The Argument for More Stocks in Retirement

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Mon Dec 19, 2016 5:49 pm

Dear Mr Larimore,

Of course, you’re right – one shouldn’t take unnecessary risk during retirement.

But that’s just the point. Counterintuitive as it may seem, an equity-heavy retirement portfolio is less risky – far less risky – than an FI-heavy portfolio. The historical record across the globe and over more than a century is unequivocal on this point – one dismisses it at one’s peril.

Conventional wisdom and our instincts mislead us: an FI-heavy portfolio only gives the *illusion* of safety. An FI-heavy portfolio (particularly now) dooms us to meagre returns, while still leaving us exposed to potentially devastating black swans. (Serious inflation is as least as great a danger to our financial health as any stock market crash!)

The risks that matter most in retirement are prematurely running out of money or living like a pauper trying to stave off that result.(1) Fluctuations in the value of our holdings, while possibly unsettling, are not a real threat to our financial wellbeing – they aren’t a risk! Unless, of course, we become our own worst enemy and make it so! So says the historical record.

Caution and prudence in financial matters are commendable; cowardice is not. Especially when that cowardice is triggered, not by a real risk, but only by overreaction to a misperception.

In short, we should let our head make the decisions regarding our retirement portfolio, not the butterflies in our stomach. If we’re going to be risk-averse, at least let’s make sure we’re being averse to a real risk :-)

Regards,

(1) And the corresponding risk prior to retirement is that, in accumulating enough for an FI-heavy retirement portfolio, we deprive ourselves and our families far more than is necessary and/or needlessly postpone our retirement. Reasonable folks can debate whether a multiple of 20, 30, or even 40 is necessary, but multiples larger than that are indicia that we have crippled our present to fend off imaginary hobgoblins in our future. Cowardice, not prudence.

User avatar
Taylor Larimore
Advisory Board
Posts: 26113
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Reply to rapporteur

Post by Taylor Larimore » Mon Dec 19, 2016 6:24 pm

Dear Mr Larimore,

Of course, you’re right – one shouldn’t take unnecessary risk during retirement.

But that’s just the point. Counterintuitive as it may seem, an equity-heavy retirement portfolio is less risky – far less risky – than an FI-heavy portfolio.

rapporteur:

My millionaire grandfather was 100% in stocks and died a bankrupt. I have been retired for 35 years so I've also had experience on what works and what doesn't.

Consider that ALL mutual fund company experts design their target portfolio to increase fixed-income as investors become older.

You might want to reconsider decreasing fixed-income in retirement.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Re: Reply to rapporteur

Post by Rodc » Mon Dec 19, 2016 7:37 pm

Taylor Larimore wrote:
Dear Mr Larimore,

Of course, you’re right – one shouldn’t take unnecessary risk during retirement.

But that’s just the point. Counterintuitive as it may seem, an equity-heavy retirement portfolio is less risky – far less risky – than an FI-heavy portfolio.

rapporteur:

My millionaire grandfather was 100% in stocks and died a bankrupt. I have been retired for 35 years so I've also had experience on what works and what doesn't.

Consider that ALL mutual fund company experts design their target portfolio to increase fixed-income as investors become older.

You might want to reconsider decreasing fixed-income in retirement.

Best wishes
Taylor


Great Depression?

A really good time to have some bonds for generating income so you don't have to liquidate stocks for pennies!
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

itstoomuch
Posts: 4686
Joined: Mon Dec 15, 2014 12:17 pm
Location: midValley OR

Re: Reply to rapporteur

Post by itstoomuch » Mon Dec 19, 2016 7:55 pm

Taylor Larimore wrote:...
You might want to reconsider decreasing fixed-income in retirement.

Best wishes
Taylor

That's a great Idea. :idea:
Believe it or not, I'd hadn't thought of this. :oops:
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Mon Dec 19, 2016 8:03 pm

Dear Mr Larimore,

I’m going to take the liberty of dealing with your points out of order.

First:
I have been retired for 35 years so I've also had experience on what works and what doesn't.


As I understand it, you retired in the early 1980s. If so, then Fortune truly smiled on you; you were dealt, if not a Royal Flush, then at least four-of a kind :-)

SWRs (sustainable withdrawal rates) starting then were about 10% - not much less than the highest they have ever been (13%) and very far indeed from the terrible SWRs of the late 60s and early 30s (about 4%). So while I rejoice in your good fortune, I am hesitant to draw strong conclusions from it – it would have been hard to bungle it.

My millionaire grandfather was 100% in stocks and died a bankrupt


As I understand from your current and previous posts, your grandfather’s misfortune was coincident with the 1929 and subsequent meltdown. Unlike your case, Fortune truly frowned on your grandfather – those were indeed very difficult times. And I can well understand that it left a very strong familial memory that has persisted in your family and still exerts a profound influence.

However, although I obviously don’t know the exact nature of your grandfather’s holdings (weren’t they mostly private equity, a family business?) and how he managed them, the historical record shows that, even then, a 100% broad equity portfolio (roughly equivalent to the S&P 500) would have given an SWR just under 4% while even the best portfolio (25% to 50% equity) would have done no better than 5.4%. So while this was one of the few periods in the last century or so that a 100% equity portfolio was not the best or nearly best, it did not grotesquely underperform.

In short, while I can (at least dimly) appreciate the impact this event had on your family, I think you are greatly overweighting it in your reluctance to endorse a high-equity retirement portfolio.

Consider that ALL mutual fund company experts design their target portfolio to increase fixed-income as investors become older.


Yes, they do. And they’re wrong!

(Although I would weasel and instead say ‘almost all’ – there are still a few honest advisors!)

Recall once again Keynes’ dictum that I cited about it being better to be conventionally wrong than unconventionally right. Equity/FI glidepaths have been analyzed to death by both academic researchers and financial practitioners and the benefits of increasing FI as one ages are very dubious indeed - the case for it, at best, is weak.

Persistence in error, even if blessed by conventional wisdom, is not a virtue!

You might want to reconsider "decreasing fixed-income in retirement.


Indeed so! In fact, what the historical record indicates is that we should *massively* reduce fixed income on Day One of our retirement and leave it reduced :-)

Regards,

User avatar
siamond
Posts: 3424
Joined: Mon May 28, 2012 5:50 am

Re: Reply to rapporteur

Post by siamond » Mon Dec 19, 2016 8:15 pm

Rodc wrote:Great Depression?

A really good time to have some bonds for generating income so you don't have to liquidate stocks for pennies!

This is actually not quite true. Bonds went through two truly miserable cycles, more or less aligned with the two world wars. Any retiree hit by the great depression would likely have been hit by one of those too (oh joy). if you backtest cycles (in real terms, adjusting for inflation, and that's real important here), you'll see that stock heavy portfolios would have fared better overall, even if the 1929 crisis was horrendous.

Case in point, use cFIREsim, starting data years 1900 to 1960 (i.e. 30yrs retirement cycles inside this window), and compare a 40/60 AA to a 80/20 AA. Even with a naive $40k flat withdrawal, 80/20 wins hands down. And with a bit of common sense in one's withdrawals, this would be even better.

Of course, I mean it from a pure mathematical standpoint and sitting in a warm house in front of my computer. Living through those crisis (stocks and bonds) would be another story, that is for sure. Just consider that if the great depression might have triggered you to panic, then the post-WW-II bond crisis would probably have been equally distressful (while much more insidious). What bugs me in those discussions is that few people seem to look at things in a balanced manner, due to recency bias. Focusing on stock drops is only part of the picture. Bond crisis is another part of the picture. There are SEVERE risks in both categories.

Yordle
Posts: 87
Joined: Tue Nov 15, 2016 12:42 am

Re: The Argument for More Stocks in Retirement

Post by Yordle » Mon Dec 19, 2016 8:19 pm

Hear hear rapporteur! A better rebuttal than I was planning.

My point on the mutual funds can't be wrong argument:

Institutional dogma is entrenched and is hard to change. As are entrenched personal beliefs... These two can cause a nasty feedback loop: Who's gonna by a retirement fund that has no bonds, when popular belief dictates otherwise? Even if the fund director believes more stocks is warranted... he/she needs to sell their product in the end.
Last edited by Yordle on Mon Dec 19, 2016 8:20 pm, edited 1 time in total.

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Re: Reply to rapporteur

Post by Rodc » Mon Dec 19, 2016 8:20 pm

siamond wrote:
Rodc wrote:Great Depression?

A really good time to have some bonds for generating income so you don't have to liquidate stocks for pennies!

This is actually not quite true. Bonds went through two truly miserable cycles, more or less aligned with the two world wars. Any retiree hit by the great depression would likely have been hit by one of those too (oh joy). if you backtest cycles (in real terms, adjusting for inflation, and that's real important here), you'll see that stock heavy portfolios would have fared better overall, even if the 1929 crisis was horrendous.

Case in point, use cFIREsim, starting data years 1900 to 1960 (i.e. 30yrs retirement cycles inside this window), and compare a 40/60 AA to a 80/20 AA. Even with a naive $40k flat withdrawal, 80/20 wins hands down. And with a bit of common sense in one's withdrawals, this would be even better.

