Texas Proud
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- Joined
- May 16, 2005
- Messages
- 17,383
audreyh1 said:The seven years is just to hold out on a really bad equity bear market that lasts seven years. And yes during a prolonged bear market, your cash bucket will go way down - you'll have less and less years of expenses covered as you use it up. But you WON'T be drawing on your depressed equities. And you have UP TO seven years to let your equities recover before being forced to draw them down. That's the whole point.
You just have to come up with however long of a bear market you want to be able to survive. Armstrong picked 7 based on historical data (I don't remember the odds of a 7 year period being negative), 10 is even more conservative.
Audrey
I am going to be like a few others on this.... you are either market timing OR rebalancing every 7 years... but there are times where you percentages are very screwed up...
So, you are in a 10 year down market and you stock portfolio is down X%... you are in year 7.. so you cash level is LOW, what are you going to do WORRY LIKE HELL. You only have the current year of cash and maybe 90 plus percent of your investments in stock. But, since you do not know you have three more bad years you will need to get some cash... so you convert stock to cash at a low level....
Now, if you rebalanced every year, you did not have as high a percent in stock to lose the last 6 years, then 5, 4, etc... and MAYBE you earned more on your bond side so that after 7 years you are still at a 60 / 40 but with more money and less worry...
Just my thoughts.....