90:10 AA - what don't you believe about it?

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dharrythomas
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Re: 90:10 AA - what don't you believe about it?

Post by dharrythomas » Sat Jul 15, 2017 12:29 pm

This article by Andrew Lo on the Adaptive Market Hypothesis, appears to be on topic. He notes that as a group, we take the wrong lessons from periods like now and increase our risk, while another crisis is coming.

http://www.marketwatch.com/story/this-i ... 2017-06-02

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Re: 90:10 AA - what don't you believe about it?

Post by jharkin » Sat Jul 15, 2017 1:26 pm

TropikThunder wrote:
FelixTheCat wrote:Here's my Buffett answer. Warren is one of the most successful investors of all time and 2nd richest man on the planet. If you believe in him, commit to his plan. :D
This is not directed at you, but I get tired of the guru worship on here sometimes. If Warren Buffet had become one of the richest men on the planet by following his own advice, then maybe his asset allocation recommendation would have more value. The fact is, he's a billionaire by virtue of business and investment practices that have absolutely nothing to do with the common retirement investor. His 90/10 recommendation was how he would keep his wife from running out of money after he was gone, after he had accumulated his billions in other ways. When you start with a billion dollars, pretty much any allocation has a high chance of survival. Except maybe bitcoin. :twisted:
True. Buffet could loose 99.99% of his portfolio and still be left with more money than most of us will ever see in a lifetime. Easy to take risks from that lofty vantage point...

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Re: 90:10 AA - what don't you believe about it?

Post by Ari » Sat Jul 15, 2017 2:20 pm

I'm pretty sure Bogle is wealthy, too. Better ignore his advice as well.
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willthrill81
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sat Jul 15, 2017 2:31 pm

Ari wrote:I'm pretty sure Bogle is wealthy, too. Better ignore his advice as well.
Poor people know more about managing money than the wealthy? :shock:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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FIREchief
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Re: 90:10 AA - what don't you believe about it?

Post by FIREchief » Sat Jul 15, 2017 3:17 pm

KlangFool wrote:
FIREchief wrote:
KlangFool wrote:

2) 90/10 is a lousy combination in term of risk adjusted return. You are taking a lot of risk for very little extra return. Any AA between 75/25 and 25/75 has a better trade off.

KlangFool
Over which 20 year period??????
FIREchief,

Do you believe the next 20 years will be exactly like any previous 20 years period?

KlangFool
Exactly my point.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: 90:10 AA - what don't you believe about it?

Post by snarlyjack » Sat Jul 15, 2017 3:25 pm

Here is a very interesting article by John Collins on Dr. Lo.
Finance Professor at MIT. "There's a major crash coming & Dr. Lo can't save you".

Enjoy...

http://jlcollinsnh.com/2012/04/15/stock ... -save-you/

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sat Jul 15, 2017 3:42 pm

FIREchief wrote:
KlangFool wrote:
FIREchief wrote:
KlangFool wrote:

2) 90/10 is a lousy combination in term of risk adjusted return. You are taking a lot of risk for very little extra return. Any AA between 75/25 and 25/75 has a better trade off.

KlangFool
Over which 20 year period??????
FIREchief,

Do you believe the next 20 years will be exactly like any previous 20 years period?

KlangFool
Exactly my point.
I think that there might have been one or two 20 year periods where 75/25 beat 90/10 in terms of nominal returns, but the overwhelming majority of 20 year periods have certainly favored 90/10 over 75/25.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 90:10 AA - what don't you believe about it?

Post by BanquetBeer » Sat Jul 15, 2017 8:30 pm

I thought bonds can also go to zero value also - just lower probability. If that is the case I don't see the point in saying 'you should try and only put the money you can loose in equities'. If you say 'the probability of bonds dropping to zero is so low and we have bigger things to worry about' I would say the same for stocks.

You could say the highest % historical loss is what you could prepare for - but I might argue it's the lowest P:E ratio.

This is assuming your stock are broad index and your bonds are not bitcoin/junk.

I want to move from 100% to 90/10 soon to prepare for the next downturn. But then I have many years and income until retirement. I would be in bonds more but continued rising interest rates and the debt bubbles caused by recent wars, deregulation, and tax cuts.

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Re: 90:10 AA - what don't you believe about it?

Post by Alchemist » Sat Jul 15, 2017 9:41 pm

I am at 90/10 but I do not think that is appropriate for everyone. I don't even think it is likely to be appropriate for me when I am closer to retirement. The reason I hold it is that the entire idea is to have a larger portfolio when I retire than if I had a lower risk AA. But I balance the increased risk with a few important elements:

1. For clarity, I include my Emergency Fund as part of the 10%

2. I have a very stable job as a military officer (atleast from a continued employment perspective...)

3. I will have a generous pension from my military service, thus my ability[/I[ to take risk is higher than it would be without the pension.


There are many roads to Dublin, I think younger people should be on the more aggressive side (I am 30 for example), but the level of aggressiveness always depends on the need and ability to take that risk.

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Re: 90:10 AA - what don't you believe about it?

Post by Ari » Sun Jul 16, 2017 6:05 am

willthrill81 wrote:
Ari wrote:I'm pretty sure Bogle is wealthy, too. Better ignore his advice as well.
Poor people know more about managing money than the wealthy? :shock:
That seems to be the consensus, no? I see a lot of people in this thread saying "Buffet's wife can stand to lose her 90% in stocks. If you can't, don't follow his advice". Well, the same probably applies to Bogle. He can see his bond holdings get eaten inflation and his bet on US tank while International soars, and still live a comfortable life. If it goes to say "If you're not as wealthy as Buffet, don't follow his advice", then surely the same thing applies to Bogle?
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Re: 90:10 AA - what don't you believe about it?

Post by tibbitts » Sun Jul 16, 2017 9:14 am

willthrill81 wrote:
Ari wrote:I'm pretty sure Bogle is wealthy, too. Better ignore his advice as well.
Poor people know more about managing money than the wealthy? :shock:
Well, it's not about "poor" people, but wasn't Buffett's advice very specifically directed at his wife's account, which would mean it was not only made by the wealthy, it was specifically made for the wealthy? I'm not sure his position is contrary at all to Bernstein's LMP (liability matching) concept for example, which would have very few people at 90/10.

