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

[razztazz]

Bucket #1 is your "won the game" money and is just invested in fixed income instruments. Which is enough to live the rest of your life in your chosen lifestyle. (maybe even with some cushion) Bucket #2 is the extra money above and beyond what you realistically will ever need

Yes, of course. So easy. That's what everybody here did. Saved up twice as much money as we'd ever possibly need. The old 2% Withdrawal Solution

 

[Car-Guy]

Agree, not as easy to do as it is to write it, but some (even here) have done it...

 

[razztazz]

Some did....

We know. So what? Back on topic

 

[Car-Guy]

I thought it was on topic but I'll yield to your wisdom.

 

[GravitySucks]

You don't know you've won the game for sure until you're dead.

This is the only site in the world where dying = Winning.

 

[Doc0]

What is inflation? It certainly isn't CPI

 

[daylatedollarshort]

"Back in 2012, Fidelity back-tested nine assets against inflation on a year-to-year basis between 1973 and 2012. No asset beat inflation 100% of the time, but there was a big difference in regards to which assets performed better at beating inflation."

9. Gold - 54%
8. Commodities - 66%
7. 60/40 Stock / Bond Portfolio - 69%
6. REITS / Real Estate Equity - 69%
5. S&P 500 - 70%
4. Real Estate Income - 71%
3. Barclays Aggregate Bond Index - 75%
2. Leveraged loans - 79%
1. TIPS - 80%


Source:
9 Top Assets for Protection Against Inflation
http://www.investopedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp
​

 

[FUEGO]

"Back in 2012, Fidelity back-tested nine assets against inflation on a year-to-year basis between 1973 and 2012. No asset beat inflation 100% of the time, but there was a big difference in regards to which assets performed better at beating inflation."

That's a strange way to think about "beating" inflation. Year to year? I'm more worried about which asset classes will beat inflation for 10 or 20 or 30 year periods.

 

[Totoro]

+1

No-one here has a time horizon of 1 year. 5 years at a minimum, but more 20 or even 30 years.

Which in the end comes back to absolute returns of asset classes. As far as I know, only equities shine there. Well, as long as the world earnings keep growing at any rate.

 

[eytonxav]

If you have already won the war, no need to take on extra risk if doesn't allow you to sleep well at night, however, I have also heard it is never wise to let equity drop below 20%.

 

[Scuba]

Unlike many on this forum, DH & I can be frugal when needed but we like to spend money. I cannot imagine being OK with leaving a lot on the table by being out of equities. I agree with having some portion of the portfolio in fixed income to balance risk, and in our case our basic lifestyle will be funded by pension income, SS, and dividend/interest income. However we enjoy travel, eating out at nice restaurants, wine, getting great seats at concerts, theater, entertaining, etc. Even if on paper we have "enough" to fund all of this, we could enjoy more of the pursuits we enjoy if our portfolio generates more. Or we could buy a second property, boat, or other luxury items with "excess" returns. Not to mention healthcare inflation is far above CPI numbers and if we ever get a bad diagnosis, we want the freedom to be treated at the best possible provider, whether or not it's "in network." For all of these reasons, I'm envisioning equities being a substantial part of our portfolio for the next several decades.

 

[daylatedollarshort]

+1

No-one here has a time horizon of 1 year. 5 years at a minimum, but more 20 or even 30 years.

Which in the end comes back to absolute returns of asset classes. As far as I know, only equities shine there. Well, as long as the world earnings keep growing at any rate.

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.

 

[walkinwood]

I think the librarian laid out a pretty solid case for her decision while not giving out a lot of details. It works for her. Not for me. Not yet.

As far as Yahoo! Finance articles go, that one was a gem

 

[HawkeyeNFO]

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.

 

[braumeister]

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

No, because I'm chicken. My equity allocation is always in the 50 - 60% range.

 

[bada bing]

Generally, people's perceptions of the relative magnitude
of risks aren't very objective. "Won the game" is a nice
buzz phrase. Does that mean you rationally assess all the
risks and try to minimize the total ? Or does it mean you
put all your eggs in the basket your dinosaur brain perceives
as the least risky ?

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.

 

[daylatedollarshort]

It didn't seem like the woman in the article was acting irrationally or putting all her eggs in one basket. It seemed like she had given a lot of thought to her investments and decided this kind of model was right for her:

"Asset-liability matching removes the probability-based concept of safe withdrawal rates from the analysis, since it rejects relying on a diversified portfolio for the entire lifestyle goal. The idea is to first build a floor of very low-risk guaranteed income sources to serve your basic spending needs in retirement (or, as Moshe Milevsky says, “pensionize your nest egg”). The guaranteed income floor is built with Social Security and any other defined-benefit pensions, and through the use of your financial assets to do things such as building a ladder of TIPS or purchasing an income annuity. Not all of these income sources are inflation-adjusted, and you need to make sure the floor is sufficiently protected from inflation, but this is the basic idea."


