An overdue update from a "panicked investor"

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Topic Author
westhermes
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Joined: Wed Oct 06, 2010 11:13 am

An overdue update from a "panicked investor"

Post by westhermes »

It has been 4 years since my original post so I thought it might of interest to some to see how things progressed.

http://www.bogleheads.org/forum/viewtop ... 008#841008

If you take time to read it all you will correctly conclude that I struggled at the time. It took time to re-enter the market but I did. We continue to live within our means, save a fair amount annually and our portfolio has grown with the improved market.

Our current portfolio balance is low to mid 7 figures:
55% S&P 500 (Vanguard and Fidelity)
5% Total SM (Vanguard)
10% Total International SM (Vanguard)
10% individual stocks (3 companies, the largest position is company stock which I am forced to own)
20% cash

This excludes $125k in the kids' 529 plans. Both kids are under 10 so I do not plan to put much more into these in the near future. All is invested in S&P but we will get more conservative as they get a few years older.

We no longer own any municipal bonds as I sold one position before Cap Gains rates increased a few years ago and the other was recently called away by the Issuer. I am happy to report the family loan was repaid in full as well.

New annual Contributions
$30,000 -- 401k (including company matching contributions)
$150,000 taxable accounts

Debt: $390k mortgage (interest only at 3.25%), $30k car loan, 0.9%

Desired Asset allocation: Our AA will change over time but my current view is that 70% stocks, 0% bonds and 30% cash is appropriate. My opinion is that we have enjoyed a nice run but history shows this is not sustainable without a correction.

What I learned:
1) I am not a true Boglehead. It may cost me money over time but I cannot invest only in Index Funds.
2) Some of you are not that nice. You know who you are.
3) I am impulsive so I have taken a relatively small amount of our portfolio and allow myself to invest that money. Some of you will enjoy the fact these investments have all lost money while the S&P has raked.
4) I like cash vs bonds. Bond funds do not make sense to me in this environment and I'd rather earn 0% and have some dry powder.
5) Our two biggest assets are that we are savers first and maintain a (relatively) low cost of living.

As long as I continue to follow the course outlined above we should be ok.
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climber2020
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Re: An overdue update from a "panicked investor"

Post by climber2020 »

What has changed between then and now that makes you a) comfortable with an 80% stock allocation (seems very high based on what you wrote in 2010), and b) sufficiently confident that you won't sell everything again when the market inevitably takes another nosedive at some nondescript time in the future?
dhodson
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Re: An overdue update from a "panicked investor"

Post by dhodson »

Number 1 and 5 are likely correct.
edge
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Re: An overdue update from a "panicked investor"

Post by edge »

Interesting update and contrast. My investing strategy is as robotic as it comes. Completely eliminating emotion through ups and downs when it comes to my long term portfolio has been the primary reason for its success.
TradingPlaces
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Re: An overdue update from a "panicked investor"

Post by TradingPlaces »

I like dry powder. Today was an excellent day to use your dry powder, IMO.
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cheese_breath
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Re: An overdue update from a "panicked investor"

Post by cheese_breath »

westhermes wrote: 2) Some of you are not that nice. You know who you are.
How is this different from any other group with a large number of people? What did we say to hurt or offend you?
The surest way to know the future is when it becomes the past.
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cfs
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Re: An overdue update from a "panicked investor"

Post by cfs »

On number two.

I had to go to your previous conversation and read every reply in order to check on this one [Some of you are not that nice. You know who you are]. You received some good advice on the previous conversation, my recommendation is to ignore any post which you consider offensive, the worst thing to do is to enter into a p-contest with other forum members. I have no inputs on your desired 70/30 allocation, but I wish you good luck with your investments.
~ Member of the Active Retired Force since 2014 ~
John3754
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Re: An overdue update from a "panicked investor"

Post by John3754 »

westhermes wrote:4) I like cash vs bonds. Bond funds do not make sense to me in this environment and I'd rather earn 0% and have some dry powder.
You're 45 years old and presumably have a long investment time horizon. Think logically about this, what do you expect to have a higher real return over the next 40+ years, cash or bonds?
Lafder
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Re: An overdue update from a "panicked investor"

Post by Lafder »

I am glad you came back. I see that you describe yourself as impulsive. I hope that the next time you want to make a big portfolio change you will take a chance and post here again for feedback before you act so you can think it through. I know I learn a lot from the arguing and differences of opinion here : ) There is often no absolute true answer, just opinions. ((People can argue data makes some opinions more right than others, but, still opinions))

You are lucky that you have a huge amount of savings and your ongoing contributions are huge as well. You should be in good standing to retire. Your accounts selections including cash are better than most people in the general population.

I do not understand why you are so afraid of bonds. Yes they may go down, but they also may go up. The thing about cash is that its value goes down with inflation.

You have to do what you are most comfortable with.

I would pay off a mortgage (and a car) before I held a lot of cash since then I am at least paying down a guaranteed debt.

As you may have discovered, a lot of financial decisions are more emotional and impulsive than logical. If you have any free time I recommend any of these books:
http://www.amazon.com/Smart-People-Mone ... cr_pr_pb_t
http://www.amazon.com/Nudge-Improving-D ... 1&keywords
http://www.amazon.com/Predictably-Irrat ... gy_b_img_z

I do not get any money from their sale, I just like them.

Best wishes,
lafder
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BolderBoy
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Re: An overdue update from a "panicked investor"

Post by BolderBoy »

westhermes wrote:Our current portfolio balance is low to mid 7 figures
So $3-5 million? Do you have a need to take so much risk going forward?
Topic Author
westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

climber2020 wrote:What has changed between then and now that makes you a) comfortable with an 80% stock allocation (seems very high based on what you wrote in 2010), and b) sufficiently confident that you won't sell everything again when the market inevitably takes another nosedive at some nondescript time in the future?
Lafder wrote:
I do not understand why you are so afraid of bonds. Yes they may go down, but they also may go up. The thing about cash is that its value goes down with inflation.

You have to do what you are most comfortable with.

I would pay off a mortgage (and a car) before I held a lot of cash since then I am at least paying down a guaranteed debt.

