Stocks really "Chernobyl" risky for people near/in retirement?

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fortfun
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Stocks really "Chernobyl" risky for people near/in retirement?

Post by fortfun » Wed May 08, 2019 9:02 pm

William Bernstein describes stocks as being Chernobyl risky for people in retirement. Are they really that risky and if so, why do so many people, including BHs, keep 60/40 AA (or more)? If one has a pension, that could cover living expenses, in a pinch, are they still that risky? Is the risk mostly due to people selling due to fear? If they really are Chernobyl risky, I need to dial back my AA.

Here's the podcast, which is actually worth listening to (from InvestLikeABoss). The Podcast covers Lump Sum vs DCA.
https://youtu.be/93hdzbB1OFg

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by HEDGEFUNDIE » Wed May 08, 2019 9:04 pm

More like Three Mile Island risky, I’d say.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by fortfun » Wed May 08, 2019 9:09 pm

supersharpie wrote:
Wed May 08, 2019 9:05 pm
You have been on this board for over three years.

You already know the answer to your question.
Well sort of. But there are "Bogleheads" on this board that subscribe to the Warren Buffett 90/10 rule all the way to a completely cash position. I guess a 50/50 position is more reasonable to ensure the likelihood of a 4% withdraw for 30+ years. I do have a pension that could cover our living expenses, so this complicates the AA decision a bit.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by GerryL » Wed May 08, 2019 9:13 pm

I didn't listen to the podcast. Are they referring to individual stocks? Playing the market by trading individual stocks can be a risky way to manage your nest egg. Not having any of your savings in the stock market -- as in a low-cost mutual fund -- as you enter a decades long retirement can also be risky.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by fortfun » Wed May 08, 2019 9:17 pm

GerryL wrote:
Wed May 08, 2019 9:13 pm
I didn't listen to the podcast. Are they referring to individual stocks? Playing the market by trading individual stocks can be a risky way to manage your nest egg. Not having any of your savings in the stock market -- as in a low-cost mutual fund -- as you enter a decades long retirement can also be risky.
I think Bernstein was talking total index stocks but I'm not sure.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by 3-20Characters » Wed May 08, 2019 9:26 pm

Hmmm, this is basic stuff. Listen at around 12:30. He’s simply stating the obvious. He is not making a statement about current valuations or making predictions. It’s all boilerplate stuff and he even recommends using a 3 fund or TD fund.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by fortfun » Wed May 08, 2019 9:29 pm

HEDGEFUNDIE wrote:
Wed May 08, 2019 9:04 pm
More like Three Mile Island risky, I’d say.
I feel much better now :wink:

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by Elric » Wed May 08, 2019 9:46 pm

fortfun wrote:
Wed May 08, 2019 9:09 pm
I do have a pension that could cover our living expenses, so this complicates the AA decision a bit.
Well, that's definitely the sort of complication it's good to have! It's a complication because it opens up the full range of possibilities. You can take far less risk (especially if your pension has a COLA), because you've won the game, and don't need to grow your investments. Therefore, it's OK to be very conservative. But also, you've won the game, and if you want to try to leave the largest possible legacy, or just hate leaving money on the table, and your willing to take prudent risks, there's no concerns with doing that, either, since the risk doesn't include your ability to have enough money to live on. I'm in this latter camp (moving stocks down to 60/40, and will probably shift to 50/50 over longer time period).

I guess if you're really sure about the pension continuing and if it's got a COLA, you could even go wild and crazy with your investments as a very large pot of play money. Not very Boglehead-like, not my cup of tea, but you could.
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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by whodidntante » Wed May 08, 2019 9:50 pm

fortfun wrote:
Wed May 08, 2019 9:09 pm

Well sort of. But there are "Bogleheads" on this board that subscribe to the Warren Buffett 90/10 rule all the way to a completely cash position.
Why would you want to waste 10% of your money on bonds? :twisted:

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by jbranx » Wed May 08, 2019 9:56 pm

{I deleted an off-topic comment}

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by fortfun » Wed May 08, 2019 9:59 pm

Elric wrote:
Wed May 08, 2019 9:46 pm
fortfun wrote:
Wed May 08, 2019 9:09 pm
I do have a pension that could cover our living expenses, so this complicates the AA decision a bit.
Well, that's definitely the sort of complication it's good to have! It's a complication because it opens up the full range of possibilities. You can take far less risk (especially if your pension has a COLA), because you've won the game, and don't need to grow your investments. Therefore, it's OK to be very conservative. But also, you've won the game, and if you want to try to leave the largest possible legacy, or just hate leaving money on the table, and your willing to take prudent risks, there's no concerns with doing that, either, since the risk doesn't include your ability to have enough money to live on. I'm in this latter camp (moving stocks down to 60/40, and will probably shift to 50/50 over longer time period).

