“It’s probably wise to sell to the sleeping point.” - Jack Bogle

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Rowan Oak
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“It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Rowan Oak » Sat Oct 06, 2018 2:29 pm

Faced with low expected returns, what’s his advice? “You better save more money,” Jack Bogle counsels. “You better get more costs out of the equation.”

What about lightening up on stocks? “It all depends on your financial ability and emotional ability to withstand a market decline,” he says. “It’s probably wise to sell to the sleeping point.”

Jack Bogle suggests “you might do a five or 10 percentage point reduction” in your stock exposure. But he adds: “There’s no certainty in this, so you never want to do anything too big.”

October 5, 2018
https://humbledollar.com/2018/10/jack-of-hearts/
Bogleheads’ 17th conference in Philadelphia
Last edited by Rowan Oak on Sat Oct 06, 2018 7:39 pm, edited 1 time in total.
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Random Walker
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Re: “It’s probably wise to sell to the sleeping point.”

Post by Random Walker » Sat Oct 06, 2018 3:34 pm

If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.

Dave

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Re: “It’s probably wise to sell to the sleeping point.”

Post by youngpleb » Sat Oct 06, 2018 3:43 pm

Interesting. The 5-10% reduction in stocks would have many here wagging their fingers and chanting “market timing” if someone mentioned doing that in a post.
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Re: “It’s probably wise to sell to the sleeping point.”

Post by Dandy » Sat Oct 06, 2018 7:12 pm

Valuations and risk matter more in retirement. Loss of human capital makes it hard to make up losses and emerging health and declining mental abilities issues loom.

That doesn't mean wholesale changes to the allocation often but does suggest sometimes it may be needed. The last 8 years have made many of us somewhat numb to the equity risks.

None should make panic moves but "market timing" shaming isn't often helpful. People should be encouraged to get to an allocation they can live with. It is better than what some do which is sell all.

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Re: “It’s probably wise to sell to the sleeping point.”

Post by MnD » Sat Oct 06, 2018 7:46 pm

Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.

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Rowan Oak
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Re: “It’s probably wise to sell to the sleeping point.”

Post by Rowan Oak » Sat Oct 06, 2018 8:00 pm

MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
If you've won the game why keep playing?
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Re: “It’s probably wise to sell to the sleeping point.”

Post by Random Walker » Sat Oct 06, 2018 9:28 pm

MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
Sounds like you’re in good shape. Do you realize though, that with a 70/30 portfolio, you have over 90% of your portfolio risk likely wrapped up in equities? If your equities are basically TSM, then you have over 90% of your risk wrapped up in a single factor.
Have you ever had a Monte Carlo Simulation performed? I’ve been surprised by the results. One of the surprises is how little impact asset allocation has on meeting goals. You might find you are highly likely or possibly even more likely to meet goals with a less aggressive allocation. Sometimes the plan that yield the highest expected mean terminal wealth actually has a lower likelihood of meeting goals than a less aggressive allocation.

Dave

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Namashkar » Sat Oct 06, 2018 9:58 pm

Ask yourself the following questions.

1. What are the odds for the equity market (TSM) to gain 20% from this year’s S&P 500 high vs 20% loss within a couple of years considering the current valuation?
2. What are the odds for the intermediate term treasuries (TBM) to gain 5% or more vs loss of 5% or more by the end of 2019 considering what Fed has already projected of rate hikes?

I reduced my AA from 60/40 S/B to 50/30/20 S/B/MM about 15 days ago to my sleep point using my tax advantage accounts. I am absolutely thrilled to learn now that Mr. Bogle suggests something similar to what I did. Is this market timing? Absolutely. Does it make sense? Yes for me. I am retired and no need for me to play the game after winning at this time.

I am sure others will challenge me.
Last edited by Namashkar on Sat Oct 06, 2018 10:39 pm, edited 1 time in total.

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Re: “It’s probably wise to sell to the sleeping point.”

