Out of market now and need advice on re-entering

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Elysium
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Re: Out of market now and need advice on re-entering

Post by Elysium » Mon Jun 01, 2020 11:30 am

nigel_ht wrote:
Mon Jun 01, 2020 10:43 am
Elysium wrote:
Mon Jun 01, 2020 9:29 am
nigel_ht wrote:
Mon Jun 01, 2020 8:45 am
Elysium wrote:
Mon Jun 01, 2020 8:30 am
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.
Wrong. 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.
And 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).

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.
Stocks 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?
You 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.

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.
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:

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.

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Stef
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Re: Out of market now and need advice on re-entering

Post by Stef » Mon Jun 01, 2020 11:31 am

Guys, you know it's possible to edit your post after you quote someone? For example deleting all the previous quotes in that post? Aren't most of you in IT? :wink:

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vineviz
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Re: Out of market now and need advice on re-entering

Post by vineviz » Mon Jun 01, 2020 11:46 am

nigel_ht wrote:
Mon Jun 01, 2020 11:21 am

The AA you can live with may be 70/30...but why would you lump sum into 70/30 instead of DCAing in if the market was declining?
Because you don't know ahead of time whether the market will decline or not. It usually doesn't decline (which is why investing ASAP is the rational and financially optimal strategy).

And if you DID know ahead of time when the market is going to decline and when it would rise, why in the world would you average across the decline? Just wait until you knew the market had stopped declining and invest the lump sum then. We all know why this is terrible strategy, right?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Mon Jun 01, 2020 11:53 am

vineviz wrote:
Mon Jun 01, 2020 11:01 am
nigel_ht wrote:
Mon Jun 01, 2020 10:43 am
You 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.

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.
I still can't figure out what Elysium said that you actually disagree with.

Portfolios in decumulation (i.e. retirement) expose the investor to risks differently than similar portfolios in accumulation, and that's the circumstance that Elysium was addressing - at least in the post to which this set of replies is addressed.

A ladder of TIPS (especially low-coupon TIPS) that is cash-flow matched to retirement expenses is the closest thing a retiree has to a risk-free asset. That's the point they were making, I think, and it's true.

Surely the investor can get a higher expected return from a riskier portfolio (e.g. stocks and/or nominal bonds), but no one is disputing that I think.
If you have $1M and need $40K a year then TIPS won't get you to 30 years. It's 100% risk of failure. It's only "risk free" when you increase the savings by 20% to $1.2M.

Besides, he said I was wrong...if there is no disagreement between what I wrote and what he wrote then where am I wrong?
The challenge for the investor, though, is that the risk of this approach manifests largely in sequence of returns risk (aka bad luck) which can really only be mitigated through reducing the withdrawal rate, immunization (i.e. a TIPS ladder and/or income annuities), and portfolio diversification. Unfortunately this third lever is probably the weakest one of the three.
And that's exactly what I wrote. Luck is the most important factor followed by WR and distantly by AA.

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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Mon Jun 01, 2020 12:02 pm

vineviz wrote:
Mon Jun 01, 2020 11:46 am
nigel_ht wrote:
Mon Jun 01, 2020 11:21 am

The AA you can live with may be 70/30...but why would you lump sum into 70/30 instead of DCAing in if the market was declining?
Because you don't know ahead of time whether the market will decline or not. It usually doesn't decline (which is why investing ASAP is the rational and financially optimal strategy).

And if you DID know ahead of time when the market is going to decline and when it would rise, why in the world would you average across the decline? Just wait until you knew the market had stopped declining and invest the lump sum then. We all know why this is terrible strategy, right?
You don't need to know ahead of time...it's 2008, market has been trending downwards, you DCA. Why wouldn't you? The odds are stacked in your favor to do better on a DCA than a lump sum because that's exactly when the Vanguard paper says it outperforms Lump Sum. It's not 100% but the odds of a performance penalty is low.

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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Mon Jun 01, 2020 12:05 pm

Elysium wrote:
Mon Jun 01, 2020 11:30 am

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.
You would be right if I actually said that. Too bad I didn't. I said that AA doesn't save you against sequence of returns risk.
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.
And my recommendation was go in at 50/50 and jump to 70/30 if you see a buying opportunity. Optionally keep it 50/0/50 if you want to. Optionally DCA in if you want to.

This has zero to SORR because he's not in retirement yet.

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vineviz
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Re: Out of market now and need advice on re-entering

Post by vineviz » Mon Jun 01, 2020 12:06 pm

nigel_ht wrote:
Mon Jun 01, 2020 11:53 am
If you have $1M and need $40K a year then TIPS won't get you to 30 years. It's 100% risk of failure. It's only "risk free" when you increase the savings by 20% to $1.2M.
Let's not mix up risk with return, though. The return of the risk-free rate might not be high enough to allow you to meet your goals, but that doesn't make it "risky".
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: Out of market now and need advice on re-entering

Post by vineviz » Mon Jun 01, 2020 12:09 pm

nigel_ht wrote:
Mon Jun 01, 2020 12:05 pm
This has zero to SORR because he's not in retirement yet.
Investors face sequence of returns risk before retirement as well, though. If the investor is fortunate they can recover from a poor pre-retirement sequence of returns by working longer and/or saving more, but the risk is still there. This is a main reason that the optimal asset allocation typically glides towards a lower variance portfolio as the investor approaches retirement.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

nanameg
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Re: Out of market now and need advice on re-entering

Post by nanameg » Mon Jun 01, 2020 12:27 pm

Jazztonight wrote:
Sun May 31, 2020 2:06 pm
Over the years, through several severe market downturns, I've had some close friends pull out of their stock-market investments completely. Some of these folks appeared prescient at the time, and prided themselves on being able to foresee the future. Fine. so now they're all in cash. The stock market has "tanked," and they feel happy and un-panicked.

Then...the stock market begins its usual rebound, often to a point where it was higher than when the investor pulled out. Well, they certainly don't want to buy back in "now." The market then continues its rise, and the investor is still sitting on cash waiting for the perfect moment to pull the trigger and get back in. And maybe they do, having now pulled off the classic "Sell low, buy high" move.

I have a close friend who pulled over a million dollars out of the stock market 10 or 20 years ago, and has never been able to get back in, even though he's always said he wants to. He's still paralyzed by the fear that it's "the wrong time."

I generally don't give advice about this because people don't listen. They think that the term "Boglehead" is just funny or silly. But I can tell you this, being a Boglehead has saved my financial butt several times since the 1980s. It was then that I "drank the Kool Aid," and finally felt some financial peace. At the time I went to the classic 60-40 allocation. Over the years, as I felt a little uncomfortable with that, I migrated first to 50-50 and am now at age 73 at 40-60, at which level I never worry about money at night.

During the recent Covid-related stock market drop I was on a cruise ship in the Indian Ocean and observed that my allocation had drifted to 45-55. With what little internet connectivity I had, I re-balanced, wherein I performed the preferred classic "Buy low, sell high" maneuver. A no-brainer, and it was not because of panic. I had my Plan, and I implemented it.

As the stock market has risen in the last few months I slowly moved funds back from my Total Stock fund to the bond fund, thus maintaining my 40-60 allocation and benefitting financially as a result. This is not rocket science; far from it.

It's been said so many times on this Forum, "Find the allocation that lets you sleep at night, and stick with it." These are brilliant words of wisdom and have worked for me and many others. A three-fund (or two-fund or balanced fund) portfolio is heaven-sent simplicity.

You can always make things more complicated. Sometimes that's just not worth it.
Please bear with my ignorance but if your asset allocation is 40/60 and the value of stocks drops related to covid, you end up with more shares of stock because dividends reinvested can buy more shares at cheaper cost?...that’s why your asset allocation drifted to 45/65? It happens that quickly? In one month?

Elysium
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Re: Out of market now and need advice on re-entering

Post by Elysium » Mon Jun 01, 2020 12:28 pm

nigel_ht wrote:
Mon Jun 01, 2020 12:05 pm
Elysium wrote:
Mon Jun 01, 2020 11:30 am

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.
You would be right if I actually said that. Too bad I didn't. I said that AA doesn't save you against sequence of returns risk.
That would be wrong as well. Proper AA will save you from sequence of returns risk, when you build a duration matching fixed income portfolio as part of your AA. If you hold TIPS as part of you fixed income it will give you a real return that matches your spending needs.

nigel_ht wrote:
Mon Jun 01, 2020 12:05 pm
Elysium wrote:
Mon Jun 01, 2020 11:30 am
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.
And my recommendation was go in at 50/50 and jump to 70/30 if you see a buying opportunity. Optionally keep it 50/0/50 if you want to. Optionally DCA in if you want to.

This has zero to SORR because he's not in retirement yet.
What you are suggesting is market timing and baseless speculation. Going 50/50 then jumping in if you see opportunity, optionally doing something else, that's not how a proper investment strategy is formed.

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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Mon Jun 01, 2020 12:51 pm

Elysium wrote:
Mon Jun 01, 2020 12:28 pm
nigel_ht wrote:
Mon Jun 01, 2020 12:05 pm
Elysium wrote:
Mon Jun 01, 2020 11:30 am

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.
You would be right if I actually said that. Too bad I didn't. I said that AA doesn't save you against sequence of returns risk.
That would be wrong as well. Proper AA will save you from sequence of returns risk, when you build a duration matching fixed income portfolio as part of your AA. If you hold TIPS as part of you fixed income it will give you a real return that matches your spending needs.
You will still have to hold stocks. It's only when your WR is low enough where you can hold enough fixed income for it not to matter. If your WR is low enough, almost anything works. If your WR is too high then no AA will work.

Only in a fairly narrow band of WR does AA has impact.

TIPS is just another tool for AA strategy. And pray tell what's the real return of buying a new 10 year TIPS today?

Having more tools is great and it's always optional whether to use them.
nigel_ht wrote:
Mon Jun 01, 2020 12:05 pm
Elysium wrote:
Mon Jun 01, 2020 11:30 am
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.
And my recommendation was go in at 50/50 and jump to 70/30 if you see a buying opportunity. Optionally keep it 50/0/50 if you want to. Optionally DCA in if you want to.

This has zero to SORR because he's not in retirement yet.
What you are suggesting is market timing and baseless speculation. Going 50/50 then jumping in if you see opportunity, optionally doing something else, that's not how a proper investment strategy is formed.
It works deterministically in an IPS. AA of 50/50 unless you see a decline of 30%+. Then go 70/30 until recovery and then go back to 50/50.

No speculation required. The only assumption is the same assumption required for buy and hold: that there will be a recovery.
Last edited by nigel_ht on Mon Jun 01, 2020 12:53 pm, edited 1 time in total.

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Stef
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Re: Out of market now and need advice on re-entering

Post by Stef » Mon Jun 01, 2020 12:53 pm

nigel_ht wrote:
Mon Jun 01, 2020 12:02 pm
You don't need to know ahead of time...it's 2008, market has been trending downwards, you DCA. Why wouldn't you? The odds are stacked in your favor to do better on a DCA than a lump sum because that's exactly when the Vanguard paper says it outperforms Lump Sum. It's not 100% but the odds of a performance penalty is low.
And how do you know? Only in hindsight.

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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Mon Jun 01, 2020 1:02 pm

Stef wrote:
Mon Jun 01, 2020 12:53 pm
nigel_ht wrote:
Mon Jun 01, 2020 12:02 pm
You don't need to know ahead of time...it's 2008, market has been trending downwards, you DCA. Why wouldn't you? The odds are stacked in your favor to do better on a DCA than a lump sum because that's exactly when the Vanguard paper says it outperforms Lump Sum. It's not 100% but the odds of a performance penalty is low.
And how do you know? Only in hindsight.
Nope. The market was trending downwards with a slight rise in August for the S&P 500.