Best wishes,
lafder
BolderBoy wrote:
westhermes wrote:Our current portfolio balance is low to mid 7 figures
So $3-5 million? Do you have a need to take so much risk going forward?

Thanks to all the replied. I've tried to address them all by responding to these three.

I learned a lot from what I did in 2010 and the subsequent post to this Forum. Future returns may prove me wrong but I am quite comfortable with my thinking and do not feel the anxiety I felt years ago. I am not afraid of bonds, just do not like bond funds. I would buy individual bonds but not Funds. I do not plan to stay in cash forever but when the next correction comes I would like to be in position to take advantage. I have considered paying off the mortgage and the car but am not willing to do that right now. I don't view my current AA as taking too much risk so long as I stay the course when all this goes the wrong way as it is bound to do at times. I appreciate the rationale for a more conservative AA but too many things are unknown (taxes, fate of Social Security & Medicare, health care costs, etc), so at my age with young kids I believe the equity market is the right place to be.
dhodson
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Re: An overdue update from a "panicked investor"

Post by dhodson »

This assumes you can time the next dip/crash/pull back correctly.

That's not very likely.
Agrippa
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Re: An overdue update from a "panicked investor"

Post by Agrippa »

Interesting update. 80% stocks seems high to me based on the old post... just be sure that when the next downturn hits you post here for advice before panicking again!
Agrippa
supersharpie
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Re: An overdue update from a "panicked investor"

Post by supersharpie »

westhermes wrote:
climber2020 wrote:What has changed between then and now that makes you a) comfortable with an 80% stock allocation (seems very high based on what you wrote in 2010), and b) sufficiently confident that you won't sell everything again when the market inevitably takes another nosedive at some nondescript time in the future?
Lafder wrote:
I do not understand why you are so afraid of bonds. Yes they may go down, but they also may go up. The thing about cash is that its value goes down with inflation.

You have to do what you are most comfortable with.

I would pay off a mortgage (and a car) before I held a lot of cash since then I am at least paying down a guaranteed debt.

Best wishes,
lafder
BolderBoy wrote:
westhermes wrote:Our current portfolio balance is low to mid 7 figures
So $3-5 million? Do you have a need to take so much risk going forward?

Thanks to all the replied. I've tried to address them all by responding to these three.

I learned a lot from what I did in 2010 and the subsequent post to this Forum. Future returns may prove me wrong but I am quite comfortable with my thinking and do not feel the anxiety I felt years ago. I am not afraid of bonds, just do not like bond funds. I would buy individual bonds but not Funds. I do not plan to stay in cash forever but when the next correction comes I would like to be in position to take advantage. I have considered paying off the mortgage and the car but am not willing to do that right now. I don't view my current AA as taking too much risk so long as I stay the course when all this goes the wrong way as it is bound to do at times. I appreciate the rationale for a more conservative AA but too many things are unknown (taxes, fate of Social Security & Medicare, health care costs, etc), so at my age with young kids I believe the equity market is the right place to be.
Be honest with yourself. Likely the only reason why the past four years have gone so smoothly and you now feel "comfortable" with your AA is that the market has boomed. Your fear will likely overtake you and you will probably lock in your losses the next time there is a big dip.

BTW - Social Security reform will not impact you. Everyone 45 years and older were grandfathered under the old system the last time there were major reforms to the system in 1983.

Expect the same this go around.
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Kenkat
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Re: An overdue update from a "panicked investor"

Post by Kenkat »

The good news here is that you are rich. You save more each year than the vast number of people even make and you have a multi-million dollar portfolio. That's the best thing you have going for you.

If you don't want to completely pay off the mortgage immediately, I would at least consider channelling some of your annual savings into paying down some of the principal on the interest only loan. It doesn't make sense at some point to save money at 0% when you are paying 3.25% in interest.

Other than that observation, what you are doing seems reasonable to me as long as you feel confident that you can stay the course when the next correction hits. The events of 2008-09 were certainly anxiety provoking. You weren't the only one feeling that way, so the fact that you have struggled to re-enter the market but did so anyway should provide some stay the course fortitude for the next time.
techcrium
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Re: An overdue update from a "panicked investor"

Post by techcrium »

While I appreciate your reflection, you have not explained why are OK with 80% stocks that you weren't comfortable with in 2010.
Grt2bOutdoors
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Re: An overdue update from a "panicked investor"

Post by Grt2bOutdoors »

westhermes wrote:It has been 4 years since my original post so I thought it might of interest to some to see how things progressed.

http://www.bogleheads.org/forum/viewtop ... 008#841008


What I learned:
1) I am not a true Boglehead. It may cost me money over time but I cannot invest only in Index Funds.
2) Some of you are not that nice. You know who you are.
3) I am impulsive so I have taken a relatively small amount of our portfolio and allow myself to invest that money. Some of you will enjoy the fact these investments have all lost money while the S&P has raked.
4) I like cash vs bonds. Bond funds do not make sense to me in this environment and I'd rather earn 0% and have some dry powder.
5) Our two biggest assets are that we are savers first and maintain a (relatively) low cost of living.

As long as I continue to follow the course outlined above we should be ok.
Glad to see you came back and I am not on the offenders list, yet!
You have no worries, you are doing great on all accounts - you went from a mid 6 figure portfolio to a mid 7 figure portfolio in 4 years, dude, really you're doing okay and as Taylor Larimore says....there are many roads to Dublin.

The only think I can suggest is to get rid of your mortgage debt, you're paying 2%+ after taxes in interest, your cash is earning you zero after taxes or worse, negative returns after inflation. Get rid of the debt and start paying interest to yourselves.

If I had to pick the one thing that will keep you going no matter what happens, it's point #5 - you can save your way out and you haven't succumbed to affluenza. Count your blessings. Thanks for coming back and sharing your story.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

techcrium wrote:While I appreciate your reflection, you have not explained why are OK with 80% stocks that you weren't comfortable with in 2010.
I do not like bond funds, especially in the current rate environment. I like individual bonds but have found none worth owning at these yields. I currently have a low six figure brokerage account that I use for individual stocks and this allows me to "play" and leave the rest alone. Having a large cash position will allow me to take advantage when the next correction comes or to purchase some individual muni bonds if the opportunity arises. I may pay off the house and the recent used car purchase but that is not a decision I believe I need to make right now.
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ogd
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Re: An overdue update from a "panicked investor"

Post by ogd »

westhermes: thanks for the update and it's nice to hear that good advice from this website has allowed you to participate in the last four years of stock market joy.