Post by finite_difference » Sat Oct 06, 2018 10:20 pm

youngpleb wrote:
Sat Oct 06, 2018 3:43 pm
Interesting. The 5-10% reduction in stocks would have many here wagging their fingers and chanting “market timing” if someone mentioned doing that in a post.
It’s only market timing if you are changing your asset allocation back and forth by 5-10% to try to get higher returns.

It’s not market timing if it’s a one time move because you no longer need to take as much risk with stocks, and sleep better with 5-10% more bonds.

It’s a subtle but important difference.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

Random Walker
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Re: “It’s probably wise to sell to the sleeping point.”

Post by Random Walker » Sat Oct 06, 2018 10:34 pm

MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
Another point. I’m not advocating in and out market timing. I’m advocating what I’ve described before as opportunistically customizing one’s own glide path towards the retirement portfolio. When one’s circumstances change, it can make sense to make pretty rare changes to the assetallocation, perhaps once or twice a decade. Circumstances include past returns, which affect current valuations, and thus affect future expected returns. Given the past decade, not only has the Mean expected return for equities decreased, the whole dispersion of potential returns has shifted left: good outcomes less good and bad outcomes worse. Some risks just not worth taking.

Dave

NYCwriter
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by NYCwriter » Sat Oct 06, 2018 11:18 pm

Well, if I recall, he has been warning about lower returns for more than 2 years. :) But for the majority of his audience, it's sound logic and adheres to general consensus. With significant returns on equity over an extended period, it's ok to lock in some profits and reduce risk with safer vehicles.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by jabberwockOG » Sun Oct 07, 2018 12:03 am

Interesting to me - how one or more folks seem to post on threads like these how they just made a very nicely timed AA move just ahead of the market. I'm thinking batting a 1,000 on anonymous internet boards just isn't that hard to do.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by AlohaJoe » Sun Oct 07, 2018 12:20 am

NYCwriter wrote:
Sat Oct 06, 2018 11:18 pm
Well, if I recall, he has been warning about lower returns for more than 2 years. :)
The earliest source I can find for Bogle warning about lower returns is a 1991 article in the Journal of Portfolio Management where he warned that
The point of these examples is that the model sets the framework for a rational discourse on the returns on stocks in the 1990s. It makes it clear that [...] stocks will have their work cut out for themselves
So that's 27 years ago he was warning people about reduced future returns. (He was wrong back in 1991, by the way. Returns were over 18%.)

The problem with Bogle's forecasts is they actually are "returns will be in the range of 6-9% unless something interesting happens". And interesting things happen a lot in investing on both the positive and negative side. Given such a huge variation (even the difference between 6% and 9% is material!) it is hard to know what an investor is supposed to do with a forecast like that. "It could be 6%. But it might be 18%. Or -2%."

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by wootwoot » Sun Oct 07, 2018 2:32 am

Market timing. Don't do it!

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by minimalistmarc » Sun Oct 07, 2018 2:38 am

Namashkar wrote:
Sat Oct 06, 2018 9:58 pm
Ask yourself the following questions.

1. What are the odds for the equity market (TSM) to gain 20% from this year’s S&P 500 high vs 20% loss within a couple of years considering the current valuation?
I don’t know. Can you tell me the answer please?

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by randomizer » Sun Oct 07, 2018 3:04 am

NYCwriter wrote:
Sat Oct 06, 2018 11:18 pm
Well, if I recall, he has been warning about lower returns for more than 2 years. :) But for the majority of his audience, it's sound logic and adheres to general consensus. With significant returns on equity over an extended period, it's ok to lock in some profits and reduce risk with safer vehicles.
Does seem returns have been lower this year.
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Re: “It’s probably wise to sell to the sleeping point.”