But to your point I think you'd agree that wealthy people in the notorious "1%" generally don't know more about investing than people with portfolios more typical on Bogleheads. They may know more about making money, but not about investing it. Truly poor people may in fact not know much about either, or may just be unlucky.

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 10:14 am

tibbitts wrote:Well, it's not about "poor" people, but wasn't Buffett's advice very specifically directed at his wife's account, which would mean it was not only made by the wealthy, it was specifically made for the wealthy? I'm not sure his position is contrary at all to Bernstein's LMP (liability matching) concept for example, which would have very few people at 90/10.

But to your point I think you'd agree that wealthy people in the notorious "1%" generally don't know more about investing than people with portfolios more typical on Bogleheads. They may know more about making money, but not about investing it. Truly poor people may in fact not know much about either, or may just be unlucky.
First of all, I doubt that anyone here or elsewhere would call someone with in excess of a million dollar portfolio (typical Boglehead retiree) anything other than wealthy, even by first world standards.

Second, he's not directed his advice just at his wife.
FelixTheCat wrote:He is quoted as saying that his recommendation would work well for anyone.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 10:19 am

Ari wrote:
willthrill81 wrote:
Ari wrote:I'm pretty sure Bogle is wealthy, too. Better ignore his advice as well.
Poor people know more about managing money than the wealthy? :shock:
That seems to be the consensus, no? I see a lot of people in this thread saying "Buffet's wife can stand to lose her 90% in stocks. If you can't, don't follow his advice". Well, the same probably applies to Bogle. He can see his bond holdings get eaten inflation and his bet on US tank while International soars, and still live a comfortable life. If it goes to say "If you're not as wealthy as Buffet, don't follow his advice", then surely the same thing applies to Bogle?
I would argue that many are taking the maxim of "don't put money in stocks that you can't afford to lose," which I find quite dubious, too far. Not only is the likelihood of a greater than 50% decline in stocks historically rare (50% declines have only happened three times in 100+ years), but as I posted earlier, if your stocks go down to zero, you have bigger problems than retirement income. Exceptionally few people dependent on their retirement portfolio for income can get all of said income from bonds. And as Buffet has pointed out, a bond heavy portfolio carries its own risks, inflation being a big one.
tibbitts wrote:Well, it's not about "poor" people, but wasn't Buffett's advice very specifically directed at his wife's account, which would mean it was not only made by the wealthy, it was specifically made for the wealthy? I'm not sure his position is contrary at all to Bernstein's LMP (liability matching) concept for example, which would have very few people at 90/10.

But to your point I think you'd agree that wealthy people in the notorious "1%" generally don't know more about investing than people with portfolios more typical on Bogleheads. They may know more about making money, but not about investing it. Truly poor people may in fact not know much about either, or may just be unlucky.
First of all, I doubt that anyone here or elsewhere would call someone with in excess of a million dollar portfolio (typical Boglehead retiree) anything other than wealthy, even by first world standards.

Second, he's not directed his advice just at his wife.
FelixTheCat wrote:He is quoted as saying that his recommendation would work well for anyone.
From 1970 until now, a 90/10 portfolio (TSM/ITT) had a safe withdrawal rate of about 4.3%, so it's not a pie-in-the-sky recommendation only for the uber wealthy.

That being said, I will personally not want the volatility of such a portfolio in retirement, but for those comfortable with such volatility, it's fine.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 90:10 AA - what don't you believe about it?

Post by FIREchief » Sun Jul 16, 2017 2:38 pm

I'll again make the distinction between accumulation years and retirement. The more risk a person is willing to take during accumulation years (with failure being defined as having to work a few more years), the less risk that person will need to take during retirement (where failure is defined as running out of money before running out of heartbeats). I lost no sleep being 100% in equities during the past three plus decades, however once the paychecks stop the world changes.

I will wager that if any new college grad starts maxing out his/her 401k/Roth IRA from day one, in 100% stocks, that their work expectancy will drop by five to ten years versus their roommate, conservative Connie, who goes age in bonds or 60/40.
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 2:59 pm

FIREchief wrote:I will wager that if any new college grad starts maxing out his/her 401k/Roth IRA from day one, in 100% stocks, that their work expectancy will drop by five to ten years versus their roommate, conservative Connie, who goes age in bonds or 60/40.
Five years or so sounds about right. From Portfolio Visualizer, if two people starting with nothing both invested $1k a month, one into 100% TSM and the other into 60% TSM and 40% ITT, as of now (45 years later), the all stock person would have an inflation-adjusted $4 million vs. the balanced person's $2.9 million. The all stock person would have reached the $2.9 million mark about four years ago.

And just for fun, had a third person been 100% into small-cap value, they would now have $11.3 million after inflation. :shock:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 90:10 AA - what don't you believe about it?

Post by FIREchief » Sun Jul 16, 2017 3:16 pm

willthrill81 wrote:
FIREchief wrote:I will wager that if any new college grad starts maxing out his/her 401k/Roth IRA from day one, in 100% stocks, that their work expectancy will drop by five to ten years versus their roommate, conservative Connie, who goes age in bonds or 60/40.
Five years or so sounds about right. From Portfolio Visualizer, if two people starting with nothing both invested $1k a month, one into 100% TSM and the other into 60% TSM and 40% ITT, as of now (45 years later), the all stock person would have an inflation-adjusted $4 million vs. the balanced person's $2.9 million. The all stock person would have reached the $2.9 million mark about four years ago.

And just for fun, had a third person been 100% into small-cap value, they would now have $11.3 million after inflation. :shock:
That's interesting. Thanks.

I'll take four years of freedom for a few years of volatility any time. :sharebeer (actually, I did!!)
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Re: 90:10 AA - what don't you believe about it?