I guess if you're really sure about the pension continuing and if it's got a COLA, you could even go wild and crazy with your investments as a very large pot of play money. Not very Boglehead-like, not my cup of tea, but you could.
Good points. Thanks for sharing. I think it is a bit of regret of starting a bit later in life, losing out on so much before, but still being able to do a possible early retirement (50 & 51). The pension is there for sure. COLA has dropped down to 1.5% but I think has stabilized. I guess I'm willing to be more aggressive on the AA to make up for lost time. I wish DW had a low fee TDF fund in her 403b and her DC and I'd probably just set all of them and forget it. As it is, I have to tweak all of the funds across all of our account (10+) to achieve the our desired AA.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by fortfun » Wed May 08, 2019 10:01 pm

whodidntante wrote:
Wed May 08, 2019 9:50 pm
fortfun wrote:
Wed May 08, 2019 9:09 pm

Well sort of. But there are "Bogleheads" on this board that subscribe to the Warren Buffett 90/10 rule all the way to a completely cash position.
Why would you want to waste 10% of your money on bonds? :twisted:
Correction, there are bogleheads on this board that have a 100/0 position :happy

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by Dialectical Investor » Wed May 08, 2019 10:01 pm

Yes--nothing unusual here. They are riskier when generalizing about subsets of the population because there is a greater probability older individuals are relying on what they have saved without the ability to earn any more. He specifically mentions a scenario where there is a prolonged bear market, someone decumulating is spending perhaps 4 or 5 percent or more of their portfolio per year, and they develop an illness (presumably increased costs). These combined factors make it even more likely they are in trouble. I would add it is less likely but still reasonably possible for a young person to unexpectedly be in the same position.

Incidentally, for those with an affinity for a particular nuclear disaster or near-disaster, he mentions both TMI and Chernobyl.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by MnD » Thu May 09, 2019 9:59 am

Dialectical Investor wrote:
Wed May 08, 2019 10:01 pm
They are riskier when generalizing about subsets of the population because there is a greater probability older individuals are relying on what they have saved without the ability to earn any more. He specifically mentions a scenario where there is a prolonged bear market, someone decumulating is spending perhaps 4 or 5 percent or more of their portfolio per year, and they develop an illness (presumably increased costs). These combined factors make it even more likely they are in trouble.
So work 10-15 years longer to try to avoid these "if plus this plus that" scenarios, and replace it with a "getting a flat tire" level of riskiness of one or both dying before enjoying any retirement or one or both retiring on day one with significantly lifestyle-limiting disabilities or illnesses. Best case have a decent retirement that's 30% shorter and having given up the best years.
70/30 AA, Global market cap equities, TSP G and DODLX FI. Rebalance to AA if FI <25% or >35%. Weighted ER<= 0.10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by Dialectical Investor » Thu May 09, 2019 10:10 am

MnD wrote:
Thu May 09, 2019 9:59 am
Dialectical Investor wrote:
Wed May 08, 2019 10:01 pm
They are riskier when generalizing about subsets of the population because there is a greater probability older individuals are relying on what they have saved without the ability to earn any more. He specifically mentions a scenario where there is a prolonged bear market, someone decumulating is spending perhaps 4 or 5 percent or more of their portfolio per year, and they develop an illness (presumably increased costs). These combined factors make it even more likely they are in trouble.
So work 10-15 years longer to try to avoid these "if plus this plus that" scenarios, and replace it with a "getting a flat tire" level of riskiness of one or both dying before enjoying any retirement or one or both retiring on day one with significantly lifestyle-limiting disabilities or illnesses. Best case have a decent retirement that's 30% shorter and having given up the best years.
I was more summarizing the statement in question, though I do agree with it in general. Sometimes there is not much to do about a risk other than to admit it is there so you can assess the trade-offs. It does seem that many on this board will opt to follow your advice, or more likely they would suggest "save more" while working to a normal or lower retirement age. Of course that is not always feasible.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by WWJBDo » Thu May 09, 2019 10:12 am

This podcast is from August, 2016.
VTSAX at that time was $54.
VTSAX is now $71.
I’m thinking if you had listened to him back then and sold all your stocks you might be kicking yourself now.
Or, stocks are now ‘asteroid impact’ risky.

You decide.
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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by munemaker » Thu May 09, 2019 10:24 am

The stock market is very risky in the short term, but has actually quite safe in the long term.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by DB2 » Thu May 09, 2019 12:29 pm

I like the idea of bonds-to-age in retirement (e.g., If you're 70 years old, then 70% bonds), but that's just my take right now at 47 with 20 more years to work. I might think differently when I get closer to retirement. The multi-bucket approach that has been discussed is interesting too.