Post by ignition » Sun Oct 07, 2018 3:52 am

Rowan Oak wrote:
Sat Oct 06, 2018 8:00 pm
MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
If you've won the game why keep playing?
Why not? High equity allocations were safer than low equity allocations historically. (higher success rate and higher ending wealth if you use the 4% rule). I don't think bonds/cash are necessarily safer over long time periods.
Random Walker wrote:
Sat Oct 06, 2018 9:28 pm
MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
Sounds like you’re in good shape. Do you realize though, that with a 70/30 portfolio, you have over 90% of your portfolio risk likely wrapped up in equities? If your equities are basically TSM, then you have over 90% of your risk wrapped up in a single factor.
Have you ever had a Monte Carlo Simulation performed? I’ve been surprised by the results. One of the surprises is how little impact asset allocation has on meeting goals. You might find you are highly likely or possibly even more likely to meet goals with a less aggressive allocation. Sometimes the plan that yield the highest expected mean terminal wealth actually has a lower likelihood of meeting goals than a less aggressive allocation.

Dave
If you looked at what actually happened historically, high equity allocations were safer than low equity allocations. I don't think Monte Carlo simulations are the right way to model equity risk.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Lauretta » Sun Oct 07, 2018 3:58 am

I see this piece of advice in favour of valuations based market-timing as another example of the fact that Mr Bogle's principles are not to be taken as absolute truths (a second example being his many statements that gold is not an investment, versus the fact that he himself invested in gold 5% of the money he is managing for a foundation in Philadelphia.)
So sometimes taking Mr Bogle's advice too literally or seriously may result in being, as the French would say, 'plus royaliste que le roi'...
When everyone is thinking the same, no one is thinking at all

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by AtlasShrugged? » Sun Oct 07, 2018 6:24 am

I have a hard time understanding this concept: sell to the sleeping point. I am not sure what that actually means.

It seems to me that in a recession/crisis, the correlation of stocks and bonds moves to '1', and both tank. Did people with a 50% allocation to bonds really sleep all that much better than people who had a 30% allocation to bonds in 2007-9? I suspect not.

Practically speaking, my takeaway here is that if you are in the last five years to retirement, it is time to move toward more bonds - if you have not already. Makes sense.

But what about those who are 10-15 years out, like me? What do I do with this advice: sell to the sleeping point? For my plan to have a chance of succeeding, I need 3% real (plan assumes 7% nominal and 4% inflation). And this is not going to happen with a huge allocation to bonds. I don't see a reason to change my glidepath (slowly increasing the amount of bonds annually for next 10 years).

What am I missing here?
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by fortyofforty » Sun Oct 07, 2018 6:28 am

We love Jack Bogle's philosophical framework. When he deviates from his own oft-cited maxim "Nobody knows nothin'" we can take it for what it's worth. I will choose an asset allocation with which I am comfortable, and stick with it. I don't think you can "Stay the course" if the course heading is constantly shifting. Plus, it's always easy to call market tops and market bottoms. It's a lot harder to be right in those calls.
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by stemikger » Sun Oct 07, 2018 6:40 am

My SWAN AA is the Vanguard Balanced Index Fund. I'm there, no need to do anything.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by ignition » Sun Oct 07, 2018 6:55 am

AtlasShrugged? wrote:
Sun Oct 07, 2018 6:24 am
I have a hard time understanding this concept: sell to the sleeping point. I am not sure what that actually means.

It seems to me that in a recession/crisis, the correlation of stocks and bonds moves to '1', and both tank. Did people with a 50% allocation to bonds really sleep all that much better than people who had a 30% allocation to bonds in 2007-9? I suspect not.
In 2008, (high quality) bonds had a positive return while stocks tanked.

afan
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by afan » Sun Oct 07, 2018 7:10 am

It makes perfect sense to adjust your target asset allocation if your desired risk changes. It makes sense for some people to change their desired risk as they approach retirement.

This applies most clearly to people who
1. have enough to retire but only a small margin of safety
2. Anticipate little or no opportunity to work after retirement if their incomes fall short of needs
3. Have little to no opportunity to reduce spending if their incomes fall

For those for whom a large drop in stocks would not put their retirement in jeopardy, the need to cut risk may not apply.

