What does "won the game stop playing" mean in practice?

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MathWizard
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What does "won the game stop playing" mean in practice?

Post by MathWizard »

I've often seen answers include the recommendation "When you've won the game,stop playing."

What does this mean in practice?

I have won the game in the sense that assuming a 3% real return, that I can maintain my usual lifestyle, plus travel, plus a side stash of $50K for some completely unexpected expense . Our usual lifestyle is 50% more than our minimal spending this last year, so we have lots of room to it back.

So what does stop playing mean?

If I convert all to cash, I haven't won the game, since I won't get 3% real, and I have inflation risk .

Does it mean to create a large cash cushion ,( multiple years of expenses), and shift to more bonds,changing what had been your AA?

Without some specific action to take, the recommendation is of no use.
lostdog
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Re: What does "won the game stop playing" mean in practice?

Post by lostdog »

To me it means reducing risk when you're close or you've arrived at your goal.

Example being that we're close to 22x expenses. We were mostly 100/0 during accumulation. I moved to 80/20 for a bit and then realized a 60/40 will get us the additional 3x expenses needed.

Being near 25x expenses and then all of a sudden a major crash happens that takes years to recover would be a punch in the gut.
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retired@50
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Re: What does "won the game stop playing" mean in practice?

Post by retired@50 »

I always interpreted that phrase to mean something like "Buy some US Treasury bonds and possibly one or more SPIAs."

In other words, convert your game winnings to guaranteed or extremely safe sources of income so a market downturn won't affect your lifestyle.

Regards,
This is one person's opinion. Nothing more.
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TomatoTomahto
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Re: What does "won the game stop playing" mean in practice?

Post by TomatoTomahto »

In our case, it meant putting $3M in various safe assets (eg, Stable Value fund, TBM, etc). Everything else goes to equities.

Please don’t take this the wrong way, but if you need 3% real, you haven’t “won the game.” You’re ahead in the 3rd period :sharebeer

IMO, winning the game means that 0% real is sufficient. Of course we’d rather have real gains, but we could withstand a 50%+decline in equities (our heirs would get less).
I get the FI part but not the RE part of FIRE.
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Re: What does "won the game stop playing" mean in practice?

Post by Shallowpockets »

If you won the game, you would know it. It is not a dollars and cents thing. It is a emotional/mental satisfaction in what you have and what you want and how you sit in your life.
Some will never reach that.
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Re: What does "won the game stop playing" mean in practice?

Post by Yarlonkol12 »

retired@50 wrote: Sun Apr 18, 2021 9:34 am I always interpreted that phrase to mean something like "Buy some US Treasury bonds and possibly one or more SPIAs."

In other words, convert your game winnings to guaranteed or extremely safe sources of income so a market downturn won't affect your lifestyle.

Regards,
Do people really feel “safer” selling stocks and buying bonds in 2021?
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goingup
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Re: What does "won the game stop playing" mean in practice?

Post by goingup »

That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
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Re: What does "won the game stop playing" mean in practice?

Post by Hebell »

TomatoTomahto wrote: Sun Apr 18, 2021 9:35 am
IMO, winning the game means that 0% real is sufficient.
Absolutely agree. Having won the game, we have our assets in stable value funds, MYGAs, higher yield savings accounts through my husband's credit Union, I- and EE bonds as individuals, two LLCs and an irrevocable trust ($50k per year), a Tips ladder, and a very small amount of equities and precious metals. We may return to holding more in ultra short and short bond funds but not at present. If we do, they will be above investment grade.

Very little equities, because we had so much equities our whole life, we don't want to go through it anymore.

Someone here said we have a SWAN portfolio. Sleep well at night.
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retired@50
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Re: What does "won the game stop playing" mean in practice?

Post by retired@50 »

tiburblium wrote: Sun Apr 18, 2021 9:42 am
retired@50 wrote: Sun Apr 18, 2021 9:34 am I always interpreted that phrase to mean something like "Buy some US Treasury bonds and possibly one or more SPIAs."

In other words, convert your game winnings to guaranteed or extremely safe sources of income so a market downturn won't affect your lifestyle.

Regards,
Do people really feel “safer” selling stocks and buying bonds in 2021?
Sure, if you buy enough of them.

In other words, if you have so much money that the 10, 20 or 30 year T-bond yield is sufficient, then you've won the game. Unless you somehow suspect that the US Government will default on it's debt. The same tiny risk exists with SPIAs and insurance companies.

Regards,
This is one person's opinion. Nothing more.
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Re: What does "won the game stop playing" mean in practice?

Post by KlangFool »

OP,

I am giving you my interpretation.

A) My 60/40 portfolio was at 25X and my EF (not part of the portfolio) is at 3X. And, I have a 3.49% 30 years mortgage

B) I had decided that I have enough in my portfolio and my EF.

