Larry Swedroe: 4 Horsemen Of Your Portfolio

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willthrill81
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by willthrill81 » Thu Feb 08, 2018 1:21 am

nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
He does say that International Stocks have better valuations than US stocks but even International will have lower than historical rates of return in the future.
I think it's worth repeating that Larry notes that U.S. market returns from 1982-2017 were higher than average, but he failed to mention that valuations were above their historic average for nearly all of the last 25 years of that period. But then he tells us that based on those high valuations that we should rather suddenly expect much lower (of the order of about half) the returns for the next decade, with no mention of the wide variability of the 'predicted' returns according to the historic models.

No one knows with confidence what U.S. nor stock returns will be going forward. Shiller has been consistently wrong about it ever since he devised CAPE. I'm not saying that valuations don't matter at all because I believe that they do, but there is so much variation in the predicted returns that I think it's premature, to say the least, to cast them as a retirement boogey-man.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by fennewaldaj » Thu Feb 08, 2018 1:38 am

Doesn't using inverse CAPE as an estimator of future returns assume valuations stay similar to what they are now on average? So he is estimating returns assuming we spend the future hovering at higher CAPE values.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by Theoretical » Thu Feb 08, 2018 1:57 am

Something I've been thinking about alts is why and when they came into existence. It was in the wake of the 1970s where one of the best performing asset classes was t-bills and both bonds and stocks got stuffed, especially long bonds.

Think about what gets postulated as an Alt:
- REITs
- Long-only Commodities
- Junk Bonds
- Floating Rate Securities like Bank Loans or municipal VRDOs
- TIPS
- Emerging Markets Local Currency Bonds

All of them are serious inflation-fighters.

Furthermore, your standard barometer for most Alts is some duration of T-bill - most often the 3 month. A few really brave ones will do LIBOR+7 or LIBOR+3, but a lot of times, it's the T-bill, not a bond or stock index that's being used.

2008 showed quite memorably that one cannot expect these Alts to do well in a panic or deflationary crisis, and in that way they were worse than t-bills (0>negative).

The real test comes in an inflationary cycle, where there's a bit of a race between the higher costs of leveraging via higher interest rates, and the possibility for returns not linked to bonds or stocks. That's where the Alt-y ness may well come in.

The one type of Alt I'd exclude from this analysis as something different altogether is managed futures, which are flat or negative in choppy times but blow up positively in strong up or down trends. I suspect it'd do fairly well in inflationary circumstances as well.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by stlutz » Thu Feb 08, 2018 2:00 am

Being a contrarian, let me offer a bit of a [hedged] defense of Swedroe's article.

The whole question of whether his suggested "alternative" investments will beat equities with less risk all depends on what the returns of equities are going to be. If the stock market returns 0-2% annualized for the next 25 years, then it is entirely possible or even probable that these alternatives will exceed that return.

In the Trinity/Bengen retirement studies, I believe it's 1966 that would have been the worst year to retire and rely on an income based mostly on returns from stocks and bonds. In the succeeding 15 years, both stocks and bonds provided very poor returns. Swedroe is not the sort of writer who will start screaming from the rooftops that it's 1966, only worse. However, he does clearly believe that there is a significant possibility that this is in fact the case. If you're looking at it from that perspective, it's entirely prudent to look for better alternatives. The ones he has suggested are certainly reasonable ones in theory.

With that defense out of the way, I would say that for me costs are the big issue. Comparing the ERs of the Stone Ridge funds to a VG mutual fund is comparing apples and oranges. But even once you do make them comparable, the Stone Ridge funds are still high cost by Boglehead standards. And then you have to add on a second layer of advisory fees to even get access. It seems like the "alpha" is going to Stone Ridge and the advisor. If that problem was fixed, I'd be more open to considering such investments for my own portfolio.

There are better methods of planning to address the challenges of retirement than running first to alternative investments. The 1966 retiree didn't have TIPS. We do. If Social Security forms the base of retirement income, TIPS can provide a second layer of worry-free income (e.g. see this post viewtopic.php?t=71927 or many of bobcat's posts). Annuities (where immediate or deferred) can also be a part of the picture for some folks.

Once you've done that, then you can fund variable costs with more risky assets. But because you've put a good foundation together, you don't have to stress out as much about the returns of those risky assets from year to year. Whether the stock market or alternatives to it provide good or poor returns will mostly depend on future events that we aren't even aware of now.

Bottom line is that good retirement planning accounts for a wide range of reasonably possible occurrences as opposed to making accurate forecasts.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by Theoretical » Thu Feb 08, 2018 2:11 am

Two decent QSPIX alternatives that don't require an advisor.

Janus Henderson Diversified Alternatives - JDAIX - 1.13% at Fidelity. The T class is 1.34 and is commission free widely. Targeting a 6% volatility, so QSLIX is the better comparison.

Columbia Alternative Beta Class A (CLAAX) is also 1.34% at Fidelity and is targeting closer to 8-10% volatility. The fund has only been operating the strategy fully rather than as a subcomponent since November 2016.

Both have managed pretty respectably in the volatile spike, including going sideways or up when stocks and bonds are down or vice versa.

Both are high factor load designs.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by kramer » Thu Feb 08, 2018 4:26 am

visualguy wrote:
Thu Feb 08, 2018 12:26 am
nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
I think what will happen, out of necessity, is the comeback of the extended family.
Who would be in this extended family? Not sure there are many cases where anyone other than the children would take on this care. If we're talking about the children, then the first question is "are there children?" You have to realize that the percentage of childless adults keeps growing in the US. Almost half (47.6%) of women never have children, and more than half (57%) of US households are childless.
Actually, 47.6% of women of childbearing age (15-44) have not yet had children. This is *very* different than the cohort who will never have children. In reality, 86% of women aged 40-46 are mothers, up from 80% in 2006. It appears that more women are having children even as the fertility rate has decreased slightly. Even the majority of never married women are having children now (55%) compared to 31% in the late 90's. This is all data from a Pew study dated January, 2018. Good overview here: https://www.nytimes.com/2018/01/18/upsh ... thers.html

All that being said, your point is still well taken and I understand what you are trying to say. Additionally, one could also argue that having a single child is way different than an extended family. I have a friend who is a single child (and unmarried) and both his parents were single children. That means no aunts, uncles, first cousins, wife, in-laws.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by in_reality » Thu Feb 08, 2018 6:01 am

My question is simple.

Why haven't hedge funds been succesful with the strategies he recommends?

His sales points are that us average people can access them now...
It’s just that they have only recently become available to retail investors (and without the typical 2/20 hedge fund fees)
...and that they will work miracles.
return expectations should be similar but with much lower volatility, again only about one-quarter of that of a global equity portfolio
I understand there is a risk of an underfunded retirement, but as Larry says that shouldn't push us into taking risk we can't afford.