I model our retirement by assuming progressively deeper drops in stocks as part of testing our margin of safety. Usually, for simplicity, I model all the risk as occurring through stock drops, with historical mean returns after the drop. When I have the energy I also model lower future returns.

If I wanted to do it right I would model all three of stock drops, low returns and high inflation. That just takes changing too many parameters and requires me to change them all back for the next simulation.

So, instead, I model for drops up to those seen in the Great Depression. Then, assuming no deflation that would cut my need for nominal dollars, I see where I stand. Assuming we both live to 110 I find we can tolerate drops that deep.

From this I get two conclusions.
We will not need to reduce stock allocation as we approach retirement.
I should keep working as long as I can. This both increases the assets available for retirement and reduces the amount of time we will have to draw on them.

Not everyone has the option of working a long time. Health and age discrimination can knock people out of the job market prematurely.
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

afan
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by afan » Sun Oct 07, 2018 7:13 am

I completely agree that I would love to know the likelihood of large gains or losses for stocks over the next 2 years. If anyone knows, please PM me.
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: “It’s probably wise to sell to the sleeping point.”

Post by MnD » Sun Oct 07, 2018 8:29 am

Rowan Oak wrote:
Sat Oct 06, 2018 8:00 pm
MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
If you've won the game why keep playing?
Because I don't base my very individualized approach to investing based on inane zingers or things like what Jack says at a conference this week.
If someone is making a sudden change in their AA this week either temporarily (market timing) or permanently (because they can't sleep) all they are demonstrating is that they don't know what they are doing with their investments and should probably pay Vanguard .30% or whatever to manage them.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by SGM » Sun Oct 07, 2018 8:31 am

Jack didn't have much to say about the risk of sequence of returns when questioned at the Philadelphia meeting. For Jack sequence of returns would be of little consequence. For most retirees sequence of returns is important.

1966 was the worst year to retire in recent years with data. The average returns for those who retired in 1966 was not the lowest returns for a retirement cohort. However, because of sequence of returns the likelihood of running out of money was the highest for the 1966 cohort in an actuarial study by Joe Tomlinson. His comparison only goes up to the retirement year of 1978 as he chose 40 years as a retirement length. He was looking at a 60/40 stock to bond AA for all cohorts. The study can be found referenced this week at the Oblivious Investor website run by BH Mike Piper.

Joe Tomlinson is an actuary who recently moved from rural Maine to West Yorkshire, England.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by edgeagg » Sun Oct 07, 2018 8:40 am

afan wrote:
Sun Oct 07, 2018 7:13 am
I completely agree that I would love to know the likelihood of large gains or losses for stocks over the next 2 years. If anyone knows, please PM me.
Well, isn't that just trying to model recession probabilities? If so, you should see the thread on yield inversions.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by MnD » Sun Oct 07, 2018 9:08 am

AtlasShrugged? wrote:
Sun Oct 07, 2018 6:24 am
I have a hard time understanding this concept: sell to the sleeping point. I am not sure what that actually means.

It seems to me that in a recession/crisis, the correlation of stocks and bonds moves to '1', and both tank. Did people with a 50% allocation to bonds really sleep all that much better than people who had a 30% allocation to bonds in 2007-9? I suspect not.

Practically speaking, my takeaway here is that if you are in the last five years to retirement, it is time to move toward more bonds - if you have not already. Makes sense.

But what about those who are 10-15 years out, like me? What do I do with this advice: sell to the sleeping point? For my plan to have a chance of succeeding, I need 3% real (plan assumes 7% nominal and 4% inflation). And this is not going to happen with a huge allocation to bonds. I don't see a reason to change my glidepath (slowly increasing the amount of bonds annually for next 10 years).