C) I decided to de-risk and lowered my exposure to the market. Hence, when my portfolio goes up by 60K, I harvest 30K to pay down my mortgage and buy about 2K worth of physical Gold/Silver. Then I reset my threshold to the next 60K.

For examples:

Threshold at 1.56 million reached, sell 30K to pay down mortgage and buy 2K of physical Gold/Silver. Portfolio = 1.53 million. The new threshold = 1.53 million + 60K = 1.59 million,

In my opinion, "stop playing" means that increase EF (CASH), pay down mortgage, and buy physical Gold/Silver. Aka, move money out of the portfolio and put it somewhere else.

KlangFool

P.S.: Given that when I reach social security full retirement age, social security cover about 50% of my annual expense. So, my 25X is about 50X in 10+ years. My SWR with my current 25X is around 3%.
Last edited by KlangFool on Sun Apr 18, 2021 10:00 am, edited 2 times in total.
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Re: What does "won the game stop playing" mean in practice?

Post by nisiprius »

I hate it when this is presented with an implicit "should," as if this were objectively wise advice for every investor, rather than a legitimate option that every investor should consider.

In my opinion, this is a statement of what it means to have increasing relative risk aversion... made by someone who has it and is projecting their personal values onto their audience.

When you have won the game, you now have the freedom to choose many courses depending on your personal values. One of them is "I've won the game, so I'll stop playing." Another one, which is perfectly rational, is "I've won the game, so now I can put aside what I need and I can take risks with the extra, swing for the fences, not because I need to, but because I want to.[/i]" That is just a way of describing decreasing relative risk aversion.

Where the legitimate advice comes in is that people who are selling investments would prefer you to do the latter. They will try to insinuate an unspoken assumption that you still "need" to keep growing your money, so please don't put in the bank or buy an annuity from an insurance company, please keep it in your account and buy Total Stock or ARK Innovation or Gamestop or dogecoin with it, something, anything, but keep it with us.

The legitimate advice is what John C. Bogle was talking about in his book, "Enough." Always consider the possibility of stopping with "enough." Know what is "enough" for you. It is possible that society needs to have ultrahigh achievers, people for whom there is no such thing as "enough," and some people may be offended at the idea of anyone setting personal limits on their ambitions, but you have to do what's right for you. And just because you are uncompromising (Pablo Casals, asked at age 80 why he continued to practice five hours a day, supposedly say "Because I think I am making progress") in one part of your life does not mean you should be uncompromising in your financial life, if making money is not a root part of who you are.

The conventional wisdom of de-risking your investment portfolio, cutting down on stocks and increasing bonds, to balance the decreasing amount of your total future wages, is a version of "when you've won the game, stop playing."

A traditional way of describing this is to say that most people probably ought to transition gradually from accumulating wealth to preserving wealth. And, in particular, even if you have decreasing relative risk aversion, not to whatever part of your accumulation you need. If you need a million and you have $1.2 million, don't risk a million.
Last edited by nisiprius on Sun Apr 18, 2021 10:03 am, edited 3 times in total.
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diy60
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Re: What does "won the game stop playing" mean in practice?

Post by diy60 »

I find the saying somewhat arrogant. It's not a game and there is no clearly defined metric. You won't know you won until after you're pushing up daisies, at which point it won't matter. Life has a habit of throwing nasty curve balls your way.
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

This is a comment made by Bill Bernstein in one of his columns or books in which he wanted to underline the idea that when you have enough money to retire securely you should stop taking a lot of risk in stocks. It uses a metaphor to emphasize the importance of the concept.

In my opinion the idea is both obvious but also meaningless because the metaphor is not apt. Investing for retirement is not a game and you can't quit. On the other hand if there is no need to take high risk to seek large returns, it is prudent to avoid so much risk. I personally am put off by using hyperbolic metaphor to communicate investment advice, but the advice is not off base.

If one wants to apply some data analysis to this the relevant result would probably be the results of most retirement withdrawal studies that show that a good choice of asset allocation to support retirement is around 40/60-70/30 and not 100/0. On the other hand a person who has plenty of money for retirement and is motivated to try to increase legacy wealth might justify a high stock allocation. It is always true that if high risk leads a person to do stupid things in the face of market declines, then high risk is not advised.

Bernstein also offers a number of thoughts regarding how to provide certain income using an annuity or a TIPS ladder. There are plusses and minuses to these ideas. If one is interested it is probably a good idea to do more reading on the subject and to avoid investing by metaphor.
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Re: What does "won the game stop playing" mean in practice?

Post by humblecoder »

Shallowpockets wrote: Sun Apr 18, 2021 9:39 am If you won the game, you would know it. It is not a dollars and cents thing. It is a emotional/mental satisfaction in what you have and what you want and how you sit in your life.
Some will never reach that.
I respectfully disagree.

