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Re: Bond Fund vs CDs - which to use?

Kevin, I made no prediction, I even added Taylor's warning about past returns. Tell me. As of next Monday, December 22, 2014, should an informed investor like you buy a $3,000 five-year CD at current rates (if yes, what's the rate), or put $3,000 in VBMFX? Please explain you reasoning. I'm confident...
by longinvest
Fri Dec 19, 2014 8:06 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 34
Views: 1912

Re: Bond Fund vs CDs - which to use?

I don't want to get into an argument about SEC yield and effective returns at duration (instead of returns at maturity). This won't help our new member. I will simply repeat that the choice of fixed income products should be made on the basis of needs, not based on metrics , unless one of you wants ...
by longinvest
Fri Dec 19, 2014 7:20 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 34
Views: 1912

Re: Bond Fund vs CDs - which to use?

Both bond funds and CDs are available as fixed income products for individual investors. They are thus part of a market. They have different properties and returns. Choosing one or the other based not on need (FDIC protection, liquidity, etc.) but on metrics (SEC yield, interest rates) is factually ...
by longinvest
Fri Dec 19, 2014 6:22 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 34
Views: 1912

Re: Bond Fund vs CDs - which to use?

In https://www.bogleheads.org/forum/viewtopic.php?f=10&t=153309#p2299620 I wrote: In other words, I would choose whether I want to invest in a bond fund , in CDs , or in both of them (a fixed allocation to each) and put that in my Investment Policy Statement. I would not wait for better or worse...
by longinvest
Fri Dec 19, 2014 5:22 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 34
Views: 1912

Re: Bond Fund vs CDs - which to use?

I do not want to time the market either. But with less risk and higher return, is this 'timing the market' or is it making the most money possible with today's choices and with that extra earned money, reinvesting it in the future as risks and returns change?? I ask this because I am not sure and t...
by longinvest
Thu Dec 18, 2014 10:50 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 34
Views: 1912

Re: Bond Fund vs CDs - which to use?

I can see two sides of this debate and wondering others would weigh in. On one side, the higher return on today's money (2% on a 5 year Ally CD, with a 1% penalty for closing the account early) is appealing. As the rates rise, a person can take the penalty and the invest in the total bond market. (...
by longinvest
Thu Dec 18, 2014 7:21 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 34
Views: 1912

Re: 100% equities - my reasoning

The description doesn't seem to indicate so. It would be quite unusual for such a graph, displaying annual returns, to mix in an annualized average. I remember we had a long thread about whether Vanguard meant arithmetic or annualized when it said "average annual." http://www.bogleheads.o...
by longinvest
Mon Dec 15, 2014 12:57 am
 
Forum: Investing - Theory, News & General
Topic: 100% equities - my reasoning
Replies: 91
Views: 5876

Re: 100% equities - my reasoning

Yes, these numbers ignore compounding, but that includes presenting average annual returns (arithmetic average which overstates returns), instead of lower average annual ized returns (CAGR). Higher volatility leads to wider negative difference. I think those return numbers in the chart are already ...
by longinvest
Sun Dec 14, 2014 11:12 pm
 
Forum: Investing - Theory, News & General
Topic: 100% equities - my reasoning
Replies: 91
Views: 5876

Re: 100% equities - my reasoning

Here's my view. Stocks are more volatile than bonds, and there are very good reasons for that being so. Stocks are risky. They are mere certificates of ownership. They don't guarantee return of capital nor do they promise any specific amount of dividends or growth. We hope that they will deliver goo...
by longinvest
Sun Dec 14, 2014 10:22 pm
 
Forum: Investing - Theory, News & General
Topic: 100% equities - my reasoning
Replies: 91
Views: 5876

Re: 100% equities - my reasoning

http://i58.tinypic.com/34i4ro3.jpg Having say 20% bonds (80/20) only cuts about 0.6% off nominal returns (9.4% vs. 10.0%) but saves you a lot on the lows, 8% (-34.9% vs. -43.1). These sorts of charts make the reduced returns look less significant than they really are because they ignore the effects...
by longinvest
Sun Dec 14, 2014 8:24 pm
 
Forum: Investing - Theory, News & General
Topic: 100% equities - my reasoning
Replies: 91
Views: 5876

Re: Harvey paper says re-balancing adds risk

Browser,

Aren't you, thus, recommending tactical asset allocation? Do you know the shape of the efficient frontier for 2015 and later?
by longinvest
Sat Dec 13, 2014 5:15 pm
 