Image

You can say that it's rarely obvious when to use DCA and I'd be inclined to agree but in general it's rare to ever need to decide between DCA or Lump Sum at all. How often do folks get large chunks of cash to inject into the market? Once? Maybe a couple times if you're a serial entrepreneur and sell multiple businesses.

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Re: Out of market now and need advice on re-entering

Post by occambogle » Mon Jun 01, 2020 1:32 pm

nigel_ht wrote:
Mon Jun 01, 2020 1:02 pm
You can say that it's rarely obvious when to use DCA and I'd be inclined to agree but in general it's rare to ever need to decide between DCA or Lump Sum at all. How often do folks get large chunks of cash to inject into the market? Once? Maybe a couple times if you're a serial entrepreneur and sell multiple businesses.
...people who've never entered the market before and have been sitting on cash.

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Stef
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Re: Out of market now and need advice on re-entering

Post by Stef » Mon Jun 01, 2020 1:33 pm

Or people who panicked and are waiting for a good moment to re-enter.

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Re: Out of market now and need advice on re-entering

Post by ruralavalon » Mon Jun 01, 2020 1:59 pm

occambogle wrote:
Mon Jun 01, 2020 1:32 pm
nigel_ht wrote:
Mon Jun 01, 2020 1:02 pm
You can say that it's rarely obvious when to use DCA and I'd be inclined to agree but in general it's rare to ever need to decide between DCA or Lump Sum at all. How often do folks get large chunks of cash to inject into the market? Once? Maybe a couple times if you're a serial entrepreneur and sell multiple businesses.
...people who've never entered the market before and have been sitting on cash.
Stef wrote:
Mon Jun 01, 2020 1:33 pm
Or people who panicked and are waiting for a good moment to re-enter.
Or people who saved up to buy a house, but then decided to remain renters.

Or people who receive an inheritance.

Or people who receive a bonus at work.

In short this comes up pretty frequently, I don't think it's rare to have the issue of lump sum versus DCA come up multiple times in an investor's life.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Elysium
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Re: Out of market now and need advice on re-entering

Post by Elysium » Mon Jun 01, 2020 2:12 pm

nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
You will still have to hold stocks. It's only when your WR is low enough where you can hold enough fixed income for it not to matter. If your WR is low enough, almost anything works. If your WR is too high then no AA will work.
Only in a fairly narrow band of WR does AA has impact.
Everything depends on the individual situation. Most people may need some allocation to stocks, however this could be no more than 20% of a portfolio with the rest in TIPS and Short Term Bonds. Everything depends on the individual reaching retirement age with sufficient funds to meet their needs. No one should work based on an assumption of holding 60% stocks and 40% nominal bonds with a 4% SWR in retirement. I don't. My goal is to get to retirement with half of the portfolio meeting most of my basic income needed and it will likely be in TIPS and/or Short Term Bonds. Rest of the income needs will come from combination of SSI, SPIA (when the time comes). The rest can be in risky assets and there is no sequence of returns risk since I am not dependent on that. There is no assumption of a low WR.

If someone has not accumulated enough and they need to take stock market risks to cover for retirement needs, then it isn't ideal situation. The objective should be to accumulate enough so that you aren't dependent on stock market risk to meet your retirement needs, no more than 20% and up to 30% is all that should be exposed, if someone has ability beyond that they may. Every Target Date retirement fund follows a glidepath of reaching 20% to 30% equity in retirement. There are no TDF with 60% equities, let alone 50% at retirement age. The planners of these funds aren't pulling it out of a hat, it is what research has shown them.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
TIPS is just another tool for AA strategy. And pray tell what's the real return of buying a new 10 year TIPS today?
It is not just another tool. It is the ONLY investment that guarantees a real return at a specified date. If I have a $100K expenses coming up in June 2030, then buying 10 year TIP bond maturing in June 2030 will guarantee me the exact same amount at that time adjusted for inflation. Nothing else can guarantee me that (except I Bonds if we want to be pedantic). It doesn't matter what is the real return, you are getting what you need exactly. Nominal Treasury of same duration today will not guarantee that, with real rates even lower.
nigel_ht wrote:
Mon Jun 01, 2020 12:05 pm
It works deterministically in an IPS. AA of 50/50 unless you see a decline of 30%+. Then go 70/30 until recovery and then go back to 50/50.

No speculation required. The only assumption is the same assumption required for buy and hold: that there will be a recovery.
Market timing doesn't work, no point in repeating it. What if you do not see a decline of 30%, then you will stay at 50/50 forever? accepting lower returns through your precious accumulation years left, and end up with retirement shortfall, that's how you then end up needing more equities in retirement. Do you get back in after 5 years at much higher levels? In fact when the 30% drop comes you will miss and you will not buy. In fact we did get that in March, what did you do? did you increase your equity then? no, because you were not ready, or you thought it will go down to 50%.

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Re: Out of market now and need advice on re-entering

Post by WhiteMaxima » Mon Jun 01, 2020 2:45 pm

Time in the market, not time the market. I am 90/10 through March and did't sell a dime. And I increase my DCA. So far my 2020 is down -2.2% and most like to recover my paper loss by 2020. Time the maket will never work. Just re-enter now to your AA according to your risk tolerance. For 50s, you still have 1/2 life to go and invest. I will do 80/20 and forget about it now until you are ready to retire.

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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Mon Jun 01, 2020 10:23 pm

Elysium wrote:
Mon Jun 01, 2020 2:12 pm
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
You will still have to hold stocks. It's only when your WR is low enough where you can hold enough fixed income for it not to matter. If your WR is low enough, almost anything works. If your WR is too high then no AA will work.
Only in a fairly narrow band of WR does AA has impact.
Everything depends on the individual situation. Most people may need some allocation to stocks, however this could be no more than 20% of a portfolio with the rest in TIPS and Short Term Bonds. Everything depends on the individual reaching retirement age with sufficient funds to meet their needs. No one should work based on an assumption of holding 60% stocks and 40% nominal bonds with a 4% SWR in retirement. I don't. My goal is to get to retirement with half of the portfolio meeting most of my basic income needed and it will likely be in TIPS and/or Short Term Bonds. Rest of the income needs will come from combination of SSI, SPIA (when the time comes). The rest can be in risky assets and there is no sequence of returns risk since I am not dependent on that. There is no assumption of a low WR.
To get all of your needed income using 50% of the portfolio as TIPS/bonds you need $2.4M saved for every $40K of desired income because the yields are low. Yes, at that point the WR is low.
If someone has not accumulated enough and they need to take stock market risks to cover for retirement needs, then it isn't ideal situation. The objective should be to accumulate enough so that you aren't dependent on stock market risk to meet your retirement needs, no more than 20% and up to 30% is all that should be exposed, if someone has ability beyond that they may. Every Target Date retirement fund follows a glidepath of reaching 20% to 30% equity in retirement. There are no TDF with 60% equities, let alone 50% at retirement age. The planners of these funds aren't pulling it out of a hat, it is what research has shown them.
Target Date funds don't provide you with 97% success rate of 4% WR for 30 years. That's not what they are designed to do. With 25% stocks the success rate is down to 87% with a 4% WR. 3% WR you can do but that means you need $1.3M for every $40K of desired income.

With 0% stocks your success rate at 4% WR is 44%.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
TIPS is just another tool for AA strategy. And pray tell what's the real return of buying a new 10 year TIPS today?
It is not just another tool. It is the ONLY investment that guarantees a real return at a specified date. If I have a $100K expenses coming up in June 2030, then buying 10 year TIP bond maturing in June 2030 will guarantee me the exact same amount at that time adjusted for inflation. Nothing else can guarantee me that (except I Bonds if we want to be pedantic). It doesn't matter what is the real return, you are getting what you need exactly. Nominal Treasury of same duration today will not guarantee that, with real rates even lower.
The last time I looked you had to pay a bit of a premium or about $106K to get $100K worth of value in 10 year TIPS.
nigel_ht wrote:
Mon Jun 01, 2020 12:05 pm
It works deterministically in an IPS. AA of 50/50 unless you see a decline of 30%+. Then go 70/30 until recovery and then go back to 50/50.

No speculation required. The only assumption is the same assumption required for buy and hold: that there will be a recovery.
Market timing doesn't work, no point in repeating it. What if you do not see a decline of 30%, then you will stay at 50/50 forever? accepting lower returns through your precious accumulation years left, and end up with retirement shortfall, that's how you then end up needing more equities in retirement. Do you get back in after 5 years at much higher levels? In fact when the 30% drop comes you will miss and you will not buy. In fact we did get that in March, what did you do? did you increase your equity then? no, because you were not ready, or you thought it will go down to 50%.
Sure stay at 50/50 if there's no new crash. He's only 10 years or so from retirement. Someone here has been 50/50 the entire bull market so he never needs to worry about having an umbrella. The OP cashed out in a panic and everyone so far has recommended a non-aggressive portfolio. If you prefer 60/40 and jumping to 80/20 that works too.

The key is he (or she) will be in a "safe" allocation and instead of panicking if the market drops 30% again, it's a huge buying opportunity. Excitement vs Panic. Even if he doesn't take the opportunity, so what? It beats exiting the market entirely.

And yes, I purchased a decent amount in March (about $120K). Didn't you?

Of course you hate the fact that I purchased RCL (up 180%), CCL (up 101%), BA (up 65%), XOM (up 45%) and DAL (up 20%). And I TLH in May and locked in some of the winnings. All just play money. But don't fret...I bought VTI as well as part of the April and May DCA tranches.

I do have a largish GTC at 50% down. Just in case.

It really bugs you that I can be total couch potato with my 70/30 bogle style portfolio 95% of the time and rebalancing every 4 years but when times like these roll around my IPS gives me huge latitude in changing my AA within the parameters I've set.

Elysium
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Re: Out of market now and need advice on re-entering

Post by Elysium » Tue Jun 02, 2020 9:52 am

nigel_ht wrote:
Mon Jun 01, 2020 10:23 pm
To get all of your needed income using 50% of the portfolio as TIPS/bonds you need $2.4M saved for every $40K of desired income because the yields are low. Yes, at that point the WR is low.
Here is a thread you might find helpful in clearing some of your doubts about how to use TIPS to build an income stream in retirement. You can raise your concerns with the strategy over there.
nigel_ht wrote:
Mon Jun 01, 2020 10:23 pm
Target Date funds don't provide you with 97% success rate of 4% WR for 30 years. That's not what they are designed to do. With 25% stocks the success rate is down to 87% with a 4% WR. 3% WR you can do but that means you need $1.3M for every $40K of desired income.

With 0% stocks your success rate at 4% WR is 44%.
Again, you are looking at this the wrong way. No AA will guarantee you anything, it is your savings rate and how much you have accumulated that will give you those guarantees. In order to do that you need to save more, invest often, and stay in the market through various cycles when in accumulation. Trying to time in and out will end up with having none of that accomplished.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
The last time I looked you had to pay a bit of a premium or about $106K to get $100K worth of value in 10 year TIPS.
Every rational investor knows that they need to pay a small premium for insurance they really need. TIPS are the only investment that will guarantee inflation protection for the money you really need at a specific date. If you like to take on the risk on unexpected inflation in future with nominal rates less than 0.50% then that is not something most people would find rational.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
The key is he (or she) will be in a "safe" allocation and instead of panicking if the market drops 30% again, it's a huge buying opportunity. Excitement vs Panic. Even if he doesn't take the opportunity, so what? It beats exiting the market entirely.
Market timing doesn't work, repeat after me, especially those based on emotions. There are those who don't know and don't know they don't know; those who don't know and do know they don't know; and those who know and know how much they still don't know. Question is where do you want to be?

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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Tue Jun 02, 2020 2:05 pm

Elysium wrote:
Tue Jun 02, 2020 9:52 am
nigel_ht wrote:
Mon Jun 01, 2020 10:23 pm
To get all of your needed income using 50% of the portfolio as TIPS/bonds you need $2.4M saved for every $40K of desired income because the yields are low. Yes, at that point the WR is low.
Here is a thread you might find helpful in clearing some of your doubts about how to use TIPS to build an income stream in retirement. You can raise your concerns with the strategy over there.
My issue is with you unwilling to address the fact that your "solution" requires saving the entire retirement expense amount before retirement. It's in the first line of the thread you point to.