Of course, I mean it from a pure mathematical standpoint and sitting in a warm house in front of my computer. Living through those crisis (stocks and bonds) would be another story, that is for sure. Just consider that if the great depression might have triggered you to panic, then the post-WW-II bond crisis would probably have been equally distressful (while much more insidious). What bugs me in those discussions is that few people seem to look at things in a balanced manner, due to recency bias. Focusing on stock drops is only part of the picture. Bond crisis is another part of the picture. There are SEVERE risks in both categories.


interesting. Thanks.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

lack_ey
Posts: 5692
Joined: Wed Nov 19, 2014 11:55 pm

Re: The Argument for More Stocks in Retirement

Post by lack_ey » Mon Dec 19, 2016 8:33 pm

The thing about these Trinity study-style formulations is that there's generally some kind of implicit belief and confidence in having those particular return sequences, in which there's some apparent negative autocorrelation of returns baked in / reversion to mean.

If you're for example 100% stocks, I think 3.6% withdrawal rate is safe for let's say 30 years. Or something like that, maybe a little more. Anyway, let's say you're minding your business withdrawing about that much, and five years later your account balance is about 50% of the original in real terms. Maybe a couple flat years and then a couple bad years or something, nothing particularly likely but very far from impossible. So currently your withdrawals are 7.2% of the current amount. The analysis at the starting point indicated that based on history you should be pretty much 100% okay. Bumps along the way: no problem. But if you do another analysis based on the then-current information, you're looking at proposing a 7.2% withdrawal rate for 25 years*. Totally safe, of course, given observed historical sample paths considered five years ago. Statistics!

:twisted:

*actually if at the starting point you were calculating a X-percentile life expectancy of 30 years, your remaining X-percentile life expectancy 5 years later conditioned on being alive then is probably a little bit more than 25 years but let's just say it's 25 because this doesn't really change the point being made.

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Re: The Argument for More Stocks in Retirement

Post by Rodc » Mon Dec 19, 2016 8:41 pm

lack_ey wrote:The thing about these Trinity study-style formulations is that there's generally some kind of implicit belief and confidence in having those particular return sequences, in which there's some apparent negative autocorrelation of returns baked in / reversion to mean.

If you're for example 100% stocks, I think 3.6% withdrawal rate is safe for let's say 30 years. Or something like that, maybe a little more. Anyway, let's say you're minding your business withdrawing about that much, and five years later your account balance is about 50% of the original in real terms. Maybe a couple flat years and then a couple bad years or something, nothing particularly likely but very far from impossible. So currently your withdrawals are 7.2% of the current amount. The analysis at the starting point indicated that based on history you should be pretty much 100% okay. Bumps along the way: no problem. But if you do another analysis based on the then-current information, you're looking at proposing a 7.2% withdrawal rate for 25 years*. Totally safe, of course, given observed historical sample paths considered five years ago. Statistics!

:twisted:

*actually if at the starting point you were calculating a X-percentile life expectancy of 30 years, your remaining X-percentile life expectancy 5 years later conditioned on being alive then is probably a little bit more than 25 years but let's just say it's 25 because this doesn't really change the point being made.


That is a very real issue. No one in real life is likely to continue with this plan.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

lack_ey
Posts: 5692
Joined: Wed Nov 19, 2014 11:55 pm

Re: The Argument for More Stocks in Retirement

Post by lack_ey » Mon Dec 19, 2016 8:48 pm

Rodc wrote:That is a very real issue. No one in real life is likely to continue with this plan.

Yeah but we're so conservative not even the Great Depression is a problem and Bogleheads told me it was the safest allocation possible (conventional wisdom is wrong and the other guys and gals are cowards / not honest financial advisers), and I better stay the course!


Note: the last couple posts neither meant 100% seriously or 100% as a joke.

Quark
Posts: 1045
Joined: Sun Nov 01, 2015 5:32 pm

Re: The Argument for More Stocks in Retirement

Post by Quark » Mon Dec 19, 2016 8:50 pm

lack_ey wrote:The thing about these Trinity study-style formulations is that there's generally some kind of implicit belief and confidence in having those particular return sequences, in which there's some apparent negative autocorrelation of returns baked in / reversion to mean.

If you're for example 100% stocks, I think 3.6% withdrawal rate is safe for let's say 30 years. Or something like that, maybe a little more. Anyway, let's say you're minding your business withdrawing about that much, and five years later your account balance is about 50% of the original in real terms. Maybe a couple flat years and then a couple bad years or something, nothing particularly likely but very far from impossible. So currently your withdrawals are 7.2% of the current amount. The analysis at the starting point indicated that based on history you should be pretty much 100% okay. Bumps along the way: no problem. But if you do another analysis based on the then-current information, you're looking at proposing a 7.2% withdrawal rate for 25 years*. Totally safe, of course, given observed historical sample paths considered five years ago. Statistics!

:twisted:

*actually if at the starting point you were calculating a X-percentile life expectancy of 30 years, your remaining X-percentile life expectancy 5 years later conditioned on being alive then is probably a little bit more than 25 years but let's just say it's 25 because this doesn't really change the point being made.

A while back I was browsing some earlier posts on this board. Around the time of the financial crisis, there was a poster who found this to be a major and unacceptable problem. Others pointed out that rational people adjust rather than blithely continuing at what would now be 7% (or whatever) withdrawal rate. After pounding on the point for a while, he ultimately went away.

I wish I could remember his name or find his posts, but perhaps this triggers someone else's memory.

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Mon Dec 19, 2016 10:59 pm

Dear Yordle,

You said:
Hear hear rapporteur! A better rebuttal than I was planning.

To paraphrase the “Hitchhiker’s Guide to the Galaxy,” “Am I not a more fierce disputant than the neutronwrangler of Ciceronicus V?”

In short, I love to argue, whatever the topic. I was trained in argumentation and rhetoric by the ultimate sophists, Jesuits, who embody the very notion of casuistry (i.e., they're jesuitical). So, like a lawyer (that other great school of casuistry), I can argue either side of a proposition - any fool can win if logic and the facts are on his side, but it takes real skill to win without either. (A half century ago I won a debate of the proposition: Resolved – Hitler was the greatest man in history.)

But, sadly, I have the social judgment and discernment of a newt (as this paean to my niftiness amply attests). And so I must usually submit my posts to screening by my wife or son, asking “Is this too harsh?”

However, I am comforted by Voltaire’s dictum, “Nobody is completely useless; even the worst can serve as a horrible example.”

Moreover, as a further compensatory measure, I have managed to convince myself that at least I am a catalyst for rational thought, helping to flesh out – and flush out - all aspects of the question under consideration.

Regards,

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Mon Dec 19, 2016 11:57 pm

Dear lackey,

You said,
If you're for example 100% stocks, I think 3.6% withdrawal rate is safe for let's say 30 years. Or something like that, maybe a little more. Anyway, let's say you're minding your business withdrawing about that much, and five years later your account balance is about 50% of the original in real terms. Maybe a couple flat years and then a couple bad years or something, nothing particularly likely but very far from impossible. So currently your withdrawals are 7.2% of the current amount. The analysis at the starting point indicated that based on history you should be pretty much 100% okay. Bumps along the way: no problem. But if you do another analysis based on the then-current information, you're looking at proposing a 7.2% withdrawal rate for 25 years*. Totally safe, of course, given observed historical sample paths considered five years ago. Statistics!

Yes, this could happen, although one should be careful not to conjure up too many 'worst-case', 'near-worst cases', and 'just pretty bad cases' and then concatenate them, lest one frighten oneself into overcompensating. What if sharks with lasers on their head invaded the NYSE? :-)

So, yes, the scenario you describe might well happen. But if it did, the 7.2% for 25 more years should not scare you silly. Why? Because it also means the CAPE would have fallen by half and the prospects for improved perfromance in future are now much better than before. No guarantees, of course, but all we can do is manage the risks and consequences and play the odds when they favour us. As a Damon Runyon character once observed, "The race is not always to the swift, nor the battle to the strong, but that's the way to bet."

Regards,

lack_ey
Posts: 5692
Joined: Wed Nov 19, 2014 11:55 pm

Re: The Argument for More Stocks in Retirement

Post by lack_ey » Tue Dec 20, 2016 4:01 am

rapporteur wrote:Dear lackey,

You said,
If you're for example 100% stocks, I think 3.6% withdrawal rate is safe for let's say 30 years. Or something like that, maybe a little more. Anyway, let's say you're minding your business withdrawing about that much, and five years later your account balance is about 50% of the original in real terms. Maybe a couple flat years and then a couple bad years or something, nothing particularly likely but very far from impossible. So currently your withdrawals are 7.2% of the current amount. The analysis at the starting point indicated that based on history you should be pretty much 100% okay. Bumps along the way: no problem. But if you do another analysis based on the then-current information, you're looking at proposing a 7.2% withdrawal rate for 25 years*. Totally safe, of course, given observed historical sample paths considered five years ago. Statistics!

Yes, this could happen, although one should be careful not to conjure up too many 'worst-case', 'near-worst cases', and 'just pretty bad cases' and then concatenate them, lest one frighten oneself into overcompensating. What if sharks with lasers on their head invaded the NYSE? :-)

So, yes, the scenario you describe might well happen. But if it did, the 7.2% for 25 more years should not scare you silly. Why? Because it also means the CAPE would have fallen by half and the prospects for improved perfromance in future are now much better than before. No guarantees, of course, but all we can do is manage the risks and consequences and play the odds when they favour us. As a Damon Runyon character once observed, "The race is not always to the swift, nor the battle to the strong, but that's the way to bet."

