Bogleheads.org

Fremdon Ferndock wrote: ↑Fri Mar 31, 2023 12:29 am I agree to the rules proposed, assuming first that we can all agree that driving while looking in the rearview mirror is a sound practice.

Best do that regularly in the left lane on the autobahn.

afan wrote: ↑Fri Mar 31, 2023 6:51 am Another great contribution. Has there ever been a McQ post that was anything less?

Seems a certain Roth conversion in down markets thread was abondoned. But batting above average.

The key with backtesting (if there is one) is to identify principles from simply expecting history to repeat. A principle may be an approach to diversification, or offsetting assets with low correlations in most situations, etc. But a *bet* on something like Value or Quality, because it's done well in the past, can just as easily be exactly the wrong thing to do, as it may just lead you to old anomalies that have been arbitraged away, or things that were never really anomalies, and are only on our radar because they've done better through sheer chance. . That's the dilemma active investors have always had. It's never been easy to solve that one. I think it's generally a mistake for passive investors to go down that rabbit hole. Better to f...

Suppose you desired a permanent increase in your equity allocation, expecting to improve long-term returns. Also suppose you had some rational economic concerns (potential recession looming, etc.). Would you avoid market timing and implement your new asset allocation immediately? If so, why? Or would you avoid increasing equities now, citing economic concerns and current availability of attractive fixed-income options? I know the standard Boglehead answer, but current economic condtions do raise concerns. I suppose there are always concerns, and I suppose it's futile to outguess the market's pricing ability. However it seems corporations may struggle in the near future (of course, I have no information the market hasn't already considered)...

Do these results mean anything at all? Let me know what you think. I don't think it's a reasonable comparison to compare 100% TSM or 34 LCV / 33 MCV / 33 SCV to a 65/35 stock/bond portfolio. Better to compare the same stock/bond split across some options, maybe 1) 70% TSM + 30% bonds 2) 25% LCV, 25% MCV, 20% SCV + 30% bonds 3) 42% US / 28% International / 30% Bonds etc etc Part of my initial question was "how are bonds helping me when all-equity portfolios are fairing better over 11 year periods?" Diversification into a poor-return vehicle seems on the face of it to be counterproductive. If we add the counterproductive asset to all portfolios they will look more alike, but all will perform more poorly. (but obviously this dataset...

Thanks to all for the discussion. It's interesting how so many of these discussions evolve toward maximizing diversification, as if that is the only holy grail. Here I am seeking a discussion around the value (pun intended) of a value dominated stock portfolio in retirement, i.e. no incoming investments. Not adding 15%. Going all value like Wellington taditionally did (not so much recently). Better, drop the bond, TIPS, REIT, etc. discussion and go all value in equities. This is so ridiculous to some BH that it seems hard for them to fathom. Most think 100% total market equities in retirement is too risky, but the merits are discussed dispassionately. Here, an admittedly limited data set seems to support the idea that value holds up better...

Garco wrote: ↑Tue Mar 28, 2023 9:02 am One thing I keep in mind is real property. My houses (in two cities). It's not a trivial amount. And there are maintenance costs and property taxes. But they are "real" property. They add about 20-25 percent to the value of my market investments and bank holdings. They are part of our "estate." Our net worth.

I do add our two houses into net worth, but just as ballpark estimates of value. I don't update with every new value assessment or anything as formal as that.

I found the thread interesting. Thanks. Curious, one question (sorry if I missed it), what is the goal or purpose of the 36% high yield bonds in your portfolio? And, to be clear, how have you defined "high yield bonds"?. The purpose is investment success since I am willing to hold through downturns without flinching. HY bonds tend to have low duration that helps in a rising interest rate environment (one risk I have been wary of) and have outperformed investment grade bonds for all but relatively short holding periods. (But not really pertinent to this thread) Since you asked, my own holdings are nearly half and half VWEAX and FAGIX, both actively managed. JNK would be the more-BH approach I think. While I don't subscribe to a pu...