To me, it is a "dollars and cents" thing. If I have accumulated enough where I have enough money to meet my goals without having to take any risks (0% real returns required), then I have won the game. That is absolutely something that can be quantified.

At that point, I would be in a low risk asset allocation (i.e. I would stop playing the game).
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Re: What does "won the game stop playing" mean in practice?

Post by Joylush »

To me it means I have enough to live comfortably even if I stuck it all under my mattress and just spent it down to nothing.

I am fortunate to be in what I think is that situation. But even still, I somewhat worry because it’s hard to believe.

On the one hand it makes me think not to risk it at all. On the other hand it makes me feel like I can take more risks than most people should. Because in reality I could live off half of it under my mattress comfortably. So I tend to keep that in safer assets and invest the other half.
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Re: What does "won the game stop playing" mean in practice?

Post by humblecoder »

goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
I respectfully disagree.

If you have met your financial goals, then it makes sense to lower your risk since you don't need to take any more chances. That is a spirit of the saying, and I think it is wise.

Consider a football analogy. If you are on offense, you are winning, and you can run out the clock by taking a knee, why would you still throw for touchdown passes and risk an interception returned for a touchdown? Just take the knee and take your win.
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Re: What does "won the game stop playing" mean in practice?

Post by Dandy »

To me it means you are no longer in the growth mode with higher returns and risk -- you should be more in the asset preservation mode with a more moderate allocation.

When I was in my 60's and retired I didn't know what allocation made sense. Dr. WM Bernstein I believed coined the above phrase and suggested putting 20 or more years of draw down dollars in "safe" (my word) fixed income and the rest invest anyway you want --even 100% stocks. I assume this was for people who retired in their 60's (not early 50's).

I put enough "safe" fixed income (FDIC products, high quality short term bond funds, money market funds, EE bonds, etc. to age 90 and ended up with about a 45/55 allocation but with great peace of mind.

I didn't use the "safe" assets as an ATM i.e. funding all my draw down needs. I withdrew from a combination of fixed income and equities unless equities had a really bad year.

My withdrawal approach usually results in excess "safe" assets which I either invest, spend or gift. But I sleep well knowing I have pretty secure funding to age 90. My overall investment assets have never been higher at age 73.
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Re: What does "won the game stop playing" mean in practice?

Post by humblecoder »

diy60 wrote: Sun Apr 18, 2021 9:55 am I find the saying somewhat arrogant. It's not a game and there is no clearly defined metric. You won't know you won until after you're pushing up daisies, at which point it won't matter. Life has a habit of throwing nasty curve balls your way.
I think you are misinterpreting the saying.

The game isn't life. The game is "taking risks in your investments". If you are at a point in your life where you have enough to live on comfortably, it makes sense to lower your risk (i.e. "stop playing").

I find nothing arrogant about that. It makes perfect sense to me. I think you might be reading too much into the words.
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Re: What does "won the game stop playing" mean in practice?

Post by lazynovice »

Is the 50k stash a per year amount or a one time fund? If it is per year, how material is that to your annual number? If you take that number to something more reasonable (50k every five years- I don’t know) does the 3% real come down? If you have 50% flexibility in your expenses, seems like absorbing part of the 50k might be possible- the year you buy a car, you travel less for instance.

I have seen various definitions for “won the game.” 25x of expenses for a regular retirement, 33x expenses for an early retirement. Some people count social security, others don’t.

To me, as we run just about all the calculators we can, do our own spreadsheets, etc. it means we can’t find one that shows us running out of money before ages 95/97. Assuming 0% real, if I retire at 53, plan to live to 97, then 44x gets me there. Now, we debate “what is X”

As to what to do when you have won, you set aside a certain number of years in safe assets. I have seen anywhere from 10 years to 25 years for that. And then some people go 100% equities with the rest or set it up at any AA that is comfortable for them.

Liability Matching Portfolio is what you should look at for more robust discussions on this topic. I’m not totally sold on a pure LMP concept. It seems too conservative to me so maybe I have not really won the game yet.
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diy60
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Re: What does "won the game stop playing" mean in practice?

Post by diy60 »

humblecoder wrote: Sun Apr 18, 2021 10:03 am I find nothing arrogant about that. It makes perfect sense to me. I think you might be reading too much into the words.
I suppose arrogance was a poor choice of words, perhaps over confidence would be better. I think we all can relate to knowing someone close to us that thought they won the game only to be dealt one of life's serious blows. For some personal reason the saying just gets under my skin.
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Re: What does "won the game stop playing" mean in practice?

Post by Firemenot »

Accept lower returns for loser risk.
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Re: What does "won the game stop playing" mean in practice?