Regards,

Having an account down by half in five years doesn't imply CAPE half of before. First of all, the withdrawals reduce the account balance themselves so it's not just about price action. Secondly, who says earnings necessarily stayed put? Could be earnings are down say 15%, price multiples down some 20%, some withdrawals, and the right sequence of events bringing your balance to 50% of the start. Or some other combination.

Besides, hopefully we all know that CAPE is not all that predictive of future returns (on our data available) when you actually analyze the data correctly.

I didn't say anything about being scared silly and am not dreaming up scenarios beyond the pale. There are plenty of worse sequences in the historical record looking beyond the US, for example, if you really want to test using actual data. Or if you prefer, bootstrap US returns data so and look at randomized/reordered sequences of let's say yearly historical returns. These are plausible.

When the data is this limited and possibly non-representative of future conditions, you can't operate under assumptions that outcomes outside of your sample are nigh impossible. Economic growth in the 19th and 20th centuries was unusually good in all of human history, and most all our financial data and theories are derived from this time. Maybe things slow down. Or stock growth accelerates even as population growth really hits the breaks. You never know.

You talk about managing the risks and consequences but don't seem to extend this to the idea that maybe some of your models or underlying assumptions are wrong. A lot of mine could be too.

It's one thing to think that 100% stocks is likely the best, given the historical data available. It's another to be so confident in it that alternative interpretations are rejected as conventionally wrong and definitely not what the honest advisors would think.

Clive
Posts: 1951
Joined: Sat Jun 13, 2009 5:49 am

Re: The Argument for More Stocks in Retirement

Post by Clive » Tue Dec 20, 2016 5:54 am

100% stocks is excessive single asset class risk. One reason that could be critical is if say you were 100% loaded into a index fund and were forced to move (sell/repurchase) that funds/asset inducing a single year large tax event. In the UK we're already starting to see funds being taxed differently to individual stocks. As another example, comparing 90/10 stock/T-bill as advocated by Buffett, compared to a Talmud (third each in land, merchandise, reserves) for all calendar year granularity 30 year periods since 1896 and after costs, taxes and inflation for Jo-Average (most common tax rates) and the two compared quite similarly for worst and average cases for a UK investor that held US stocks (US might have been considered more of a emerging market over that history). Stock heavy provided the better best case. Swap out US stock for UK stock however and stock heavy compared to the Talmud blend, whilst min and average cases were better for the Talmud.

Increase the tax burden i.e. move to higher rate tax levels however and the Talmud wiped the floor (was better). One example for such lagging by stock-heavy was punitive taxation at the worst possible time, and that situation wasn't just coincidental, occurring when inflation, interest rates/dividends were also relatively (significantly) high. During Denis Healey's period as Chancellor of the Exchequer inflation arithmetic averaged 16% and in one of those years taxation exceeded 100% from a consequence of high taxation later having a retrospective tax also being applied. Higher rate taxation was up at 95% levels for years/decades prior to Healey's 1974-1979 years, for instance the Beatles 1966 album Revolver include the song 'Taxman' that sung about ... "19 for you, 1 for me, taxman" ... i.e. 95% tax rates.

The difference between historically successful countries and less successful tends to be that the less successful endured one relatively brief period in the context of a century+ timescale of a bad outcome. All-stock and in particular a single countries stock exposes you to a large single asset/region risk factor. Whilst wider diversification is more inclined to encounter a bad case, the diversification dilutes down the impact of such a hit to (generally) levels that can be recovered from. A single case large loss generally tends to be critical/financially fatal, more so if the portfolio is also being burdened with withdrawals (retirement years income).

Personally I believe the Talmud to be better than the three-fund - at least for a UK investor (much less so for US investors due to regulation/taxation policies). Three-fund is still relatively concentrated into such risks as fund regulation/taxation factors and is over-exposed to single income tax risk. With a Talmud comprised of perhaps own-home, US stocks (from a UK investors perspective) and physical gold, 3% 'income' might be sourced 1% from liability matched 'rent' (imputed rent benefit), 1% from stock dividends and 1% from top-slicing (out of capital value/gains, which are aided by 'trading' (rebalancing)). Accepting that one of those may be totally devastated sooner or later. Uninsured loss of a London home such as being bombed during WW2. Gold 'confiscated' (compulsory purchased at one gold fix price level to then have the gold fix price ramped 70% higher (1933/34 US)). Stocks/interest rates/income punitively taxed .... type risks. Or a black swan type event. Assets that pay little or no income, that can be reduced to create a 'dividend' at a time and to the amount that suits personal needs helps reduce income tax risk. If its bad to sell/reduce a asset at one time, then you can hold off/defer until it's less punitive to sell/reduce. If like stocks/bonds regular income is being depicted to you, then income tax risk is much more of a concern (unavoidable).

Yes mathematically and based on selective history and 100% stock can appear to be a good choice. The realities however could be considerably different and as such 100% stock should be looked at as being too concentrated a risk. Part of historic relatively high rewards from such concentration are a reflection of overlooking the real risks. Diversify that risk and the indications are that the higher apparent all-stock reward is proportional-to/reflective-of the risk being taken. Many however (incorrectly) consider the premium to be a free-lunch.

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Tue Dec 20, 2016 2:54 pm

Dear lackey,

I spoke above about the difference between financial caution and financial cowardice.

It’s said that a coward dies a thousand deaths… Well, a financial coward imagines a thousand black swans any one of which will peck his portfolio to death. So he foolishly tries to cobble together a portfolio that could withstand them all, and when that fails, he closes his mind to the horrors he has imagined and flees to the comfort of conventional wisdom, such as the hoary ‘age in bonds’. FI as 'comfort food' to calm the mind.

Rather than imagining, shall we instead look at what has *actually happened* over the last century or so across the world? Yes, overall it was a time of strong economic growth, but with more than a few ‘rough patches’, some very rough indeed! Two world wars, and a host of lesser ones, some pretty big (Korea, Vietnam…); multiple depressions, including the biggest one on record, deflation and inflation, including hyperinflation in some developed countries; government confiscation and extortionate taxation – yep, the last century or so saw them all. Seems like a pretty tough series of ‘stress tests’ to me!

And what was the best retirement allocation strategy across all that strife and stress. Yep, a high equity portfolio! The best protection both in good times and bad! Not quite a 'one size fits all' solution but getting there.

Let’s look, for instance at Germany. The big loser in two devastating world wars, with a terrible depression and the worst hyperinflation ever in a developed country sandwiched in between. What was the best retirement allocation? 70:30 (equity:FI) with a failure rate (for 4%SWR) of 53.5%. How did 100% equity do? 54.7% failure rate, only a percent or so higher but mostly with much greater accumulations in good times than 70:30. High equity, even very high equity was the way to go.

Never was an FI-heavy portfolio a good idea In fact, even the *lowest* optimum allocation (Switzerland & Japan) was 50% equity, and far higher equity allocations were only slightly inferior in terms of failure rates while doing spectacularly better in good times. In short, equity-heavy *always* beat FI-heavy! And very-high equity usually beat high equity, only falling *slightly* short of it in bad times while outperforming strongly in good times. The pervasiveness and consistency of the pattern is astounding!

But you think we shouldn’t learn our history lesson? Why? Because, pandering to our black swan imaginings, we tell ourselves 'This time it’s different' – or even more lamely 'This time *may* be different'? True, the future provides us no guarantees, but that’s not a good reason to discard a proven strategy for an inferior one – just in case!

To protect ourselves from our black swan imaginings, we ‘d be deviating from a strategy with a great track record of working (equity heavy) into a strategy with a long history of being demonstrably inferior (FI heavy). Adopt a high FI allocation, supposedly for greater protection? Talk about jumping into the canal to get out of the rain!

Regards,

PS Sorry to hit and run, but real life has intervened and I’ll be travelling, and so must lay down my cudgels for a while. But I’ll be back.

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Tue Dec 20, 2016 3:17 pm

Dear Clive,

The historical record is clear – very high equity in a retirement portfolio not only produces the best returns in good times (nice!) but provides the best protection in bad times (essential!).

FI would be great if it provided what it seems to promise - safety – but the track record is that it doesn’t!

And Estrada’s data only looked at the portfolio equity components confined to the respective countries – an internationally diversified equity portfolio would have been even more robust!

Given these results, I maintain that the burden of proof falls squarely on the shoulders of anyone maintaining that a retirement portfolio should have more than say, 25% FI. (1) Hand-waving in terms of ‘conventional wisdom’ is a feeble reed to oppose the clear message of a century+ of data from 20 developed countries.

Regards,

1) I’m talking about a vanilla equity/FI portfolio, ignoring for the time being refinements like annuities, commodities, etc.

PS Yes, there can be confiscatory actions by governments, either directly or through taxation. It didn’t matter in Russia in 1917 if your portfolio was 100% equity, 100% FI, or somewhere in between – you lost it all. Short of becoming a 'financial prepper' I think we can ignore those black swans for the moment.

lack_ey
Posts: 5692
Joined: Wed Nov 19, 2014 11:55 pm

Re: The Argument for More Stocks in Retirement

Post by lack_ey » Tue Dec 20, 2016 3:18 pm

I've seen the figures too. And to be clear, I'm not here advocating high fixed income allocations as a default either (looking purely at returns and ignoring behavioral finance considerations). I'm just surprised where the confidence comes from to be so sure of 100% stocks over say 60/40, to know that others are wrong. This is also even aside from considerations of taxation, confiscation, and other deep risks.

