“WHEN YOU'VE WON the game, stop playing with the money you really need.”

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TheTimeLord
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

Dandy wrote: Wed May 27, 2020 3:48 pm A lot depends on an individual's circumstances as to whether they "won the game". The key is not only the size of the portfolio but also the size of the yearly draw down and how you withdraw. Do you use the "safe" assets as an ATM by only withdrawing from those assets? (and likely have a rising equity allocation). Or do you view the "safe" assets more as insurance and withdraw from both risk and safe assets most of the time.

If your draw down 2% or less of your portfolio to fund or supplement your retirement income needs and you are at least in your 60's I'm guessing you have won the game. If you have, you can try the 4% approach or you can follow the "Safe" and "Rest" and either will most likely preserve the "win". I sleep well with the latter and my heirs should be fine.
I view them as an ATM to be visited monthly over the next couple decades. That said if the market has an up 30% year, I might skip my trip to the ATM and cash in some casino chips, but more likely I would just splurge on something.
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TheTimeLord
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

geerhardusvos wrote: Wed May 27, 2020 3:52 pm
TheTimeLord wrote: Wed May 27, 2020 2:36 pm
geerhardusvos wrote: Wed May 27, 2020 2:21 pm
TheTimeLord wrote: Wed May 27, 2020 9:43 am
geerhardusvos wrote: Wed May 27, 2020 9:34 am

Whether you have 1 million or 10 million, I recommend never going lower than 50% equities. A 50/50 portfolio provides stability on the fixed side, but also wards off nasty inflation by giving the growth on the equity side. You actually substantially increase your risk of your portfolio longevity by lowering the equity portion below 50%.

I personally will never go lower than a 70/30. Best wishes!
This approach specifies no specific AA just a specific amount to be held in safe assets which to me is more useful than arbitrary percentage allocations which seem to assume the risk of a given AA is the same for a $10,000 portfolio or $10,000,000 portfolio which of course it is not in dollar terms. And I personally prefer dollar terms because stores don't take payments in percentages.
The longevity of a portfolio, especially when thinking about timelines greater than 50 years, it’s very helpful to consider percentages between fixed income and equities in the portfolio. If you’ve won the game, keep some/all the winnings that you’ll need over a given timeframe in fairly safe assets. If you want these assets to last longer than 50 years, then ensure that you have some growth opportunities. Risk is a very personalized thing, but that’s typically expressed in a percentage between stocks and bonds or other assets. Just because someone has 100 X more than I do, doesn’t mean that our risk profile is substantially different. I don’t like the mentality of stop playing when you’ve won, because sometimes in order to make sure you’re still a winner decades from now, you still need to play some.
Percentages are fine, especially in the accumulation phase but they don't show risk until you use them to calculate dollars. IMHO size of portfolio matters a lot. Not sure I have a clue what the real world risk difference is between 100/0 and 70/30 for a $10,000 portfolio because the reality is at that level of savings you are still dependent having a job to survive and neither allocation will provide you significant more protection from a 50% pullback. That is not to say a $10,000 is not important or not a lot of money just that the amount of protection $5,000 provides as opposed $6,500 is not hugely different in real world terms and means maintaining or finding employment is imperative. The advice probably is slightly misstated and likely should be "Stop playing with the money you need to live". I think most people who follow this strategy implement it with well over the 20x-25x they put in safe assets and continue to play the game with the remainder. It is just they decided to take some off the table to insure their ability to cover a basic lifestyle (self defined) for a significant number of years regardless of what the market does.
You’re still not hitting on the clear fact that you take on more risk by having less equities when wanting a portfolio to last for a very long time. Derisking doesn’t always mean “100% safe assets” and “fixed income” - It’s not always that simple

Even Warren Buffett would put his wife in a 50/50 portfolio... with $250M
Well I am going to assume the people who can put 25x into safe assets and have a significant equity portfolio and can reasonable expect to live 50+ years are outliers and need to find their own unique path. I am thinking most people who are setting 20x-25x aside in safe assets in addition to their equity portfolio are looking at remaining lifespans of 25-40 years.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by calqueuelater »

Question: Is the 20-25X calculation applied to your projected core annual retirement spending or your projected full annual retirement spending (which would include all desired travel, entertainment, leisure, etc.)?
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by KEotSK66 »

over the long term the pay off (efficiency) from stock allocations > ~65% drops off, ie SD increases faster than return
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by FIREchief »

Engaging in sloth wrote: Wed May 27, 2020 3:17 pm For example if you had $11,000 in TIPS they dropped to $10,000. I would not call that safe. My CD's continued compounding interest. If TIPS do return slightly more supposedly, it is not worth the lack of sleep during huge market drops IMHO.
Not really. Most who use TIPS for a substantial portion of their fixed (for me, it's 100%) ladder them so that a meaningful amount is maturing every year. Sure, if you're using a TIPS fund, you may endure some psychological stress, so just hold individual TIPS until maturity. 8-)
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Ben Mathew »

bigskyguy wrote: Wed May 27, 2020 2:45 pm
Ben Mathew wrote: Wed May 27, 2020 10:56 am
Horton wrote: Wed May 27, 2020 10:17 am
Ben Mathew wrote: Wed May 27, 2020 9:05 am A TIPS ladder will be the safest investment. Pretty much no default risk or inflation risk. The inflation protection in TIPS is free or close to free, so it should be more widely used than it is.

Owning your home is another source of safety--it's protection against rent increases.
It’s worth noting that a TIPS ladder doesn’t eliminate longevity risk though.

There isn’t a perfect solution, so diversification is probably best - delay SS, own your home, SPIAs, bonds (laddered, if desired), equities, etc.
Yes. Inflation adjusted SPIAs would have solved both longevity and inflation risk. But unfortunately they aren't available except indirectly by delaying social security. So maybe:

- TIPS ladder built out to say age 90 to fund consumption. Recognize that unexpected expenses can occur, so have a cushion. If the need is $30K per year, plan for $35K or $40K per year. Unused funds get invested back in the TIPS ladder for future years.

- A special TIPS bucket that pays out at age 90. The proceeds are used to buy SPIA to fund consumption from age 91 onwards. This provides a balance between longevity risk and inflation risk.

- Delay social security. This is the only way to purchase an inflation adjusted annuity now. And the price is good, too (at typical life expectancies).

- Own the home. This protects against rent increases. The home equity can serve as an emergency fund of last resort.

- Purchase long term care insurance if feasible.

Of course, 100% bonds come at a high cost. Most people will have some risk tolerance and should hold equity as well. A fixed allocation throughout retirement years will provide maximum time diversification and therefore the lowest risk for a given expected return.
Your approach is identical to ours. Nicely outlined. I will say that getting there (actually building the TIPS ladder, sequestering funds for a late in life SPIA, etc.) took some time, but now we are set for the indefinite future. What's left over is a luxury, and we treat it as such.
Congratulations on setting yourself up for a nice retirement!

I'll probably have a fairly high allocation to stocks, but plan to structure the safe part along these lines.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by willthrill81 »

FIREchief wrote: Wed May 27, 2020 4:26 pm
Engaging in sloth wrote: Wed May 27, 2020 3:17 pm For example if you had $11,000 in TIPS they dropped to $10,000. I would not call that safe. My CD's continued compounding interest. If TIPS do return slightly more supposedly, it is not worth the lack of sleep during huge market drops IMHO.
Not really. Most who use TIPS for a substantial portion of their fixed (for me, it's 100%) ladder them so that a meaningful amount is maturing every year. Sure, if you're using a TIPS fund, you may endure some psychological stress, so just hold individual TIPS until maturity. 8-)
Plus, by holding a TIPS ladder, you're not paying an expense ratio every year. It's a win-win.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by nisiprius »

luminous wrote: Wed May 27, 2020 8:31 am...Cash will lose value over time to inflation...
Not really. This is a common rhetorical ploy to convince people to put their money at risk, but it involves playing with the meaning of the word "cash." If "cash" means a competitive interest-earning account, it probably doesn't.