Post by tibbitts » Sun Jul 16, 2017 3:20 pm

willthrill81 wrote:
Ari wrote:
willthrill81 wrote:
Ari wrote:I'm pretty sure Bogle is wealthy, too. Better ignore his advice as well.
Poor people know more about managing money than the wealthy? :shock:
That seems to be the consensus, no? I see a lot of people in this thread saying "Buffet's wife can stand to lose her 90% in stocks. If you can't, don't follow his advice". Well, the same probably applies to Bogle. He can see his bond holdings get eaten inflation and his bet on US tank while International soars, and still live a comfortable life. If it goes to say "If you're not as wealthy as Buffet, don't follow his advice", then surely the same thing applies to Bogle?
I would argue that many are taking the maxim of "don't put money in stocks that you can't afford to lose," which I find quite dubious, too far. Not only is the likelihood of a greater than 50% decline in stocks historically rare (50% declines have only happened three times in 100+ years), but as I posted earlier, if your stocks go down to zero, you have bigger problems than retirement income. Exceptionally few people dependent on their retirement portfolio for income can get all of said income from bonds. And as Buffet has pointed out, a bond heavy portfolio carries its own risks, inflation being a big one.
tibbitts wrote:Well, it's not about "poor" people, but wasn't Buffett's advice very specifically directed at his wife's account, which would mean it was not only made by the wealthy, it was specifically made for the wealthy? I'm not sure his position is contrary at all to Bernstein's LMP (liability matching) concept for example, which would have very few people at 90/10.

But to your point I think you'd agree that wealthy people in the notorious "1%" generally don't know more about investing than people with portfolios more typical on Bogleheads. They may know more about making money, but not about investing it. Truly poor people may in fact not know much about either, or may just be unlucky.
First of all, I doubt that anyone here or elsewhere would call someone with in excess of a million dollar portfolio (typical Boglehead retiree) anything other than wealthy, even by first world standards.

Second, he's not directed his advice just at his wife.
FelixTheCat wrote:He is quoted as saying that his recommendation would work well for anyone.
From 1970 until now, a 90/10 portfolio (TSM/ITT) had a safe withdrawal rate of about 4.3%, so it's not a pie-in-the-sky recommendation only for the uber wealthy.

That being said, I will personally not want the volatility of such a portfolio in retirement, but for those comfortable with such volatility, it's fine.
I'll take your word that the advice was not just directed at his wife, but given just that quote, I would have assumed "for anyone in similar circumstances." Not that I put much weight on what Warren Buffett says anyway, I just don't find him that authoritative on anything except what he actually does, which isn't being a small investor investing for retirement.

I guess we could have a poll but I'm guessing most Bogleheads wouldn't say that someone with a million dollar portfolio wealthy. Ten million, maybe. Given all the talk of 2-3% SWR, a <= $30k/yr retirement doesn't seem to deserve "wealthy."

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Re: 90:10 AA - what don't you believe about it?

Post by FIREchief » Sun Jul 16, 2017 3:24 pm

willthrill81 wrote:
FIREchief wrote:I will wager that if any new college grad starts maxing out his/her 401k/Roth IRA from day one, in 100% stocks, that their work expectancy will drop by five to ten years versus their roommate, conservative Connie, who goes age in bonds or 60/40.
Five years or so sounds about right. From Portfolio Visualizer, if two people starting with nothing both invested $1k a month, one into 100% TSM and the other into 60% TSM and 40% ITT, as of now (45 years later), the all stock person would have an inflation-adjusted $4 million vs. the balanced person's $2.9 million. The all stock person would have reached the $2.9 million mark about four years ago.
I just ran a simple spreadsheet analysis.
Aggressive Annie: 100% stocks starting at age 22
Conservative Connie: 60% stocks/40% bonds starting at age 22
Bonds: 1% real return per year
Stocks: 6% real return per year
Annual rebalancing

At age 67, Annie has $2.6M and Connie has $1.3M. Annie hit $1.3M ten years earlier.

With stocks as low as 4% real return, Connie has $1M and Annie has $1.4M. Annie hit Connie's $1M seven years earlier.

Certainly food for thought for our new college grads (or early career folks of any type) out there.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 3:32 pm

FIREchief wrote:
willthrill81 wrote:
FIREchief wrote:I will wager that if any new college grad starts maxing out his/her 401k/Roth IRA from day one, in 100% stocks, that their work expectancy will drop by five to ten years versus their roommate, conservative Connie, who goes age in bonds or 60/40.
Five years or so sounds about right. From Portfolio Visualizer, if two people starting with nothing both invested $1k a month, one into 100% TSM and the other into 60% TSM and 40% ITT, as of now (45 years later), the all stock person would have an inflation-adjusted $4 million vs. the balanced person's $2.9 million. The all stock person would have reached the $2.9 million mark about four years ago.
I just ran a simple spreadsheet analysis.
Aggressive Annie: 100% stocks starting at age 22
Conservative Connie: 60% stocks/40% bonds starting at age 22
Bonds: 1% real return per year
Stocks: 6% real return per year
Annual rebalancing

At age 67, Annie has $2.6M and Connie has $1.3M. Annie hit $1.3M ten years earlier.

With stocks as low as 4% real return, Connie has $1M and Annie has $1.4M. Annie hit Connie's $1M seven years earlier.

Certainly food for thought for our new college grads (or early career folks of any type) out there.
Sadly, a recent study found that over 60% of Millennials preferred a 1% guaranteed annuity to the S&P 500 as their primary investment vehicle in their 401k. :( Some have suggested that Millennials are as conservative as their great-grandparents when it comes to financial risk tolerance, but I think that there are more factors at work. A colleague and I just conducted a study where we found that a person's satisfaction with their checking and savings account balances was positively related to their financial risk tolerance. So it seems that once investors have adequate current assets at their disposal, they are more willing to take on financial risk, as suggested by Kitces' newly developed hierarchy of retirement needs.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 90:10 AA - what don't you believe about it?