The main point of difference can be summarized fairly simply: Until you can guarantee us the future is a 4% ERP world, you can't call everyone else out on being cowards for not assuming that to be the case. All your figures are derived from a ~4% ERP past. If that's how it'll be then certainly high equity allocations make sense.

As such the problem is not "stress tests"
rapporteur wrote:Rather than imagining, shall we instead look at what has *actually happened* over the last century or so across the world? Yes, overall it was a time of strong economic growth, but with more than a few ‘rough patches’, some very rough indeed! Two world wars, and a host of lesser ones, some pretty big (Korea, Vietnam…); multiple depressions, including the biggest one on record, deflation and inflation, including hyperinflation in some developed countries; government confiscation and extortionate taxation – yep, the last century or so saw them all. Seems like a pretty tough series of ‘stress tests’ to me!

as stress tests are an inevitable feature. It's stress tests combined with lower underlying fundamentals, lower average returns. Lower returns (i.e. not a 4%+ ERP world) + no big shocks is fine. Higher returns + some shocks is fine. Lower returns + some shocks is the killer.

Also, should you really stop at 100% stocks? Why not 150% stocks (-50% cash) using leverage? More seriously, why not something like 80% stocks, 80% bonds, -60% cash?

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Tue Dec 20, 2016 6:50 pm

Dear lackey,

How enticing your specious reasoning is – I can’t restrain myself from answering :-) (1)

I see I’ve now moved you up to 60/40 (normally considered a pretty aggressive retirement portfolio - one might even say it flies in the face of conventional wisdom). Good, good (as the Emperor might say) - that’s a start.

But the historical evidence says that 60/40, far from being too aggressive, is rather meek and leaves those who use it more exposed to the financial vicissitudes of retirement life than they need be (but still far better off than their more cowardly brethren). It’s the *bottom* of the range that should be under consideration, not the top.

But you complain:
Until you can guarantee us the future is a 4% ERP world, you can't call everyone else out on being cowards for not assuming that to be the case. All your figures are derived from a ~4% ERP past. If that's how it'll be then certainly high equity allocations make sense.

A meretricious argument, but I do accept your (grudging) concession that under those conditions very-high-equity clearly dominates alternate strategies! Now to kick the legs out from under the false conditional under which you restricted your concession. Concessions are nice but I’m looking for capitulation :-)

Yes, Estrada papers so far have used fixed 4% withdrawals for expository reasons. And while AlohaJoe intimates that Estrada will soon publish a paper confirming high equity also works well under variable withdrawal conditions, we’ll have wait to examine that study when it arrives. But, in the meantime, note this:

Fixed (inflation-adjusted) withdrawals are generally a very poor withdrawal strategy. However, for research purposes, they did originally have the appeal of simplicity and mathematical tractability and now offer consistency and comparability with past academic research dating back to the classic Bengen and Trinity studies.

But a fixed withdrawal strategy, so far from weakening the case for a high-equity retirement portfolio, instead greatly strengthens it. Fixed-withdrawal strategies are very hard on equity-heavy portfolios, figuratively kicking them when they are down. Variable withdrawal strategies (of various sorts) give far more breathing room for an equity-heavy portfolio to recover from bad times and then prosper. If an equity-heavy allocation strategy does well under fixed withdrawals, it will do even better under variable withdrawals. But doubters can wait for Estrada to confirm this.

Additionally I will remind you: I’m NOT arguing in favour of a 4% fixed withdrawal strategy (that’s merely an incidental aspect of the supporting studies, and I unreservedly grant that it’s usually suboptimal). No, my thesis is that high-equity allocation is the way to go in retirement.

You then ask:

Also, should you really stop at 100% stocks? Why not 150% stocks…


Why not indeed?
[And, incidentally, a nice argumentation stratagem – well done]

The correct answer, I would suggest, is that we should be open to this and to other, even more unconventional, strategies. But, as my lawyer once said to a judge, “An open mind need not be an empty mind.” Instead, we should be guided by any new evidence, while weighing it against all that has gone before (Bayesian priors and all that…). And, so far, the evidence supporting such a strategy is very sparse. But I’m listening if you can make a case for it :-)

Incidentally, in light of Estrada’s heavy-equity evidence, Buffet’s plan for a 90:10 legacy portfolio for his wife doesn’t look quite so strange.

Regards,

1) My wife will have to do all the packing for our trip.

Clive
Posts: 1951
Joined: Sat Jun 13, 2009 5:49 am

Re: The Argument for More Stocks in Retirement

Post by Clive » Tue Dec 20, 2016 7:21 pm

rapporteur wrote:The historical record is clear – very high equity in a retirement portfolio not only produces the best returns in good times (nice!) but provides the best protection in bad times (essential!).

Go back to 1928 as a start date and there were three choices of Dow average to select from, Dow Industrial, Utility and Transport averages. Had you picked the Dow Utility Average then by 1941 you were sitting on a Dow value that had declined from 80 to 10 (rounding). 80 years on from that 1928 start it had risen four-fold, around 1.75% annualised nominal gain.

Image

Shiller's data suggests CPI rose 12.2 fold from 17 to 211 over the same period (around 3.2% annualised).

Several decades+ back and in the UK the FT30 index was a common choice. Now barely ever mentioned having been replaced by the FT100 index (alternative methodology).

A Index is just a mechanical selection method (mostly, some such as the S&P500 also have a element of manual selectivity applied). Those mechanical methods have evolved over time. With hindsight of more recent best mechanical methods being backtested, historic results look relatively good. Perhaps in another 50 years some totally different form of mechanical method might be the more popular choice at that time, but without foresight that is unknowable in advance.

In short there is potentially a element of survivorship bias involved when looking at the historic data.

There's also the matter that the US has been a right tail economy over the last 100 or so years, somewhat a emerging market alongside Australia and South Africa. Other developed markets have endured considerably worst 30 year outcomes.

Image

Predominately the top markets over the last century were countries rich in natural resources. That tendency could continue or perhaps some form of technology might nullify that and another right tail dominance take the lead. Track the world so as to be more neutral and the historic reward (worst cases) were not as light as seen historically for the US since 1900 (20 year -30% real for instance).

You might make a 100% bet in the belief of a certainty, however such concentration has a tendency to be less certain than you perhaps believed and potentially bite back harshly. A better choice of betting can be to level the bet size according to the frequency of wins. If for instance historically bonds beat stocks in 30% of years then level your bets to 70% stock, 30% bonds.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Reply to rapporteur

Post by nedsaid » Tue Dec 20, 2016 7:56 pm

Taylor Larimore wrote:
Dear Mr Larimore,

Of course, you’re right – one shouldn’t take unnecessary risk during retirement.

But that’s just the point. Counterintuitive as it may seem, an equity-heavy retirement portfolio is less risky – far less risky – than an FI-heavy portfolio.

rapporteur:

My millionaire grandfather was 100% in stocks and died a bankrupt. I have been retired for 35 years so I've also had experience on what works and what doesn't.

Consider that ALL mutual fund company experts design their target portfolio to increase fixed-income as investors become older.

You might want to reconsider decreasing fixed-income in retirement.

Best wishes
Taylor


I have to stick up for Taylor here. Can't say that I have agreed with him 100% but I certainly respect what he has to say. I would say that someone who is 92 years of age, who has read many investment books, has invested successfully enough for many years, been retired for 35 years, known as the King of the Bogleheads, etc., etc., etc. might actually have some idea of what he is talking about. It goes without saying that Taylor is still pretty darned sharp.

I do think that personal experience, anecdotal evidence, does count for something. Life experience shows that things can go wrong and sometimes very, very wrong. People who have actually lived during the Great Depression understand this and also understand that times can get very, very hard.

Pretty much, Taylor is advising caution and prudence. It is amazing how recent market history can affect investor attitudes. With the DOW 30 ready to hit 20,000 just any day now, and after a seven year bull market, many of us feel pretty bulletproof. I am not aware that anyone was talking about increasing equities in retirement in the midst of the 2008-2009 financial crisis and bear market.

Looking back, those fortunate to have stayed employed and were able to keep investing through the crisis can look back and see this as a blip. But I can tell you that I was pretty scared. I knew that market history suggested that the market would rebound after the crisis, it always had before. But it was not a sure thing. We could have had a financial system collapse and a second Great Depression and not Recession. Unlike the Great American Movie, endings are not always so happy.
A fool and his money are good for business.

itstoomuch
Posts: 4686
Joined: Mon Dec 15, 2014 12:17 pm
Location: midValley OR

Re: The Argument for More Stocks in Retirement

Post by itstoomuch » Tue Dec 20, 2016 8:04 pm

nedsaid,
From how older bro tells it. "2008, was worse than what was let on."
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: The Argument for More Stocks in Retirement

Post by nedsaid » Tue Dec 20, 2016 8:13 pm

itstoomuch wrote:nedsaid,
From how older bro tells it. "2008, was worse than what was let on."


It definitely was an Oh Sxxx! moment.
A fool and his money are good for business.

lack_ey
Posts: 5692
Joined: Wed Nov 19, 2014 11:55 pm

Re: The Argument for More Stocks in Retirement

Post by lack_ey » Tue Dec 20, 2016 8:20 pm

rapporteur wrote:Dear lackey,

How enticing your specious reasoning is – I can’t restrain myself from answering :-) (1)

I see I’ve now moved you up to 60/40 (normally considered a pretty aggressive retirement portfolio - one might even say it flies in the face of conventional wisdom). Good, good (as the Emperor might say) - that’s a start.

