Larry Swedroe: 4 Horsemen Of Your Portfolio
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Larry Swedroe: 4 Horsemen Of Your Portfolio
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
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
Last edited by Random Walker on Wed Feb 07, 2018 10:52 am, edited 1 time in total.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
difficult to recommend this after the recent market experiencea fund that sells volatility insurance across stocks, bonds, currencies and commodities.
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
yeah, investing in a new fund that sells volatility insurance hardly sounds like a way to reduce risk. Add in the 2% expense ratio and what little appeal it might have had goes away.
on the other hand, makes perfect sense to price long term care at places where you might want to be, get statistics on how long people are likely to be in LTC if they have to go there and use that information to include it in your retirement budget.
on the other hand, makes perfect sense to price long term care at places where you might want to be, get statistics on how long people are likely to be in LTC if they have to go there and use that information to include it in your retirement budget.
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
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
This article spells out the stark truths about the road ahead for seniors. We're going to live too long and need too much expensive care, and we're not going to earn the kind of returns that people are expecting from our investments. There will be some who have sense enough to take this seriously and make efforts to do what they can about it. And there will be many who don't. I count myself among the former.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
Random Walker....Thanks for posting. This was a rather longer article than is Mr. Swedroe's norm. Checked full of thought provoking ideas. Well worth the read. I noticed he addressed the returns issue. I am definitely going to have to revisit my 7% assumption. Sounds like 5% is a much more realistic number to use (according to Mr. Swedroe).
“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 Horseman Of Your Portfolio
5% nominal returns in equities for the next ten years would give us the worst rolling 30 CAGR nominal/real% we've ever had. And it wouldn't be close.
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
What kind of returns are people expecting?CULater wrote: ↑Wed Feb 07, 2018 11:19 am This article spells out the stark truths about the road ahead for seniors. We're going to live too long and need too much expensive care, and we're not going to earn the kind of returns that people are expecting from our investments. There will be some who have sense enough to take this seriously and make efforts to do what they can about it. And there will be many who don't. I count myself among the former.
We recommend the 4% "rule" around here just in case returns are poor. Because 4% worked in the past even when returns are poor.
So most of us are already prepared for poor returns, and not counting on 10% a year historical returns.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
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.
Without this devolving into another valuation thread, I think that Larry places a bit too much importance on current valuations being historically high. For instance, he points out that returns for a 60/40 portfolio have been higher from 1982-2017 than the historic average, despite the fact that valuations have been historically high for about 25 years of that same period. But even if this did lead to lower expected returns for the next decade, one would expect lower returns to be accompanied by lower volatility, which helps to reduce sequence of returns risk.
He and others lament over the very low real turns of bonds in the current environment, but I believe that this is counter-balanced at least in part by historically low inflation as well.
I know the data are probably a bit older than what Larry is using, but according to the SS administration's 2007 data, the probability of at least one spouse in an opposite-sex couple age 65 making it to age 95 was just 18%. Larry reports that this same likelihood is 25% for age 97, a significant discrepancy. Perhaps the 'healthy' aspect he refers to accounts for that. Lifespans certainly aren't increasing that quickly. Longevity annuities do indeed address this risk, but at a fairly high cost, as Larry points out. Many retirees aren't willing to part with a significant chunk of their portfolio to insure a risk that only has an anticipated 25% likelihood of showing up 30 years down the road, and the real risk is much less than that when you take into consideration that most withdrawal methods like the '4% rule' have not been exhausted after 30 years anyway.
Overall, I think that the easy answer to those who have these concerns is to just have save more than what you think is necessary and don't plan on an excessively high withdrawal rate in retirement.
Without this devolving into another valuation thread, I think that Larry places a bit too much importance on current valuations being historically high. For instance, he points out that returns for a 60/40 portfolio have been higher from 1982-2017 than the historic average, despite the fact that valuations have been historically high for about 25 years of that same period. But even if this did lead to lower expected returns for the next decade, one would expect lower returns to be accompanied by lower volatility, which helps to reduce sequence of returns risk.
He and others lament over the very low real turns of bonds in the current environment, but I believe that this is counter-balanced at least in part by historically low inflation as well.
