive years of relatively low inflation (and actually more that, as inflation was quite low all the way back to 1982, with the exception of 1990). Yes, we did have much higher inflation for a few years (mid 70s through 81). But do you really think it is likely that roaring inflation will come back without warning in the near future? I just don't think so. At least I am not willing to increase my equity exposure right now, just to protect against that kind of thing happening. I'm not saying my strategy is right for everyone, just that I am comfortable with it for DW and me.
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Old 01-18-2018, 04:09 PM   #65
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Careful there! It can be a tough thing to do while in the midst of it all.



I think 1974 is the year that is frequently referenced. 12% inflation, -30+% drop in stocks. Brutal. This kind of thing can cause paralysis if not entered into before hand.


Here's a word from the past:

Stagflation!

Interesting that a 4% rule worked for that year IIRC.
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Old 01-18-2018, 06:16 PM   #66
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I remember! Wasn't that "I'm going to Whip His A..." wait, wait. Wrong President. It was the one before. "Whip Inflation Now". What's my prize?

Yes, I've won, but that simply means only being 50-55% in equities instead of 75%.
You win a free WIN badge. Jimmie Carter will deliver personally.
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Old 01-18-2018, 06:24 PM   #67
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I have a name for people who completely quit investing in equities (or other growth investments). I call them gamblers.
Funny, that is the way I think about folks who retire and "bet" heavy on equity gains to support their retirement.
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Old 01-18-2018, 06:32 PM   #68
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Funny, that is what I call folks who retire and "bet" heavy on equity gains to support their retirement.
One of the Boglehead posters had some thoughts on the subject that I found insightful:

"But the thing stock enthusiasts continually miss is that the lower end of that distribution is about the same as bonds. Not just the worst-case scenario, but the lower tenth percentile or something like that....
What this means is that you need to save about the same amount no matter what your asset allocation is. You cannot use the fact that you're investing in stocks to justify a lower savings rate. The amount you need to save is the same no matter what your asset allocation is. To say "it's very hard to save enough to retire just using Treasury bonds and TIPs" is just to say that it's very hard to save enough. If you aren't saving enough to retire just using Treasury bonds and TIPs, you aren't saving enough if you add stocks. You're counting on luck, and luck is not a strategy."

Sources: https://www.bogleheads.org/forum/viewtopic.php?t=93245
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Old 01-18-2018, 06:34 PM   #69
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Having read through all of the replies, as I see in many comments these days, both here and other on-line communities I participate in, there is currently a tremendous under-appreciation for risk and the markets.

I believe many folks are over-exposed to the markets and unfortunately it is going to come back and bite at some point. It's been long enough since the financial crisis that memories have faded and many folks are making the same mistakes as last time around.

I'm sorry to be the squeaky wheel on this thread, but with the markets continuing to head relentlessly higher, folks that are looking at large gains need to take a step back and have an extremely objective look at their situation. Revisit your risk tolerance and investment objective. I was particularly moved by the one comment earlier in the thread which stated "I could easily live with a 50% permanent “haircut”". If that's really true, it's wonderful that you have done extremely well and your personal situation allows for this. I personally find it difficult to believe that anyone could honestly/sincerely make the statement.

Back in 2008/2009 many folks in/at/near retirement had their situations permanently changed for the worse because they had not been prudent in this regard.

There is nothing wrong with taking money off the table or even pushing back and walking away from the table.
I've made statements to that effect (50% haircut) on this forum - - - and mean every word of it. Most of our retirement is, or will be, funded by pensions and SS. Our "needed draw" from investments is 1-2%. Anything above that is "beer money." Furthermore, we could cut back on frivolous spending and live comfy w/o any portfolio $$.

Yeah, it was gut wrenching watching our 201K plummet ~40% during the great recession. But, we increased our contribution rate at the same time in the somewhat shaken belief that we were buying low. I guess we were after all. YMMV.
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Old 01-18-2018, 06:42 PM   #70
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I don't see much of a problem with taking gains to cash or short-term bonds/TIPS. Last year I rebalanced 3 times instead of the usual one time in February, to take stock gains and keep the stock allocation to the low point of 58% (high is 64%). And I'm actually 50-35-15 in my 403b, which I'll start tapping in a few weeks (DW is 5 years younger, so her stock allocation is considerably higher).
I think a meltup this year and next is entirely possible and I want to scrape off much of the meltup if it occurs to fund/derisk the next 6 years before regular SS Retirement Age. The market PE also seems rather "rich" historically (or is that "fully valued"and frankly that scares me most, but that doesn't mean it can't continue to go up for a while.
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Old 01-18-2018, 07:26 PM   #71
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Maybe I should add that another reason for my extreme fear of inflation is that I lived in South America for a while, during the years of ultra-mega-hyperinflation. In some places, people were actually being paid almost hourly, so they could run out to the store with a bag full of money and buy something. In a largely cash economy, coins virtually disappeared and the smallest bill in my wallet was generally a 5,000.
Sounds similar to today:
Venezuela's cash crisis: You can't get $1 from a bank. I tried. - Jan. 17, 2018
You can't get $1 out of the bank in Venezuela. I tried. Four hours. Four banks. Six cents.

FWIW I'd agree that an all-cash portfolio is a very risky allocation over the long term pretty much anywhere in the world.
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Old 01-19-2018, 07:54 AM   #72
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Plus lots of cushion in spending to chose between vacation in Europe or not eat Alpo.
and spending down a bit of principal to tide us over.
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Old 01-19-2018, 07:58 AM   #73
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Yeah, it was gut wrenching watching our 201K plummet ~40% during the great recession.
Sorry to hear your 401k took so much of a hit it became a 201k. Hopefully it's at least a 601k by now...
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Old 01-19-2018, 03:26 PM   #74
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This is hilarious!

https://en.wikipedia.org/wiki/Whip_inflation_now

It's like "voodoo" economics! Thanks for making me (in my 40s) look it up!
Oh, I remember that era very well. I worked for a county police department and the pay raises we received were paltry, on the order of one or two percent, so they didn't come close to covering the increased costs of living. This while folks in private industry were at times getting raises well north of 10% a year.

Despite how some folks feel about COLA'd public service pensions it's one reason I don't feel the slightest bit of guilt about mine. I did pay my dues.
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Old 01-19-2018, 03:56 PM   #75
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I read somewhere that you need to be between 30/70 and 70/30 with your AA. Meanwhile within that range and at 15 years cash/CD's I'll take my chances.
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