Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Sun Feb 04, 2018 7:27 pm

Juice3 wrote:
Sun Feb 04, 2018 6:53 pm
dbr wrote:
Sun Feb 04, 2018 6:35 pm
A pension or annuity is not a stock and bond portfolio asset, but the presence of such an income stream would certainly affect what stock and bond portfolio asset allocation a person might have. That obvious fact is one reason so many of the responses on this thread are verging on the snarky.
My point was that pensions and annuities are Fixed Income investments. It is often more precise to look at an asset allocation as Equity/Fixed Income.

Sources outside of our wiki often talk asset allocation in terms of Equities, fixed income and cash for example:
https://www.investopedia.com/terms/a/as ... cation.asp

This board often states AA as stock / bond ... readers should note this is a simplification.

OP likely has a very high Fixed Income percentage as he stated his pensions covers his expected expenses.
Part of what you are saying is a discussion people have and part of what you are saying may be a misunderstanding of how people are using words.

The words part is that in usual discussions about asset allocation fixed income, bonds, bonds and cash, etc. etc. are all used for about the same thing, which is various investments that are not equities and generally have low risk and low return compared to equities. Trying to untangle what one person means by cash and another person means by fixed income and another person means by bonds is usually pointless. Even the Treasury has its own nomenclature as so called Treasury bonds can be bonds, notes, or bills except TIPS that are securities and savings bonds that are, well, savings bonds and not bonds. In any case the fixed income in those descriptions does not at all refer to actual income that is fixed, as in pensions and annuities. In the Investopedia article they are clearly using the term fixed income for bonds as distinct from cash. I can assure you that they are not referring to income payments that are fixed as the fixed income they are talking about.

A different issue is whether or not it is useful to capitalize income streams and create virtual fixed income holdings on that basis when figuring out asset allocations. For that one can refer to the frequent discussions of that topic that appear from time to time.

investorpeter
Posts: 158
Joined: Sun Jul 31, 2016 5:46 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by investorpeter » Sun Feb 04, 2018 7:29 pm

TN_Boy wrote:
Sun Feb 04, 2018 5:05 pm
investorpeter wrote:
Sun Feb 04, 2018 3:29 pm
You are not really 100% allocated to stock index funds if you include the current value of your pension in your net worth, which for all practical purposes should be considered on the fixed income (bond) side of your allocation.

You can get a decent estimate of the current value of your pension by looking up the cost to purchase an annuity that starts paying at a future point in time for your given age and location. For example, using the immediateannuities.com website, assuming you are living in Texas, married, 53 years old, and retiring in 7 years, $1,000,000 today will purchase a joint annuity that pays $62,000 per year beginning in 7 years. So in this scenario, if you had $500,000 in retirement accounts, 100% invested in index equity funds, your asset allocation is not really 100%/0% stock/fixed income, but rather it is 33%/66% stock/fixed income.
Well, sorta. The OP is saying ALL his needs are met by a pension. If his pension is a "bond" then you are saying he can live only off the "bond" portion of his portfolio. Which gets us back to pointing out that if you don't need the money in your investments, sure, invest however you want -- you'll be fine.

Personally I do not like the notion of viewing a pension or SS as a bond (on this board, I think we have a lot of folks on both sides of the notion), though I agree it can affect your portfolio asset allocation. But suppose you need five years worth of income from your pension tomorrow. You cannot call up the folks giving you a pension and ask them for that money (well, I guess you can, but they will not give it to you).

In contrast, I can sell enough bonds in my portfolio for five years of living expenses tomorrow if I wanted. You cannot leave a pension or SS to your children, or a charity either. A pension is bond-like because it produces a stream of income, but I do not think it a bond.
Fair enough. Those are some key differences between a bond and a pension (cannot sell, gift or inherit a pension), but I was not saying that a pension is a "bond", which is why I put the bond in parentheses, but that a pension has features that make it more similar to a bond than equity. It is most certainly a fixed-income instrument, no? And for the purposes of modeling future retirement income, I don't see why you would not consider a pension as a portion of your asset allocation, and place it on the fixed-income (bond) side of the allocation. There is default risk with a pension, just as there is default risk with a bond or an annuity. You could also borrow against your pension, or in some cases borrow directly from your future pension, in case of emergency need, which would somewhat mitigate the lack of ability to sell a pension.

Now that I think about it more, an interesting difference between a pension and an annuity, is that you pay cash for an annuity, but for a pension you pay in time and cash.

I'm relatively new here, so I did not know there is an ongoing debate about whether to consider a pension on the "bond" side of the asset allocation. Where would one place the pension otherwise? In a separate category? I am not trying to be snarky, but genuinely interested in alternative points of view.

dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Sun Feb 04, 2018 7:39 pm

investorpeter wrote:
Sun Feb 04, 2018 7:29 pm

It is most certainly a fixed-income instrument, no?
In discussions of asset allocation fixed income is neither fixed nor income. It is a word used to refer generally to bonds, CDs, savings accounts, and actual currency. I think the usage probably comes from an old fashioned idea that bonds are not really investments but rather devices for arranging for the payment of an interest coupon at a regular interval. In that case they would actually be fixed income. The most extreme case would be consols or perpetual bonds which existed in England at one point in time. The use of terminology arises because personal investors do own assets that are not literally bonds and it seems strange to refer to things as bonds that aren't really bonds. As I mentioned above the Treasury issues bonds, notes, bills, inflation protected securities, and savings bonds and people call all of them bonds even though the Treasury says 4 of the 5 are not (a savings bond not being the same thing as a bond meaning long term Treasuries offered at the market).

The fact that a pension or annuity cannot usually be recovered for some value of the underlying investment is a critical difference between pensions and annuities and investments.

User avatar
Hyperborea
Posts: 824
Joined: Sat Apr 15, 2017 10:31 am
Location: Japan

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Sun Feb 04, 2018 8:19 pm

tibbitts wrote:
Sun Feb 04, 2018 7:26 pm
Hyperborea wrote:
Sun Feb 04, 2018 1:53 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Now, given the relatively conservative draw (3%) and the fact there is some SS in the future, fearless will *likely* still be okay. But looking at this example, can you see how somebody younger than 65 *might* want a significant % of bonds??
3% withdrawal rate is incredibly conservative. For 40 year or less retirements and allocations from 25% to 100% equity the survival is about 100% historically. If your portfolio is big enough or your living costs are low enough then you've more than won the game. Increase the WR or the duration from there and your equity percentage needs to rise or your survivability falls.
You're correct in that the OP has stated that he can make do fine even with losing 100% of his portfolio, but realistically I think the consensus guesstimate has moved to a 3% or below SWR for a 40 year retirement, with the allocations you mention.
The consensus in the FIRE community for a long time has been that for longer retirements that both a lower WR than 4% and higher equity allocations than for a 30 year retirement were needed. There are only a small number of people that suggest anything below 3% is needed and most of them are only taking such low rates because they have a full boat pension.

The recent work at Early Retirement Now put some real numbers on long retirement WRs. For 40 year retirements a WR of 3% needed 25% equity or more to get ~100% survival. Higher withdrawals and longer durations both push the equity percentage higher. 75% to 100% equity is the sweet spot for longer retirements with the highest WRs.

Image
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

User avatar
Hyperborea
Posts: 824
Joined: Sat Apr 15, 2017 10:31 am
Location: Japan

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Sun Feb 04, 2018 8:24 pm

TN_Boy wrote:
Sun Feb 04, 2018 3:32 pm
Hyperborea wrote:
Sun Feb 04, 2018 3:09 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
I think you are missing my point. I am not saying the US market would not come back after a 50% drubbing. It has, twice in very recent memory. What I am saying is that such a severe downturn, accompanied by withdrawals from the portfolio in early retirement is at best alarming, at worst can lead to a sequence of returns issue where the portfolio never recovers. Left alone long enough it might. But the withdrawals can damage it severely. Or you do generally not believe in sequence of return issues?
In the historical record the SOR is already taken account of by the initial low SWR. If you want to as an optimization take a glide path down and then back up. This can counter a bad initial return sequence allowing one to increase the initial SWR, cover the small percent one is away from historical 100% success (many/most use high but not 100% success rates in their planning) or reduce the effect of an ahistorical bad market.

