It's worth remembering that bull markets don't last forever

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Dirghatamas
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Re: It's worth remembering that bull markets don't last forever

Postby Dirghatamas » Sun Mar 19, 2017 10:26 pm

kathyauburn wrote:whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash


Sorry but this is plain nonsense. Use Portfolio Visualizer or some other visualization tool. When I just played with it right now, it shows me that if you invested at Market peak (worst case) in 1973 and then saw the entire bear market with no new investments (also worst case because you never bought cheap shares), but kept the dividends reinvested, your portfolio took a bad dip but then recovered in REAL terms to its original value in 10 years (1983) not 20 years (1993). After that, a once in a lifetime stock bull market of almost 20 years (finishing in 2000) started.. so I am trying to understand the source of this doom and gloom. If you were a buy and hold stock investor, you made a killing after this..

If you invested in Bonds instead, you didn't come out much ahead (just back tested it) because yields got chewed by inflation. So, what exactly are you comparing stock returns against? Extremely high inflation as present at the time due to moving away from Gold/Bretton Woods + OPEC Oil shock was obviously bad for all assets. There were no TIPS back then.

It is one thing to be fearful of stocks/ perma bear but you can't ignore data for buy and hold as a great long term strategy. As for me, no [guts - admin LadyGeek]! Have been 100% stocks (global stocks so even more volatile due to currency) since 1992 and was fully invested in 2000-2002 and 2008-2009. Never sold a single share and kept investing with new money, every month, just like always.

Yes, many people do not have the right brain wiring (nothing to do with balls or gender) to handle stocks and volatility. Others do. One should invest based on one's brain/personality. Different strokes for different folks. :beer

JFP_SF
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Re: It's worth remembering that bull markets don't last forever

Postby JFP_SF » Sun Mar 19, 2017 10:56 pm

Dirghatamas wrote:
kathyauburn wrote:whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash


Sorry but this is plain nonsense. Use Portfolio Visualizer or some other visualization tool. When I just played with it right now, it shows me that if you invested at Market peak (worst case) in 1973 and then saw the entire bear market with no new investments (also worst case because you never bought cheap shares), but kept the dividends reinvested, your portfolio took a bad dip but then recovered in REAL terms to its original value in 10 years (1983) not 20 years (1993). After that, a once in a lifetime stock bull market of almost 20 years (finishing in 2000) started.. so I am trying to understand the source of this doom and gloom. If you were a buy and hold stock investor, you made a killing after this..

If you invested in Bonds instead, you didn't come out much ahead (just back tested it) because yields got chewed by inflation. So, what exactly are you comparing stock returns against? Extremely high inflation as present at the time due to moving away from Gold/Bretton Woods + OPEC Oil shock was obviously bad for all assets. There were no TIPS back then.

It is one thing to be fearful of stocks/ perma bear but you can't ignore data for buy and hold as a great long term strategy. As for me, no [guts - admin LadyGeek]! Have been 100% stocks (global stocks so even more volatile due to currency) since 1992 and was fully invested in 2000-2002 and 2008-2009. Never sold a single share and kept investing with new money, every month, just like always.

Yes, many people do not have the right brain wiring (nothing to do with balls or gender) to handle stocks and volatility. Others do. One should invest based on one's brain/personality. Different strokes for different folks. :beer


Try running the same simulation, but assume you had to take retirement income every year. In that scenario, you get wiped out.

Dirghatamas
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Re: It's worth remembering that bull markets don't last forever

Postby Dirghatamas » Sun Mar 19, 2017 11:13 pm

JFP_SF wrote:Try running the same simulation, but assume you had to take retirement income every year. In that scenario, you get wiped out.


Nope. You did not. Remember the 4% SWR Bengen study was published much after this bear market, so all this was already analyzed when the first studies on SWR came out. 1973 was NOT the worst year to have retired with a stock heavy portfolio! Again, one should not be emotional about these things. Data is data. You can model a 100% stock portfolio (or whatever stock/bonds portfolio) with different SWR and see when/if they fail. Clearly if you start taking out 10% or some such crazy number inflation adjusted from any portfolio, it will fail.

CurlyDave
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Re: It's worth remembering that bull markets don't last forever

Postby CurlyDave » Mon Mar 20, 2017 2:39 am

Lobster wrote:...A retiree who has exceeded their goal had little need to take risk but are free to do so as long as they account for a worst case scenario. They can take little risk and be safe, or take on more to build up their legacy.


As a current retiree, one of the real issues is that my goals have changed over the years. DW's goals have also changed, and fortunately we have both changed in the same direction. SS + Pensions is more than enough to meet our financial needs. Our wants have increased, both in our lifestyle and in our contributions. No extravagant world cruises, but we do have a nice retirement home on some land.

Our liquid investable assets are 100% in stocks. Even the emergency fund. We have other illiquid assets in the form of a some four-plex rentals which are all next to each other so they act like, and can be managed as, one small apartment building, but qualify for FHA loans.

I intend to ride out a crash without changing asset allocation.

Why such a "risky" asset allocation? Well, I see two kinds of risk in retirement. There is market risk, which we all recognize, but I think inflation is a very under-appreciated risk in retirement. There is a lot of pent-up inflation in the US economy. The US has spent many years with "quantitative easing"--a fancy way of saying printing money with no hard backing. Debt/GDP ratio is way too high. To me, this is a bigger danger than a crash. For thousands of years governments have solved this problem by inflating away the value of the debt.

If I am wrong, the pensions and SS will bail us out, if I am right we may achieve my new secondary goal, which is to become all of my descendants favorite ancestor.

McGilicutty
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Re: It's worth remembering that bull markets don't last forever

Postby McGilicutty » Mon Mar 20, 2017 3:00 am

CurlyDave wrote:Why such a "risky" asset allocation? Well, I see two kinds of risk in retirement. There is market risk, which we all recognize, but I think inflation is a very under-appreciated risk in retirement. There is a lot of pent-up inflation in the US economy. The US has spent many years with "quantitative easing"--a fancy way of saying printing money with no hard backing. Debt/GDP ratio is way too high. To me, this is a bigger danger than a crash. For thousands of years governments have solved this problem by inflating away the value of the debt.