If "cash" literally means physical paper currency with a number of dollars printed on it, or a non-interest-bearing business checking account, or a typical ordinary checking account, then, sure.

But if "cash" means "interest-earning holdings," like
  • the money market fund used as the settlement account at your brokerage, or
  • Treasury bills, or
  • competitive bank savings accounts and bank CDs found with just a little shopping around,
then probably not. All of these "cash" holdings typical do earn a small amount of real return. Might lose a little, might gain a little, but coming reasonably close to keeping pace with inflation.

Over 1926-2019 inclusive, Treasury bills earned an average (CAGR) of 3.29%/year, while inflation over the same time period averaged over 2.88%/year.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Engaging in sloth »

nisiprius wrote: Wed May 27, 2020 4:45 pm
luminous wrote: Wed May 27, 2020 8:31 am...Cash will lose value over time to inflation...
Not really. This is a common rhetorical ploy to convince people to put their money at risk, but it involves playing with the meaning of the word "cash." If "cash" means a competitive interest-earning account, it probably doesn't.

If "cash" literally means physical paper currency with a number of dollars printed on it, or a non-interest-bearing business checking account, or a typical ordinary checking account, then, sure.

But if "cash" means "interest-earning holdings," like
  • the money market fund used as the settlement account at your brokerage, or
  • Treasury bills, or
  • competitive bank savings accounts and bank CDs found with just a little shopping around,
then probably not. All of these "cash" holdings typical do earn a small amount of real return. Might lose a little, might gain a little, but coming reasonably close to keeping pace with inflation.

Over 1926-2019 inclusive, Treasury bills earned an average (CAGR) of 3.29%/year, while inflation over the same time period averaged over 2.88%/year.
Exactly :)
CD's are not stressful and earn investors $. For example: $1,000,000.00 @2%= $20,000/yr; $500,000.00 = $10,000/yr

If you have a pension, eventually SS and interest income you probably are in good shape
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by geerhardusvos »

TheTimeLord wrote: Wed May 27, 2020 3:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pm
TheTimeLord wrote: Wed May 27, 2020 2:36 pm
geerhardusvos wrote: Wed May 27, 2020 2:21 pm
TheTimeLord wrote: Wed May 27, 2020 9:43 am

This approach specifies no specific AA just a specific amount to be held in safe assets which to me is more useful than arbitrary percentage allocations which seem to assume the risk of a given AA is the same for a $10,000 portfolio or $10,000,000 portfolio which of course it is not in dollar terms. And I personally prefer dollar terms because stores don't take payments in percentages.
The longevity of a portfolio, especially when thinking about timelines greater than 50 years, it’s very helpful to consider percentages between fixed income and equities in the portfolio. If you’ve won the game, keep some/all the winnings that you’ll need over a given timeframe in fairly safe assets. If you want these assets to last longer than 50 years, then ensure that you have some growth opportunities. Risk is a very personalized thing, but that’s typically expressed in a percentage between stocks and bonds or other assets. Just because someone has 100 X more than I do, doesn’t mean that our risk profile is substantially different. I don’t like the mentality of stop playing when you’ve won, because sometimes in order to make sure you’re still a winner decades from now, you still need to play some.
Percentages are fine, especially in the accumulation phase but they don't show risk until you use them to calculate dollars. IMHO size of portfolio matters a lot. Not sure I have a clue what the real world risk difference is between 100/0 and 70/30 for a $10,000 portfolio because the reality is at that level of savings you are still dependent having a job to survive and neither allocation will provide you significant more protection from a 50% pullback. That is not to say a $10,000 is not important or not a lot of money just that the amount of protection $5,000 provides as opposed $6,500 is not hugely different in real world terms and means maintaining or finding employment is imperative. The advice probably is slightly misstated and likely should be "Stop playing with the money you need to live". I think most people who follow this strategy implement it with well over the 20x-25x they put in safe assets and continue to play the game with the remainder. It is just they decided to take some off the table to insure their ability to cover a basic lifestyle (self defined) for a significant number of years regardless of what the market does.
You’re still not hitting on the clear fact that you take on more risk by having less equities when wanting a portfolio to last for a very long time. Derisking doesn’t always mean “100% safe assets” and “fixed income” - It’s not always that simple

Even Warren Buffett would put his wife in a 50/50 portfolio... with $250M
Well I am going to assume the people who can put 25x into safe assets and have a significant equity portfolio and can reasonable expect to live 50+ years are outliers and need to find their own unique path. I am thinking most people who are setting 20x-25x aside in safe assets in addition to their equity portfolio are looking at remaining lifespans of 25-40 years.
As you have seen on this forum and in the real world, very wealthy people (there are millions of them in this country) Very commonly have well over 25X expenses. It’s the people that have 5 million, 10 million, and on up, and they aren’t spending 4% of their money every year, but dramatically less. It’s not rare at all for the wealthier communities to have generational wealth, and in those cases they do hold a good portion of their money in equities or in businesses or in real estate. All assets that are not considered fixed income or “safe”

Sure for most people, 25X is more than what they will ever need if they are retiring in their 50s or 60s. But take a look at the wealthy folks and they don’t take the money off the table and out of the game, whatever that game and whatever that profile looks like for them
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by willthrill81 »

geerhardusvos wrote: Wed May 27, 2020 5:00 pm
TheTimeLord wrote: Wed May 27, 2020 3:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pm
TheTimeLord wrote: Wed May 27, 2020 2:36 pm
geerhardusvos wrote: Wed May 27, 2020 2:21 pm

The longevity of a portfolio, especially when thinking about timelines greater than 50 years, it’s very helpful to consider percentages between fixed income and equities in the portfolio. If you’ve won the game, keep some/all the winnings that you’ll need over a given timeframe in fairly safe assets. If you want these assets to last longer than 50 years, then ensure that you have some growth opportunities. Risk is a very personalized thing, but that’s typically expressed in a percentage between stocks and bonds or other assets. Just because someone has 100 X more than I do, doesn’t mean that our risk profile is substantially different. I don’t like the mentality of stop playing when you’ve won, because sometimes in order to make sure you’re still a winner decades from now, you still need to play some.
Percentages are fine, especially in the accumulation phase but they don't show risk until you use them to calculate dollars. IMHO size of portfolio matters a lot. Not sure I have a clue what the real world risk difference is between 100/0 and 70/30 for a $10,000 portfolio because the reality is at that level of savings you are still dependent having a job to survive and neither allocation will provide you significant more protection from a 50% pullback. That is not to say a $10,000 is not important or not a lot of money just that the amount of protection $5,000 provides as opposed $6,500 is not hugely different in real world terms and means maintaining or finding employment is imperative. The advice probably is slightly misstated and likely should be "Stop playing with the money you need to live". I think most people who follow this strategy implement it with well over the 20x-25x they put in safe assets and continue to play the game with the remainder. It is just they decided to take some off the table to insure their ability to cover a basic lifestyle (self defined) for a significant number of years regardless of what the market does.
You’re still not hitting on the clear fact that you take on more risk by having less equities when wanting a portfolio to last for a very long time. Derisking doesn’t always mean “100% safe assets” and “fixed income” - It’s not always that simple