Post by Wiggums »

To me, it meant that our entire portfolio exceeded our conservative retirement number. Our college age kids have their own brokerage accounts and they pay their own tuition. We paid off the house and it feels great. We slowly moved down to 70/30 and I think we will stay with this AA for now. We continue to buy stocks, just at a slower pace.

I would not recommend less than 30% stock for most people. However, each person must evaluate their sources of retirement income and their savings goals.
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goingup
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Re: What does "won the game stop playing" mean in practice?

Post by goingup »

humblecoder wrote: Sun Apr 18, 2021 10:01 am
goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
I respectfully disagree.

If you have met your financial goals, then it makes sense to lower your risk since you don't need to take any more chances. That is a spirit of the saying, and I think it is wise.

Consider a football analogy. If you are on offense, you are winning, and you can run out the clock by taking a knee, why would you still throw for touchdown passes and risk an interception returned for a touchdown? Just take the knee and take your win.
I understand how you look at it. However, investing is a life-long endeavor. The game doesn't end when you hit a portfolio number. There is no "quit playing". Of course, many of us get more conservative as we get older and wealthier but where are you supposed to put your money when you quit the "game"?

As I said, the phrase doesn't resonate for me. Investing is not a game which somehow ends when you reach a portfolio goal. I understand the intent of the analogy, but it is ill-fitting for me, a life-long investor. :beer
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Re: What does "won the game stop playing" mean in practice?

Post by Ependytis »

I understood Bill Bernstein coined the phrase “If you won the game, stop playing”. He indicated that the center of gravity for a portfolio is 60% stocks and 40% bonds. As others have pointed out, if you have too high a percentage of bonds, you have an inflation risk. If you have too high of a percentage of stocks, you have a market risk. I personally would have trouble sleeping at night if my portfolio was 70% bonds or 70% stocks. I should point out I’m in my late 50s.
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Re: What does "won the game stop playing" mean in practice?

Post by EnjoyTheJourney »

Although it oversimplifies somewhat, one way to frame this is to ask ...

Who wants to play a game of "If I win I get something which is not that important, and if I lose then I lose something critically important?"

Bernstein's advice seems solid to me, and a helpful check on the urge some may have to keep pushing for more when getting it wouldn't move the needle much on wealth or health or happiness, but could badly backfire.
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Re: What does "won the game stop playing" mean in practice?

Post by shess »

goingup wrote: Sun Apr 18, 2021 10:27 am
humblecoder wrote: Sun Apr 18, 2021 10:01 am
goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
I respectfully disagree.

If you have met your financial goals, then it makes sense to lower your risk since you don't need to take any more chances. That is a spirit of the saying, and I think it is wise.

Consider a football analogy. If you are on offense, you are winning, and you can run out the clock by taking a knee, why would you still throw for touchdown passes and risk an interception returned for a touchdown? Just take the knee and take your win.
I understand how you look at it. However, investing is a life-long endeavor. The game doesn't end when you hit a portfolio number. There is no "quit playing". Of course, many of us get more conservative as we get older and wealthier but where are you supposed to put your money when you quit the "game"?

As I said, the phrase doesn't resonate for me. Investing is not a game which somehow ends when you reach a portfolio goal. I understand the intent of the analogy, but it is ill-fitting for me, a life-long investor. :beer
I don't get your point. You can invest in Tesla or Bitcoin or Vanguard Total Market. Investing in Tesla is clearly more towards the "playing the game" side of things. You can invest 100% in equities or 60/40. 100% is clearly more towards "playing the game". They're all investing, people doing them are all investors, they're just positioning in different places on the risk/reward curve.

That doesn't mean that if you have enough, you should go 100% bonds. 100% bonds is an objectively worse investment than 50/50 stock/bonds.

I mean, things that resonate with you resonate with you, YMMV, etc. But saying "but I'm a lifelong investor" to me seems completely orthogonal to the saying.

As a specific example of stopping playing the game, a few years back I realized I was well past my reasonable retirement numbers. So I took some stock off the table and paid off my mortgage, and a few years later tried early retirement on for size. The stock I sold to pay down my mortgage has gone up 3x since that time, so on paper I've lost a fair bit. But I mostly don't care, because having that cash wouldn't solve any problems in my life, it would just be additional numbers in my portfolio. I already have the house I want, the cars I want, the vacations I want, ability to put the kids through school, etc. But if I had stuck with the mortgage and the stock had tanked, I'd probably still be working, and might have to tamp down on vacations and maybe work harder to talk the kids into cheaper school choices. The potential rewards weren't worth the risks.
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Re: What does "won the game stop playing" mean in practice?

Post by CurlyDave »

goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
Here is true wisdom.

As long as I am alive and have any money of my own I have an AA and am "in the game". If I switch to all cash and store it under my mattress, all I am doing is assuring I will lose to any inflation at all.

What investment today produces 0% real, after taxes?

