Memo to those who have won the game: it's time to quit playing

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garlandwhizzer
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Re: Memo to those who have won the game: it's time to quit playing

Post by garlandwhizzer » Sun Jan 07, 2018 7:29 pm

By the numbers I have won the game but most of my portfolio is still in stocks. The underlying assumption here is that bonds have no risk. That is not always true. The two biggest risks for bonds are inflation and longevity risk, finding out in the 4th quarter of the game that you hadn't won it in the first place when you put all your eggs into low return assets. No one worries much about inflation now because it's been so low for so long. That fact has no predictive power about what inflation will be in 10 or 20 years. I lived and invested in the 1970s and 1980s and learned too well what it's like. In ever increasing and high inflation, bonds especially longer term bonds get killed in terms of real returns, the only kind that matters when you're in the withdrawal phase. Other risks can drastically change projections of future financial needs: divorces, remarriages, accidents, fires, floods, disability, lawsuits, dementia requiring round the clock care for years, strokes that do the same thing, children who run into financial disasters and need financial help, etc.. The list goes on and on. I don't believe that anyone today can accurately anticipate how much money they'll need to live the lifestyle they're accustomed to over the next 20+ years. If you're seventy you have a good chance of living for 20 years of more if you're in good health. For these reasons, I do not anticipate ever lowering my equity allocation below 50%. Volatility doesn't bother me much. I've been through it many times before. I do not panic sell. The prospect of running out of money, on the other hand, scares me a lot.

Garland Whizzer

CULater
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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Sun Jan 07, 2018 7:33 pm

garlandwhizzer wrote:
Sun Jan 07, 2018 7:29 pm
By the numbers I have won the game but most of my portfolio is still in stocks. The underlying assumption here is that bonds have no risk. That is not always true. The two biggest risks for bonds are inflation and longevity risk, finding out in the 4th quarter of the game that you hadn't won it in the first place when you put all your eggs into low return assets. No one worries much about inflation now because it's been so low for so long. That fact has no predictive power about what inflation will be in 10 or 20 years. I lived and invested in the 1970s and 1980s and learned too well what it's like. In ever increasing and high inflation, bonds especially longer term bonds get killed in terms of real returns, the only kind that matters when you're in the withdrawal phase. Other risks can drastically change projections of future financial needs: divorces, remarriages, accidents, fires, floods, disability, lawsuits, dementia requiring round the clock care for years, strokes that do the same thing, children who run into financial disasters and need financial help, etc.. The list goes on and on. I don't believe that anyone today can accurately anticipate how much money they'll need to live the lifestyle they're accustomed to over the next 20+ years. If you're seventy you have a good chance of living for 20 years of more if you're in good health. For these reasons, I do not anticipate ever lowering my equity allocation below 50%. Volatility doesn't bother me much. I've been through it many times before. I do not panic sell. The prospect of running out of money, on the other hand, scares me a lot.

Garland Whizzer
Garland - have you heard of TIPS? I understand that they are bonds that have very low inflation risk. That's what Bernstein recommends.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by itstoomuch » Sun Jan 07, 2018 7:49 pm

I'm making small moves to re-enter the equity market after being essentially out and in cash since early Dec 2017. Discretionary acct.
Hard to find good values and companies that could result in higher valuations. Taking bigger risks going forward and vowed to trade more frequently to lock in gains.
YMMV
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Re: Memo to those who have won the game: it's time to quit playing

Post by Engineer250 » Sun Jan 07, 2018 7:49 pm

livesoft wrote:
Sun Jan 07, 2018 2:38 pm
For many people $72K to $100K a year is less than they are spending while healthy and living at home.
How can that be when everyone tells me my income will be low in retirement and my taxes therefore will be low therefore I should always be pre-tax 401k instead of Roth? Doesn't sound like > $100k spending needs in retirement are low taxes.
Where the tides of fortune take us, no man can know.

visualguy
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Re: Memo to those who have won the game: it's time to quit playing

Post by visualguy » Sun Jan 07, 2018 7:50 pm

25X expenses or having enough for the so-called SWR isn't "winning the game" unless you truly include all expenses, including health-related, long-term care, house renovations/repairs, and various nasty surprises that life has a tendency to produce. If my wife gets dementia or a stroke, and has to go to nursing home before me, we suddenly have an extra expense of at least $140K/year in my area. Medicaid doesn't bail us out. Similarly, if there's a severe earthquake (quite possible where I live), or a fire, I can have a huge bill beyond whatever is covered by insurance. The list goes on and on.

Bailing out to CDs or other truly safe investments isn't an option because it won't get us to truly winning the game. Also, there's a practical limit to how many additional years you can work. Not sure what you can do other than taking risk unless you are very wealthy. I know many who don't like the stock market, but they are in direct real estate instead, not CDs or bonds.

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Re: Memo to those who have won the game: it's time to quit playing

Post by dbr » Sun Jan 07, 2018 7:51 pm

Engineer250 wrote:
Sun Jan 07, 2018 7:49 pm
livesoft wrote:
Sun Jan 07, 2018 2:38 pm
For many people $72K to $100K a year is less than they are spending while healthy and living at home.
How can that be when everyone tells me my income will be low in retirement and my taxes therefore will be low therefore I should always be pre-tax 401k instead of Roth? Doesn't sound like > $100k spending needs in retirement are low taxes.
It is necessary to make these projections for the individual case. There is going to be a wide range across the population of investors and that makes many recommendations "it depends" kinds of things.