But the historical evidence says that 60/40, far from being too aggressive, is rather meek and leaves those who use it more exposed to the financial vicissitudes of retirement life than they need be (but still far better off than their more cowardly brethren). It’s the *bottom* of the range that should be under consideration, not the top.

Hey, I didn't specify an optimal stock/bond portfolio to begin with and didn't move to 60/40 as a general recommendation. I only shifted to 60/40 because it's an easier case to argue than 100/0 if you're starting from a position of 100/0 being better.

rapporteur wrote:But you complain:
Until you can guarantee us the future is a 4% ERP world, you can't call everyone else out on being cowards for not assuming that to be the case. All your figures are derived from a ~4% ERP past. If that's how it'll be then certainly high equity allocations make sense.

A meretricious argument, but I do accept your (grudging) concession that under those conditions very-high-equity clearly dominates alternate strategies! Now to kick the legs out from under the false conditional under which you restricted your concession. Concessions are nice but I’m looking for capitulation :-)

Yes, Estrada papers so far have used fixed 4% withdrawals for expository reasons. And while AlohaJoe intimates that Estrada will soon publish a paper confirming high equity also works well under variable withdrawal conditions, we’ll have wait to examine that study when it arrives. But, in the meantime, note this:

Fixed (inflation-adjusted) withdrawals are generally a very poor withdrawal strategy. However, for research purposes, they did originally have the appeal of simplicity and mathematical tractability and now offer consistency and comparability with past academic research dating back to the classic Bengen and Trinity studies.

But a fixed withdrawal strategy, so far from weakening the case for a high-equity retirement portfolio, instead greatly strengthens it. Fixed-withdrawal strategies are very hard on equity-heavy portfolios, figuratively kicking them when they are down. Variable withdrawal strategies (of various sorts) give far more breathing room for an equity-heavy portfolio to recover from bad times and then prosper. If an equity-heavy allocation strategy does well under fixed withdrawals, it will do even better under variable withdrawals. But doubters can wait for Estrada to confirm this.

Additionally I will remind you: I’m NOT arguing in favour of a 4% fixed withdrawal strategy (that’s merely an incidental aspect of the supporting studies, and I unreservedly grant that it’s usually suboptimal). No, my thesis is that high-equity allocation is the way to go in retirement.

Just making sure but in your hurry I think you may have misunderstood the acronym.

I said 4% ERP (equity risk premium; excess return of stocks over bonds). That was not a reference to the withdrawal rate. For reference, US stock return 1900-2015 was 6.4% real for equities, 2.0% real for bonds. Overall globally over the same period, 5.0% and 1.8% (including failed markets).

In other words, the conditional is based on relative long-term forward stock and bond return.

rapporteur wrote:You then ask:

Also, should you really stop at 100% stocks? Why not 150% stocks…


Why not indeed?
[And, incidentally, a nice argumentation stratagem – well done]

The correct answer, I would suggest, is that we should be open to this and to other, even more unconventional, strategies. But, as my lawyer once said to a judge, “An open mind need not be an empty mind.” Instead, we should be guided by any new evidence, while weighing it against all that has gone before (Bayesian priors and all that…). And, so far, the evidence supporting such a strategy is very sparse. But I’m listening if you can make a case for it :-)

Incidentally, in light of Estrada’s heavy-equity evidence, Buffet’s plan for a 90:10 legacy portfolio for his wife doesn’t look quite so strange.

For what it's worth if you'll take history as it is, what are your opinions on let's say the Fama-French 3-factor model, historical relative returns between different parts of the stock market? Raw momentum (UMD) factor shows a higher return than the market factor, higher t-stat and everything. What about Maybe you can get a 6% safe withdrawal rate using 100% factor tilted equities? 100% small value even better?

Actually, why bother with a heavy stock allocation if you can just go with better-returning strategies like time-series momentum across asset classes? This is a lot of data too:
https://www.aqr.com/~/media/files/paper ... esting.pdf
https://papers.ssrn.com/sol3/Delivery.c ... 44&mirid=1

Or realistically, why not a mix? Based on the research, the market factor is not the only way to get returns, decent returns.

rapporteur wrote:Regards,

1) My wife will have to do all the packing for our trip.

Have a nice trip.

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Tue Dec 20, 2016 8:30 pm

Dear Clive,

While you sound some valuable cautionary notes, overall I think your position is untenable.

For instance, in the last century (the 1900s), the US was very far indeed from being an emerging economy – or even from emerging from being an emerging economy :-)

US GDP had overtaken that of Great Britain, the then-dominant global empire, by the 1870s – by 1900 the US was an international powerhouse, one whose power only increased over the ensuing years to utter global dominance midway through that century, a position it has maintained to the present (although China is now breathing on its heels, as the US once did to Great Britain).

And, yes, it was much harder in previous periods to assemble a well-diversified equity portfolio, and, arguably, it was much easier then than now to assemble a bad lopsided one. But that doesn’t invalidate Estrada’s conclusions!

Moreover, Estrada’s data show that for *all* major developed economies – even big losers in world wars – high equity portfolios outperformed less equity-heavy ones both in bad times and good. That’s hardly cherry-picking!

As for your statement:

If for instance historically bonds beat stocks in 30% of years then level your bets to 70% stock, 30% bonds.[


Wrong! Wrong! Wrong! First of all, your conditional is very probably untrue – and absolutely certainly unsupported. It’s merely a bald, naked assertion. Put up or shut up! [Yeah, I’m being harsh, but this time I’m not very contrite.]

But even if bonds did beat stocks 30% of the time (and the relevant timeframe is not one year, but somewhere between a decade and a full retirement period, say 30 or 40 years) that by no means implies that one should split one’s allocation 70:30. Your assertion is so silly that I won’t waste time debunking it further by walking you through the arithmetic.

Regards,

pkcrafter
Posts: 12094
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: The Argument for More Stocks in Retirement

Post by pkcrafter » Tue Dec 20, 2016 8:56 pm

rapporteur, no question you are capable of making a very convincing argument. The only problem is your absolute conviction that 100% stock cannot fail. I've heard stock investing is risky, but you don't seem to think so. That belief makes one suspect your analysis and conclusion is lacking sufficient analysis. Just sayin' :confused

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Yordle
Posts: 87
Joined: Tue Nov 15, 2016 12:42 am

Re: Reply to rapporteur

Post by Yordle » Tue Dec 20, 2016 8:58 pm

nedsaid wrote:...can look back and see this as a blip. But I can tell you that I was pretty scared. I knew that market history suggested that the market would rebound after the crisis, it always had before. But it was not a sure thing. We could have had a financial system collapse and a second Great Depression and not Recession. Unlike the Great American Movie, endings are not always so happy.


The historical analysis of a 80% stock / 20% bond portfolio is does almost as good as a 60% / 40% portfolio at a 4% fixed withdrawal rate even through great depression. Please see the two graphs below. The blue bar is the worst possible timespan for both portfolios between 1926-2015. I haven't looked at what years these are in my simulator, but chances are it's the great depression.

As you can see... both portfolios are exhausted before the 30-year timespan is up. The 60/40 only lasts another 2 years more... but at the cost of (when you take all possible timespans from 1926-2015) having a better chance at having higher worth near the end of any given 30 year timespan. This should matter. In fact, you should plan for the "worst" when you retire... And by this I mean living till 100 and having a >30 year investment time horizon.

80/20
Image

60/40
Image

The simulator from which these graphs are derived, as stated in my original post, can be accessed here.

These are the objective statistical facts. Qualitative statements are ok to make, but I prefer placing my trust in hard evidence.

pkcrafter wrote:That belief makes one suspect your analysis and conclusion is lacking sufficient analysis. Just sayin' :confused


See above.
Last edited by Yordle on Fri Dec 23, 2016 1:45 pm, edited 3 times in total.

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Tue Dec 20, 2016 9:09 pm

Dear lackey,

Lackey said:

I said 4% ERP…

In the immortal words of Gilda Ratner on Saturday Night Live, “Never mind.”
[although I did produce a superb refutation of the post you *didn’t* make :-)]

As for how to construct a portfolio, I'm a Fama-French-Carhart aficionado. I like to believe I'm an independent thinker but my portfolio is pretty much a pale shadow of Robert T's - it's annoying that he had all my great insights before me :-)

Best of the Holidays to you and yours.

Regards,

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Tue Dec 20, 2016 9:49 pm

Dear pkcrafter,

You said:
...The only problem is your absolute conviction that 100% stock cannot fail. I've heard stock investing is risky, but you don't seem to think so. That belief makes one suspect your analysis and conclusion is lacking sufficient analysis. Just sayin'

There is an old Zen saying, "The ox is driven to the pasture with blows." IOW, it may take some serious prodding to get folks out of their comfort zone to really consider an alternate approach, however beneficial, especially if it is unconventional. Some hyperbole, even hyperbole designed to be somewhat annoying, might accomplish that. (I sneer at the "more flies with honey..." approach :-))

Let's talk about risk and disappointing outcomes: you and I are going to die. I jokingly said earlier that life is risky - nobody gets out alive. Jokingly, yes, but all in fun yet full of earnest. So how, in the interim, will we manage risk (including that triviality, portfolio risk) knowing, both frighteningly and yet consolingly, that we are doomed to ultimately lose?