Some observations:

1) There is no reason to make 0% on your cash. There are 1% savings accounts and 2.2% CDs that are almost as liquid. See http://depositaccounts.com.

2) For the play money: suit yourself, of course. However, make sure to remember the bad streak when you inevitably hit a good one. The biggest danger from these activities is SUCCESS, convincing yourself that you are a good stock picker only to set yourself up for the next bad streak with a much bigger chunk of money. I am speaking from experience here.

3) Retail investors IMHO have no business investing in individual munis. I'm gonna guess that the reason you probably don't like bond funds is that you think they are more exposed to interest rate risk. This is not so: a bond whose market value you ignore may look more stable, but ends up losing the same amount of money to the penny by making lower interest for the remainder of its term. It's even more obvious if you do look at its market value, whereby it behaves exactly the same as a bond fund albeit with gradually declining duration. Ignoring market values can't possibly make you money, and declining duration is easy to accomplish with funds if you actually need it.

So that's why you don't need to invest in individual bonds. The reason you really shouldn't is that munis are an illiquid category, with credit risk and very complex pricing. This means: a) it's hard to diversify enough; b) it's very easy to get ripped off by both the issuers (and their investment bankers) and by the broker; c) it's hard to sell at a good price if you do need the money. A cheap fund solves all of these.

If that was a little harsh, feel free to call me not nice. But here's what Rick Ferri (one of the nicest guys around here) has to say on the subject:
Rick Ferri wrote: I managed several hundred million dollars in municipal bond portfolios for many years. Not any more. My choice now is a low-cost Vanguard tax-exempt fund. The costs is very low, the fund has overnight liquidity, and the portfolio is well diversified. It's really a great option - I own a couple of the funds myself.

Rick Ferri
4) "Have found none worth owning at these yields" -- much like the original panicked investor, you shoudn't be making these types of calls. Accept what the market gives you and trust that what you think you know (and much more) is already priced into the value of the bonds, the yield of cash, and even the future returns of stocks. It is what it is, and presently safety doesn't pay much.

That said, the cash deals I mentioned (which are outside the market and not subject to its accurate pricing) are indeed quite attractive at this time.

Hope this helps, and thanks for checking in.
staythecourse
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Re: An overdue update from a "panicked investor"

Post by staythecourse »

I did not have the energy or interest in reading your previous thread, but just was curious with low to mid 7 digit portfolio at a young age (?45) AND low cost of living attitude why the high amount of equities?

I don't have skin in your game just curious what all the money is for? If one is living a low cost lifestyle it is VERY unlikely you will ratchet it up just because you are retired so is the rest of the money for the heirs or charity or both?

Just curious.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Topic Author
westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

staythecourse wrote:
I don't have skin in your game just curious what all the money is for? If one is living a low cost lifestyle it is VERY unlikely you will ratchet it up just because you are retired so is the rest of the money for the heirs or charity or both?
I do not understand the question. I have a job I like, it pays well and I save a good chunk of it annually. What else would you have me do?
RVD
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Re: An overdue update from a "panicked investor"

Post by RVD »

regarding #3, i think there are some of us that have taxable stock accounts that we use to dabble in individual stocks, etc.

at least for me that's around 10% right now (low 6 figures) and it has been by far my best performer but i know that the risk is really high, etc. it's basically all tech stocks that i have accumulated over the past 6 years (since 2008) including aapl, tsla, goog, amzn, short bks, etc.

i think it's fine to have a small portion carved off as gambling money like that. as for the rest, it seems sort of boglehead-like to me except for the part with no bonds. you already said your equities portion is too high, etc.
ArthurO
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Re: An overdue update from a "panicked investor"

Post by ArthurO »

westhermes wrote:It has been 4 years since my original post so I thought it might of interest to some to see how things progressed.

http://www.bogleheads.org/forum/viewtop ... 008#841008

If you take time to read it all you will correctly conclude that I struggled at the time. It took time to re-enter the market but I did. We continue to live within our means, save a fair amount annually and our portfolio has grown with the improved market.

Our current portfolio balance is low to mid 7 figures:
55% S&P 500 (Vanguard and Fidelity)
5% Total SM (Vanguard)
10% Total International SM (Vanguard)
10% individual stocks (3 companies, the largest position is company stock which I am forced to own)
20% cash

This excludes $125k in the kids' 529 plans. Both kids are under 10 so I do not plan to put much more into these in the near future. All is invested in S&P but we will get more conservative as they get a few years older.

We no longer own any municipal bonds as I sold one position before Cap Gains rates increased a few years ago and the other was recently called away by the Issuer. I am happy to report the family loan was repaid in full as well.

New annual Contributions
$30,000 -- 401k (including company matching contributions)
$150,000 taxable accounts

Debt: $390k mortgage (interest only at 3.25%), $30k car loan, 0.9%

Desired Asset allocation: Our AA will change over time but my current view is that 70% stocks, 0% bonds and 30% cash is appropriate. My opinion is that we have enjoyed a nice run but history shows this is not sustainable without a correction.

What I learned:
1) I am not a true Boglehead. It may cost me money over time but I cannot invest only in Index Funds.
2) Some of you are not that nice. You know who you are.
3) I am impulsive so I have taken a relatively small amount of our portfolio and allow myself to invest that money. Some of you will enjoy the fact these investments have all lost money while the S&P has raked.
4) I like cash vs bonds. Bond funds do not make sense to me in this environment and I'd rather earn 0% and have some dry powder.
5) Our two biggest assets are that we are savers first and maintain a (relatively) low cost of living.

As long as I continue to follow the course outlined above we should be ok.
one correction to #2, I would say

Many of you are not that nice. You know who you are.

If the opinions are not shared, harsh words will be spoken, threads will be locked, etc...

And how is this different from other forums? well the proportion of the "not so nice" people is much higher.
Having said that, the useful information and excellent advice proportion on bogleheads is also much higher comparing to other sites, so I choose to stick around...