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Re: Memo to those who have won the game: it's time to quit playing

Post by livesoft » Sun Jan 07, 2018 7:53 pm

Engineer250 wrote:
Sun Jan 07, 2018 7:49 pm
livesoft wrote:
Sun Jan 07, 2018 2:38 pm
For many people $72K to $100K a year is less than they are spending while healthy and living at home.
How can that be when everyone tells me my income will be low in retirement and my taxes therefore will be low therefore I should always be pre-tax 401k instead of Roth? Doesn't sound like > $100k spending needs in retirement are low taxes.
This has been covered in some detail:
viewtopic.php?t=87471 and even there medical deductions were not included.
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Re: Memo to those who have won the game: it's time to quit playing

Post by AlohaJoe » Sun Jan 07, 2018 7:54 pm

Random Walker wrote:
Sun Jan 07, 2018 2:33 pm
Aloha Joe,
I don’t understand your Alzheimer’s point. Are you saying we could live a lot longer than we expect and that our expenses much greater than we anticipate, so our need to take risk is potentially greater than we think?
Yes. I'm saying that pretending you can accurately predict the next 20-40 years of your expenses is a ridiculous belief. And it isn't just about your own personal expenses -- great-grand daughter get diagnosed with leukemia or great grand-son is born with autism. Stories about people investing everything in high-flying internet stocks and losing $20 million are attacking a strawman. I'm not suggesting everyone needs to be 100% in emerging markets value stocks "just in case"; we're talking about investing in a portfolio of broadly diversified equities with a reasonable asset allocation.

I'm become convinced that asset allocation is one of the most overrated topics in retirement planning. Pretty much the only thing that matters is your withdrawal rate. If you have a realistic withdrawal rate, then any asset allocation that isn't 100% bonds will work. If you don't have a realistic withdrawal rate, then no asset allocation will help you.

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Re: Memo to those who have won the game: it's time to quit playing

Post by Toons » Sun Jan 07, 2018 7:56 pm

I was 70/30 Stock bond
72/28 Now.
I let the market do what it does.
Money ebbs and flows.
Over the decades,I have found ,
The less tinkering I do with the portfolio
The more it flows my way.
I will be a life long "participant" in the market.
What is to be ,is to be.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Ged
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Re: Memo to those who have won the game: it's time to quit playing

Post by Ged » Sun Jan 07, 2018 8:01 pm

CULater wrote:
Sun Jan 07, 2018 10:45 am
I guess I don't understand why someone who has "won the game" would be taking a gradualist approach to reducing their equity allocation, especially in the face of the obvious high market valuations. If you don't need to have anything in stocks or need a much lower percentage than you currently have, why not just go online tomorrow and get out?
Taxes. Taking everything out of the market would incur a lot of capital gains that would be washed away in the gross up at death.

lakja
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Re: Memo to those who have won the game: it's time to quit playing

Post by lakja » Sun Jan 07, 2018 8:10 pm

CULater wrote:
Sun Jan 07, 2018 9:42 am
With CAPE at the second highest level in history and the U.S. stock market acting bubblicious these days, I think it is a good time for older investors to heed Dr. Bernstein's advice: "If you've won the game, stop playing." Nobody can predict what the market will do and accumulators should probably stay put. But if you don't really need to take much market risk anymore, it seems to me this is not a good time to continue to do so. I'm not getting completely out, because I have a floor of safe income-producing assets. But most of my toes are out of the water. Only toes I can afford to lose are still in. I can tolerate risk -- I just don't like losing money. How about others who have "won the game?" What are you doing?
CAPE-10 is a worthless valuation. It still includes the 2007-08 bubble with record low earnings and doesn’t account for P/E to interest rate correlation. Global QE has pumped up the stock market, and CAPE-10 does not account for the resulting very low interest rates. Company earnings are at record highs and are projected to go 10%+ higher next year due to tax reform and strong global economies. If you look at growth adjusted P/Es, the market is actually cheap. Unemployment rates are at record lows and are driving wages higher and will continue to do so next year. Taxes are going to be lower next year too. All of these facts are favorable to the market.

We could really see S&P500 at 3-3.1k, which would be another 12% gain from this year. These “get out of the market” posts need to be shut down and closed. They lack any insightful analysis on causation for market collapse and really indicate the poster should re-evaluate their AA.

Three Fed rate raises are baked into the market. A fourth rate raise next year would indicate inflationary conditions, which would be good for the market. Some real catalysts on the downside are protectionist policies, North Korea to some extent, current consumer debt levels in a rising rate environment (watch default rates on credit cards/housing/autos), and global slowdown in China.

If an infrastructure deal gets through, you’re going to see another bump. This is very unlikely, however.

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Re: Memo to those who have won the game: it's time to quit playing

Post by The Wizard » Sun Jan 07, 2018 8:38 pm

lakja wrote:
Sun Jan 07, 2018 8:10 pm
... These “get out of the market” posts need to be shut down and closed. They lack any insightful analysis on causation for market collapse and really indicate the poster should re-evaluate their AA...
There's more to it than that.
It's a question of what to do when you hit your number.
Say you need $2M to retire and you hit that number.
Do you "keep going to the casino" where you're sure to have a bad streak at some point?

Some people apparently look at investing that way. Most of us here do not...
Attempted new signature...