Why should I abandon the strategy that produced a nice nest egg over a lifetime of investing for one guaranteed to cut into that nest egg? If I get out of the game, the only question is whether inflation will chew it up quickly or slowly.
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Re: What does "won the game stop playing" mean in practice?

Post by changingtimes »

I think it also depends on which game you are playing.

I'm widowed, no kids, with the equivalent of two 401ks, two pensions, SS survivor benefits in a few years and then my own at 70, and in a house with a metric ton of equity. (Could definitely quit work whenever I feel like it, but if I can get them to keep paying me while not insisting I come to the office, I might hang on a bit longer.) I have probably won the game, but kind of wish I hadn't. My playing field at this point is figuring out how much I can spend without getting too far in front of the balance.

Everyone has very different games to win.
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Re: What does "won the game stop playing" mean in practice?

Post by Yarlonkol12 »

retired@50 wrote: Sun Apr 18, 2021 9:50 am
tiburblium wrote: Sun Apr 18, 2021 9:42 am
retired@50 wrote: Sun Apr 18, 2021 9:34 am I always interpreted that phrase to mean something like "Buy some US Treasury bonds and possibly one or more SPIAs."

In other words, convert your game winnings to guaranteed or extremely safe sources of income so a market downturn won't affect your lifestyle.

Regards,
Do people really feel “safer” selling stocks and buying bonds in 2021?
Sure, if you buy enough of them.

In other words, if you have so much money that the 10, 20 or 30 year T-bond yield is sufficient, then you've won the game. Unless you somehow suspect that the US Government will default on it's debt. The same tiny risk exists with SPIAs and insurance companies.

Regards,
Your assuming a predictable level of inflation, that’s a risk
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

MathWizard wrote: Sun Apr 18, 2021 9:28 am
I have won the game in the sense that assuming a 3% real return, that I can maintain my usual lifestyle, plus travel, plus a side stash of $50K for some completely unexpected expense . Our usual lifestyle is 50% more than our minimal spending this last year, so we have lots of room to it back.
If you need 3% real, I don't think you've "won the game" as that is enough necessary return that you have to keep a decent chunk in risk assets.

1900-2018 real returns:

US equities: 6.75%
US bonds: 1.44%

So you'll still need to have 30-40% in equities (if equities have future real returns like they had in the past).

0% real return x years is the benchmark we use.
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

TomatoTomahto wrote: Sun Apr 18, 2021 9:35 am I
Please don’t take this the wrong way, but if you need 3% real, you haven’t “won the game.” You’re ahead in the 3rd period :sharebeer

IMO, winning the game means that 0% real is sufficient. Of course we’d rather have real gains, but we could withstand a 50%+decline in equities (our heirs would get less).
+1

0% real return for the rest of life is our benchmark having won.
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Re: What does "won the game stop playing" mean in practice?

Post by sycamore »

CurlyDave wrote: Sun Apr 18, 2021 10:52 am
goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
Here is true wisdom.

As long as I am alive and have any money of my own I have an AA and am "in the game". If I switch to all cash and store it under my mattress, all I am doing is assuring I will lose to any inflation at all.

What investment today produces 0% real, after taxes?

Why should I abandon the strategy that produced a nice nest egg over a lifetime of investing for one guaranteed to cut into that nest egg? If I get out of the game, the only question is whether inflation will chew it up quickly or slowly.
Not to disagree with the main part of your opinion above, but I have a question about your "Why should I abandon the strategy that produced a nice nest egg over a lifetime of investing for one guaranteed to cut into that nest egg?"

I think people who find wisdom in "stop playing when you've won the game" would say the answer is that your strategy also allows for a greater chance of breaking the egg and scrambling it. By using less risky assets like TIPS/bonds/etc., you can reduce (not eliminate) the downside risk that comes with stocks.

Do you agree with that? Is there any point along the stock/bond allocation spectrum where you think it'd be okay (for you) to reduce (but not eliminate) your stock exposure so as to, generically, reduce risk? Or are you saying you'd never go below a certain stock exposure?

I think those questions are another way of reframing the OP's question. "stop playing" for many people just means "cut back stock exposure"; for other people it means going full-bore Liability Matching Portfolio where stocks are only used in a risk portfolio.
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

tiburblium wrote: Sun Apr 18, 2021 9:42 am Do people really feel “safer” selling stocks and buying bonds in 2021?
I don't have any problem taking some profits from stocks right now and adding TIPS and STRIPS rungs to our LMP ladder.

This is securing guaranteed cash flow for the future.

Sure, because real yields are negative I have to "overbuy" in present dollars to meet future inflated needs, but I don't feel the slightest bit bad about that given the absolutely ridiculous gains in stocks the last few years.

I'm just taking a presently inflated asset class (stocks) and deflating it pre-emptively before the market does it in the next crash, anyway.
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Re: What does "won the game stop playing" mean in practice?

