Bogleheads

[nisiprius]

The standard disclaimers warn people never to put money in the stock market that they will need in less than five years. It's something Jim Cramer and I can agree on, and it's perfectly true. But what would we think if it were customary for beer ads to say "Remember, if you've just drunk more than twelve beers, you shouldn't drive?" That's perfectly true, too.

I'd like to see a concerted movement to up that warning to ten years.

Yesterday's Financial Times: Vicars' pensions under threat and Clergy face up to fall in earthly rewards

[alec]

How about stocks are risky no matter how long you hold them?

See bobcat's dogma of the day post.

btw - maybe they should prey for good return.
_________________
"You will never correct by logic a man's error, if that error did not get into his mind by logic" - Mark Twain

[MrMatt2532]

I still don't think there is anything wrong with some stocks for a ten year horizon. Maybe 20-40%. You need to look at these things from a portfolio standpoint.

[LongDistanceRunner]

[neverknow]

[Adrian Nenu]

So you plan to hold stocks for over 10 years and in the 9th or 10th year you get whacked by a bear market. Then you have to hold the stocks another 5-10 years (?) to make your money back.

If you can't handle a 50% loss and wait for the recovery or compensate for it in some other way, you shouldn't be in stocks.

Adrian
anenu@tampabay.rr.com

[Cody]

So how many reasonable alternatives to stocks are there?

I would like to, seriously, see the BH list of reasonable alternatives to stocks. I'm not talking here about those investments not normally supported by BH's.
So:
1. Single pay annuity
2. Bond funds like TBM and Tips
3. Munnies
4. CD's and Money Market funds
5. Direct purchase Treasuries of various duration

Have I let out any reasonable options for fixed?
Cody

[nisiprius]

[Adrian Nenu]

It doesn't matter if it's 1 year or 100 years, if you get hit by a bear market towards the end when you need the money and can't make it up somehow, you are in big trouble.

Adrian
anenu@tampabay.rr.com

[LongDistanceRunner]

[Rodc]

[bearwolf]

[bobbyrx]

I think there is a big difference between the "long run" for a college endowment or pension fund which exists in perpetuity and an individual like myself. I am a pension fund of "one". My preference is enough in fixed (cash, TIPS, short treasuries) to last until I am dead or demented (25 years max). The rest in equities for an estate or extreme black-swan longevity. No set in stone percent in equities/fixed. For me this works out to be 20% equities/ 80% fixed.

[alec]

[alec]

Another thing that pension funds and endowments don't appear to have taken into account is that when really bad things happen to their investments, they have a hard time increasing the contributions to the fund.

For example, in recessions and depressions when risky assets tank, corporate profits also tank. And when a pension fund's assets are mostly in risky assets, the fund also tanks at exactly the time that the corporation cannot come up with the needed larger fund contributions. Double whammy.

- Alec
_________________
"You will never correct by logic a man's error, if that error did not get into his mind by logic" - Mark Twain

[stratton]

To be really tright:

God will provide.



Paul

[Adrian Nenu]

Rodc, the only viable solution I see is to gradually reduce portfolio risk over the long term so that a bear market doesn't financially devastate retirement savings at the worst possible time, just prior to retirement.

Adrian
anenu@tampabay.rr.com

[zane]

The entire state of Colorado has done essentially the same thing. Up until this year, they were planning on 8.5% annual returns. In March they were down something like 40%, and even with the rebound they're desperately underfunded, and are upping the minimum retirement age to 60, with a "rule of 90" (years employed + age > 90 in order to retire), while cutting benefits. It seems like in addition to assuming overly optimistic returns over spans of time like 10 years, nobody wants to admit that in order to be very confident of solvency, the plan has to be taking more than the 5-8% of people's salaries that it currently is. Maybe something more like 15-20% would be more realistic? But then when times are good, people would complain about all that money being "unnecessarily" set aside and piling up in the pension plan coffers. So who knows what the real solution is.

As to Social Security not being invested in equities, I guess that's true, but really, what *is* it invested in? Printing presses?
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Okay, that's enough: I'm no longer down on my knees, praying for a crash...

[LongDistanceRunner]

[tetractys]

[neverknow]

For whatever it is worth, these underfunded pensions were big news after the 1991 recession also. Back then it was commonly known that if whoever promised you that pension went bankrupt - you got zero of your promise. I suspect, since then - they've made some law?

I got a wee little pension owed me, about big enough to pay my light bill. I am taking it the day I am eligible at 55 (even though it is reduced for taking it early) ... as we used to joke, we're taking it before they go out of business.

There are a lot of things in the news today, that many of us have heard in recessions gone by. The one most striking to me is "re train. re train in what? all industries are in the toilet."
neverknow

[Rodc]

[Beagler]

[bob u.]

Perhaps some of you have seen Robert Powell's recent piece posted at CBS Marketwatch. If not, have a look.

http://www.marketwatch.com/sto....2009-11-05

Here's one of the defects of so-called "long run" assumptions:

" Most financial-planning tools define risk as the probability that the plan may fail -- in other words that you will run out of money, Fullmer wrote. "The conventional guidance is that investors should plan using a low -- 5% to 10% -- probability of failure, although the suitable probability threshold for any particular individual will depend on his or her risk tolerance," he wrote.

[i]"The problem with this definition and treatment is that the probability of failure is not a complete measure of risk. Just as not measuring risk can be dangerous, so too can mismeasuring it."

To Fullmer, risk is really the probability of an event occurring and the magnitude of the consequences of it occurring. An event with a high probability and a low magnitude may have the same exposure to risk as an event with low probability and high magnitude. Consider his example: Let's say the fine for a speeding ticket is $100 when the driver's speed is less than 15 miles per hour over the speeding limit and $1,000 when the driver's speed is more than 15 miles over the limit. Now say you are driving on a road where the posted speed limit is 50 miles per hour. "Clearly, the risk to you of driving 67 miles per hour on this road is much greater than the risk of driving 63 miles an hour," he wrote. "This is true even if the probability of getting caught is exactly the same."
[/i]

Can you say 2008? Bob U.
_________________
"There's no hurry anymore when all is said and done."

[nisiprius]

[hamishdad]

Investment firms know how to bait the hook to suit the fish. If the fish happens to be someone in their fifties who wakes up one day and realizes that he/she doesn't have enough saved for retirement, it's important to convince them that a high allocation of stocks is necessary to achieve their goals.

[Rodc]

[nisiprius]

[dbr]

[KyleAAA]

Personally, I think 20-30 years is a more reasonable definition of "the long term."

[Rodc]

[Rodc]

[alec]