"If you need $30,000 a year for 30 years you should have $900,000 in safe money."

I have no concerns or questions on how to use TIPS, I just disagree with your claim that everyone should save their entire retirement cost up front. It's a nice goal to have but is not required nor the most common strategy.
nigel_ht wrote:
Mon Jun 01, 2020 10:23 pm
Target Date funds don't provide you with 97% success rate of 4% WR for 30 years. That's not what they are designed to do. With 25% stocks the success rate is down to 87% with a 4% WR. 3% WR you can do but that means you need $1.3M for every $40K of desired income.

With 0% stocks your success rate at 4% WR is 44%.
Again, you are looking at this the wrong way. No AA will guarantee you anything, it is your savings rate and how much you have accumulated that will give you those guarantees. In order to do that you need to save more, invest often, and stay in the market through various cycles when in accumulation. Trying to time in and out will end up with having none of that accomplished.
Nope, not looking at it "the wrong way". I'm looking at it from the perspective of the Trinity Study where you don't need to save the entire cost of your retirement ahead of time and that a 60/40 will likely provide you a 4% SWR with 25x savings. Maybe it was 50/50, I forget.

This IS where the 25X expenses retirement target comes from. Notice how the rule of thumb is not a 30X expenses retirement target?

Funny, weren't you one of the proponents of 4% SWR being safe?

I'm personally more inclined to use 2.5% or 40X but I'm planning for longer than 40 years and I can actually save that much.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
The last time I looked you had to pay a bit of a premium or about $106K to get $100K worth of value in 10 year TIPS.
Every rational investor knows that they need to pay a small premium for insurance they really need. TIPS are the only investment that will guarantee inflation protection for the money you really need at a specific date. If you like to take on the risk on unexpected inflation in future with nominal rates less than 0.50% then that is not something most people would find rational.
Yep, just like DCA provides a little downside protection at a small premium. It's just another tool in the toolbox. If 6% is a small premium for TIPS then a 2.4% average performance penalty is also reasonable for the occasional injection of a large block of new money using DCA.

Neither are required, both are situationally handy.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
The key is he (or she) will be in a "safe" allocation and instead of panicking if the market drops 30% again, it's a huge buying opportunity. Excitement vs Panic. Even if he doesn't take the opportunity, so what? It beats exiting the market entirely.
Market timing doesn't work, repeat after me, especially those based on emotions. There are those who don't know and don't know they don't know; those who don't know and do know they don't know; and those who know and know how much they still don't know. Question is where do you want to be?
Lol, if you can get a computer to execute your IPS then it's not based on emotion but on math.

And this isn't any more "market timing" than rebalancing because it's the exact same trigger mechanism as a band rebalance. The only difference is instead of rebalancing to your original 50/50 AA you reset to a more aggressive 70/30 AA.

Elysium
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Re: Out of market now and need advice on re-entering

Post by Elysium » Tue Jun 02, 2020 2:35 pm

nigel_ht wrote:
Tue Jun 02, 2020 2:05 pm
My issue is with you unwilling to address the fact that your "solution" requires saving the entire retirement expense amount before retirement. It's in the first line of the thread you point to.

"If you need $30,000 a year for 30 years you should have $900,000 in safe money."

I have no concerns or questions on how to use TIPS, I just disagree with your claim that everyone should save their entire retirement cost up front. It's a nice goal to have but is not required nor the most common strategy.
What is so groundbreaking about accumulating an amount that you need to spend down in retirement, that is how you save and invest for spending most of the other obligations, retirement funding should be no different. You can disagree all you want, but that is just an unwillingness to save and invest the required amount needed for a safe retirement.

nigel_ht wrote:
Mon Jun 01, 2020 10:23 pm
Nope, not looking at it "the wrong way". I'm looking at it from the perspective of the Trinity Study where you don't need to save the entire cost of your retirement ahead of time and that a 60/40 will likely provide you a 4% SWR with 25x savings. Maybe it was 50/50, I forget.

This IS where the 25X expenses retirement target comes from. Notice how the rule of thumb is not a 30X expenses retirement target?

Funny, weren't you one of the proponents of 4% SWR being safe?

I'm personally more inclined to use 2.5% or 40X but I'm planning for longer than 40 years and I can actually save that much.
Your unwillingness to save and invest a safe amount required for retirement doesn't make taking unnecessary risks in retirement desirable for all. Trinity study has been more or less made unusable, and a 60/40 balanced portfolio no longer will hold up. Start saving and investing more regularly, and not timing the market.

nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
Yep, just like DCA provides a little downside protection at a small premium. It's just another tool in the toolbox. If 6% is a small premium for TIPS then a 2.4% average performance penalty is also reasonable for the occasional injection of a large block of new money using DCA.

Neither are required, both are situationally handy.
DCA is not a strategy, it is just mental gymnastics. The only DCA worth is the one that you are forced through paycheck deductions. If one were able to invest all of annual contributions upfront in January then they must chose that option always, because the market more often than not is up by end of year than in the beginning.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
Lol, if you can get a computer to execute your IPS then it's not based on emotion but on math.

And this isn't any more "market timing" than rebalancing because it's the exact same trigger mechanism as a band rebalance. The only difference is instead of rebalancing to your original 50/50 AA you reset to a more aggressive 70/30 AA.
No point in repeating this claim. If you think you have skills then post a new thread and start posting your market timing transactions, and we will analyze in real time. This is the point when most claimants of market timing goes silent.

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1789
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Re: Out of market now and need advice on re-entering

Post by 1789 » Tue Jun 02, 2020 2:43 pm

vineviz wrote:
Mon Jun 01, 2020 11:46 am
nigel_ht wrote:
Mon Jun 01, 2020 11:21 am

The AA you can live with may be 70/30...but why would you lump sum into 70/30 instead of DCAing in if the market was declining?
Because you don't know ahead of time whether the market will decline or not. It usually doesn't decline (which is why investing ASAP is the rational and financially optimal strategy).

And if you DID know ahead of time when the market is going to decline and when it would rise, why in the world would you average across the decline? Just wait until you knew the market had stopped declining and invest the lump sum then. We all know why this is terrible strategy, right?
No matter what you say, people believe such non sense. I think we need skilled people to tell us what will happen in next 12 months from today on so we can decide where we should put our money. When a person believes in something you cannot convince them otherwise. Only they can help themselves.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Re: Out of market now and need advice on re-entering

Post by inbox788 » Tue Jun 02, 2020 3:08 pm

shc4982 wrote:
Sat May 30, 2020 7:17 am
Since I am also completely out of the market at this point, I would like to hear opinions on how to get back into the market timing-wise. Given the market fluctuations and slow economic growth ahead, I am thinking to do it by dollar-cost average over 6-12 months (every month or every two weeks) or something similar. I am also open to any suggestions on this aspect as well.
Please don't! For the benefit of the community, leave the market alone. It's going up nicely without you, and I'm afraid you might be one of those unlucky ones that time the market all wrong.

To really succeed in market timing, you have to not only get out at the right time, but get back in at the right time. It's hard enough to do it once, but twice is exponentially harder. Few are able to do it, and those that do are probably more lucky than skillful. But if you look around, you'll find that there are more than a few folks that get out at the wrong time, and even worse jump in right when things turn bad.

When you decide to jump in, please give us a few days so we have a chance to bail.

https://www.bogleheads.org/wiki/Taylor_ ... ing_quotes

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Re: Out of market now and need advice on re-entering

Post by cashboy » Tue Jun 02, 2020 4:12 pm

shc4982 wrote:
Sat May 30, 2020 3:03 pm
I wasn’t paying attention to the market for a long time. Then, I panicked about the economic situation and sold them all. Staying the course wasn’t a problem until now. I guess the economic indicators were too overwhelming this time around. When I was selling all, I had forgotten about this community. I guess I am paying the price now. Admitting that I am being fairly emotional about the situation, I would like to seek advice either from VPA or a local advisor. I am still not sure which is the best choice to go. Before seeking the asset allocation advice to re-enter, I am hearing I need to gather myself about the emotional side of it. Thanks for all the advice and comments. I hope I can report back to the community with better news!
come up with a plan that, as its #1 goal (of several perhaps), accounts for your emotions (honestly).

thanks for sharing!

good luck moving forward!

:sharebeer
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)

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dratkinson
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Re: Out of market now and need advice on re-entering

Post by dratkinson » Tue Jun 02, 2020 7:29 pm

shc4982 wrote:
Sat May 30, 2020 7:17 am
Emergency funds: Six months of expenses
Debt: No debt
Tax Filing Status: Married Filing Jointly with Dependent Children
Tax Rate: 24% Federal, 0% State
State of Residence: TN
Age: 52
Desired Asset allocation: 40% stock / 60% bond
Desired International allocation: Open for suggestion
Size of Fund: $1.5M
Show us your current portfolio: 100% Money Market (Before sell off: 80% stocks: 70%-30% global-domestic, 20% bonds)

His 401k
15% Money Market

His 457
11% Money Market

Her 401K
28% Money Market

His Roth IRA at Vanguard
10% Money Market

Her Roth IRS at Vanguard
5% Money Market

Taxable at Vanguard
31% Money Market

New annual Contributions
$25K his 401k (100% company)
$16K his 457 (No employer matching)
$17K her 401K (No employer matching)
$6K his Roth IRA
$6K her Roth IRA
$20K Taxable

Available Funds (Comprehensive)

His 401k (15%):
American Funds EuroPacific Growth Fund - R6 (RERGX): 0.49%
Carillon Eagle Mid Cap Growth R6 (HRAUX): 0.65%
Carillon Eagle Small Cap Growth R6 (HSRUX): 0.65%
CREF Bond Market Account (R3) (QCBMIX) : 0.26%
CREF Equity Index Account (R3) (QCEQIX): 0.23%
CREF Global Equities Account (R3) (QCGLIX) : 0.30%
CREF Growth Account (R3) (QCGRIX: 0.26%
CREF Inflation-Linked Bond Account (R3) (QCILIX) : 0.23%
CREF Money Market Account (R3) (QCMMIX) : 0.23%
CREF Social Choice Account (R3) (QCSCIX) : 0.26%
CREF Stock Account (R3) (QCSTIX): 0.33%
Diamond Hill Large Cap Fund Class Y (DHLYX): 0.55%
PIMCO Total Return Instl (PTTRX): 0.71%
Templeton Global Bond Fund Class R6 (FBNRX): 0.64%
TIAA Real Estate Account (QREARX): 0.78%
TIAA-CREF Inflation-Linked Bond Fund (Institutional) (TIILX): 0.26%
TIAA-CREF Lifecycle 2010 Fund (Institutional) (TCTIX) : 0.50%
TIAA-CREF Lifecycle 2015 Fund (Institutional) (TCNIX: 0.50%
TIAA-CREF Lifecycle 2020 Fund (Institutional) (TCWIX) : 0.51%
TIAA-CREF Lifecycle 2025 Fund (Institutional) (TCYIX) : 0.52%
TIAA-CREF Lifecycle 2030 Fund (Institutional) (TCRIX): 0.53%
TIAA-CREF Lifecycle 2035 Fund (Institutional) (TCIIX) : 0.54%
TIAA-CREF Lifecycle 2040 Fund (Institutional) (TCOIX) : 0.55%
TIAA-CREF Lifecycle 2045 Fund (Institutional) (TTFIX): 0.56%
TIAA-CREF Lifecycle 2050 Fund (Institutional) (TFTIX): 0.57%
TIAA-CREF Lifecycle 2055 Fund (Institutional) (TTRIX): 0.59%
TIAA-CREF Lifecycle 2060 Fund (Institutional) (TLXNX): 0.71%
TIAA-CREF Lifecycle Retirement Income Fund (Institutional) (TLRIX): 0.53%
TIAA-CREF Money Market Fund (Institutional) (TCIXX) : 0.14%
TIAA-CREF S&P 500 Index Fund (Institutional) (TISPX): 0.05%
Vanguard Small-Cap Value Index Fund Institutional (VSIIX): 0.06%
Victory Sycamore Established Value Fund R6 (VEVRX): 0.58%