Actually, debt/GDP ratio has no correlation to inflation (or maybe an inverse correlation?). Japan has over twice the debt/GDP ratio of the U.S. and they've been dealing with deflation for years. Further, the U.S. debt/GDP ratio was relatively low in the 1970's and 1980's (see http://www.tradingeconomics.com/united-states/government-debt-to-gdp) while inflation was high (see http://www.tradingeconomics.com/united-states/inflation-cpi).

NiceUnparticularMan
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Re: It's worth remembering that bull markets don't last forever

Postby NiceUnparticularMan » Mon Mar 20, 2017 5:33 am

If one was just concerned about USD inflation and not about maximizing future portfolio value, why not TIPS?

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Re: It's worth remembering that bull markets don't last forever

Postby bayview » Mon Mar 20, 2017 5:48 am

kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]

Well, I'm the wrong gender for your specific test, but yes, I rode through 2007-08 without selling. In fact, I increased my equity allocation for a bit. (Then went back where I had been.) It paid off very nicely. I was in my early fifties at the time.

If you have a 40% stock allocation, you have to visualize what it will feel like to (temporarily) lose 20% of your portfolio's value. I had the rest in Treasuries, which went up nicely, so the portfolio drop was a bit muted.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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tennisplyr
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Re: It's worth remembering that bull markets don't last forever

Postby tennisplyr » Mon Mar 20, 2017 5:48 am

Nothing lasts forever, not the bad, not the good
Those who move forward with a happy spirit will find that things always work out.

NibbanaBanana
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Re: It's worth remembering that bull markets don't last forever

Postby NibbanaBanana » Mon Mar 20, 2017 6:33 am

MnD wrote:
whomever wrote:We can, though, plan for a big market dive - and we should, because there will likely be one. How many 30 year periods don't have a big crash?


Since 1861, how many rolling 30-year periods have bonds (long term risky ones no less) outperformed stocks?
According to Larry Swedroe, 1 period.

http://www.cbsnews.com/news/bonds-beat- ... s-so-what/
"For the period October 1981-September 2011, the S&P 500 Index returned an annualized 10.8 percent, compared to the 11.5 percent annualized return on long-term (20-year) Treasury bonds."

Would one have possibly survived if they picked dead wrong for one loser stock 30-year period and earned 10.8%?
I'd guess so.
The risk of bonds (or even worse cash) is their severe underperformance over long periods.
If your investing strategy is all about avoiding short-term declines, then perhaps one should stick to the credit union.


It seems like all the advice is based, to some extent, on backtesting. And a lot of it has come from a period where bonds returned 7-8% over the long term. Just as good as stocks almost. The 800lb gorilla here is that we've had a 30 year bull market in bonds but now bonds are paying 2.5%. When I started investing, earning 2.5% was called saving, not investing. If you have enough income to save your way to FI then great. I never did. Had to take some chances.

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Re: It's worth remembering that bull markets don't last forever

Postby InvestorNewb » Mon Mar 20, 2017 8:18 am

Alto Astral wrote:
InvestorNewb wrote:It seems to me that everyone regrets not holding more stocks when they were younger. I plan on using that thinking and staying in all stocks for awhile (mid thirties right now).

How much AA did you settle on? I am in mid thirties too and thinking if 70/30 is too conservative.


I decided to go 100% stocks and this has been my AA since since age 30 in 2012. I see bonds as hindering my long term performance and I have no room for them in my tax sheltered accounts. It's all about what you can stomach in the event of a downturn. When the market goes south, I take comfort in the yearly dividends that I am getting that seem to increase every year.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

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Re: It's worth remembering that bull markets don't last forever

Postby Valuethinker » Mon Mar 20, 2017 8:43 am

TheTimeLord wrote:
kathyauburn wrote:Aftermath

All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms, and 43% in real terms.[1] In all cases, the recovery was a slow process. Although West Germany's market was the fastest to recover, returning to the original nominal level within eighteen months, it did not return to the same real level until June 1985.[1] The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash


Bottom line your point for me beyond if you can see the future and know the market is about to crash you should get out.


And my Tardis is extremely useful for that ;-). N'ought like time travel, me love.

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Re: It's worth remembering that bull markets don't last forever

Postby Valuethinker » Mon Mar 20, 2017 8:48 am

minimalistmarc wrote:
kathyauburn wrote:Aftermath

All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms, and 43% in real terms.[1] In all cases, the recovery was a slow process. Although West Germany's market was the fastest to recover, returning to the original nominal level within eighteen months, it did not return to the same real level until June 1985.[1] The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993—over twenty years after the 1973–74 crash began.[1]

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash



So jealous of those lucky enough to be picking up shares during a nice long period where they were so cheap


Don't be. Marginal tax rates were on the order of 70% (not sure about USA, but Canada and UK). You paid taxes on the capital gains even though your value had fallen in real terms. And on dividends, of course.

Most people were just trying to get by with soaring price of lettuce, gasoline etc. Plus unemployment. Lots of strikes.

Most people did not have any spare cash flow to invest. Those who had retired on fixed incomes (and inflation linked increases in pensions were a lot less common, then) were being slaughtered.

There certainly weren't widely available index funds (from memory, the first edition of Malkiel's book had not even come out yet, and you didn't just go and look these things on the internet). A typical fund had a 5% front end load (in Canada, 9%) and management fees & expenses around 2% (there wasn't full disclosure of expenses, so 2.5% was probably closer to it).

If you held individual stocks, well lots of blue chip companies then aren't around today. And you paid full commission - broking commissions were not deregulated until later.

Smartest thing most people did around then was leverage up and buy a home. But mortgage rates were 10-12% so homes did not feel particularly affordable. And of course you might have bought a home in Detroit or Buffalo, which have significantly lagged inflation in the 40 years since.

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knpstr
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Re: It's worth remembering that bull markets don't last forever

Postby knpstr » Mon Mar 20, 2017 8:49 am

InvestorNewb wrote:
Alto Astral wrote:How much AA did you settle on? I am in mid thirties too and thinking if 70/30 is too conservative.


I decided to go 100% stocks and this has been my AA since since age 30 in 2012. I see bonds as hindering my long term performance and I have no room for them in my tax sheltered accounts. It's all about what you can stomach in the event of a downturn. When the market goes south, I take comfort in the yearly dividends that I am getting that seem to increase every year.