The key is to sift through the "not so nice" to find informative and useful... make your own decisions and evaluate what people say, but always stick around to what you find true...
Topic Author
westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

ogd wrote:westhermes: thanks for the update and it's nice to hear that good advice from this website has allowed you to participate in the last four years of stock market joy.

Some observations:

1) There is no reason to make 0% on your cash. There are 1% savings accounts and 2.2% CDs that are almost as liquid. See http://depositaccounts.com.

2) For the play money: suit yourself, of course. However, make sure to remember the bad streak when you inevitably hit a good one. The biggest danger from these activities is SUCCESS, convincing yourself that you are a good stock picker only to set yourself up for the next bad streak with a much bigger chunk of money. I am speaking from experience here.

3) Retail investors IMHO have no business investing in individual munis. I'm gonna guess that the reason you probably don't like bond funds is that you think they are more exposed to interest rate risk. This is not so: a bond whose market value you ignore may look more stable, but ends up losing the same amount of money to the penny by making lower interest for the remainder of its term. It's even more obvious if you do look at its market value, whereby it behaves exactly the same as a bond fund albeit with gradually declining duration. Ignoring market values can't possibly make you money, and declining duration is easy to accomplish with funds if you actually need it.

So that's why you don't need to invest in individual bonds. The reason you really shouldn't is that munis are an illiquid category, with credit risk and very complex pricing. This means: a) it's hard to diversify enough; b) it's very easy to get ripped off by both the issuers (and their investment bankers) and by the broker; c) it's hard to sell at a good price if you do need the money. A cheap fund solves all of these.

4) "Have found none worth owning at these yields" -- much like the original panicked investor, you shoudn't be making these types of calls. Accept what the market gives you and trust that what you think you know (and much more) is already priced into the value of the bonds, the yield of cash, and even the future returns of stocks. It is what it is, and presently safety doesn't pay much.

Thanks for the thoughtful post OGD. In quick reply to your points above:
1) I already have my cash in Vanguard T-E Fund but after fees the paltry returns do not yield much. I will check out that website you suggested. Thx
2) No worry that my stock picks will lead to success and the idea that I am good at it. Overall I'm pretty bad and lag every reasonable benchmark.
3 and 4) I understand where you are going but I have to disagree with you on both of these points. I would not classify myself as a retail investor when it comes to munis. I do not own any right now but if I find what I am looking for I will not hesitate. If not I will pay off the mortgage.

Thx again
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HomerJ
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Re: An overdue update from a "panicked investor"

Post by HomerJ »

westhermes wrote:
BolderBoy wrote:
westhermes wrote:Our current portfolio balance is low to mid 7 figures
So $3-5 million? Do you have a need to take so much risk going forward?

Thanks to all the replied. I've tried to address them all by responding to these three.

I learned a lot from what I did in 2010 and the subsequent post to this Forum. Future returns may prove me wrong but I am quite comfortable with my thinking and do not feel the anxiety I felt years ago. I am not afraid of bonds, just do not like bond funds. I would buy individual bonds but not Funds. I do not plan to stay in cash forever but when the next correction comes I would like to be in position to take advantage. I have considered paying off the mortgage and the car but am not willing to do that right now. I don't view my current AA as taking too much risk so long as I stay the course when all this goes the wrong way as it is bound to do at times. I appreciate the rationale for a more conservative AA but too many things are unknown (taxes, fate of Social Security & Medicare, health care costs, etc), so at my age with young kids I believe the equity market is the right place to be.
How much do you need to retire? What are your annual expenses now?

Very silly to keep playing the game if you've already won (or even close to winning). If $5 million is what you need to retire, and you have $3 million and you're saving a ton each year... I wouldn't be so aggressively invested in stocks... When the next 50% drop comes, you will have to watch over $1 million dollars disappear from your accounts... Are you ready for that?

I'm 50/50 stocks/bonds... partly because it lets me sleep at night, and partly because I don't NEED to risk more in the stock market...

The next crash may take 10 years to recover instead of just 2-3 years like this last one... Are you ready to lose 1.2 million, and maybe your job, and then stay fully invested for a decade waiting for the stock market to turn around?

Why risk it if you don't have to?
EarlyStart
Posts: 258
Joined: Thu Nov 20, 2014 8:36 pm

Re: An overdue update from a "panicked investor"

Post by EarlyStart »

Westhermes,


I think you'll receive more personalized guidance if we know what your goals are. What are you trying to do?

e.g. a. preserve purchasing power
b. create an allocation to leave to your heirs
c. moderately increase your wealth, at a relatively low risk
d. accumulate and build wealth, at increased volatility, etc.
Morik
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Joined: Tue Nov 25, 2014 11:26 am

Re: An overdue update from a "panicked investor"

Post by Morik »

BTW westhermes, regarding cash accounts, you may also want to look for local credit unions with easy or no entry requirement.
I have a checking account at a local credit union which just requires you live in the general metropolitan area around it.
It pays .9% right now on checking accounts (readjusts interest to the 13 week treasury bill rate + 10 basis points, adjusting once per month).

There are no frills (no mobile app, barebones web interface), but there are basically no restrictions. You don't have to direct deposit (I do anyway), you don't have to maintain any balance at all (though if you fall under $2,500, your interest rate drops to something like 0.01% until its back up, but no fees), no maintenance fee, etc.

In other words, the interest rate of an online savings bank like Ally, no fees, essentially no restrictions, an actual branch and check writing & a check/debit/atm card.

(Depositing checks with them is obnoxious, so I handle it by keeping a free online checking account with another bank for the express purpose of cashing checks via mobile app or scanner.)

I'm betting that there are other local credit unions like that, maybe one near you.
LongerPrimer
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Re: An overdue update from a "panicked investor"

Post by LongerPrimer »

IMO, with so much human capital (earning power) , you can call any AA that you want. ALL equity does make sense because you can recover fairy easily. Any bonds in portfolio doesn't make sense because again your earning power simply swamps any bond gains and any bond changes will be quick and potentially/probably negative. Your future SS can be considered as a low yielding, secure bonds that guarantees a minimum income level.