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Sun Jan 07, 2018 8:49 pm

I wouldn't get too hung up on trying to discount CAPE. That's just one example of many that ought be be telling folks that this market is stretched. Nobody can say it will crash, nobody can predict the future. But let's stop whistling past the graveyard, folks. Getting older sucks, but the one part that doesn't is that I don't have to worry about my nestegg full of stocks doing a Humpty Dumpty. Happy to take Dr. Bernstein's advice. :beer
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Sandtrap
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Re: Memo to those who have won the game: it's time to quit playing

Post by Sandtrap » Sun Jan 07, 2018 9:01 pm

The Wizard wrote:
Sun Jan 07, 2018 4:42 pm
dbr wrote:
Sun Jan 07, 2018 10:21 am

...As far as the game: It is not a game and you can't quit...
Right. I often opine similarly.

But there are different financial phases as regards retirement.
We have Sequence of Returns risk in early years of retirement.

And in my case, I have a seven year Bridge period of taking extra portfolio withdrawals prior to starting SS at age 70. With 26 months to go, I suspect I may be celebrating a "win" of sorts when I hit that point.
But there will be no quitting or taking money off the table...
Absolutely true.
And, with the lack of the income stream from employment, retirees no longer have that "cushion" to fall on. New risks in the retirement phase and less of an ability to recover.
The new "milestones" become; Medicare, SS at 70 (right behind you), and so forth.
The "Bridge Period" might be different for each person but the milestones are similar.

And, to add what a previous poster had on the list of potential financial black swans:
Long Term Health Care
Assisted Living Expenses
Loved ones, spouses, that fall ill.
And, the rising cost of a power chair.

This is why there's no "quitting", no "taking money off the table".
j :D

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Re: Memo to those who have won the game: it's time to quit playing

Post by Beehave » Sun Jan 07, 2018 9:04 pm

jtl46 wrote:
Sun Jan 07, 2018 3:57 pm
I am all in bank CD's only earning about 2.25% on average but I don't care. I have enough income from this measly return and taking some principle to far outlast my spending for life and then some, even if my wife and I both ended up in long term care. We have no children and all of my relatives are financially secure. My point is why take any financial risk if you don't need to?
Without diversification, are you concerned about the possibility that inflation erodes the value of your CD nest egg? I understand the laddering concept, but wonder what happens to the value of the whole set if interest rates rise rapidly. It seems to me there is risk in an all-CD position because even if you take your cash out forfeiting interest, it may be too late to reinvest it effectively in inflation-resistant instruments. I'd be interested in your thoughts - - like you I'm a big believer that cash will become king, but I also think some diversification is a good idea.

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Re: Memo to those who have won the game: it's time to quit playing

Post by RNJ » Sun Jan 07, 2018 9:09 pm

I've taken a different approach. By just about any measure we're in good financial shape. My wife and I are 8 yrs apart in age (I'm older), averaging ~50 between us. I've used her age minus 10 as the bond allocation. Though we haven't been there for years (stocks have run up too quickly), we've used appreciated equities to fund our donor advised fund at Vanguard Charitable and have purchased bonds with inflows as we are both still working. With those parameters in place, we've managed to hit rebalancing bands only a couple of times and only with a single asset class (EM) and only for a day or two. So we haven't done any selling to rebalance.

Our IPS is based on a 2% real return, and every January we turn down our target equity allocation by 1% with a goal of moving into a 60/40 allocation. This year, given the run-up, we've brought our allocation target down 2% instead of 1%. What that translates into is changing a single number on a spreadsheet (granted, that change triggers about 50 other changes). I haven't sold anyequities for rebalancing purposes because I haven't had to (though we were more generous in our charitable giving for 2017).

The upshot is that the target has changed but I haven't had to actually do anything other than change my mindset. To me this feels right - it's good for us, moving us in the right direction (into the wind), and is doing no harm.

One last thing - the hardest part about selling equities isn't leaving the party. It's the concession to getting older, finitude, mortality. Just saying'.

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Re: Memo to those who have won the game: it's time to quit playing

Post by lakja » Sun Jan 07, 2018 9:13 pm

CULater wrote:
Sun Jan 07, 2018 8:49 pm
I wouldn't get too hung up on trying to discount CAPE. That's just one example of many that ought be be telling folks that this market is stretched. Nobody can say it will crash, nobody can predict the future. But let's stop whistling past the graveyard, folks. Getting older sucks, but the one part that doesn't is that I don't have to worry about my nestegg full of stocks doing a Humpty Dumpty. Happy to take Dr. Bernstein's advice. :beer
I think a real risk is running out of funds with longer life spans, which dictates a need to stay in the market, especially if everyone believes future returns are going to be lower. My wife’s grandfather retired in his late 50’s and passed away two years ago at 95. In the end, medical expenses began sucking his finances and I doubt he planned on living that long. If you’re needing extensive care, you’re looking at 200k+/year depending on where you live.

