No stock market investments in your retirement plan?

[audreyh1]

Here's one example... $10k a year invested annually... 60/40 vs Short-term Bond Fund as a proxy for CDs... since Jan 1995... 60/40 has 86% more.

https://www.portfoliovisualizer.com...ocation3_2=100&total1=100&total2=100&total3=0

But you can see in that graph several times that the higher equities run higher for a while, and then come down close to or even below the no equities line before starting to outpace again. So you never know..... it depends when you measure it.

 

[pb4uski]

It doesn't matter. In this case it was to compare for someone near to retirement, like the OP. If I had data back to 1978 available then I would have used it and the CDs only would look even worse. But I agree that you can see the "lost decade" quite clearly given the starting point of available data.

For just about any 40 year period, stocks will thump CDs, and often by a wide margin.

 

[kjpliny]

I'm very conservatively invested and extremely risk averse. I like the Wellesley fund a lot because it matches my risk tolerance very well, but I can understand why some people will stay away from stocks and the associated risks.

People who have an aversion to stocks but have a high savings rate and are comfortable with low returns will often get called out on the "losing purchasing power due to inflation" argument. Depending on their living expenses and the size of their nest egg, this may not mean much.. Let's say someone has a $4M nest egg returning 3% in CDs ($120k/yr) and their current spending is $50k/yr. The inflation effects on $50k/year over time is small potatoes in the grand scheme of things when compared to the annual dollars (not %) thrown off by the CDs and the remaining balance of their savings. Yes, the nest egg will eventually get smaller over time, but they are still set for life. If you set aside the greed and FOMO argument, why would they take the added risk if they are happy, feel financially secure and sleep well.

 

[gwraigty]

People who have an aversion to stocks but have a high savings rate and are comfortable with low returns will often get called out on the "losing purchasing power due to inflation" argument. Depending on their living expenses and the size of their nest egg, this may not mean much.. Let's say someone has a $4M nest egg returning 3% in CDs ($120k/yr) and their current spending is $50k/yr. The inflation effects on $50k/year over time is small potatoes in the grand scheme of things when compared to the annual dollars (not %) thrown off by the CDs. Yes, the nest egg will eventually get smaller over time, but they are still set for life. If you set aside the greed argument, why would they take the added risk if they are happy, feel financially secure and sleep well.

With different numbers, we share some similarities with your assessment. I have no quarrel with those who are primarily stock investors. I wish I had been a good one, but I made a lot of poor decisions and switched gears to fixed income investing. I've only recently started investing in some preferred stock/high dividend yield stock ETFs, again with a focus on income rather than growth. I do continue to try to learn from the stock investors here.

With your numbers, the nest egg won't necessarily get smaller over time. I know that ours doesn't. My husband still works, but he could retire at any time, and we'd still be fine, with investment income/net worth that continues to grow.

 

[RunningBum]

If you set aside the greed and FOMO argument, why would they take the added risk if they are happy, feel financially secure and sleep well.

Um, plenty of reasons other than greed and FOMO, and if you've really paid attention to some of the posts in the various threads, you'd know that. SHTF situation, especially medical, for me or my family. Leaving behind something for heirs. Leaving behind a legacy with charitable donations. Just to name a few.

A 50/50 AA is not really risky. You can spend from your non-equity investments if a stock crash does happen, and hold through the almost certain recovery. Besides, in your scenario:

Let's say someone has a $4M nest egg returning 3% in CDs ($120k/yr) and their current spending is $50k/yr.

I could lose every penny of my equities and still make it without cutback. See what I mean by "not really risky"?

 

[kjpliny]

Um, plenty of reasons other than greed and FOMO, and if you've really paid attention to some of the posts in the various threads, you'd know that. SHTF situation, especially medical, for me or my family. Leaving behind something for heirs. Leaving behind a legacy with charitable donations. Just to name a few.

A 50/50 AA is not really risky. You can spend from your non-equity investments if a stock crash does happen, and hold through the almost certain recovery. Besides, in your scenario:

I could lose every penny of my equities and still make it without cutback. See what I mean by "not really risky"?