Post by FIREchief » Sun Jul 16, 2017 3:48 pm

willthrill81 wrote: Sadly, a recent study found that over 60% of Millennials preferred a 1% guaranteed annuity to the S&P 500 as their primary investment vehicle in their 401k. :(
Can we (partially) blame the parents? I think maybe we can. To some extent, risk tolerance is a learned behavior. Let's say that a person had kids in high school starting part time jobs around 2006, and mom and dad told them that if they started a Roth and put $1500 into it 100% stocks, mom and dad would match with another $2500 (assuming the kid made $4K during the year). So, from the kids' perspective, even if the market dropped 60%, they wouldn't have lost any of "their" money. Fast forward to 2008/2009 and guess what? Market goes in the toilet. Mom and dad coach to stay the course and repeat the match during each of those years. Viola! Ten years later we have a risk tolerant millennial who understands the good, bad and ugly of equity investing!
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 3:52 pm

FIREchief wrote:
willthrill81 wrote: Sadly, a recent study found that over 60% of Millennials preferred a 1% guaranteed annuity to the S&P 500 as their primary investment vehicle in their 401k. :(
Can we (partially) blame the parents? I think maybe we can. To some extent, risk tolerance is a learned behavior. Let's say that a person had kids in high school starting part time jobs around 2006, and mom and dad told them that if they started a Roth and put $1500 into it 100% stocks, mom and dad would match with another $2500 (assuming the kid made $4K during the year). So, from the kids' perspective, even if the market dropped 60%, they wouldn't have lost any of "their" money. Fast forward to 2008/2009 and guess what? Market goes in the toilet. Mom and dad coach to stay the course and repeat the match during each of those years. Viola! Ten years later we have a risk tolerant millennial who understands the good, bad and ugly of equity investing!
Parents are undoubtedly a big factor since around half of Americans own no stock at all. If they don't teach their kids about this, who will? Primary education certainly isn't doing it, and I know of only one university where personal finance is a required course for all majors. That leaves us with the media (CNBC? :oops: ) and word-of-mouth. Honestly, I'm a bit surprised that half of Americans do own stock, though this number would undoubtedly be far lower if it weren't for 401(k)s.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 90:10 AA - what don't you believe about it?

Post by indexonlyplease » Sun Jul 16, 2017 4:00 pm

I think there are all winners until you retire with no pension and the market is down for 5 years. Can you live with less then the 4% you thought you needed. If not you start to pull principle for living expenses.

So I would think a large cash emergency fund would be needed so you don't take money out on the bad years in retirement.

Somewhere there is a chart showing the difference in out living your money if your retire in 2007 compared to someone who retired in 2015.

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Re: 90:10 AA - what don't you believe about it?

Post by FIREchief » Sun Jul 16, 2017 4:08 pm

willthrill81 wrote: Parents are undoubtedly a big factor since around half of Americans own no stock at all. If they don't teach their kids about this, who will? Primary education certainly isn't doing it, and I know of only one university where personal finance is a required course for all majors. That leaves us with the media (CNBC? :oops: ) and word-of-mouth. Honestly, I'm a bit surprised that half of Americans do own stock, though this number would undoubtedly be far lower if it weren't for 401(k)s.
Sad indeed. During the last crash, my millennial kid's millennial friend told him things like "investing in stocks is the same as just throwing your money out the window." At other times, friends have said things like "why not just go to Vegas, it's all just gambling." I don't think these kids got this from watching CNBC. I think they more than likely heard it around the dinner table.

Personally, I'm glad nobody tried to teach my kids about investing in school. I would rather take on that task myself. The local high school would probably just bring in FA Joe (the principal's first cousin) who would give a high level presentation and tell the kids to come see him when they graduate from college in a few years.
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Re: 90:10 AA - what don't you believe about it?

Post by sport » Sun Jul 16, 2017 4:09 pm

A higher allocation to equities almost certainly will result in more gains over the long term. However, once someone has reached FI, capital gains become less important than capital preservation. Just imagine the investor who is FI and retired when the market takes a big drop. The investor is no longer FI. How does that investor explain to his/her spouse that a high allocation to stock is a good idea?

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 4:24 pm

FIREchief wrote:Sad indeed. During the last crash, my millennial kid's millennial friend told him things like "investing in stocks is the same as just throwing your money out the window." At other times, friends have said things like "why not just go to Vegas, it's all just gambling." I don't think these kids got this from watching CNBC. I think they more than likely heard it around the dinner table.
I've also heard several people say that stocks are no different than the casino. When you question them about it, they've often been in stocks before, but when they experienced a 10-20% decline, they declared the whole thing a fraud and never looked back.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 90:10 AA - what don't you believe about it?

Post by North Texas Cajun » Sun Jul 16, 2017 4:43 pm

Sport wrote: "How does that investor explain to his/her spouse that a high allocation to stock is a good idea?"

I guess it depends on the size of the portfolio and the availability of other funds.

If a two income couple - both over 65 - retires at the end of 2007, they could easily be eligible for a combined $35K to $40K in Social Security benefits. If that couple owned $900K in equities and $100K in bonds, they could sell $10K in bonds each year through 2012. Combined with the $15K to $20K in equity dividends, the couple should have income of $60K to $70K from 2008 through 2012. At that point - the beginning of 2013 - their equity has returned to 2007 levels and they still have $50K in bonds.

The question is whether or not the couple can live on $60K to $70K per year for 5 years. That's a risk. But if they no longer have a mortgage, it's certainly not living in poverty.

The keys to living with a 90/10 portfolio are the availability of other funds (generally SS) and the ability to flex discretionary spending.

FYI, my wife and I were about 85/15 in 2007 and had planned to retire early by 2011. The market downturn just caused us to wait 2 years until 2013.
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Re: 90:10 AA - what don't you believe about it?

Post by mindboggling » Sun Jul 16, 2017 4:53 pm

I am retired now, but during my working life I don't think I was ever more than 60% equities/40% fixed income. I don't remember where I learned about investing. Never discussed it with my parents. I recall I used to read the WSJ in my 30s and had a subscription to the AAII journal as well.
From there it was on to mutual fund investing mostly with index funds. More important than asset allocation was lifelong living below my means.
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Re: 90:10 AA - what don't you believe about it?

Post by FIREchief » Sun Jul 16, 2017 5:21 pm

mindboggling wrote: More important than asset allocation was lifelong living below my means.
I certainly agree that living below one's means is the absolute most important factor. If a person does not live below their means, then AA is totally irrelevant as there is no "extra" money to invest. That said, for somebody just starting out (i.e. in their twenties), the math demonstrates that AA can have a significant impact on when they can retire and/or how they can live in retirement. A lot of folks say anything between 25/75 and 75/25 is just fine, but I'm not sure they've really looked at the math. Sure, if they assume bonds and stocks will provide approximately equal real returns over the next 40 years, then the math backs them up.
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 5:34 pm

FIREchief wrote:
mindboggling wrote: More important than asset allocation was lifelong living below my means.
I certainly agree that living below one's means is the absolute most important factor. If a person does not live below their means, then AA is totally irrelevant as there is no "extra" money to invest. That said, for somebody just starting out (i.e. in their twenties), the math demonstrates that AA can have a significant impact on when they can retire and/or how they can live in retirement. A lot of folks say anything between 25/75 and 75/25 is just fine, but I'm not sure they've really looked at the math. Sure, if they assume bonds and stocks will provide approximately equal real returns over the next 40 years, then the math backs them up.
The difference in one's AA over a lifetime of investing can be tremendous. Over a 45 year investment period, the difference between a 5.7% real growth rate (60/40 portfolio) and 7.1% (100/0) with $1k invested monthly is $1.2 million in today's dollars. That's right, over a million more.