I just put this into the "if it's too good to be true" pile of things to ignore. Similar returns with one-quarter of the volatility. I can see why that is attractive to people, but these products are too complicated for me to understand and probably require an advisor to see how they go as time goes by. I have had enough experience with advisors recommending illiquid investments promising higher returns and waiting until the bankruptcy finalizes to get any money out.

Larry is speaking for Buckingham Strategic Wealth. He says so in the article.
Last edited by in_reality on Thu Feb 08, 2018 6:51 am, edited 1 time in total.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by Grt2bOutdoors » Thu Feb 08, 2018 6:46 am

JAFFX2 wrote:
Wed Feb 07, 2018 2:33 pm
Random Walker wrote:
Wed Feb 07, 2018 11:42 am
http://www.etf.com/sections/index-inves ... nopaging=1

This is a very important and sobering article. The risk of outliving our savings is perhaps greater now than it has ever been for people of previous eras. Long life expectancy, low bond yields, low expected equity returns, increasing long term care / health costs, questionable Medicare and Social Security all contribute. There is a lot more to financial planning than just the investment portfolio, although perhaps there are some portfolio tweaks that can help.

Dave
Anyone who's retirement plan is based solely on their investment portfolio completely missed the boat......
Well then, employers have a very long way to go in terms of helping employees plan for retirement since 401k is what they consider to be “the retirement plan”.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by Garco » Thu Feb 08, 2018 8:48 am

garlandwhizzer wrote:
Wed Feb 07, 2018 2:01 pm
Thanks for posting this excellent article, Dave. I believe Larry states the problem realistically and well. It is not a pretty picture but if we are to plan effectively for our future retirement needs, we need to make realistic assumptions about what that future is likely to be. International diversification of equity investments is IMO an important strategy to consider given current valuations. I am less enthusiastic about alternate investments and deferred annuities but my opinion may change as my circumstances do. Whatever your circumstances, working longer, saving and investing more, and spending less are no-brainers that will help. It may not be the message we want to hear, but it is the one that is likely to ring true in the fullness of time.

Garland Whizzer
Truer truisms have never been spoke.

I've already worked longer -- til age 70. CHECK IT OFF.

saved and invested more -- minimum of 15% of gross salary invested every year, taken off the top of my paycheck. CHECK IT OFF.

spending less -- did that after getting two kids through college, but at age 72 I've never owned more than 1 car at a time and I've only ever owned 7 cars since 1969. But I've traveled the world over on somebody else's dime. CHECK IT OFF.

I must add another item to that list: keep fit and follow a healthy diet. CHECK IT OFF.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by nisiprius » Thu Feb 08, 2018 9:05 am

Dead Man Walking wrote:
Thu Feb 08, 2018 12:58 am
...None of the alternative funds Larry Swedroe recommends has a 5 year history. The inception date of QSPRX, the fund with the longest history, was 10/30/13. The funds seem to be actively managed. The article stated that an equal weighted portfolio of these funds could be a substitute for stocks. Of course, his usual reference to factor-based funds is included in his conclusion...
I think it must be very difficult for an advisor to tell people stick to what I'll call a "traditional" factor-based approach (basically "small-cap value tilt"), with no changes or additions of "innovative" new things.

Blue is one such portfolio, one that was actually published in print in 1998; red is "just put it all in Vanguard LifeStrategy Moderate".

Jan 1998 - Dec 2008, going forward from an on-the-record portfolio, the traditional-factor-based approach, (which I personally have never used so this is not bragging on my part), was impressively better. Note, long-only, no short positions, no leverage, no beasts from the factor zoo, no "alternatives."

Image

But since then: Jan 2009 - Jan 2018
Source

Image

Win for a decade, tie for a decade. What's wrong with that?

But I can only imagine trying to tell someone for ten years, "Look, my advice once helped you outperform for a decade, and it hasn't hurt you at all since then, so keep paying me my fee and let me keep giving you the same good advice and just telling you to stay the course, because factors do that, and I've been telling you that all along."

The pressure to add something new, anything new must be enormous.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by Beehave » Thu Feb 08, 2018 9:36 am

visualguy wrote:
Thu Feb 08, 2018 12:33 am
Beehave wrote:
Thu Feb 08, 2018 12:11 am
Larry Swedroe writes that the four long-term dangers faced by retirees are:

"... historically high equity valuations, historically low bond yields, increasing longevity and, as a result, the increasing need for what can be very expensive long-term care."

I'm surprised not to find inflation included and would like to see BH comments about this. Inflation is a danger to pensions, annuities, and can even outrun Social Security's COLAs. A future government may welcome (in bi-partisan mode) inflation that facilitates repayment of debts and fulfillment of "entitlement" payments with dollars that are deflated in value because the inflation-solution to debt avoids default and avoids need to pass unpopular legislation.

I'd be interested in others' thoughts and a description of what actions they are taking based on their thoughts.
Inflation is definitely a concern. My approach is to own some direct real estate. It worked for my parents in the 70s.
Makes good sense. For those of us hesitant to own rental properties directly, do you have an opinion about REITs as a substitute? If so, would a general REIT index fund be okay (holding mortgages, commercial property, rental apartments), or would it be better to buy an individual REIT that focuses, say on rental housing?

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by House Blend » Thu Feb 08, 2018 10:36 am

nisiprius wrote:
Thu Feb 08, 2018 9:05 am
I think it must be very difficult for an advisor to tell people stick to what I'll call a "traditional" factor-based approach (basically "small-cap value tilt"), with no changes or additions of "innovative" new things.

Blue is one such portfolio, one that was actually published in print in 1998; red is "just put it all in Vanguard LifeStrategy Moderate".
Correct me if I'm wrong, but my recollection is that the Life Strategy series have been passive 3-ish fund portfolios only in the past few years, and were a bit more of a dog's breakfast farther back. So my quibble would be that Portfolio 2 is not a clean implementation of a know-nothing portfolio. Maybe Balanced Index instead?

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by JBTX » Thu Feb 08, 2018 11:19 am

Seems like a lot of nit picking on what is otherwise a very good article.

1. I'm sure he would be the first to admit no one can predict long term market returns, but statistically forward returns, on average tend to be lower when CAPE (and other such metrics) have higher valuations. It would seem prudent to plan for this.