What am I missing here?
The takeaway is that if at any point in time at any age you can't sleep with your asset allocation, you are doing a poor job managing your portfolio and need to make changes. There's nothing significant about this week, being close to or far from retirement etc. There are retirees 100% in stock because they can afford to take the risk and have the temperament to do so and 30 year olds that aren't or shouldn't be in stocks or nominal bonds because they can't fathom the idea of any of their savings declining in value.

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Rowan Oak
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Re: “It’s probably wise to sell to the sleeping point.”

Post by Rowan Oak » Sun Oct 07, 2018 9:32 am

MnD wrote:
Sun Oct 07, 2018 8:29 am
Rowan Oak wrote:
Sat Oct 06, 2018 8:00 pm
MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
If you've won the game why keep playing?
Because I don't base my very individualized approach to investing based on inane zingers or things like what Jack says at a conference this week.
If someone is making a sudden change in their AA this week either temporarily (market timing) or permanently (because they can't sleep) all they are demonstrating is that they don't know what they are doing with their investments and should probably pay Vanguard .30% or whatever to manage them.
Interesting.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Random Walker » Sun Oct 07, 2018 10:07 am

AtlasShrugged? wrote:
Sun Oct 07, 2018 6:24 am
I have a hard time understanding this concept: sell to the sleeping point. I am not sure what that actually means.

It seems to me that in a recession/crisis, the correlation of stocks and bonds moves to '1', and both tank. Did people with a 50% allocation to bonds really sleep all that much better than people who had a 30% allocation to bonds in 2007-9? I suspect not.

Practically speaking, my takeaway here is that if you are in the last five years to retirement, it is time to move toward more bonds - if you have not already. Makes sense.

But what about those who are 10-15 years out, like me? What do I do with this advice: sell to the sleeping point? For my plan to have a chance of succeeding, I need 3% real (plan assumes 7% nominal and 4% inflation). And this is not going to happen with a huge allocation to bonds. I don't see a reason to change my glidepath (slowly increasing the amount of bonds annually for next 10 years).

What am I missing here?
I don’t think you’re missing anything. My thinking is at 15 years out I’d just hold steady, at 10 years start thinking but likely hold steady or just tweak a bit because you’ve learned a bit more about yourself or about investing, but by 5 years should be much clearer on realistic goals, what’s important and what’s not important, and take serious look at AA with possible changes to AA. I think an investor, knowing his specific circumstances and goals can do better than a typical target date fund that might arbitrarily take 1-2% off the equities each year. With equity returns having an SD around 16-20%, the individual can take a bit of risk off the table after periods of substantial market generosity. I like the concept of a liability matching portfolio. I don’t necessarily have separate risk portfolio and liability matching portfolio, but I do think about the absolute amount I have in bonds and how much time in living expenses that provides. If that number ever gets big enough, I may just hold it steady as a LMP, and make future additions only to a RP comprised of equities and alternatives.

Dave

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Whakamole » Sun Oct 07, 2018 10:41 am

A few weeks ago, someone jokingly (?) said that the suggested bond allocation during a bear market was your age in bonds; during a bull market, it was age-20 or even "why own bonds at all."

Reviewing your asset allocation to ensure that it meets the "sleep test" is not market timing.

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Re: “It’s probably wise to sell to the sleeping point.”

Post by HomerJ » Sun Oct 07, 2018 11:00 am

youngpleb wrote:
Sat Oct 06, 2018 3:43 pm
Interesting. The 5-10% reduction in stocks would have many here wagging their fingers and chanting “market timing” if someone mentioned doing that in a post.
If it's a permanent change because one is close to or entering retirement, that's fine. If you switch back later, then yes it is market-timing.

5%-10% is pretty mild, almost pointless market-timing though. It's just a way for people to feel like they are doing something, make them feel better, let them "sleep at night".

But yes, I disagree with Jack Bogle. I do not think one should change their AA based on "expected" returns.