Many here say that you should pick an AA that fits your risk tolerance, but I would argue that you should make your risk tolerance fit with your needed AA. Do whatever you have to do (i.e. don't check your balances is an easy one) to allow yourself to earn that extra million. Shrugging your shoulders and saying that you can't emotionally deal with it just doesn't sit right with me.
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Re: 90:10 AA - what don't you believe about it?

Post by North Texas Cajun » Sun Jul 16, 2017 7:16 pm

Willthrill81 wrote: "Do whatever you have to do (i.e. don't check your balances is an easy one) to allow yourself to earn that extra million. Shrugging your shoulders and saying that you can't emotionally deal with it just doesn't sit right with me."

Yeah, I have trouble sometimes understanding why people cannot emotionally handle market downturns. But there's a lot of things people worry themselves silly over that I can't understand. Do you think we might not all be wired the same?

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Re: 90:10 AA - what don't you believe about it?

Post by Quickfoot » Sun Jul 16, 2017 8:03 pm

aegis965 wrote:Buffett's concept of risk is different from folks like us who don't have that long a timeframe and, as many in this thread have pointed out, the behavioral disposition. Here's an excellent article on this issue: Contradicting Warren Buffett: When Volatility is Risk.
Buffet also has the ability to take a lot of risk, the likelihood of his family needing more than a tiny fraction of a percent of his wealth at any given time is almost zero which is also why he's pledged to donate most his fortune by the time he dies.

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Re: 90:10 AA - what don't you believe about it?

Post by Top99% » Sun Jul 16, 2017 9:04 pm

FIREchief wrote:
willthrill81 wrote: Sadly, a recent study found that over 60% of Millennials preferred a 1% guaranteed annuity to the S&P 500 as their primary investment vehicle in their 401k. :(
Can we (partially) blame the parents? I think maybe we can. To some extent, risk tolerance is a learned behavior. Let's say that a person had kids in high school starting part time jobs around 2006, and mom and dad told them that if they started a Roth and put $1500 into it 100% stocks, mom and dad would match with another $2500 (assuming the kid made $4K during the year). So, from the kids' perspective, even if the market dropped 60%, they wouldn't have lost any of "their" money. Fast forward to 2008/2009 and guess what? Market goes in the toilet. Mom and dad coach to stay the course and repeat the match during each of those years. Viola! Ten years later we have a risk tolerant millennial who understands the good, bad and ugly of equity investing!
I think part of the reason at least some millennials are wary of stocks is they watched their parents go through first the tech bubble and then the GFC. Many of those parents locked in their losses because they panicked or perhaps they didn't have enough of an emergency fund to ride out unemployment if it came (which it did for many) and had to liquidate equities near the bottom. This is similar to how many children of parents who went through the depression became very frugal. Personally the combination of the tech bubble and GFC crashes knocked some years off my retirement (crashes are when the real money gets made) but many people didn't fare so well either due to panicking or some bad luck. I think a lot of people have a hangover from that and their kids are feeling it too.
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Re: 90:10 AA - what don't you believe about it?

Post by tibbitts » Sun Jul 16, 2017 11:04 pm

willthrill81 wrote:
FIREchief wrote:
mindboggling wrote: More important than asset allocation was lifelong living below my means.
I certainly agree that living below one's means is the absolute most important factor. If a person does not live below their means, then AA is totally irrelevant as there is no "extra" money to invest. That said, for somebody just starting out (i.e. in their twenties), the math demonstrates that AA can have a significant impact on when they can retire and/or how they can live in retirement. A lot of folks say anything between 25/75 and 75/25 is just fine, but I'm not sure they've really looked at the math. Sure, if they assume bonds and stocks will provide approximately equal real returns over the next 40 years, then the math backs them up.
The difference in one's AA over a lifetime of investing can be tremendous. Over a 45 year investment period, the difference between a 5.7% real growth rate (60/40 portfolio) and 7.1% (100/0) with $1k invested monthly is $1.2 million in today's dollars. That's right, over a million more.

Many here say that you should pick an AA that fits your risk tolerance, but I would argue that you should make your risk tolerance fit with your needed AA. Do whatever you have to do (i.e. don't check your balances is an easy one) to allow yourself to earn that extra million. Shrugging your shoulders and saying that you can't emotionally deal with it just doesn't sit right with me.
It's not just the emotional issue, it's the fact that the risk may be realized. As has been pointed out, seemingly minor differences in performance compound dramatically over time to make huge differences in personal wealth. I don't see how it's debatable that bonds, real estate, or even cash, could outperform equities by some such meaningful amount over a far longer period than a person's investing lifetime. The fact that based on the available tiny number of observations we haven't seen that occur over an average investing lifetime that doesn't seem significant to me. It's not like investing returns, especially over such relatively short periods, are based on some immutable law of physics. And any given individual may turn out to have a much, much shorter investing lifetime than we usually plan for.

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Sun Jul 16, 2017 11:12 pm

tibbitts wrote:
willthrill81 wrote:
FIREchief wrote:
mindboggling wrote: More important than asset allocation was lifelong living below my means.
I certainly agree that living below one's means is the absolute most important factor. If a person does not live below their means, then AA is totally irrelevant as there is no "extra" money to invest. That said, for somebody just starting out (i.e. in their twenties), the math demonstrates that AA can have a significant impact on when they can retire and/or how they can live in retirement. A lot of folks say anything between 25/75 and 75/25 is just fine, but I'm not sure they've really looked at the math. Sure, if they assume bonds and stocks will provide approximately equal real returns over the next 40 years, then the math backs them up.
The difference in one's AA over a lifetime of investing can be tremendous. Over a 45 year investment period, the difference between a 5.7% real growth rate (60/40 portfolio) and 7.1% (100/0) with $1k invested monthly is $1.2 million in today's dollars. That's right, over a million more.