I'm early 30s and for the same reason as above, I am 100% in stocks as well.
:beer
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Alto Astral
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Re: It's worth remembering that bull markets don't last forever

Postby Alto Astral » Mon Mar 20, 2017 10:36 am

knpstr wrote:
InvestorNewb wrote:
Alto Astral wrote:How much AA did you settle on? I am in mid thirties too and thinking if 70/30 is too conservative.


I decided to go 100% stocks and this has been my AA since since age 30 in 2012. I see bonds as hindering my long term performance and I have no room for them in my tax sheltered accounts. It's all about what you can stomach in the event of a downturn. When the market goes south, I take comfort in the yearly dividends that I am getting that seem to increase every year.


I'm early 30s and for the same reason as above, I am 100% in stocks as well.
:beer

Hm, there are more 100%rs in their 30s that I thought. I have a $400K portfolio. If I experience a 50% stock downturn, a 100/0 AA will drop it to $200K, 80/20 to $240K and a 70/30 to $260. I don't believe difference of $60K in the 100/0 vs 70/30 will be any consolation for me with that kind of downturn. I believe I should be able to stomach that given I have two decades to ride it out.
Last edited by Alto Astral on Mon Mar 20, 2017 11:26 am, edited 1 time in total.

KlangFool
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Re: It's worth remembering that bull markets don't last forever

Postby KlangFool » Mon Mar 20, 2017 11:22 am

Alto Astral wrote:
knpstr wrote:
InvestorNewb wrote:
Alto Astral wrote:How much AA did you settle on? I am in mid thirties too and thinking if 70/30 is too conservative.


I decided to go 100% stocks and this has been my AA since since age 30 in 2012. I see bonds as hindering my long term performance and I have no room for them in my tax sheltered accounts. It's all about what you can stomach in the event of a downturn. When the market goes south, I take comfort in the yearly dividends that I am getting that seem to increase every year.


I'm early 30s and for the same reason as above, I am 100% in stocks as well.
:beer

Hm, there are more 100%rs in their 30s that I thought. I have a $400K portfolio. If I experience a 50% stock downturn, a 100/0 AA will drop it to $200K, 80/20 to $240K and a 70/30 to $260. I don't believe difference of $60K in the 100/0 vs 70/00 will be any consolation for me with that kind of downturn. I believe I should be able to stomach that given I have two decades to ride it out.


Alto Astral,

In your case, 60K equal to 1 year of annual expense. If you and your wife are both unemployed, it is the difference between being able to feed your family one year longer.

For 100/0 and being unemployed, the 200K only last 3 years and 4 months. For every year, the person will have to sell 60K worth of stock and locked in 60K worth of loss.

For 70/30 and being unemployed, the 260K last 4 years and 4 months. With 400K, the person could sell up to 120K worth of bond and last 2 years without suffering permanent loss.

<< I don't believe difference of $60K in the 100/0 vs 70/00 will be any consolation for me with that kind of downturn.>>

The numbers say something else.

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Alto Astral
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Re: It's worth remembering that bull markets don't last forever

Postby Alto Astral » Mon Mar 20, 2017 11:39 am

KlangFool wrote:..
For 100/0 and being unemployed, the 200K only last 3 years and 4 months. For every year, the person will have to sell 60K worth of stock and locked in 60K worth of loss.

For 70/30 and being unemployed, the 260K last 4 years and 4 months. With 400K, the person could sell up to 120K worth of bond and last 2 years without suffering permanent loss.
..
KlangFool

Hm, I never thought of it in the context of withdrawing during long-term unemployment. Should I be placing the bonds inside the Roth IRA vs 401k? Meaning, I would be able to start withdrawing contributions w/o penalty in case of unemployment > EF? It looks like early 401k withdrawals are trickier and I am not sure if SEPP applies. Maybe 72(t) based on a quick google search.

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Re: It's worth remembering that bull markets don't last forever

Postby knpstr » Mon Mar 20, 2017 11:54 am

Alto Astral wrote:
KlangFool wrote:..
For 100/0 and being unemployed, the 200K only last 3 years and 4 months. For every year, the person will have to sell 60K worth of stock and locked in 60K worth of loss.

For 70/30 and being unemployed, the 260K last 4 years and 4 months. With 400K, the person could sell up to 120K worth of bond and last 2 years without suffering permanent loss.
..
KlangFool

Hm, I never thought of it in the context of withdrawing during long-term unemployment. Should I be placing the bonds inside the Roth IRA vs 401k? Meaning, I would be able to start withdrawing contributions w/o penalty in case of unemployment > EF? It looks like early 401k withdrawals are trickier and I am not sure if SEPP applies. Maybe 72(t) based on a quick google search.


If we are going to entertain the above scenario as a legitimate point, why not be 100% bonds?
That will give one even more years yet, 6 years and 8 months before you need a new job!
:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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TheTimeLord
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Re: It's worth remembering that bull markets don't last forever

Postby TheTimeLord » Mon Mar 20, 2017 11:56 am

kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Name the number of down 60+% bear markets. I find this topic interesting only because it reveals if people are managing risk or trying to maximize gain. One of the things I use to manage risk is to look at things in terms of absolute dollars not percentages because in my mind losing 40% of $1,000,000 is different than losing 40% of $10,000, so portfolio size matters. So I rules around absolute dollar maximum for both stocks and bonds. Another thing I do is calculate my Net Worth 2 ways. First, I calculate it the normal way then I calculate it multiplying my equity holdings by 0.60, that way I am always aware of exactly were a 40% drop would put me and how comfortable I would be if my Net Worth hits that amount.
Run, You Clever Boy!

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Re: It's worth remembering that bull markets don't last forever

Postby KlangFool » Mon Mar 20, 2017 11:59 am

Alto Astral wrote:
KlangFool wrote:..
For 100/0 and being unemployed, the 200K only last 3 years and 4 months. For every year, the person will have to sell 60K worth of stock and locked in 60K worth of loss.

For 70/30 and being unemployed, the 260K last 4 years and 4 months. With 400K, the person could sell up to 120K worth of bond and last 2 years without suffering permanent loss.
..
KlangFool

Hm, I never thought of it in the context of withdrawing during long-term unemployment. Should I be placing the bonds inside the Roth IRA vs 401k? Meaning, I would be able to start withdrawing contributions w/o penalty in case of unemployment > EF? It looks like early 401k withdrawals are trickier and I am not sure if SEPP applies. Maybe 72(t) based on a quick google search.