Selling to a your "sleeping point" is an exercise one can do at any time. Regardless of "expected" returns. You shouldn't lie awake at night worrying about your money. Ignore the noise, and set up your AA assuming the market might drop 50% tomorrow.

Because it might.

But if you're already set up for that possibility, you no longer have to worry about it.
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by afan » Sun Oct 07, 2018 1:02 pm

edgeagg wrote:
Sun Oct 07, 2018 8:40 am
afan wrote:
Sun Oct 07, 2018 7:13 am
I completely agree that I would love to KNOW the likelihood of large gains or losses for stocks over the next 2 years. If anyone KNOWS, please PM me.
Well, isn't that just trying to model recession probabilities? If so, you should see the thread on yield inversions.
Note the key word "know." Projections of what that distributions of returns might be are a dime a dozen.
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: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by smectym » Sun Oct 07, 2018 1:04 pm

Whose sleeping point?

I try to keep in mind that as the self-appointed “money management guy” in the family, loved ones are counting on me not to screw it up. I’m not going to be able to explain away a devastating market loss to family members by quoting Bogleheadian strictures against market timing. To do so would put fidelity to a dogma above my fiduciary duty to preserve assets that don’t only or even mainly belong to me.

Smectym

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Slapshot » Sun Oct 07, 2018 3:58 pm

I've been retired for 14 years. Have all I need. Been 30/70 stocks/bonds for all that time and sleep like a baby. Won't make a killing, but won't get killed either. This isn't rocket science. Don't make it complicated.
This time, like all times, is the best of times if we but know what to do with it.

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Re: “It’s probably wise to sell to the sleeping point.”

Post by midareff » Sun Oct 07, 2018 4:20 pm

Rowan Oak wrote:
Sat Oct 06, 2018 8:00 pm
MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
If you've won the game why keep playing?
Exactly...... and why risk money you do need to try and make money you don't need?

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Yukon » Sun Oct 07, 2018 4:21 pm

Slapshot wrote:
Sun Oct 07, 2018 3:58 pm
I've been retired for 14 years. Have all I need. Been 30/70 stocks/bonds for all that time and sleep like a baby. Won't make a killing, but won't get killed either. This isn't rocket science. Don't make it complicated.
Pension?
Don't Work Forever.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Slapshot » Sun Oct 07, 2018 4:46 pm

Pension? Yes. 35 years as a public high school teacher. It certainly makes things easier.
This time, like all times, is the best of times if we but know what to do with it.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by MnD » Sun Oct 07, 2018 5:47 pm

smectym wrote:
Sun Oct 07, 2018 1:04 pm
Whose sleeping point?

I try to keep in mind that as the self-appointed “money management guy” in the family, loved ones are counting on me not to screw it up. I’m not going to be able to explain away a devastating market loss to family members by quoting Bogleheadian strictures against market timing. To do so would put fidelity to a dogma above my fiduciary duty to preserve assets that don’t only or even mainly belong to me.

Smectym
If you think you can preserve family assets by market timing (predictably reducing equity exposure before market declines) to avoid "devastating market loss" you would be mistaken. Jack Bogle's advice to have an AA at the sleeping point applies to every investor at all times. There's also nothing wrong with rule-based rebalancing or being on a predetermined glide path. Put it down in your investment policy statement and stick to it. But making AA changes on the basis of what Jack said at a conference and/or because market or interest moves are giving one the heebie-jeebies is very problematic.

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Re: “It’s probably wise to sell to the sleeping point.”

Post by goodenyou » Sun Oct 07, 2018 5:51 pm

midareff wrote:
Sun Oct 07, 2018 4:20 pm
Rowan Oak wrote:
Sat Oct 06, 2018 8:00 pm
MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
If you've won the game why keep playing?
Exactly...... and why risk money you do need to try and make money you don't need?

"I see the light at the end of the tunnel now,
Someone please tell me it's not a train."


-Cracker

https://www.youtube.com/watch?v=kX4hWYITdQU
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by HomerJ » Sun Oct 07, 2018 7:23 pm

smectym wrote:
Sun Oct 07, 2018 1:04 pm
Whose sleeping point?