IMO the difference between large value and large growth returns has shrunk significantly over the past 25 years, to the point where it isn't much now. Plus, TSM funds already have a significant allocation to large value. So for that reason I do not tilt to large value. However, the outperformance on MCV and especially SCV is significantly higher and has also continued (more or less) to hold up in recent decades. So I do tilt towards that. Not sure how much LCV would have helped in a 1929 or 1966 retirement. Would have to play around with the numbers in Simba's spreadsheet. I know SCV helped in 1966 quite a bit but only helped a tiny bit in 1929. If I was told there was such a value effect and asked to guess the capitalization category with...

I appended to my last post to clarify my goals for learning from the discussion in this thread. I found the thread interesting. Thanks. Curious, one question (sorry if I missed it), what is the goal or purpose of the 36% high yield bonds in your portfolio? And, to be clear, how have you defined "high yield bonds"?. The purpose is investment success since I am willing to hold through downturns without flinching. HY bonds tend to have low duration that helps in a rising interest rate environment (one risk I have been wary of) and have outperformed investment grade bonds for all but relatively short holding periods. (But not really pertinent to this thread) Since you asked, my own holdings are nearly half and half VWEAX and FAGIX, b...

ScubaHogg wrote: ↑Sun Mar 26, 2023 7:45 am OP, if you aren't already familiar with the site portfoliocharts.com, you might enjoy some of the tools and posts the author (who is a BH by the name of Tyler9000) has made

https://portfoliocharts.com/2015/11/17/ ... ates-work/

https://portfoliocharts.com/portfolio/withdrawal-rates/

Enjoy

Thank you. I have seen these, but quite some time back.

I find accusations of cognitive bias in other posters as less than helpful in fostering honest and open discussion on the forum. We can all benefit from the knowledge that biases exist in everyone. Calling out biases in strangers seems going a bit far to me. Cognitive bias is not a pejorative. It’s the result of how all of our brains are wired. Sometimes the bias is to our advantage and sometimes to our disadvantage. We can make better decisions if we can recognize when we are being misled by our brain’s architecture. Needn't be but can be. On a recent podcast, an author of a book on cognitive bias seemingly gave every example of such bias as emanating from people on the opposite end of the political spectrum from his own views I guess I e...

Short answer is no. Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market. My short answer is maybe but I wouldn't get my hopes up too high. Value stocks would have to be in the context of a diversification across factors strategy that Larry Swedroe has talked about. Diversification across factors worked well during the 2000-2002 bear market, failed during the 2008-2009 bear market and financial crisis, and helped during 2022. No good diversification strategy works well all of the time. But I'm optimistic by nature! The key is only to work less poorly than an alternative most of the time. There is a lot of nuance to these discussions. What you find is that nothing is perfect, yo...

nedsaid wrote: ↑Sun Mar 26, 2023 9:48 am

alex_686 wrote: ↑Fri Mar 24, 2023 11:10 am Short answer is no.

Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market.

My short answer is maybe but I wouldn't get my hopes up too high. Value stocks would have to be in the context of a diversification across factors strategy that Larry Swedroe has talked about.

Diversification across factors worked well during the 2000-2002 bear market, failed during the 2008-2009 bear market and financial crisis, and helped during 2022. No good diversification strategy works well all of the time.

But I'm optimistic by nature!

The key is only to work less poorly than an alternative most of the time.

I find accusations of cognitive bias in other posters as less than helpful in fostering honest and open discussion on the forum. We can all benefit from the knowledge that biases exist in everyone. Calling out biases in strangers seems going a bit far to me.

e.g. data time period is too short, shouldn't limit to US, MC analysis is inappropriate, WR is too high (personal finance is personal)? Observed signal appears very strong to me. Your signal is likely not statistically significant because, using a period of 30 years, there are not even two completely independent periods in 50 years of data. Exactly. Approximately zero of the posts in this thread that look at historical data are statistically significant, yet people act as if they are ( anchoring? , streetight effect? , some other cognitive bias?). Periods with significant overlap don't have enough new signal to add much information. One or two independent data points is far from enough to draw meaningful conclusions in this context. No bac...