My answer is that we should play the hand fate deals us as best we can, knowing that only a small part of the outcome is within our control. Let's use all our wits and all our judgment, together with the best data we can bring to bear, in managing our portfolio and its risks. But there will inevitably remain a substantial core of 'residual risk' that cannot be eliminated - such is life. We are merely a bit of the slime that got a chance to sit up and look around this marvelous universe before we are absorbed back in - enjoy the ride!

Am I certain that "100% stock cannot fail"? Nope, not by a long shot - I am certain of very few things. But, while I'm here I'm going to try to be a rational being driven by the weight of evidence, as it then presents. And, at the moment, that evidence weighs strongly in favour of an equity-heavy retirement portfolio.

Oh, and Best of the Holidays!

Regards,

rapporteur
Posts: 91
Joined: Fri Sep 12, 2014 10:15 pm

Re: The Argument for More Stocks in Retirement

Post by rapporteur » Tue Dec 20, 2016 11:00 pm

nedsaid said:

I have to stick up for Taylor here....


Quite so - Mr Larimore has earned the respect that is paid him.

I challenged his position, not because I think it's valueless, but precisely because it is a worthy contender in the arena of investment ideas. But even a worthy contender isn't exempt from scrutiny. To the contrary, such a position deserves greater scrutiny.

Best of the Holidays,

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: The Argument for More Stocks in Retirement

Post by nedsaid » Wed Dec 21, 2016 4:52 am

I don't know, I have been investing in mutual funds since 1984 and in individual stocks since 1988. There is a whole lot I don't know, but I know something. One thing I know for certain is that people are pretty brave after a 7-8 year bull market. We haven't just had the wind to our back but gale force winds. I would be very doubtful that there were a lot of 100% stock threads that ran during the 2008-2009 financial crisis. Perhaps a Boglehead historian can go back and see if they can dig up any. I am dubious.

Actually, I have sympathy for rapporteur and Yordle and their arguments. My retirement portfolio was 94% in stocks in early 2000, due to Bob Brinker's warnings and learning about portfolio theory, I cut back to a mere 80% stocks before the bear market hit. I am a stock guy. Even today at the ancient age of 57, I still have 2/3 of my portfolio in stocks. Again, my rational side sees what my swashbuckling friends are saying and mostly agrees but my emotional side just doesn't buy it. During the 2008-2009 financial crisis and bear market, my losses were about two years worth of take home pay. I joked that I worked two years for free. Emotionally, that is very hard to take.

If my two friends claim that they remain calm, cool, collected, and rational during a 50% down or more bear market, I just have to say that I don't believe them. I was plenty scared in 2008-2009.

Back in October 1987, the DOW 30 dropped by 22% in one day. I lost a few hundred dollars that day and I was emotionally devastated. My gosh, my financial future was absolutely ruined. I was finished. I may as well have lost billions that day. It seems silly today, it seems silly because it was silly. But the emotions I felt were 100% real. So looking for comfort, I tuned in Louis Rukeyser and Wall $treet Week. Lou tried his best to look cool and confident but he looked shaken despite his best efforts. I could tell that it got to him.

So I am glad that my friends have it all figured out and that I have it all wrong. Silly me. Like I said, there is a whole lot about investing that I don't know but you have to give me credit for knowing a few things.
A fool and his money are good for business.

User avatar
tarheel
Posts: 307
Joined: Fri Sep 17, 2010 8:33 am

Re: The Argument for More Stocks in Retirement

Post by tarheel » Wed Dec 21, 2016 5:58 am

itstoomuch wrote:nedsaid,
From how older bro tells it. "2008, was worse than what was let on."


Go on to Youtube and watch the CNBC clips from the market lows. I do it every once in a while.

Then talk about increasing stock allocation in retirement.

itstoomuch
Posts: 4686
Joined: Mon Dec 15, 2014 12:17 pm
Location: midValley OR

Re: The Argument for More Stocks in Retirement

Post by itstoomuch » Wed Dec 21, 2016 11:16 am

With or without Government intervention 2008-2009, the US Economy could have gone either way.
Behavior, said that US believed that the intervention would work.
YBehavior :oops: MV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

garlandwhizzer
Posts: 1621
Joined: Fri Aug 06, 2010 3:42 pm

Re: The Argument for More Stocks in Retirement

Post by garlandwhizzer » Wed Dec 21, 2016 12:14 pm

Rapporteur, if you are certain you can emotionally tolerate a very severe decline in you asset base and stick with 100% stocks through thick and thin, it will likely maximize long term returns. Few of us can do that and many who believe they can discover during the depths a severe equity decline that what appeared to be very attractive in theory turns out to be more than they can bear emotionally. Bonds are in a sense an insurance policy protecting you against yourself in such a situation. Some of us require a lot of insurance, others less, and a few require none. The important thing here is to know yourself well, knowledge that few learn until they've been through a few of these severe bear markets and felt those emotions first hand. In the depths of The Great Depression financial types who were supposedly savvy jumped out of high rise windows in NYC to end it all. Clearly they discovered too late that they had taken more risk than they could handle. This is an extreme example, but the point is that, as nedsaid pointed out, everyone is a long term equity investor after a 7 year bull market, but fewer are when it really counts.

One final caution on 100% stocks. Maximal portfolio drawdown hits you big time in the depths of a bear market and if your job or income stream is not totally secure (few are). You may be forced to sell stocks at fire sale prices wiping out years even decades of gains (80% decline in Great Depression). So in sum, 100% stock portfolio as a strategy that works well for a few who have cast iron stomachs and reliable totally secure income streams apart from the portfolio. For most of us some bond allocation is a necessity, a tradeoff of some expected increased long term return for sleeping well at night.

Good luck.

Garland Whizzer

pkcrafter
Posts: 12094
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: The Argument for More Stocks in Retirement

Post by pkcrafter » Wed Dec 21, 2016 12:19 pm

nedsaid wrote:
Back in October 1987, the DOW 30 dropped by 22% in one day. I lost a few hundred dollars that day and I was emotionally devastated. My gosh, my financial future was absolutely ruined. I was finished. I may as well have lost billions that day. It seems silly today, it seems silly because it was silly. But the emotions I felt were 100% real. So looking for comfort, I tuned in Louis Rukeyser and Wall $treet Week. Lou tried his best to look cool and confident but he looked shaken despite his best efforts. I could tell that it got to him.

So I am glad that my friends have it all figured out and that I have it all wrong. Silly me. Like I said, there is a whole lot about investing that I don't know but you have to give me credit for knowing a few things.

I distinctly remember that day back in 1987, not so much for the market, but for car pool rider Dave, who was in his 50s. We were out front waiting for our ride when someone brought the news. Dave had a look on his face that remains vivid to this day. He said he was 100% in futures and instantly his entire retirement was gone. That was tragic, but market losses can have deeper repercussions. Two days later, Dave told us that when he went home the day after the crash, he found nothing but a small table, a plate and a fork. Everything else was gone, including his wife and children.

Of course, readers can dismiss this by saying he was stupid, but were do we draw the line beween reaching for returns and becoming stupid? I don't think we should forget that the market does not have to stop dropping at 50%, it can go to 80% as we already know. Personally, I am not willing to run that risk, no matter how small or remote it is.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Yordle
Posts: 87
Joined: Tue Nov 15, 2016 12:42 am

Re: The Argument for More Stocks in Retirement

Post by Yordle » Wed Dec 21, 2016 8:17 pm

It seems a recurring theme is that, although some agree with the logic of an equity heavy retirement portfolio, a preventing factor is the psychologic turmoil and fear that a crash would bring.

This is a cognitive fallacy, so maybe a mind experiment will help.

Imagine three options for putting your retirement savings (let's say a million dollars) in. You can put it into Black Box A, Black Box B or Black Box C. You will never be able to take out all your money again from each black box until 30 years are up. But each will pay you 40k per year with a certain chance of failing after X number of years.

Black Box A has a 95% chance of spitting out 40k per year and not failing. There is ~5% chance you will get no money after 18 years. After 30 years you have an 80% chance of having >1 million dollars and a 50% chance of > 3.7 million dollars.

Black Box B has a 99% chance of spitting out 40k per year and not failing. There is ~1% chance you will get no money after 26 years. After 30 years you have an 80% chance of having >0.9 million dollars and a 50% chance of > 2.5 million dollars.

Black Box C has a 99% chance of spitting out 40k per year and not failing. There is ~1% chance you will get no money after 29 years. After 30 years you have an 80% chance of having >0.7 million dollars and a 50% chance of > 1.5 million dollars.

Depending on one's willingness to gamble (and basically, if you go for A, you're betting that there won't be another great depression in your lifetime... one could argue that the modern economy makes this unlikely) A or B seem like reasonable choices. These are 100% stocks and 80% stocks respectively. Box C is 60% stocks and doesn't seem especially more advantageous than the other options.

Now obviously when a crash occurs its still gonna suck pretty hard. But the numbers going down on your computer screen won't likely affect what really matters... what that black box is spitting out.

Cheers!