I know the data are probably a bit older than what Larry is using, but according to the SS administration's 2007 data, the probability of at least one spouse in an opposite-sex couple age 65 making it to age 95 was just 18%. Larry reports that this same likelihood is 25% for age 97, a significant discrepancy. Perhaps the 'healthy' aspect he refers to accounts for that. Lifespans certainly aren't increasing that quickly. Longevity annuities do indeed address this risk, but at a fairly high cost, as Larry points out. Many retirees aren't willing to part with a significant chunk of their portfolio to insure a risk that only has an anticipated 25% likelihood of showing up 30 years down the road, and the real risk is much less than that when you take into consideration that most withdrawal methods like the '4% rule' have not been exhausted after 30 years anyway.
Overall, I think that the easy answer to those who have these concerns is to just have save more than what you think is necessary and don't plan on an excessively high withdrawal rate in retirement.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
Indeed. Consider Taylor Larimore's posting,willthrill81 wrote: ↑Wed Feb 07, 2018 11:47 am...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...
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.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
Save more.
If you can not save more, spend less.
One can only do what they can, if they can't then we will have to do without or rely on the kindness of others.
If you can not save more, spend less.
One can only do what they can, if they can't then we will have to do without or rely on the kindness of others.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
I've done my best. Saved for 30 year... about 15% or more per year. I have index funds. I haven't sold much during downturns in market. Just kept plowing $ into market.
I can't change the future. Not gonna invest in 4 funds I don't want or understand. I don't plan on going crazy spending in retirement. Just paid my LTCi bill.
What else can I do but try to adapt?
I can't change the future. Not gonna invest in 4 funds I don't want or understand. I don't plan on going crazy spending in retirement. Just paid my LTCi bill.
What else can I do but try to adapt?
Last edited by Dottie57 on Wed Feb 07, 2018 1:30 pm, edited 1 time in total.
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
1982 had high stock yields and low stock prices (4.93% yield/7.73 PE ratio for the S&P versus 1.85%/25.06 as of Dec 31 2017.) It also had high bond yields (10 year Treasuries yielding 14.59% vs. 2.58% as of Jan 1 this year.) Sources:nisiprius wrote: ↑Wed Feb 07, 2018 11:56 amIndeed. Consider Taylor Larimore's posting,willthrill81 wrote: ↑Wed Feb 07, 2018 11:47 am...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...
Safe Withdrawal Rates? Complexity versus SimplicityI 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.
http://www.multpl.com/s-p-500-dividend-yield/table
http://www.multpl.com/table
http://www.multpl.com/10-year-treasury- ... le/by-year
1982 was a really, really good year to retire.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
Financial writers often exaggerate "increasing longevity," I'm not sure why. Swedroe writes:
So, at 1950, life expectancy at age 65 was 13.9 years. "A few" is imprecise, I can't argue with it. So, today it is about 19.4 years. "A very different story" is imprecise, so I can't argue with it either. (But of course I will anyway). To me, 13.9 is more than "a few." An extra 5-1/2 years added onto that is a welcome difference, sure. But it's not like night and day, and it's not a sudden overnight surprise. The life expectancy change has some on very slowly and gradually, without volatility.
It's taken 65 years of medical advances to add 5-1/2 years to life expectancy. In posts I'd made in the past I've said life expectancy at age 65 has increased at the rate of "about one year per decade," but it's been less than that.
Here's the data from the CDC, table 15-1, life expectancy at age 65, all races, both sexes:When I was growing up (I’m 66), there were very few people who lived to collect Social Security for more than a few years. Today it’s a very different story.
So, at 1950, life expectancy at age 65 was 13.9 years. "A few" is imprecise, I can't argue with it. So, today it is about 19.4 years. "A very different story" is imprecise, so I can't argue with it either. (But of course I will anyway). To me, 13.9 is more than "a few." An extra 5-1/2 years added onto that is a welcome difference, sure. But it's not like night and day, and it's not a sudden overnight surprise. The life expectancy change has some on very slowly and gradually, without volatility.
It's taken 65 years of medical advances to add 5-1/2 years to life expectancy. In posts I'd made in the past I've said life expectancy at age 65 has increased at the rate of "about one year per decade," but it's been less than that.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
Most of the increase in life expectancy is due to advances in medical/health science that has reduced the infant mortality rate. Think vaccines/antibiotics.