I appended to my last post to clarify my goals for learning from the discussion in this thread. I found the thread interesting. Thanks. Curious, one question (sorry if I missed it), what is the goal or purpose of the 36% high yield bonds in your portfolio? And, to be clear, how have you defined "high yield bonds"?. The purpose is investment success since I am willing to hold through downturns without flinching. HY bonds tend to have low duration that helps in a rising interest rate environment (one risk I have been wary of) and have outperformed investment grade bonds for all but relatively short holding periods. (But not really pertinent to this thread) Since you asked, my own holdings are nearly half and half VWEAX and FAGIX, b...

I appended to my last post to clarify my goals for learning from the discussion in this thread.

I've have heard this repeatedly, but haven't seen the evidence that supports it. The PV data MC analysis with all the included limitations showed 100% equities value faring better than 60 total stock market, 40 intermediate term treasuries. So if the "sometimes worse" is seldom and not very much worse, it still seems to be the correct choice. But I am eager to see data-based evidence for when value failed more spectacularly over an extended time period, ie 20+ years. Not trying to push a viewpoint at all, I was actually startled by the effect seemingly displayed in the OP. There are a couple posters here who have been vocal about opting for a diversified (across geographies, capitalizations, styles) all equity portfolio over one ...

I organize most of my financial life around 4 excel spreadsheets:

Portfolio (which summarizes various holdings by asset class to help me keep desired allocations) (update monthly)
Net worth (but it originated from tracking a lump sum into current assets and comparisons w forgone pension) (monthly)
Cash (we put away "entrusted" amounts regularly so we always have ready cash for estimated taxes, travel, house expenses, boat expenses, etc)
Asset location (which tracks assets leaving tax deferred and moving into Roth or cash - used for long term planning as well) (update twice a year)

I tend to keep $15-25K in a non-interest bearing checking account for convenience (out of which I pay all current expenses). Average balance $20K buys me some modest benefit that I have forgotton about but certainly less valuable than today's interest rates. Guess I should act on that. Shrug.

(Despite spending time on this site, I spend very little time obsessing about my portfolio, etc. I have other things to do.)

Thanks to all for the discussion. It's interesting how so many of these discussions evolve toward maximizing diversification, as if that is the only holy grail. Here I am seeking a discussion around the value (pun intended) of a value dominated stock portfolio in retirement, i.e. no incoming investments. Not adding 15%. Going all value like Wellington taditionally did (not so much recently). Better, drop the bond, TIPS, REIT, etc. discussion and go all value in equities. This is so ridiculous to some BH that it seems hard for them to fathom. Most think 100% total market equities in retirement is too risky, but the merits are discussed dispassionately. Here, an admittedly limited data set seems to support the idea that value holds up better...

Thanks to all for the discussion. It's interesting how so many of these discussions evolve toward maximizing diversification, as if that is the only holy grail. Here I am seeking a discussion around the value (pun intended) of a value dominated stock portfolio in retirement, i.e. no incoming investments. Not adding 15%. Going all value like Wellington taditionally did (not so much recently). Better, drop the bond, TIPS, REIT, etc. discussion and go all value in equities. This is so ridiculous to some BH that it seems hard for them to fathom. Most think 100% total market equities in retirement is too risky, but the merits are discussed dispassionately. Here, an admittedly limited data set seems to support the idea that value holds up better ...

I may have inadvertently ascribed my analysis to SORR rather than overall portfolio viability. Still learning.

I just ran numbers for the front end of these portfolios: What is the 10th percentile value after 10 years for the stated initial portfolios and withdrawal rate?


LCV--2.38M * * * * LCB--1.53M * * * * LCG--1.01M

MCV--3.14M * * * * MCB--2.45M * * * * MCG--1.04M

SCV--2.94M * * * * SCB--2.03M * * * * SCG--1.26M

Total US Stock Market 1.65M

First 10 years 10th percentile values seem to correlate w initial results.