2. Life expectancy at birth, presented by some here, is a meaningless statistic. The numbers he presents, life expectancy at retirement age, or more relevant to people approaching retirement. It is pretty sobering to think that one of you have a 50% chance to live to 92, and 25% chance to live to 97. Also, it would be relevant for most here to look at life expectancies for the more affluent, which are significantly higher than the bottom half

https://www.nytimes.com/2016/02/13/heal ... owing.html

3. I can't speak to the alternative strategies. I really like the idea of less correlated alternatives, but practical effectiveness historically has been checkered at best. Color me interested, but skeptical.

4. The unfunded status of long term entitlements has to have some sort of impact. No way to accurately predict what, but most of the alternatives are not likely beneficial to long term retirees with savings.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by White Coat Investor » Thu Feb 08, 2018 11:21 am

siamond wrote:
Wed Feb 07, 2018 2:22 pm
Even if I don't quite agree with Larry's math here and there, his description of four (or five) 'horsemen' seems fairly sound to me.

Where he completely loses me is when he turns to salesmanship, and tries to make the case (without any serious analysis) for those volatility insurance funds and the likes, which seem just like one more gimmick of the mutual fund industry trying to ensnare customers by playing on their fears. Fact is, volatility is NOT the real problem, volatility is actually good for future returns, plus volatility has nothing to do with the five serious problems that were correctly identified in the core of the article...
The problem with the analysis isn't the salesmanship or the four horsemen. The problem is he fails to mention all the things that help. For example, food, clothing, airfare, and investment expenses have all decreased dramatically. Tax protected retirement account options have increased dramatically, reducing the tax burden on retirement savings. Computing expenses have gone way down. The knowledge of how to invest properly has become much more widespread. Risks like Sequence of Returns are now broadly understood. Inflation has been well-controlled for years now.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by JBTX » Thu Feb 08, 2018 11:33 am

White Coat Investor wrote:
Thu Feb 08, 2018 11:21 am
siamond wrote:
Wed Feb 07, 2018 2:22 pm
Even if I don't quite agree with Larry's math here and there, his description of four (or five) 'horsemen' seems fairly sound to me.

Where he completely loses me is when he turns to salesmanship, and tries to make the case (without any serious analysis) for those volatility insurance funds and the likes, which seem just like one more gimmick of the mutual fund industry trying to ensnare customers by playing on their fears. Fact is, volatility is NOT the real problem, volatility is actually good for future returns, plus volatility has nothing to do with the five serious problems that were correctly identified in the core of the article...
The problem with the analysis isn't the salesmanship or the four horsemen. The problem is he fails to mention all the things that help. For example, food, clothing, airfare, and investment expenses have all decreased dramatically.


And the cost of health care, which is disproportionately represented by seniors, has increased dramatically.
Tax protected retirement account options have increased dramatically, reducing the tax burden on retirement savings
.

And pensions which were once common are near non existent. And we don't know with certainty what the tax burden on retirement savings in 10-20 years, coupled with the long term entitlement funding challenges he references.
Computing expenses have gone way down. The knowledge of how to invest properly has become much more widespread. Risks like Sequence of Returns are now broadly understood.
Typically we get to a point where we think we understand something, and then something new happens where we realize we really don't. In 1999 economists were worrying about what to do when national debt was paid off in 10 years. In 2006 we were certain real estate would never go down, because it never had.

I do think technology could dramatically change our lives 20 years down the road, in both ways dramatically positive and negative, and such changes will probably dwarf all the other factors we all worry about.
Inflation has been well-controlled for years now.
And may continue to be. Or maybe not.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by nisiprius » Thu Feb 08, 2018 11:50 am

House Blend wrote:
Thu Feb 08, 2018 10:36 am
nisiprius wrote:
Thu Feb 08, 2018 9:05 am
I think it must be very difficult for an advisor to tell people stick to what I'll call a "traditional" factor-based approach (basically "small-cap value tilt"), with no changes or additions of "innovative" new things.

Blue is one such portfolio, one that was actually published in print in 1998; red is "just put it all in Vanguard LifeStrategy Moderate".
Correct me if I'm wrong, but my recollection is that the Life Strategy series have been passive 3-ish fund portfolios only in the past few years, and were a bit more of a dog's breakfast farther back. So my quibble would be that Portfolio 2 is not a clean implementation of a know-nothing portfolio. Maybe Balanced Index instead?
Yeah, I was going to use Balanced Index originally. You can try it yourself. Despite the issues you mention, LifeStrategy Moderate and Balanced Index are virtually identical from 1998 through 2008, and thus both were outperformed by the factor-based portfolio. 2009 through 2018, Balanced Index did not merely tie the factor-based portfolio, it outperformed it. The problem is that Balanced Index is U.S. only, and it seemed to me that that was not a fair comparison since, right or wrong, good or bad, the mainstream-consensus Bogleheadish NON-factor portfolio has always called for an international allocation, which has happened to do poorly since 2009.

It's really hard to set up a fair apples-to-apple comparison, "with factors versus without factors."

The LifeStrategy funds were never what I'd call a "dog's breakfast." It's a pity that there isn't any easy place to go to trace the changes. They all started out as being two-fund portfolios of Total Stock and Total Bond, like Balanced Index but with a choice of allocations. International was added, and then, the thing that complicates the picture, the Vanguard Asset Allocation Fund was added, resulting in a family of funds that did tactical allocation around a "neutral mix" instead of being strictly fixed. At some point, an allocation to "short-term reserves" was added. And then Vanguard, after leaving the Asset Allocation fund pegged at 100% stocks for many years, revamped the LifeStrategy lineup and made them all simple fixed-percentage-allocation portfolios.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by House Blend » Thu Feb 08, 2018 2:05 pm

^Thanks for that update, especially on the history of the Life Strategy series.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by nedsaid » Thu Feb 08, 2018 8:29 pm

visualguy wrote:
Thu Feb 08, 2018 12:26 am
nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
I think what will happen, out of necessity, is the comeback of the extended family.
Who would be in this extended family? Not sure there are many cases where anyone other than the children would take on this care. If we're talking about the children, then the first question is "are there children?" You have to realize that the percentage of childless adults keeps growing in the US. Almost half (47.6%) of women never have children, and more than half (57%) of US households are childless.