Even Warren Buffett would put his wife in a 50/50 portfolio... with $250M
Well I am going to assume the people who can put 25x into safe assets and have a significant equity portfolio and can reasonable expect to live 50+ years are outliers and need to find their own unique path. I am thinking most people who are setting 20x-25x aside in safe assets in addition to their equity portfolio are looking at remaining lifespans of 25-40 years.
As you have seen on this forum and in the real world, very wealthy people (there are millions of them in this country) Very commonly have well over 25X expenses. It’s the people that have 5 million, 10 million, and on up, and they aren’t spending 4% of their money every year, but dramatically less. It’s not rare at all for the wealthier communities to have generational wealth, and in those cases they do hold a good portion of their money in equities or in businesses or in real estate. All assets that are not considered fixed income or “safe”

Sure for most people, 25X is more than what they will ever need if they are retiring in their 50s or 60s. But take a look at the wealthy folks and they don’t take the money off the table and out of the game, whatever that game and whatever that profile looks like for them
I agree. Once your portfolio reaches a very high multiple of your expenses, maybe 50x or higher, you can afford to take on more risk than someone who has 25x. A person with a 2% withdrawal rate doesn't have much of a logical reason to worry about stocks dropping in value by 50%, for instance, and can easily be 100% stock if their risk tolerance allows it.

Now if you adhere to the 'need, willingness, and ability' notion of taking on stock risk, then you'd say that the investor with 50x shouldn't own any stocks or at least no more than a small portion of the portfolio. But in my experience, most very wealthy don't appear to agree with that idea at all and have a significant portion of their portfolio in volatile assets like stocks.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by CyclingDuo »

geerhardusvos wrote: Wed May 27, 2020 3:52 pmEven Warren Buffett would put his wife in a 50/50 portfolio... with $250M
I believe that AA is incorrect - at least with regard to what Buffett said he would do...

He said 90/10 with the 90% being the S&P 500 and the 10% being in short term government bonds. Then again, we are splitting hairs with a portfolio of $250M at 90/10 as the dividends alone from the index fund would be around $5M per year. I think Astrid could easily manage on that - especially since their home is paid off. :mrgreen:
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by geerhardusvos »

CyclingDuo wrote: Wed May 27, 2020 5:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pmEven Warren Buffett would put his wife in a 50/50 portfolio... with $250M
I believe that AA is incorrect - at least with regard to what Buffett said he would do...

He said 90/10 with the 90% being the S&P 500 and the 10% being in short term government bonds. Then again, we are splitting hairs with a portfolio of $250M at 90/10 as the dividends alone from the index fund would be around $5M per year. I think Astrid could easily manage on that - especially since their home is paid off. :mrgreen:
Sure, and that makes my point all the better. Very wealthy people aren’t taking their money out of the equity market for “safety” - they are more interested in growth and long term preservation
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by 7eight9 »

geerhardusvos wrote: Wed May 27, 2020 6:04 pm
CyclingDuo wrote: Wed May 27, 2020 5:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pmEven Warren Buffett would put his wife in a 50/50 portfolio... with $250M
I believe that AA is incorrect - at least with regard to what Buffett said he would do...

He said 90/10 with the 90% being the S&P 500 and the 10% being in short term government bonds. Then again, we are splitting hairs with a portfolio of $250M at 90/10 as the dividends alone from the index fund would be around $5M per year. I think Astrid could easily manage on that - especially since their home is paid off. :mrgreen:
Sure, and that makes my point all the better. Very wealthy people aren’t taking their money out of the equity market for “safety” - they are more interested in growth and long term preservation
And the way a billionaire (number five on the list currently) invests has what relevance to the average Joe on the street? I would say none.

Lose most of the money - Astrid Menks won't be wondering where her next meal is going to come from.

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SPIAS

Post by hudson »

CWRadio wrote: Wed May 27, 2020 8:28 am My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
Someone upthread recommened W. Bernstein's Ages of the Investor. I agree.
In the book above, Bernstein lays out a number of cautions on purchasing a SPIA. I would read that book before buying a SPIA.
SPIAs can work for some; consider doing lots of homework before buying one.
I would think that if you've "won the game", a SPIA might not be a good fit. One of the good reasons for buying a SPIA is if you are short on money. If you have enough, why buy a SPIA? If you're on the borderline, just draw down.
You can buy Bernstein's book and have it read in an hour on a Kindle App.
The book is about more than SPIAs. He discusses the Liability Matching Portfolio.

Can one put a SPIA inside of an IRA?

Berntein's Ages of.... is $4.50 on Kindle; the app is free...https://www.amazon.com/Ages-Investor-Cr ... =8-1-fkmr1

Bottom Line: Do your homework before buying a SPIA.
Last edited by hudson on Wed May 27, 2020 6:35 pm, edited 4 times in total.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Broken Man 1999 »

I think I have won the game. But I still play for the grandchildren. However, I only risk part of the sum above what I keep in our retirement safest holdings.

So, I believe I did stop playing with the money we need.

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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Ben Mathew »

willthrill81 wrote: Wed May 27, 2020 5:24 pm Now if you adhere to the 'need, willingness, and ability' notion of taking on stock risk, then you'd say that the investor with 50x shouldn't own any stocks or at least no more than a small portion of the portfolio. But in my experience, most very wealthy don't appear to agree with that idea at all and have a significant portion of their portfolio in volatile assets like stocks.
CyclingDuo wrote: Wed May 27, 2020 5:59 pm Then again, we are splitting hairs with a portfolio of $250M at 90/10 as the dividends alone from the index fund would be around $5M per year. I think Astrid could easily manage on that - especially since their home is paid off. :mrgreen:
geerhardusvos wrote: Wed May 27, 2020 6:04 pm Very wealthy people aren’t taking their money out of the equity market for “safety” - they are more interested in growth and long term preservation
Applying the need vs ability principle, richer people have more ability to take on risk, but they also have less need. So the net effect is unclear. It's hard to say whether rich people should generally have a higher or lower percentage in stocks than poor people.

The CRRA utility assumption splits the difference and says that you'd risk the same proportion regardless of whether you were rich or poor. The AA is determined only by risk preference, not by wealth level. As assumptions go, that's not a bad one, given that it seems hard to get a clear a priori feel for the direction in the relationship between wealth and AA. Note however that CRRA utility implies a fixed % of lifetime wealth, which includes the present value of social security, pension, wage income etc. This implies a decreasing % of visible wealth. So if Astrid has CRRA utility, she would hold more bonds in her portfolio now than before she became wealthy in order to maintain the same fraction of lifetime wealth in stocks. That kind of feels within the realm of plausibility to me.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by ball241 »

I agree with the AA Buffett stated in terms of his thoughts. Buffett ultimately wants to be remembered as a teacher.

He believes in owning productive assets and investing for the long term, decades. He has repeatedly said he advises regular people to have enough in cash to feel comfortable and invest the rest in equities bought over time at a multiple of earnings reasonable to then prevailing interest rates.