His 457 (11%), Her 401K (28%):
Vanguard Target Retirement Inc Instl (VITRX): 0.09%
Vanguard Instl Trgt Retire 2015 Instl (VITVX): 0.09%
Vanguard Instl Trgt Retire 2020 Instl (VITXW): 0.09%
Vanguard Instl Trgt Retire 2020 Instl (VRIVX): 0.09%
Vanguard Instl Trgt Retire 2030 Instl (VTTWX): 0.09%
Vanguard Instl Trgt Retire 2035 Inst (VITFX): 0.09%
Vanguard Instl Trgt Retire 2040 Instl (VIRSX): 0.09%
Vanguard Instl Trgt Retire 2045 Instl (VITLX): 0.09%
Vanguard Instl Trgt Retire 2050 Instl (VTRLX): 0.09%
Vanguard Instl Trgt Retire 2055 Instl (VIVLX): 0.09%
Vanguard Instl Trgt Retire 2060 Instl (VILVX): 0.09%
DFA International Value I (DFIVX): 0.39%
Fidelity International Discovery (FIGRX): 0.78%
MSCI EAFE Index (MXEA): 0.32%
Brown Capital Small Company Inv (BCSIX): 1.26%
Invesco Van Kampen Small Cap Value Y (N/A): 0.78%
Russell 2000 Index (N/A): -
Columbia Mid Cap Value Instl (N/A): 0.94%
Janus Henderson Enterprise N (JDMNX): 0.66%
S & P MidCap 400 Index (N/A): -
Allianz NFJ Large Cap Value Instl (N/A): 0.76%
Fidelity Contrafund (FCNTX): 0.85%
Fidelity OTC Portfolio (FOCPX): 0.89%
Voya Growth and Income I (N/A): 0.58%
Vanguard Institutional Index Instl Pl (VIIIX): 0.02%
S & P 500 Index (N/A): -
Fidelity Puritan (PURX): 0.53%
Tennessee Treasury Managed Fund (N/A): 0.13%
Vanguard Total Bond Market Index Inst (VBTIX): 0.04%
Western Asset Core Plus Bond IS (WAPSX): 0.42%
Barclays Capital Aggregate Bond Index (N/A): -
Voya Fixed Fund (N/A): 0.00%
Vanguard Institutional Index (VINIX): 0.02%
Vanguard Total Market Index (VITSX): 0.04%

Understanding the inaccurate and incomplete information provided in my OP, I have revised the OP. To clarify what happened, I left the market 2-3 weeks ago. At the time I made that decision, I was panicked enough that it didn’t really occur to me to ask the community for input as I had not been paying attention to the market for a long time before the recent turmoil (last visited to the site seems to be 2011.) Accepting the reality of my risk tolerance and listening to many members’ valuable suggestions here, I significantly lowered my preference for stock share. Also admitting market timing is close to impossible to predict, I am taking the time to go through all my options before re-entering regardless of what the market does. I’ve scheduled a conference call with a Vanguard Personal Planner next Tuesday. I’ll update the post depending on the outcome of the meeting as well. Thanks for your input!

OP has updated his OP (above). I’ve highlighted what I believe he changed.

Please review and suggest options for how he could reenter the market.



One option for reentering the market. Lump sum into:


His 401k
15% TIAA-CREF S&P 500 Index Fund (Institutional) (TISPX): 0.05%

Why? It’s the cheapest, broad-market option.


His 457
11% Vanguard Instl Trgt Retire 2035* Inst (VITFX): 0.09%

* ~2035 = 2020+65-52. Lather, rinse, repeat with your planned retirement date.

Why? It’s a cheap TDR fund. The fund manager will handle AA, so OP does not need to worry about it.


Her 401K
28% 11% Vanguard Instl Trgt Retire 2035 Inst (VITFX): 0.09%

Why? It’s a cheap TDR fund. The fund manager will handle AA, so OP does not need to worry about it.


His Roth IRA at Vanguard
10% VTSAX.

Why? Maximize growth, cheap, broad-market option.


Her Roth IRS at Vanguard
5% VTSAX.

Why? Maximize growth, cheap, broad-market option.


Taxable at Vanguard
31% Appropriate bonds to bring non-TDR AA to 50/50. (Don’t worry about AA of TDR funds, fund manager will take care of that.)

Idea. If OP kept 5yrs of livings expenses here, that would follow the advice of retirees who report keeping 5yrs of livings expenses in cash equivalents to avoid the “sequence of returns” risk---the need to sell stocks during a market crash. This assumes most markets recover within 4yrs. (This money adds to the 1yr of living expenses kept in 1st-tier EFs (checking, savings, CDs,…).)


Taxable option: TSM. VTSAX, if OP will not be TLHing, and does not need 100% bonds in taxable.

If OP wants to TLH, then recall Schwab has a TSM index fund (ETF) that tracks a different index. Why? It’s beneficial if OP wants to TLH TSM, and doesn’t want to worry about the “replacement shares”, “wash sale” issues surrounding automatic reinvestment of VTSAX distributions.


Taxable option: TISM. VTIAX or VFWAX, if OP wants to add some international.

Some believe TISM is not needed. Why? S&P500 is ~80% of TSM market capitalization, and ~40% of S&P500 revenues come from international sales, so ~30% (=80% x 40%) of TSM revenues come from international sales. So if you don’t want to complicate your holdings, omitting TISM is one way to keep things simple, while still getting some international revenue from TSM.

Disclosure. I have a small TISM allocation, not because I know which will do better, but because I bought it cheaper, when I needed stocks, and TSM was high.


Taxable option. VTWAX. Or you could use Total World Stock Market index fund and let the fund manager worry about the TSM/TISM allocation. This would also avoid the VTSAX wash sale issue if you planned to TLH.



Student exercise. OP, compute taxable stock/bond percentages needed to create a 50/50 non-TDR AA.

Simplifying assumption. Ignore TDR bonds when figuring AA. Assume fund manager will take care of them for you, and the AA will be correct when you enter retirement. This means you only need to manage the bond allocation of your non-TDR investments.

It is your due diligence responsibility to read the prospectus of each TDR fund.
--Know the glide slope for how bonds come on.
--Know when/if the fund converts into an “income” fund, and at what AA.
--....



Student exercise. OP, use Excel1040 to create simulated tax returns to wag the after-tax income from using different bond fund candidates.

Balance the after-tax income produced from each bond fund candidate, against its risk (NAV fluctuations) and your risk tolerance.

Disclosure. I shoot for more after-tax income, within reason, and handle bond fund risk by TLHing. Each must decide what is “within reason” for himself.
Last edited by dratkinson on Wed Jun 03, 2020 1:18 pm, edited 3 times in total.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

nigel_ht
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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Tue Jun 02, 2020 7:37 pm

Elysium wrote:
Tue Jun 02, 2020 2:35 pm
nigel_ht wrote:
Tue Jun 02, 2020 2:05 pm
My issue is with you unwilling to address the fact that your "solution" requires saving the entire retirement expense amount before retirement. It's in the first line of the thread you point to.

"If you need $30,000 a year for 30 years you should have $900,000 in safe money."

I have no concerns or questions on how to use TIPS, I just disagree with your claim that everyone should save their entire retirement cost up front. It's a nice goal to have but is not required nor the most common strategy.
What is so groundbreaking about accumulating an amount that you need to spend down in retirement, that is how you save and invest for spending most of the other obligations, retirement funding should be no different. You can disagree all you want, but that is just an unwillingness to save and invest the required amount needed for a safe retirement.
Lol...because maybe saving 30-40 years worth of expenses is a non-trivial exercise? Most "other obligations" of that magnitude is funded via a loan...like a mortgage.

You really like to try to make it about me but I'm already set. Sorry bucko, nice try.
nigel_ht wrote:
Mon Jun 01, 2020 10:23 pm
Nope, not looking at it "the wrong way". I'm looking at it from the perspective of the Trinity Study where you don't need to save the entire cost of your retirement ahead of time and that a 60/40 will likely provide you a 4% SWR with 25x savings. Maybe it was 50/50, I forget.

This IS where the 25X expenses retirement target comes from. Notice how the rule of thumb is not a 30X expenses retirement target?

Funny, weren't you one of the proponents of 4% SWR being safe?

I'm personally more inclined to use 2.5% or 40X but I'm planning for longer than 40 years and I can actually save that much.
Your unwillingness to save and invest a safe amount required for retirement doesn't make taking unnecessary risks in retirement desirable for all. Trinity study has been more or less made unusable, and a 60/40 balanced portfolio no longer will hold up. Start saving and investing more regularly, and not timing the market.
Wow...Trinity study is dead. Amazing. Although I find it highly humorous that the usual suspects haven't given you a hard time about that.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
Yep, just like DCA provides a little downside protection at a small premium. It's just another tool in the toolbox. If 6% is a small premium for TIPS then a 2.4% average performance penalty is also reasonable for the occasional injection of a large block of new money using DCA.

Neither are required, both are situationally handy.
DCA is not a strategy, it is just mental gymnastics. The only DCA worth is the one that you are forced through paycheck deductions. If one were able to invest all of annual contributions upfront in January then they must chose that option always, because the market more often than not is up by end of year than in the beginning.
Nope. DCA generates a higher return 32% of the time so that's not "mental gymnastics"...it's just situational use. "Mental gymnastics" generates higher returns 0% of the time.
nigel_ht wrote:
Mon Jun 01, 2020 12:51 pm
Lol, if you can get a computer to execute your IPS then it's not based on emotion but on math.

And this isn't any more "market timing" than rebalancing because it's the exact same trigger mechanism as a band rebalance. The only difference is instead of rebalancing to your original 50/50 AA you reset to a more aggressive 70/30 AA.
No point in repeating this claim. If you think you have skills then post a new thread and start posting your market timing transactions, and we will analyze in real time. This is the point when most claimants of market timing goes silent.
Lol...nope, I don't need to do anything of the sort as it's not market timing. This is vanilla Boglehead strategy with a bit of sprinkles on top. Just like one-way rebalancing is a variation on normal rebalancing.

nigel_ht
Posts: 890
Joined: Tue Jan 01, 2019 10:14 am

Re: Out of market now and need advice on re-entering

Post by nigel_ht » Tue Jun 02, 2020 7:56 pm

shc4982 wrote:
Sat May 30, 2020 7:17 am
Understanding the inaccurate and incomplete information provided in my OP, I have revised the OP. To clarify what happened, I left the market 2-3 weeks ago. At the time I made that decision, I was panicked enough that it didn’t really occur to me to ask the community for input as I had not been paying attention to the market for a long time before the recent turmoil (last visited to the site seems to be 2011.) Accepting the reality of my risk tolerance and listening to many members’ valuable suggestions here, I significantly lowered my preference for stock share. Also admitting market timing is close to impossible to predict, I am taking the time to go through all my options before re-entering regardless of what the market does. I’ve scheduled a conference call with a Vanguard Personal Planner next Tuesday. I’ll update the post depending on the outcome of the meeting as well. Thanks for your input!
You still left out two important pieces of information: How much do you think you need for retirement and when you would like to retire.

The first is an indicator of how much risk you need to carry vs want to carry. The larger the delta between what you have and what you "need" for retirement the more risk you need to carry. We've already established that 80/20 is more risk than you want to carry.

The second is an indicator of how much risk you can afford to carry. The shorter the timeframe the less risk you can afford. This number is likely less than 80/20.