Even if there are children, it's not a given that they will agree to take care of the parent, and what degree of care they will be willing to give. In particular, the son-in-law or daughter-in-law are in many cases opposed to this invasion into their lives. Also, many really don't want to fall as a burden on their children, and impact their lives so severely. In practice, it works up to a point sometimes, but then a different solution needs to be found, and the money had better be there if you want a better solution than living in a horrifying facility.
For individuals, it is smart to save, plan, and prepare. The retirement crisis, or whatever you want to call it, is not something society can save its way out of. It amounts to society as a whole deciding how much of the economy to designate for taking care of the elderly. Pretty much, we are starting to have a shortage of children and viable government programs to help the elderly depend upon a healthy worker to retiree ratio. If you have two workers for each retiree, it is really hard to get the math to work on that one. What I am trying to say is that this is more a demographic problem than a financial one.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by anil686 » Thu Feb 08, 2018 9:28 pm

nedsaid wrote:
Thu Feb 08, 2018 8:29 pm
visualguy wrote:
Thu Feb 08, 2018 12:26 am
nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
I think what will happen, out of necessity, is the comeback of the extended family.
Who would be in this extended family? Not sure there are many cases where anyone other than the children would take on this care. If we're talking about the children, then the first question is "are there children?" You have to realize that the percentage of childless adults keeps growing in the US. Almost half (47.6%) of women never have children, and more than half (57%) of US households are childless.

Even if there are children, it's not a given that they will agree to take care of the parent, and what degree of care they will be willing to give. In particular, the son-in-law or daughter-in-law are in many cases opposed to this invasion into their lives. Also, many really don't want to fall as a burden on their children, and impact their lives so severely. In practice, it works up to a point sometimes, but then a different solution needs to be found, and the money had better be there if you want a better solution than living in a horrifying facility.
For individuals, it is smart to save, plan, and prepare. The retirement crisis, or whatever you want to call it, is not something society can save its way out of. It amounts to society as a whole deciding how much of the economy to designate for taking care of the elderly. Pretty much, we are starting to have a shortage of children and viable government programs to help the elderly depend upon a healthy worker to retiree ratio. If you have two workers for each retiree, it is really hard to get the math to work on that one. What I am trying to say is that this is more a demographic problem than a financial one.
For those of us who see patients in nursing homes on a regular basis over many years - I can vouch for this. Yes - some of it is certainly a financial issue - but more of it (and becoming so all the time) is a demographic one. An issue where there are too many elderly and not enough people to take care of them. We literally do not have places to put them. Some people do not understand that when individuals get older, they may not be able to take care of themselves safely - they need 24 hour care. It is very expensive to provide that and I agree - LTCi sounds great but is unaffordable for many. The number of nursing homes continues to grow where I practice and even the older ones have “expanded” to fit roommates. the problems with the extended family were highlighted above - the lack of independence and inter generational conflicts seem to be prevalent at least in the population I treat. I often have families who never visit the hospital and rarely visit the nursing home despite living in the same town...

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by Ron Scott » Thu Feb 08, 2018 10:08 pm

HomerJ wrote:
Wed Feb 07, 2018 12:33 pm
What kind of returns are people expecting?

We recommend the 4% "rule" around here just in case returns are poor. Because 4% worked in the past even when returns are poor.
"Around here" I've seen more than a few comments that 4% is too conservative and 5-7% more reasonable. I've seen posts that recommend 3-3.5% roundly criticized. And posts about Bogle's similarly low 10-year future predictions for real returns are as likely to meet with ridicule than serious reflection. "We" are overly optimistic.

And 4% worked in the past even when returns are poor? Really? Would those times include periods when a baby-boomer-sized population was living in retirement for 30+ years, the economy hyper-global, and the second largest economy was a communist country? Times have changed.

Here's the thing: If you "need" 4% you've probably lost the game.

Considering how much planning and discipline is required to assemble an admirable retirement portfolio the SWR question itself is pretty strange: “What is the greatest amount of money I can spend annually before I face a reasonable chance I will go bankrupt when I’m old and die in poverty?” LOL, like what’s keeping me awake at night is the fear of dying with money in the bank...

Implicit in the 4% Rule is the American Consumer model that each of us must at least “live up to” our “means” or we’re just not living properly. Think about it. If I retire with a $5M nest egg, twice as much as Joe’s and half as much as yours, why does Joe need to spend $100k a year, me $200 and you $400? Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?

There is no joy in Mudville...
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by visualguy » Fri Feb 09, 2018 12:53 am

Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?
$50K just about covers health insurance (ACA without subsidies for a couple), property taxes, and utilities for many...

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by FIREchief » Fri Feb 09, 2018 1:55 am

Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Considering how much planning and discipline is required to assemble an admirable retirement portfolio the SWR question itself is pretty strange: “What is the greatest amount of money I can spend annually before I face a reasonable chance I will go bankrupt when I’m old and die in poverty?” LOL, like what’s keeping me awake at night is the fear of dying with money in the bank...
This is really confusing. Are you suggesting that a "SWR" strategy is geared toward maximizing withdrawals? I've always seen it as more of a tool to determine the minimum level of savings to make a retirement decision. I don't recall ever seeing somebody suggest that if 4% is more than they need to live on, they'll take it out regardless. I have seen many suggest that they can live on 3% or 2% SWR, which gives them great comfort as BHs. Am I missing something?

Implicit in the 4% Rule is the American Consumer model that each of us must at least “live up to” our “means” or we’re just not living properly. Think about it. If I retire with a $5M nest egg, twice as much as Joe’s and half as much as yours, why does Joe need to spend $100k a year, me $200 and you $400? Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?
I don't think this is at all implicit in the 4% SWR strategy. More often than not, I see BHs suggesting that they would be delighted to leave assets to their heirs or charity. If I were forunate enough to retire on $5M, I certainly wouldn't up my lifestyle to $200K per year spending. What on earth would I spend that on? Certainly not steak dinners. I'm getting those for free! (different thread, highly recommended) 8-)
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: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by kramer » Fri Feb 09, 2018 2:42 am

From Larry's article: Second, make sure your plan incorporates the proper life expectancy, and considers that half the population lives longer than expected. Consider annuitizing some portion of your assets with a deferred payout policy (you should only buy insurance for the period you need it, and you should not need it unless you live longer than expected). Buying an appropriate deferred payout policy greatly reduces the amount of premium you would pay relative to purchasing an immediate payout policy.
I think the concept of deferred annuities is very sound ... you gain way more mortality credits as compared to waiting too long to purchase an immediate annuity. And, as Larry states, for prudent savers deferred annuities directly address the longevity issue, when one might actually need the funds. My problem with the concept is unknown inflation between purchase time and return of principle/payments. I am not sure what to do about that besides also purchase a block of TIPs or something, in addition to a deferred annuity, to attenuate inflation risk. Also, what age range would typically be best to purchase the deferred annuity?