For the OP with a pension that covers all or most of his living costs that's not a complication that he needs to worry about. For those of us with no pension and living entirely on an investment portfolio that is an issue.
Honestly, I think you are missing my main point, but maybe I wasn't making it very well. I wasn't arguing about best withdrawal strategies, withdrawal rates, etc.
Well, then discussions about SORs and 3% WRs are discussions about withdrawal strategies and and withdrawal rates. If you really are talking about the psychology of staying with your allocation when the market turns down during retirement then focus on that. For the OP since he has a pension that mostly or completely covers his expenses and he has been 100% in equities throughout his accumulation the odds are low to non-existent.
TN_Boy wrote:
Sun Feb 04, 2018 3:32 pm
The OP is saying things like "50% drawdown is gloom & doom. Stock markets are different now." I was trying to point out the massive portfolio hit a severe crash + withdrawals will cause. And point that out major draw downs still happen, as recent history shows.
Eh, he's wrong that 50% is gloom and doom - it's a regular occurrence. But any time there is a discussion of high equity allocations the gloom and doom crowd are out in force. There are some in this thread too. Then we get suggestions of such terrible scenarios that no economy will survive never mind any portfolio no matter the equity/bond split.
TN_Boy wrote:
Sun Feb 04, 2018 3:32 pm
As I noted back early in the thread, if OP doesn't need the money from the portfolio, sure it doesn't matter what asset allocation is used. But the OP seems to think 100% is okay for everybody, with no differentiation of situations. I also think the OP's claim that the markets are inherently somehow more stable than they used to be really odd; I'd be interested in data supporting such a proposition.
Eh, not any different than the low and ultra low equity in retirement folks (who also live mostly on a pension or have such huge portfolios that they take 2% WR) that abound on this forum or the "anybody who takes more than 2.5% is doomed" or the live only on dividends true believers. No strategy is good for everybody though some strategies are sub-optimal. Nobody should be blindly following advice from strangers on the internet without doing their own research.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

Juice3
Posts: 155
Joined: Sun Nov 05, 2017 7:40 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Juice3 » Sun Feb 04, 2018 8:28 pm

dbr wrote:
Sun Feb 04, 2018 7:39 pm
In discussions of asset allocation fixed income is neither fixed nor income.
Here is a definition from Wikipedia of Fixed Income and Income
Wikipedia wrote:Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule.

Income is the consumption and savings opportunity gained by an entity within a specified timeframe
Pensions have a different liquidity than bonds.

lostdog
Posts: 2228
Joined: Thu Feb 04, 2016 2:15 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by lostdog » Sun Feb 04, 2018 10:40 pm

cutehumor wrote:
Sun Feb 04, 2018 10:57 am
I'm 40. I'm at 100% stock (60 US/40 International). I'm weird also. I get happy when the stock market goes up, but I'm also happy when the stock prices drop as I can get the sale.
+1# :sharebeer
Taxable: VLCAX and VFWAX || Tax Deferred: VTWAX

TN_Boy
Posts: 1450
Joined: Sat Jan 17, 2009 12:51 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TN_Boy » Sun Feb 04, 2018 11:03 pm

Hyperborea wrote:
Sun Feb 04, 2018 8:24 pm
TN_Boy wrote:
Sun Feb 04, 2018 3:32 pm
Hyperborea wrote:
Sun Feb 04, 2018 3:09 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
I think you are missing my point. I am not saying the US market would not come back after a 50% drubbing. It has, twice in very recent memory. What I am saying is that such a severe downturn, accompanied by withdrawals from the portfolio in early retirement is at best alarming, at worst can lead to a sequence of returns issue where the portfolio never recovers. Left alone long enough it might. But the withdrawals can damage it severely. Or you do generally not believe in sequence of return issues?
In the historical record the SOR is already taken account of by the initial low SWR. If you want to as an optimization take a glide path down and then back up. This can counter a bad initial return sequence allowing one to increase the initial SWR, cover the small percent one is away from historical 100% success (many/most use high but not 100% success rates in their planning) or reduce the effect of an ahistorical bad market.

For the OP with a pension that covers all or most of his living costs that's not a complication that he needs to worry about. For those of us with no pension and living entirely on an investment portfolio that is an issue.
Honestly, I think you are missing my main point, but maybe I wasn't making it very well. I wasn't arguing about best withdrawal strategies, withdrawal rates, etc.
Well, then discussions about SORs and 3% WRs are discussions about withdrawal strategies and and withdrawal rates. If you really are talking about the psychology of staying with your allocation when the market turns down during retirement then focus on that. For the OP since he has a pension that mostly or completely covers his expenses and he has been 100% in equities throughout his accumulation the odds are low to non-existent.
Sorry, I was pointing out that such things as SOR exist, because the OP didn't seem aware of them, but I was trying to avoid getting into 3% versus 4% or the optimal stock/bond allocation .... etc etc.

I was also trying to give an example with numbers showing the impact of the sort of crash (that the OP apparently doesn't believe exists in today's stable markets ....) and saying that people care about SOR.

And that SOR is a reason somebody (not the OP, but that was part of the point, other people have different situations) might not want to be 100% equities. I was responding to the OPs statement that he couldn't understand why ANYBODY under 65 needs bonds. But again, I was not interested in getting into specifics of how to deal with SOR.

dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Sun Feb 04, 2018 11:36 pm

investorpeter wrote:
Sun Feb 04, 2018 7:29 pm

I'm relatively new here, so I did not know there is an ongoing debate about whether to consider a pension on the "bond" side of the asset allocation. Where would one place the pension otherwise? In a separate category? I am not trying to be snarky, but genuinely interested in alternative points of view.
A pension is income rather than being an asset. The usual context for this discussion is retired people who are looking at how much income they can withdraw from a portfolio and how that might be affected by their asset allocation. It becomes illogical to capitalize the pension, count it as an asset, figure out what asset allocation is best to support withdrawals and then turn around and notice that you already know what withdrawal the pension can support, namely the monthly payment the pension is making in the first place.

A second part of the question is the conundrum of how to take the existence of pensions into account in figuring asset allocation. That depends on how you figure asset allocation. If you use an age in bonds rule but you have a pension and think that should affect the result, then about the only way you can get there is count the pension as bonds, unless there is some other formula for changing the age in bonds rule. A more thoughtful way to handle the problem is to consider how the pension affects one's need to take risk in the portfolio itself, one's ability to take risk, and one's willingness to take risk. The answer to those questions depends on what one needs/wants, what the relative size of the various resources to meet that need is, how nervous one is about risk in investing, and so on.

dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Mon Feb 05, 2018 12:17 am

Juice3 wrote:
Sun Feb 04, 2018 8:28 pm
dbr wrote:
Sun Feb 04, 2018 7:39 pm
In discussions of asset allocation fixed income is neither fixed nor income.
Here is a definition from Wikipedia of Fixed Income and Income
Wikipedia wrote:Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule.

Income is the consumption and savings opportunity gained by an entity within a specified timeframe
Pensions have a different liquidity than bonds.
The meaning of my comment is that considered as an asset in a portfolio bonds are not fixed in value. The properties an asset has as an element of a portfolio are the return and the variability of the return. The interest payment is part but not all of the return. Also as a portfolio asset bond interest is not fixed because bonds mature and are replaced with other bonds that don't pay the same coupon in general. The comment about not being income refers to the fact that for a personal investor income is withdrawals from the portfolio which have no necessary immediate relationship to the interest paid on the bonds.

smectym
Posts: 737
Joined: Thu May 26, 2011 5:07 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by smectym » Mon Feb 05, 2018 12:36 am

“Bonds are boring” is a callow cliche. Next we’ll be hearing that stocks are for the “cool kids” and bonds for the losers in the Chess Club.