User avatar
siamond
Posts: 3424
Joined: Mon May 28, 2012 5:50 am

Re: The Argument for More Stocks in Retirement

Post by siamond » Wed Dec 21, 2016 9:01 pm

Yordle wrote:It seems a recurring theme is that, although some agree with the logic of an equity heavy retirement portfolio, a preventing factor is the psychologic turmoil and fear that a crash would bring.

This is a cognitive fallacy, so maybe a mind experiment will help.

Yordle, you're answering a concern about emotions and behavior by a number-centric analysis about past returns. Those are apples and oranges. Nobody (I think) can deny the fact that an 80/20 portfolio would have been a very solid option in the US (and many other countries) from a purely numerical standpoint. You made your point here, and you're not exactly the first one having done so.

Personally, I have a lot of sympathy for your views (if only because I did the same kind of math for quite a while before deciding to early-retire with a high equity allocation). But you just cannot ignore the emotional aspect of the whole thing. It is very real. I would strongly suggest you read the Diary of the Great Depression by Ben Roth to get an idea.

My own rebuttal of the 'preventing factor' is very different. We're Bogleheads. We have enough experience with investing that we decided to strongly diversify, and to stick to passive investment vehicles, to write an IPS, etc. We made significant investment mistakes in our past before getting enlightened by Mr Bogle, Dr Bernstein and friends. We read about investment history. We're well aware of the great depression, the oil crisis, the bonds crisis due to inflation, the specific case of Japan, etc. WE LEARNED. Ok, then a severe and sustained crash occurs. Do we stay Zen based on our gained wisdom? Actually, I think NOT. Psychologic turmoil and fear are highly contagious. BUT. Would it really cross our mind to panic-sell stock while we know all too well that this is just about the biggest mistake we can do? Ah, come on. I don't think so.

What I am trying to say that the turmoil and fear that inevitably comes with such harsh times are one thing, the fact of panicking and making such a GIANT investment mistake is another. Many posters seem to correlate the two. I strongly believe that any experienced Boglehead would know better, even when his/her emotions are running high. And less experienced Bogleheads should do a good deal of reading, and this will become second-nature to NOT change your AA in a time of crisis.

Yordle
Posts: 87
Joined: Tue Nov 15, 2016 12:42 am

Re: The Argument for More Stocks in Retirement

Post by Yordle » Wed Dec 21, 2016 9:21 pm

siamond wrote:
Yordle wrote:It seems a recurring theme is that, although some agree with the logic of an equity heavy retirement portfolio, a preventing factor is the psychologic turmoil and fear that a crash would bring.

This is a cognitive fallacy, so maybe a mind experiment will help.

Yordle, you're answering a concern about emotions and behavior by a number-centric analysis about past returns. Those are apples and oranges. Nobody (I think) can deny the fact that an 80/20 portfolio would have been a very solid option in the US (and many other countries) from a purely numerical standpoint. You made your point here, and you're not exactly the first one having done so.


The black box helps my mind think about it. I think it illustrates that crashes don't matter in relation to what a retiree cares about: annual withdrawals. So why fear them?

But you may very well be right! Maybe this only works for my weird mind. Did that example help anyone else like-minded? Or unlike-minded?

My own rebuttal of the 'preventing factor' is very different. We're Bogleheads. We have enough experience with investing that we decided to strongly diversify, and to stick to passive investment vehicles, to write an IPS, etc. We made significant investment mistakes in our past before getting enlightened by Mr Bogle, Dr Bernstein and friends. We read about investment history. We're well aware of the great depression, the oil crisis, the bonds crisis due to inflation, the specific case of Japan, etc. WE LEARNED. Ok, then a severe and sustained crash occurs. Do we stay Zen based on our gained wisdom? Actually, I think NOT. Psychologic turmoil and fear are highly contagious. BUT. Would it really cross our mind to panic-sell stock while we know all too well that this is just about the biggest mistake we can do? Ah, come on. I don't think so.


This example assumes that the Zen Bogglhead already has an equity heavy portfolio that will suffer in a crash. Is not the first mental block to overcome actually creating such a portfolio?

Dunno if there's much more to say. Except... is there any way to petition that the boggle wiki be somehow updated to reflect that "age in bonds" is not entirely evidence based? Or inputing this valid alternative view point?

paper200
Posts: 254
Joined: Sat Feb 02, 2008 11:40 am

Re: The Argument for More Stocks in Retirement

Post by paper200 » Wed Dec 21, 2016 10:21 pm

I believe the argument for not being 100% in stocks post retirement has been discussed in this forum using Nikkei Index since 6/1/89, the retirement date, as an example. By 1993 one would roughly have 50 cents to a dollar remaining - withdrawals + dividends. And by 2003, about 30 cents to a dollar remaining -withdrawals + dividends ( i.e. at half the retired life). Most I think will not be insanely mathematical or accurately evaluate/predict the probabilities of retirement success based on 100% of investment in stocks - most of us do think fuzzy and do forget once in a while to take an umbrella when weather prediction says a likely rain forecast. A mix of investments is definitely a prudent if not the best possible choice.
Having freedom, food and roof is being 90% lucky in life and so is index investing. So, don't let the remaining 10% bother you.

Yordle
Posts: 87
Joined: Tue Nov 15, 2016 12:42 am

Re: The Argument for More Stocks in Retirement

Post by Yordle » Wed Dec 21, 2016 10:39 pm

paper200 wrote:I believe the argument for not being 100% in stocks post retirement has been discussed in this forum using Nikkei Index since 6/1/89, the retirement date, as an example. By 1993 one would roughly have 50 cents to a dollar remaining - withdrawals + dividends. And by 2003, about 30 cents to a dollar remaining -withdrawals + dividends ( i.e. at half the retired life). Most I think will not be insanely mathematical or accurately evaluate/predict the probabilities of retirement success based on 100% of investment in stocks - most of us do think fuzzy and do forget once in a while to take an umbrella when weather prediction says a likely rain forecast. A mix of investments is definitely a prudent if not the best possible choice.


This assumes the investor had the bad luck to have invested in 1 of around 800 month to month timespans since the Nikkei's creation. Of course the worse can happen! But I still drive my car even though I have a similar 1/600 risk of dying in a car crash throughout my lifespan (reference).

The benefits of driving / equity heavy portfolio outweigh the risks in my mind. Although... on second thought, maybe I'll start walking to work ;)

paper200
Posts: 254
Joined: Sat Feb 02, 2008 11:40 am

Re: The Argument for More Stocks in Retirement

Post by paper200 » Wed Dec 21, 2016 11:07 pm

The driving analogy was expected but it is a false equivalence imo. Actually the probability of dying is 1 once you are born the question is when and how and you have included only a single factor, i.e driving. There are others and if we include all then asymtotically the probability will tend to be 1. Therefore, the discussion of investment and associated risk is a waste of time. :sharebeer
Having freedom, food and roof is being 90% lucky in life and so is index investing. So, don't let the remaining 10% bother you.

Yordle
Posts: 87
Joined: Tue Nov 15, 2016 12:42 am

Re: The Argument for More Stocks in Retirement

Post by Yordle » Wed Dec 21, 2016 11:22 pm

paper200 wrote:The driving analogy was expected but it is a false equivalence imo. Actually the probability of dying is 1 once you are born the question is when and how and you have included only a single factor, i.e driving. There are others and if we include all then asymtotically the probability will tend to be 1. Therefore, the discussion of investment and associated risk is a waste of time. :sharebeer


Not entirely following your logic... of course we all die with a probability of 100%, but if you die in a car accident we would assume this is a special type of unexpected (and very much unwanted) early death.

But let's say you're right about this being a bad statistic. What if I said chance of being horribly maimed in a car accident? Don't have anything to reference that statistic, but probably similar, if not worse odds, than dying.

And this thread got 100% more morbid all of a sudden.

Ari
Posts: 446
Joined: Sat May 23, 2015 6:59 am

Re: The Argument for More Stocks in Retirement

Post by Ari » Thu Dec 22, 2016 2:20 am

When talking about 50% drops in the stock market, what is often forgotten is that these are generally preceded by large gains. This has been the case for the big drops in 1929, 2000 and 2008. Because of this, chances are a stock-hevy portfolio will be significantly larger than expected when the drop comes, and thus if one does decide to retire at this point, chances are it's easy to use a withdrawal rate less than 4% of the peak value, since you were likely not planning on having such a large portfolio value.

This is, to me, an argument that is easily missed. A stock-heavy portfolio is likely to be larger at the time of retirement than a bond-heavy portfolio would be, peak or no peak. Because of this, chances are it's easier to have a lower withdrawal rate. Comparisons are often made assuming the allocation is set at retirement with a set starting value, but perhaps we should make more simulations of allocations over the entire investment lifespan. I suspect that keeping 100% stocks throughout and investing 1000 money a month up to retirement and then withdrawing 3000 money a month (or whatever amount feels reasonable) will compare very favorably to doing the same with a 60/40 portfolio.
All in, all the time.

lack_ey
Posts: 5692
Joined: Wed Nov 19, 2014 11:55 pm

Re: The Argument for More Stocks in Retirement

Post by lack_ey » Thu Dec 22, 2016 2:56 am

Ari wrote:When talking about 50% drops in the stock market, what is often forgotten is that these are generally preceded by large gains. This has been the case for the big drops in 1929, 2000 and 2008. Because of this, chances are a stock-hevy portfolio will be significantly larger than expected when the drop comes, and thus if one does decide to retire at this point, chances are it's easy to use a withdrawal rate less than 4% of the peak value, since you were likely not planning on having such a large portfolio value.