We are 64/67, and essentially live very carefully, no debt, no mortgage, have LTCi, all equity deferred variable annuities, all equity indexes, and trading accounts. The trading acct, I liquidated the momentum stocks in Sept-Oct, nearly all of the utility by mid Nov. Once a year, i like to be either mentally or actually be in cash. We have only tapped the cash IRAs for year end income shortfalls. We have no bonds for the same reasons. Since 2008, any bonds in our AA could've endangered our recovery.
GL :beer
staythecourse
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Re: An overdue update from a "panicked investor"

Post by staythecourse »

westhermes wrote:
staythecourse wrote:
I don't have skin in your game just curious what all the money is for? If one is living a low cost lifestyle it is VERY unlikely you will ratchet it up just because you are retired so is the rest of the money for the heirs or charity or both?
I do not understand the question. I have a job I like, it pays well and I save a good chunk of it annually. What else would you have me do?
Is your job flexible to take time off whenever you want? Does it require any travel? The reason I ask is you have two kids under 10 don't you want to spend more time with them or your spouse? Don't you want to travel? You obviously don't need the income from your job if you have that much already AND live a low cost lifestyle. I understand you are still working because you like your work, but most jobs even if you don't need it has time constraints that make being available for family stuff not that easy. Cutting out at the end of the day early by a couple of hours to get to the kid's soccer practice would be difficult from the bosses. If you can that is great, but would doubt it from any position that delivers a high income unless you are your own boss. That usually means you are sacrificing family time in some way to make more money that has no reason as it seems you have "enough".

It seems you are working to make and save money for no end. It isn't like if you make 100 million you get an extra 10 years of life. So you are either consciously or subconsciously choosing working more then spending time on personal aspects of your life.

I am not criticizing your attitudes toward work, money, and life, but find it interesting as MOST work to make money to spend time later on hobbies and family. For you it seems you are playing the financial game for end point.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

EarlyStart wrote:Westhermes,


I think you'll receive more personalized guidance if we know what your goals are. What are you trying to do?

e.g. a. preserve purchasing power
b. create an allocation to leave to your heirs
c. moderately increase your wealth, at a relatively low risk
d. accumulate and build wealth, at increased volatility, etc.

I want to continue to accumulate and build wealth in the manner I have done it for the past 10 years. When the youngest finishes high school in 13 years I will look to retire from full time work and move on to the next phase of life (TBD). I will be in my late 50s and my wife in her mid 50s and we hope to enjoy a long, happy life without worry about money.
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

staythecourse wrote:
westhermes wrote:
staythecourse wrote:
I don't have skin in your game just curious what all the money is for? If one is living a low cost lifestyle it is VERY unlikely you will ratchet it up just because you are retired so is the rest of the money for the heirs or charity or both?
I do not understand the question. I have a job I like, it pays well and I save a good chunk of it annually. What else would you have me do?
Is your job flexible to take time off whenever you want? Does it require any travel? The reason I ask is you have two kids under 10 don't you want to spend more time with them or your spouse? Don't you want to travel? You obviously don't need the income from your job if you have that much already AND live a low cost lifestyle. I understand you are still working because you like your work, but most jobs even if you don't need it has time constraints that make being available for family stuff not that easy. Cutting out at the end of the day early by a couple of hours to get to the kid's soccer practice would be difficult from the bosses. If you can that is great, but would doubt it from any position that delivers a high income unless you are your own boss. That usually means you are sacrificing family time in some way to make more money that has no reason as it seems you have "enough".

It seems you are working to make and save money for no end. It isn't like if you make 100 million you get an extra 10 years of life. So you are either consciously or subconsciously choosing working more then spending time on personal aspects of your life.

I am not criticizing your attitudes toward work, money, and life, but find it interesting as MOST work to make money to spend time later on hobbies and family. For you it seems you are playing the financial game for end point.

Good luck.
Thanks for the concern but I am happy to report you got it all wrong. I spend 40-50 hours per week working, enjoy a lot of time with the family, play a lot of golf, tennis and ski. Life is good. Just using this Forum to make sure I stay informed as it relates to our portfolio AA.
staythecourse
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Re: An overdue update from a "panicked investor"

Post by staythecourse »

Glad to hear you are living a full life!!

I guess I just don't understand where you are coming from. In a previous post you said you want to work until your 50's then retire so you and your wife can enjoy the next phase of life and not worry about money.

I guess I just don't understand if you have low to mid 7 figures AND live a low cost lifestyle why there would be any worry about money even now? Maybe the "TBD" comment on a previous reply is the reason you still work? That would make sense as why change working if you have nothing else you would rather do.

Either way you should be fine in any asset allocation as long as you just stay the course!! Your assets are high AND your needs sound to be low in relation so the only way you won't end up fine is if you mess it all up yourself by not staying the course.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
TravelerMSY
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Re: An overdue update from a "panicked investor"

Post by TravelerMSY »

He could be living a low cost lifestyle only on relative terms-ie he has a good job in a high COL area and spends 100k/year rather than 300k.

I do applaud the OP for coming back to update us.
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

TravelerMSY wrote:He could be living a low cost lifestyle only on relative terms-ie he has a good job in a high COL area and spends 100k/year rather than 300k.

I do applaud the OP for coming back to update us.

I did not intend that to be confusing so allow me to clarify that our annual income goes in near equal amount to taxes (federal, state, local & property), our annual spending and savings. I consider $150k-$180k to be a relatively low cost of living but I realize that others may disagree.
Pizzasteve510
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Re: An overdue update from a "panicked investor"

Post by Pizzasteve510 »

BolderBoy wrote:
westhermes wrote:Our current portfolio balance is low to mid 7 figures
So $3-5 million? Do you have a need to take so much risk going forward?
I am puzzled by several posters who think that once you have $3M or so, investors should stop taking risk. This notion that one should stop earning on their savings and get uber conservative once they have enough saved for a modest retirement income puzzles me.

First, who can afford to take risk? It seems that the more you have, the more you can afford to take risk, not the other way around. Say you need $1.5M to have a decent retirement. With $3M invested, you could take a 50% drop and still be fine, so why not take the path with the best expected return?