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by Ron Scott » Fri Feb 09, 2018 5:03 am

FIREchief wrote:
Fri Feb 09, 2018 1:55 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Considering how much planning and discipline is required to assemble an admirable retirement portfolio the SWR question itself is pretty strange: “What is the greatest amount of money I can spend annually before I face a reasonable chance I will go bankrupt when I’m old and die in poverty?” LOL, like what’s keeping me awake at night is the fear of dying with money in the bank...
Are you suggesting that a "SWR" strategy is geared toward maximizing withdrawals? I've always seen it as more of a tool to determine the minimum level of savings to make a retirement decision.
Here’s the Bogleheads definition: A safe withdrawal rate is defined as the quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by siamond » Fri Feb 09, 2018 5:33 am

Ron Scott wrote:
Fri Feb 09, 2018 5:03 am
FIREchief wrote:
Fri Feb 09, 2018 1:55 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Considering how much planning and discipline is required to assemble an admirable retirement portfolio the SWR question itself is pretty strange: “What is the greatest amount of money I can spend annually before I face a reasonable chance I will go bankrupt when I’m old and die in poverty?” LOL, like what’s keeping me awake at night is the fear of dying with money in the bank...
Are you suggesting that a "SWR" strategy is geared toward maximizing withdrawals? I've always seen it as more of a tool to determine the minimum level of savings to make a retirement decision.
Here’s the Bogleheads definition: A safe withdrawal rate is defined as the quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure.
Yes, this is the technical definition, but still, it is a planning tool much more than anything else. As is clarified in the SWR wiki page by the Trinity authors themselves:

The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by Ron Scott » Fri Feb 09, 2018 6:02 am

siamond wrote:
Fri Feb 09, 2018 5:33 am
Ron Scott wrote:
Fri Feb 09, 2018 5:03 am
FIREchief wrote:
Fri Feb 09, 2018 1:55 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Considering how much planning and discipline is required to assemble an admirable retirement portfolio the SWR question itself is pretty strange: “What is the greatest amount of money I can spend annually before I face a reasonable chance I will go bankrupt when I’m old and die in poverty?” LOL, like what’s keeping me awake at night is the fear of dying with money in the bank...
Are you suggesting that a "SWR" strategy is geared toward maximizing withdrawals? I've always seen it as more of a tool to determine the minimum level of savings to make a retirement decision.
Here’s the Bogleheads definition: A safe withdrawal rate is defined as the quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure.
Yes, this is the technical definition, but still, it is a planning tool much more than anything else. As is clarified in the SWR wiki page by the Trinity authors themselves:

The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.
I'd agree. But to keep with the "safe" part in an unknown future I'd prefer to see people planning more toward 3% than 4.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by IlliniDave » Fri Feb 09, 2018 8:18 am

I found that article a little bizarre (for Mr. Swedroe) ending with the sales pitch for some, er, non-traditional "products".

One of the horsemen seems to be coming down with flu symptoms of late.

Being on the cusp of pulling the plug, I've come to learn that the decision to do so isn't easy as it once seemed. I think you have to strike a balance in what you allow yourself to plan for if you are not on the far right tail of the financial bell curve. If I try to cover every possible black swan, horseman, and generic ghoul that can show up at my doorstep, I'd have to spend my last three years of work telecommuting from the cemetery. My plan can probably handle manifestation of any two of the horsemen, but probably not all four. I suppose that will have to be good enough. Odds are I'll have about an average lifespan and things will continue on in a fashion that on-balance will be more similar than different when compared to the present. If I'm wrong I'll have a lot of company under whatever bridge I wind up calling home.
Don't do something. Just stand there!

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by willthrill81 » Fri Feb 09, 2018 11:18 am

Ron Scott wrote:
Fri Feb 09, 2018 6:02 am
siamond wrote:
Fri Feb 09, 2018 5:33 am
Ron Scott wrote:
Fri Feb 09, 2018 5:03 am
FIREchief wrote:
Fri Feb 09, 2018 1:55 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Considering how much planning and discipline is required to assemble an admirable retirement portfolio the SWR question itself is pretty strange: “What is the greatest amount of money I can spend annually before I face a reasonable chance I will go bankrupt when I’m old and die in poverty?” LOL, like what’s keeping me awake at night is the fear of dying with money in the bank...
Are you suggesting that a "SWR" strategy is geared toward maximizing withdrawals? I've always seen it as more of a tool to determine the minimum level of savings to make a retirement decision.
Here’s the Bogleheads definition: A safe withdrawal rate is defined as the quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure.
Yes, this is the technical definition, but still, it is a planning tool much more than anything else. As is clarified in the SWR wiki page by the Trinity authors themselves:

The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.
I'd agree. But to keep with the "safe" part in an unknown future I'd prefer to see people planning more toward 3% than 4.
That's your opinion about future events. Perhaps your crystal ball is working, but mine is not. In the absence of certainty, I'm inclined to rely on decades of historical data on the topic of withdrawal rates, which includes major wars, rampant inflation, social upheaval, transition to a service-based economy, etc., which supported a 4% WR. In fact, it was more than 50 years ago (1966) when retirees actually needed to have a withdrawal rate as low as 4% for it to not fail over a 30 year period. Many were concerned that year 2000 retirees relying on the '4% rule' might not make it, but they're actually in good shape now.

Keep in mind as well that no sane person would ever strictly rely on a 4% fixed withdrawal rate. If they see their portfolio going down significantly, they're going to rein in spending to some extent. This provides even greater safety than that suggested by the '4% rule' never failing. The safety of the '4% rule' is even further strengthened by the fact that most traditional (i.e. age 65) retirees aren't likely to survive to age 95.

Further, there is real risk in planning for a 3% withdrawal rate: lost time. Increasing one's portfolio by an additional 33% will likely take years, years that can never be recovered.
“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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Random Walker
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by Random Walker » Fri Feb 09, 2018 11:27 am

Larry let me know that this article is basically an introduction to another book he is working on. He’s adding to his Your Only Guide series with a book on retirement planning. That will be a very worthwhile book! From what I’ve heard and partially read, one of the best retirement books is Retirement Portfolios by Michael Zwecher. But it is a long and pretty high end book. I would expect Larry’s book to be more enjoyable to a broader population.

Dave

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by SeeMoe » Fri Feb 09, 2018 12:43 pm

The director at our CCRC is worried Regards expected Medicaid cuts that will impact the approximate 65% of residents here. Will services decline, or will the 35% who pay their way be expected to pick up some of the slack with higher rent? Or will those who can’t pay be handed off to family or the state? Tough decisions and we are spending less now, and saving more for tomorrow. Like we always did!

SeeMoe.. :shock:
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by afan » Fri Feb 09, 2018 1:50 pm

Selling volatility insurance, like the other strategies, sounds interesting from a theoretical point of view. But they have such short track records that they would be out of the question now since there are no data on their performance. Given the volatility, it will probably take decades for their to be enough funds with long enough records to know what to expect. And even that assumes they invest passively. If many of the funds are actively managed then that unpredictable element may require much longer before one could draw conclusions. I am making a note to check the academic literature in 40 years and see how they are evaluated. Until then, no way I am going to invest in these pigs in pokes.