David Jay wrote: ↑Fri Mar 24, 2023 12:46 pm “Sequence of Returns” only applies to the mathematical sequence of returns when there is (1) portfolio volatility along with (2) withdrawals that are not adjusted to the changing portfolio balances (i.e. fixed percentage withdrawals, but not exclusive to fixed percentage withdrawals).

I find the following graphic from Jackson National provides a clear illustration. Note that the two lines utilize exactly the same portfolio returns but in reverse yearly sequence:

Now I AM confused. In my example there is portfolio volatility and withdrawals that are not adjusted to the changing portfolio balance. Please reiterate why my original question was wrong.

David Jay wrote: ↑Fri Mar 24, 2023 12:28 pm

alex_686 wrote: ↑Fri Mar 24, 2023 11:10 am Short answer is no.

Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market.

+1

Many posters on BH have commandeered the term “Sequence of Returns” risk and now use it to pretty much mean “any risk that prevents my portfolio from lasting 30 years”.

How about "can value stocks mitigate portfolio depletion over 30 years?"

and why are the effects so strong in the noted analysis w 50 years of data?

e.g. data time period is too short, shouldn't limit to US, MC analysis is inappropriate, WR is too high (personal finance is personal)? Observed signal appears very strong to me.

alex_686 wrote: ↑Fri Mar 24, 2023 11:10 am Short answer is no.

Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market.

shouldn't the question be when in the market cycle the volatility occurs?

For the same conditions and 50 years of data, 60% total US stock market and 40% intermediate term treasuries survived 30 years 71.9% of the time.

70/30 - 73.6%

80/20 - 74.2%

90/10 - 75.7%

I put two children through school at full retail due to 25 years of regular savings beforehand. Some of my peers saved little, and their children seemed to qualify for more aid. Can this happen, or is this just a delusion: can more savings decrease awarded aid?

As a near-retiree contemplating construction of my investment portfolio, I was most interested in the portfolio surviving SORR since I have no pension and was not contemplating taking SS for some time. I lurked on BH for some time and was always surprised when value stocks were generally seen as just an odd bet unlikely to pay off vs a total market approach. Again, I would emphasize that my interests are generally in surviving bad markets for my retirement period rather than maximizing returns. Just for fun, I ran portfolio visualizer MC analysis 10 times for the conditions noted in the following link (this example for total US stock market). https://www.portfoliovisualizer.com/monte-carlo-simulation?s=y&fullHistory=true&adjustmentT...

There is a dividend factor. It is a poor one. In statistics there is a concept of “parsimonious”. You want to select a few values that give the most predictive power. The dividend fails. There are always a better factor. Something simpler that offers more power. Yes, the dividend factor is kind of a proxy for the value factor. But it is also kind of a factor for the Low Volatility and Quality factor. Sometimes it even kind of acts like the Momentum factor. The problem is that dividends represent a sub-class of returns, not the primary driver of returns. As such you always have to back into the answer instead of working from first principles. It's some kind of progress -- from being told that I don't know that dividends are not free to at l...

You can play with discount rate scenarios here: https://opensocialsecurity.com/ You have to click a button on the first line to get to options that include the discount rate. For our married situation we needed a discount rate of 4.8% for the no delay strategy for both earners. Edit: And I think that discount rate is a real rate (not counting inflation) since SS is inflation adjusted. So, 4.8 is a big number. Big relative to riskless, perhaps. The reality for many is that taking SS early preserves portions of their investment portfolio with anticipated returns a significant fraction of that. Plus limits selling during downturns. Plus facilitates a more aggressive portfolio. Plus covers early mortality wrt legacy. Every situation is differe...