Alto Astral,

<< Should I be placing the bonds inside the Roth IRA vs 401k? Meaning, I would be able to start withdrawing contributions w/o penalty in case of unemployment > EF?>>

Not necessary. You could achieve the same goal by doing the following,

1) Sell stock in Roth IRA and withdraw from Roth IRA

2) Sell bond and buy stock in your Trad. 401K.

<<It looks like early 401k withdrawals are trickier>>

It is only tricky if you try to avoid the 10% penalty. But, if you are in such a deep financial trouble, you will be paying 0% income tax. Paying 10% penalty is a small price to pay.

Please note that in a recession, you do not know how long your unemployment will last. Knowing that you can survive a few years longer is extremely useful in order to negotiate for a better offer or wait for a better job.

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Re: It's worth remembering that bull markets don't last forever

Postby KlangFool » Mon Mar 20, 2017 12:02 pm

knpstr wrote:
Alto Astral wrote:
KlangFool wrote:..
For 100/0 and being unemployed, the 200K only last 3 years and 4 months. For every year, the person will have to sell 60K worth of stock and locked in 60K worth of loss.

For 70/30 and being unemployed, the 260K last 4 years and 4 months. With 400K, the person could sell up to 120K worth of bond and last 2 years without suffering permanent loss.
..
KlangFool

Hm, I never thought of it in the context of withdrawing during long-term unemployment. Should I be placing the bonds inside the Roth IRA vs 401k? Meaning, I would be able to start withdrawing contributions w/o penalty in case of unemployment > EF? It looks like early 401k withdrawals are trickier and I am not sure if SEPP applies. Maybe 72(t) based on a quick google search.


If we are going to entertain the above scenario as a legitimate point, why not be 100% bonds?
That will give one even more years yet, 6 years and 8 months before you need a new job!
:beer


knpstr,

Why 100% stock or 100% bond is the only choice? 60/40 or 70/30 will work out fine under any circumstances.

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Re: It's worth remembering that bull markets don't last forever

Postby KlangFool » Mon Mar 20, 2017 12:16 pm

Folks,

It is very simple.

1) Balance is the key. Take a number between 72/25 to 25/75, then, you do not have to think and care about whether the bull market will last.

2) Use a balanced fund like Wellington / Wellesley / Balanced fund / lifestrategy fund as your core holding, then, you do not have to think about rebalancing since the fund will do it for you.

Keep it simple. Avoid thinking and tinkering with your portfolio. Let time and compounding do the work for you. Live your life instead of spending time with your portfolio. You will make money in any market: bear, bull, flat, and whatever.

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Re: It's worth remembering that bull markets don't last forever

Postby MnD » Mon Mar 20, 2017 12:17 pm

Youngblood wrote:My father had considerable equity exposure in 1972. He had a stroke, died and my mother turned over the account to some advisor. Shortly thereafter the market crashed, most everything was lost, what was left sold and bonds purchased. I had just gotten out of the Air Force, married with a toddler, both wife and I in college. Later, my mother told me my father was planning on pulling the money out of the market figuring he had enough.

Those hoping for a crash, be careful what you wish for. My mother lived to 90 and lived in a trailer park.

Now that I am almost my father's age when he died I have reduced equity exposure to just 30%.

My impression is that many investors that post here really buy into high equity exposure. For the most part, I would agree. For those near or in retirement I would hope they heed your warning.


I think a lot of the opinions about Bogleheads carrying too much equity risk are colored by drop in stocks 2000-02 and 2007-09 AND the 35-year bull market in bonds 1981-2016, leaving the impression that equities are a frequent shop of horrors and bonds are "safe". We are 31 years into investing in stocks and fixed income and according to a joint life expectancy table can expect on average another 36 years plus or minus for at least one of us. So a 67 year (average) investing horizon within one generation. And with things like inherited stretch IRA's transferred intact, specific investment positions can be maintained for two or even three generations.

Yes stocks can decline rapidly and precipitously, but there are many forms of investment risk. One should not construct an investment plan intended to weather many decades around minimizing just one form of risk like equity volatility. Now if one can't take the heat of stock drops, one should stay out of the kitchen. But that mindset doesn't mean that those that have a long-term perspective on investing and can avoid making poor decisions during market turmoil need to wake up and heed dire warnings from people that blanch at a 40% equity position.

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Re: It's worth remembering that bull markets don't last forever

Postby knpstr » Mon Mar 20, 2017 12:18 pm

KlangFool wrote:knpstr,

Why 100% stock or 100% bond is the only choice? 60/40 or 70/30 will work out fine under any circumstances.

KlangFool


Clearly, it's not the only choice. But we have to ask ourselves, why are we saving money in these accounts we can't easily get to? Is it our retirement fund? Or is it our unemployment insurance? How should we invest this money to serve our purpose best?

In one's accumulation phase, in my opinion, the greater "cost" is opportunity cost of owning bonds during a period of life where they are unnecessary. If it makes one feel comfortable to own bonds during this time for peace of mind, then absolutely and of course they should hold bonds. But if someone is otherwise comfortable holding 100% to suggest they need to have some bonds to feed a family of 4 for 4 years instead of 3... is a bit exaggerated.

Even in the 100% stock, we have to live off our retirement to make ends meet scenario it gave us 3 years and 4 months (+plus whatever unemployment you can draw and small cash emergency fund) is likely more than enough time find work.

To me, if we're suggesting 3 years may not be enough time to find a job so hold some bonds because 4 years is better... why not 6 years? That must be even better yet. We certainly can't be sure a job will be found after 4 years either. Can we?

:beer
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Re: It's worth remembering that bull markets don't last forever

Postby KlangFool » Mon Mar 20, 2017 12:49 pm

KlangFool wrote:knpstr,

Why 100% stock or 100% bond is the only choice? 60/40 or 70/30 will work out fine under any circumstances.

KlangFool


Clearly, it's not the only choice. But we have to ask ourselves, why are we saving money in these accounts we can't easily get to? Is it our retirement fund? Or is it our unemployment insurance? How should we invest this money to serve our purpose best?


knpstr,

Why do we have to ask that question?

A) Unless you have guaranteed employment for the next 20 to 30 years, we would not know how long we will be unemployed in between those years.

B) Instead of going to the extreme of 100% of anything, by staying in the balance, we can use the money for whatever life throw at us.