As for the rest of the article,

I think Larry is pulling our legs.

Looking at the funds he recommends and comparing them to total stock market (for return) and intermediate term muni (for low volatility), well there is no comparison. Much better return at lower volatility in the boring old funds. You know, those with near zero expense ratios, no need for an advisor to get in, long track records and transparency about how they invest.

Hard to imagine any rational person would be interested in these alternative funds. I am waiting for Larry to announce "Just kidding. Stick with a three fund portfolio and spend the expenses you save on buying more shares"
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Random Walker
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by Random Walker » Fri Feb 09, 2018 3:19 pm

The alternatives are really a fairly minor point of the article. Nonetheless, I do think it is rational to consider them. Expected equity returns are modest and interest rates are low, so reasonable to look elsewhere for returns if possible. Given that these investments are not correlated with either stocks or bonds and are uncorrelated with each other, they can improve portfolio efficiency substantially. Afan brings up the alternative: save advisor fees and expense ratios and just invest in more standard equity funds and bonds. Costs are certain and potential benefits to portfolios are only possibilities. But I’m a pretty rational guy, and I’ve chosen the more expensive and somewhat (minimally) more complicated rout. It’s incorrect that these funds are really new, the strategies have been around a long time, just newly available to individual investors like us.
At volatile times like we have seen the last week or so, what really matters is sticking to the plan. It’s more important than the specific plan itself.

Dave

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by larryswedroe » Fri Feb 09, 2018 3:53 pm

Just wanted to comment that selling volatility has decades of track record, just not in public funds.

Also so people understand AVRPX has NOTHING to do with VIX and instead sells puts and calls on over 500 securities, earning the vol premium.

And there is a ton of academic research and it's common sense

Think about something like 90% of puts and calls expire worthless, who's on the other side?

You don't have track records for many of the funds because you didn't have interval structure until just recently but that doesn't mean the strategies have not been used for decades in some cases.

And btw, while the track record of QSPRX is relatively short, I heard all the same skeptics four years ago and to date fund has provided higher than expected returns (estimate was 7%) and lower vol (estimate was 10%)



Best wishes
Larry

PS my new book the updated version of Reducing the Risk of Black Swans should be out by end of next month as we have finished editing and now it process of being laid out. It will go into a fair amount of depth on each of the alternatives so people can make decisions based on actual facts, not what they think they know. So much of what has been posted by some as facts (not even opinions) is just plain dead wrong.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by heyyou » Fri Feb 09, 2018 5:56 pm

Collaterized Commodities Futures funds were designed to fit the known past. They too were marketed as being resilient in multiple environments, but did not perform in the one future that did occur. It is noticeable over time, that there are new offerings to the public for whatever is freshly perceived as a potential future threat.

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by HomerJ » Fri Feb 09, 2018 7:25 pm

Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
HomerJ wrote:
Wed Feb 07, 2018 12:33 pm
What kind of returns are people expecting?

We recommend the 4% "rule" around here just in case returns are poor. Because 4% worked in the past even when returns are poor.
"Around here" I've seen more than a few comments that 4% is too conservative and 5-7% more reasonable.
Citation please... I can't remember ever seeing a single post where someone said 5%-7% withdrawal rate was reasonable.
I've seen posts that recommend 3-3.5% roundly criticized.
I've seen people criticize the 2%-3% people for being crazy conservative, yes. But not the 3.5% people. And not the 3% people if they are retiring in their 40s or early 50s.

And 4% worked in the past even when returns are poor? Really? Would those times include periods when a baby-boomer-sized population was living in retirement for 30+ years, the economy hyper-global, and the second largest economy was a communist country? Times have changed.
Things may indeed be different. But 4% absolutely worked in the past. Even during the Great Depression. If you think the next 30 years will be WORSE than a global Depression with 25% unemployment, then yes 4% may not work. But 4% is not for "normal times".... It worked during the "bad times" in the past.

When you say "Hey, the times ahead are going to be bad, not average, and certainly not good!", that doesn't dissuade me from 4%... Because 4% is preparing you for the "bad times".
Here's the thing: If you "need" 4% you've probably lost the game.

Considering how much planning and discipline is required to assemble an admirable retirement portfolio the SWR question itself is pretty strange: “What is the greatest amount of money I can spend annually before I face a reasonable chance I will go bankrupt when I’m old and die in poverty?” LOL, like what’s keeping me awake at night is the fear of dying with money in the bank...

Implicit in the 4% Rule is the American Consumer model that each of us must at least “live up to” our “means” or we’re just not living properly. Think about it. If I retire with a $5M nest egg, twice as much as Joe’s and half as much as yours, why does Joe need to spend $100k a year, me $200 and you $400? Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?

There is no joy in Mudville...
No one says you HAVE TO SPEND 4%... If you're lucky enough to amass $5 million by 50-60, and you're perfectly happy with a $100k lifestyle (those two things are linked - you probably were ABLE to save $5 million because you were happy with a $100k lifestyle), that's great.

But look at the opposite side... If you tell some 65-year old guy who wants to spend $80k in retirement that he better work 7 more years because his $2 million (4%) just isn't enough, you're stealing time from that guy.

Lots of people here somehow save a TON of money by 50-60... They end up with a 2% withdrawal rate... That's great for them. The rest of us are trying to balance the risk of running out of money with the risk of running out of time.

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by HomerJ » Fri Feb 09, 2018 7:48 pm

visualguy wrote:
Fri Feb 09, 2018 12:53 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?
$50K just about covers health insurance (ACA without subsidies for a couple), property taxes, and utilities for many...
Move to someplace better. :)

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by willthrill81 » Fri Feb 09, 2018 8:23 pm

HomerJ wrote:
Fri Feb 09, 2018 7:48 pm
visualguy wrote:
Fri Feb 09, 2018 12:53 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?
$50K just about covers health insurance (ACA without subsidies for a couple), property taxes, and utilities for many...
Move to someplace better. :)
:thumbsup

Considering that that's close to the median household income for the country, I'd say that's far from typical. I know of several people who purchase health insurance without subsidies for their family for $18-24k, most people pay no more than about 1-2% (some more, some less) of their home's value in property taxes, and utilities average [$2.2k annually. So $50k for all that is much higher than average.