Forum: Investing - Theory, News & General
Topic: Harvey paper says re-balancing adds risk
Replies: 73
Views: 4528

Re: Harvey paper says re-balancing adds risk

Not rebalancing, letting the market take you where it may, is what does not make sense. All this talk about timing rebalancing, investing when the market is "down" (whatever that means), and letting your AA drift from your stated plan is just noise and garbage. Where did you get the money...
by longinvest
Sat Dec 13, 2014 4:59 pm
 
Forum: Investing - Theory, News & General
Topic: Harvey paper says re-balancing adds risk
Replies: 73
Views: 4528

Re: [Merriman] Why Vanguard Total Stock Market isn’t the bes

Thanks for everyone's comments and feedback. Regardless of what Merriman says I am a firm believer in TSM and the advantages it provides. With regards to the second article on diversification http://www.marketwatch.com/story/6-steps-to-the-ultimate-retirement-portfolio-2014-04-09/print; assuming a ...
by longinvest
Sat Dec 13, 2014 4:48 pm
 
Forum: Investing - Theory, News & General
Topic: 10 Reasons why Merriman dislikes Total Stock Mkt
Replies: 155
Views: 17701

Re: Comparing Results from VPW, RMD, & 4% Rule Withdrawals

Could you walk me through how the SDP method works and how I could reproduce your numbers? It is described mathematically by JP Morgan in Breaking the 4% rule (see the Appendix). Oh! I had not realized that SDP was another market-timing tool in disguise: it doesn't adapt to your constant or sliding...
by longinvest
Sat Dec 13, 2014 3:36 pm
 
Forum: Investing - Theory, News & General
Topic: Comparing Results from VPW, RMD, & 4% Rule Withdrawals
Replies: 40
Views: 2185

Re: Comparing Results from VPW, RMD, & 4% Rule Withdrawals

Another variable not factored into RMD, VPW, 4%, etc is how to factor in future pension income and future SS benefits. If one is, say, in their 50s (or even 60s and not planning to tap SS until age 70), and anticipates a big payout from these sources years from now, would it make sense to implement...
by longinvest
Sat Dec 13, 2014 10:49 am
 
Forum: Investing - Theory, News & General
Topic: Comparing Results from VPW, RMD, & 4% Rule Withdrawals
Replies: 40
Views: 2185

Re: Comparing Results from VPW, RMD, & 4% Rule Withdrawals

Actually, the article's 65-years-old retiree with $250K is possibly receiving $15K (or more) in Social Security payments. In 1973, his income would have started at $27,500 using VPW+SS, instead of $25,000 using a 4% SWR+SS (and less using RMD+SS). It would have gone down a little during the high-in...
by longinvest
Sat Dec 13, 2014 10:16 am
 
Forum: Investing - Theory, News & General
Topic: Comparing Results from VPW, RMD, & 4% Rule Withdrawals
Replies: 40
Views: 2185

Re: Comparing Results from VPW, RMD, & 4% Rule Withdrawals

truenorth418 wrote:Could someone who has access to the entire article post a quick explanation or excerpt of the conclusions as some of us may prefer not to create yet another account in order to access more than the first page?

You just need to disable cookies, in your web browser, to access the whole article.
by longinvest
Sat Dec 13, 2014 8:58 am
 
Forum: Investing - Theory, News & General
Topic: Comparing Results from VPW, RMD, & 4% Rule Withdrawals
Replies: 40
Views: 2185

Re: Comparing Results from VPW, RMD, & 4% Rule Withdrawals

I attempted a similar comparison (and also considered the effects of asset allocation over the entire lifecycle) in my Variable Withdrawal Showdown page. It can be summarized by in a single table: Improvement in portfolio consumption over age in bonds / 4% rule: 4% best% best IRS rule rule constant...
by longinvest
Sat Dec 13, 2014 8:19 am
 
Forum: Investing - Theory, News & General
Topic: Comparing Results from VPW, RMD, & 4% Rule Withdrawals
Replies: 40
Views: 2185

Re: Comparing Results from VPW, RMD, & 4% Rule Withdrawals

Actually, the article's 65-years-old retiree with $250K is possibly receiving $15K (or more) in Social Security payments. In 1973, his income would have started at $27,500 using VPW+SS, instead of $25,000 using a 4% SWR+SS (and less using RMD+SS). It would have gone down a little during the high-inf...
by longinvest
Fri Dec 12, 2014 6:23 pm
 