Just to answer your question. I can be unemployed for at least 5 years without selling any of my stock. Beyond 5 years, I believe unemployment is the least of my worry.

KlangFool

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Re: It's worth remembering that bull markets don't last forever

Postby kathyauburn » Mon Mar 20, 2017 1:07 pm

TheTimeLord wrote:
kathyauburn wrote:
jebmke wrote:The lesson is that you can't really know how to call it. So the best bet is to decide how much exposure you need and want and manage (re-balance) as necessary to deal with it. I have been re-balancing periodically back to my 40% target on the way up. I do the same on the way down again. I may go crazy when I turn 70 and bump it up to 50% :beer .


I have to imagine it would take [guts --admin LadyGeek] to stick with a 40% stock allocation when the market turns down 40, 50, 60 or more percent. [OT comment removed by admin LadyGeek]


Name the number of down 60+% bear markets. I find this topic interesting only because it reveals if people are managing risk or trying to maximize gain. One of the things I use to manage risk is to look at things in terms of absolute dollars not percentages because in my mind losing 40% of $1,000,000 is different than losing 40% of $10,000, so portfolio size matters. So I rules around absolute dollar maximum for both stocks and bonds. Another thing I do is calculate my Net Worth 2 ways. First, I calculate it the normal way then I calculate it multiplying my equity holdings by 0.60, that way I am always aware of exactly were a 40% drop would put me and how comfortable I would be if my Net Worth hits that amount.


These net worth calculations take on a new light when you're near or in retirement as opposed to accumulating. I just back-tested a sample investment portfolio of 700k using the years 2006-2016 on a monthly basis (thankfully TSP gives you monthly return data for many years back) with the conservative TSP L income fund and the slightly more aggressive TSP 2020 fund. The 2020 comes out ahead by about 50k with 1600 per month withdrawals (upped by 2% per year for inflation). BUT the more aggressive portfolio also loses a bit over 200k at the height of the downturn, versus a mere 30k for the conservative L income. For me, that means the conservative L income is far better because it's a portfolio I can relax with through thick and thin. If I were in the thick of retirement and saw a 700K portfolio decline by 200+k, I'm not sure what I'd do. I wouldn't want to find out, though. Both portfolios, by the way, end up bigger at 2016 than they started at 2006. It's just that to get there with the 2020, you've been through enough stress to kill you.

I don't need to die a rich person, just as one who doesn't have to worry about one's retirement income so that I can live a life, what's left of it.
Last edited by kathyauburn on Mon Mar 20, 2017 1:11 pm, edited 1 time in total.

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Re: It's worth remembering that bull markets don't last forever

Postby new2bogle » Mon Mar 20, 2017 1:29 pm

Valuethinker wrote:
This with a Conservative government in power, no war, no revolution, no major civic unrest (outside of Northern Ireland).

So stock markets can lose a lot of value even without the usual suspects in play.


I don't know why you think a Conservative government is better for the stock market? Historically (using the U.S. definition) that is clearly not the case.

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Re: It's worth remembering that bull markets don't last forever

Postby Alto Astral » Mon Mar 20, 2017 1:50 pm

new2bogle wrote:
Valuethinker wrote:
This with a Conservative government in power, no war, no revolution, no major civic unrest (outside of Northern Ireland).

So stock markets can lose a lot of value even without the usual suspects in play.


I don't know why you think a Conservative government is better for the stock market? Historically (using the U.S. definition) that is clearly not the case.

I believe s/he means in the British context based on the comment about Northern Ireland

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Re: It's worth remembering that bull markets don't last forever

Postby pkcrafter » Mon Mar 20, 2017 2:27 pm

I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap.
:)
Be careful of what you wish for. It may not be quite as enjoyable or opportunistic as you imagine.



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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.

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Re: It's worth remembering that bull markets don't last forever

Postby pkcrafter » Mon Mar 20, 2017 2:35 pm

Alto Astral wrote:
new2bogle wrote:
Valuethinker wrote:
This with a Conservative government in power, no war, no revolution, no major civic unrest (outside of Northern Ireland).

So stock markets can lose a lot of value even without the usual suspects in play.


I don't know why you think a Conservative government is better for the stock market? Historically (using the U.S. definition) that is clearly not the case.

I believe s/he means in the British context based on the comment about Northern Ireland


Tut-tut, let's not go there. Thread will get locked.

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.

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Re: It's worth remembering that bull markets don't last forever

Postby Alto Astral » Mon Mar 20, 2017 2:38 pm

pkcrafter wrote:
I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap.
:)
Be careful of what you wish for. It may not be quite as enjoyable or opportunistic as you imagine.



Paul

Amen to this.
Was in grad school during the dot com bust. No cash to buy
Just graduated when Google had its IPO. No cash to buy
Changed jobs, got married, moved during the 2008 recession. No cash to buy.
So I sailed past all the opportunities :)

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Re: It's worth remembering that bull markets don't last forever

Postby TheTimeLord » Mon Mar 20, 2017 2:45 pm

pkcrafter wrote:
I too wish for a severe crash frankly. I am a buyer of stocks.. so I want them to be cheap.
:)
Be careful of what you wish for. It may not be quite as enjoyable or opportunistic as you imagine.



Paul


:oops: :oops: :oops: Experience is a stern teacher.
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Re: It's worth remembering that bull markets don't last forever

Postby MnD » Mon Mar 20, 2017 2:52 pm

kathyauburn wrote:These net worth calculations take on a new light when you're near or in retirement as opposed to accumulating. I just back-tested a sample investment portfolio of 700k using the years 2006-2016 on a monthly basis (thankfully TSP gives you monthly return data for many years back) with the conservative TSP L income fund and the slightly more aggressive TSP 2020 fund. The 2020 comes out ahead by about 50k with 1600 per month withdrawals (upped by 2% per year for inflation). BUT the more aggressive portfolio also loses a bit over 200k at the height of the downturn, versus a mere 30k for the conservative L income. For me, that means the conservative L income is far better because it's a portfolio I can relax with through thick and thin. If I were in the thick of retirement and saw a 700K portfolio decline by 200+k, I'm not sure what I'd do. I wouldn't want to find out, though. Both portfolios, by the way, end up bigger at 2016 than they started at 2006. It's just that to get there with the 2020, you've been through enough stress to kill you.

I don't need to die a rich person, just as one who doesn't have to worry about one's retirement income so that I can live a life, what's left of it.