Buffett has never viewed risk as volatility but rather an investment being able to increase purchasing power in future . He has repeatedly stated you must psychologically be prepared for equites to fall by 50% or you should not own them

I am no expert but believe him to be sincere in his teaching.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

geerhardusvos wrote: Wed May 27, 2020 5:00 pm
TheTimeLord wrote: Wed May 27, 2020 3:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pm
TheTimeLord wrote: Wed May 27, 2020 2:36 pm
geerhardusvos wrote: Wed May 27, 2020 2:21 pm

The longevity of a portfolio, especially when thinking about timelines greater than 50 years, it’s very helpful to consider percentages between fixed income and equities in the portfolio. If you’ve won the game, keep some/all the winnings that you’ll need over a given timeframe in fairly safe assets. If you want these assets to last longer than 50 years, then ensure that you have some growth opportunities. Risk is a very personalized thing, but that’s typically expressed in a percentage between stocks and bonds or other assets. Just because someone has 100 X more than I do, doesn’t mean that our risk profile is substantially different. I don’t like the mentality of stop playing when you’ve won, because sometimes in order to make sure you’re still a winner decades from now, you still need to play some.
Percentages are fine, especially in the accumulation phase but they don't show risk until you use them to calculate dollars. IMHO size of portfolio matters a lot. Not sure I have a clue what the real world risk difference is between 100/0 and 70/30 for a $10,000 portfolio because the reality is at that level of savings you are still dependent having a job to survive and neither allocation will provide you significant more protection from a 50% pullback. That is not to say a $10,000 is not important or not a lot of money just that the amount of protection $5,000 provides as opposed $6,500 is not hugely different in real world terms and means maintaining or finding employment is imperative. The advice probably is slightly misstated and likely should be "Stop playing with the money you need to live". I think most people who follow this strategy implement it with well over the 20x-25x they put in safe assets and continue to play the game with the remainder. It is just they decided to take some off the table to insure their ability to cover a basic lifestyle (self defined) for a significant number of years regardless of what the market does.
You’re still not hitting on the clear fact that you take on more risk by having less equities when wanting a portfolio to last for a very long time. Derisking doesn’t always mean “100% safe assets” and “fixed income” - It’s not always that simple

Even Warren Buffett would put his wife in a 50/50 portfolio... with $250M
Well I am going to assume the people who can put 25x into safe assets and have a significant equity portfolio and can reasonable expect to live 50+ years are outliers and need to find their own unique path. I am thinking most people who are setting 20x-25x aside in safe assets in addition to their equity portfolio are looking at remaining lifespans of 25-40 years.
As you have seen on this forum and in the real world, very wealthy people (there are millions of them in this country) Very commonly have well over 25X expenses. It’s the people that have 5 million, 10 million, and on up, and they aren’t spending 4% of their money every year, but dramatically less. It’s not rare at all for the wealthier communities to have generational wealth, and in those cases they do hold a good portion of their money in equities or in businesses or in real estate. All assets that are not considered fixed income or “safe”

Sure for most people, 25X is more than what they will ever need if they are retiring in their 50s or 60s. But take a look at the wealthy folks and they don’t take the money off the table and out of the game, whatever that game and whatever that profile looks like for them
I have no clue what point you are trying to make.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by geerhardusvos »

TheTimeLord wrote: Wed May 27, 2020 7:17 pm
geerhardusvos wrote: Wed May 27, 2020 5:00 pm
TheTimeLord wrote: Wed May 27, 2020 3:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pm
TheTimeLord wrote: Wed May 27, 2020 2:36 pm

Percentages are fine, especially in the accumulation phase but they don't show risk until you use them to calculate dollars. IMHO size of portfolio matters a lot. Not sure I have a clue what the real world risk difference is between 100/0 and 70/30 for a $10,000 portfolio because the reality is at that level of savings you are still dependent having a job to survive and neither allocation will provide you significant more protection from a 50% pullback. That is not to say a $10,000 is not important or not a lot of money just that the amount of protection $5,000 provides as opposed $6,500 is not hugely different in real world terms and means maintaining or finding employment is imperative. The advice probably is slightly misstated and likely should be "Stop playing with the money you need to live". I think most people who follow this strategy implement it with well over the 20x-25x they put in safe assets and continue to play the game with the remainder. It is just they decided to take some off the table to insure their ability to cover a basic lifestyle (self defined) for a significant number of years regardless of what the market does.
You’re still not hitting on the clear fact that you take on more risk by having less equities when wanting a portfolio to last for a very long time. Derisking doesn’t always mean “100% safe assets” and “fixed income” - It’s not always that simple

Even Warren Buffett would put his wife in a 50/50 portfolio... with $250M
Well I am going to assume the people who can put 25x into safe assets and have a significant equity portfolio and can reasonable expect to live 50+ years are outliers and need to find their own unique path. I am thinking most people who are setting 20x-25x aside in safe assets in addition to their equity portfolio are looking at remaining lifespans of 25-40 years.
As you have seen on this forum and in the real world, very wealthy people (there are millions of them in this country) Very commonly have well over 25X expenses. It’s the people that have 5 million, 10 million, and on up, and they aren’t spending 4% of their money every year, but dramatically less. It’s not rare at all for the wealthier communities to have generational wealth, and in those cases they do hold a good portion of their money in equities or in businesses or in real estate. All assets that are not considered fixed income or “safe”

Sure for most people, 25X is more than what they will ever need if they are retiring in their 50s or 60s. But take a look at the wealthy folks and they don’t take the money off the table and out of the game, whatever that game and whatever that profile looks like for them
I have no clue what point you are trying to make.
It’s pretty clear:
1. If you want your portfolio to last a long time, ensure to have some (at least 50%) equities because that’s what takes you the distance. For long-term holdings, it’s more risky to have no or little equities.
2. Very wealthy people take risks and focus on growth. They typically don’t stop playing the game.

What point are you trying to make?
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by geerhardusvos »

7eight9 wrote: Wed May 27, 2020 6:12 pm
geerhardusvos wrote: Wed May 27, 2020 6:04 pm
CyclingDuo wrote: Wed May 27, 2020 5:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pmEven Warren Buffett would put his wife in a 50/50 portfolio... with $250M
I believe that AA is incorrect - at least with regard to what Buffett said he would do...

He said 90/10 with the 90% being the S&P 500 and the 10% being in short term government bonds. Then again, we are splitting hairs with a portfolio of $250M at 90/10 as the dividends alone from the index fund would be around $5M per year. I think Astrid could easily manage on that - especially since their home is paid off. :mrgreen:
Sure, and that makes my point all the better. Very wealthy people aren’t taking their money out of the equity market for “safety” - they are more interested in growth and long term preservation
And the way a billionaire (number five on the list currently) invests has what relevance to the average Joe on the street? I would say none.

Lose most of the money - Astrid Menks won't be wondering where her next meal is going to come from.

Forbes Real Time Billionaires --- https://www.forbes.com/real-time-billio ... a46f2b3d78
If you don’t want to invest like a very rich person, that’s fine. But I’m interested in learning how they think about money, business, and growth.