Regarding health insurance, someone with a significant portfolio may be best served with a 'catastrophic' health insurance plan, which will be legally available again starting in 2019, and to be prepared to just pay out of pocket for relatively minor expenses. Another option is a health cost sharing plan; many have an annual cost under $6k.
“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: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by visualguy » Fri Feb 09, 2018 8:57 pm

HomerJ wrote:
Fri Feb 09, 2018 7:48 pm
visualguy wrote:
Fri Feb 09, 2018 12:53 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?
$50K just about covers health insurance (ACA without subsidies for a couple), property taxes, and utilities for many...
Move to someplace better. :)
Maybe someplace worse - someplace better would be even more expensive, and neither would help with health insurance costs...

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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by willthrill81 » Fri Feb 09, 2018 9:39 pm

visualguy wrote:
Fri Feb 09, 2018 8:57 pm
HomerJ wrote:
Fri Feb 09, 2018 7:48 pm
visualguy wrote:
Fri Feb 09, 2018 12:53 am
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Especially after we all read the same study showing us that spending more that $50k doesn’t make us happier?
$50K just about covers health insurance (ACA without subsidies for a couple), property taxes, and utilities for many...
Move to someplace better. :)
Maybe someplace worse - someplace better would be even more expensive, and neither would help with health insurance costs...
Again, there are non-traditional options for health insurance that can largely solve the issue. Medical tourism is another very viable option.
“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: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by MrPotatoHead » Fri Feb 09, 2018 10:20 pm

willthrill81 wrote:
Wed Feb 07, 2018 2:10 pm
nisiprius wrote:
Wed Feb 07, 2018 1:24 pm
Financial writers often exaggerate "increasing longevity," I'm not sure why.
I've noticed that as well. To hear some people talk about it, you'd think that life expectancy will be well over 100 in a couple of decades. If a medical/technological breakthroughs beyond anything we've seen yet, but the current pace of increasing longevity simply doesn't support that argument. Further, I can't help but think that at some point, we're going to start hitting against the upper limits of human lifespans.
In my estimation, there is one huge game changer. If one can get over privacy concerns, having on you or as made part of your person a medical monitoring device. We already have the technology it is just not widely implemented. Logically, that will change.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by kramer » Fri Feb 09, 2018 10:33 pm

larryswedroe wrote:
Fri Feb 09, 2018 3:53 pm
Best wishes
Larry

PS my new book the updated version of Reducing the Risk of Black Swans should be out by end of next month as we have finished editing and now it process of being laid out. It will go into a fair amount of depth on each of the alternatives so people can make decisions based on actual facts, not what they think they know. So much of what has been posted by some as facts (not even opinions) is just plain dead wrong.
Thanks for the update, Larry! I will be sure to purchase when the updated version of the book is out.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by MrPotatoHead » Fri Feb 09, 2018 11:18 pm

nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
My take on the article, is that Larry is pretty much right and that we need to be very nice to our family members. You might need them someday. The thing is, I don't think we have a retirement crisis, I believe Western Countries are maintaining too many households. The idea that we all need to retire as millionaires with oodles of long term care insurance is unsustainable for our society. Even if we all could save a mill or two and buy gobs of long term care insurance, all that would do is drive up the price of retirement and we would all be in the same relative position. I think what will happen, out of necessity, is the comeback of the extended family.
Wow... +1

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by in_reality » Sat Feb 10, 2018 12:22 am

MrPotatoHead wrote:
Fri Feb 09, 2018 11:18 pm
nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
My take on the article, is that Larry is pretty much right and that we need to be very nice to our family members. You might need them someday. The thing is, I don't think we have a retirement crisis, I believe Western Countries are maintaining too many households. The idea that we all need to retire as millionaires with oodles of long term care insurance is unsustainable for our society. Even if we all could save a mill or two and buy gobs of long term care insurance, all that would do is drive up the price of retirement and we would all be in the same relative position. I think what will happen, out of necessity, is the comeback of the extended family.
Wow... +1
Well, research on the first (known) man in the world to live to 110 and the region he lived in which the proportion of centenarians has been found to be three times greater than the rest of the country (Italy) showed that 1) and extended family and 2) social contact in the community outside the family were key.

It's an region with low income, endemic disease and apparently a "not-exceptional health situation", but is their tight-knit relationships that have helped residents cope with difficulties in their later years. It's said to be unusual for institutionalization there.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by nedsaid » Sat Feb 10, 2018 10:51 am

in_reality wrote:
Sat Feb 10, 2018 12:22 am
MrPotatoHead wrote:
Fri Feb 09, 2018 11:18 pm
nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
My take on the article, is that Larry is pretty much right and that we need to be very nice to our family members. You might need them someday. The thing is, I don't think we have a retirement crisis, I believe Western Countries are maintaining too many households. The idea that we all need to retire as millionaires with oodles of long term care insurance is unsustainable for our society. Even if we all could save a mill or two and buy gobs of long term care insurance, all that would do is drive up the price of retirement and we would all be in the same relative position. I think what will happen, out of necessity, is the comeback of the extended family.
Wow... +1
Well, research on the first (known) man in the world to live to 110 and the region he lived in which the proportion of centenarians has been found to be three times greater than the rest of the country (Italy) showed that 1) and extended family and 2) social contact in the community outside the family were key.

It's an region with low income, endemic disease and apparently a "not-exceptional health situation", but is their tight-knit relationships that have helped residents cope with difficulties in their later years. It's said to be unusual for institutionalization there.
We have to deal with life as it really is. I certainly am not saying that individuals shouldn't save and plan but what I am saying is that society as a whole cannot just save itself out of this. What we have to be focused on is to have an economy vigorous enough to provide enough goods and services for everyone. If we want generous programs for the elderly, we need a high enough worker to retiree ratio to sustain this. Pretty much, this is a demographic issue.

Extended families are not always ideal. I have seen for myself generational conflicts, it isn't easy for three generations to live under one roof. But I suppose people will adapt. It seems a better solution than others. I know how expensive elder care is. Rest homes are expensive and in home care can be even more so, many families don't have the resources to cope with this.

I think what will happen is that the extended family will come back to some degree. Certainly public policy plays a big role too. There are limits to even what Government can do as ultimately what Government does comes out of our pockets, spreading the cost over a wider base does help but the wider base does not have unlimited resources.
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AtlasShrugged?
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by AtlasShrugged? » Sat Feb 10, 2018 11:01 am

PS my new book the updated version of Reducing the Risk of Black Swans should be out by end of next month as we have finished editing and now it process of being laid out.
Mr. Swedroe....It was nice to see you back on the BH forum. I hope you come back more often. Your articles have helped me greatly, especially in keeping calm when the markets correct. For this, I am profoundly grateful to you. You have helped me become a better investor.
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by onetime75 » Sat Feb 10, 2018 12:10 pm

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Last edited by onetime75 on Mon Feb 12, 2018 12:41 am, edited 1 time in total.

