The 2 comma paradox

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chaz
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Re: The 2 comma paradox

Post by chaz »

555 wrote:
chaz wrote:
VictoriaF wrote:
chaz wrote:I don't worry. I'm happy with 2 commas.
We should change the expression "my two cents" to "my two commas."
Victoria
Victoria, you have a great sense of humor. Just my $0.02.
You can have both. Just my $0,000,000.02.
Very clever.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
SGM
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Re: The 2 comma paradox

Post by SGM »

Whenever Alan Greenspan sneezed I experienced the same phenomenon. It may be a sign that you have arrived. It is not a problem unless you sell in a panic. If you are close to retirement make sure your needs are met by pensionizing some of your assets.
555
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Re: The 2 comma paradox

Post by 555 »

It's not the commas that matter. It's the digits.

Also when you have a bigger balance, there's more noise to tune out.
RunningRad
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Re: The 2 comma paradox

Post by RunningRad »

"Things are almost never as good or as bad as they seem."

I tell myself when circumstances are bleak or fantastic, to keep myself grounded--professionally, at home, when working on personal goals.

Right now, because of recent market performance, I see a lot of people who believe that things are really outstandingly fantastically excellent!

"Things are almost never as good or as bad as they seem." ;)
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution
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VictoriaF
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Re: The 2 comma paradox

Post by VictoriaF »

chaz wrote:
555 wrote:
chaz wrote:
VictoriaF wrote:
chaz wrote:I don't worry. I'm happy with 2 commas.
We should change the expression "my two cents" to "my two commas."
Victoria
Victoria, you have a great sense of humor. Just my $0.02.
You can have both. Just my $0,000,000.02.
Very clever.
Pronounced as "just my too common sense,"

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
MnD
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Re: The 2 comma paradox

Post by MnD »

Nope no worries.
If OTOH I was living paycheck to paycheck or had grossly inadequate savings at this point in life I'd be a basket case.
I have coworkers, friends and in-laws that are in that boat and I don't know they manage.
I would have the worst stomach ache knowing I was a paycheck or two from disaster and had no exit strategy from working for others.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
travellight
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Re: The 2 comma paradox

Post by travellight »

I also have no idea when I passed the mark but I suspect it was about ten years ago. I have been tracking it more closely since I joined BH and Mint.com.
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Zabar
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Re: The 2 comma paradox

Post by Zabar »

I understand that those fleeting moments of panic that I have are triggered by loss aversion, and that throughout my life I've changed my anchor points in finance and elsewhere. But that knowledge doesn't get rid of the occasional, irrational concern. Will I feel more comfortable when my net worth is high enough that a significant bear market will still leave both commas in place? Yes, at least in theory...but who knows?

What really helped, paradoxically, was running a nonprofit organization that had a high nine-figure endowment. When the market was really volatile a few summers ago, I noticed that the daily variation of that endowment was up to $12-million, which was more than 10 times my net worth. That kept things in perspective. :beer
Twins Fan
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Re: The 2 comma paradox

Post by Twins Fan »

What do they call it,... first world problems?!

What a paradox to have... My portfolio has so much money in it I sometimes lose more in a day than Average Joe can contribute in a year. :annoyed

This thread can be seen as quite ridiculous depending on who is reading it. Just my $0.02.
investor1
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Re: The 2 comma paradox

Post by investor1 »

If you can't handle the swings, adjust your asset allocation. Otherwise, let the discipline take over and stay the course.
sambb
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Re: The 2 comma paradox

Post by sambb »

i find i worry more at market highs rather than lows. At the lows, I don't check the balance as often. But there is some psychology of not wanting to go below the two commas. I get it.
Tanelorn
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Re: The 2 comma paradox

Post by Tanelorn »

I worry about inflation turning my 2 commas into 3 faster than its ability to buy things.
sscritic
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Re: The 2 comma paradox

Post by sscritic »