OP starts from the premise “I have all the bases covered with my pension, nothing fundamentally bad can ever happen to me even if my stocks tank; therefore I’m 100% equities. I want the board to do 2 things: (a) accept my premise; and, (b) granting the premise, tell me, ‘Am I crazy?’”

The responders who politely query whether, besides his or her own self, OP must consider, or has at heart, the interest of any progeny, relative, other human, or even a pet, are on to something.

Assuming OP has only OP’s own welfare to consider, then the answer to OP’s query is simple enough: (a) your premise is accepted. (b) no, you’re not “crazy.”

Agggm
Posts: 244
Joined: Mon Dec 25, 2017 6:18 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Agggm » Mon Feb 05, 2018 6:18 am

scdevon wrote:
Sun Feb 04, 2018 10:16 am
I've been investing since 1984. Current age is 53. I have a State Government Pension that covers all of my living expenses +. I'm used to volatility and I've ridden out several nasty market corrections and recessions and it always seems like I've come out ahead compared to a mixed stock / bond portfolio by just holding index funds long term. I haven't had to touch any savings / deferred comp. or IRA money and I didn't plan to until age 59 1/2 anyway.
(Debt-free lifestyle, no kids only a dog and a lady-friend).

My point is that Bond returns are boring long-term even if they are more stable and act as sort of a "shock absorber" against stock volatility. I'm a big fan of Fidelity's FSTVX fund which is a broad index fund that tends to mimic the Dow Jones Total Market Index almost to the penny and has a current yield of 1.6% and has a low expense ratio of .05%. I have almost everything ($780k) in FSTVX and I keep about $55k in cash (Money Market) for emergencies.

I feel there must be other young retirees out there who stay aggressive in the market who don't sweat market volatility and corrections and who don't buy into the "balanced portfolio" that the industry hypes so much. My reasoning is that stocks always seem to snap back hard after corrections and it always seems like I'm way ahead of a "60/40" stock bond portfolio that gets hyped all the time. Even the 2008 correction never made me really question my long term strategy. Any other "Aggressive Retirees" out there or am I just crazy?
With you buddy👍

Agggm
Posts: 244
Joined: Mon Dec 25, 2017 6:18 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Agggm » Mon Feb 05, 2018 6:28 am

cutehumor wrote:
Sun Feb 04, 2018 10:57 am
I'm 40. I'm at 100% stock (60 US/40 International). I'm weird also. I get happy when the stock market goes up, but I'm also happy when the stock prices drop as I can get the sale.
+1

User avatar
stemikger
Posts: 4950
Joined: Thu Apr 08, 2010 5:02 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by stemikger » Mon Feb 05, 2018 6:45 am

I didn't read the other replies yet, but to the OP, you are not crazy, you can invest any way you want in your situation. 100% in stocks or 100% in bonds if you like. If you have all your living expenses covered and no other mouths to feed, you are in a position that you will never or should never feel any risk the market hands you.

You seem to have a handle on how you deal with risk which has been tested in your investing lifetime, so do what makes you happy.

You are lucky to retire so young! Good Luck!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

Chip
Posts: 2691
Joined: Wed Feb 21, 2007 4:57 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Chip » Mon Feb 05, 2018 8:21 am

smectym wrote:
Mon Feb 05, 2018 12:36 am
OP starts from the premise “I have all the bases covered with my pension, nothing fundamentally bad can ever happen to me even if my stocks tank; therefore I’m 100% equities. I want the board to do 2 things: (a) accept my premise; and, (b) granting the premise, tell me, ‘Am I crazy?’”
To me there is a an implied (c) from the OP's replies in the subsequent discussion:

(c) since the equity markets always come back, anyone who doesn't invest like me, no matter their personal situation, must be crazy.

User avatar
topper1296
Posts: 649
Joined: Fri Apr 03, 2009 10:50 pm
Location: Nashville TN

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by topper1296 » Mon Feb 05, 2018 8:32 am

SeeMoe wrote:
Sun Feb 04, 2018 7:14 pm
Not me! To risky at 100% stocks and I/ we retired at the same age with an AA of 60/40 that we kept until RMD time. Now it’s 40/60. Both of us had full pensions and benefits from the git go too! Still invest excess monies like the RMD year end distributions, keeping the AA in mind.

SeeMoe.. :mrgreen:
100% stocks would be too risky for me as well and would never go above 80%. I just turned 44 and have ~30% in bonds/cash excluding emergency savings.

GCD
Posts: 1021
Joined: Tue Sep 26, 2017 7:11 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by GCD » Mon Feb 05, 2018 10:34 am

I think much of this debate stems from the OPs mischaracterization of himself as aggressive. That colors his perception and people's responses to him. It seems virtually everyone here has agreed in his situation his AA is fine. But it isn't 100% stock. It's 93% stock, 7% money market account. Assuming his pension is $40Kish, that would cost about $780K to replicate with an annuity. Once you consider what it would take to "buy" his pension, I suspect the OP would consider it somewhat unaggressive to have spent roughly 48% of his assets buying an annuity.

So, if a random person had $1,615,000 sitting in cash, they could replicate the OPs situation by buying a $40K annuity for $780K, keep $780K in stocks and $55K in cash. That's hardly a wild aggressive strategy. If his pension is more than $40K, then the strategy becomes even more conservative.
Last edited by GCD on Mon Feb 05, 2018 10:42 am, edited 1 time in total.

dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Mon Feb 05, 2018 10:41 am

GCD wrote:
Mon Feb 05, 2018 10:34 am
I think much of this debate stems from the OPs mischaracterization of himself as aggressive. That colors his perception and people's responses to him. It seems virtually everyone here has agreed in his situation his AA is fine. But it isn't 100% stock. It's 93% stock, 7% money market account. Assuming his pension is $40Kish, that would cost about $780K to replicate with an annuity. Once you consider what it would take to "buy" his pension, I suspect the OP would consider it somewhat unaggressive to have spent roughly 48% of his assets buying an annuity.

I've probably articulated this poorly. Just trying to come at it a different way to get the OP to see how valuable that pension is relative to the rest of his assets.
You are correct. But the source of the problem is ascribing meaning to words that are not appropriate to describing asset allocations, especially when those words convey emotional connotations or assign aspects of personality to the investor. A better approach is to think through how well the asset allocation suits the objectives of the investor, all factors considered -- exactly as you allude above. I personally would advise using the need/ability/willingness framework to do that thinking because that framework forces you to be explicit about your objectives and consider your behavior. That would be in preference to trying to force financial circumstances such a pensions and annuities into a virtual asset framework.

GCD
Posts: 1021
Joined: Tue Sep 26, 2017 7:11 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by GCD » Mon Feb 05, 2018 10:43 am

dbr wrote:
Mon Feb 05, 2018 10:41 am
GCD wrote:
Mon Feb 05, 2018 10:34 am
I think much of this debate stems from the OPs mischaracterization of himself as aggressive. That colors his perception and people's responses to him. It seems virtually everyone here has agreed in his situation his AA is fine. But it isn't 100% stock. It's 93% stock, 7% money market account. Assuming his pension is $40Kish, that would cost about $780K to replicate with an annuity. Once you consider what it would take to "buy" his pension, I suspect the OP would consider it somewhat unaggressive to have spent roughly 48% of his assets buying an annuity.