Many here say that you should pick an AA that fits your risk tolerance, but I would argue that you should make your risk tolerance fit with your needed AA. Do whatever you have to do (i.e. don't check your balances is an easy one) to allow yourself to earn that extra million. Shrugging your shoulders and saying that you can't emotionally deal with it just doesn't sit right with me.
It's not just the emotional issue, it's the fact that the risk may be realized. As has been pointed out, seemingly minor differences in performance compound dramatically over time to make huge differences in personal wealth. I don't see how it's debatable that bonds, real estate, or even cash, could outperform equities by some such meaningful amount over a far longer period than a person's investing lifetime. The fact that based on the available tiny number of observations we haven't seen that occur over an average investing lifetime that doesn't seem significant to me. It's not like investing returns, especially over such relatively short periods, are based on some immutable law of physics. And any given individual may turn out to have a much, much shorter investing lifetime than we usually plan for.
Cash have a chance worth even remotely considering of outperforming stocks over a longer period than an investor's lifetime? You lost me there.
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Re: 90:10 AA - what don't you believe about it?

Post by Day9 » Mon Jul 17, 2017 12:17 am

I would like to mention that with such a small bond allocation, it may be a good idea to extend the duration of your bond portfolio beyond what you may use in say, a 60/40 portfolio.
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Re: 90:10 AA - what don't you believe about it?

Post by jalbert » Mon Jul 17, 2017 1:46 am

In the case of the portfolio Mr Buffett has designed for his wife after he dies, the 10% fixed income allocation is set to be short-term treasuries, as the purpose is to provide liquidity during bear markets when stocks are down. This also suggests that 10% of the portfolio can cover several years of living expenses for Mrs. Buffett, maybe even 10 years.

There is no reason to assume that because this asset allocation is appropriate for Mrs. Buffett, and recommended by Mr. Buffett, it is appropriate for all retirees.
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Mon Jul 17, 2017 2:41 pm

Day9 wrote:I would like to mention that with such a small bond allocation, it may be a good idea to extend the duration of your bond portfolio beyond what you may use in say, a 60/40 portfolio.
Perhaps. Since 1978, a portfolio comprised of 90% LC and 10% LTT had slightly higher CAGR than a portfolio with 10% in STT (+.32%), very slightly higher volatility (+.09% std. dev.) a higher 'best' year (+1.8%), and a better 'worst' year (+1.58%), and a slightly lower max. drawdown (+.75%).
jalbert wrote:In the case of the portfolio Mr Buffett has designed for his wife after he dies, the 10% fixed income allocation is set to be short-term treasuries, as the purpose is to provide liquidity during bear markets when stocks are down.
The bonds are liquid either way, so I assume that you mean that the goal is to be able to sell bonds when they aren't down. The above historical performance indicates that LTT have worked better in the past at least in this regard. In 2008, for instance, STT were up 6.68%, while LTT were up a whopping 22.51%. I think this makes logical sense; when the markets are really down, the economy is usually suffering also, and the Fed is likely to lower interest rates as a result, and dropping rates obviously benefit LTT more than STT. I could be completely wrong though.
jalbert wrote:This also suggests that 10% of the portfolio can cover several years of living expenses for Mrs. Buffett, maybe even 10 years.
With a 1% withdrawal rate, literally any portfolio will survive a typical retirement, including cash and gold.
jalbert wrote:There is no reason to assume that because this asset allocation is appropriate for Mrs. Buffett, and recommended by Mr. Buffett, it is appropriate for all retirees.
Absolutely. Most retirees probably couldn't stomach the volatility of this AA. If they can, it would probably work better for those who have 'oversaved' and can really cut their WR back (say to 2-3%) during bear markets. So those who have oversaved can probably afford to go with a portfolio which will be more volatile but will likely outperform most other retirees' portfolios as well, ultimately leading to even more money.
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Re: 90:10 AA - what don't you believe about it?

Post by Iliketoridemybike » Mon Jul 17, 2017 3:08 pm

Equities in a portfolio gives you the chance to have a larger portfolio. Having bonds in the portfolio, guarantees you will have a portfolio.
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Re: 90:10 AA - what don't you believe about it?

Post by North Texas Cajun » Mon Jul 17, 2017 3:08 pm

willthrill81 wrote:
Day9 wrote:I would like to mention that with such a small bond allocation, it may be a good idea to extend the duration of your bond portfolio beyond what you may use in say, a 60/40 portfolio.
Perhaps. Since 1978, a portfolio comprised of 90% LC and 10% LTT had slightly higher CAGR than a portfolio with 10% in STT (+.32%), very slightly higher volatility (+.09% std. dev.) a higher 'best' year (+1.8%), and a better 'worst' year (+1.58%), and a slightly lower max. drawdown (+.75%).
jalbert wrote:In the case of the portfolio Mr Buffett has designed for his wife after he dies, the 10% fixed income allocation is set to be short-term treasuries, as the purpose is to provide liquidity during bear markets when stocks are down.
The bonds are liquid either way, so I assume that you mean that the goal is to be able to sell bonds when they aren't down. The above historical performance indicates that LTT have worked better in the past at least in this regard. In 2008, for instance, STT were up 6.68%, while LTT were up a whopping 22.51%. I think this makes logical sense; when the markets are really down, the economy is usually suffering also, and the Fed is likely to lower interest rates as a result, and dropping rates obviously benefit LTT more than STT. I could be completely wrong though.
jalbert wrote:This also suggests that 10% of the portfolio can cover several years of living expenses for Mrs. Buffett, maybe even 10 years.
With a 1% withdrawal rate, literally any portfolio will survive a typical retirement, including cash and gold.
jalbert wrote:There is no reason to assume that because this asset allocation is appropriate for Mrs. Buffett, and recommended by Mr. Buffett, it is appropriate for all retirees.
Absolutely. Most retirees probably couldn't stomach the volatility of this AA. If they can, it would probably work better for those who have 'oversaved' and can really cut their WR back (say to 2-3%) during bear markets. So those who have oversaved can probably afford to go with a portfolio which will be more volatile but will likely outperform most other retirees' portfolios as well, ultimately leading to even more money.
I'm not sure what you mean by oversaved. But I'm pretty sure a 90/10 portfolio can work well if one uses a VPW withdrawal. I tested it using VPW rates for a 65 year old using 2007 through 2016 actual returns for VTSMX and VBMFX. The withdrawal amount dropped over 30% from 2008 to 2009, but climbed back up quickly after that. If a retiree couple also received SS benefits, the temporary drop should not be too difficult. The withdrawal rate over that decade would always be above 5.1%.