If you haven't taken the time to figure out a half decent estimate of your retirement expenses everything else is based on an incomplete understanding of your situation. Doesn't have to be exact but gotta know the ballpark.

Forget everything else. Do that first. Then your Vanguard Planner can actually help you create a plan to get you from Point A to Point B. You have no idea if you can afford to reduce your stock allocation because Point B is currently undefined...probably you can as $1.5M is a decent amount of money but until you do the homework you just don't know.

Elysium
Posts: 2951
Joined: Mon Apr 02, 2007 6:22 pm

Re: Out of market now and need advice on re-entering

Post by Elysium » Tue Jun 02, 2020 11:02 pm

nigel_ht wrote:
Tue Jun 02, 2020 7:37 pm
Lol...because maybe saving 30-40 years worth of expenses is a non-trivial exercise? Most "other obligations" of that magnitude is funded via a loan...like a mortgage.

You really like to try to make it about me but I'm already set. Sorry bucko, nice try.

Wow...Trinity study is dead. Amazing. Although I find it highly humorous that the usual suspects haven't given you a hard time about that.

Nope. DCA generates a higher return 32% of the time so that's not "mental gymnastics"...it's just situational use. "Mental gymnastics" generates higher returns 0% of the time.

Lol...nope, I don't need to do anything of the sort as it's not market timing. This is vanilla Boglehead strategy with a bit of sprinkles on top. Just like one-way rebalancing is a variation on normal rebalancing.
You are repeating the same mistakes over and over. DCA, Market Timing, Incorrect Numbers. All of which have been debunked, there is nothing to debate here. Here is a link to the Wiki on DCA you can read over and several other links that you can read from there that shows the fallacy of DCA of a lump sump. I have nothing further to add.

nigel_ht
Posts: 890
Joined: Tue Jan 01, 2019 10:14 am

Re: Out of market now and need advice on re-entering

Post by nigel_ht » Wed Jun 03, 2020 5:27 am

Elysium wrote:
Tue Jun 02, 2020 11:02 pm
nigel_ht wrote:
Tue Jun 02, 2020 7:37 pm
Lol...because maybe saving 30-40 years worth of expenses is a non-trivial exercise? Most "other obligations" of that magnitude is funded via a loan...like a mortgage.

You really like to try to make it about me but I'm already set. Sorry bucko, nice try.

Wow...Trinity study is dead. Amazing. Although I find it highly humorous that the usual suspects haven't given you a hard time about that.

Nope. DCA generates a higher return 32% of the time so that's not "mental gymnastics"...it's just situational use. "Mental gymnastics" generates higher returns 0% of the time.

Lol...nope, I don't need to do anything of the sort as it's not market timing. This is vanilla Boglehead strategy with a bit of sprinkles on top. Just like one-way rebalancing is a variation on normal rebalancing.
You are repeating the same mistakes over and over. DCA, Market Timing, Incorrect Numbers. All of which have been debunked, there is nothing to debate here. Here is a link to the Wiki on DCA you can read over and several other links that you can read from there that shows the fallacy of DCA of a lump sump. I have nothing further to add.
Trinity study has been debunked? Nice. Care to show proof?

DCA numbers come from Vanguard.

Elysium
Posts: 2951
Joined: Mon Apr 02, 2007 6:22 pm

Re: Out of market now and need advice on re-entering

Post by Elysium » Wed Jun 03, 2020 7:39 am

nigel_ht wrote:
Wed Jun 03, 2020 5:27 am
Elysium wrote:
Tue Jun 02, 2020 11:02 pm
nigel_ht wrote:
Tue Jun 02, 2020 7:37 pm
Lol...because maybe saving 30-40 years worth of expenses is a non-trivial exercise? Most "other obligations" of that magnitude is funded via a loan...like a mortgage.

You really like to try to make it about me but I'm already set. Sorry bucko, nice try.

Wow...Trinity study is dead. Amazing. Although I find it highly humorous that the usual suspects haven't given you a hard time about that.

Nope. DCA generates a higher return 32% of the time so that's not "mental gymnastics"...it's just situational use. "Mental gymnastics" generates higher returns 0% of the time.

Lol...nope, I don't need to do anything of the sort as it's not market timing. This is vanilla Boglehead strategy with a bit of sprinkles on top. Just like one-way rebalancing is a variation on normal rebalancing.
You are repeating the same mistakes over and over. DCA, Market Timing, Incorrect Numbers. All of which have been debunked, there is nothing to debate here. Here is a link to the Wiki on DCA you can read over and several other links that you can read from there that shows the fallacy of DCA of a lump sump. I have nothing further to add.
Trinity study has been debunked? Nice. Care to show proof?

DCA numbers come from Vanguard.
What you are facing is loss aversion and a fear of uncertainty, just like the OP. Adjusting your AA to the sleeping point is the best course, and at that point accepting lower returns in exchange for lower risk.

Topic Author
shc4982
Posts: 22
Joined: Sun Jun 15, 2008 3:54 pm

Re: Out of market now and need advice on re-entering

Post by shc4982 » Wed Jun 03, 2020 11:17 am

nigel_ht wrote:
Tue Jun 02, 2020 7:56 pm
shc4982 wrote:
Sat May 30, 2020 7:17 am
Understanding the inaccurate and incomplete information provided in my OP, I have revised the OP. To clarify what happened, I left the market 2-3 weeks ago. At the time I made that decision, I was panicked enough that it didn’t really occur to me to ask the community for input as I had not been paying attention to the market for a long time before the recent turmoil (last visited to the site seems to be 2011.) Accepting the reality of my risk tolerance and listening to many members’ valuable suggestions here, I significantly lowered my preference for stock share. Also admitting market timing is close to impossible to predict, I am taking the time to go through all my options before re-entering regardless of what the market does. I’ve scheduled a conference call with a Vanguard Personal Planner next Tuesday. I’ll update the post depending on the outcome of the meeting as well. Thanks for your input!
You still left out two important pieces of information: How much do you think you need for retirement and when you would like to retire.

The first is an indicator of how much risk you need to carry vs want to carry. The larger the delta between what you have and what you "need" for retirement the more risk you need to carry. We've already established that 80/20 is more risk than you want to carry.

The second is an indicator of how much risk you can afford to carry. The shorter the timeframe the less risk you can afford. This number is likely less than 80/20.

If you haven't taken the time to figure out a half decent estimate of your retirement expenses everything else is based on an incomplete understanding of your situation. Doesn't have to be exact but gotta know the ballpark.

Forget everything else. Do that first. Then your Vanguard Planner can actually help you create a plan to get you from Point A to Point B. You have no idea if you can afford to reduce your stock allocation because Point B is currently undefined...probably you can as $1.5M is a decent amount of money but until you do the homework you just don't know.
We would like to retire in 11 years of time. I would be happy to retire with $2M in the financial portfolio. Considering the stress and emotional roller coaster I have been going during the latest economic turmoil, my risk tolerance may be much lower than what I had perceived it to be during the last 16 years. I think I am also open to lowering the risk even further to possibly 30% stock and 70% bond. Thanks for your feedbacks and suggestions!

TimeTheMarket
Posts: 52
Joined: Fri Jan 25, 2019 8:49 am

Re: Out of market now and need advice on re-entering

Post by TimeTheMarket » Wed Jun 03, 2020 12:50 pm

I don't think 90/10 is too aggressive @ 52. I think that too many people are too much into bonds and these days in particular the yields are a joke.

That said, I do absolutely believe 90/10 is too aggressive for you. I really wish you had not sold 2-3 weeks ago. But thank God you didn't sell in March.

I think you need to get back in immediately, at least 50%. And also in the future never make a decision like this again and/or put a financial advisor on retainer before making future choices. Given your evidently lower risk tolerance (I'm not criticizing, just saying) but also your age (you're not 75), I think you want to be more than half in equities, but with enough in bonds so that next time there is a market implosion you don't log in and see a massive crater where you used to have a portfolio.

I'm around 95% stocks and the only move I made was to buy a bit more in March when things were awful. I held all the way through. I am not quite your age, though, so I knew I'd have a very long horizon to recover.

You should always have a portfolio allocation that lets you answer the question of what would happen if tomorrow the market dropped 50% (history says it can, and it has). Would you be okay with that or panic? If the answer is panic you're too invested in equities.
Username is not serious :)

nigel_ht
Posts: 890
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Re: Out of market now and need advice on re-entering

Post by nigel_ht » Wed Jun 03, 2020 4:12 pm

Elysium wrote:
Wed Jun 03, 2020 7:39 am
nigel_ht wrote:
Wed Jun 03, 2020 5:27 am
Elysium wrote:
Tue Jun 02, 2020 11:02 pm
nigel_ht wrote:
Tue Jun 02, 2020 7:37 pm
Lol...because maybe saving 30-40 years worth of expenses is a non-trivial exercise? Most "other obligations" of that magnitude is funded via a loan...like a mortgage.

You really like to try to make it about me but I'm already set. Sorry bucko, nice try.

Wow...Trinity study is dead. Amazing. Although I find it highly humorous that the usual suspects haven't given you a hard time about that.

Nope. DCA generates a higher return 32% of the time so that's not "mental gymnastics"...it's just situational use. "Mental gymnastics" generates higher returns 0% of the time.

Lol...nope, I don't need to do anything of the sort as it's not market timing. This is vanilla Boglehead strategy with a bit of sprinkles on top. Just like one-way rebalancing is a variation on normal rebalancing.
You are repeating the same mistakes over and over. DCA, Market Timing, Incorrect Numbers. All of which have been debunked, there is nothing to debate here. Here is a link to the Wiki on DCA you can read over and several other links that you can read from there that shows the fallacy of DCA of a lump sump. I have nothing further to add.
Trinity study has been debunked? Nice. Care to show proof?

DCA numbers come from Vanguard.
What you are facing is loss aversion and a fear of uncertainty, just like the OP. Adjusting your AA to the sleeping point is the best course, and at that point accepting lower returns in exchange for lower risk.
Nope, don’t change the subject. Show that the Trinity Study is dead as you asserted.

Elysium
Posts: 2951
Joined: Mon Apr 02, 2007 6:22 pm

Re: Out of market now and need advice on re-entering

Post by Elysium » Wed Jun 03, 2020 4:32 pm

nigel_ht wrote:
Wed Jun 03, 2020 4:12 pm
Elysium wrote:
Wed Jun 03, 2020 7:39 am
What you are facing is loss aversion and a fear of uncertainty, just like the OP. Adjusting your AA to the sleeping point is the best course, and at that point accepting lower returns in exchange for lower risk.
Nope, don’t change the subject. Show that the Trinity Study is dead as you asserted.
That is a falsehood. I never said Trinity Study is dead. I said a 60/40 Stock/Bond portfolio likely will not hold up in retirement. More importantly, it is a risk that one should not take. Instead it is better to de-risk the portion of the portfolio to do liability matching, with the remaining in risk assets. The idea is not needing to take risk with 60% stocks in retirement, most people here would agree.