Post by illumination »

To me it's a crazy concept, but maybe it's supposed to be hyperbole to make a point?

I guess it's different for everyone, but I don't know how you can say you've "stopped playing" but still be in equities at any level. "Stop playing" means all investments that are nearly impossible to lose principal and are also liquid. And it's not a form of "dry powder" for when asset prices go down (that's still playing the game) it's how you intend to stay invested.

In today's environment, that essentially means being 100% invested in something that loses every year to taxes and inflation. Decades ago (probably when the term was first used?) you could pull this off and still be comfortable. Make 5%+ risk free in a relatively low inflation environment. If I could have that today, I would probably have 5x the amount of fixed income I currently have. I think you could make a strong case for someone to quit playing.

But I also don't know how people can accurately assess their expenses and lifestyle decades out. I have a relative that spends six figures a year on care givers that come to her home because she's become partially disabled later in life. There was no spreadsheet long ago that had that expense. Most middle-class people that I know did not have enough for the retirement they envisioned. It almost seems like only the really wealthy could have this luxury of completely turning off risk.

You just have to be some combination of really rich or live a very frugal lifestyle to be 100% in "no risk" investments and be comfortable in today's environment. But obviously most people somehow get by without having much of a nest egg at all to worry about their asset allocation.
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

sycamore wrote: Sun Apr 18, 2021 11:26 am

I think those questions are another way of reframing the OP's question. "stop playing" for many people just means "cut back stock exposure"; for other people it means going full-bore Liability Matching Portfolio where stocks are only used in a risk portfolio.
I am always a little confused whether Bernstein meant "cut back" stocks or "sell all (or some of) your stocks and buy a TIPS ladder" since he talks about both. The scenario is also confused by talking about "expenses you absolutely must meet" and "discretionary expenses" and also the concept of having a "risk" portfolio. Note that at low real interest rates TIPS and annuities are expensive and the advice might not look the same today.

When someone has unwisely introduced a confusing curve ball the best resolution is to go back and read Bernstein in greater detail and see if it makes sense.
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Re: What does "won the game stop playing" mean in practice?

Post by epictetus »

If I recall correctly Bernstein indicated that once you had accumulated a certain amount you could put X years worth (it was either 20 or 25) of expenses into something safe and then you could invest the remainder anyway you liked from more risky to more conservative.

I think his phrase "won the game" refers to having accumulated enough you could cover X years worth of expenses. So if you set that amount aside you would no longer be taking significant risk with that amount.

I have found that a helpful concept myself and one that I have implemented.
Last edited by epictetus on Sun Apr 18, 2021 11:38 am, edited 1 time in total.
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Re: What does "won the game stop playing" mean in practice?

Post by aj76er »

This is a phrase by William Bernstein. I believe this phrase was accompanied by something like the following: “ to a young person, stocks are relatively safe; to a middle-aged person stocks are pretty risky; and for an older person stocks are absolutely toxic“. I interpret this to mean that an asset allocation should vary based on a persons age and or size of assets. If looking just at age-appropriate AA, it should be something as follows:

20’s - 30’s : 100/0, 90/10, 80/20
40’s - 50’s : 70/30, 60/40, 50/50
60’s - 70’s : 40/60, 30/70, 20/80

In a similar manner you could look at this in terms of size of the portfolio, as follows:

<25x : 100/0, 90/10, 80/20
25x - 33x : 70/30, 60/40, 50/50
> 33x : 40/60, 30/70, 20/80

So when you hit one of these milestones, you should generally “quit playing” and take some risk off the table by moving to a more conservative asset allocation.

Between the two metrics above, I would say “age” is the more dominant factor. For example, if someone in their 20s gets a large windfall then they should probably still be relatively aggressive because they have a long expected time to let the assets grow. Alternatively, if somebody in their 70s has less than 25X expenses saved, then they should probably still be relatively conservative with their AA as they don’t have much time to recover from a large market decline.
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Re: What does "won the game stop playing" mean in practice?

Post by reln »

MathWizard wrote: Sun Apr 18, 2021 9:28 am I've often seen answers include the recommendation "When you've won the game,stop playing."

What does this mean in practice?

I have won the game in the sense that assuming a 3% real return, that I can maintain my usual lifestyle, plus travel, plus a side stash of $50K for some completely unexpected expense . Our usual lifestyle is 50% more than our minimal spending this last year, so we have lots of room to it back.

So what does stop playing mean?

If I convert all to cash, I haven't won the game, since I won't get 3% real, and I have inflation risk .

Does it mean to create a large cash cushion ,( multiple years of expenses), and shift to more bonds,changing what had been your AA?

Without some specific action to take, the recommendation is of no use.