I'm willing to agree it likely doesn't matter enough to matter. (but I don't want to talk about dividend irrelevance instead )

Yes. Nobody can predict the future. IF it turns out the effective discount rate is significantly higher than the common (in my opinion, very low) assumptions, The seeming BH consensus of delay, delay, delay will be absolutely wrong. Just sayin'. You can play with discount rate scenarios here: https://opensocialsecurity.com/ You have to click a button on the first line to get to options that include the discount rate. For our married situation we needed a discount rate of 4.8% for the no delay strategy for both earners. Edit: And I think that discount rate is a real rate (not counting inflation) since SS is inflation adjusted. So, 4.8 is a big number. Big relative to riskless, perhaps. The reality for many is that taking SS early preserves ...

JackoC wrote: ↑Mon Mar 06, 2023 8:46 am
Also 'if it turns out' suggests an impossible way of making a financial decision, like if you say '60/40 stock/bonds turned out to be wrong, because it turned out stocks returned more than bonds'. You can't make financial decisions now based on what 'turns out' later.

My situation is more real time. Currently leaving >$50K annually on the table. Liquidating investments yielding >6.5% to do it. Liquidation portfolio averaged 8.1% over the last decade.

Not feeling great about waiting. (so I can leave >$60K on the table?)

Yes. Nobody can predict the future. IF it turns out the effective discount rate is significantly higher than the common (in my opinion, very low) assumptions, The seeming BH consensus of delay, delay, delay will be absolutely wrong. Just sayin'. You can play with discount rate scenarios here: https://opensocialsecurity.com/ You have to click a button on the first line to get to options that include the discount rate. For our married situation we needed a discount rate of 4.8% for the no delay strategy for both earners. Edit: And I think that discount rate is a real rate (not counting inflation) since SS is inflation adjusted. So, 4.8 is a big number. Big relative to riskless, perhaps. The reality for many is that taking SS early preserves ...

Yes.

Nobody can predict the future. IF it turns out the effective discount rate is significantly higher than the common (in my opinion, very low) assumptions, The seeming BH consensus of delay, delay, delay will be absolutely wrong.

Just sayin'.

Nice review on the 3 fund portfolio. Don't know why he took a swipe at Larry Swedroe. "Infamous" seems to have been a somewhat inadvertent word choice. Elsewhere on the site where he includes a Larry Swedroe portfolio: "The Larry Swedroe Portfolio – or simply the Larry Portfolio – was created by the legendary evidence-based investing author and advisor Larry Swedroe." Elsewhere: "Larry Swedroe is the director of research for Buckingham and the BAM Alliance. Swedroe is a prolific writer and contributor in the investing world. You’ll see him making forum posts on the Bogleheads Forum as well as writing syndicated articles around the web for sites like ETF.com, Yahoo Finance, and Forbes. If you’ve read my take on divi...

Which is likely to outperform is, of course, unanswerable.

Among popular choices, SCHD and VYM emphasize dividends.

FLCOX or any of the similar passive value index funds are solid choices if you want to hold large cap value at minimum ER.

A rare BH will even hold VEIRX or other (relatively low ER) actively managed fund.

All of these are likely to track very similarly vs other asset classes, i.e. their price behavior is more alike than different.

YMMV

burritoLover wrote: ↑Thu Mar 02, 2023 8:48 am 5 million is the new million.

8 figures makes a millionaire. Inflation, you know.

Looking back, I am not sure there was ever another four years so packed with high-value experiences. Obviously there were certain other peaks--getting married, having a baby, and so on. But for the sheer density of high-value experience over such a relatively long period, it still stands out to me as a pretty special period in my life. But I do think if you are going to go to college, it is pretty reasonable to highly value trying to make your experiences during those years as exciting, stimulating, interesting, and intrinsically rewarding as you can, whatever that means to you. I love what you wrote above. It matches my thinking exactly. My experience was different. I "enjoyed" UG time to some extent (married after my Jr year), ...