What is a Safety First Retirement Plan?
https://www.forbes.com/sites/wadepf...-safety-first-retirement-plan/2/#21d4d43c1fed

 

[GravitySucks]

Hmmm.
Read all the comments, then the article. We can really get the J running in the INTJ here.
I liked her writing. I'm glad she found an AA that she sleeps well with. Personally think she'd be a bit safer with a tiny bit of equities, but the cd ladder and TIPS along with working until she's 70 will probably work out fine.
Good for her. It's a hard thing to say you got enough. Look how many OMYers we have here.

 

[Doc0]

This Wade Pfau stuff looks like an argument from an annuity salesman.

 

[imoldernu]

Can't comment intelligently on investing, because we never had an appetite for risk.
That said, when we retired in the 90's, CD rates were relatively high, and our 5 yr. rates were in the 7% to 8% range. By 2000, we decided to go with 30 yr. IBonds, when each person could open three $10,000 accounts per year. It has worked out okay for us... nothing to brag about, but now, in our 80's as we watch the market rise, we still feel comfortable with our decision. Below, is an excerpt of the rates these bonds are currently paying, based on the year we we bought them. We were earning more, in the earlier years, based on the base rate.

We are members of the "Lucky Few"...The 'Lucky Few' Reveal the Lifelong Impact of Generation

If I calculated the result correctly, while the inflation rate over the period was about 46%, the actual $ return has been 156%

The percents shown represent the current yield (today) for the years when we were buying the bonds.

 

[daylatedollarshort]

This Wade Pfau stuff looks like an argument from an annuity salesman.

There are many articles on Safety First and Matching Strategies by other financial researchers and writers on the web.

 

[Bigdawg]

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.

DW and I both have COLA's pension. We are aprox 95% equities.

 

[34rlsa]

Can't comment intelligently on investing, because we never had an appetite for risk.
That said, when we retired in the 90's, CD rates were relatively high, and our 5 yr. rates were in the 7% to 8% range. By 2000, we decided to go with 30 yr. IBonds, when each person could open three $10,000 accounts per year. It has worked out okay for us... nothing to brag about, but now, in our 80's as we watch the market rise, we still feel comfortable with our decision. Below, is an excerpt of the rates these bonds are currently paying, based on the year we we bought them. We were earning more, in the earlier years, based on the base rate.

We are members of the "Lucky Few"...The 'Lucky Few' Reveal the Lifelong Impact of Generation

If I calculated the result correctly, while the inflation rate over the period was about 46%, the actual $ return has been 156%

The percents shown represent the current yield (today) for the years when we were buying the bonds.

Thank you for sharing your experience.

When I started the thread I expected to see the usual replies with regard to stock allocation.

However the title of the thread seems to have been lost in the discussion. The freedom of not having to rely or concern yourself with the performance of the stock market.

This thread has very little relevance for:

Forum members with a substantial portfolio who can withstand a severe correction in the market… adjust their withdrawal rate accordingly and still maintain a very comfortable retirement.

Younger forum members who are not yet retired and who can ride out a bad sequence of returns.

Forum members who have an appetite for risk.

Obviously there is substantial value being in the market long term… but it's not guaranteed for any specific future period during retirement.

Freedom is priceless… and for some may be more valuable than the possibility of a larger portfolio.

 

[brucethebroker]

Years ago, DW suggested that rental real estate isn't for everyone, while I was on a crusade to convince anyone who would listen to invest. She was right.

You now what? Equities aren't for everyone. Bonds aren't for everyone. CD's aren't for everyone. AA isn't for everyone. Some don't mind market risk. But some do, and they sleep better with a "market risk free" portfolio. Those people most likely do not worry about inflation, because their "personal" inflation is quite low.

Personally, I enjoy hearing all sides of the arguments-this forum has generated many thoughts to expand my thinking. But I much prefer a civil debate. Too much arrogance and snarky in some of the comments on this particular thread.

 

[Danmar]

Even if you have no desire to leave any inheritance or other money behind once you are gone, it’s not logical to leave easy money with reasonable risk out of your investment allocation.

Only way it makes sense is with the “won the game” level of savings.

It’s also hard to accurately predict your date of death, short of planned suicide

Agree. But even then, the “winning the game” thing just doesn’t ring true with me. Many people like “playing the game” and to even call it a “game” seems weird to me. Is life a game? Do you quit when you’ve won it? How do you define “won”. I certainly wouldn’t quit.

Also, many people do have legacy objectives and leaving “easy” money on the table that could be put to good use by your heirs or charity, seems less than optimal to me.

Maybe when you are in your late 80’s you could annuitize enough of your portfolio to live the rest of your life and then give the rest away?

I guess it really depends on your personality and risk appetite. My appetite is still quite high.