I had two commas long before I even knew what commas were. Oh, that's right. I am not supposed to count the value of my pension and social security, even if those are what I am living off of in retirement. I think the most common boglehead point of view is that pensions and social security are worthless and should not be allowed to have any commas or comma status. :)

Maybe there is some pension and social security comma discount that can be applied. If you are collecting $100k a year from pensions and social security, shouldn't that count for at least 1.8 commas? [10 ^ (3 x 1.8) or roughly $250k] I know people buy extra service credit when offered by their pension system, so income must have some value. Actually, 1.8 commas seems too low since you will recover the full amount in only 2.5 years. I bet $100k a year is worth about 2 commas by itself. If you save it all, you will recover your commas in 10 years. If you spend half, then in 20 years. OK, so 2 commas might be too much. Let's settle for 1.9 commas or $500k, at least.
555
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Re: The 2 comma paradox

Post by 555 »

sambb wrote:i find i worry more at market highs rather than lows. At the lows, I don't check the balance as often. But there is some psychology of not wanting to go below the two commas. I get it.
I wouldn't mind dipping back below two commas (it's not far) to do some cheaper accumulating.
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NAVigator
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Re: The 2 comma paradox

Post by NAVigator »

As the OP states, there is concern about losing what you have. James Glassman wrote an article in Kiplinger's (May 2014) where he makes this reference;
Richard Thaler and Cass Sunstein write in their book, Nudge, that academic research has found that "losing something makes you twice as miserable as gaining the same thing makes you happy."
As stated by others here, I think that a comfortable asset allocation and the discipline to stay the course are key elements when facing a period of losses.

Jerry
"I was born with nothing and I have most of it left."
travellight
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Re: The 2 comma paradox

Post by travellight »

I think the most common boglehead point of view is that pensions and social security are worthless and should not be allowed to have any commas or comma status.
I personally believe pension should be counted. SS seems like such a low number that it is hardly worth counting but, sure, that could be counted as well.

There can be a huge difference between someone with a pension and someone without.
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RenoJay
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Re: The 2 comma paradox

Post by RenoJay »

I do worry. It's just my nature. I'm in awe of the people who truly can set-it-and-forget-it because I don't fit into that camp. When I do start to worry, I usually use some math equations to remind myself that at the new number lower number I'm still in fine financial shape logically. That typically brings the emotions into check for a few days.

For those who would suggest that a proper AA will fix this, I'll disagree. Worry is an emotion and not necessarily tied to any logic. If I moved to 100% bonds, I'd still worry, so I might as well get the upside potential of equities.
FedGuy
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Re: The 2 comma paradox

Post by FedGuy »

I didn't realize I was such an outlier. I'm not in the two comma club yet, but I'm close enough that, for the last year or so, I've been able to envision a scenario where a significant but not unreasonable advance in the stock market will carry me over the threshold in the foreseeable future. It's a psychological benchmark I've been looking forward to hitting. The thought occurred to me--and was then promptly discarded--that, upon hitting the second comma, I could convert all my assets to cash or cash-like instruments to ensure that I don't lose it because of market fluctuations.

I don't expect anything to change for me when and if I get the second comma--I might make a celebratory post on this board, but certainly won't tell anyone I know in real life--but yes, I do want to get there, and yes, I would prefer not to lose that status once I've gained it.
curmudgeon
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Re: The 2 comma paradox

Post by curmudgeon »

I feel some of the same concerns. It was a number of years ago that I started noticing more the big daily swings, but maybe because I wasn't seriously contemplating retirement at the time I could still view them more complacently. Now that I'm contemplating ER in the next year or two, it seems to have concentrated the mind. Maybe at some point after I've taken that step, it will recede again. I've thought about racheting down my AA, and I have to a small degree, but I'm not sure that any specific AA would change the uneasiness about market fluctuations (they'll still be big dollar amounts).