Looking back, I am not sure there was ever another four years so packed with high-value experiences. Obviously there were certain other peaks--getting married, having a baby, and so on. But for the sheer density of high-value experience over such a relatively long period, it still stands out to me as a pretty special period in my life. But I do think if you are going to go to college, it is pretty reasonable to highly value trying to make your experiences during those years as exciting, stimulating, interesting, and intrinsically rewarding as you can, whatever that means to you. I love what you wrote above. It matches my thinking exactly. My experience was different. I "enjoyed" UG time to some extent (married after my Jr year), ...

Per the value of the college experience: I think is is impossible to evaluate the experience except in hindsight. If money is no object, obviously school choice, etc. is most flexible. I would emphasize to the typical parent who has not been through the process that there are plenty of students who took on substantial debt to attend a premier school and have regretted it ever since - some of my kids' friends. Also, plenty of very successful people (likely your own boss and her/his boss) attended second- and third-tier schools. Ultimately, it is much more about the individual than the school they attend. OP has done a great job in establishing substantial college savings. Continuing further on that path with 529 or other restricted funds at ...

What are you going to tell your really smart kids, when they get accepted to some overpriced college and they really want to go there, but it is way above the cost of a state school? They have to take out loans ? They can't go there ? They have to pay the difference ? I went through that several times with my kids, it blows the college budget out of the water. When you save your entire life, accumulate money and have a good income, I would not expect a large amount of grant money or subsidized money to make up the difference. All we qualified for, was a high interest non subsidized loan through FAFSA. Just because your kid is really smart, there are alot of really smart kids out there, and those with high needs get priority over those with...

With smart kids of those ages, I wouldn't put any more into 529 plan or other restricted funds. I would try to max out retirement accounts first, pay down mortgage second, and save additional in taxable once mortgage is gone. Reasoning: IF childeren get substantial real financial aid (not loans) OR choose community college initially OR take a non-college career path, you don't want too much restricted money. Lower mortage principal can be refinanced if desired, or provide additional cash flow if paid off completely (looks like some level of ongoing college expenses for 7-8+ years). Some financial aid considerations don't include primary residence value. Aftertax savings most flexible for education, retirement, or alternate uses. (put two ch...

But never forget the near side of mortality.

For a couple both at 62, there is a greater than 20% chance that one of them will pass before they reach age 70. Enjoy life while you can!

It seems that the cool kids here at the forum say to lengthen durations and diversify Stocks with Long Term US Treasuries. The nerds, the dweebs, and the dorks are happy with shorter durations and with Core Bond Funds and Total Bond Market Index. The cool kids wouldn't be caught dead with a Core Bond Fund or a Total Bond Market Index Fund. I mean like those US Agency Bonds and Corporates are well, in such bad taste. Sort of like putting ketchup on a steak. The nerds, the dweebs, and the dorks don't care so much, their taste buds aren't so refined. I mean, if your Bonds aren't all US Treasury instruments, you are so uncultured. To that, the nerds, the dweebs, and the dorks say like whatever!! The maverick outsiders hold their FI in high yie...

I always call, years ago at Vanguard and the last 3 years at Fidelity. I want my transaction desires recorded so that I cannot make a mistake (website) nor can they, or at least it would be corrected. Never had a fee. Amounts of 80-260K, single yearly transactions.

63. Retired. No pension.

32% Large Cap Value
32% MidCap Broad
36% High Yield Bonds

Steady ongoing distributions provide cash flow I value. Currently more than I spend even without having started SS.

Pro: A good financial advisor (e.g. Rick Ferri) can provide advice that has value beyond the fees charged. Con: I can't know if the financial advisor you select is any good - there are many marginal to bad advisors (marginal or bad advice) under both the AUM and fee-for-service models. Hence there is no way to give a meaningful answer to the general question. (A long term hitchhiker was interviewed by a reporter and asked whether he supported giving rides to strangers. He replied with an emphatic "no" to the surprised reporter. "I know you are safe giving ME a ride, but I cannot recommend that you ever pick up anyone else.") I think there can be pros for many individuals to receive financial advice from a paid planner, b...