Second, if there is a desire to leave assets to heirs or charity, then you want to keep the assets growing, with the best returns possible. It makes no sense to let money sit idle, especially if it is not needed today to pay for necessities.

Finally, if one assumes you have earned more than you need, to me it seems your duty is to use that capital to the betterment of society. When we invest in equities we are fueling business, which makes jobs and may help others of our fellow humans join us in the group with surplus wealth. I feel by buying an index fund we are helping create jobs as best we can, without being an entrepreneur ourselves. Money stuck in gold or cash, to preserve against disaster, does not help others and reduces the velocity of money, dragging down the economy. I guess we would need to assess whether the money in cash is in treasuries or Cds, and whether the govt or banks make use equal to markets, but generally I think equities fuel growth a bit better, so that is where we go.

Thoughts?

P.S. Per the discussion above about why not quit working. We are in a similar status, but my assessment was that the 'stop working because you have more than enough' kicks in closer to 8 figures than low to mid 7 figures, especially if you live in a high COL area. For example, if you want to live in Tokyo, London, NYC, or Sydney today and 10 years from now, I would want a bigger nest egg before relying solely on investment income. Especially given vanguards assessment of expected rates of return over the next decade being low.
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

Agrippa wrote:Interesting update. 80% stocks seems high to me based on the old post... just be sure that when the next downturn hits you post here for advice before panicking again!
The Vanguard Target 2030 Retirement Fund (VTHRX) is allocated 76% equities (54% Total Stock Market an 22% Total International) and 24% Bonds (19% Total Bond and 5% Total International). I am currently 80% equities and 20% cash. Does not seem out of whack to me.
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

Pizzasteve510 wrote:
BolderBoy wrote:
westhermes wrote:Our current portfolio balance is low to mid 7 figures
So $3-5 million? Do you have a need to take so much risk going forward?
I am puzzled by several posters who think that once you have $3M or so, investors should stop taking risk. This notion that one should stop earning on their savings and get uber conservative once they have enough saved for a modest retirement income puzzles me.

First, who can afford to take risk? It seems that the more you have, the more you can afford to take risk, not the other way around. Say you need $1.5M to have a decent retirement. With $3M invested, you could take a 50% drop and still be fine, so why not take the path with the best expected return?

Second, if there is a desire to leave assets to heirs or charity, then you want to keep the assets growing, with the best returns possible. It makes no sense to let money sit idle, especially if it is not needed today to pay for necessities.

Finally, if one assumes you have earned more than you need, to me it seems your duty is to use that capital to the betterment of society. When we invest in equities we are fueling business, which makes jobs and may help others of our fellow humans join us in the group with surplus wealth. I feel by buying an index fund we are helping create jobs as best we can, without being an entrepreneur ourselves. Money stuck in gold or cash, to preserve against disaster, does not help others and reduces the velocity of money, dragging down the economy. I guess we would need to assess whether the money in cash is in treasuries or Cds, and whether the govt or banks make use equal to markets, but generally I think equities fuel growth a bit better, so that is where we go.

Thoughts?

P.S. Per the discussion above about why not quit working. We are in a similar status, but my assessment was that the 'stop working because you have more than enough' kicks in closer to 8 figures than low to mid 7 figures, especially if you live in a high COL area. For example, if you want to live in Tokyo, London, NYC, or Sydney today and 10 years from now, I would want a bigger nest egg before relying solely on investment income. Especially given vanguards assessment of expected rates of return over the next decade being low.

I am with you on the beginning (someone hits $3mm and is supposed to turtle?) and the end ($10mm is enough to live anywhere) but you lose me in a hurry with talk of "duty to use capital to the betterment of society". I use my capital for the betterment of me and my family. What we choose to do with it is our business. Investing in the secondary market or Index Funds suits me just fine and it does not better society other than the fact I will eventually spend that money and pay taxes.
sambb
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Re: An overdue update from a "panicked investor"

Post by sambb »

Nothing wrong with wanting to hit 10 millions. What if gates or jobs or rockefeller stopped at 3 million? Another way of looking at it - make as much as you think you need. Why not, we aren't living your life. Only you can judge what you need. You might want to travel in first class, or buy an impractical sports car. Go for it - its your life. You might want to just have money in your accounts because it gives you mental security. Again, go for it. Its your life and your earnings.

You hit the nail on the head with savings. Savings is FAR more important than using vanguard or using low cost index funds. If you save 10-20% more per year, that makes a 1% expense ratio pale in comparison. However, the best is still save more and use the low cost funds. Savings are key.

Good luck.
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HomerJ
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Re: An overdue update from a "panicked investor"

Post by HomerJ »

Pizzasteve510 wrote:
BolderBoy wrote:
westhermes wrote:Our current portfolio balance is low to mid 7 figures
So $3-5 million? Do you have a need to take so much risk going forward?
I am puzzled by several posters who think that once you have $3M or so, investors should stop taking risk. This notion that one should stop earning on their savings and get uber conservative once they have enough saved for a modest retirement income puzzles me.

First, who can afford to take risk? It seems that the more you have, the more you can afford to take risk, not the other way around. Say you need $1.5M to have a decent retirement. With $3M invested, you could take a 50% drop and still be fine, so why not take the path with the best expected return?
Because if you need $1.5 million to have a decent retirement, how did you magically get to $3 million before you started thinking about risk?

If I needed $1.5 million to retire, when I got to $1 million plus, I'd start taking chips off the poker table.

Great Depression happened before... it COULD happen again... The market COULD drop 80% or more and take 10+ years to recover. And you could lose your job and your income during a period like that. None of that is very likely, but if I had $3 million and needed $1.5 million to retire, I'd have $1.5 million in safe assets. Not be 80%-90% in stocks. Let the "extra" money ride, but why risk so much after you've won the game?

Best "expected" return is not the same as best "guaranteed" return.
Last edited by HomerJ on Sun Nov 30, 2014 4:27 pm, edited 1 time in total.
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Re: An overdue update from a "panicked investor"

Post by HomerJ »

westhermes wrote:I consider $150k-$180k to be a relatively low cost of living but I realize that others may disagree.
98% of "others" would disagree.