I've probably articulated this poorly. Just trying to come at it a different way to get the OP to see how valuable that pension is relative to the rest of his assets.
You are correct. But the source of the problem is ascribing meaning to words that are not appropriate to describing asset allocations, especially when those words convey emotional connotations or assign aspects of personality to the investor. A better approach is to think through how well the asset allocation suits the objectives of the investor, all factors considered -- exactly as you allude above. I personally would advise using the need/ability/willingness framework to do that thinking because that framework forces you to be explicit about your objectives and consider your behavior. That would be in preference to trying to force financial circumstances such a pensions and annuities into a virtual asset framework.
I was editing while you were quoting!

dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Mon Feb 05, 2018 10:44 am

GCD wrote:
Mon Feb 05, 2018 10:43 am
dbr wrote:
Mon Feb 05, 2018 10:41 am
GCD wrote:
Mon Feb 05, 2018 10:34 am
I think much of this debate stems from the OPs mischaracterization of himself as aggressive. That colors his perception and people's responses to him. It seems virtually everyone here has agreed in his situation his AA is fine. But it isn't 100% stock. It's 93% stock, 7% money market account. Assuming his pension is $40Kish, that would cost about $780K to replicate with an annuity. Once you consider what it would take to "buy" his pension, I suspect the OP would consider it somewhat unaggressive to have spent roughly 48% of his assets buying an annuity.

I've probably articulated this poorly. Just trying to come at it a different way to get the OP to see how valuable that pension is relative to the rest of his assets.
You are correct. But the source of the problem is ascribing meaning to words that are not appropriate to describing asset allocations, especially when those words convey emotional connotations or assign aspects of personality to the investor. A better approach is to think through how well the asset allocation suits the objectives of the investor, all factors considered -- exactly as you allude above. I personally would advise using the need/ability/willingness framework to do that thinking because that framework forces you to be explicit about your objectives and consider your behavior. That would be in preference to trying to force financial circumstances such a pensions and annuities into a virtual asset framework.
I was editing while you were quoting!
Anyway both of us are on the same page. I guess it is not logical for forum software to propagate your edit into my quote.

User avatar
sergeant
Posts: 1337
Joined: Tue Dec 04, 2007 11:13 pm
Location: The Golden State

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by sergeant » Mon Feb 05, 2018 2:37 pm

Agggm wrote:
Mon Feb 05, 2018 6:18 am
scdevon wrote:
Sun Feb 04, 2018 10:16 am
I've been investing since 1984. Current age is 53. I have a State Government Pension that covers all of my living expenses +. I'm used to volatility and I've ridden out several nasty market corrections and recessions and it always seems like I've come out ahead compared to a mixed stock / bond portfolio by just holding index funds long term. I haven't had to touch any savings / deferred comp. or IRA money and I didn't plan to until age 59 1/2 anyway.
(Debt-free lifestyle, no kids only a dog and a lady-friend).

My point is that Bond returns are boring long-term even if they are more stable and act as sort of a "shock absorber" against stock volatility. I'm a big fan of Fidelity's FSTVX fund which is a broad index fund that tends to mimic the Dow Jones Total Market Index almost to the penny and has a current yield of 1.6% and has a low expense ratio of .05%. I have almost everything ($780k) in FSTVX and I keep about $55k in cash (Money Market) for emergencies.

I feel there must be other young retirees out there who stay aggressive in the market who don't sweat market volatility and corrections and who don't buy into the "balanced portfolio" that the industry hypes so much. My reasoning is that stocks always seem to snap back hard after corrections and it always seems like I'm way ahead of a "60/40" stock bond portfolio that gets hyped all the time. Even the 2008 correction never made me really question my long term strategy. Any other "Aggressive Retirees" out there or am I just crazy?
With you buddy👍
Not with you buddy :thumbsdown

I retired with a safety pension at 53 too. My pension covers 3 times our expenses. My wife still works and makes a good wage with a decent public service pension coming when she retires in a year or two. We have over 40 times our yearly expenses tucked away.

I'm about 50/50. I don't have the need nor willingness to be 100% equities. Having 20 years expenses in stable value feels good, especially when the markets are down.

I don't have free retiree healthcare so my situation is a bit different.
Lincoln 3 EOW! AA 40/60.

User avatar
SeeMoe
Posts: 1057
Joined: Sat Jul 18, 2015 11:30 am
Location: Near Philly..

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by SeeMoe » Mon Feb 05, 2018 3:56 pm

topper1296 wrote:
Mon Feb 05, 2018 8:32 am
SeeMoe wrote:
Sun Feb 04, 2018 7:14 pm
Not me! To risky at 100% stocks and I/ we retired at the same age with an AA of 60/40 that we kept until RMD time. Now it’s 40/60. Both of us had full pensions and benefits from the git go too! Still invest excess monies like the RMD year end distributions, keeping the AA in mind.

SeeMoe.. :mrgreen:
100% stocks would be too risky for me as well and would never go above 80%. I just turned 44 and have ~30% in bonds/cash excluding emergency savings.
Smart of you! We only started investing in our early 40’s because of the Tax deferrals in T-IRA’s and 457b’s which we maxed out until the deferral stopped in the IRA’s. But kept topping off the 457b’s until we retired in our early 50’s. Always kept the AA at 60/40, had about 2 years worth of investments to cover bills in a crisis. Now we are Flagship mates and still invest in our mid 70’s. (22 years retired has gone buy way to fast vs the slowness of the working years...IMHO.)
SeeMoe.. :dollar
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}

Agggm
Posts: 244
Joined: Mon Dec 25, 2017 6:18 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Agggm » Mon Feb 05, 2018 5:45 pm

sergeant wrote:
Mon Feb 05, 2018 2:37 pm
Agggm wrote:
Mon Feb 05, 2018 6:18 am
scdevon wrote:
Sun Feb 04, 2018 10:16 am
I've been investing since 1984. Current age is 53. I have a State Government Pension that covers all of my living expenses +. I'm used to volatility and I've ridden out several nasty market corrections and recessions and it always seems like I've come out ahead compared to a mixed stock / bond portfolio by just holding index funds long term. I haven't had to touch any savings / deferred comp. or IRA money and I didn't plan to until age 59 1/2 anyway.
(Debt-free lifestyle, no kids only a dog and a lady-friend).

My point is that Bond returns are boring long-term even if they are more stable and act as sort of a "shock absorber" against stock volatility. I'm a big fan of Fidelity's FSTVX fund which is a broad index fund that tends to mimic the Dow Jones Total Market Index almost to the penny and has a current yield of 1.6% and has a low expense ratio of .05%. I have almost everything ($780k) in FSTVX and I keep about $55k in cash (Money Market) for emergencies.

I feel there must be other young retirees out there who stay aggressive in the market who don't sweat market volatility and corrections and who don't buy into the "balanced portfolio" that the industry hypes so much. My reasoning is that stocks always seem to snap back hard after corrections and it always seems like I'm way ahead of a "60/40" stock bond portfolio that gets hyped all the time. Even the 2008 correction never made me really question my long term strategy. Any other "Aggressive Retirees" out there or am I just crazy?
With you buddy👍
Not with you buddy :thumbsdown

I retired with a safety pension at 53 too. My pension covers 3 times our expenses. My wife still works and makes a good wage with a decent public service pension coming when she retires in a year or two. We have over 40 times our yearly expenses tucked away.

I'm about 50/50. I don't have the need nor willingness to be 100% equities. Having 20 years expenses in stable value feels good, especially when the markets are down.

I don't have free retiree healthcare so my situation is a bit different.
😂love it!
We have the willingness!

User avatar
HomerJ
Posts: 13799
Joined: Fri Jun 06, 2008 12:50 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by HomerJ » Mon Feb 05, 2018 6:10 pm

scdevon wrote:
Sun Feb 04, 2018 11:17 am
cutehumor wrote:
Sun Feb 04, 2018 10:57 am
I'm 40. I'm at 100% stock (60 US/40 International). I'm weird also. I get happy when the stock market goes up, but I'm also happy when the stock prices drop as I can get the sale.
That's what I was looking for. Other aggressive "weirdos" who shrug off traditional asset allocation based on age groups and who like market volatility. If you have been investing for any length of time, you know that if you sit tight and dollar cost average, you will always come out ahead given a reasonable time horizon being fully invested.
You're not really thinking this through.