Is my measly ~$1M portfolio substantially different than how Jack Bogle‘s is invested? Overall, no not really.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

geerhardusvos wrote: Wed May 27, 2020 7:28 pm
TheTimeLord wrote: Wed May 27, 2020 7:17 pm
geerhardusvos wrote: Wed May 27, 2020 5:00 pm
TheTimeLord wrote: Wed May 27, 2020 3:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pm

You’re still not hitting on the clear fact that you take on more risk by having less equities when wanting a portfolio to last for a very long time. Derisking doesn’t always mean “100% safe assets” and “fixed income” - It’s not always that simple

Even Warren Buffett would put his wife in a 50/50 portfolio... with $250M
Well I am going to assume the people who can put 25x into safe assets and have a significant equity portfolio and can reasonable expect to live 50+ years are outliers and need to find their own unique path. I am thinking most people who are setting 20x-25x aside in safe assets in addition to their equity portfolio are looking at remaining lifespans of 25-40 years.
As you have seen on this forum and in the real world, very wealthy people (there are millions of them in this country) Very commonly have well over 25X expenses. It’s the people that have 5 million, 10 million, and on up, and they aren’t spending 4% of their money every year, but dramatically less. It’s not rare at all for the wealthier communities to have generational wealth, and in those cases they do hold a good portion of their money in equities or in businesses or in real estate. All assets that are not considered fixed income or “safe”

Sure for most people, 25X is more than what they will ever need if they are retiring in their 50s or 60s. But take a look at the wealthy folks and they don’t take the money off the table and out of the game, whatever that game and whatever that profile looks like for them
I have no clue what point you are trying to make.
It’s pretty clear:
1. If you want your portfolio to last a long time, ensure to have some (at least 50%) equities because that’s what takes you the distance. For long-term holdings, it’s more risky to have no or little equities.
Yes, if you are 20x-25x you probably are going to need to take risk to make you portfolio last over 30 years.
2. Very wealthy people take risks and focus on growth. They typically don’t stop playing the game.
If someone has 1,000x or 10,000x then 25x won't be a significant percentage of their portfolio.


What point are you trying to make?
Sorry I have been discussing Bernstein's won the game strategy and my utilization of it. I guess where I am getting confused is you seem to be equating putting 25x into safe assets with completely stopping playing the game which it is not. I utilize his strategy, or my variation of it, and have a rising glide path and fully expect my equities to exceed my safe fixed income by the time I reach FRA. You seem to believe I would have no money in the stock market since I follow Bernstein's advice.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

geerhardusvos wrote: Wed May 27, 2020 7:32 pm
7eight9 wrote: Wed May 27, 2020 6:12 pm
geerhardusvos wrote: Wed May 27, 2020 6:04 pm
CyclingDuo wrote: Wed May 27, 2020 5:59 pm
geerhardusvos wrote: Wed May 27, 2020 3:52 pmEven Warren Buffett would put his wife in a 50/50 portfolio... with $250M
I believe that AA is incorrect - at least with regard to what Buffett said he would do...

He said 90/10 with the 90% being the S&P 500 and the 10% being in short term government bonds. Then again, we are splitting hairs with a portfolio of $250M at 90/10 as the dividends alone from the index fund would be around $5M per year. I think Astrid could easily manage on that - especially since their home is paid off. :mrgreen:
Sure, and that makes my point all the better. Very wealthy people aren’t taking their money out of the equity market for “safety” - they are more interested in growth and long term preservation
And the way a billionaire (number five on the list currently) invests has what relevance to the average Joe on the street? I would say none.

Lose most of the money - Astrid Menks won't be wondering where her next meal is going to come from.

Forbes Real Time Billionaires --- https://www.forbes.com/real-time-billio ... a46f2b3d78
If you don’t want to invest like a very rich person, that’s fine. But I’m interested in learning how they think about money, business, and growth.

Is my measly ~$1M portfolio substantially different than how Jack Bogle‘s is invested? Overall, no not really.
I don't think Jack Bogle invested like the average wealthy person. But pretty sure if you did the math on his holdings he had 25x in safe assets the last couple decades of his life. although I doubt it was intentional.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by FOGU »

tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
I don't think the compound interest analysis applies to equities. You don't earn interest on equities, you earn dividends. You could work your whole life to accumulate equities, reinvesting dividends and watching the capital accumulate and the dividend payments grow, and then late in life lose a substantial portion to a market downturn. That is not the workings of compound interest.

The idea behind compound interest is that the capital is secure, and that is not necessarily true with regard to equities. It is somewhat more true with regard to bonds, but those too can lose value.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

FOGU wrote: Wed May 27, 2020 8:14 pm
tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
I don't think the compound interest analysis applies to equities. You don't earn interest on equities, you earn dividends. You could work your whole life to accumulate equities, reinvesting dividends and watching the capital accumulate and the dividend payments grow, and then late in life lose a substantial portion to a market downturn. That is not the workings of compound interest.

The idea behind compound interest is that the capital is secure, and that is not necessarily true with regard to equities. It is somewhat more true with regard to bonds, but those too can lose value.
Really good points, thank you.
Stay invested my friends.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by willthrill81 »

FOGU wrote: Wed May 27, 2020 8:14 pm
tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
I don't think the compound interest analysis applies to equities. You don't earn interest on equities, you earn dividends.
It doesn't have to classified as 'interest' to compound. This has been hashed out in many threads already. Investments in equities have certainly compounded over time. The fact that returns are variable does not change this.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by willthrill81 »

Ben Mathew wrote: Wed May 27, 2020 6:47 pm
willthrill81 wrote: Wed May 27, 2020 5:24 pm Now if you adhere to the 'need, willingness, and ability' notion of taking on stock risk, then you'd say that the investor with 50x shouldn't own any stocks or at least no more than a small portion of the portfolio. But in my experience, most very wealthy don't appear to agree with that idea at all and have a significant portion of their portfolio in volatile assets like stocks.
Applying the need vs ability principle, richer people have more ability to take on risk, but they also have less need. So the net effect is unclear. It's hard to say whether rich people should generally have a higher or lower percentage in stocks than poor people.
Most adherents to the notion 'need, willingness, and ability' say that you must have all three in order to invest in equities. As I noted above, I do not subscribe to this. In my view, 'need' is irrelevant. For instance, certain investors may need to invest in equities in order to help achieve their goals, but if they are unwilling to do so, they are at high risk of panic selling, thus defeating the purpose. And those with more than adequate portfolios may not 'need' to take on the risks of stocks, but they may wish to do so anyway for the benefit of others, such as charity.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by AlohaJoe »

CWRadio wrote: Wed May 27, 2020 8:28 am If you need $30,000 a year for 30 years you should have $900,000 in safe money.
Nobody knows how much money they will need in the future. It is a ridiculous assumption that has no place in retirement planning. When you talk to actual retirees -- as the Society of Actuaries has done with their Committee of on Post-Retirement Needs and Risks -- nobody fails their retirement because they had too high of an asset allocation dedicated to low-cost broadly diversified equity index funds, nobody fails because they had 60/40 instead of 30/70. People fail their retirement because of spending shocks that cause them to spend more money than they have. One-third of people have four or more spending shocks, where something comes up that causes them to spend more than they had planned.

Imagine this: the year is 2020 and an previously unknown virus means your daughter is laid off and she joins the 20 million other people on unemployment. She suddenly can't make her mortgage payments and she's worried that she and your grand-daughter will lose their house. But you had "won the game". You set up a TIPS ladder that covered the "money you really need". What do you do? Tell your daughter that you don't care about her life and helping out your family messes up your carefully constructed "liability-matching portfolio"?

Of course not.

Thinking you know how much you need for the next three decades is a prime example of the end of history illusion. Retirement planning shouldn't be built on illusions.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

I think Bill's point in all of this is that if you have enough money to make it through retirement, don't invest the entire farm in the market anymore. I don't agree with him; however, that doesn't make it a bad approach.

:P
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TomatoTomahto »

Thank you AlohaJoe for the clarity.