That is not the issue here, you started with suggesting going to cash by reducing AA and then DCA back into the market over several months. You have also mentioned risks of fallout from COVID and November elections in other threads, with intent to get back in by end of the year. This is market timing, and does not work. I also gave you links to Wiki articles showing DCA does not boost returns. Your suggested ideas are all over the place, and highly based on conjecture and emotion driven (trying to predict outcome of events such as COVID and Elections). Going by your previous posts, you went to cash with a portion of your AA right before March bottom, and as of today S&P 500 is above 3100 while you are waiting for market to crash back to March lows. I called out this idea as wrong. This is not how proper investing strategy is supposed to work. If you like to make claims on your market timing and DCA record, you should post another thread with exact transactions and dates, then we can analyze.

nigel_ht
Posts: 890
Joined: Tue Jan 01, 2019 10:14 am

Re: Out of market now and need advice on re-entering

Post by nigel_ht » Wed Jun 03, 2020 5:02 pm

shc4982 wrote:
Wed Jun 03, 2020 11:17 am
nigel_ht wrote:
Tue Jun 02, 2020 7:56 pm
shc4982 wrote:
Sat May 30, 2020 7:17 am
Understanding the inaccurate and incomplete information provided in my OP, I have revised the OP. To clarify what happened, I left the market 2-3 weeks ago. At the time I made that decision, I was panicked enough that it didn’t really occur to me to ask the community for input as I had not been paying attention to the market for a long time before the recent turmoil (last visited to the site seems to be 2011.) Accepting the reality of my risk tolerance and listening to many members’ valuable suggestions here, I significantly lowered my preference for stock share. Also admitting market timing is close to impossible to predict, I am taking the time to go through all my options before re-entering regardless of what the market does. I’ve scheduled a conference call with a Vanguard Personal Planner next Tuesday. I’ll update the post depending on the outcome of the meeting as well. Thanks for your input!
You still left out two important pieces of information: How much do you think you need for retirement and when you would like to retire.

The first is an indicator of how much risk you need to carry vs want to carry. The larger the delta between what you have and what you "need" for retirement the more risk you need to carry. We've already established that 80/20 is more risk than you want to carry.

The second is an indicator of how much risk you can afford to carry. The shorter the timeframe the less risk you can afford. This number is likely less than 80/20.

If you haven't taken the time to figure out a half decent estimate of your retirement expenses everything else is based on an incomplete understanding of your situation. Doesn't have to be exact but gotta know the ballpark.

Forget everything else. Do that first. Then your Vanguard Planner can actually help you create a plan to get you from Point A to Point B. You have no idea if you can afford to reduce your stock allocation because Point B is currently undefined...probably you can as $1.5M is a decent amount of money but until you do the homework you just don't know.
We would like to retire in 11 years of time. I would be happy to retire with $2M in the financial portfolio. Considering the stress and emotional roller coaster I have been going during the latest economic turmoil, my risk tolerance may be much lower than what I had perceived it to be during the last 16 years. I think I am also open to lowering the risk even further to possibly 30% stock and 70% bond. Thanks for your feedbacks and suggestions!
One of the reasons I'm giving Elysium a hard time about the Trinity study is a lot of times folks will use 4% as their withdrawal rate in retirement for planning purposes...because it's mostly safe. The more paranoid among us use 3%...but I digress.

Saying you would be happy to retire with $2M implies that you expect your yearly expenses in retirement to be below $80K per year (ie 4%). If this fits your thinking it's a good enough number to use for planning purposes. If you think $80K isn't enough (don't forget to factor SS, etc at age 70) then the $2M number may be too low.

You have $1.5M and if your target is $2M in 11 years then you need about 2.65% to make it (a bit more if you want to retire on $80K of 2020 money rather than $80K of 2031 money...you'll want to factor in inflation). That's not terrible...a 30/70 portfolio might get you there and that's something your Vanguard rep can help you build. If not, he or she can tweak your AA a little to where that's a historically likely outcome. Just understand that the variability in returns for 10 year periods is much higher than that for 30 year periods...

If $80K is too low, or if you believe that the 4% rule is dead without any evidence that it is dead then you may need more than $2M. For example, if you don't expect the market to grow at a rate above inflation you may need $2.4M to provide $80K for 30 years. That strikes me as unlikely.

Topic Author
shc4982
Posts: 22
Joined: Sun Jun 15, 2008 3:54 pm

Re: Out of market now and need advice on re-entering

Post by shc4982 » Wed Jun 03, 2020 6:04 pm

[/quote]

One of the reasons I'm giving Elysium a hard time about the Trinity study is a lot of times folks will use 4% as their withdrawal rate in retirement for planning purposes...because it's mostly safe. The more paranoid among us use 3%...but I digress.

Saying you would be happy to retire with $2M implies that you expect your yearly expenses in retirement to be below $80K per year (ie 4%). If this fits your thinking it's a good enough number to use for planning purposes. If you think $80K isn't enough (don't forget to factor SS, etc at age 70) then the $2M number may be too low.

You have $1.5M and if your target is $2M in 11 years then you need about 2.65% to make it (a bit more if you want to retire on $80K of 2020 money rather than $80K of 2031 money...you'll want to factor in inflation). That's not terrible...a 30/70 portfolio might get you there and that's something your Vanguard rep can help you build. If not, he or she can tweak your AA a little to where that's a historically likely outcome. Just understand that the variability in returns for 10 year periods is much higher than that for 30 year periods...

If $80K is too low, or if you believe that the 4% rule is dead without any evidence that it is dead then you may need more than $2M. For example, if you don't expect the market to grow at a rate above inflation you may need $2.4M to provide $80K for 30 years. That strikes me as unlikely.
[/quote]

Thanks for the reply. I think 30/70 anticipating close to $80K/year sounds alright. If we are short of the goal by 2031, I can work a year or two more; not a desirable outcome but not a huge deal, either.

nigel_ht
Posts: 890
Joined: Tue Jan 01, 2019 10:14 am

Re: Out of market now and need advice on re-entering

Post by nigel_ht » Wed Jun 03, 2020 6:14 pm

Elysium wrote:
Wed Jun 03, 2020 4:32 pm
nigel_ht wrote:
Wed Jun 03, 2020 4:12 pm
Elysium wrote:
Wed Jun 03, 2020 7:39 am
What you are facing is loss aversion and a fear of uncertainty, just like the OP. Adjusting your AA to the sleeping point is the best course, and at that point accepting lower returns in exchange for lower risk.
Nope, don’t change the subject. Show that the Trinity Study is dead as you asserted.
That is a falsehood. I never said Trinity Study is dead. I said a 60/40 Stock/Bond portfolio likely will not hold up in retirement. More importantly, it is a risk that one should not take. Instead it is better to de-risk the portion of the portfolio to do liability matching, with the remaining in risk assets. The idea is not needing to take risk with 60% stocks in retirement, most people here would agree.
Your quote:
Elysium wrote:
Tue Jun 02, 2020 2:35 pm
Trinity study has been more or less made unusable, and a 60/40 balanced portfolio no longer will hold up.
There is also no "likely" in your statement...you flatly say 60/40 won't work anymore.

Pfau did a study in 2018 and it still holds up (well 50/50 does anyway). What data do you have that supports that a balanced AA doesn't hold up in retirement? You should also quantify the risk if historically 60/40 and 4% has a 97% success rate across 30 years of withdrawals.

And "most" agrees with you? Jack Bogle did not. He ended with a 50/50 portfolio. He had 60/40 for many years.

I've seen quite a few folks here do a one fund with VSMGX, even in retirement, which is 60/40.

So I don't see how "most" agrees with you. Especially not with your even more extreme statements earlier about saving your entire retirement expenditures ahead of time.
That is not the issue here, you started with suggesting going to cash by reducing AA and then DCA back into the market over several months.
Nope. Never suggested that. I said to DCA back in to his desired allocation but instead of buying bonds to keep that allocation as cash for the short term. He's already exited the market so there's no going to cash. He's already in cash and trying to get back in.

I'm old fashioned and still think cash is king during these kinds of uncertainties.
You have also mentioned risks of fallout from COVID and November elections in other threads, with intent to get back in by end of the year.
Nope. I have a sum of money I am doing a 12 month DCA into the market. I shifted my existing portfolio from 70/30 to 50/50 around 3rd week of May.

The reason for the DCA rather than lump sum of new money is because of Covid. The elections are still in the future...and it likely will have an impact on the market but that discussion borders on politics so we'll skip it.
This is market timing, and does not work.
Repeated assertions do not make something true. DCA isn't market timing.
I also gave you links to Wiki articles showing DCA does not boost returns.
The wiki articles say the same thing I do: DCA provides higher returns about 1/3rd of the time.
Your suggested ideas are all over the place, and highly based on conjecture and emotion driven (trying to predict outcome of events such as COVID and Elections).
Objection assumes facts not in evidence. I do not attempt to predict the outcome of covid. Just that the situation is not normal and more caution is warranted at this time. IF things DO go bad, then I would like to be in position to deploy washtubs rather than thimbles. Hence my current allocations.
Going by your previous posts, you went to cash with a portion of your AA right before March bottom, and as of today S&P 500 is above 3100 while you are waiting for market to crash back to March lows.
You know, I really can't help it if you think I do stuff I didn't do. I also don't think that's really my problem but yours. To reiterate:

I got a bit of cash in January. Given the news from China about shutting down and the likely economic impact I elected to DCA to mitigate the risk of a large drop. I have DCA'd in 4 tranches so far. One tranche I replaced with purchases of highly distressed stocks that were down 50-70% near the bottom. Because I love bargains. I should probably have just bought them in addition to that tranche but eh that's okay.

I had and still have a lot of money in stocks.
I called out this idea as wrong. This is not how proper investing strategy is supposed to work. If you like to make claims on your market timing and DCA record, you should post another thread with exact transactions and dates, then we can analyze.
My portfolio is 3 fund (or close equivalents) + GLD + those stocks I got in march and a small amount of UPRO I bought for kicks in my fun money account.

Given that you cannot seem to accurately remember what I actually do, you aren't in any position to declare whether anything is proper or not.

All that said, I have no issue with market timing and neither do many folks here as someone has said that they shift their AA to more stocks as prices decline until they are 100/0. That is a little too risky for me so close to retirement but I can easily see going from my current 50/50 allocation to 70/30 in the event of a large drop. That's in addition to the cash injection from DCA.

And no, I don't have to provide you with anything.

nigel_ht
Posts: 890
Joined: Tue Jan 01, 2019 10:14 am

Re: Out of market now and need advice on re-entering

Post by nigel_ht » Wed Jun 03, 2020 6:18 pm

shc4982 wrote:
Wed Jun 03, 2020 6:04 pm

One of the reasons I'm giving Elysium a hard time about the Trinity study is a lot of times folks will use 4% as their withdrawal rate in retirement for planning purposes...because it's mostly safe. The more paranoid among us use 3%...but I digress.

Saying you would be happy to retire with $2M implies that you expect your yearly expenses in retirement to be below $80K per year (ie 4%). If this fits your thinking it's a good enough number to use for planning purposes. If you think $80K isn't enough (don't forget to factor SS, etc at age 70) then the $2M number may be too low.

You have $1.5M and if your target is $2M in 11 years then you need about 2.65% to make it (a bit more if you want to retire on $80K of 2020 money rather than $80K of 2031 money...you'll want to factor in inflation). That's not terrible...a 30/70 portfolio might get you there and that's something your Vanguard rep can help you build. If not, he or she can tweak your AA a little to where that's a historically likely outcome. Just understand that the variability in returns for 10 year periods is much higher than that for 30 year periods...

If $80K is too low, or if you believe that the 4% rule is dead without any evidence that it is dead then you may need more than $2M. For example, if you don't expect the market to grow at a rate above inflation you may need $2.4M to provide $80K for 30 years. That strikes me as unlikely.
Thanks for the reply. I think 30/70 anticipating close to $80K/year sounds alright. If we are short of the goal by 2031, I can work a year or two more; not a desirable outcome but not a huge deal, either.
I didn't count any new savings into that amount. Depending on how much you are saving every year you might get to $2M on that alone...that's just $45K a year...

Bottom line, you're likely fine with 30/70 and come back with the Vanguard suggestions on funds...that should be kinda interesting. :)

Still, I would take a little time to do a bottoms up estimate of your expenses. We just kinda did a top down estimate.

https://www.projectmanagement.com/wikis ... estimating

Go as low a detail as you can and tally up your recurring expenses (food, internet, etc). Then tack on your other expected expenses (new roof, new car etc). Then add in your luxuries (travel, yard service, etc). Add a management reserve (for project estimation I usually tack on 20%).