People have been very bullish on high stock allocations into retirement given the last 10 years, but if we go into a situation where returns are suppressed for 10+ years attitudes will change quickly.
Last edited by DB2 on Thu May 09, 2019 12:33 pm, edited 1 time in total.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by cdu7 » Thu May 09, 2019 12:32 pm

I really disagree, simply based on all the model's I've looked at in terms of risk. I think a healthy stock/bond allocation (i.e. 50/50 60/40) is extremely safe for 99.9% of retirees. Let's leave the Chernobyl risk to HBO (really awesome miniseries btw).

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by dbr » Thu May 09, 2019 6:55 pm

Just what degree and kind of risk different financial strategies in retirement present is a much more complicated and nuanced question than can be meaningfully summarized in the title statement. So, I don't agree with that assessment. It is just plain wrong taken as an absolute.

The difficulty with statements like that extracted from a forty minute interview is that the isolated comment lacks context and also lacks an appreciation of the fact that it was made to establish a point of emphasis.* I don't think that the comment as it stands in isolation is useful for investment planning.

*The point of emphasis is that stocks are volatile and the value of stock holdings can crash by a significant amount quickly. It is a matter of more difficult analysis to understand the potential impact of that on retirements given that markets can recover and that one has to compare the situation to whatever alternative one might advocate. As others on this thread might be suggesting many retirees would adopt significant bond allocations alongside stocks. The role of annuitized income in retirement is also an important part of the picture and all must be considered.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by fortfun » Thu May 09, 2019 7:03 pm

dbr wrote:
Thu May 09, 2019 6:55 pm
Just what degree and kind of risk different financial strategies in retirement present is a much more complicated and nuanced question than can be meaningfully summarized in the title statement. So, I don't agree with that assessment. It is just plain wrong taken as an absolute.

The difficulty with statements like that extracted from a forty minute interview is that the isolated comment lacks context and also lacks an appreciation of the fact that it was made to establish a point of emphasis.* I don't think that the comment as it stands in isolation is useful for investment planning.

*The point of emphasis is that stocks are volatile and the value of stock holdings can crash by a significant amount quickly. It is a matter of more difficult analysis to understand the potential impact of that on retirements given that markets can recover and that one has to compare the situation to whatever alternative one might advocate. As others on this thread might be suggesting many retirees would adopt significant bond allocations alongside stocks. The role of annuitized income in retirement is also an important part of the picture and all must be considered.
All good points. Thanks dbr.

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by arcticpineapplecorp. » Thu May 09, 2019 7:20 pm

WWJBDo wrote:
Thu May 09, 2019 10:12 am
This podcast is from August, 2016.
VTSAX at that time was $54.
VTSAX is now $71.
I’m thinking if you had listened to him back then and sold all your stocks you might be kicking yourself now.
Or, stocks are now ‘asteroid impact’ risky.

You decide.
First, I don't know if the podcast was posted in August 2016 or just the youtube video (that could make a difference).

That being said, using your numbers (I haven't verifed them to be true) the "price" then went up 31.48% ($54 X 1.3148 = $71). Why is this not a true measure of growth? Because the price (or N.A.V.) drops every time the dividend is paid. So in order to look at the increase correctly, you have to measure "growth" not "price" changes. So looking at Morningstar we see that between 8/9/16 (when the youtube video was posted) and present value your investment would have actually increased 38.93%.

source: https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

never confuse price with growth. they're not the same. This may not seem like a big difference in percentage terms, but that's because we're only talking 2 1/2 years of price changes. Look at the difference between growth and price over 30 years and it's significant. If you do so (use a 30 year time period and compare the price change to the growth change) and you'll never quote prices again. Try it sometime.
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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by Explorer » Thu May 09, 2019 7:57 pm

risk and reward go hand-in-hand... so a certain percentage of stocks is necessary to reap the rewards and more importantly fight inflation. 100% cash or bond portfolio by itself is risky since it is unlikely to fight inflation in the long run.

the question really is what % of your nest egg are you comfortable keeping in stocks (avoid individual stocks; own broad funds - do not need them to be indexes).

One theory states that it is better to enter retirement with a lower % in stocks and then gradually raise the % as you get comfortable with the cash flow in retirement...

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Re: Stocks really "Chernobyl" risky for people near/in retirement?

Post by heyyou » Fri May 10, 2019 12:00 am

Stocks really "Chernobyl" risky for people near/in retirement?
They are, if you think they are.

My allocation has 10+ years of spending in bond funds, before I need to sell any stock fund shares, plus spending a somewhat set percentage of each recent annual portfolio value has our spending vary with our asset value. McClung suggests the same, plus starting retirement with near a 50/50 stock/bond allocation, and spending from only bonds first, rebalancing if and when stocks are up 10-20%. My point is to use adaptive spending as a buffer to those inevitable stock market fluctuations when they do occur. For portfolio longevity, living within your means needs to continue in retirement.

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