It's cool that you're richer than the vast majority of humans on the planet. You worked hard and deserve it. But at least be aware of how well you are doing.
ArthurO
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Re: An overdue update from a "panicked investor"

Post by ArthurO »

HomerJ wrote:
westhermes wrote:I consider $150k-$180k to be a relatively low cost of living but I realize that others may disagree.
98% of "others" would disagree.

It's cool that you're richer than the vast majority of humans on the planet. You worked hard and deserve it. But at least be aware of how well you are doing.
150K a year is a low cost of living? Which planet are you living on, in US which is the richest country in this world average family income is in bull park 50K a year, and many families make less than that and you say that 150k a year is relatively low cost? Who are you kidding...

I hope to draw 150K per year in my retirement as a best case scenario and I will consider this a luxurious retirement, NOT relatively low cost of living
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

ArthurO wrote:
HomerJ wrote:
westhermes wrote:I consider $150k-$180k to be a relatively low cost of living but I realize that others may disagree.
98% of "others" would disagree.

It's cool that you're richer than the vast majority of humans on the planet. You worked hard and deserve it. But at least be aware of how well you are doing.
150K a year is a low cost of living? Which planet are you living on, in US which is the richest country in this world average family income is in bull park 50K a year, and many families make less than that and you say that 150k a year is relatively low cost? Who are you kidding...

I hope to draw 150K per year in my retirement as a best case scenario and I will consider this a luxurious retirement, NOT relatively low cost of living
Homerj/ArthurO

I said "relatively low". GIven what I earn (not close to 7 figures), what I save and what I choose to "spend" it on which includes charity, 529 contributions to nephews/nieces, etc. I consider this relatively low. We spend as much as we save and what we pay in total taxes. What part of this makes you think I am not well aware of how well we are doing? Please remember this is in response to the questions regarding why do I want to continue to be invested in equities, why I keep working and so on.
ArthurO
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Re: An overdue update from a "panicked investor"

Post by ArthurO »

westhermes wrote:
ArthurO wrote:
HomerJ wrote:
westhermes wrote:I consider $150k-$180k to be a relatively low cost of living but I realize that others may disagree.
98% of "others" would disagree.

It's cool that you're richer than the vast majority of humans on the planet. You worked hard and deserve it. But at least be aware of how well you are doing.
150K a year is a low cost of living? Which planet are you living on, in US which is the richest country in this world average family income is in bull park 50K a year, and many families make less than that and you say that 150k a year is relatively low cost? Who are you kidding...

I hope to draw 150K per year in my retirement as a best case scenario and I will consider this a luxurious retirement, NOT relatively low cost of living
Homerj/ArthurO

I said "relatively low". GIven what I earn (not close to 7 figures), what I save and what I choose to "spend" it on which includes charity, 529 contributions to nephews/nieces, etc. I consider this relatively low. We spend as much as we save and what we pay in total taxes. What part of this makes you think I am not well aware of how well we are doing? Please remember this is in response to the questions regarding why do I want to continue to be invested in equities, why I keep working and so on.
relatively low to your income maybe so, but that is meaningless, you have to compare your spending relative to other human beings not relative to your income and that is simply because COST of BUYING things, whatever they may be is the same for you as for the next folk beside you, the prices of goods are not relative to your income or anyone elses, they are absolute.

So although relative to your income you spending might be low, statement like this in my view does not make sense. If in fact you spend $150K per year you live a very exclusive life, not that there is anything wrong with it, however statement that you live frugal/low cost of living lifestyle because % wise you spend small amount to what you make is confusing if not plain wrong.
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

ArthurO wrote:
westhermes wrote:
ArthurO wrote:
HomerJ wrote:
westhermes wrote:I consider $150k-$180k to be a relatively low cost of living but I realize that others may disagree.
98% of "others" would disagree.

It's cool that you're richer than the vast majority of humans on the planet. You worked hard and deserve it. But at least be aware of how well you are doing.
150K a year is a low cost of living? Which planet are you living on, in US which is the richest country in this world average family income is in bull park 50K a year, and many families make less than that and you say that 150k a year is relatively low cost? Who are you kidding...

I hope to draw 150K per year in my retirement as a best case scenario and I will consider this a luxurious retirement, NOT relatively low cost of living
Homerj/ArthurO

I said "relatively low". GIven what I earn (not close to 7 figures), what I save and what I choose to "spend" it on which includes charity, 529 contributions to nephews/nieces, etc. I consider this relatively low. We spend as much as we save and what we pay in total taxes. What part of this makes you think I am not well aware of how well we are doing? Please remember this is in response to the questions regarding why do I want to continue to be invested in equities, why I keep working and so on.
relatively low to your income maybe so, but that is meaningless, you have to compare your spending relative to other human beings not relative to your income and that is simply because COST of BUYING things, whatever they may be is the same for you as for the next folk beside you, the prices of goods are not relative to your income or anyone elses, they are absolute.

So although relative to your income you spending might be low, statement like this in my view does not make sense. If in fact you spend $150K per year you live a very exclusive life, not that there is anything wrong with it, however statement that you live frugal/low cost of living lifestyle because % wise you spend small amount to what you make is confusing if not plain wrong.
We'll have to agree to disagree on this one ArthurO. I responded to TravelerMSY's comment regarding a high COL and I never said "frugal / low cost of living lifestyle", I said "relatively low". I define this to mean what I could be spending instead of saving and why I continue to pursue an aggressive portfolio in the eyes of many. I am well aware of how our net worth compares to most people.
ArthurO
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Re: An overdue update from a "panicked investor"

Post by ArthurO »

ArthurO wrote:
westhermes wrote:
ArthurO wrote:
HomerJ wrote:
westhermes wrote:I consider $150k-$180k to be a relatively low cost of living but I realize that others may disagree.
98% of "others" would disagree.

It's cool that you're richer than the vast majority of humans on the planet. You worked hard and deserve it. But at least be aware of how well you are doing.

150K a year is a low cost of living? Which planet are you living on, in US which is the richest country in this world average family income is in bull park 50K a year, and many families make less than that and you say that 150k a year is relatively low cost? Who are you kidding...

