I don't know which is more boring, this discussion, or ...
I kind of agree, but for me, it has little to do with the OP, and much to do with the whole concept of risk/reward, long-term portfolio performance, AA, and the effects of inflation. And those should be of interest to us all.
Originally Posted by LOL! View Post
Check back with us in 5 to 10 years and tell us if they did better than CD and money market funds.
I plan on doing this. We will see whose approach was right over the next few years. ...
This encapsulates the issue. The OP is still looking for 'guarantees'. There
are no guarantees. Any supposed guarantees
are an illusion. This illusion separates him from reality.
Inflation is real, it reduces buying power. $10,000 after a period of 20% inflation is not the same as $10,000 after a period of 5% inflation. The only thing that makes CDs appear 'guaranteed' is the illusion that is created when inflation is ignored.
And there is no guarantee that the 'real' (inflation adjusted) returns of something like Wellesley will outpace the real returns of CDs over 5 years or 10 years. A 10 year comparison does not make one or the other 'right' or 'wrong'. That is not the point.
The point is - fixed income
rarely provides enough real return to allow anything like a 3.5% WR for an early retiree. A 40 year FIRECalc run shows it
would have failed 73/100 times over 40 years (5 year treasuries - in line with the OP 5-10 year outlook). On
average, the portfolio ends near zero, with the majority of lines grouped below zero, and many failing in the first 25 years. That is about as close to a 'guarantee' as you will get - but a guarantee of failing isn't the kind of guarantee you want. That is not risk-averse, that is risk-seeking.
History says, if you want to keep up with inflation, you need to invest in business. And business goes through cycles, and there are risks. But historically, over a long term, that risk is less than sticking with fixed income. Under the same conditions as above,
a 50-50 balanced portfolio would have failed only 2/100 times, compared to a 75/100 failure rate with 100% fixed.
Again, if you pull your WR% low enough (1.88% for the above case!), any AA would succeed historically. But that doesn't make equities 'risky' - they would have performed far better (fewer failures) across the history of data in FIRECalc.
-ERD50