It is what my wife told me, years ago, when I said she should retire. What if [any one of a dozen family members] needs help?
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by smitcat »

willthrill81 wrote: Wed May 27, 2020 8:41 pm
Ben Mathew wrote: Wed May 27, 2020 6:47 pm
willthrill81 wrote: Wed May 27, 2020 5:24 pm Now if you adhere to the 'need, willingness, and ability' notion of taking on stock risk, then you'd say that the investor with 50x shouldn't own any stocks or at least no more than a small portion of the portfolio. But in my experience, most very wealthy don't appear to agree with that idea at all and have a significant portion of their portfolio in volatile assets like stocks.
Applying the need vs ability principle, richer people have more ability to take on risk, but they also have less need. So the net effect is unclear. It's hard to say whether rich people should generally have a higher or lower percentage in stocks than poor people.
Most adherents to the notion 'need, willingness, and ability' say that you must have all three in order to invest in equities. As I noted above, I do not subscribe to this. In my view, 'need' is irrelevant. For instance, certain investors may need to invest in equities in order to help achieve their goals, but if they are unwilling to do so, they are at high risk of panic selling, thus defeating the purpose. And those with more than adequate portfolios may not 'need' to take on the risks of stocks, but they may wish to do so anyway for the benefit of others, such as charity.
"In my view, 'need' is irrelevant. For instance, certain investors may need to invest in equities in order to help achieve their goals, but if they are unwilling to do so, they are at high risk of panic selling, thus defeating the purpose. And those with more than adequate portfolios may not 'need' to take on the risks of stocks, but they may wish to do so anyway for the benefit of others, such as charity."

Agreed - +1
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by cherijoh »

Wanderingwheelz wrote: Wed May 27, 2020 8:55 am
I agree with that Tim wrote, in the sense I’m here mainly to be entertained far more that I am looking for ideas that will improve my portfolio.

We are also in the category of having won the game, but we are still working and are 45/49 years old, so we are in no position to get very conservative with hopefully many prosperous years ahead of us. Since the classic 60/40 portfolio is one that’s widely accepted to be the industry standard for growth and income, that’s the one we are going to use for the duration. It’d also probably worth mentioning that my wife and I will receive someday hefty inheritances that will likely double what we’ve been able to save through our own hard work over the years. If that wasn’t the case, perhaps we’d be 50/50 since the downside risk would be slightly more tempered.
IMO, it is never a good idea to let potential future inheritances influence your financial plans.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

tvubpwcisla wrote: Thu May 28, 2020 6:48 am I think Bill's point in all of this is that if you have enough money to make it through retirement, don't invest the entire farm in the market anymore. I don't agree with him; however, that doesn't make it a bad approach.

:P
All I can give you is personal experience and for me my attitudes about this subject evolved as I grew older and my portfolio grew larger. They dramatically changed once I reached a point of feeling I had enough (and thus didn't want to lose it) and have continued to evolve as we developed what we see as a surplus. That said I think each of us has a bent towards either maximizing gain or maximizing perceived financial security and that is likely what came out in me over time. And to be honest much of that bent had to do with what I observed watching my parents, who were not good with money.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

cherijoh wrote: Thu May 28, 2020 7:53 am
Wanderingwheelz wrote: Wed May 27, 2020 8:55 am
I agree with that Tim wrote, in the sense I’m here mainly to be entertained far more that I am looking for ideas that will improve my portfolio.

We are also in the category of having won the game, but we are still working and are 45/49 years old, so we are in no position to get very conservative with hopefully many prosperous years ahead of us. Since the classic 60/40 portfolio is one that’s widely accepted to be the industry standard for growth and income, that’s the one we are going to use for the duration. It’d also probably worth mentioning that my wife and I will receive someday hefty inheritances that will likely double what we’ve been able to save through our own hard work over the years. If that wasn’t the case, perhaps we’d be 50/50 since the downside risk would be slightly more tempered.
IMO, it is never a good idea to let potential future inheritances influence your financial plans.
I have always thought the primary financial gift people should attempt give their children is not being a financial burden to them. You do that and you have likely saved them tens of thousands of dollars that they can invest for themselves.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by hudson »

cherijoh wrote: Thu May 28, 2020 7:53 am IMO, it is never a good idea to let potential future inheritances influence your financial plans.
That statement probably fits my situation exactly...I don't know about the never part.
If a frugal living investor had $10M invested, that might be one exception.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

TheTimeLord wrote: Thu May 28, 2020 7:58 am
tvubpwcisla wrote: Thu May 28, 2020 6:48 am I think Bill's point in all of this is that if you have enough money to make it through retirement, don't invest the entire farm in the market anymore. I don't agree with him; however, that doesn't make it a bad approach.

:P
All I can give you is personal experience and for me my attitudes about this subject evolved as I grew older and my portfolio grew larger. They dramatically changed once I reached a point of feeling I had enough (and thus didn't want to lose it) and have continued to evolve as we developed what we see as a surplus. That said I think each of us has a bent towards either maximizing gain or maximizing perceived financial security and that is likely what came out in me over time. And to be honest much of that bent had to do with what I observed watching my parents, who were not good with money.
Thanks. That is a good perspective. I appreciate your post.
Stay invested my friends.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Wanderingwheelz »

cherijoh wrote: Thu May 28, 2020 7:53 am
Wanderingwheelz wrote: Wed May 27, 2020 8:55 am
I agree with that Tim wrote, in the sense I’m here mainly to be entertained far more that I am looking for ideas that will improve my portfolio.

We are also in the category of having won the game, but we are still working and are 45/49 years old, so we are in no position to get very conservative with hopefully many prosperous years ahead of us. Since the classic 60/40 portfolio is one that’s widely accepted to be the industry standard for growth and income, that’s the one we are going to use for the duration. It’d also probably worth mentioning that my wife and I will receive someday hefty inheritances that will likely double what we’ve been able to save through our own hard work over the years. If that wasn’t the case, perhaps we’d be 50/50 since the downside risk would be slightly more tempered.
IMO, it is never a good idea to let potential future inheritances influence your financial plans.
I’d never have worked a day in my life if I was concerned about my inheritance. Instead I worked 70 hour weeks to make sure I made my own way in life, and no I didn’t work for a family business like many who receive large inheritances.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by smitcat »

cherijoh wrote: Thu May 28, 2020 7:53 am
Wanderingwheelz wrote: Wed May 27, 2020 8:55 am
I agree with that Tim wrote, in the sense I’m here mainly to be entertained far more that I am looking for ideas that will improve my portfolio.

We are also in the category of having won the game, but we are still working and are 45/49 years old, so we are in no position to get very conservative with hopefully many prosperous years ahead of us. Since the classic 60/40 portfolio is one that’s widely accepted to be the industry standard for growth and income, that’s the one we are going to use for the duration. It’d also probably worth mentioning that my wife and I will receive someday hefty inheritances that will likely double what we’ve been able to save through our own hard work over the years. If that wasn’t the case, perhaps we’d be 50/50 since the downside risk would be slightly more tempered.
IMO, it is never a good idea to let potential future inheritances influence your financial plans.
"IMO, it is never a good idea to let potential future inheritances influence your financial plans"
Any future potential parental costs and inheritances should be taken into account in your financial plans.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by cherijoh »

tvubpwcisla wrote: Wed May 27, 2020 9:23 am Sounds like a statement of fear. I'm not a big fan of that approach. You leave a lot of money on the table when you put that many resources underneath your mattress. It works for the investor, but not so much for your loved ones when you are gone.
You might want to read the underlying treatise that Bernstein wrote. Your comment makes me think you may have overlooked the "really" in the quote above. My recollection is that rather than advocating that investors use a rule of thumb for asset allocation (e.g., 70/30, 30/70, or something in between) across their entire portfolio, he advocates that investors look at their own needs in determining how their assets are invested. He suggests doing this by viewing it as two pieces - the liability matching portfolio (LMP) and the remainder. He is advocating super-safe assets for the LMP portion only.

