I was going to reply to this, but I see Vineviz has responded, and he has addressed several of those. I would just say couple of things:nigel_ht wrote: ↑Mon Jun 01, 2020 10:43 amYou mean other than needing an additional 20% in savings vs 60/40? That’s a pretty significant handwave...especially since TIPS currently have a slightly negative yield.Elysium wrote: ↑Mon Jun 01, 2020 9:29 amStocks are risky, TIPS aren't when held to maturity. A retiree portfolio has no need for stocks if they have accumulated enough in savings that can be placed in TIPS to meet basic income. The rest can be placed in nominal bonds and a small allocation to stocks for growth. There is no luck or sequence of returns risks here that require something like DCA in after a bad market timing attempt. A retiree who hasn't accumulated enough already has problems that cannot be mitigated by taking unnecessary risks in stock market. They need to think of other sources such as SSI, SPIA, and cutting their spending. When you are in accumulation take the risk for maximum growth. Here again no sequence of return risk. Where is the disagreement?nigel_ht wrote: ↑Mon Jun 01, 2020 8:45 amAnd if there were no stock risk why would they bother with TIPS? Folks wouldn’t because the return on stocks is higher (yes, because of the risk).Elysium wrote: ↑Mon Jun 01, 2020 8:30 amWrong. A retiree who has met the savings goals needed for meeting their SWR can construct a portfolio of TIPS matching their liability. This will protect their purchasing power and principal, it is neither based on luck or exposed to sequence of returns risk. They need not be concerned about market volatility for meeting their spending needs. They are simply not exposed to it. If they have additional funds beyond the LMP needs then that can be in risky assets, and they should have no concerns with sequence of returns, since that is for maximum growth, in which case investing lump sum is always best.nigel_ht wrote: ↑Mon Jun 01, 2020 8:07 am
Turns out portfolio construction is third behind luck and spend rate in terms of impact to your portfolio during retirement. If you are lucky you don’t see a downturn till late in retirement.
Portfolios with more aggressive AAs lose more in a bear but also recover quicker so it’s a bit of a wash...depending on your withdrawal rate.
DCA is just another tool in the toolbox to apply in the right circumstances. You can’t control volatility but you can mitigate the potential impact or even use it on occasion. DCA reduces downside risk at the cost of upside performance. Like all other forms of insurance it’s costly if you never end up needing it.
That’s all portfolio construction does as well...mitigate against bad luck or we’d all be 100/0.
And you need more nest egg to just live on TIPS alone than the generic 60/40 AA used in most SWR analysis.
$1M lasts only 25 years with 0% real for $40K per year. You need $1.2M.
You could just do cash if you can make the assumption you can arbitrarily “accumulate enough” to cover inflation.
Nope, sorry but nice try in being able to say “wrong” as opposed to having a reasonable exchange of opinions.
DCA isn’t market timing but accepting an average 2.39% performance penalty for lower potential impact should the market suddenly decline. Of course if the market is already in the process of decline it becomes a no brainer.
Whether paying an average 2.3% performance penalty is wise is dependent on how much risk exists and your risk tolerance.
This isn't very different than paying the performance penalty of holding more bonds in your portfolio.
Whether someone has adequate amounts saved or not by retirement is a separate issue. More importantly an individual issue, not a strategy. LMP with TIPS is a strategy you apply to guarantee a steady stream of income. I said you were wrong in calling DCA as an effective strategy against sequence of returns risk in retirement. It does not protect you as it guarantees nothing. You may end up doing DCA all the way up when market is going up, and then once you are done the market may still take a huge dip. You not only did buy at higher and higher prices, but you are also now taking a hit no matter what. Since market tends to go up more often than not, the best idea is to buy lump sum when you have the money. Going out of the market, speculating on outcome of elections, waiting to get back in through DCA, all of those are not proper investment strategies, but speculation.