This is, to me, an argument that is easily missed. A stock-heavy portfolio is likely to be larger at the time of retirement than a bond-heavy portfolio would be, peak or no peak. Because of this, chances are it's easier to have a lower withdrawal rate. Comparisons are often made assuming the allocation is set at retirement with a set starting value, but perhaps we should make more simulations of allocations over the entire investment lifespan. I suspect that keeping 100% stocks throughout and investing 1000 money a month up to retirement and then withdrawing 3000 money a month (or whatever amount feels reasonable) will compare very favorably to doing the same with a 60/40 portfolio.

Maybe if you somehow plan on a retirement date years in advance and you're talking about expectations set years before you actually retire. I don't think that's how it normally works. You know your current account balance at all times. If you have control of your retirement date, then regardless of the asset allocation, you can retire whenever you've reached a certain savings goal. In that way you won't have more than expected to start retirement with. The benefit is more that you're more likely to reach the goal faster, not that you'll accidentally overshoot the goal.

If anything you could instead be forced into retirement involuntarily, which is more likely in a recession, in which it's also not unlikely that stocks are down from a peak and thus you might have well less than planned for and expected.

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Re: The Argument for More Stocks in Retirement

Post by Rodc » Thu Dec 22, 2016 6:38 am

Yordle wrote:
The benefits of driving / equity heavy portfolio outweigh the risks in my mind. Although... on second thought, maybe I'll start walking to work ;)


And some drunk driver will jump the curb! :)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

Quark
Posts: 1045
Joined: Sun Nov 01, 2015 5:32 pm

Re: The Argument for More Stocks in Retirement

Post by Quark » Thu Dec 22, 2016 6:53 am

Yordle wrote:It seems a recurring theme is that, although some agree with the logic of an equity heavy retirement portfolio, a preventing factor is the psychologic turmoil and fear that a crash would bring.

This is a cognitive fallacy, so maybe a mind experiment will help.

Imagine three options for putting your retirement savings (let's say a million dollars) in. You can put it into Black Box A, Black Box B or Black Box C. You will never be able to take out all your money again from each black box until 30 years are up. But each will pay you 40k per year with a certain chance of failing after X number of years.

Black Box A has a 95% chance of spitting out 40k per year and not failing. There is ~5% chance you will get no money after 18 years. After 30 years you have an 80% chance of having >1 million dollars and a 50% chance of > 3.7 million dollars.

Black Box B has a 99% chance of spitting out 40k per year and not failing. There is ~1% chance you will get no money after 26 years. After 30 years you have an 80% chance of having >0.9 million dollars and a 50% chance of > 2.5 million dollars.

Black Box C has a 99% chance of spitting out 40k per year and not failing. There is ~1% chance you will get no money after 29 years. After 30 years you have an 80% chance of having >0.7 million dollars and a 50% chance of > 1.5 million dollars.

Depending on one's willingness to gamble (and basically, if you go for A, you're betting that there won't be another great depression in your lifetime... one could argue that the modern economy makes this unlikely) A or B seem like reasonable choices. These are 100% stocks and 80% stocks respectively. Box C is 60% stocks and doesn't seem especially more advantageous than the other options.

Now obviously when a crash occurs its still gonna suck pretty hard. But the numbers going down on your computer screen won't likely affect what really matters... what that black box is spitting out.

Cheers!

The problem is if you need money to pay for things and your only source of funding is your portfolio. You're going to have to sell something, possibly at the worst time.

If you otherwise have secure sources of funding, then you didn't need the portfolio and it's all play money anyway.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: The Argument for More Stocks in Retirement

Post by nedsaid » Thu Dec 22, 2016 9:18 am

siamond wrote:
Yordle wrote:It seems a recurring theme is that, although some agree with the logic of an equity heavy retirement portfolio, a preventing factor is the psychologic turmoil and fear that a crash would bring.

This is a cognitive fallacy, so maybe a mind experiment will help.

Yordle, you're answering a concern about emotions and behavior by a number-centric analysis about past returns. Those are apples and oranges. Nobody (I think) can deny the fact that an 80/20 portfolio would have been a very solid option in the US (and many other countries) from a purely numerical standpoint. You made your point here, and you're not exactly the first one having done so.

Personally, I have a lot of sympathy for your views (if only because I did the same kind of math for quite a while before deciding to early-retire with a high equity allocation). But you just cannot ignore the emotional aspect of the whole thing. It is very real. I would strongly suggest you read the Diary of the Great Depression by Ben Roth to get an idea.

My own rebuttal of the 'preventing factor' is very different. We're Bogleheads. We have enough experience with investing that we decided to strongly diversify, and to stick to passive investment vehicles, to write an IPS, etc. We made significant investment mistakes in our past before getting enlightened by Mr Bogle, Dr Bernstein and friends. We read about investment history. We're well aware of the great depression, the oil crisis, the bonds crisis due to inflation, the specific case of Japan, etc. WE LEARNED. Ok, then a severe and sustained crash occurs. Do we stay Zen based on our gained wisdom? Actually, I think NOT. Psychologic turmoil and fear are highly contagious. BUT. Would it really cross our mind to panic-sell stock while we know all too well that this is just about the biggest mistake we can do? Ah, come on. I don't think so.

What I am trying to say that the turmoil and fear that inevitably comes with such harsh times are one thing, the fact of panicking and making such a GIANT investment mistake is another. Many posters seem to correlate the two. I strongly believe that any experienced Boglehead would know better, even when his/her emotions are running high. And less experienced Bogleheads should do a good deal of reading, and this will become second-nature to NOT change your AA in a time of crisis.


Siamond, you just have to face that fact that you and I just don't know anything. Numbers on someone's spreadsheet outweigh whatever good arguments presented or actual investing experience.

Everyone is brave after a seven year bull market. Some people will just have to find out the hard way. Those who ignore the raw power of human emotion do so at their own peril. I am a seasoned and experienced investor and realize this. 2008-2009 were very, very scary. I might be smart, I might be savvy, I might be experienced. But I am still tempted to panic when things look really, really bad.

So I just give up. If people want to invest as though they are immune to human emotion and the real pain of loss, that is their business. My gosh, I have seen the "market experts" and "market professionals" do some pretty dumb things, and dumb things caused by human emotion. If the people who do this for a living are not immune from this, what makes us think that us amateurs will be immune?

The thing is, this type of thinking is what ends bull markets. The overconfident hubris that nothing can ever go wrong, and if it does, my rationality will win over emotion. I know the power of human emotion and quite frankly don't have 100% confidence and faith in myself. I have weaknesses and foibles like anyone else.

I am not an enthusiastic rebalance as at my age it means selling stocks to buy bonds. I am a stock guy. But this thread really makes me wonder if we are starting into irrational exuberance. I have seen this movie before back in the late 1990's. As the late Yogi Berra would have said, "It is deja vu all over again."
A fool and his money are good for business.

User avatar
siamond
Posts: 3424
Joined: Mon May 28, 2012 5:50 am

Re: The Argument for More Stocks in Retirement

Post by siamond » Thu Dec 22, 2016 1:13 pm

nedsaid wrote:Everyone is brave after a seven year bull market. Some people will just have to find out the hard way. Those who ignore the raw power of human emotion do so at their own peril. I am a seasoned and experienced investor and realize this. 2008-2009 were very, very scary. I might be smart, I might be savvy, I might be experienced. But I am still tempted to panic when things look really, really bad.

Oh, I don't disagree at all. Emotions will be there, and the next crisis will be as scary as the previous one, and some sense of panic/dread will creep in, and doubts about everything. I'm with you. I am just saying that, as emotional as one might be during the next crisis, for a reasonably educated Bogleheads, it would be an incredibly dumb mistake to change one's AA towards more bonds while deep in a stock crash, deliberately and knowingly adding insult to injury. Let's not confuse the errors we all made while we were very inexperienced, and where we are now. Come on, let's give ourselves a little bit of credit, we learned something. I hope.

User avatar
siamond
Posts: 3424
Joined: Mon May 28, 2012 5:50 am

Re: The Argument for More Stocks in Retirement

Post by siamond » Thu Dec 22, 2016 1:26 pm

Yordle wrote:This example assumes that the Zen Boglehead already has an equity heavy portfolio that will suffer in a crash. Is not the first mental block to overcome actually creating such a portfolio?

Well, my point was that there is no such thing as a "Zen Boglehead". We're humans, we're deeply emotional, as educated & experienced as we might be. But being emotional doesn't mean acting downright stupid, when you have the knowledge about consequences of your actions. This being said, yes, you're right, the first mental block is indeed to establish AND strongly believe in such equity-heavy portfolio.

Yordle wrote:Dunno if there's much more to say. Except... is there any way to petition that the boggle wiki be somehow updated to reflect that "age in bonds" is not entirely evidence based? Or inputing this valid alternative view point?

If you saw a statement in the wiki that "age in bonds" is evidence-based, and implying that the evidence is numerical, then yes, this needs to be more carefully rephrased (irrespective of one's stock exposure, this is plainly NOT true). You can always open a new thread about a proposed Wiki change, this is the point of a Wiki, to be fed by crowdsourcing. Just be clear with what you'd suggest to change, what would be the replacement, and present a solid rationale. Expect quite some back & forth, but that's the point, healthy debate before rough consensus.

Post Reply