Yep...understood. Some people (myself included) would probably feel physically ill if all their stocks went to zero. Investing (or not) can be a very individualized endeavor. Potentially losing half of your life savings...yikes, potentially losing some gains...yawn.

 

[Dtail]

Yep...understood. Some people (myself included) would probably feel physically ill if all their stocks went to zero. Investing (or not) can be a very individualized endeavor. Potentially losing half of your life savings...yikes, potentially losing some gains...yawn.

On a 50/50 AA, one would probably lose at most 25% of their portfolio in a bad bear market. Not chump change, but not 50% either.

 

[kjpliny]

I think the likelihood of another Great Depression is very slim, but I believe stocks were down greater than 90% at that time. With all of the financial engineering, HF trading and global debt load these days, who knows what could happen?

 

[RunningBum]

Yep. It's possible. And as I said, in your scenario I'd still be fine. And it'd probably recover anyway.

I think a more likely scenario than another horrific crash is that I'd find I'd run into some situation where I'd need much, much more money than I imagined. Then I wouldn't be yawning over lost opportunity to grow my money, with caution.

 

[Spock]

Here's one example... $10k a year invested annually... 60/40 vs Short-term Bond Fund as a proxy for CDs... since Jan 1995... 60/40 has 86% more.

https://www.portfoliovisualizer.com...ocation3_2=100&total1=100&total2=100&total3=0

Look at where the line bifurcates... right where the world central banks started propping up markets by directly buying assets and artificially suppressing interest rates.

 

[kjpliny]

Look at where the line bifurcates... right where the world central banks started propping up markets by directly buying assets and artificially suppressing interest rates.

Financial Engineering...the markets and other financial indicators like CPI are being manipulated (propped up) by governments and institutions who can't really afford their debt obligations.

 

[pb4uski]

Look at where the line bifurcates... right where the world central banks started propping up markets by directly buying assets and artificially suppressing interest rates.

So says you... but over long periods of time stocks out-return bonds and bonds out-return CDs... it is just the way it is.

 

[pb4uski]

I'm very conservatively invested and extremely risk averse. I like the Wellesley fund a lot because it matches my risk tolerance very well, but I can understand why some people will stay away from stocks and the associated risks.

People who have an aversion to stocks but have a high savings rate and are comfortable with low returns will often get called out on the "losing purchasing power due to inflation" argument. Depending on their living expenses and the size of their nest egg, this may not mean much.. Let's say someone has a $4M nest egg returning 3% in CDs ($120k/yr) and their current spending is $50k/yr. The inflation effects on $50k/year over time is small potatoes in the grand scheme of things when compared to the annual dollars (not %) thrown off by the CDs and the remaining balance of their savings. Yes, the nest egg will eventually get smaller over time, but they are still set for life. If you set aside the greed and FOMO argument, why would they take the added risk if they are happy, feel financially secure and sleep well.

But how much longer did that person with the aversion to stocks have to work to accumulate a nestegg sufficient to provide $50k/year of withdrawals?

 

[l8_apex]

Nothing in stocks and nothing in bonds. My money is all in rental real estate and notes payable.

Is that risky? Depends on one's perspective.

 

[HI Bill]

Nothing in stocks and nothing in bonds. My money is all in rental real estate and notes payable.

Is that risky? Depends on one's perspective.

Actually, risk does not depend on one's perspective. Risk depends on one's exposure to the chance of injury or loss. A lack of diversification increases one's exposure.

If you're all in promisory notes and real estate, and the country's economy tanks, your renters can't pay the rent, and currency, equities, and everything is devalued. The value of the rentals would fall, and you would be left without income, and lowered asset values. If you have outstanding mortgages, you might have a hard time paying those without cash or gold or...

This is why most financial advisors recommend domestic and international expsoure. If you're 100% in local domestic real estate in Bozeman (?), then you're exposed to a single asset class in a single area. If you have real estate in multiple states and countries, then your exposure is at least more diverse, and you're more likely to survive a single catastrauphic event that impacts your holdings in one area.