I view Bernstein's advice as a way to create a safe source of retirement income to replace the third leg of the retirement stool (i.e., a pension), which is as rare as hen's teeth these days. How to invest the remainder is then predicated on your other goals - disposable income for your retirement, charitable giving, or a legacy for your loved ones. Once you have your basic needs covered by "safe" assets, you could have an aggressive AA on any remaining investments that would be suitable for the heirs to whom you want to leave a legacy.

Someone following this technique could end up having a more aggressive aggregate AA than a retiree who simply chooses an overall AA to feel "safe" - assuming that they have accumulated more assets than they need to cover their basic needs. Now if they barely have enough to get by, their overall AA may be more conservative than a generic retirement portfolio. But if that is the case, they should be prioritizing themselves over any future legacy anyway.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

cherijoh wrote: Thu May 28, 2020 8:41 am
tvubpwcisla wrote: Wed May 27, 2020 9:23 am Sounds like a statement of fear. I'm not a big fan of that approach. You leave a lot of money on the table when you put that many resources underneath your mattress. It works for the investor, but not so much for your loved ones when you are gone.
You might want to read the underlying treatise that Bernstein wrote. Your comment makes me think you may have overlooked the "really" in the quote above. My recollection is that rather than advocating that investors use a rule of thumb for asset allocation (e.g., 70/30, 30/70, or something in between) across their entire portfolio, he advocates that investors look at their own needs in determining how their assets are invested. He suggests doing this by viewing it as two pieces - the liability matching portfolio (LMP) and the remainder. He is advocating super-safe assets for the LMP portion only.

I view Bernstein's advice as a way to create a safe source of retirement income to replace the third leg of the retirement stool (i.e., a pension), which is as rare as hen's teeth these days. How to invest the remainder is then predicated on your other goals - disposable income for your retirement, charitable giving, or a legacy for your loved ones. Once you have your basic needs covered by "safe" assets, you could have an aggressive AA on any remaining investments that would be suitable for the heirs to whom you want to leave a legacy.

Someone following this technique could end up having a more aggressive aggregate AA than a retiree who simply chooses an overall AA to feel "safe" - assuming that they have accumulated more assets than they need to cover their basic needs. Now if they barely have enough to get by, their overall AA may be more conservative than a generic retirement portfolio. But if that is the case, they should be prioritizing themselves over any future legacy anyway.
I agree, thanks for that. I think Bill's approach is a good one.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by AlohaJoe »

tvubpwcisla wrote: Thu May 28, 2020 6:48 am I think Bill's point in all of this is that if you have enough money to make it through retirement, don't invest the entire farm in the market anymore. I don't agree with him; however, that doesn't make it a bad approach.
How do you know you how much is enough? Do you know how much your property taxes are going to go up over the next 30 years? Do you know how much dental expenses you'll have? (Dental isn't covered by Medicare.) Do you know what the out of pocket costs of your prescriptions will be when you are 85? Do you know what your state and federal taxes are going to be 30 years from now? Do you know what the sales tax is going to be? Do you know how much air conditioning you'll be using in 30 years? (Leaving aside arguments about climate change, people lose their sweat glands as they get older and need more air conditioning.) Do you know how much you'll be paying for services that you can no longer physically perform? I've never seen anyone even attempt to account for all those completely obvious things when building a liability-matched portfolio.

This isn't just theoretical. There are millions of people whose retirement is entirely, or largely, funded by Social Security, which adjusts just like TIPS do; it works exactly like a Liability-Matching Portfolio. And they constantly complain about all of these things in retirement eating into their monthly retirement incomes and forcing them to change their lifestyle.

The Liability-Matching Portfolio was popularized by William Bernstein whose advisory firm only takes people with at least $25 million in assets. It is easy to building a liability matching portfolio when doing so only takes 30% of your assets.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

AlohaJoe wrote: Thu May 28, 2020 9:54 am
tvubpwcisla wrote: Thu May 28, 2020 6:48 am I think Bill's point in all of this is that if you have enough money to make it through retirement, don't invest the entire farm in the market anymore. I don't agree with him; however, that doesn't make it a bad approach.
How do you know you how much is enough? Do you know how much your property taxes are going to go up over the next 30 years? Do you know how much dental expenses you'll have? (Dental isn't covered by Medicare.) Do you know what the out of pocket costs of your prescriptions will be when you are 85? Do you know what your state and federal taxes are going to be 30 years from now? Do you know what the sales tax is going to be? Do you know how much air conditioning you'll be using in 30 years? (Leaving aside arguments about climate change, people lose their sweat glands as they get older and need more air conditioning.) Do you know how much you'll be paying for services that you can no longer physically perform? I've never seen anyone even attempt to account for all those completely obvious things when building a liability-matched portfolio.

This isn't just theoretical. There are millions of people whose retirement is entirely, or largely, funded by Social Security, which adjusts just like TIPS do; it works exactly like a Liability-Matching Portfolio. And they constantly complain about all of these things in retirement eating into their monthly retirement incomes and forcing them to change their lifestyle.

The Liability-Matching Portfolio was popularized by William Bernstein whose advisory firm only takes people with at least $25 million in assets. It is easy to building a liability matching portfolio when doing so only takes 30% of your assets.
Great points!
Stay invested my friends.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TomatoTomahto »

AlohaJoe wrote: Thu May 28, 2020 9:54 am The Liability-Matching Portfolio was popularized by William Bernstein whose advisory firm only takes people with at least $25 million in assets. It is easy to building a liability matching portfolio when doing so only takes 30% of your assets.
😄

I don’t know if it’s 30%, but it breaks down when the LMP is attempted at considerably higher percentages.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

AlohaJoe wrote: Thu May 28, 2020 9:54 am
tvubpwcisla wrote: Thu May 28, 2020 6:48 am I think Bill's point in all of this is that if you have enough money to make it through retirement, don't invest the entire farm in the market anymore. I don't agree with him; however, that doesn't make it a bad approach.
How do you know you how much is enough? Do you know how much your property taxes are going to go up over the next 30 years? Do you know how much dental expenses you'll have? (Dental isn't covered by Medicare.) Do you know what the out of pocket costs of your prescriptions will be when you are 85? Do you know what your state and federal taxes are going to be 30 years from now? Do you know what the sales tax is going to be? Do you know how much air conditioning you'll be using in 30 years? (Leaving aside arguments about climate change, people lose their sweat glands as they get older and need more air conditioning.) Do you know how much you'll be paying for services that you can no longer physically perform? I've never seen anyone even attempt to account for all those completely obvious things when building a liability-matched portfolio.

This isn't just theoretical. There are millions of people whose retirement is entirely, or largely, funded by Social Security, which adjusts just like TIPS do; it works exactly like a Liability-Matching Portfolio. And they constantly complain about all of these things in retirement eating into their monthly retirement incomes and forcing them to change their lifestyle.

The Liability-Matching Portfolio was popularized by William Bernstein whose advisory firm only takes people with at least $25 million in assets. It is easy to building a liability matching portfolio when doing so only takes 30% of your assets.
Hopefully no one is under the assumption they can completely eliminate financial risk with any plan, but you either make assumptions about your future needs or just decide to live on what you have at that moment in the future. Personally knowing I will have $X/month available from now until my assumed end of life seems like a good base to start with and I will just trust\hope that my equities will be able to cover any significant unplanned items. And if that doesn't work out I will do what the vast majority of people on this planet do, which is make the best of what I have. And I will say this, having this approach has made being thrown out of my job recently a stressless non-financial event for me.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by willthrill81 »

TheTimeLord wrote: Thu May 28, 2020 8:02 am
cherijoh wrote: Thu May 28, 2020 7:53 am
Wanderingwheelz wrote: Wed May 27, 2020 8:55 am
I agree with that Tim wrote, in the sense I’m here mainly to be entertained far more that I am looking for ideas that will improve my portfolio.