Another way to look at valuations relationship to future returns is validations relationship to sustainable withdrawal rates. They are also inversely related. So high valuations will tend to support lower withdrawal rates and low valuations will tend to support higher withdrawal rates.
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Re: What does "won the game stop playing" mean in practice?

Post by Impatience »

At best, it means trading future expected returns for a lower variance portfolio (so more fixed income). You have enough money already so you’re more interested in protecting it. That could mean you go from 100% equity to 60/40 ... or it could mean 100% cash.

At worst it’s just an excuse to start defensively market timing late in life. I haven’t done a study or anything but most peoples’ attempts to “stop playing the game” probably result in significant lost value. But hey they already have gobs of money so the emotional comfort is probably worth it.
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Re: What does "won the game stop playing" mean in practice?

Post by reln »

goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
Agreed 👍.

Sound bites take a life on their own.
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Re: What does "won the game stop playing" mean in practice?

Post by epictetus »

here is a link to a White Coat Investor article that gives some good info on the topic:

https://www.whitecoatinvestor.com/berns ... -the-game/
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Re: What does "won the game stop playing" mean in practice?

Post by ByThePond »

I doubt the estimable Dr. Bernstein meant his statement to be taken literally and to the extreme. I sure didn't, but I acted upon it.

Approaching retirement, I had an AA of 100/0. I bought a SPIA with about 45% of the portfolio and set my remaining portfolio to about 80/20. If you count the SPIA as a non-equity part of the portfolio, our overall AA might be about 45/55.

The realization that I had a lot to lose and nothing meaningful to gain in terms of needed funds prompted a flight to safety over risk.

So now, with the SPIA and a lesser SS, our portfolio is beyond 40x residual expenses. When the second SS kicks in, in a couple of years, the remaining portfolio becomes completely superfluous unless something really drastic happens. As already noted, this lets one either invest conservatively or aggressively, and I choose to be a bit aggressive.

This wouldn't be the case if I hadn't stopped "playing the game" with the funds that went to the SPIA. So, yes, I acted upon Dr. Bernstein's advice, but in a measured way.
Last edited by ByThePond on Sun Apr 18, 2021 11:51 am, edited 1 time in total.
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Re: What does "won the game stop playing" mean in practice?

Post by JVT »

I think 'winning the game' means different things to different people, even the definition of 'the game' is not universal and every one colors their view through their own lens.

For some people, the game refers solely to funding their own retirement and with no bequest or charity motivation - there is little marginal utility of wealth past the point where this goal is covered. In this case it makes sense to derisk your portfolio such that your 'achieved' goal is never at risk. In this case you have to balance market risk and inflation risk, so unless a 0% real return is sufficient in my mind this will always contain at least 25% stocks. It is also incredibly difficult to know when your retirement is never at risk, as a medical breakthrough could extend your horizon or an unexpected expense could tax your resources, but a high number of multiples you are comfortable with is generally accepted.

For other people with a bequest or charity motivation, myself included, the game includes these excess funds. I know myself - I will always be a W-2 wage earner with reasonable indexed investment returns and this will preclude some stratospheric net worth from an IPO or owning my own company. As a result I will never 'win the game' as there is still a marginal utility of wealth past my own needs and it makes sense to continue investing more aggressively towards covering these additional motivations. The IPS I wrote in 2014 included derisking to higher bond ratio as I approached a target multiple of expenses and increasing risk as I got to higher multiples, though with reflection a liability matching portfolio where I let the excess run in stocks has appeal. If I am at 50x expenses, there is no reason I cant be at 80%+ stock regardless of my age - I will be fine even if it drops 50% and does not come back in my lifetime.

I also color this through my own experiences and those I see other people going through. One set of my grandparents have been playing it very defensively and they could based on a 7 figure net worth 25 years ago. Now after years of low growth due to investing 100% in dividend stocks, some bad bets like a large Wachovia position, and facing 4% per year draw based on the costs of a memory care unit for my grandfather on top of other costs - my grandmother is looking at having to sell the farm that has been 'the homeplace' since the 1800's. On the other side of my family I watched a pension that was not indexed for inflation reduce my other grandmothers standard of living, ultimately going on Medicaid after draining all funds before she died.

I will over save on top off two federal pensions, I wont take my foot off the gas, and at some point my heirs and charity will appreciate what's left over and I am ok with that.
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Re: What does "won the game stop playing" mean in practice?

Post by Abe »

Warren Buffett put it this way:
“Never risk what you have and need for what you don't have and don't need.”
Slow and steady wins the race.
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Re: What does "won the game stop playing" mean in practice?

Post by BH+ »

My take is that once I reach 40x annual expenses, I will change my asset allocation to 20/80 and keep it there indefinitely.