I try to keep in mind that as the self-appointed “money management guy” in the family, loved ones are counting on me not to screw it up. I’m not going to be able to explain away a devastating market loss to family members by quoting Bogleheadian strictures against market timing. To do so would put fidelity to a dogma above my fiduciary duty to preserve assets that don’t only or even mainly belong to me.

Smectym
This is a good point. But don't make changes because you THINK the risk is high TODAY.. The risk is never zero. You should have made the changes before reading this article today.

Market-timing is indeed dumb. You should ALWAYS be prepared for a market crash. You should ALWAYS think about having to tell your wife "Whoops, I screwed up, we have to sell the house."

Sell to the point where you can sleep knowing you'll never have to have that conversation.
Last edited by HomerJ on Sun Oct 07, 2018 7:27 pm, edited 1 time in total.
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by MotoTrojan » Sun Oct 07, 2018 7:27 pm

Namashkar wrote:
Sat Oct 06, 2018 9:58 pm
Ask yourself the following questions.

1. What are the odds for the equity market (TSM) to gain 20% from this year’s S&P 500 high vs 20% loss within a couple of years considering the current valuation?
2. What are the odds for the intermediate term treasuries (TBM) to gain 5% or more vs loss of 5% or more by the end of 2019 considering what Fed has already projected of rate hikes?

I reduced my AA from 60/40 S/B to 50/30/20 S/B/MM about 15 days ago to my sleep point using my tax advantage accounts. I am absolutely thrilled to learn now that Mr. Bogle suggests something similar to what I did. Is this market timing? Absolutely. Does it make sense? Yes for me. I am retired and no need for me to play the game after winning at this time.

I am sure others will challenge me.
I’d wager it’s 100% odds the S&P500 will advance 20%. Im willing to put my entire portfolio on that. Let’s check back in 40 years.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by HomerJ » Sun Oct 07, 2018 7:30 pm

Namashkar wrote:
Sat Oct 06, 2018 9:58 pm
Ask yourself the following questions.

1. What are the odds for the equity market (TSM) to gain 20% from this year’s S&P 500 high vs 20% loss within a couple of years considering the current valuation?
2. What are the odds for the intermediate term treasuries (TBM) to gain 5% or more vs loss of 5% or more by the end of 2019 considering what Fed has already projected of rate hikes?

I reduced my AA from 60/40 S/B to 50/30/20 S/B/MM about 15 days ago to my sleep point using my tax advantage accounts. I am absolutely thrilled to learn now that Mr. Bogle suggests something similar to what I did. Is this market timing? Absolutely. Does it make sense? Yes for me. I am retired and no need for me to play the game after winning at this time.

I am sure others will challenge me.
Nothing wrong with the move you made. BECAUSE you've already won the game.

If you change BACK to 60/40 in a couple of years because Bogle (or anyone) says "Oooh, it looks like stocks may go up next year", then I may call you foolish...

Because like you said, there's no reason to play the game and try to increase your returns. The risk never drops to zero. You've ALREADY won the game.
The J stands for Jay

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Re: “It’s probably wise to sell to the sleeping point.”

Post by ShadowRegent » Sun Oct 07, 2018 7:35 pm

MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
I agree with your general point, but you must consider what your goals are. There is nothing wrong with locking in some gains to increase your probably of "success" in retirement if that's what someone is aiming for. This decision should be based on one's pre-defined success criteria, though, and not gut feel of the current market.

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by fortyofforty » Sun Oct 07, 2018 7:36 pm

One problem I have is figuring out how much I will "need". I can know my mortgage payments. I can only estimate my property taxes or utilities, but I am certain they will only increase. Same for my insurance, auto, home, and health. Up, up and up, for sure. Social Security is less "secure" than has been promised, in my opinion. Food expenses will likely keep rising, too. So, all the estimates of future cash flow needs are at best just guesses, educated and otherwise. It's not really a game, so I must keep going. If I die with too much, beneficiaries and charities can rejoice. If I die with too little, it will be a rough last few years. Stay the course.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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Taylor Larimore
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It is really very simple.