"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
Excellent point.nisiprius wrote: ↑Wed Feb 07, 2018 12:24 pm Financial writers often exaggerate "increasing longevity," I'm not sure why. Swedroe writes:Here's the data from the CDC, table 15-1, life expectancy at age 65, all races, both sexes:When I was growing up (I’m 66), there were very few people who lived to collect Social Security for more than a few years. Today it’s a very different story.
So, at 1950, life expectancy at age 65 was 13.9 years. "A few" is imprecise, I can't argue with it. So, today it is about 19.4 years. "A very different story" is imprecise, so I can't argue with it either. (But of course I will anyway). To me, 13.9 is more than "a few." An extra 5-1/2 years added onto that is a welcome difference, sure. But it's not like night and day, and it's not a sudden overnight surprise. The life expectancy change has some on very slowly and gradually, without volatility.
It's taken 65 years of medical advances to add 5-1/2 years to life expectancy. In posts I'd made in the past I've said life expectancy at age 65 has increased at the rate of "about one year per decade," but it's been less than that.
It may be worthwhile drilling down further. Actually the longevity for the poorest and least educated people at age 65 has decreased.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
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.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
It is rather sobering that the longevity has decreased at birth; https://www.theatlantic.com/health/arch ... ng/510455/
From the article:
For the first time since the 1990s, Americans are dying at a faster rate, and they’re dying younger. A pair of new studies suggest Americans are sicker than people in other rich countries, and in some states, progress on stemming the tide of basic diseases like diabetes has stalled or even reversed. The studies suggest so-called “despair deaths”—alcoholism, drugs, and suicide—are a big part of the problem, but so is obesity, poverty, and social isolation.
American life expectancy fell by one-tenth of a year since 2014, from 78.9 to 78.8, according to a report released last week by the National Center for Health Statistics. As The Washington Post reported, the last time the life expectancy went down instead of up was in 1993, during the throes of the AIDS epidemic. Meanwhile, the number of years people are expected to live at 65 remained unchanged, suggesting people are falling ill and dying young.
The overall death rate rose by 1.2 percent in 2015, the first time since 1999. The death rates went up for white men and women and for black men, but did not change significantly for Hispanics or black women.
From the article:
For the first time since the 1990s, Americans are dying at a faster rate, and they’re dying younger. A pair of new studies suggest Americans are sicker than people in other rich countries, and in some states, progress on stemming the tide of basic diseases like diabetes has stalled or even reversed. The studies suggest so-called “despair deaths”—alcoholism, drugs, and suicide—are a big part of the problem, but so is obesity, poverty, and social isolation.
American life expectancy fell by one-tenth of a year since 2014, from 78.9 to 78.8, according to a report released last week by the National Center for Health Statistics. As The Washington Post reported, the last time the life expectancy went down instead of up was in 1993, during the throes of the AIDS epidemic. Meanwhile, the number of years people are expected to live at 65 remained unchanged, suggesting people are falling ill and dying young.
The overall death rate rose by 1.2 percent in 2015, the first time since 1999. The death rates went up for white men and women and for black men, but did not change significantly for Hispanics or black women.
The Golden Rule: One should treat others as one would like others to treat oneself.
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
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.
I'm a bit surprised that Larry didn't discuss long-term care insurance. While I'm a novice in that area, based on what I've seen so far, it seems that self-insurance may be the best option for many right now, especially those with 'comfortable' portfolios and assets. It seems that several in the early retirement crowd are choosing that path, arguing that investing the premiums they would otherwise be paying is very likely to leave them in a better position even if they do have to spend a 'typical' amount of time in a LTC facility, generally under two years. At this point, I liken it a bit to the life insurance situation of "buy term and invest the difference."
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Wait a sec, nisiprius. That is roughly a 40% increase, if my math is correct [(19.4-13.9)/13.9]. That is a pretty significant increase. I also think the original SSA pool was much narrower than what we have today (I seem to recall reading somewhere in my history books it was restricted, and broadened in 1950 - I could be wrong).So, at 1950, life expectancy at age 65 was 13.9 years. "A few" is imprecise, I can't argue with it. So, today it is about 19.4 years. "A very different story" is imprecise, so I can't argue with it either. (But of course I will anyway).