If you are comfortable and happy with a 2.74% SWR ($19.2K initial withdrawal from $700K) that - great, but I'd bin that as a savings and retirement income plan failure starting on day one of retirement. I wouldn't have to worry about being killed by the stress of equity volatility because when I told my wife our life savings were going to yield $27,400 in annual retirement income per million (before taxes) she would kill me off right then. :mrgreen:

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Re: It's worth remembering that bull markets don't last forever

Postby JFP_SF » Mon Mar 20, 2017 2:59 pm

MnD wrote:
kathyauburn wrote:These net worth calculations take on a new light when you're near or in retirement as opposed to accumulating. I just back-tested a sample investment portfolio of 700k using the years 2006-2016 on a monthly basis (thankfully TSP gives you monthly return data for many years back) with the conservative TSP L income fund and the slightly more aggressive TSP 2020 fund. The 2020 comes out ahead by about 50k with 1600 per month withdrawals (upped by 2% per year for inflation). BUT the more aggressive portfolio also loses a bit over 200k at the height of the downturn, versus a mere 30k for the conservative L income. For me, that means the conservative L income is far better because it's a portfolio I can relax with through thick and thin. If I were in the thick of retirement and saw a 700K portfolio decline by 200+k, I'm not sure what I'd do. I wouldn't want to find out, though. Both portfolios, by the way, end up bigger at 2016 than they started at 2006. It's just that to get there with the 2020, you've been through enough stress to kill you.

I don't need to die a rich person, just as one who doesn't have to worry about one's retirement income so that I can live a life, what's left of it.


If you are comfortable and happy with a 2.74% SWR ($19.2K initial withdrawal from $700K) that - great, but I'd bin that as a savings and retirement income plan failure starting on day one of retirement. I wouldn't have to worry about being killed by the stress of equity volatility because when I told my wife our life savings were going to yield $27,400 in annual retirement income per million (before taxes) she would kill me off right then. :mrgreen:


Wouldn't that depend upon how many millions you have?

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Re: It's worth remembering that bull markets don't last forever

Postby kathyauburn » Mon Mar 20, 2017 3:22 pm

MnD wrote:when I told my wife our life savings were going to yield $27,400 in annual retirement income per million (before taxes) she would kill me off right then. :mrgreen:


LOL. I view retirement as consisting of several income streams. The investment account is one of them. If I had to squeeze my entire retirement income out of an investment account tied substantially to the stock market by requiring a certain percentage from it, I'd be damned worried, for sure.

What you do in retirement--or what I do--is back-test each bucket of income to determine how much you can safely get out of it each month while preserving the principal, and then take that amount out. You can't get orange juice out of a lemon. So take the lemon juice, be happy with it, and look elsewhere for whatever other juice you need. Otherwise you might not get any juice at all.
Last edited by kathyauburn on Mon Mar 20, 2017 3:29 pm, edited 1 time in total.

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Re: It's worth remembering that bull markets don't last forever

Postby wolf359 » Mon Mar 20, 2017 3:28 pm

knpstr wrote:
KlangFool wrote:knpstr,

Why 100% stock or 100% bond is the only choice? 60/40 or 70/30 will work out fine under any circumstances.

KlangFool


Clearly, it's not the only choice. But we have to ask ourselves, why are we saving money in these accounts we can't easily get to? Is it our retirement fund? Or is it our unemployment insurance? How should we invest this money to serve our purpose best?

In one's accumulation phase, in my opinion, the greater "cost" is opportunity cost of owning bonds during a period of life where they are unnecessary. If it makes one feel comfortable to own bonds during this time for peace of mind, then absolutely and of course they should hold bonds. But if someone is otherwise comfortable holding 100% to suggest they need to have some bonds to feed a family of 4 for 4 years instead of 3... is a bit exaggerated.

Even in the 100% stock, we have to live off our retirement to make ends meet scenario it gave us 3 years and 4 months (+plus whatever unemployment you can draw and small cash emergency fund) is likely more than enough time find work.

To me, if we're suggesting 3 years may not be enough time to find a job so hold some bonds because 4 years is better... why not 6 years? That must be even better yet. We certainly can't be sure a job will be found after 4 years either. Can we?

:beer


I don't think it's an exaggeration at all. I do remember 2008. I also remember early declines, but 2008 was the first time I ever thought the wheels might actually be coming off the economy. It was very scary. Banks that had been around for a hundred years were failing. GM ended up being owned by the Federal Government (isn't that called Communism?) And the groundwork for that was being laid by Republicans! It was literally a situation where nobody knew what shoe was going to drop next.

If you are aggressively saving, you are usually also saving some money in taxable accounts. Although my taxable savings are long-term and intended for retirement (or early retirement), they are also intended as my unemployment reserve.

Although my overall asset allocation is 70/30, my taxable asset allocation has generally been 50/50 (the bull market has actually caused it to creep up to 60/40 and I haven't re-adjusted.) Keeping a different asset allocation in taxable isn't exactly mental accounting. If I didn't keep a good chunk of bonds in taxable, the taxable side would shrink too much in a crash for met to access the reserves. As it is, I have a minimum bond level on the taxable side that I won't drop below unless an emergency occurred. This keeps the bonds in the tax sheltered side accessible. All normal rebalancing occurs on the tax sheltered side to avoid taxable events.

KlangFool has noted that he has about 5 years expenses in bonds. Although I have a similar amount, some of the bond position is on the retirement side. To access it, I'd sell from taxable and rebalance the bonds on the retirement side.

As for how long to have a reserve -- I maintain a backup plan to severely reduce our structural living expenses if it looks like we have an indefinite period of unemployment. So if dual unemployment stretches beyond a certain number of years, we downshift our expenses and then can last indefinitely.

In the middle of the 2008 Financial Crisis, Taylor stressed the importance of having a "Plan B." Some people took his post at the time to mean he was panicking even though he clearly stated it didn't apply to his specific financial situation. I used the opportunity to figure out what exactly I would do if I ever hit my minimal acceptable asset level (and was forced to live on it.) It's better to figure out your Plan B in the middle of a bull market than it is to wait until you're in the depths of a crash, unemployed, and grasping at lifelines.

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Re: It's worth remembering that bull markets don't last forever

Postby kathyauburn » Mon Mar 20, 2017 3:31 pm

wolf359 wrote:
knpstr wrote:
KlangFool wrote:knpstr,

Why 100% stock or 100% bond is the only choice? 60/40 or 70/30 will work out fine under any circumstances.

