market timer wrote:azanon wrote:So, in summary, my opinion is the most conservative of retirement investors, but still logical, investors implements a best-guess at a MVP of about 30% equities (though more recent guesses have this figure closer to 40%). Going to a full-blow TIPS/CDs/SPIA up to a LMP which will be the entire amount based on what most people actually retire on, is way too conservative. It's illogically conservative.
Asset prices are volatile, but so are liabilities. Where I think LMP differs from MPT is that the former considers the volatility of both assets and liabilities, while the latter just considers the volatility of assets. As a result, what LMP considers a riskless investment, such as an inflation-adjusted SPIA, is perceived as risky by MPT, because the present value fluctuates with interest rates.
I understood what you just said, but I'm still not understanding why it matters. So, Bengen actually based the 4% SWR study on a 60/40 portfolio. So lets say you want to give "volatility" the maximum deference with no regard for return, so you throw out the 60/40 and go for the least volatile (most predictable/steady/consistent) portfolio. If I understood Markowitz's work correctly, that's actually still the ~ 30/70, not the 0/100. The 0/100 is more volatile, and more volatility is bad. I admit I'm not getting it yet, and fear there's nothing to get!?!
Liabilities would be a mutually exclusive variable operating to the beat of its own drum. If anything, liabilities are most likely to be most greatly affected by inflation. So, if that's true, even Dr. Bernstein has suggested that stocks are as good as anything at combating inflation, and I would think, on average, far better at it than even TIPS. Again, sure there's going to be that > 2SD event where stocks actually lose, but then my point is similar to one Larry Swedroe's made, which is why pay such a very high price in a futile attempt to address that last < 5% chance you fail, when you're more likely to die?
Let's just get right down to it. My "simple" grandfather (very kind, simple man, now gone God rest his soul) who knew nothing about investing put all his money in CDs. Surely, someone's not going to tell me after all I've learned, that he was actually doing the right thing?!? Look, I'm as cautious as anyone I know. But I'm drawing the line somewhere!