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JoMoney
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Re: Memo to those who have won the game: it's time to quit playing

Post by JoMoney » Sun Jan 07, 2018 9:19 pm

Will everybody else please sell so I can be buying even more at each purchase... thank you.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Sun Jan 07, 2018 10:06 pm

I can't believe that with all these wealthy Bogleheads around that I seem to be the only one who thinks I have enough to get by without betting on stocks, and probably even handle the high cost of assisted living and long-term care if it comes to that. And I don't exactly think I'm wealthy. What are all you folks so worried about? This is supposed to be an option for people who have already won the game and should be able to consider ringing the bell. If you don't think that's you, not an option.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by Engineer250 » Sun Jan 07, 2018 10:33 pm

livesoft wrote:
Sun Jan 07, 2018 7:53 pm
Engineer250 wrote:
Sun Jan 07, 2018 7:49 pm
livesoft wrote:
Sun Jan 07, 2018 2:38 pm
For many people $72K to $100K a year is less than they are spending while healthy and living at home.
How can that be when everyone tells me my income will be low in retirement and my taxes therefore will be low therefore I should always be pre-tax 401k instead of Roth? Doesn't sound like > $100k spending needs in retirement are low taxes.
This has been covered in some detail:
viewtopic.php?t=87471 and even there medical deductions were not included.
Yeah I'm not saying someone couldn't come up with a hypothetical scenario (or even a lot of hypothetical scenarios) in which people pay very little tax in retirement. Instead, anyone above a 15% marginal in today's tax rates is told they should ALWAYS go pre-tax. Not everyone can perfectly optimize their retirement taxes.
Where the tides of fortune take us, no man can know.

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Re: Memo to those who have won the game: it's time to quit playing

Post by masteraleph » Sun Jan 07, 2018 10:44 pm

david1082b wrote:
Sun Jan 07, 2018 10:49 am

These are all the higher readings I can find from a monthly table:
Shiller PE Ratio by Month

May 1, 2001 34.07
Feb 1, 2001 35.83
Jan 1, 2001 36.98
Dec 1, 2000 37.27
Nov 1, 2000 38.78
Oct 1, 2000 39.37
Sep 1, 2000 41.89
Aug 1, 2000 42.87
Jul 1, 2000 42.75
Jun 1, 2000 42.78
May 1, 2000 41.96
Apr 1, 2000 43.53
Mar 1, 2000 43.22
Feb 1, 2000 42.18
Jan 1, 2000 43.77
Dec 1, 1999 44.19
Nov 1, 1999 43.21
Oct 1, 1999 40.55
Sep 1, 1999 41.32
Aug 1, 1999 41.93
Jul 1, 1999 43.83
Jun 1, 1999 42.18
May 1, 1999 42.55
Apr 1, 1999 42.70
Mar 1, 1999 41.35
Feb 1, 1999 40.40
Jan 1, 1999 40.57
Dec 1, 1998 38.82
Nov 1, 1998 37.37
Oct 1, 1998 33.77
Sep 1, 1998 33.53
Aug 1, 1998 35.42
Jul 1, 1998 38.26
Jun 1, 1998 36.80
May 1, 1998 36.95
Apr 1, 1998 37.27
Mar 1, 1998 36.29
Feb 1, 1998 34.71


July '99 looks like the second highest, 43.83.
IIRC there was a change in the way GAAP earnings were reported in 2001 that typically lowers earnings a little bit (and so raises later CAPE ratios a bit). That's not to say we're not a little frothy right now, but the table could probably extend out to mid-1997 and still have comparable CAPE values if you could recalculate earnings reports to match more recent reporting principles (citation here- note direct link to PDF- https://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n3.1).

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Re: Memo to those who have won the game: it's time to quit playing

Post by Engineer250 » Sun Jan 07, 2018 10:51 pm

CULater wrote:
Sun Jan 07, 2018 10:06 pm
I can't believe that with all these wealthy Bogleheads around that I seem to be the only one who thinks I have enough to get by without betting on stocks, and probably even handle the high cost of assisted living and long-term care if it comes to that. And I don't exactly think I'm wealthy. What are all you folks so worried about? This is supposed to be an option for people who have already won the game and should be able to consider ringing the bell. If you don't think that's you, not an option.
Wonder what "don't exactly think I'm wealthy" means to you :D

I'd honestly bet most Bogleheads don't see themselves as particularly wealthy either, unless you mean wealthy in friends, family and good fortune or some such feel good crap :wink:
Where the tides of fortune take us, no man can know.

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Re: Memo to those who have won the game: it's time to quit playing

Post by MossySF » Sun Jan 07, 2018 10:58 pm

The Falcons were up 28-3. The Warriors were up 3-1. The Thunder were up 3-1. The Indians were up 3-1.

You can leave the game but the game continues on until the clock hits 0:00.

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Re: Memo to those who have won the game: it's time to quit playing

Post by Startled Cat » Sun Jan 07, 2018 11:23 pm

bhsince87 wrote:
Sun Jan 07, 2018 2:10 pm
aaronl wrote:
Sun Jan 07, 2018 1:58 pm
bhsince87 wrote:
Sun Jan 07, 2018 1:42 pm
Keep in mind CAPE is still being impacted by the horrible earnings of 2008 and 2009.
Isn't that the point of cyclical adjustment (the CA in CAPE)?
I think that's supposed to be the point. But I don't think it always translates well to reality. Especially when it factors in a once or twice in a lifetime earnings crash like we had in 2008-9.
It feels dangerously like cherry-picking to me to assume that the earnings crash of 2008-2009 is an aberration, but the elevated profit margins we see right now are not.

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Re: Memo to those who have won the game: it's time to quit playing

Post by DrGoogle2017 » Sun Jan 07, 2018 11:33 pm

I’m not sure Bernstein is serious about quit playing as in quit the stock market cold turkey, zero exposure? It sounds a bit extreme and I’m not sure CD at 2.25% is good idea either. It seems limiting to me. Reduced equity exposure is much better advice. I have a hybrid system, most basic expenses are covered by LMP, I didn’t know that’s what it’s called, the rest discretionary spending are covered in stocks. But very low equity exposure. Enough that I don’t sweat either way.
Last edited by DrGoogle2017 on Mon Jan 08, 2018 11:43 am, edited 1 time in total.