KlangFool


Clearly, it's not the only choice. But we have to ask ourselves, why are we saving money in these accounts we can't easily get to? Is it our retirement fund? Or is it our unemployment insurance? How should we invest this money to serve our purpose best?

In one's accumulation phase, in my opinion, the greater "cost" is opportunity cost of owning bonds during a period of life where they are unnecessary. If it makes one feel comfortable to own bonds during this time for peace of mind, then absolutely and of course they should hold bonds. But if someone is otherwise comfortable holding 100% to suggest they need to have some bonds to feed a family of 4 for 4 years instead of 3... is a bit exaggerated.

Even in the 100% stock, we have to live off our retirement to make ends meet scenario it gave us 3 years and 4 months (+plus whatever unemployment you can draw and small cash emergency fund) is likely more than enough time find work.

To me, if we're suggesting 3 years may not be enough time to find a job so hold some bonds because 4 years is better... why not 6 years? That must be even better yet. We certainly can't be sure a job will be found after 4 years either. Can we?

:beer


I don't think it's an exaggeration at all. I do remember 2008. I also remember early declines, but 2008 was the first time I ever thought the wheels might actually be coming off the economy. It was very scary. Banks that had been around for a hundred years were failing. GM ended up being owned by the Federal Government (isn't that called Communism?) And the groundwork for that was being laid by Republicans! It was literally a situation where nobody knew what shoe was going to drop next.

If you are aggressively saving, you are usually also saving some money in taxable accounts. Although my taxable savings are long-term and intended for retirement (or early retirement), they are also intended as my unemployment reserve.

Although my overall asset allocation is 70/30, my taxable asset allocation has generally been 50/50 (the bull market has actually caused it to creep up to 60/40 and I haven't re-adjusted.) Keeping a different asset allocation in taxable isn't exactly mental accounting. If I didn't keep a good chunk of bonds in taxable, the taxable side would shrink too much in a crash for met to access the reserves. As it is, I have a minimum bond level on the taxable side that I won't drop below unless an emergency occurred. This keeps the bonds in the tax sheltered side accessible. All normal rebalancing occurs on the tax sheltered side to avoid taxable events.

KlangFool has noted that he has about 5 years expenses in bonds. Although I have a similar amount, some of the bond position is on the retirement side. To access it, I'd sell from taxable and rebalance the bonds on the retirement side.

As for how long to have a reserve -- I maintain a backup plan to severely reduce our structural living expenses if it looks like we have an indefinite period of unemployment. So if dual unemployment stretches beyond a certain number of years, we downshift our expenses and then can last indefinitely.

In the middle of the 2008 Financial Crisis, Taylor stressed the importance of having a "Plan B." Some people took his post at the time to mean he was panicking even though he clearly stated it didn't apply to his specific financial situation. I used the opportunity to figure out what exactly I would do if I ever hit my minimal acceptable asset level (and was forced to live on it.) It's better to figure out your Plan B in the middle of a bull market than it is to wait until you're in the depths of a crash, unemployed, and grasping at lifelines.



I'm surprise at how often I hear people say that have their "reserve" of "fallback" funds in stocks or bonds. Safe cash is supposed to be safe, i.e., in neither stocks nor bonds.

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Re: It's worth remembering that bull markets don't last forever

Postby kathyauburn » Mon Mar 20, 2017 3:32 pm

wolf359 wrote:In the middle of the 2008 Financial Crisis, Taylor stressed the importance of having a "Plan B." Some people took his post at the time to mean he was panicking even though he clearly stated it didn't apply to his specific financial situation. I used the opportunity to figure out what exactly I would do if I ever hit my minimal acceptable asset level (and was forced to live on it.) It's better to figure out your Plan B in the middle of a bull market than it is to wait until you're in the depths of a crash, unemployed, and grasping at lifelines.


Just a Plan B? Holy cow, I have Plan B, C, D, and E. In fact, I'm now living my Plan D from 20 years ago.
Last edited by kathyauburn on Mon Mar 20, 2017 3:38 pm, edited 1 time in total.

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Re: It's worth remembering that bull markets don't last forever

Postby wolf359 » Mon Mar 20, 2017 3:37 pm

kathyauburn wrote:
I'm surprise at how often I hear people say that have their "reserve" of "fallback" funds in stocks or bonds. Safe cash is supposed to be safe, i.e., in neither stocks nor bonds.


I do have safe cash in an emergency fund. But that's measured in months. That's for normal emergencies. If my DW and I both lose our jobs and the economy is bad enough that neither of us can find a new one -- that forces us effectively into early retirement. That's what the long-term retirement money is ultimately for.

For long-term investments, the hang time is measured in years.

If I get to a hang time of around 25 years, I'm in the ballpark to consider retiring.

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Re: It's worth remembering that bull markets don't last forever

Postby wolf359 » Mon Mar 20, 2017 3:39 pm

kathyauburn wrote:
wolf359 wrote:In the middle of the 2008 Financial Crisis, Taylor stressed the importance of having a "Plan B." Some people took his post at the time to mean he was panicking even though he clearly stated it didn't apply to his specific financial situation. I used the opportunity to figure out what exactly I would do if I ever hit my minimal acceptable asset level (and was forced to live on it.) It's better to figure out your Plan B in the middle of a bull market than it is to wait until you're in the depths of a crash, unemployed, and grasping at lifelines.


Just a Plan B? Holy cow, I have Plan B, C, D, and E. In fact, I'm now living my Plan D from 20 years ago.

Then there are people like my sister. Her attitude is something along the lines of "What, me worry?" And it's worked out for her, if you ignore the fact that she's stuck in a loveless marriage to an alcoholic.


I didn't want to belabor the point. My post was long enough. The kind of person who gets as far as setting up a Plan B will also have multiple backup plans and multiple scenarios. I also didn't get into the specifics of my Plan B.

The main point was to suggest that people think about what they would do for a plan B while the sun is still shining and they are calm and have resources. You're probably not my audience.

Taylor's original post didn't go over really well when he first made it. People thought he was abandoning "Stay the Course" when he wasn't doing that.