You have a pension that covers all your living expenses plus, and you'll get SS someday. Traditional asset allocation does not apply to you.

You're not brave or special. You don't get bonus points for living through other market crashes while working in a secure government job with a guaranteed generous pension.

A 40 year old who has 10-25 years before he retires can be 100% stocks. He's not a "weirdo". That IS a traditional asset allocation. Because like you said, given a "reasonable time horizon", 100% stocks (so far) has always done well.

Now, if he's a 40-year old who is retiring at 41, and he has no pension, then being 100% stocks would be dangerous and dumb. I'm assuming he has plenty of time.

Just because "traditional Asset Allocation" doesn't apply to you, it doesn't mean it's a stupid idea for everyone else.

You're very lucky. Congratulations.

User avatar
HomerJ
Posts: 13799
Joined: Fri Jun 06, 2008 12:50 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by HomerJ » Mon Feb 05, 2018 6:19 pm

scdevon wrote:
Sun Feb 04, 2018 2:13 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Shortly after retirement, the market begins a two-year slide where the total loss is 50%. After being retired two years, fearless now has a portfolio of $880,000 dollars (50% drop, $120k in withdrawals), after starting with $2,000,000.
Yes, but none of those doom and gloom scenarios ever materialize long term especially over the last 3 decades.
Oh it hasn't happened in the last 3 decades... Oh boy, then I guess it's impossible then. :oops:

scdevon, you are in no position to be giving advice to anyone who doesn't have a pension covering all their living expenses. Sorry, but it's true.

The Great Depression happened. By definition, something that has actually happened is possible. Anyone 100% in stocks in 1929 who was withdrawing money to live went completely broke.

I'm not going 100% all in on stocks because YOU think nothing bad will happen. Especially if your reasoning is limited to "Oh, well nothing bad happened recently, so it must be safe!"

User avatar
HomerJ
Posts: 13799
Joined: Fri Jun 06, 2008 12:50 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by HomerJ » Mon Feb 05, 2018 6:24 pm

Chip wrote:
Mon Feb 05, 2018 8:21 am
smectym wrote:
Mon Feb 05, 2018 12:36 am
OP starts from the premise “I have all the bases covered with my pension, nothing fundamentally bad can ever happen to me even if my stocks tank; therefore I’m 100% equities. I want the board to do 2 things: (a) accept my premise; and, (b) granting the premise, tell me, ‘Am I crazy?’”
To me there is a an implied (c) from the OP's replies in the subsequent discussion:

(c) since the equity markets always come back, anyone who doesn't invest like me, no matter their personal situation, must be crazy.
That's the real problem with OP. He's completely tone-deaf and seems to have ZERO understanding of other people's situations.

User avatar
Hyperborea
Posts: 824
Joined: Sat Apr 15, 2017 10:31 am
Location: Japan

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Mon Feb 05, 2018 6:28 pm

HomerJ wrote:
Mon Feb 05, 2018 6:19 pm
The Great Depression happened. By definition, something that has actually happened is possible. Anyone 100% in stocks in 1929 who was withdrawing money to live went completely broke.
Please show your work for your assertions. For full credit also show the same work for 25% and 50% allocations. Let's assume 30 and 50 year retirement durations with 3.5% WR and a 4% WR.

Hint: Historically the 100% equity allocation has had as good or better survival rates as either 25% or 50% allocations. The actual failure years may differ but the historical odds have been better. :beer
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

balbrec2
Posts: 230
Joined: Mon Nov 13, 2017 3:03 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by balbrec2 » Mon Feb 05, 2018 6:43 pm

cutehumor wrote:
Sun Feb 04, 2018 10:57 am
I'm 40. I'm at 100% stock (60 US/40 International). I'm weird also. I get happy when the stock market goes up, but I'm also happy when the stock prices drop as I can get the sale.
If you are 100% invested, what do you use to buy with when you "get the sale"?
just wondering!
balbrec2

User avatar
sergeant
Posts: 1337
Joined: Tue Dec 04, 2007 11:13 pm
Location: The Golden State

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by sergeant » Mon Feb 05, 2018 7:14 pm

balbrec2 wrote:
Mon Feb 05, 2018 6:43 pm
cutehumor wrote:
Sun Feb 04, 2018 10:57 am
I'm 40. I'm at 100% stock (60 US/40 International). I'm weird also. I get happy when the stock market goes up, but I'm also happy when the stock prices drop as I can get the sale.
If you are 100% invested, what do you use to buy with when you "get the sale"?
just wondering!
balbrec2
Great question. He has also said he continues to DCA. Maybe lives on less than his pension?
Lincoln 3 EOW! AA 40/60.

User avatar
Will do good
Posts: 887
Joined: Fri Feb 24, 2012 8:23 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Will do good » Mon Feb 05, 2018 8:01 pm

HomerJ wrote:
Mon Feb 05, 2018 6:19 pm
scdevon wrote:
Sun Feb 04, 2018 2:13 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Shortly after retirement, the market begins a two-year slide where the total loss is 50%. After being retired two years, fearless now has a portfolio of $880,000 dollars (50% drop, $120k in withdrawals), after starting with $2,000,000.
Yes, but none of those doom and gloom scenarios ever materialize long term especially over the last 3 decades.
Oh it hasn't happened in the last 3 decades... Oh boy, then I guess it's impossible then. :oops:

scdevon, you are in no position to be giving advice to anyone who doesn't have a pension covering all their living expenses. Sorry, but it's true.

The Great Depression happened. By definition, something that has actually happened is possible. Anyone 100% in stocks in 1929 who was withdrawing money to live went completely broke.

I'm not going 100% all in on stocks because YOU think nothing bad will happen. Especially if your reasoning is limited to "Oh, well nothing bad happened recently, so it must be safe!"
+1

Dottie57
Posts: 7853
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Dottie57 » Mon Feb 05, 2018 9:20 pm

Chip wrote:
Sun Feb 04, 2018 2:37 pm
scdevon wrote:
Sun Feb 04, 2018 12:47 pm
I'm not even sure I would call 2008 a "crash" because the fundamentals in our economy were still pretty solid hence the quick rebound. More like overdone panic selling.
Fundamentals solid? You gotta be kidding me.

3 bank failures in 2007. 25 bank failures in 2008. 140 bank failures in 2009. 157 bank failures in 2010.

Unemployment more than doubled.

2.87 million foreclosure filings in 2010 vs. 718 thousand in 2006.

The Federal Reserve, in a completely unprecedented move, purchased over 2.5 trillion in Treasuries and MBS in an attempt to lower interest rates and stimulate the economy.

From any point of view but that of a secure government job it looked like the entire financial system was going to fail, taking the rest of the economy with it. And in my opinion it would have without the unprecedented interventions.
+1

I thought the financial world would die.
Last edited by Dottie57 on Tue Feb 06, 2018 7:38 am, edited 1 time in total.

Dottie57
Posts: 7853
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Dottie57 » Mon Feb 05, 2018 9:44 pm

scdevon wrote:
Sun Feb 04, 2018 2:44 pm
Chip wrote:
Sun Feb 04, 2018 2:37 pm
Fundamentals solid? You gotta be kidding me.

3 bank failures in 2007. 25 bank failures in 2008. 140 bank failures in 2009. 157 bank failures in 2010.

Yet we recovered and here we are. (?)

"The market is always right".
Don't you remember the fed pouring trillions into into the system to keep it afloat? APparently not.

TN_Boy
Posts: 1450
Joined: Sat Jan 17, 2009 12:51 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TN_Boy » Mon Feb 05, 2018 9:48 pm

Will do good wrote:
Mon Feb 05, 2018 8:01 pm
HomerJ wrote:
Mon Feb 05, 2018 6:19 pm
scdevon wrote:
Sun Feb 04, 2018 2:13 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Shortly after retirement, the market begins a two-year slide where the total loss is 50%. After being retired two years, fearless now has a portfolio of $880,000 dollars (50% drop, $120k in withdrawals), after starting with $2,000,000.
Yes, but none of those doom and gloom scenarios ever materialize long term especially over the last 3 decades.
Oh it hasn't happened in the last 3 decades... Oh boy, then I guess it's impossible then. :oops:

scdevon, you are in no position to be giving advice to anyone who doesn't have a pension covering all their living expenses. Sorry, but it's true.