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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Sun Jan 07, 2018 11:46 pm

CULater wrote:
Sun Jan 07, 2018 8:49 pm
I wouldn't get too hung up on trying to discount CAPE. That's just one example of many that ought be be telling folks that this market is stretched.
Historically, when CAPE was above 20, the next 10 year's returns varied between -1.38% and 12.07%, as shown in the table below, but most of the returns were between 1% and 7%. Given that we're at the second highest levels of CAPE in history, I think that we should not count on double-digit returns for U.S. equities over the next ten years. Anything could happen, but to the extent that the future looks anything like the past, it seems very unlikely. In only 3 of the 42 year ten year periods (1900-2012) were returns 10% or higher after the starting CAPE was 20 or higher. That's only 7% of the time.

Image

As Rob Arnott has said, if you plan for low returns and get them, you're alright. But if you plan for high returns and don't get them, you could be in real trouble. I don't know of anyone who wishes that they had had a lower savings rate in the past. :wink:
“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: Memo to those who have won the game: it's time to quit playing

Post by larryslocum1982 » Sun Jan 07, 2018 11:52 pm

Is all this not market timing? How do you know market will not keep on going up? From valuation measures the market was expensing I've when Dow was 8000 points lower.
I read here that nobody can time the market.

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Re: Memo to those who have won the game: it's time to quit playing

Post by HJG0989 » Sun Jan 07, 2018 11:57 pm

CULater wrote:
Sun Jan 07, 2018 10:06 pm
I can't believe that with all these wealthy Bogleheads around that I seem to be the only one who thinks I have enough to get by without betting on stocks, and probably even handle the high cost of assisted living and long-term care if it comes to that. And I don't exactly think I'm wealthy. What are all you folks so worried about? This is supposed to be an option for people who have already won the game and should be able to consider ringing the bell. If you don't think that's you, not an option.

I guess it's the glass is half empty or half full situation. We have pensions and more than enough in bonds to get us to Social Security at age 70. The only thing we would need stocks for is LTC. If the market took a permanent 50% haircut we'd still be OK. If the market goes to zero then we are all in trouble. I'm going to let it ride and leave the money to help others.

Best of luck to us all.

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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Mon Jan 08, 2018 12:00 am

larryslocum1982 wrote:
Sun Jan 07, 2018 11:52 pm
Is all this not market timing? How do you know market will not keep on going up? From valuation measures the market was expensing I've when Dow was 8000 points lower.
I read here that nobody can time the market.
Even dyed-in-the-wool Bogleheads will say that changing your AA based on your own personal circumstances is not market timing. Adjusting your AA based on valuations, prices, or other market-related factors is market timing.

Based on the historical evidence, I and many others have concluded that rules-based market timing, as opposed to the subjective, emotion-driven market timing practiced by many, can be an effective way to control risk but not to lead to higher returns than buy-and-hold. But everyone needs to come to their own conclusion based on their own views of the data and their own personal preferences.
“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: Memo to those who have won the game: it's time to quit playing

Post by jalbert » Mon Jan 08, 2018 12:08 am

CULater wrote:
Sun Jan 07, 2018 9:42 am
With CAPE at the second highest level in history and the U.S. stock market acting bubblicious these days, I think it is a good time for older investors to heed Dr. Bernstein's advice: "If you've won the game, stop playing." Nobody can predict what the market will do and accumulators should probably stay put. But if you don't really need to take much market risk anymore, it seems to me this is not a good time to continue to do so. I'm not getting completely out, because I have a floor of safe income-producing assets. But most of my toes are out of the water. Only toes I can afford to lose are still in. I can tolerate risk -- I just don't like losing money. How about others who have "won the game?" What are you doing?
You should always have an allocation consistent with your financial need, emotional tolerance, and capacity to absorb risk. Market valuations should have nothing to do with that.
Risk is not a guarantor of return.

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Re: Memo to those who have won the game: it's time to quit playing

Post by larryslocum1982 » Mon Jan 08, 2018 12:09 am

So far buy and hold has worked for me. I can not figure out a good way to market time. I tested technical analysis but results were worse than buy and hold.

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Re: Memo to those who have won the game: it's time to quit playing

Post by aj76er » Mon Jan 08, 2018 12:12 am

visualguy wrote:
Sun Jan 07, 2018 4:36 pm

Not having children can actually be a very serious problem in old age unless you have some other relatives that you can trust at that point - maybe nieces and nephews if you have a relationship with them.
Under this situation, then one can pay 75bps (or perhaps a little more, depending on AUM) for a financial advisor to manage one's assets and make timely distributions during one's final years of life. Don't let blind adherence to dogma trump common sense. If one is too old to manage their portfolio, and there is no family that can be trusted, then paying a small advisory fee is well worth it.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: Memo to those who have won the game: it's time to quit playing

Post by White Coat Investor » Mon Jan 08, 2018 12:25 am

CULater wrote:
Sun Jan 07, 2018 9:42 am
With CAPE at the second highest level in history and the U.S. stock market acting bubblicious these days, I think it is a good time for older investors to heed Dr. Bernstein's advice: "If you've won the game, stop playing." Nobody can predict what the market will do and accumulators should probably stay put. But if you don't really need to take much market risk anymore, it seems to me this is not a good time to continue to do so. I'm not getting completely out, because I have a floor of safe income-producing assets. But most of my toes are out of the water. Only toes I can afford to lose are still in. I can tolerate risk -- I just don't like losing money. How about others who have "won the game?" What are you doing?
I'm following my written plan. Does your written plan say to pull money out at a certain market level or a certain portfolio size or a certain CAPE? If so, I recommend you do that. If not, I recommend you revisit your plan. If you have no plan, I recommend you get one.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Memo to those who have won the game: it's time to quit playing