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Mon Jul 17, 2017 4:21 pm

North Texas Cajun wrote:I'm not sure what you mean by oversaved.
There isn't a hard and fast definition, but I would say that someone who saved (and invested) enough to allow a <3% withdrawal rate for their desired living expenses qualifies as someone who has oversaved. Someone who can pull off a 2% WR has definitely oversaved. This isn't necessarily a bad thing at all as it allows them to spend more money during retirement, easily cope with a lower WR when necessary, and/or leave more money behind for others.
North Texas Cajun wrote:But I'm pretty sure a 90/10 portfolio can work well if one uses a VPW withdrawal. I tested it using VPW rates for a 65 year old using 2007 through 2016 actual returns for VTSMX and VBMFX. The withdrawal amount dropped over 30% from 2008 to 2009, but climbed back up quickly after that. If a retiree couple also received SS benefits, the temporary drop should not be too difficult. The withdrawal rate over that decade would always be above 5.1%.
With any reasonable (<=5%) WR, a variable percentage withdrawal (VPW) strategy almost cannot fail in the sense of running out of money. However, given a very poor sequence of returns or else an extended 'drought' of poor returns, it's possible that the withdrawals could become quite small as times goes on.

One standard used to evaluate the 'success' of a VPW method when doing projections is whether the inflation-adjusted principal at the end of the period is at least as much as what you started with, which also means that your inflation-adjusted withdrawals are at least as much at the end as at the beginning. I think this standard is a bit conservative though, given that most retirees' spending tends to drop 1-2% annually in real dollars throughout their retirement.
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Re: 90:10 AA - what don't you believe about it?

Post by North Texas Cajun » Mon Jul 17, 2017 4:39 pm

willthrill81 wrote:
North Texas Cajun wrote:I'm not sure what you mean by oversaved.
There isn't a hard and fast definition, but I would say that someone who saved (and invested) enough to allow a <3% withdrawal rate for their desired living expenses qualifies as someone who has oversaved. Someone who can pull off a 2% WR has definitely oversaved. This isn't necessarily a bad thing at all as it allows them to spend more money during retirement, easily cope with a lower WR when necessary, and/or leave more money behind for others.
North Texas Cajun wrote:But I'm pretty sure a 90/10 portfolio can work well if one uses a VPW withdrawal. I tested it using VPW rates for a 65 year old using 2007 through 2016 actual returns for VTSMX and VBMFX. The withdrawal amount dropped over 30% from 2008 to 2009, but climbed back up quickly after that. If a retiree couple also received SS benefits, the temporary drop should not be too difficult. The withdrawal rate over that decade would always be above 5.1%.
With any reasonable (<=5%) WR, a variable percentage withdrawal (VPW) strategy almost cannot fail in the sense of running out of money. However, given a very poor sequence of returns or else an extended 'drought' of poor returns, it's possible that the withdrawals could become quite small as times goes on.

One standard used to evaluate the 'success' of a VPW method when doing projections is whether the inflation-adjusted principal at the end of the period is at least as much as what you started with, which also means that your inflation-adjusted withdrawals are at least as much at the end as at the beginning. I think this standard is a bit conservative though, given that most retirees' spending tends to drop 1-2% annually in real dollars throughout their retirement.


I disagree with your view on oversaving, but perhaps I'm just not familiar with the common usage of the term. My wife and I are one of many couples who planned for significant discretionary spending after retirement. I don't see how accumulating a large nest egg for exactly that purpose can be called "oversaving". Perhaps "above-average saving" is more appropriate.

I'm not sure about the requirement that the inflation-adjusted principal remain as large as at the beginning. As I understand it, the VPW method is designed to draw down one's principal in real dollars, although that drawdown should be gradual.

I agree that retirees spending will drop annually in real dollars. For those who planned for significant discretionary spending in the first decade of retirement, I think the reduction after age 75 will be greater than 2% a year. 80 and 90 year old retirees just don't have the energy for lots of travel and recreation.

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Re: 90:10 AA - what don't you believe about it?

Post by Engineer250 » Mon Jul 17, 2017 4:41 pm

willthrill81 wrote:
FIREchief wrote:Sad indeed. During the last crash, my millennial kid's millennial friend told him things like "investing in stocks is the same as just throwing your money out the window." At other times, friends have said things like "why not just go to Vegas, it's all just gambling." I don't think these kids got this from watching CNBC. I think they more than likely heard it around the dinner table.
I've also heard several people say that stocks are no different than the casino. When you question them about it, they've often been in stocks before, but when they experienced a 10-20% decline, they declared the whole thing a fraud and never looked back.
This all sounds like what my Dad told me about why he never invested in his 401k until he was almost retired. It was late '70s early '80s and he said all his coworkers (he was blue collar) would come into work and complain about how much money they lost the day before. So he just thought it was a huge risk and kept all his savings in a bank. Luckily he had a pension and my parents were very frugal. I remember signing up for my first 401k at my first full time job and seeing that they would match the most as long as I contributed 6%. I was asking my Mom questions about it and said "so I should put in 6% right?" and she said "at least 6%, more if you can" and that was eye opening to me. My parents regretted not taking advantage of the stock market and compound interest. So while they didn't know a lot about it, they knew I should be putting money away and investing in "the stock market".