Absolutely love the quote from Taylor Larimore.
“If you don't know, the thing to do is not to get scared, but to learn.”
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
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...
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...
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
+1.siamond wrote: ↑Wed Feb 07, 2018 1:22 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...
Why try to sell those funds.?
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Anyone who's retirement plan is based solely on their investment portfolio completely missed the boat......Random Walker wrote: ↑Wed Feb 07, 2018 10:42 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
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Volatility can help with future returns, but greater volatility also opens the door to sequence of returns risk walloping you, especially during that first decade or so of retirement.siamond wrote: ↑Wed Feb 07, 2018 1:22 pmWhere 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...
But yes, I agree that volatility insurance doesn't seem to be the answer here. A very simple and viable one is simply to have more fixed income in your portfolio.
The Sensible Steward
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
siamond wrote: ↑Wed Feb 07, 2018 1:22 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...
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
In preparation for retirement and now in retirement, I've read many articles and books on the issues Larry writes of, and your post here states it in a nutshell.Grt2bOutdoors wrote: ↑Wed Feb 07, 2018 12:07 pm Save more.
If you can not save more, spend less.
One can only do what they can, if they can't then we will have to do without or rely on the kindness of others.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
So there is no certainty, risk is immutable, and we should expect to need to adapt to whatever the future presents to us. Is the problem our expectation of there being some certainty if we just write a better spending program or devise a better mutual fund?
Those who are prudent with their money will do better than most. That too is fairly steady. Perhaps the answer is to just expect to do better than most, instead of thinking that perfection is an achievable goal.
Those who are prudent with their money will do better than most. That too is fairly steady. Perhaps the answer is to just expect to do better than most, instead of thinking that perfection is an achievable goal.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Perhaps he isn't yet being compensated to do so. I don't think a couple of funds is a panacea for the problems he discusses.I'm a bit surprised that Larry didn't discuss long-term care insurance.
+1yeah, investing in a new fund that sells volatility insurance hardly sounds like a way to reduce risk. Add in the 2% expense ratio and what little appeal it might have had goes away.
Might be a clue here.... BAM alliances
http://www.bamadvisorservices.com/who-we-are/
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Hard to charge 1% of assets to put people in three-fund portfolios.
Wouldn't selling volatility insurance generate returns like inverse VIX funds?
Wouldn't selling volatility insurance generate returns like inverse VIX funds?
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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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
I think I might need to take out volatility insurance in order to stay the course in this recommended volatility insurance fund....
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Larry states the problem well. Like siamond, I don't believe that alternate investments are the magic bullet that solves the problem. The appropriate mixture of stocks and bonds fitted to my goals and risk tolerance works for me. Volatility does not bother me. That's the nature of the equity beast. Volatility goes both ways, up and down, and without tolerating the big downs you don't get to cash in on the big ups. As the saying goes, "You make your money in bear markets. You just don't realize it at the time." In the long run, at least in the US stocks have always gone up and I expect that to continue. In the short run stocks go down, stocks go up, and bonds have stability. Bonds are dollar for dollar by far the best anchor against volatility in times of equity distress. The right mixture of the two can work quite well without the extra costs and added complexity of alternate investment IMO. Each to his/her own but that's how I see it.
Garland Whizzer
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
I am nowhere near retired and I have been preaching this for YEARS. Look most folks don't have millions in retirement and most are not eating dog food. The reason? Not luck. They do what everybody does and they ADAPT. It really is not that difficult. I am not sure why folks adapt from 0-65 years of age and then expect something Guaranteed from 65- death. That is pretty naive.nisiprius wrote: ↑Wed Feb 07, 2018 11:56 amIndeed. Consider Taylor Larimore's posting,willthrill81 wrote: ↑Wed Feb 07, 2018 11:47 am...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...
Safe Withdrawal Rates? Complexity versus SimplicityI 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.
When you work it isn't like you are guaranteed a paycheck each year yet folks get by year to year and adapt when they are laid off or life surprises happen.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
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Re: Larry Swedroe: 4 Horseman Of Your Portfolio
staythecourse wrote: ↑Wed Feb 07, 2018 5:42 pmI am not sure why folks adapt from 0-65 years of age and then expect something Guaranteed from 65- death. That is pretty naive.