Ron Scott
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by Ron Scott » Sat Feb 10, 2018 12:21 pm

HomerJ wrote:
Fri Feb 09, 2018 7:25 pm
Ron Scott wrote:
Thu Feb 08, 2018 10:08 pm
Here's the thing: If you "need" 4% you've probably lost the game.

Implicit in the 4% Rule is the American Consumer model that each of us must at least “live up to” our “means” or we’re just not living properly. Think about it. If I retire with a $5M nest egg, twice as much as Joe’s and half as much as yours, why does Joe need to spend $100k a year, me $200 and you $400?

There is no joy in Mudville...
But look at the opposite side... If you tell some 65-year old guy who wants to spend $80k in retirement that he better work 7 more years because his $2 million (4%) just isn't enough, you're stealing time from that guy.

Lots of people here somehow save a TON of money by 50-60... They end up with a 2% withdrawal rate... That's great for them. The rest of us are trying to balance the risk of running out of money with the risk of running out of time.
The guy who ends up with $2m investable at 65 is in the Top 9% of Americans in his age group. The median for this age group--investable, excluding the house--is about $95k. If he wants to spend $80k a year it compares to what the average guy has to live on for 25! No tears need be shed for multi-millionaires, even if a million ain't what it used to be,

This is not about what anyone WANTS to spend or NEEDS to spend. My opinion is based on my views of prudence and conservatism. 4% is your father's number. 3% looks like ours. No one has to believe it.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by sergeant » Sat Feb 10, 2018 2:41 pm

nedsaid wrote:
Thu Feb 08, 2018 8:29 pm
visualguy wrote:
Thu Feb 08, 2018 12:26 am
nedsaid wrote:
Wed Feb 07, 2018 11:56 pm
I think what will happen, out of necessity, is the comeback of the extended family.
Who would be in this extended family? Not sure there are many cases where anyone other than the children would take on this care. If we're talking about the children, then the first question is "are there children?" You have to realize that the percentage of childless adults keeps growing in the US. Almost half (47.6%) of women never have children, and more than half (57%) of US households are childless.

Even if there are children, it's not a given that they will agree to take care of the parent, and what degree of care they will be willing to give. In particular, the son-in-law or daughter-in-law are in many cases opposed to this invasion into their lives. Also, many really don't want to fall as a burden on their children, and impact their lives so severely. In practice, it works up to a point sometimes, but then a different solution needs to be found, and the money had better be there if you want a better solution than living in a horrifying facility.
For individuals, it is smart to save, plan, and prepare. The retirement crisis, or whatever you want to call it, is not something society can save its way out of. It amounts to society as a whole deciding how much of the economy to designate for taking care of the elderly. Pretty much, we are starting to have a shortage of children and viable government programs to help the elderly depend upon a healthy worker to retiree ratio. If you have two workers for each retiree, it is really hard to get the math to work on that one. What I am trying to say is that this is more a demographic problem than a financial one.
Worker to retiree ratios can be improved by considering robots as citizens for income tax purposes. Some countries are doing it when robots replace workers. The robot has to pay the entitlement taxes that were paid by the replaced workers.
Lincoln 3 EOW! AA 40/60.

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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio

Post by GreatOdinsRaven » Sat Feb 10, 2018 3:13 pm

larryswedroe wrote:
Fri Feb 09, 2018 3:53 pm
Just wanted to comment that selling volatility has decades of track record, just not in public funds.

Also so people understand AVRPX has NOTHING to do with VIX and instead sells puts and calls on over 500 securities, earning the vol premium.

And there is a ton of academic research and it's common sense

Think about something like 90% of puts and calls expire worthless, who's on the other side?

You don't have track records for many of the funds because you didn't have interval structure until just recently but that doesn't mean the strategies have not been used for decades in some cases.

And btw, while the track record of QSPRX is relatively short, I heard all the same skeptics four years ago and to date fund has provided higher than expected returns (estimate was 7%) and lower vol (estimate was 10%)



Best wishes
Larry

PS my new book the updated version of Reducing the Risk of Black Swans should be out by end of next month as we have finished editing and now it process of being laid out. It will go into a fair amount of depth on each of the alternatives so people can make decisions based on actual facts, not what they think they know. So much of what has been posted by some as facts (not even opinions) is just plain dead wrong.
Larry,

The price of AVRPX seems to have fallen rather dramatically since 12/2/2017. Is that a "real" decline in the share price or is part of that decline the effect of starting a new interval?

Image

Larry, can you help walk us through the attribution analysis of the recent performance of AVRPX, so that we can better understand the product? Your ETF.com article mentions it as one of the four alternative products Buckingham is now recommending. It would be nice to understand whether it indeed lost 18.21% since 12/2/17 or whether the decline was closer to 6.3% since 12/5/2017. Does the expected appearance of the charting of this fund parallel the commonly seen sawtooth charts for SRRIX and LENDX?

Respectfully,
GOR
Last edited by GreatOdinsRaven on Sat Feb 10, 2018 3:23 pm, edited 1 time in total.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio

Post by TN_Boy » Sat Feb 10, 2018 3:19 pm

nisiprius wrote:
Wed Feb 07, 2018 12:56 pm
willthrill81 wrote:
Wed Feb 07, 2018 12:47 pm
...I agree with Larry that having a well-thought out plan is a very good idea, but I disagree that it is a "necessary condition for success." I've known many who didn't have a real plan but still made out alright (not stellar, but alright) in retirement. I'd say the bigger factor in success is having a good savings rate during your working years. A high savings rate may well turn out to be preferable to an otherwise good plan that doesn't have a high savings rate...
Indeed. Consider Taylor Larimore's posting,

Safe Withdrawal Rates? Complexity versus Simplicity
I retired in June of 1982 at the age of 57. We had about a $1 million dollar portfolio to last us the rest of our lives. I didn't know about safe withdrawal rates (the Trinity Study wasn't published until 1998). We had no computers, Internet, Monte Carlo, or sophisticated calculators. We only knew that we had to be careful to make our money last ($1M at 4% = $40,000/year before tax).

So what happened? We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized.

This is what most people do and it works.
I'm sorry, I'm not very high on this particular bit of advice from Taylor, despite my respect for him. $1,000,000 in 1982 is equivalent to $2,500,000 today (per https://www.bls.gov/data/inflation_calculator.htm). So he retired in 1982 with the equivalent of 2.5 million dollars, in the beginning of the greatest bull market in US history. And I assume SS coming later. I mean, there was not much belt tightening required. Look at stock market returns during that time. Yes, being flexible is important. It is harder when the market is not giving you giant rewards.

I will agree that back in those days, we didn't really understand what a "reasonable" withdrawal rate was, making decisions harder.

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