The Great Depression happened. By definition, something that has actually happened is possible. Anyone 100% in stocks in 1929 who was withdrawing money to live went completely broke.

I'm not going 100% all in on stocks because YOU think nothing bad will happen. Especially if your reasoning is limited to "Oh, well nothing bad happened recently, so it must be safe!"
+1
Err, actually, as I noted in another post, one should look at the S&P 500 losses in both the 2000 - 2002 crash and the 2007 - 2009. We have had 50%ish losses twice in the last 17 years. I am unclear why the OP thought such scenarios don't happen any more.

cherijoh
Posts: 6380
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by cherijoh » Mon Feb 05, 2018 10:00 pm

Dottie57 wrote:
Mon Feb 05, 2018 9:20 pm
Chip wrote:
Sun Feb 04, 2018 2:37 pm
scdevon wrote:
Sun Feb 04, 2018 12:47 pm
I'm not even sure I would call 2008 a "crash" because the fundamentals in our economy were still pretty solid hence the quick rebound. More like overdone panic selling.
Fundamentals solid? You gotta be kidding me.

3 bank failures in 2007. 25 bank failures in 2008. 140 bank failures in 2009. 157 bank failures in 2010.

Unemployment more than doubled.

2.87 million foreclosure filings in 2010 vs. 718 thousand in 2006.

The Federal Reserve, in a completely unprecedented move, purchased over 2.5 trillion in Treasuries and MBS in an attempt to lower interest rates and stimulate the economy.

From any point of view but that of a secure government job it looked like the entire financial system was going to fail, taking the rest of the economy with it. And in my opinion it would have without the unprecedented interventions.
+1

I hought the financial world would die.
I think OP has financial amnesia - or else he was living in his own little isolated bubble of protective batting due to the promise of a large pension.

NibbanaBanana
Posts: 247
Joined: Sun Jan 22, 2017 10:34 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by NibbanaBanana » Mon Feb 05, 2018 10:56 pm

I started investing in 1993 and was always pretty close to 100% stocks up to a year ago. (Now 90/10) I went to M* and looked at the performance of the Vanguard Wellington fund VWELX, a balanced fund, vs the SNP index fund VFINX from 1993 to present. Well, the grand totals are exactly the same. But the balanced fund sure had a smoother ride. And I owned a lot of individual stocks so I don't really even know how I did vs the index. In hindsight I wish I had just invested in a balanced Vanguard mutual fund from the beginning.

Now, the conventional wisdom (that I also shared for some time) is that bond yields are so low that you have to be in stocks to get decent long term returns. (And IIRC Vanguard is calling 5-6% for stocks over the next decade and 2-3% for bonds.) But there's no law that says stocks have to outperform bonds. Maybe we're just in for some low returns on all investable assets. Maybe stocks aren't going to outperform bonds. They sure didn't for the first decade of this century. And they're not exactly a bargain now.

Last time I checked stocks returned 5.6% during this century. Nothing to write home about. Pretty much the same as bonds. Rethinking the wisdom of 100% stocks.

User avatar
HomerJ
Posts: 13799
Joined: Fri Jun 06, 2008 12:50 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by HomerJ » Mon Feb 05, 2018 11:10 pm

Hyperborea wrote:
Mon Feb 05, 2018 6:28 pm
HomerJ wrote:
Mon Feb 05, 2018 6:19 pm
The Great Depression happened. By definition, something that has actually happened is possible. Anyone 100% in stocks in 1929 who was withdrawing money to live went completely broke.
Please show your work for your assertions. For full credit also show the same work for 25% and 50% allocations. Let's assume 30 and 50 year retirement durations with 3.5% WR and a 4% WR.

Hint: Historically the 100% equity allocation has had as good or better survival rates as either 25% or 50% allocations. The actual failure years may differ but the historical odds have been better. :beer
Start with a million dollars 100% invested in the DOW stocks. Pulling $40,000 a year (4%).

The return shown is total return (includes dividends).

The only reason the money lasted as long as it did is because dividends were quite large back then... That's not true today is it?

Pulling $40,000 out at the beginning of each year.

1929 -14% $960,000 --> $825,000
1930 -24% $785,000 --> $597,000
1931 -44% $557,000 --> $312,000
1932 -7% $272,000 --> $253,000
1933 69% $213,000 --> $360,000
1934 1% $320,000 --> $323,000
1935 45% $283,000 --> $410,000
1936 28% $370,000 --> $473,000
1937 -26% $433,000 --> $320,000
1938 20% $280,000 --> $336,000
1939 6% $296,000 --> $313,000
1940 -8% $273,000 --> $251,000
1941 -18% $211,000 --> $173,000
1942 8% $133,000 --> $143,000
1943 15% $103,000 --> $118,000
1944 14% $78,000 --> $89,000
1945 31% $49,000 --> $64,000
1946 -22% $24,000 --> $18,000
1947 -4% $0

Dropping to $250,000 in your first 4 years of retirement can't be good for anyone's heart. Then even though the market had some big returns in a few of the following years, it was big returns on your much smaller remaining portfolio.

That original 4% withdrawal on $1 million was now 10-20% or so withdrawals each year on your $400,000 or $200,000 portfolio. Even during the years when the market was UP 20%, you were still barely treading water.

User avatar
BeBH65
Posts: 1608
Joined: Sat Jul 04, 2015 7:28 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by BeBH65 » Tue Feb 06, 2018 6:17 am

In the past investments were often quoted with 3 numbers equity / bonds / cash.

I have always felt that more numbers are needed to get the full picture: equity / bonds / cash / confirmed_pensions_and_SS / human_capital/real_estate. (*)

I have not met anyone who is 100% in only 1 category.


(*) maybe there are more.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

cutehumor
Posts: 120
Joined: Mon Oct 31, 2016 4:57 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by cutehumor » Fri Feb 09, 2018 5:26 am

sergeant wrote:
Mon Feb 05, 2018 7:14 pm
balbrec2 wrote:
Mon Feb 05, 2018 6:43 pm
cutehumor wrote:
Sun Feb 04, 2018 10:57 am
I'm 40. I'm at 100% stock (60 US/40 International). I'm weird also. I get happy when the stock market goes up, but I'm also happy when the stock prices drop as I can get the sale.
If you are 100% invested, what do you use to buy with when you "get the sale"?
just wondering!
balbrec2
Great question. He has also said he continues to DCA. Maybe lives on less than his pension?
Today is payday! I'm investing in fidelity emerging markets fidelity fund tilting. If the sale keeps going this year in all markets, I will split money into us/ international 50/50.

chevca
Posts: 3128
Joined: Wed Jul 26, 2017 11:22 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by chevca » Fri Feb 09, 2018 9:50 am

So, cute, you're not really retired and not "weird" in the way the OP was talking about? :oops:

GCD
Posts: 1021
Joined: Tue Sep 26, 2017 7:11 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by GCD » Fri Feb 09, 2018 2:28 pm

BeBH65 wrote:
Tue Feb 06, 2018 6:17 am
In the past investments were often quoted with 3 numbers equity / bonds / cash.

I have always felt that more numbers are needed to get the full picture: equity / bonds / cash / confirmed_pensions_and_SS / human_capital/real_estate. (*)

I have not met anyone who is 100% in only 1 category.


(*) maybe there are more.
It seems on this forum there is great debate regarding how to analyze pensions. Some count them as bonds, some say they are annuities and should be valued at their purchase price and some say they aren't an asset and should only be considered in so far as they make you more emotionally risk tolerant WRT the AA of your actual assets. There's probably some other viewpoints as well.