Forum: Investing - Theory, News & General
Topic: Comparing Results from VPW, RMD, & 4% Rule Withdrawals
Replies: 40
Views: 2185

Re: U.S. stocks in freefall

So while I was driving home this afternoon, I'm switching between a couple of radio stations... NPR... and a local "all news" station. And I was going nuts because I've listened to about a total of at least ten minutes of discussion about the markets that talked only about the changes --i...
by longinvest
Fri Dec 12, 2014 5:05 pm
 
Forum: Investing - Theory, News & General
Topic: U.S. stocks in freefall
Replies: 1056
Views: 186274

Re: Building a new Excel spreadsheet

I suggest giving a look at an existing spreadsheet: Calculating personal returns . I'm looking at this example and I can see several things that I will eventually add to my spreadsheet. However, I don't see how this example spreadsheet takes into account fees or dividends. A fee is just a withdrawa...
by longinvest
Fri Dec 12, 2014 12:37 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 2980

Re: FIRECalc Spending Method, Poll

Didn't vote. I look at various spending models. My preferred model is to combine our Wiki's VPW method with delayed Social Security and a CD ladder to bridge the gap between retirement and the start of Social Security payments. Each model has its advantages and drawbacks. My preference, above, is du...
by longinvest
Fri Dec 12, 2014 8:58 am
 
Forum: Personal Finance (Not Investing)
Topic: FIRECalc Spending Method, Poll
Replies: 5
Views: 776

Re: Building a new Excel spreadsheet

I suggest giving a look at an existing spreadsheet: Calculating personal returns.
by longinvest
Fri Dec 12, 2014 7:51 am
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 2980

Re: Comparing Results from VPW, RMD, & 4% Rule Withdrawals

FinancialDave, Thanks for the reference to the VPW speadsheet, but I must forward your thanks to the awesome Bogleheads team behind Simba's backtesting spreadsheet for providing the data on which you based the backtests of your article. Simba's backtesting spreadsheet actually contains a much richer...
by longinvest
Thu Dec 11, 2014 7:32 pm
 
Forum: Investing - Theory, News & General
Topic: Comparing Results from VPW, RMD, & 4% Rule Withdrawals
Replies: 40
Views: 2185

Re: To Tilt or Not To Tilt, that's the question

The are very few certainties, in investing. Most arguments are based on statistical analyses of past returns. But, there exists one basic theorem that is easy to understand, based on simple arithmetic rules. Our mentor Jack Bogle calls it the Relentless rules of humble arithmetic. Here is Nobel priz...
by longinvest
Tue Dec 09, 2014 10:21 am
 
Forum: Investing - Theory, News & General
Topic: To Tilt or Not To Tilt, that's the question
Replies: 52
Views: 2397

Re: 2014 Portfolio Returns

I actually signed up for the board to ask someone here to comment about their returns for the year for a news article, but now I'm curious -- I hold most of my assets at Vanguard and find their site TOTALLY opaque, can't figure out how to separate out return percentages from contributions or how to...
by longinvest
Mon Dec 08, 2014 10:36 pm
 
Forum: Investing - Theory, News & General
Topic: 2014 Portfolio Returns
Replies: 24
Views: 1958

Re: Variable Percentage Withdrawal (VPW)

It's all very approximate. Cut-Throat's formula has the benefit of being simpler. Mine is a little more "precise", if you could say so, for early retirees. Yet, neither is really precise, because one would need to know future returns to determine the right factors. The idea is to have a wi...
by longinvest
Mon Dec 08, 2014 7:01 am
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 510
Views: 87452

Re: A Returns Spreadsheet for Bogleheads

The spreadsheet approximates (monthly) the effect of irregular cash flows using W. Bernstein's formula (from The Four Pillars of Investing) for calculating time-weighted returns: cash_flow = contributions - witdrawals return = (end_balance - cash_flow/2) / (start_balance + cash_flow/2) - 1 As an app...
by longinvest
Sun Dec 07, 2014 9:35 pm
 
Forum: Investing - Theory, News & General
Topic: A Returns Spreadsheet for Bogleheads
Replies: 33
Views: 4217

Re: Calculate Annualized Returns from a Portfolio

dvd7e wrote:That's an option I hadn't considered, thank you. I'm still holding out hope for the 1 hour a year approach of tallying my annual returns for all of my accounts and calculating total return that way.