The 20% stock allocation is there to provide a buffer against inflation and (ever so slightly) participate in prosperity (avoiding FOMO).
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

lazynovice wrote: Sun Apr 18, 2021 10:10 am
Liability Matching Portfolio is what you should look at for more robust discussions on this topic. I’m not totally sold on a pure LMP concept. It seems too conservative to me so maybe I have not really won the game yet.
I'm not sold on LMP to infinity into the future, but we compromise on having rolling 10 YR LMP ladder.
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Re: What does "won the game stop playing" mean in practice?

Post by retired@50 »

tiburblium wrote: Sun Apr 18, 2021 11:10 am
retired@50 wrote: Sun Apr 18, 2021 9:50 am
tiburblium wrote: Sun Apr 18, 2021 9:42 am
retired@50 wrote: Sun Apr 18, 2021 9:34 am I always interpreted that phrase to mean something like "Buy some US Treasury bonds and possibly one or more SPIAs."

In other words, convert your game winnings to guaranteed or extremely safe sources of income so a market downturn won't affect your lifestyle.

Regards,
Do people really feel “safer” selling stocks and buying bonds in 2021?
Sure, if you buy enough of them.

In other words, if you have so much money that the 10, 20 or 30 year T-bond yield is sufficient, then you've won the game. Unless you somehow suspect that the US Government will default on it's debt. The same tiny risk exists with SPIAs and insurance companies.

Regards,
Your assuming a predictable level of inflation, that’s a risk
TIPS are also US Treasury bonds. So, my statement may have lacked detail, but I didn't assume anything about inflation.

Regards,
This is one person's opinion. Nothing more.
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Re: What does "won the game stop playing" mean in practice?

Post by lazynovice »

watchnerd wrote: Sun Apr 18, 2021 12:06 pm
lazynovice wrote: Sun Apr 18, 2021 10:10 am
Liability Matching Portfolio is what you should look at for more robust discussions on this topic. I’m not totally sold on a pure LMP concept. It seems too conservative to me so maybe I have not really won the game yet.
I'm not sold on LMP to infinity into the future, but we compromise on having rolling 10 YR LMP ladder.
We have about 10 years of pre-SS expenses in bond index funds. When I retire, I will have 17 years or so to maximum SS, so do I need 17? I don’t want 17x in bonds and cash right now. I’m still working and can increase the fixed income amount by a several years with one year of savings, so I still have some time to decide.
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Re: What does "won the game stop playing" mean in practice?

Post by MathWizard »

Thanks for all the responses, and the article which quotes Bernstein.

I do have the kids through college, and own my own home,no debt.

I should have said that I needed 3% real to not deplete the principal after I claim SS benefits (which I assume are 75% of the estimated benefits). I also planned for one of us to reach 100.
The 4% real from the Trinity Study allowed for depletion of principal, and so for safety, I went to 75% of that,just like SS benefits.

If instead I assume only a 30 year retirement, getting to 93, forgo the $50K buffer, and assume 0% real, depleting the portfolio by age 93, then I am well above my minimum spend, and within $1.5K of my target, which includes travel. Even with this lower amount I am $ 20K above minimum required spend (including amortized large expenses like house maintenance and car replacement).
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Re: What does "won the game stop playing" mean in practice?

Post by MathWizard »

lazynovice wrote: Sun Apr 18, 2021 10:10 am Is the 50k stash a per year amount or a one time fund? If it is per year, how material is that to your annual number? If you take that number to something more reasonable (50k every five years- I don’t know) does the 3% real come down? If you have 50% flexibility in your expenses, seems like absorbing part of the 50k might be possible- the year you buy a car, you travel less for instance.

I have seen various definitions for “won the game.” 25x of expenses for a regular retirement, 33x expenses for an early retirement. Some people count social security, others don’t.

To me, as we run just about all the calculators we can, do our own spreadsheets, etc. it means we can’t find one that shows us running out of money before ages 95/97. Assuming 0% real, if I retire at 53, plan to live to 97, then 44x gets me there. Now, we debate “what is X”

As to what to do when you have won, you set aside a certain number of years in safe assets. I have seen anywhere from 10 years to 25 years for that. And then some people go 100% equities with the rest or set it up at any AA that is comfortable for them.

Liability Matching Portfolio is what you should look at for more robust discussions on this topic. I’m not totally sold on a pure LMP concept. It seems too conservative to me so maybe I have not really won the game yet.
$50K buffer is one-time. My minimum spend is only $50K, and is it even truly minimal. It still includes internet, cell phones, Netflix, nice cars, and occasional takeout ,along with the regular utilities.

I am looking at spending a bit of the funds outside my portfolio to install solar PV. I thought it would not pay for itself, but costs have gone way down, and it likely will save money over its and my lifespan, even taking into account time value of money. It's also like a SPIA in that I pay upfront and though I don't lock in an income stream,I lock in not having to spend money. This also prevents rate increases and I don't have to pay taxes on the money I would had had to earn to pay the electric bill .
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