The thing about estimation techniques, all of them, is that there are usually enough knobs that you can twiddle to get an answer your gut likes. Try to do this as little as possible or at least do it deliberately. If you "know" the answer is $80K per year you might stop looking hard after you hit $6500 of monthly expenses...
Last edited by nigel_ht on Wed Jun 03, 2020 6:25 pm, edited 1 time in total.

montanagirl
Posts: 1326
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Location: Montana

Re: Out of market now and need advice on re-entering

Post by montanagirl » Wed Jun 03, 2020 6:20 pm

Stef wrote:
Mon Jun 01, 2020 11:31 am
Guys, you know it's possible to edit your post after you quote someone? For example deleting all the previous quotes in that post? Aren't most of you in IT? :wink:
:D

Topic Author
shc4982
Posts: 22
Joined: Sun Jun 15, 2008 3:54 pm

Re: Out of market now and need advice on re-entering

Post by shc4982 » Wed Jun 03, 2020 6:35 pm

dratkinson wrote:
Tue Jun 02, 2020 7:29 pm

Student exercise. OP, use Excel1040 to create simulated tax returns to wag the after-tax income from using different bond fund candidates.

Balance the after-tax income produced from each bond fund candidate, against its risk (NAV fluctuations) and your risk tolerance.

Disclosure. I shoot for more after-tax income, within reason, and handle bond fund risk by TLHing. Each must decide what is “within reason” for himself.
Thanks for the careful revision of AA and the complementary explanation as well. While the student exercise is quite demanding :) , I am up for the challenge. Again, I appreciate your thorough and conscientious work!

rockstar
Posts: 385
Joined: Mon Feb 03, 2020 6:51 pm

Re: Out of market now and need advice on re-entering

Post by rockstar » Wed Jun 03, 2020 6:54 pm

If I look at slide 6, this would tell me that my expected return for the next five years is likely to look a lot like holding cash. Of course, this assumes that forward PE is correct. No one really knows how fast we're going to recover from COVID-19. Some corporations have given up trying to predict their earnings for the rest of the year.

https://am.jpmorgan.com/us/en/asset-man ... ets/viewer

My response to this was that I shifted new money going into my 401K to 50% stable income and 50% S&P 500. I figure I have a 50/50 to make a return in the next five years. I figure I can always shift money into the S&P if the market corrects. I have no idea when that will happen, but it leaves some cash on the sidelines and still benefits me from a tax perspective and matching perspective. Another option would be accelerate paying down my house and go all in on the S&P 500. But then I lose the tax benefit of the 401K with the money I use to accelerate paying down my home.

If I had a lump sum of money to invest, I have no idea where I would invest it. I'd probably pay down my house faster.

What you have to figure out is why you sold and why it's taken so long to want to get back into the market?

Elysium
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Re: Out of market now and need advice on re-entering

Post by Elysium » Wed Jun 03, 2020 8:02 pm

nigel_ht wrote:
Wed Jun 03, 2020 6:14 pm
Elysium wrote:
Wed Jun 03, 2020 4:32 pm
nigel_ht wrote:
Wed Jun 03, 2020 4:12 pm
Elysium wrote:
Wed Jun 03, 2020 7:39 am
What you are facing is loss aversion and a fear of uncertainty, just like the OP. Adjusting your AA to the sleeping point is the best course, and at that point accepting lower returns in exchange for lower risk.
Nope, don’t change the subject. Show that the Trinity Study is dead as you asserted.
That is a falsehood. I never said Trinity Study is dead. I said a 60/40 Stock/Bond portfolio likely will not hold up in retirement. More importantly, it is a risk that one should not take. Instead it is better to de-risk the portion of the portfolio to do liability matching, with the remaining in risk assets. The idea is not needing to take risk with 60% stocks in retirement, most people here would agree.
Your quote:
Elysium wrote:
Tue Jun 02, 2020 2:35 pm
Trinity study has been more or less made unusable, and a 60/40 balanced portfolio no longer will hold up.
There is also no "likely" in your statement...you flatly say 60/40 won't work anymore.

Pfau did a study in 2018 and it still holds up (well 50/50 does anyway). What data do you have that supports that a balanced AA doesn't hold up in retirement? You should also quantify the risk if historically 60/40 and 4% has a 97% success rate across 30 years of withdrawals.

And "most" agrees with you? Jack Bogle did not. He ended with a 50/50 portfolio. He had 60/40 for many years.

I've seen quite a few folks here do a one fund with VSMGX, even in retirement, which is 60/40.

So I don't see how "most" agrees with you. Especially not with your even more extreme statements earlier about saving your entire retirement expenditures ahead of time.
That is not the issue here, you started with suggesting going to cash by reducing AA and then DCA back into the market over several months.
Nope. Never suggested that. I said to DCA back in to his desired allocation but instead of buying bonds to keep that allocation as cash for the short term. He's already exited the market so there's no going to cash. He's already in cash and trying to get back in.

I'm old fashioned and still think cash is king during these kinds of uncertainties.
You have also mentioned risks of fallout from COVID and November elections in other threads, with intent to get back in by end of the year.
Nope. I have a sum of money I am doing a 12 month DCA into the market. I shifted my existing portfolio from 70/30 to 50/50 around 3rd week of May.

The reason for the DCA rather than lump sum of new money is because of Covid. The elections are still in the future...and it likely will have an impact on the market but that discussion borders on politics so we'll skip it.
This is market timing, and does not work.
Repeated assertions do not make something true. DCA isn't market timing.
I also gave you links to Wiki articles showing DCA does not boost returns.
The wiki articles say the same thing I do: DCA provides higher returns about 1/3rd of the time.
Your suggested ideas are all over the place, and highly based on conjecture and emotion driven (trying to predict outcome of events such as COVID and Elections).
Objection assumes facts not in evidence. I do not attempt to predict the outcome of covid. Just that the situation is not normal and more caution is warranted at this time. IF things DO go bad, then I would like to be in position to deploy washtubs rather than thimbles. Hence my current allocations.
Going by your previous posts, you went to cash with a portion of your AA right before March bottom, and as of today S&P 500 is above 3100 while you are waiting for market to crash back to March lows.
You know, I really can't help it if you think I do stuff I didn't do. I also don't think that's really my problem but yours. To reiterate:

I got a bit of cash in January. Given the news from China about shutting down and the likely economic impact I elected to DCA to mitigate the risk of a large drop. I have DCA'd in 4 tranches so far. One tranche I replaced with purchases of highly distressed stocks that were down 50-70% near the bottom. Because I love bargains. I should probably have just bought them in addition to that tranche but eh that's okay.

I had and still have a lot of money in stocks.
I called out this idea as wrong. This is not how proper investing strategy is supposed to work. If you like to make claims on your market timing and DCA record, you should post another thread with exact transactions and dates, then we can analyze.
My portfolio is 3 fund (or close equivalents) + GLD + those stocks I got in march and a small amount of UPRO I bought for kicks in my fun money account.

Given that you cannot seem to accurately remember what I actually do, you aren't in any position to declare whether anything is proper or not.

All that said, I have no issue with market timing and neither do many folks here as someone has said that they shift their AA to more stocks as prices decline until they are 100/0. That is a little too risky for me so close to retirement but I can easily see going from my current 50/50 allocation to 70/30 in the event of a large drop. That's in addition to the cash injection from DCA.

And no, I don't have to provide you with anything.
This is going to be my last response to you. I no longer have time to respond to all the diversions and falsehoods, and the quoting texts out of context. Here is what you said in another post, that sort of summarizes your current view, which I think it is plain wrong, and completely opposite of BH philosophy.
nigel_ht wrote:
Mon May 25, 2020 7:20 am
Right now we’re in a period of volatility...meaning the market is high, the economy is bad and covid isn’t over yet...you may see your $600K turn into $300K and it make take you 3-5 years just to get back to $600K.

Most folks here will tell you to lump sum RIGHT NOW vs DCA $50K/month for a year (yah, you said $500K...adjust as you like).

I would say DCA $50K starting in November-December unless we have a big crash before then, in which case lump sum half if we hit 30% down from here. Then DCA the rest in since we might drop another 20-30% before we bottom.

This is called “market timing” and very frowned upon here. Why do I suggest this? Because you want to turn $600K into $1.8M in 10 years and don’t have much margin for error. You don’t have 3-5 years to wait for recovery and hope you average out.

Why November-December? Elections and covid. By December we’ll hopefully have a much better understanding of what the next 4 years will be like. Losing 6 months of your 10 year time frame (5%) reduces your “time in market”, which some folks claim is paramount, it also reduces your near term risk of the current rally being a bull trap and a deeper bear. If you buy into the market 30-50% down, doubling your money becomes a heck of a lot easier.
There it is. You have been recommending market timing and waiting for next crash as well as Nov-Dec timeframe for elections to determine next 4 years. You are betting on a 30% to 50% crash according to your own views, you have expressed there is a second wave of Covid-19 which could trigger this,and points to uncertainty of elections as another thing to wait on before getting fully invested.

All of the above is contrary to BH advice and detrimental to those seeking advice on how to invest in the current situation. Instead of acckowledging this, you'd like to divert into all other directions. As I said, I no longer have time to respond. Let this record stand for itself.

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HomerJ
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Re: Out of market now and need advice on re-entering

Post by HomerJ » Wed Jun 03, 2020 8:08 pm

This is true Nigel_ht...

You have been advocating market-timing since you started posting here...

And, so far, you were wrong...

You might be right in the future... but no one knows... not even you,

Market-timing is hard... The last 3 months should have taught you that, if you hadn't learned it before.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

nigel_ht
Posts: 890
Joined: Tue Jan 01, 2019 10:14 am

Re: Out of market now and need advice on re-entering

Post by nigel_ht » Wed Jun 03, 2020 9:20 pm

Elysium wrote:
Wed Jun 03, 2020 8:02 pm
nigel_ht wrote:
Wed Jun 03, 2020 6:14 pm
Elysium wrote:
Wed Jun 03, 2020 4:32 pm
nigel_ht wrote:
Wed Jun 03, 2020 4:12 pm
Elysium wrote:
Wed Jun 03, 2020 7:39 am
What you are facing is loss aversion and a fear of uncertainty, just like the OP. Adjusting your AA to the sleeping point is the best course, and at that point accepting lower returns in exchange for lower risk.
Nope, don’t change the subject. Show that the Trinity Study is dead as you asserted.
That is a falsehood. I never said Trinity Study is dead. I said a 60/40 Stock/Bond portfolio likely will not hold up in retirement. More importantly, it is a risk that one should not take. Instead it is better to de-risk the portion of the portfolio to do liability matching, with the remaining in risk assets. The idea is not needing to take risk with 60% stocks in retirement, most people here would agree.
Your quote:
Elysium wrote:
Tue Jun 02, 2020 2:35 pm
Trinity study has been more or less made unusable, and a 60/40 balanced portfolio no longer will hold up.
There is also no "likely" in your statement...you flatly say 60/40 won't work anymore.

Pfau did a study in 2018 and it still holds up (well 50/50 does anyway). What data do you have that supports that a balanced AA doesn't hold up in retirement? You should also quantify the risk if historically 60/40 and 4% has a 97% success rate across 30 years of withdrawals.

And "most" agrees with you? Jack Bogle did not. He ended with a 50/50 portfolio. He had 60/40 for many years.

I've seen quite a few folks here do a one fund with VSMGX, even in retirement, which is 60/40.

So I don't see how "most" agrees with you. Especially not with your even more extreme statements earlier about saving your entire retirement expenditures ahead of time.
That is not the issue here, you started with suggesting going to cash by reducing AA and then DCA back into the market over several months.
Nope. Never suggested that. I said to DCA back in to his desired allocation but instead of buying bonds to keep that allocation as cash for the short term. He's already exited the market so there's no going to cash. He's already in cash and trying to get back in.

I'm old fashioned and still think cash is king during these kinds of uncertainties.
You have also mentioned risks of fallout from COVID and November elections in other threads, with intent to get back in by end of the year.
Nope. I have a sum of money I am doing a 12 month DCA into the market. I shifted my existing portfolio from 70/30 to 50/50 around 3rd week of May.