Would this suit your needs? Calculating personal returns (a spreadsheet in our Wiki).
by longinvest
Sun Dec 07, 2014 7:58 pm
 
Forum: Investing - Theory, News & General
Topic: Calculate Annualized Returns from a Portfolio
Replies: 12
Views: 847

Re: Why do target date funds get so bond heavy?

As a retiree, which would you prefer: ⋅ Having a $2M portfolio in year 1 and waking up with a $1M portfolio a year later (and reducing withdrawals by half), or ⋅ Having a $1.2M portfolio in year 1 and waking up with a $950K portfolio a year later (and reducing withdrawals by 20%...
by longinvest
Sun Dec 07, 2014 3:35 pm
 
Forum: Investing - Theory, News & General
Topic: Why do target date funds get so bond heavy?
Replies: 39
Views: 2695

Re: Why do target date funds get so bond heavy?

"Safe withdrawal rate" studies are particularly sensitive to one key assumption, and usually they sneak it in without saying too much about it: what IS the acceptable failure rate? You can go around and around on this, because on the one hand, there are probably few people who would be ha...
by longinvest
Sun Dec 07, 2014 12:01 pm
 
Forum: Investing - Theory, News & General
Topic: Why do target date funds get so bond heavy?
Replies: 39
Views: 2695

Re: Variable Percentage Withdrawal (VPW)

@LadyGeek: That's really neat! The Simba spreadsheet people are wizards. I see the check boxes but I have been unable to figure out how they were set up to show and hide graph data. (I don't think I'll need it in a dedicated comparison sheet, but I might find a use for it in a future version). The ...
by longinvest
Sun Dec 07, 2014 11:15 am
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 510
Views: 87452

Re: Variable Percentage Withdrawal (VPW)

One thing that I was trying to do was to vary the projected growth of my portfolio. We use a 100% allocation to Wellesley and I wanted to use their growth % since inception. I pare it down a bit at 6% which I think is reasonable. (Probably get a few arguments re this) So, is there a way in the spre...
by longinvest
Sun Dec 07, 2014 11:10 am
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 510
Views: 87452

Re: Variable Percentage Withdrawal (VPW)

Here is the Formula I came up with for determining an adequate Nest Egg. Nest Egg = (( Non Discretionary Budget * 2) - Annual Pension Amts and or S.S.) * 25 There has to be some flexibility in your budget to cut back if necessary. My formula for having 'Enough' $$$ to retire. (The constant of '2' i...
by longinvest
Sun Dec 07, 2014 11:00 am
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 510
Views: 87452

Re: Variable Percentage Withdrawal (VPW)

@BahamaMan: Thanks. @BlueEars: You're right. It woud be better to avoid acronyms and to provide SWR data in table form. There isn't place on the VPW sheet for all this. I'll take your suggestion and move the comparison to a dedicated sheet. @LadyGeek: That's really neat! The Simba spreadsheet people...
by longinvest
Sun Dec 07, 2014 10:45 am
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 510
Views: 87452

Re: Choosing the right Asset Allocation

TwoByFour, Here's Vanguards site on developing a suitable asset allocation using broadly diversified funds: https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-risk And another one to get a recommendation: https://personal.vanguard.com/us/funds/tools/recommendation What I...
by longinvest
Sat Dec 06, 2014 8:13 pm
 
Forum: Investing - Theory, News & General
Topic: Choosing the right Asset Allocation
Replies: 30
Views: 2913

Re: Choosing the right Asset Allocation

TwoByFour, Are you convinced that the future will be like the recent past (e.g. 1900-2013)? I've personally learned a lot reading W. Bernstein's The Four Pillars of Investing where he goes back and looks at longer history. I learned that bonds and stocks existed before 1900. Here's a short but inter...
by longinvest
Sat Dec 06, 2014 6:39 pm
 
Forum: Investing - Theory, News & General
Topic: Choosing the right Asset Allocation
Replies: 30
Views: 2913

Re: Choosing the right Asset Allocation

May I suggest modeling another withdrawal method, like Variable percentage withdrawal (VPW) ? Now, as VPW cannot fail (100% success rate by design), you'll have to pick something other than success rate to optimize. Many possibilities: total withdrawals, withdrawal volatility, minumum withdrawal, di...
by longinvest
Sat Dec 06, 2014 6:18 pm
 
Forum: Investing - Theory, News & General
Topic: Choosing the right Asset Allocation
Replies: 30
Views: 2913

Re: TIPs, Total Bond Market, or Both?

digit8 wrote:I'd argue it's impossible to make a fully reasonable call on TIPS just yet: they've only existed since 1997, which covers a time period both relatively short and highly abnormal in investing history.