We are also in the category of having won the game, but we are still working and are 45/49 years old, so we are in no position to get very conservative with hopefully many prosperous years ahead of us. Since the classic 60/40 portfolio is one that’s widely accepted to be the industry standard for growth and income, that’s the one we are going to use for the duration. It’d also probably worth mentioning that my wife and I will receive someday hefty inheritances that will likely double what we’ve been able to save through our own hard work over the years. If that wasn’t the case, perhaps we’d be 50/50 since the downside risk would be slightly more tempered.
IMO, it is never a good idea to let potential future inheritances influence your financial plans.
I have always thought the primary financial gift people should attempt give their children is not being a financial burden to them. You do that and you have likely saved them tens of thousands of dollars that they can invest for themselves.
I agree that not being a financial burden to your children or others should be a high priority for any parent. That's a significant factor in why I don't think that parents should contribute to 529 plans for their kids unless their own retirement plans are already on track.

That said, it's rather inevitable that most investors with portfolios large enough to provide significant retirement income will leave behind a substantial bequest to their heirs, charity, etc. simply because they don't know when they'll die. For instance, my DW and I might be financially prepared to live to 100, but if we kick the bucket 15 years prior, which is far more likely to occur, our daughter will get that much larger of an inheritance. Further, research has shown that most retirees with significant retirement assets do not spend them down those assets over time, meaning that those assets will likely be left behind. And all of this ignores most retirees' single biggest asset, their home, which generally won't be 'spent' via a reverse mortgage or a home sale.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by luminous »

nisiprius wrote: Wed May 27, 2020 4:45 pm
luminous wrote: Wed May 27, 2020 8:31 am...Cash will lose value over time to inflation...
Not really. This is a common rhetorical ploy to convince people to put their money at risk, but it involves playing with the meaning of the word "cash." If "cash" means a competitive interest-earning account, it probably doesn't.

If "cash" literally means physical paper currency with a number of dollars printed on it, or a non-interest-bearing business checking account, or a typical ordinary checking account, then, sure.

But if "cash" means "interest-earning holdings," like
  • the money market fund used as the settlement account at your brokerage, or
  • Treasury bills, or
  • competitive bank savings accounts and bank CDs found with just a little shopping around,
then probably not. All of these "cash" holdings typical do earn a small amount of real return. Might lose a little, might gain a little, but coming reasonably close to keeping pace with inflation.

Over 1926-2019 inclusive, Treasury bills earned an average (CAGR) of 3.29%/year, while inflation over the same time period averaged over 2.88%/year.
It is always worth being precise, so thank you for adding precision to the conversation. I was not very precise with my answer.

The original post was:
William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
So I took "cash" to mean cash-like-things that are not "Cds, bond, Money market funds, SPIA or bond funds, etc.", at least in the context of this question. Which leaves cash in a checking account or a savings account. From your list, sometimes "competitive bank savings accounts" do beat inflation, but it sounds like a game of wack-a-mole to me. That's why I suggested that all the other options in the OP's list sounded reasonable.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by latesaver »

AlohaJoe wrote: Thu May 28, 2020 6:44 am
CWRadio wrote: Wed May 27, 2020 8:28 am If you need $30,000 a year for 30 years you should have $900,000 in safe money.
Nobody knows how much money they will need in the future. It is a ridiculous assumption that has no place in retirement planning. When you talk to actual retirees -- as the Society of Actuaries has done with their Committee of on Post-Retirement Needs and Risks -- nobody fails their retirement because they had too high of an asset allocation dedicated to low-cost broadly diversified equity index funds, nobody fails because they had 60/40 instead of 30/70. People fail their retirement because of spending shocks that cause them to spend more money than they have. One-third of people have four or more spending shocks, where something comes up that causes them to spend more than they had planned.

Imagine this: the year is 2020 and an previously unknown virus means your daughter is laid off and she joins the 20 million other people on unemployment. She suddenly can't make her mortgage payments and she's worried that she and your grand-daughter will lose their house. But you had "won the game". You set up a TIPS ladder that covered the "money you really need". What do you do? Tell your daughter that you don't care about her life and helping out your family messes up your carefully constructed "liability-matching portfolio"?

Of course not.

Thinking you know how much you need for the next three decades is a prime example of the end of history illusion. Retirement planning shouldn't be built on illusions.
Great post
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by EnjoyIt »

AlohaJoe wrote: Thu May 28, 2020 6:44 am
CWRadio wrote: Wed May 27, 2020 8:28 am If you need $30,000 a year for 30 years you should have $900,000 in safe money.
Nobody knows how much money they will need in the future. It is a ridiculous assumption that has no place in retirement planning. When you talk to actual retirees -- as the Society of Actuaries has done with their Committee of on Post-Retirement Needs and Risks -- nobody fails their retirement because they had too high of an asset allocation dedicated to low-cost broadly diversified equity index funds, nobody fails because they had 60/40 instead of 30/70. People fail their retirement because of spending shocks that cause them to spend more money than they have. One-third of people have four or more spending shocks, where something comes up that causes them to spend more than they had planned.

Imagine this: the year is 2020 and an previously unknown virus means your daughter is laid off and she joins the 20 million other people on unemployment. She suddenly can't make her mortgage payments and she's worried that she and your grand-daughter will lose their house. But you had "won the game". You set up a TIPS ladder that covered the "money you really need". What do you do? Tell your daughter that you don't care about her life and helping out your family messes up your carefully constructed "liability-matching portfolio"?

Of course not.

Thinking you know how much you need for the next three decades is a prime example of the end of history illusion. Retirement planning shouldn't be built on illusions.
Not that I’m a fan of a Liabilities marching portfolio, there is some merit in keeping the base necessities safe. I’m talking food, shelter and medicine, while letting your discretionary spending part of your portfolio to take on some risk. Now I’m not talking about people who are retiring on a bare bones budget, but it can make sense in your example.

If your daughter and granddaughter are in trouble, you can choose to eat out less and travel less so that you can help them for a few months with their bills.
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tvubpwcisla
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

I don't think there is a right or wrong answer and both investors seem correct in their choice.

:moneybag
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by fatcoffeedrinker »

willthrill81 wrote: Wed May 27, 2020 8:41 pm
Ben Mathew wrote: Wed May 27, 2020 6:47 pm
willthrill81 wrote: Wed May 27, 2020 5:24 pm Now if you adhere to the 'need, willingness, and ability' notion of taking on stock risk, then you'd say that the investor with 50x shouldn't own any stocks or at least no more than a small portion of the portfolio. But in my experience, most very wealthy don't appear to agree with that idea at all and have a significant portion of their portfolio in volatile assets like stocks.
Applying the need vs ability principle, richer people have more ability to take on risk, but they also have less need. So the net effect is unclear. It's hard to say whether rich people should generally have a higher or lower percentage in stocks than poor people.
Most adherents to the notion 'need, willingness, and ability' say that you must have all three in order to invest in equities. As I noted above, I do not subscribe to this. In my view, 'need' is irrelevant. For instance, certain investors may need to invest in equities in order to help achieve their goals, but if they are unwilling to do so, they are at high risk of panic selling, thus defeating the purpose. And those with more than adequate portfolios may not 'need' to take on the risks of stocks, but they may wish to do so anyway for the benefit of others, such as charity.
In what situation would all three of them be true? It would seem that need and ability move in opposite directions.
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