Post by MnD » Mon Jan 08, 2018 12:38 am

CULater wrote:
Sun Jan 07, 2018 10:06 pm
I can't believe that with all these wealthy Bogleheads around that I seem to be the only one who thinks I have enough to get by without betting on stocks, and probably even handle the high cost of assisted living and long-term care if it comes to that. And I don't exactly think I'm wealthy. What are all you folks so worried about? This is supposed to be an option for people who have already won the game and should be able to consider ringing the bell. If you don't think that's you, not an option.
I like these panic in a bull market reports. The fear is thick and that's a great thing.

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Re: Memo to those who have won the game: it's time to quit playing

Post by flyingaway » Mon Jan 08, 2018 1:07 am

It is not a good idea to get out of the market completely. But I am moving to bonds slowly as market goes up.

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Re: Memo to those who have won the game: it's time to quit playing

Post by visualguy » Mon Jan 08, 2018 2:13 am

CULater wrote:
Sun Jan 07, 2018 10:06 pm
I can't believe that with all these wealthy Bogleheads around that I seem to be the only one who thinks I have enough to get by without betting on stocks, and probably even handle the high cost of assisted living and long-term care if it comes to that. And I don't exactly think I'm wealthy. What are all you folks so worried about? This is supposed to be an option for people who have already won the game and should be able to consider ringing the bell. If you don't think that's you, not an option.
Maybe there aren't that many here who are THAT wealthy... Being able to pay for decades of retirement and old age with just CDs or bonds requires A LOT of money. You don't have to bet on stocks, but you need to invest in something that gives you a decent return and inflation protection, such as real estate. Maybe if you and your spouse have large pensions, plus retiree health care benefits, it's not so bad. Most of us these days don't get that. We have nothing but our investments and a safety net/"entitlements" that are constantly under attack and may very well not survive in the form that we know them today.

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Re: Memo to those who have won the game: it's time to quit playing

Post by JoMoney » Mon Jan 08, 2018 2:50 am

aj76er wrote:
Mon Jan 08, 2018 12:12 am
visualguy wrote:
Sun Jan 07, 2018 4:36 pm

Not having children can actually be a very serious problem in old age unless you have some other relatives that you can trust at that point - maybe nieces and nephews if you have a relationship with them.
Under this situation, then one can pay 75bps (or perhaps a little more, depending on AUM) for a financial advisor to manage one's assets and make timely distributions during one's final years of life. Don't let blind adherence to dogma trump common sense. If one is too old to manage their portfolio, and there is no family that can be trusted, then paying a small advisory fee is well worth it.
The benefit offered from a SPIA shouldn't be dismissed either, without children as beneficiaries maybe less concern about leaving a legacy.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Memo to those who have won the game: it's time to quit playing

Post by visualguy » Mon Jan 08, 2018 3:55 am

aj76er wrote:
Mon Jan 08, 2018 12:12 am
visualguy wrote:
Sun Jan 07, 2018 4:36 pm

Not having children can actually be a very serious problem in old age unless you have some other relatives that you can trust at that point - maybe nieces and nephews if you have a relationship with them.
Under this situation, then one can pay 75bps (or perhaps a little more, depending on AUM) for a financial advisor to manage one's assets and make timely distributions during one's final years of life. Don't let blind adherence to dogma trump common sense. If one is too old to manage their portfolio, and there is no family that can be trusted, then paying a small advisory fee is well worth it.
How easy is it to find someone you can trust to manage your assets, especially when they know that you have no one to protect your interest?

Also, it's not just a money issue. You almost inevitably need an advocate in old age, and it's hard to imagine who other than family or maybe a really close friend (rare) would do that.

There was a thread here a while ago on this topic, and it was pretty depressing... Lots of issues with abuse of conservatorship/guardianship. Terrifying stuff.

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Re: Memo to those who have won the game: it's time to quit playing

Post by hudson » Mon Jan 08, 2018 4:42 am

Larry Swedroe on taking risk: viewtopic.php?p=1372822#p1372822

Bill Bernstein: "if you've won the game, and if your equity allocation is high, to lighten up." viewtopic.php?p=2908476#p2908476

Taylor Larimore: "I have a simple asset-allocation in retirement" viewtopic.php?p=2909645#p2909645

Bill Bernstein: "In the real world, you can stratify your odds as follows in terms of residual expense savings" viewtopic.php?p=1549168#p1549168

Bill Bernstein: "The LMP right now is more of an ideal than a reality, and short-term reserves are the least worst choice, in my opinion." viewtopic.php?p=1549226#p1549226

Bill Bernstein: "The other part is to look at how survivable a 100% stock portfolio is." viewtopic.php?p=1550032#p1550032

Bill Bernstein: My portfolio and Real Estate viewtopic.php?p=3490096#p3490096

sscritic: how would you suggest that I de-risk that portfolio viewtopic.php?p=2005596#p2005596

johnnie: What's the ideal safe retirement net worth target? viewtopic.php?p=3481447#p3481447

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Re: Memo to those who have won the game: it's time to quit playing

Post by selters » Mon Jan 08, 2018 5:21 am

UpperNwGuy wrote:
Sun Jan 07, 2018 10:01 am
OP seems to be mixing together two separate concepts:
— Market timing ("With CAPE at the second highest level in history and the U.S. stock market acting bubblicious these days")
— An older investor's AA as determined by his or her IPS

I think a responsible older investor would already be reducing risk as part of his or her long-term plan. OP seems to be advocating that such investors revisit their plans in the light of current market trends (market timing at its finest). If you have a responsible plan, why change it now?
I don't think he is mixing them. If you expect 7% annually to reach your goal by age 60, but you get 20% annually for a few years, so you reach your goal by age 55, should you reduce your allocation to stocks if many (all?) valuation metrics are high because the fundamentals haven't kept up with stock prices? I think you should. Don't you think you should pay any attention to valuations, ever?