Abnormal? What's normal?
by longinvest
Sat Dec 06, 2014 11:57 am
 
Forum: Investing - Theory, News & General
Topic: TIPs, Total Bond Market, or Both?
Replies: 35
Views: 3390

Re: Variable Percentage Withdrawal (VPW)

I have uploaded a new version of the VPW spreadsheet on the Bogleheads Wiki VPW Page . As an experiment, I have added a visual comparison to the popular SWR method on the backtesting charts. Personally, I feel that it makes the charts harder to understand, but maybe it is of interest to new users. W...
by longinvest
Fri Dec 05, 2014 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 510
Views: 87452

Re: Choosing the right Asset Allocation

I don't understand... Do you think that one day before retirement, one switches from 80/20 to 30/70? For a $1M portfolio, this means selling $500K of stocks. One has better be lucky that the market doesn't crash on that specific day. :happy
by longinvest
Thu Dec 04, 2014 7:23 pm
 
Forum: Investing - Theory, News & General
Topic: Choosing the right Asset Allocation
Replies: 30
Views: 2913

Re: Hypothetical - Index Funds Don't Exist

Before I learned about index funds, I invested in individual equities.

I knew that I knew nothing, so I had a high level of anxiety and traded way too often. It's not hypothetical for me. I don't want to go back.
by longinvest
Thu Dec 04, 2014 5:07 pm
 
Forum: Investing - Theory, News & General
Topic: Hypothetical - Mutual Funds Don't Exist
Replies: 26
Views: 1829

Re: Choosing the right Asset Allocation

I modeled it as a $10k initial investment and a $6k contribution (inflation adjusted) after that for each year of the 30 year sequence. Here is a chart of one sequence year (starting in 1980) for two different AA: 80/20 and 50/50. The 80/20 portfolio took huge losses in 2001 and 2008, but it still ...
by longinvest
Thu Dec 04, 2014 4:56 pm
 
Forum: Investing - Theory, News & General
Topic: Choosing the right Asset Allocation
Replies: 30
Views: 2913

Re: Why finance research is often wrong - the jelly bean pro

But in lots of situations either higher or lower is more appropriate. If something looked tasty but I only had a 95% loc that it would not kill me I think I'd take a pass. :) One has to be thoughtful in these things. I think even more importantly, in the case of investing, you have to look at it as...
by longinvest
Tue Dec 02, 2014 5:43 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 262
Views: 21774

Re: [Shiller's] data set and the Facts of the Matter

Thanks for all your thoughtful comments so far -- I have not seen anything on this more technical issue that I brought up. but the problem seems to stem from the standard way we apply Portfolio returns using discrete simple return data on an annualized basis vs the way Schiller "cut" up t...
by longinvest
Tue Dec 02, 2014 3:17 pm
 
Forum: Investing - Theory, News & General
Topic: [Shiller's] data set and the Facts of the Matter
Replies: 14
Views: 1650

Re: Schiller's data set and the Facts of the Matter

The trickiest part is using bond data. His spreadsheets reports on government bond yields, not actual total returns. In the VPW spreadsheet I reconstruct an (approximate) annual total return out of 10-year bond yields. Then I use a 1-year and 10-year bond barbell for "bonds" in backtesting...
by longinvest
Tue Dec 02, 2014 7:33 am
 
Forum: Investing - Theory, News & General
Topic: [Shiller's] data set and the Facts of the Matter
Replies: 14
Views: 1650

What 'smart beta' is and is not

I found this on the Vanguard Canada web site: https://www.vanguardcanada.ca/individual/articles/education-commentary/investing/smart-beta-cheaper-active-investing.htm Jason: So, we hear a lot about passive-active with respect to smart beta. Vanguard, and you in particular, have said that advisors an...
by longinvest
Mon Dec 01, 2014 12:40 pm
 
Forum: Investing - Theory, News & General
Topic: What 'smart beta' is and is not
Replies: 1
Views: 347

Re: "Where to Invest in 2015"

But, they have a good execuse: "Like many others, though, our stock picks failed to keep up with the market."

They're not responsible; it was due to some unfortunate circumstances that were beyond their control that also affected many others. :oops:
by longinvest
Sat Nov 29, 2014 9:35 pm
 
Forum: Investing - Theory, News & General
Topic: "Where to Invest in 2015"
Replies: 19
Views: 2766
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