Regardless of how they are considered, it would be hard to argue with a straight face that a confirmed pension wouldn't affect your AA. I know mine would be considerably different if I didn't have a pension.

dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Fri Feb 09, 2018 5:33 pm

GCD wrote:
Fri Feb 09, 2018 2:28 pm
BeBH65 wrote:
Tue Feb 06, 2018 6:17 am
In the past investments were often quoted with 3 numbers equity / bonds / cash.

I have always felt that more numbers are needed to get the full picture: equity / bonds / cash / confirmed_pensions_and_SS / human_capital/real_estate. (*)

I have not met anyone who is 100% in only 1 category.


(*) maybe there are more.
It seems on this forum there is great debate regarding how to analyze pensions. Some count them as bonds, some say they are annuities and should be valued at their purchase price and some say they aren't an asset and should only be considered in so far as they make you more emotionally risk tolerant WRT the AA of your actual assets. There's probably some other viewpoints as well.

Regardless of how they are considered, it would be hard to argue with a straight face that a confirmed pension wouldn't affect your AA. I know mine would be considerably different if I didn't have a pension.
Debates like this hinge on a couple or more points:

1) Almost no one would suggest the presence or absence of a pension would have nothing to do with what asset allocation one selects. At the very least there has to be a reason to decide that the chosen asset allocation is not going to be affected by the existence of the pension. I can think of cases where the effect is none.

2. Next the discussion is how the effect should be determined. The first step in that is to understand what assets one is talking about and how the investor intends to decide his asset allocation. Only after you know how you want to determine asset allocation can you make sense of how the pension might affect that. A classic difference here would between those using age in bonds for asset allocation and those using need/ability/willingness to take risk to set asset allocation.

3. In the process of all of this you have to make sense of what a pension amounts to in your financial planning and how you would understand it to operate as an asset if you do that. This is the point where people who are considering their portfolio as a source of income would find it odd to capitalize an income steam to add it to a portfolio to determine how much income take from the portfolio. For other purposes a different treatment might apply.

4. On thing for sure, if different approaches produce different dispositions of stocks and bonds per se, then something is wrong with one, the other, or all of the approaches.

User avatar
Hyperborea
Posts: 824
Joined: Sat Apr 15, 2017 10:31 am
Location: Japan

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Fri Feb 09, 2018 9:35 pm

HomerJ wrote:
Mon Feb 05, 2018 11:10 pm
Hyperborea wrote:
Mon Feb 05, 2018 6:28 pm
HomerJ wrote:
Mon Feb 05, 2018 6:19 pm
The Great Depression happened. By definition, something that has actually happened is possible. Anyone 100% in stocks in 1929 who was withdrawing money to live went completely broke.
Please show your work for your assertions. For full credit also show the same work for 25% and 50% allocations. Let's assume 30 and 50 year retirement durations with 3.5% WR and a 4% WR.

Hint: Historically the 100% equity allocation has had as good or better survival rates as either 25% or 50% allocations. The actual failure years may differ but the historical odds have been better. :beer
Start with a million dollars 100% invested in the DOW stocks. Pulling $40,000 a year (4%).

The return shown is total return (includes dividends).

The only reason the money lasted as long as it did is because dividends were quite large back then... That's not true today is it?

Pulling $40,000 out at the beginning of each year.

1929 -14% $960,000 --> $825,000
1930 -24% $785,000 --> $597,000
1931 -44% $557,000 --> $312,000
1932 -7% $272,000 --> $253,000
1933 69% $213,000 --> $360,000
1934 1% $320,000 --> $323,000
1935 45% $283,000 --> $410,000
1936 28% $370,000 --> $473,000
1937 -26% $433,000 --> $320,000
1938 20% $280,000 --> $336,000
1939 6% $296,000 --> $313,000
1940 -8% $273,000 --> $251,000
1941 -18% $211,000 --> $173,000
1942 8% $133,000 --> $143,000
1943 15% $103,000 --> $118,000
1944 14% $78,000 --> $89,000
1945 31% $49,000 --> $64,000
1946 -22% $24,000 --> $18,000
1947 -4% $0

Dropping to $250,000 in your first 4 years of retirement can't be good for anyone's heart. Then even though the market had some big returns in a few of the following years, it was big returns on your much smaller remaining portfolio.

That original 4% withdrawal on $1 million was now 10-20% or so withdrawals each year on your $400,000 or $200,000 portfolio. Even during the years when the market was UP 20%, you were still barely treading water.
Awesome. I thought that we might have only one teaching moment here for you but we’ve got at least two of them now.

First, I’m afraid that your answer is wrong. Why? You’ve ignored an important factor - inflation. The 4% WR is inflation adjusted. The great depression (and the post Japanese bubble economy) had deflation. That means that the initial 4% withdrawal needs to decrease when you have deflation. All of the studies that base a withdrawal off of your starting amount adjust that amount by inflation. If you run the numbers properly then what you get is (note data calculated with http://www.cfiresim.com):

Code: Select all

Year	Start			Withdrawal		End
1929:	960000.00		40000.00		870059.73
1930:	830059.73		40000.00		646996.81
1931:	609803.83		37192.98		353051.23
1932:	319600.94		33450.29		303064.01
1933:	272888.57		30175.44		423998.32
1934:	393121.13		30877.19		361198.95
1935:	329386.08		31812.87		504580.77
1936:	472300.07		32280.70		619150.31
1937:	586167.85		32982.46		400541.65
1938:	367325.28		33216.37		431009.06
1939:	398260.52		32748.54		407538.17
1940:	375023.55		32514.62		340092.79
1941:	307110.33		32982.46		279084.96
1942:	242359.81		36725.15		292437.67
1943:	252905.51		39532.16		311273.54
1944:	270571.79		40701.75		321467.85
1945:	279830.42		41637.43		386470.85
1946:	343897.75		42573.10		302471.4
1947:	252179.00		50292.40		257263.02
1948:	201824.42		55438.60		220138.12
1949:	163997.77		56140.35		190009.82
1950:	135039.06		54970.76		178573.34
1951:	119158.14		59415.20		144007.35
1952:	82019.05		61988.30		93398.66
1953:	31176.44		62222.22		31943.56
1954:	-30980.42		62923.98		-45013.6
Not quite as bleak as you calculated. The portfolio survives for 24.5 years. Not so bad for one of the worst years to retire while withdrawing at a percentage that is known to have historical failures.

FireCalc puts the success rate of a 100/0 portfolio at 93.2% for 30 years. A conservative 50/50 portfolio has 95.7% success rate for 30 years. Within the accuracy levels that the limited data provides us they are roughly the same as far as success rate but they will fail under different scenarios. A further issue is that the 50/50 portfolio’s success rate falls faster than the high equity portfolio for longer retirements. So, if you are younger than about 65 when you retire then with a 50/50 you run a higher risk of running out later in retirement.

If one wants to be safer then taking a lower withdrawal rate improves your odds. 3.5% has a greater historical survival but even then for longer retirements (sub-65 year olds) even that isn’t 100% safe. How could one deal with a bad sequence of returns? There are two often mentioned ways. You can cut back the withdrawal in bad years - hopefully one is not retiring when they must have the 4% WR to fund their basic necessities. Another is to use a glide path. Let’s see what they do in this scenario, shall we?

Let’s look first at cutting back when the market declines in the 1929 scenario with a 100/0 allocation and an initial WR of 4%. If you cut back to 3.5% in 1931 when your portfolio has dropped to ~$609K what happens? If the retiree had dropped back to where the 3.5% WR would have placed them in 1931 - $32543.86 - and went forward from there (with inflation adjusted withdrawals) how would it turn out?

Code: Select all

Year	Start			Withdrawal		End
1957:	231671.90		56491.23		218171.66
1958:	159633.65		58538.01		222459.18

Hmm, they’d survive the whole duration of 30 years and it looks like they’d have enough for another 3 years or so. Not bad for a small adjustment that turns one of the worst downturns in modern history into a success.