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Re: Memo to those who have won the game: it's time to quit playing

Post by UpperNwGuy » Mon Jan 08, 2018 6:06 am

selters wrote:
Mon Jan 08, 2018 5:21 am
UpperNwGuy wrote:
Sun Jan 07, 2018 10:01 am
OP seems to be mixing together two separate concepts:
— Market timing ("With CAPE at the second highest level in history and the U.S. stock market acting bubblicious these days")
— An older investor's AA as determined by his or her IPS

I think a responsible older investor would already be reducing risk as part of his or her long-term plan. OP seems to be advocating that such investors revisit their plans in the light of current market trends (market timing at its finest). If you have a responsible plan, why change it now?
I don't think he is mixing them. If you expect 7% annually to reach your goal by age 60, but you get 20% annually for a few years, so you reach your goal by age 55, should you reduce your allocation to stocks if many (all?) valuation metrics are high because the fundamentals haven't kept up with stock prices? I think you should. Don't you think you should pay any attention to valuations, ever?
In response, I refer you to the White Coat Investor's post of a few hours ago:
White Coat Investor wrote:
Mon Jan 08, 2018 12:25 am
CULater wrote:
Sun Jan 07, 2018 9:42 am
With CAPE at the second highest level in history and the U.S. stock market acting bubblicious these days, I think it is a good time for older investors to heed Dr. Bernstein's advice: "If you've won the game, stop playing." Nobody can predict what the market will do and accumulators should probably stay put. But if you don't really need to take much market risk anymore, it seems to me this is not a good time to continue to do so. I'm not getting completely out, because I have a floor of safe income-producing assets. But most of my toes are out of the water. Only toes I can afford to lose are still in. I can tolerate risk -- I just don't like losing money. How about others who have "won the game?" What are you doing?
I'm following my written plan. Does your written plan say to pull money out at a certain market level or a certain portfolio size or a certain CAPE? If so, I recommend you do that. If not, I recommend you revisit your plan. If you have no plan, I recommend you get one.

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Re: Memo to those who have won the game: it's time to quit playing

Post by Dandy » Mon Jan 08, 2018 7:54 am

I follow Dr. Bernstein's idea of having 20 or more of my yearly draw down in "safe" products. My overall allocation is 43/57. I do want a decent allocation to equities to provide some additional inflation protection and because I can take some risk even though I may not need to take this level of risk.

I having re balanced to fixed income several times to keep my equity risk at or below 43%. With markets so highly valued and the long bull market I see no great advantage of increasing my equity percentage. If/when there is a correction I would consider moving my equity position up a few percent 45% at max.

I don't think those who have enough should automatically get out of all equities but should probably not put their "enough" assets at equity risk - only the "excess". That I believe is what Dr. Bernstein was advocating.

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Re: Memo to those who have won the game: it's time to quit playing

Post by packer16 » Mon Jan 08, 2018 8:18 am

willthrill81 wrote:
Mon Jan 08, 2018 12:00 am
larryslocum1982 wrote:
Sun Jan 07, 2018 11:52 pm
Is all this not market timing? How do you know market will not keep on going up? From valuation measures the market was expensing I've when Dow was 8000 points lower.
I read here that nobody can time the market.
Even dyed-in-the-wool Bogleheads will say that changing your AA based on your own personal circumstances is not market timing. Adjusting your AA based on valuations, prices, or other market-related factors is market timing.

Based on the historical evidence, I and many others have concluded that rules-based market timing, as opposed to the subjective, emotion-driven market timing practiced by many, can be an effective way to control risk but not to lead to higher returns than buy-and-hold. But everyone needs to come to their own conclusion based on their own views of the data and their own personal preferences.
I would be interested in what evidence you have that rules based market timing works. All I have seen evidence that it does not. A Damodaran has done a good piece on this as well as friend of mine at Austin Value Capital. Their conclusion, it is impossible to develop a rules-based system to get in and out of stocks that is better than staying 100% invested in stocks. This is a result of others knowing this & the opportunity cost of investing in other assets is typically very high. I would also say using such a system does not decrease risk but increases it is as you have introduced an additional uncertainty to your outcome (that the timing system will work as planned).

I 100% agree that the way to this is to base your AA on your goals & stick to this versus trying your hand at market timing.

Packer
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Re: Memo to those who have won the game: it's time to quit playing

Post by livesoft » Mon Jan 08, 2018 8:36 am

packer16 wrote:
Mon Jan 08, 2018 8:18 am
I would be interested in what evidence you have that rules based market timing works. All I have seen evidence that it does not. A Damodaran has done a good piece on this as well as friend of mine at Austin Value Capital. Their conclusion, it is impossible to develop a rules-based system to get in and out of stocks that is better than staying 100% invested in stocks.
I agree with the above, however, most portfolios at bogleheads.org are not 100% invested in stocks. This thread is evidence that people cannot be 100% invested in stocks and also evidence that even if they are invested S% in stocks where 35 < S < 75, that sometimes they cannot maintain that value of S for whatever reason.