The reason for the DCA rather than lump sum of new money is because of Covid. The elections are still in the future...and it likely will have an impact on the market but that discussion borders on politics so we'll skip it.
This is market timing, and does not work.
Repeated assertions do not make something true. DCA isn't market timing.
I also gave you links to Wiki articles showing DCA does not boost returns.
The wiki articles say the same thing I do: DCA provides higher returns about 1/3rd of the time.
Your suggested ideas are all over the place, and highly based on conjecture and emotion driven (trying to predict outcome of events such as COVID and Elections).
Objection assumes facts not in evidence. I do not attempt to predict the outcome of covid. Just that the situation is not normal and more caution is warranted at this time. IF things DO go bad, then I would like to be in position to deploy washtubs rather than thimbles. Hence my current allocations.
Going by your previous posts, you went to cash with a portion of your AA right before March bottom, and as of today S&P 500 is above 3100 while you are waiting for market to crash back to March lows.
You know, I really can't help it if you think I do stuff I didn't do. I also don't think that's really my problem but yours. To reiterate:

I got a bit of cash in January. Given the news from China about shutting down and the likely economic impact I elected to DCA to mitigate the risk of a large drop. I have DCA'd in 4 tranches so far. One tranche I replaced with purchases of highly distressed stocks that were down 50-70% near the bottom. Because I love bargains. I should probably have just bought them in addition to that tranche but eh that's okay.

I had and still have a lot of money in stocks.
I called out this idea as wrong. This is not how proper investing strategy is supposed to work. If you like to make claims on your market timing and DCA record, you should post another thread with exact transactions and dates, then we can analyze.
My portfolio is 3 fund (or close equivalents) + GLD + those stocks I got in march and a small amount of UPRO I bought for kicks in my fun money account.

Given that you cannot seem to accurately remember what I actually do, you aren't in any position to declare whether anything is proper or not.

All that said, I have no issue with market timing and neither do many folks here as someone has said that they shift their AA to more stocks as prices decline until they are 100/0. That is a little too risky for me so close to retirement but I can easily see going from my current 50/50 allocation to 70/30 in the event of a large drop. That's in addition to the cash injection from DCA.

And no, I don't have to provide you with anything.
This is going to be my last response to you. I no longer have time to respond to all the diversions and falsehoods, and the quoting texts out of context. Here is what you said in another post, that sort of summarizes your current view, which I think it is plain wrong, and completely opposite of BH philosophy.
nigel_ht wrote:
Mon May 25, 2020 7:20 am
Right now we’re in a period of volatility...meaning the market is high, the economy is bad and covid isn’t over yet...you may see your $600K turn into $300K and it make take you 3-5 years just to get back to $600K.

Most folks here will tell you to lump sum RIGHT NOW vs DCA $50K/month for a year (yah, you said $500K...adjust as you like).

I would say DCA $50K starting in November-December unless we have a big crash before then, in which case lump sum half if we hit 30% down from here. Then DCA the rest in since we might drop another 20-30% before we bottom.

This is called “market timing” and very frowned upon here. Why do I suggest this? Because you want to turn $600K into $1.8M in 10 years and don’t have much margin for error. You don’t have 3-5 years to wait for recovery and hope you average out.

Why November-December? Elections and covid. By December we’ll hopefully have a much better understanding of what the next 4 years will be like. Losing 6 months of your 10 year time frame (5%) reduces your “time in market”, which some folks claim is paramount, it also reduces your near term risk of the current rally being a bull trap and a deeper bear. If you buy into the market 30-50% down, doubling your money becomes a heck of a lot easier.
There it is. You have been recommending market timing and waiting for next crash as well as Nov-Dec timeframe for elections to determine next 4 years. You are betting on a 30% to 50% crash according to your own views, you have expressed there is a second wave of Covid-19 which could trigger this,and points to uncertainty of elections as another thing to wait on before getting fully invested.

All of the above is contrary to BH advice and detrimental to those seeking advice on how to invest in the current situation. Instead of acckowledging this, you'd like to divert into all other directions. As I said, I no longer have time to respond. Let this record stand for itself.
Nice dodge. Where is your data supporting that Trinity and 60/40 doesn’t work.

And yes, I advocated for market timing there because he wanted to turn $600K into $1.8M in 10 years.

The only path to get there is to hope to get lucky in another downturn because he missed March. If he had been able to invest $600K in March then he’d be at $780K and have a shot at making it.

nigel_ht
Posts: 890
Joined: Tue Jan 01, 2019 10:14 am

Re: Out of market now and need advice on re-entering

Post by nigel_ht » Wed Jun 03, 2020 9:31 pm

HomerJ wrote:
Wed Jun 03, 2020 8:08 pm
This is true Nigel_ht...

You have been advocating market-timing since you started posting here...

And, so far, you were wrong...

You might be right in the future... but no one knows... not even you,

Market-timing is hard... The last 3 months should have taught you that, if you hadn't learned it before.
The last three months I’ve been lucky and made a decent amount of money. But that’s neither here nor there.

What I advocate for in general is an open mind to techniques that may be situational. Like trying to get to $1.8M in 10 years starting with $600K.

And yeah, market timing by buying after a large fall does work...there have been many here who “bought the dip” in March.

And I don’t think anyone should exit the market in order to time. I do think that going to a defensive AA is warranted in some circumstances. If it happens that a crash does occur you can rebalance back to your more aggressive AA.

In any case I find it highly amusing that you would interject in this thread with nary a word about how Elysium says Trinity is dead and 60/40 broken after giving me a hard time about saying 4% is a little high.

rockstar
Posts: 385
Joined: Mon Feb 03, 2020 6:51 pm

Re: Out of market now and need advice on re-entering

Post by rockstar » Wed Jun 03, 2020 9:58 pm

nigel_ht wrote:
Wed Jun 03, 2020 9:31 pm
HomerJ wrote:
Wed Jun 03, 2020 8:08 pm
This is true Nigel_ht...

You have been advocating market-timing since you started posting here...

And, so far, you were wrong...

You might be right in the future... but no one knows... not even you,

Market-timing is hard... The last 3 months should have taught you that, if you hadn't learned it before.
The last three months I’ve been lucky and made a decent amount of money. But that’s neither here nor there.

What I advocate for in general is an open mind to techniques that may be situational. Like trying to get to $1.8M in 10 years starting with $600K.

And yeah, market timing by buying after a large fall does work...there have been many here who “bought the dip” in March.

And I don’t think anyone should exit the market in order to time. I do think that going to a defensive AA is warranted in some circumstances. If it happens that a crash does occur you can rebalance back to your more aggressive AA.

In any case I find it highly amusing that you would interject in this thread with nary a word about how Elysium says Trinity is dead and 60/40 broken after giving me a hard time about saying 4% is a little high.
I bought the dip because of two things. I set my sell at the 300 day moving average. I do this to reduce the volatility in my portfolio, not maximize my gains. It helps me sleep better at night. I also set my buy at a ttm PE of 20x, which the market hit on the way down. My next buy would have been when the market hit the 300 day moving average coming back up, so that I wouldn't be out of the market. I'm protecting my downside. Again, it helps me sleep better at night. Shifting around AAs I have found personally doesn't help me psychologically. And I can't time tops.

I can't wrap my head around how you can allocate 40% to bonds with these low yields and the Fed talking about yield curve control. I struggle with bonds right now.

Elysium
Posts: 2951
Joined: Mon Apr 02, 2007 6:22 pm

Re: Out of market now and need advice on re-entering

Post by Elysium » Wed Jun 03, 2020 10:26 pm

nigel_ht wrote:
Wed Jun 03, 2020 9:20 pm
Nice dodge. Where is your data supporting that Trinity and 60/40 doesn’t work.
Last comment to set record straight. This is completely out of context, I never said the whole Trinity study is unusable (never said dead), it was in a specific context with regard to Sequence of Returns Risk where you claimed there is significant SORR with a 60/40 portfolio then pointing out to that as a standard proposed by the Trinity study. So you are the one actually questioning Trinity by stating it exposes you to SORR. My response, if someone is really that concerned about SORR then they should do LMP instead with TIPS, and not depend on a 60/40 as recommended by Trinity study or anyone else for that matter. Now, you want to take that out of context and go in another direction. This is what you have been doing in all the threads, diverting from one thing to another, then looking for gotchas. I no longer have time for this. So, I set the record straight on what I said. If someone is really concerned about SORR with a 60/40 in retirement then the solution is to come up with enough accumulated for a LMP. Either that, or you take the risk. There are no other magic solutions. Your solution to mitigate SORR sounds like market timing, and waiting out specific events.

marcopolo
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Re: Out of market now and need advice on re-entering

Post by marcopolo » Wed Jun 03, 2020 11:08 pm

Elysium wrote:
Wed Jun 03, 2020 10:26 pm
nigel_ht wrote:
Wed Jun 03, 2020 9:20 pm
Nice dodge. Where is your data supporting that Trinity and 60/40 doesn’t work.
Last comment to set record straight. This is completely out of context, I never said the whole Trinity study is unusable (never said dead), it was in a specific context with regard to Sequence of Returns Risk where you claimed there is significant SORR with a 60/40 portfolio then pointing out to that as a standard proposed by the Trinity study. So you are the one actually questioning Trinity by stating it exposes you to SORR. My response, if someone is really that concerned about SORR then they should do LMP instead with TIPS, and not depend on a 60/40 as recommended by Trinity study or anyone else for that matter. Now, you want to take that out of context and go in another direction. This is what you have been doing in all the threads, diverting from one thing to another, then looking for gotchas. I no longer have time for this. So, I set the record straight on what I said. If someone is really concerned about SORR with a 60/40 in retirement then the solution is to come up with enough accumulated for a LMP. Either that, or you take the risk. There are no other magic solutions. Your solution to mitigate SORR sounds like market timing, and waiting out specific events.
I agree with most of the points you have made in your back and forth with nigel_ht, but I am a bit skeptical about your claims about LMP.

1) I don't think "most" here would agree that is the best solution, vs a balanced portfolio.

2) You mentioned that DCA is mental gymnastics (i agree). The same can be said for LMP.

3) You do acknowledge that LMP requires quite a bit of savings. If you do end up saving that much, pretty much any approach, including 60/40, would work just fine. You could just start at 60/40 and use a rising glide path, or prime harvesting approach, either would probably would be indistinguishable from LMP approach.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Elysium
Posts: 2951
Joined: Mon Apr 02, 2007 6:22 pm

Re: Out of market now and need advice on re-entering

Post by Elysium » Wed Jun 03, 2020 11:23 pm

marcopolo wrote:
Wed Jun 03, 2020 11:08 pm

I agree with most of the points you have made in your back and forth with nigel_ht, but I am a bit skeptical about your claims about LMP.

1) I don't think "most" here would agree that is the best solution, vs a balanced portfolio.

2) You mentioned that DCA is mental gymnastics (i agree). The same can be said for LMP.

3) You do acknowledge that LMP requires quite a bit of savings. If you do end up saving that much, pretty much any approach, including 60/40, would work just fine. You could just start at 60/40 and use a rising glide path, or prime harvesting approach, either would probably would be indistinguishable from LMP approach.
LMP is an idea that I am getting more used to than before. I agree that in order to fully fund retirement needs one would need a substantially higher portfolio than something that can met with balanced portfolio. I think there can be a middle ground, where you could have basic income guarantee with LMP, and rest exposed to traditional balanced portfolio. The basic income should take care of most essential needs, this would mitigate the SORR that could become a major threat if large drawdowns happen at the beginning. It could be as simple as having several years of expenses available in TIPS of various duration, or a TIPS ladder, and the remaining exposed to risk assets. In that regard it isn't so much different from a traditional balanced portfolio.I haven't figured out yet exactly how much will be needed, but do know that I would need more than what I had earlier considered enough.

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