What about a glide path? This initial bad sequence is one that a glide path is designed to counter. If one started with 70/30 and over the first 10 years of retirement ramped up to 100/0?

Code: Select all

Year	Start		Withdrawal		End
1956:	1277133.32	62690.06		1360102.89
1957:	1295541.49	64561.40		1220046.30
Wow, that's a lot of dough left and that really sets them up so they could continue on for another 20-30 years. This is a great option if one is retiring younger in their 40’s or 50’s and combined life expectancy with a spouse puts their retirement horizon at 50-60 years.

It seems to me (and apparently the numbers too) that a 100/0 portfolio isn’t the horror that the low equity folks make out. It can fail if you choose too high a WR just like a low equity portfolio can but with small corrections it can even ride out those failures too. It doesn’t have any real difference in survival for 30 years compared to a 50/50 portfolio and a much greater survival for longer retirements. It makes even more sense for somebody who isn’t using it as the base of their living expenses but instead is using it only for their “fun” money as the OP is.

Glad I could be of help. :sharebeer
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

michaeljc70
Posts: 6220
Joined: Thu Oct 15, 2015 3:53 pm

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by michaeljc70 » Sat Feb 10, 2018 12:08 am

If my living costs were covered by a pension, I'd do exactly what you are doing. I will receive no pension (or SS for many years) and plan on being 70/30 when I retire at around 50-52 in a few years.

User avatar
SVariance1
Posts: 1271
Joined: Mon Jun 20, 2011 11:27 am
Location: Philadelphia Area

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by SVariance1 » Sat Feb 10, 2018 7:10 am

The most important factor for determining an asset allocation is risk tolerance. Risk tolerance is comprised of ability and willingness to assume risk. The ability to assume risk, is easy to figure out because it is quantifiable. Willingness is more difficult to assess because it is more subjective and emotional. Another factor to consider is that willingness to assume risk changes over time. For many people, a willingness to assume risk falls as they get older. Having a high willingness at 25 and 35 and does necessarily mean that your willingness is the same at 45 and 55. Unfortunately, the only way to find out what your true willingness is, would be to start losing large amounts of money. I stayed the course with a very aggressive portfolio during the internet bubble and the great recession but now I am older and my willingness is not as high as it was.
Mike

User avatar
Hyperborea
Posts: 824
Joined: Sat Apr 15, 2017 10:31 am
Location: Japan

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Sat Feb 10, 2018 11:24 am

SVariance1 wrote:
Sat Feb 10, 2018 7:10 am
The most important factor for determining an asset allocation is risk tolerance. Risk tolerance is comprised of ability and willingness to assume risk.
You have left out need in determining risk tolerance. It does one a disservice to pick an asset allocation that makes them feel warm and fuzzy but doesn't meet their needs. It's not a wise choice if for your desired allocation, that your estimated retirement horizon and planned withdrawal rate have odds of success that are too low. If you can't tolerate the needed allocation for your estimated duration and WR then something needs to change.

A 25/75 allocation for 30 years at a 4% WR has an 80% historical success rate. That's too low for me. Maybe it's not too risky for those who feel safer with such a low equity allocation. Maybe they don't realize how risky they are making it. If they are even only somewhat early retirees then they have to plan for longer than 30 years and the success rate drops more. A 55 year old couple has a 10% chance that at least one survives for 42 years.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

dbr
Posts: 31564
Joined: Sun Mar 04, 2007 9:50 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Sat Feb 10, 2018 12:37 pm

One could argue that risk tolerance, meaning psychology, is the most easily affected factor as it depends on education and attitude and self control. Maybe need is actually the most easily affected factor as it is just really what a person is willing to be happy with, failing a couple of possible issues for those in adverse situations. Ability is probably the one that once one is in a place one has least influence over.

User avatar
joe8d
Posts: 4401
Joined: Tue Feb 20, 2007 8:27 pm
Location: Buffalo,NY

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by joe8d » Sat Feb 10, 2018 11:09 pm

scdevon wrote:
Sun Feb 04, 2018 10:16 am
I've been investing since 1984. Current age is 53. I have a State Government Pension that covers all of my living expenses +. I'm used to volatility and I've ridden out several nasty market corrections and recessions and it always seems like I've come out ahead compared to a mixed stock / bond portfolio by just holding index funds long term. I haven't had to touch any savings / deferred comp. or IRA money and I didn't plan to until age 59 1/2 anyway.
(Debt-free lifestyle, no kids only a dog and a lady-friend).

My point is that Bond returns are boring long-term even if they are more stable and act as sort of a "shock absorber" against stock volatility. I'm a big fan of Fidelity's FSTVX fund which is a broad index fund that tends to mimic the Dow Jones Total Market Index almost to the penny and has a current yield of 1.6% and has a low expense ratio of .05%. I have almost everything ($780k) in FSTVX and I keep about $55k in cash (Money Market) for emergencies.

I feel there must be other young retirees out there who stay aggressive in the market who don't sweat market volatility and corrections and who don't buy into the "balanced portfolio" that the industry hypes so much. My reasoning is that stocks always seem to snap back hard after corrections and it always seems like I'm way ahead of a "60/40" stock bond portfolio that gets hyped all the time. Even the 2008 correction never made me really question my long term strategy. Any other "Aggressive Retirees" out there or am I just crazy?
:thumbsup
All the Best, | Joe

User avatar
joe8d
Posts: 4401
Joined: Tue Feb 20, 2007 8:27 pm
Location: Buffalo,NY

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by joe8d » Sat Feb 10, 2018 11:09 pm

scdevon wrote:
Sun Feb 04, 2018 10:16 am
I've been investing since 1984. Current age is 53. I have a State Government Pension that covers all of my living expenses +. I'm used to volatility and I've ridden out several nasty market corrections and recessions and it always seems like I've come out ahead compared to a mixed stock / bond portfolio by just holding index funds long term. I haven't had to touch any savings / deferred comp. or IRA money and I didn't plan to until age 59 1/2 anyway.
(Debt-free lifestyle, no kids only a dog and a lady-friend).

My point is that Bond returns are boring long-term even if they are more stable and act as sort of a "shock absorber" against stock volatility. I'm a big fan of Fidelity's FSTVX fund which is a broad index fund that tends to mimic the Dow Jones Total Market Index almost to the penny and has a current yield of 1.6% and has a low expense ratio of .05%. I have almost everything ($780k) in FSTVX and I keep about $55k in cash (Money Market) for emergencies.

I feel there must be other young retirees out there who stay aggressive in the market who don't sweat market volatility and corrections and who don't buy into the "balanced portfolio" that the industry hypes so much. My reasoning is that stocks always seem to snap back hard after corrections and it always seems like I'm way ahead of a "60/40" stock bond portfolio that gets hyped all the time. Even the 2008 correction never made me really question my long term strategy. Any other "Aggressive Retirees" out there or am I just crazy?
:thumbsup
All the Best, | Joe

anoop
Posts: 1149
Joined: Tue Mar 04, 2014 1:33 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by anoop » Sat Feb 10, 2018 11:30 pm

How secure is your pension? Is it coming from a well-funded source?

TheDDC
Posts: 644
Joined: Mon Jan 08, 2018 11:11 am

Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TheDDC » Sat Feb 10, 2018 11:41 pm

anoop wrote:
Sat Feb 10, 2018 11:30 pm
How secure is your pension? Is it coming from a well-funded source?
In most states (like Pennsylvania for instance) a state pension is treated by courts as property and protected as such. It is no more (or less) secure than your retirement account as a government that disregards private property rights would not hesitate to change (or reinterpret) existing IRS rules onyiur retirement savings retroactively via administrative fiat.

-TheDDC
Refreshingly, a double barrel shotgun blast of truth... | Rules to wealth building: 100% VTSAX piled high and deep, 0% given away to banks, minimize amount given to health care industrial complex

Post Reply