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Re: It's worth remembering that bull markets don't last forever

Postby kathyauburn » Mon Mar 20, 2017 3:50 pm

MnD wrote:
If you are comfortable and happy with a 2.74% SWR ($19.2K initial withdrawal from $700K) that - great, but I'd bin that as a savings and retirement income plan failure starting on day one of retirement. I wouldn't have to worry about being killed by the stress of equity volatility because when I told my wife our life savings were going to yield $27,400 in annual retirement income per million (before taxes) she would kill me off right then. :mrgreen:


I also think it's worth noting that I could (or one could) get more than 2.7% out of the same portolio. It's just that a higher percentage would have a different effect on the portfolio than what I desire. So one's desire regarding the portfolio comes into play. It's kind of interesting. That is, do you want the principal to grow, stay the same, or do you care if it goes down over the course of time? My testing was with two desires in the foreground: I want the principal to grow or, at worst, stay the same, while throwing off enough cash, and I want a portfolio conservative enough that I won't lose any sleep over it even in the worst of markets (using 2008 as an example, even though that's not as bad as it could have been), and at the end, or my end, I want to be able to leave the same or more principal to my heirs so that they can screw it up. lol.

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Re: It's worth remembering that bull markets don't last forever

Postby TheTimeLord » Mon Mar 20, 2017 3:58 pm

kathyauburn wrote:If I were in the thick of retirement and saw a 700K portfolio decline by 200+k, I'm not sure what I'd do.


Thus the reason I believe risk should be managed in absolute dollars not by percentage representations.
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Re: It's worth remembering that bull markets don't last forever

Postby knpstr » Mon Mar 20, 2017 4:07 pm

wolf359 wrote:I don't think it's an exaggeration at all. I do remember 2008. I also remember early declines, but 2008 was the first time I ever thought the wheels might actually be coming off the economy. It was very scary.


So with that line of thinking, again I ask...why not 100% bonds? How do you know you have enough in bonds?
(Of course if the economy collapses bonds would go to 0 also, not just stocks, but let us ignore that for sake of argument)

You say Klang has 5 years of expenses is bonds, why is this better than 2 years or better than 10 years? Why 5 years?
The notion that 3 isn't good enough and 4 is better is quite arbitrary.
What is optimal? How much is too much? How much is too little?

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: It's worth remembering that bull markets don't last forever

Postby MnD » Mon Mar 20, 2017 4:08 pm

kathyauburn wrote:LOL. I view retirement as consisting of several income streams. The investment account is one of them. If I had to squeeze my entire retirement income out of an investment account tied substantially to the stock market, I'd be damned worried, for sure.


Likewise. We don't "need" any income from our investment portfolio. 1 pension and two claims on SS will cover our needs.
A 70/30 AA and a 5% of annual portfolio balance SWR with a 3% (real) floor and 7.5% (real) ceiling suits our desire to maximize wants with acceptable risk. Historically no failures, median and average spending is 5.3% and 5.0% real, best cycle is 7.3% real, worst is 3.25% real.

In 124 cycles, the absolute worst outcome (1966 start) not only survives but provides significantly more total and annual retirement income than your 2.74% real SWR, namely 3.25% real total with annual worst lows of 3% real.

30 years on a 20:80 AA at 2.74% inflation-adjusted SWR has historically included cycles with very substantial drawdowns with 70-80% portfolio declines. 1940, 1941 and 1946 retirement starts were particularly unpleasant for that approach.

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Re: It's worth remembering that bull markets don't last forever

Postby KlangFool » Mon Mar 20, 2017 4:18 pm

wolf359 wrote: If I didn't keep a good chunk of bonds in taxable, the taxable side would shrink too much in a crash for met to access the reserves. As it is, I have a minimum bond level on the taxable side that I won't drop below unless an emergency occurred. This keeps the bonds in the tax sheltered side accessible. All normal rebalancing occurs on the tax sheltered side to avoid taxable events.

KlangFool has noted that he has about 5 years expenses in bonds. Although I have a similar amount, some of the bond position is on the retirement side. To access it, I'd sell from taxable and rebalance the bonds on the retirement side.



wolf359,

I do not have to do this. My taxable account is big enough that even it drops 50%, I still have enough to meet my reserve. Hence, it is 100% stock.

KlangFool

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Re: It's worth remembering that bull markets don't last forever

Postby MnD » Mon Mar 20, 2017 4:30 pm

kathyauburn wrote:
MnD wrote:
If you are comfortable and happy with a 2.74% SWR ($19.2K initial withdrawal from $700K) that - great, but I'd bin that as a savings and retirement income plan failure starting on day one of retirement. I wouldn't have to worry about being killed by the stress of equity volatility because when I told my wife our life savings were going to yield $27,400 in annual retirement income per million (before taxes) she would kill me off right then. :mrgreen:


I also think it's worth noting that I could (or one could) get more than 2.7% out of the same portolio. It's just that a higher percentage would have a different effect on the portfolio than what I desire. So one's desire regarding the portfolio comes into play. It's kind of interesting. That is, do you want the principal to grow, stay the same, or do you care if it goes down over the course of time? My testing was with two desires in the foreground: I want the principal to grow or, at worst, stay the same, while throwing off enough cash, and I want a portfolio conservative enough that I won't lose any sleep over it even in the worst of markets (using 2008 as an example, even though that's not as bad as it could have been), and at the end, or my end, I want to be able to leave the same or more principal to my heirs so that they can screw it up. lol.


$1,000,000 at 20:80 at 2.74% SWR with retirement in 1940 drops to $516,282 nominal and $201,581 real by 1969.
At a given SWR, even an ultra-low one like 2.74%, the portfolio drawdowns for 20:80 are historically much worse than for 70:30.
Last edited by MnD on Mon Mar 20, 2017 4:52 pm, edited 1 time in total.

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Re: It's worth remembering that bull markets don't last forever

Postby jebmke » Mon Mar 20, 2017 4:32 pm

kathyauburn wrote:I'm surprise at how often I hear people say that have their "reserve" of "fallback" funds in stocks or bonds. Safe cash is supposed to be safe, i.e., in neither stocks nor bonds.

Other than maybe a month or two of "working capital" I haven't had an emergency fund in over 25 years. Some of my bonds are treasury bonds but they aren't cash. The variability in bonds is minor if they are high quality. If the pile is large enough and liquid, cash isn't really needed (other than emotional support, which isn't a bad thing, just not for me).
When you discover that you are riding a dead horse, the best strategy is to dismount.


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