I think Millenials have had a mixed bag. On the one hand, online brokerages make it so easy to transfer money and invest that anyone can get started. It's much more accessible than it was 30 years ago. And there's a lot of free educational information out there (like this site). Even someone paying too high of fees or picking individual stocks is probably still better off than if they had saved nothing. On the other hand, a lot of millenials had just hopped into the job market as the great recession hit or were trying to get their first jobs soon after. Combine that with student loans (as tuition has gone up a lot faster than inflation and college degrees are now necessary) and a lot of millenials are behind financially and unlikely to ever "catch up". Slow wage growth isn't helping those that made it through without losing their jobs. And to note, I stuck through my 100% equity allocation through the recession while my baby boomer coworkers were typically the ones panicking and increasing their bond allocations. We often forget how bad it is, but it was that bad that people with 20 years to retirement were worried we wouldn't be recovered by then. I had 40 or 45 so I could be more sanguine.

Unless of course we're talking about millenial children of Boglehead parents which is its own weird bubble of six figure 529s and Roth matching on their first jobs (and all the children are above average).
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Mon Jul 17, 2017 4:56 pm

North Texas Cajun wrote:I disagree with your view on oversaving, but perhaps I'm just not familiar with the common usage of the term. My wife and I are one of many couples who planned for significant discretionary spending after retirement. I don't see how accumulating a large nest egg for exactly that purpose can be called "oversaving". Perhaps "above-average saving" is more appropriate.
If you can undersave, then you can oversave, though we'd all rather be in the latter category than the former.

It might be hard to believe, but there are many people on this forum who have saved enough that even with spending money on everything they want to, their WR is still 2% (or even lower). These people truly saved more than necessary even for discretionary spending.
North Texas Cajun wrote:I'm not sure about the requirement that the inflation-adjusted principal remain as large as at the beginning. As I understand it, the VPW method is designed to draw down one's principal in real dollars, although that drawdown should be gradual.
VPW is not at all designed to draw down principal. It simply means that you are withdrawing a fixed percentage as opposed to a fixed dollar amount (plus inflation usually).
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Re: 90:10 AA - what don't you believe about it?

Post by Day9 » Mon Jul 17, 2017 5:11 pm

willthrill81 wrote: VPW ... simply means that you are withdrawing a fixed percentage
Doesn't VPW stand for Variable Percentage Withdrawal?
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Mon Jul 17, 2017 5:19 pm

Day9 wrote:
willthrill81 wrote: VPW ... simply means that you are withdrawing a fixed percentage
Doesn't VPW stand for Variable Percentage Withdrawal?
Yes, thank you for the correction. I meant fixed (or constant) percentage withdrawal.
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Re: 90:10 AA - what don't you believe about it?

Post by North Texas Cajun » Mon Jul 17, 2017 5:20 pm

Willthrill81: "VPW is not at all designed to draw down principal. It simply means that you are withdrawing a fixed percentage as opposed to a fixed dollar amount (plus inflation usually)."

Perhaps you and I are referring to a different VPW method.

The one designed by longinvest and referred to by the Bogleheads seems to be exactly designed to draw down one's principal. You can read longinvest's original comments here:

viewtopic.php?t=120430

Longinvest wrote when originally describing his method: " I want this portfolio to survive 30 years. I have no bequest motive, so I am happy to drawdown 100% of it."

He modified the method to allow drawdowns of less than 100%. But the drawdown was always part of the method.

Furthermore, the Variable Percentage Withdrawal method is not a FIXED percentage withdrawal.

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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Mon Jul 17, 2017 5:24 pm

North Texas Cajun wrote:Willthrill81: "VPW is not at all designed to draw down principal. It simply means that you are withdrawing a fixed percentage as opposed to a fixed dollar amount (plus inflation usually)."

Perhaps you and I are referring to a different VPW method.

The one designed by longinvest and referred to by the Bogleheads seems to be exactly designed to draw down one's principal. You can read longinvest's original comments here:

viewtopic.php?t=120430

Longinvest wrote when originally describing his method: " I want this portfolio to survive 30 years. I have no bequest motive, so I am happy to drawdown 100% of it."

He modified the method to allow drawdowns of less than 100%. But the drawdown was always part of the method.

Furthermore, the Variable Percentage Withdrawal method is not a FIXED percentage withdrawal.
Yes, we were referring to different methods. My apologies.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: 90:10 AA - what don't you believe about it?

Post by willthrill81 » Mon Jul 17, 2017 5:30 pm

North Texas Cajun wrote:Willthrill81 wrote: "Do whatever you have to do (i.e. don't check your balances is an easy one) to allow yourself to earn that extra million. Shrugging your shoulders and saying that you can't emotionally deal with it just doesn't sit right with me."

Yeah, I have trouble sometimes understanding why people cannot emotionally handle market downturns. But there's a lot of things people worry themselves silly over that I can't understand. Do you think we might not all be wired the same?
Clearly we aren't, but I still think that we as humans are capable of logically rising above our emotions to a great extent.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

jalbert
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Re: 90:10 AA - what don't you believe about it?

Post by jalbert » Mon Jul 17, 2017 5:59 pm

The bonds are liquid either way, so I assume that you mean that the goal is to be able to sell bonds when they aren't down.
Yes. That is a standard usage for portfolio liquidity.
The above historical performance indicates that LTT have worked better in the past at least in this regard. In 2008, for instance, STT were up 6.68%, while LTT were up a whopping 22.51%. I think this makes logical sense; when the markets are really down, the economy is usually suffering also, and the Fed is likely to lower interest rates as a result, and dropping rates obviously benefit LTT more than STT. I could be completely wrong though.
If stocks are down because of a stagflationary environment like in the 1970's, LTT are unlikely to be particularly helpful like they were in 2008/2009.
Risk is not a guarantor of return.

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Top99%
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Re: 90:10 AA - what don't you believe about it?

Post by Top99% » Mon Jul 17, 2017 6:06 pm

willthrill81 wrote:
North Texas Cajun wrote:
If you can undersave, then you can oversave, though we'd all rather be in the latter category than the former.

It might be hard to believe, but there are many people on this forum who have saved enough that even with spending money on everything they want to, their WR is still 2% (or even lower). These people truly saved more than necessary even for discretionary spending.
To me an example of over saving would be someone working well past their healthy retirement years to accumulate a nest egg that would allow a <3% WR. If one can accumulate such a nest egg while they are still young to me that is not over saving. That is just a combination of good fortune (some combination of high income + favorable returns) and good financial discipline (saving one's backside off).
Adapt or perish

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