So given the foibles of human character and all the behavioral flaws we see every day on this forum is there a different rules-based market timing system to help those normal investors that does not require them to be 100% invested in stocks? :twisted:

Furthermore, it seems that increasing one's allocation to stocks and keeping it there is the best rules-based market timing system.
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Re: Memo to those who have won the game: it's time to quit playing

Post by hulburt1 » Mon Jan 08, 2018 9:41 am

Thanks what to keep this for I have won the game 3 times over but I can not stop playing. Live on 60000 but have 2.5m and made 500000last year. I'm 65

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Mon Jan 08, 2018 10:49 am

My simple plan is to assume that my portfolio will just keep up with inflation (zero real growth) and determine as best I can how much I need to make it to age 95, with an untouched reserve of sufficient size to "self-insure" the cost of expensive assisted living and long term care for at least 3 years. I don't believe that I need any stocks to get there. Is my plan risk-free? Of course not. I don't have everything in TIPS and gold bullion to protect against a bout of high or hyper-inflation; and even if I did there are no guarantees.

No such thing as a risk-free portfolio of assets, but I do believe there is a continuum of risk. I also believe that having a significant part of my wealth in stocks that can lose 50% of their value or more is not at the lower end of the risk continuum even over time, as seems to be implied by some posters. Stocks are for growth, stocks are for younger long-term investors who are not drawing down, stocks are for accumulators who are putting more money to work regularly and are buying during market downturns, stocks are for people who have back-up resources such as their human capital to allow them to sustain and ride out large losses of capital, stocks are for people with a high need to assume equity risk in order to build their needed nestegg, and stocks are for people with the emotional perspective to tolerate significant losses of financial capital.

> I am not young.
> I am no longer in the accumulation stage.
> I have to draw down my portfolio to meet my living expenses.
> I have minimal human capital left at my disposal; outside of working a shift at McDonalds.
> I believe I have a low need to build financial capital by assuming equity risk.
> I'm pretty sure that I couldn't emotionally handle a large loss of financial capital, even on paper.

I'm not dead certain I've "won the game" but I'm close enough. What does "winning the game" mean to you?

Dr. Bernstein argues that playing the game past a certain point should be placed into a non-financial, historical perspective:
But history teaches us that depriving ourselves to boost our ... success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning.
http://www.efficientfrontier.com/ef/901/hell3.htm


In the endgame stage, continuing to take large equity risk is for people who don't really need to take the risk because they can lose the money without losing sleep; or for people who still need to take that risk to be able to fund their imagined retirement. Paradoxically, it is the people in the latter category - who need to take the risk - who can least afford the possible consequences.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by Garco » Mon Jan 08, 2018 11:34 am

I'm still in the early years of retirement (entering 5th year), and I have sufficient invested resources (>$3 million) plus real property to live comfortably without taking a lot of risk. SS is nice to have and covers about 1/3 of my ordinary spending needs. But there's always a temptation to respond to market surges by increasing one's financial exposure for the sake of possible further gain.

Most of my investing career I maintained a 75% allocation to stocks, and stepped that down a bit when I reached age 60. When I retired, I trimmed back my stock holdings to 60% of my port, and in successive years to 55, 50, and 45%, where I am now. I'm inclined to stay at this percentage. I've got LTCI as a backup if I need it. It's not cheap but I regard it as "wealth insurance," reducing the probability that I would exhaust my resources because of LTC needs. I hope to never need LTC, but the insurance gives us some peace of mind.

So I haven't quit playing, but I'm not playing at the high-stakes table.
Last edited by Garco on Mon Jan 08, 2018 11:37 am, edited 1 time in total.

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Re: Memo to those who have won the game: it's time to quit playing

Post by DaftInvestor » Mon Jan 08, 2018 11:37 am

I will never quit playing - my Financial Security isn't my only game:
1) I have children - would like to leave money to them.
2) I may some day have grand children
3) I have charities I give to - want to maximize returns for them.

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Re: Memo to those who have won the game: it's time to quit playing

Post by Sandtrap » Mon Jan 08, 2018 11:53 am

DaftInvestor wrote:
Mon Jan 08, 2018 11:37 am
I will never quit playing - my Financial Security isn't my only game:
1) I have children - would like to leave money to them.
2) I may some day have grand children
3) I have charities I give to - want to maximize returns for them.
+1
I have an educational trust for my hares. I don't ever want a grandchild or great grandchild to ever have to work as a carpenter because he couldn't afford to go to med school.
There's a "bigger" game than strategizing one's portfolio to last through retirement.
If one has an opportunity to be benevolent, then it's time to "pay it forward".
j :D

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Re: Memo to those who have won the game: it's time to quit playing

Post by Dandy » Mon Jan 08, 2018 12:22 pm

There's a "bigger" game than strategizing one's portfolio to last through retirement.
If one has an opportunity to be benevolent, then it's time to "pay it forward".
Decent point. But don't forget that there is also a point of not subjecting your heirs to need to help you financially in your old age. So, as most things a balance is called for -- my emphasis is making sure my heirs don't have to help us financially and a secondary goal is to leave them money. Actually, am gifting them money now, when they seem to need it most, rather than have them wait until they are near retirement. For those who "have enough" both goals may be attainable.

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