Post by Taylor Larimore » Sun Oct 07, 2018 7:52 pm

Bogleheads:

Each attendee at the 2018 Boglehead Conference was given Jack's 10th Anniversary Edition of "The Little Book of Common Sense Investing." This is one quote in the book that illustrates how simple sound investing really is:
"Rely on your own common sense. Emphasize an S&P 500 Index fund or an all-stock-market index fund. (They're pretty much the same.) Carefully consider your risk tolerance and the portion of your investment you allocate to equities. Then, stay the course."
If you were not at the Conference, you can read many of his best quotations in the book by using the link below:

viewtopic.php?f=10&t=230617

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by smectym » Mon Oct 08, 2018 1:11 am

HomerJ wrote:
Sun Oct 07, 2018 7:23 pm
smectym wrote:
Sun Oct 07, 2018 1:04 pm
Whose sleeping point?

I try to keep in mind that as the self-appointed “money management guy” in the family, loved ones are counting on me not to screw it up. I’m not going to be able to explain away a devastating market loss to family members by quoting Bogleheadian strictures against market timing. To do so would put fidelity to a dogma above my fiduciary duty to preserve assets that don’t only or even mainly belong to me.

Smectym
This is a good point. But don't make changes because you THINK the risk is high TODAY.. The risk is never zero. You should have made the changes before reading this article today.

Market-timing is indeed dumb. You should ALWAYS be prepared for a market crash. You should ALWAYS think about having to tell your wife "Whoops, I screwed up, we have to sell the house."

Sell to the point where you can sleep knowing you'll never have to have that conversation.
Jay, agreed, and to be clear I’m not reacting to Jack’s comments or making specific portfolio moves today. And our portfolio is already “too” conservative, with e.g, outsized allocations to I bonds and short-term bonds—and indeed, that barbarous relic that “isn’t an investment,” cash.

But we also hold plenty of equities and longer term bonds. We’ve gained on those positions as no doubt most on this board have done over the past decade. But were I to become convinced that discretion is the better part of valor, yes I would shoot the positions first and ask questions later.

It would probably take a neo-2007/08 to get me there, but right or wrong in such a perceived scenario I’d act to preserve capital.

Smectym

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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by Ari » Mon Oct 08, 2018 1:46 am

So adjust your asset allocation based on the outlook of the market going forward? It's not market timing if it's Bogle!
All in, all the time.

smectym
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by smectym » Mon Oct 08, 2018 2:08 am

Ari wrote:
Mon Oct 08, 2018 1:46 am
So adjust your asset allocation based on the outlook of the market going forward? It's not market timing if it's Bogle!
Ari, I think the question is, does inflexible adherence to Boglehead principles work in 100% of market scenarios, or only in, say 97.6%. Maybe 2.4% of the time, you’re on your own. Perhaps that quantum corresponds to serious financial crises (not corrections, not predictably cyclical
bear markets).

Secondarily, perhaps the “Boglehead philosophy” is a product of a rather long string of lucky years the United States has enjoyed since World War II. Maybe the next 70 years won’t prove quite so lucky. Would that outcome stress Boglehead investing principles?

Smectym

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Re: “It’s probably wise to sell to the sleeping point.”

Post by Call_Me_Op » Mon Oct 08, 2018 6:22 am

youngpleb wrote:
Sat Oct 06, 2018 3:43 pm
Interesting. The 5-10% reduction in stocks would have many here wagging their fingers and chanting “market timing” if someone mentioned doing that in a post.
No. Strategically reducing market exposure because of (for example) getting older or having "enough" is not market timing. Market timing is when you buy and sell based upon what you think the market is going to do in the near term.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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