The notion of trying to achieve zero variability in one's income in retirement 'here in the real world' is folly IMHO. How it ever came to be, I don't know.
The Sensible Steward
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
The New England J of Medicine had a great article on the rate for Alzheimer's disease dropping.It was featured as one of the 10 most important articles published in 2016. I was so surprised that I sent news of it to several of my friends. These data have not gained wide acknowledgement but there it is. I hope that this post is not too medical for this forum. I did think it important to share this optimistic finding. Bob
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Life is messy. Some people miss one boat but catch a later one. Many roads to Dublin.JAFFX2 wrote: ↑Wed Feb 07, 2018 1:33 pmAnyone who's retirement plan is based solely on their investment portfolio completely missed the boat......Random Walker wrote: ↑Wed Feb 07, 2018 10:42 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
Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
This all seems reasonable, but trying to predict the need for duration of long term care / SNF seems to be a futile exercise. Maybe best to look at the worst case scenarios (i.e. what are the longest periods people stay in SNF, etc.)
+1 (or whatever we're up to now) on questioning the "cure" of those alternative investments. I fear the cure might wind up worse than the disease. I'll stop at that, because I don't want to start receiving more PMs....
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
60/40-ish portfolio. Targeting 4% nominal, 2% real in my projections. Assuming 75% payout on estimated SS payments. With these numbers I'm on track to retire in 15 years (age 55) and portfolio will have a value close to it's value at FIRE at age 100.
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
While I agree with your overall point about financial writers and their exaggerations, I would caution you against using overall mortality numbers like this. There is a huge amount of variation hidden within the averages and it makes more sense to try to find the cohort most like "me" ("you", "us", etc). For instance,
Bogleheads are more likely to be in the top 5% than the bottom 5%, so for Boglehead-women it is close to 2 years per decade of longevity increase and for Boglehead-men 1.5 years per decade of longevity increase. And when you throw in joint-mortality (because most people are in a couple and their planning is for the couple) that changes things a bit as well. (Though I haven't seen anyone do the numbers for that and I'm too lazy to do it myself.) As a guess, I'd say that for a Boglehead-ish couple their joint-mortality has been increasing at around 2 years per decade.Over roughly the last 15 years, life expectancy increased by 2.34 years for men and 2.91 years for women who are among the top 5 percent of income earners in America, but by just 0.32 and 0.04 years for men and women in the bottom 5 percent of the income tables.
(Which I think it still pretty far from the catastrophe many financial writers make it out to be.)
Re: Larry Swedroe: 4 Horseman Of Your Portfolio
It is pretty easy to explain. When you are 0-65 you have lots of human capital. When you are 65-death you do not. People are able to trade that human capital off against other things.staythecourse wrote: ↑Wed Feb 07, 2018 5:42 pm I am nowhere near retired and I have been preaching this for YEARS. Look most folks don't have millions in retirement and most are not eating dog food. The reason? Not luck. They do what everybody does and they ADAPT. It really is not that difficult. I am not sure why folks adapt from 0-65 years of age and then expect something Guaranteed from 65- death. That is pretty naive.
No one is eating dog food because of Social Security.
I live in a country without anything like Social Security. I see dozens of elderly people walking the streets every day begging for money. They live 10-15 senior citizens in a room. They've "adapted". Based on what I see around me I wouldn't say it is easy for the elderly to adapt.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Seems to me like he has constructed a bit of a straw man to tear down.
Who here is doing their planning assuming 10+% real returns, or even 8+%? Which seems to be the premise he starts with.
Then he goes on to use CAPE 10 as a predictor of future expected returns. I do think valuations matter, but not sure CAPE is as predictive as some would like to believe (it has been "high" for quite some time). Even then he predicts 3% real/5% nominal for US equities, and 5-6% real for international equities. Does not sound that out of whack relative to many/most plans i have seen discussed here. Maybe his target audience is different.
Finally, his proposed solution is a set of REALLY expensive, relatively new funds, with little track record. I guess we are supposed to be excited because we can now invest in these at the "low" cost of ~2% rather that the typical 2/20 hedge fund fees because the SEC now allows these types of funds to be directly marketed to the public? Really?
I am guessing he gets paid a bit more to sell these funds then he would from a set of index funds. Follow the money.