I hope to draw 150K per year in my retirement as a best case scenario and I will consider this a luxurious retirement, NOT relatively low cost of living
Homerj/ArthurO

I said "relatively low". GIven what I earn (not close to 7 figures), what I save and what I choose to "spend" it on which includes charity, 529 contributions to nephews/nieces, etc. I consider this relatively low. We spend as much as we save and what we pay in total taxes. What part of this makes you think I am not well aware of how well we are doing? Please remember this is in response to the questions regarding why do I want to continue to be invested in equities, why I keep working and so on.
relatively low to your income maybe so, but that is meaningless, you have to compare your spending relative to other human beings not relative to your income and that is simply because COST of BUYING things, whatever they may be is the same for you as for the next folk beside you, the prices of goods are not relative to your income or anyone elses, they are absolute.

So although relative to your income you spending might be low, statement like this in my view does not make sense. If in fact you spend $150K per year you live a very exclusive life, not that there is anything wrong with it, however statement that you live frugal/low cost of living lifestyle because % wise you spend small amount to what you make is confusing if not plain wrong.
We'll have to agree to disagree on this one ArthurO. I responded to TravelerMSY's comment regarding a high COL and I never said "frugal / low cost of living lifestyle", I said "relatively low". I define this to mean what I could be spending instead of saving less and why I continue to pursue an aggressive portfolio in the eyes of many. I am well aware of how our net worth compares to most people but that does not mean I am not going to seek the input of others on this Forum.
yes I definitely disagree with your interpretation of "low spending". As to input from the forum, I am not exactly sure what is the advice you are seeking.
My 2c on aggressive allocation is pretty simple.

If you have very little, you can be aggressive because you will lose very little in absolute terms even if we have another great depression.
If you have intermediate amount, something between 1M and 10M this is where you are in danger zone, if you are not careful being aggressive will lose you a lot of money lets say you have 80/20 equity/fixed split and market crashes 90%, you just lost 75% of what you had. Now, lets say you had 5M, you just lost ~4M out of 5M and even with new contributions it will take a very long time just to break even, hence people say aggressive allocation is not prudent.
If you have a very large amount, 10M +, even losing 75% of 80/20 split will still leave you with about 2M and although the 8M will take a very long time to recover, the 2M portfolio is still reasonable (unless you want to continue spending 150k per year). So I think from 10M on, there is nothing wrong with becoming a little aggressive for sake of making money and not increasing lifestyle.

I am pretty conservative, sure I invest a lot in stock market in my retirement account but I have a floor of cash below which my total portfolio will not drop and I am fine with that.
Market is all about probabilities and just because there is a good chance of 7% real return for foreseeable future, it doesn't mean that this CHANCE will ever materialize.
Once my total amount of money reaches 5M I will exit market almost entirely and go 20/80 because at 5M i will be able to spend $150K per year and have luxurious retirement by my standards and not worry at all about how market does and I could care less about leaving legacy behind, truth is 3 generations later no one will give diddly squat.
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HomerJ
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Re: An overdue update from a "panicked investor"

Post by HomerJ »

westhermes wrote:What part of this makes you think I am not well aware of how well we are doing?
Then I'm guessing you know exactly why most people in this world would object to someone spending $180k a year stating that he has a "relatively low cost of living".

I would suggest using numbers on these boards... When someone asks you how much you need, you much you spend, etc.... Don't use a term like "I have a relatively low cost of living". The reason the question was asked was to determine what your expenses are, and whether or not you still need to risk so much in the stock market, ESPECIALLY since you've shown poor discipline in the past when dealing with market down-turns.
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

HomerJ wrote:
westhermes wrote:What part of this makes you think I am not well aware of how well we are doing?
Then I'm guessing you know exactly why most people in this world would object to someone spending $180k a year stating that he has a "relatively low cost of living".

I would suggest using numbers on these boards... When someone asks you how much you need, you much you spend, etc.... Don't use a term like "I have a relatively low cost of living". The reason the question was asked was to determine what your expenses are, and whether or not you still need to risk so much in the stock market, ESPECIALLY since you've shown poor discipline in the past when dealing with market down-turns.
When I realized it may have caused some confusion I clarified it quickly so let's move on from here. Pls let me know if you have anything constructive to add regarding AA. Thx
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HomerJ
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Re: An overdue update from a "panicked investor"

Post by HomerJ »

westhermes wrote: Pls let me know if you have anything constructive to add regarding AA. Thx
I already have... I think you're taking more risk than you need to...

$5 million will generate $200k a year (taking 4% a year) which will cover your expenses nicely.

You're saving $180k a year... and you have $3 million saved already (is that right? I need to re-read the thread)...

You have no need to be 80% in stocks... You're on the home stretch now, and I would be something like 50/50 instead...
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HomerJ
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Re: An overdue update from a "panicked investor"

Post by HomerJ »

supersharpie wrote:Be honest with yourself. Likely the only reason why the past four years have gone so smoothly and you now feel "comfortable" with your AA is that the market has boomed. Your fear will likely overtake you and you will probably lock in your losses the next time there is a big dip.
This is what I'm worried about... Especially since the amounts of money lost will be much larger.

I know I would be very stressed watching my account drop a million or two.
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westhermes
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Re: An overdue update from a "panicked investor"

Post by westhermes »

HomerJ wrote:
supersharpie wrote:Be honest with yourself. Likely the only reason why the past four years have gone so smoothly and you now feel "comfortable" with your AA is that the market has boomed. Your fear will likely overtake you and you will probably lock in your losses the next time there is a big dip.
This is what I'm worried about... Especially since the amounts of money lost will be much larger.

I know I would be very stressed watching my account drop a million or two.

A sincere thanks for your concern Homer but I had to ignore that post from Sharpie. "Your fear will likely overtake you and you will probably lock in your losses......". Useless feedback. I made a mistake in 2010, quickly corrected it by posting here and getting educated and have stuck to it during volatile times over the past 4 years. I feel pretty good about my ability to stay the course.

What I am surprised by is the thought that going from 80% to 50% would take much risk off the table? On $3.5mm the difference b/w 80% and 50% (AA in equities) is ~ $1mm. A 30% market downturn is $300k differential in total portfolio value. How does that equate to stress of watching your account drop a million or two?
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