Who here is doing their planning assuming 10+% real returns, or even 8+%? Which seems to be the premise he starts with.
Then he goes on to use CAPE 10 as a predictor of future expected returns. I do think valuations matter, but not sure CAPE is as predictive as some would like to believe (it has been "high" for quite some time). Even then he predicts 3% real/5% nominal for US equities, and 5-6% real for international equities. Does not sound that out of whack relative to many/most plans i have seen discussed here. Maybe his target audience is different.
Finally, his proposed solution is a set of REALLY expensive, relatively new funds, with little track record. I guess we are supposed to be excited because we can now invest in these at the "low" cost of ~2% rather that the typical 2/20 hedge fund fees because the SEC now allows these types of funds to be directly marketed to the public? Really?
I am guessing he gets paid a bit more to sell these funds then he would from a set of index funds. Follow the money.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Careful there brother. I tried this in the last thread and it got a bit ugly.....marcopolo wrote: ↑Wed Feb 07, 2018 9:38 pm Finally, his proposed solution is a set of REALLY expensive, relatively new funds, with little track record. I guess we are supposed to be excited because we can now invest in these at the "low" cost of ~2% rather that the typical 2/20 hedge fund fees because the SEC now allows these types of funds to be directly marketed to the public? Really?
I am guessing he gets paid a bit more to sell these funds then he would from a set of index funds. Follow the money.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
- eye.surgeon
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
The flip side of the longevity coin is that people are healthier for longer and can work later. Despite the passion for early retirement that many here have, lots of people enjoy working and can work well into their 70s productively. When SS was first introduced, people over 65 were almost geriatric and working productively over 70 was almost unheard of.
"I would rather be certain of a good return than hopeful of a great one" |
Warren Buffett
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
The Four Horsemen. Hmmm. Where have I heard of this before? Of course, we draw inspiration from the four Horsemen of the Apocalypse which is an echo of the Four Horses and the Four Chariots of the Old Testament Book of Zechariah. And of course we think of the Four Horsemen of Notre Dame, from a famous sports column written by Grantland Rice, the legendary sportswriter.
I took the idea and played with it a bit and came up with my "Four Horsemen of Underperformance" which are sort of an anti-index of four of my worst performing stocks. The original four were AIG, GE, Microsoft, and Pfizer. I had a lot of fun with it, those four stocks have probably dampened my returns a tiny bit, but hardly had the cataclysmic effects of the Four Horses, The Four Chariots, and the Four Horsemen of prophetic literature.
Though certainly Larry is probably well aware of the Four Horsemen of the Apocalypse and the Four Horsemen of Notre Dame, I have been the one on the forum who has been using this phrase a lot. I mused that setting Value stocks to neutral momentum was Dimensional Fund Advisors' way of screening out the value traps. I posted on this several times and noticed that my phrasing even with my famous quote marks showed up in an article.
This could all be coincidence. But if Larry really does read my posts, he has 100% permission to borrow without attribution if it helps him to make a point in one of his articles. To me, it is an honor that anyone here reads my stuff.
Next thing I know, there will be an article discussing the "anti-factors." Yes Larry, you can use that too. It would be an honor.
But anywho, I am having my little bit of fun with all of this. Now on to actually reading the article.
I took the idea and played with it a bit and came up with my "Four Horsemen of Underperformance" which are sort of an anti-index of four of my worst performing stocks. The original four were AIG, GE, Microsoft, and Pfizer. I had a lot of fun with it, those four stocks have probably dampened my returns a tiny bit, but hardly had the cataclysmic effects of the Four Horses, The Four Chariots, and the Four Horsemen of prophetic literature.
Though certainly Larry is probably well aware of the Four Horsemen of the Apocalypse and the Four Horsemen of Notre Dame, I have been the one on the forum who has been using this phrase a lot. I mused that setting Value stocks to neutral momentum was Dimensional Fund Advisors' way of screening out the value traps. I posted on this several times and noticed that my phrasing even with my famous quote marks showed up in an article.
This could all be coincidence. But if Larry really does read my posts, he has 100% permission to borrow without attribution if it helps him to make a point in one of his articles. To me, it is an honor that anyone here reads my stuff.
Next thing I know, there will be an article discussing the "anti-factors." Yes Larry, you can use that too. It would be an honor.
But anywho, I am having my little bit of fun with all of this. Now on to actually reading the article.
A fool and his money are good for business.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Fortunately, the poor do not have to worry about longevity! (tongue in cheek comment, of course)
http://news.mit.edu/2016/study-rich-poo ... ap-us-0411
http://news.mit.edu/2016/study-rich-poo ... ap-us-0411
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
In the article, Larry raises four concerns that investors need to be thinking about. He calls these the Four Horsemen and they are historically high equity valuations, historically low bond yields, increasing longevity, and the risks of long term care. Larry also discusses that the Medicare trust fund will exhaust in 2029 and the Social Security trust fund in 2035. Pretty much he is saying wake up and smell the coffee. 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. He suggests taking a slice of the portfolio and investing in alternatives.
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.
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.
A fool and his money are good for business.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
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.
"... 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.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
I live in an Asian country where the extended family never really went away. It is certainly interesting looking at the differences between here and in the US and thinking about whether the US could/would ever return to something similar. Some days it is hard not to feel like America has taken Ralph Waldo Emerson's essay on "Self-Reliance" a bit too far...
But -- having seen what life is like in these extended families -- it is also hard to overstate how much individual liberty there is in not having one's parents in the house. (My brother, who lives in the US, recently moved to a new state (in part) to get away from the influence of his wife's family on their son.) For better or worse people are generally terrible at intra-family communication and boundaries and whatnot. I've seen lots of arguments here between e.g. live-in grandparents and parents about the "right" way to raise children "these days". Imagine your parents (who possibly grew up in very different socio-economic circumstances) being exposed to every individual consumer decision you make when they see every single Amazon delivery....
And that's to say nothing of seemingly simple things like "what to make for dinner tonight?" when your parents have never eaten (and may actively hate) "ethnic food" because it didn't exist when they were growing up, whereas you've been eating Thai, Vietnamese, Japanese, etc since you went away to college all those years ago. (I know one family in this situation and their solution is two make two separate dinners several times one a week; one dinner for the grandparents and one for the rest of the family.)
That said, there are also some clear big wins. I see grandparents picking up children after school and then go grocery shopping together. No daycare costs and the grandparent has socialization and a bit of a helper for domestic stuff.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
No. There is no free lunch.For investors who need more return than safe bonds can provide, there are safer alternatives than either junk bonds or additional equity investment. We recommend allocations to four alternatives, each of which we believe has equitylike returns with much lower volatility.
The four alternatives we use are the AQR Style Premia Alternative Fund (QSPRX) and three funds from Stone Ridge: LENDX, an alternative lending (small business, consumer and student loans) fund; SRRIX, a reinsurance fund; and AVRPX, a fund that sells volatility insurance across stocks, bonds, currencies and commodities.
We believe an equal-weighted portfolio of these four funds has forward-looking return expectations similar to those of a global equity portfolio, but with only about one-quarter of the volatility of equities (5% versus 20%). (In the interest of full disclosure, as noted, my firm, Buckingham Strategic Wealth, recommends AQR and Stone Ridge funds in constructing client portfolios.)
Larry Swedroe is making bold claims and predictions. In turn, I predict that the markets will prove him wrong. You're not going to get the same return with only 1/4 the volatility.
One thing for sure: one of us is wrong. Time will tell.
By the way, AVPRX has an expense ratio of 2.68% and QSPRX has an expense ratio of 2.28%. I did not even bother to look up the other two funds he is recommending.
This approach is the very antithesis of the Boglehead approach: Actively managed funds with very high expense ratios that are promising to beat the market, and pushed by for-profit investment advisers.
Last edited by Finridge on Wed Feb 07, 2018 11:33 pm, edited 2 times in total.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
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.
Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
Inflation is definitely a concern. My approach is to own some direct real estate. It worked for my parents in the 70s.Beehave wrote: ↑Wed Feb 07, 2018 11:11 pm 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.
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Re: Larry Swedroe: 4 Horsemen Of Your Portfolio
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.
The premium for LTC insurance frequently isn't fixed.
Draw your own conclusions. I'm not drinking the kool aid.
DMW
The premium for LTC insurance frequently isn't fixed.
Draw your own conclusions. I'm not drinking the kool aid.
DMW