A good portion of my portfolio is in "set and forget" Boglehead style investments, but I still do some trading so I'm logged into my accounts more often and noticing the swings. I suspect if I didn't feel the need to be making occasional buy/sell decisions (more than just rebalancing or MRDs), it would be a lot easier for me to distance myself from the market vagaries and just check the value once a quarter or so.
OutInThirteen
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Re: The 2 comma paradox

Post by OutInThirteen »

travellight wrote:
I think the most common boglehead point of view is that pensions and social security are worthless and should not be allowed to have any commas or comma status.
I personally believe pension should be counted. SS seems like such a low number that it is hardly worth counting but, sure, that could be counted as well.

There can be a huge difference between someone with a pension and someone without.
Pensions and SS can be close to equal. Between us, my wife and I will have COLA'd pensions and SS in todays dollars (if I wait until 70 to collect my SS benefits) greater than 10% of two commas. The pensions and SS will each make up about half of the total. Unless we sell our second home we'll never hit two commas with our investments even though we're kind of close - we could have easily done it had I continued to work past age 59. As it is, we're slowly spending down our investments until two more pensions and SS kick in.
SGM
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Re: The 2 comma paradox

Post by SGM »

The average monthly SS payment for all recipients is a little less than $1200 a month. At a 4% withdrawal rate that would require a $335K account to supply that much income. The numbers are greater for higher earners. Having a pension and/or SS could go a long way toward helping one tolerate the market swings that could change the daily value of a portfolio.
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Aptenodytes
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Re: The 2 comma paradox

Post by Aptenodytes »

StarbuxInvestor wrote:
Call_Me_Op wrote:You shouldn't be worrying about market risk unless your portfolio is not balanced properly. And make sure you have proper insurance.
Okay, but I am not worried about market risk. My thought was the paradox one goes through saving a hundred here and a thousand there only to get to the point where a routine daily fluctuation could be more than they were able to save in an entire year at many points in your life, maybe more than you made in a year. I would assume this would be more pronounce for those who came from modest means and have far exceeded their parents level or their own expectations.
I don't see the paradox. Having enough money so that daily daily fluctuations are large is good. If they freak you out you can lower risk in exchange for lower returns.
J295
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Re: The 2 comma paradox

Post by J295 »

Philippians 4:12
Walden (Thoreau)
KlangFool
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Re: The 2 comma paradox

Post by KlangFool »

Folks,

There is another re-org at the work place. People are worrying about their jobs, income, and so on.. Meanwhile, the 2 commas keep me calm and focus on my jobs. So, as opposed to TS's view and position, the 2 commas make me safe and warm. I know that I have ENOUGH to last me and my family for a while.

Things happened. It is YOUR ATTITUDE and MENTALITY that determine whether it is GOOD or BAD.

Previously, I survived 80% laid of an employer that laid of 80% of its workforce across 5 to 6 years. It was 10% quarterly laid off every quarter. I did not had 2 commas then. But, I managed to survive being laid off from that employer and unemployed for 1 to 2 years. Now, with 2 commas, I am more comfortable.

KlangFool
investingdad
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Re: The 2 comma paradox

Post by investingdad »

I hear what you're saying. As the portfolio goes up part of me wants to just go all cash and keep the gains. But at 41 we are not ready to retire yet, I'd be bored if I did.

On the flip side, worries like climbing the corporate ladder, getting a raise, etc, are no longer really a worry. I just need to stay employed for another nine years or so.
Last edited by investingdad on Sun Jun 08, 2014 8:26 am, edited 1 time in total.
Call_Me_Op
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Re: The 2 comma paradox

Post by Call_Me_Op »

Thanks rich.
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RadAudit
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Re: The 2 comma paradox

Post by RadAudit »

Thanks for the post, Op.

Yes, I have a number of concerns now that I'm a door keeper in the house of the two comma club.

It took a while to get there - close to 39 years of employment. And it took a rather aggressive AA through most of that time to have the chance to accumulate that amount of money. Once you get there you realize that a SWR of 3% or 4% really isn't sufficient to raise your standard of living all that much or provide all that much insurance against unanticipated events. (You begin to sort of wonder what was so special about $1 mil all that time ago and why did you spend so much effort getting there?)

Additionally, when you get in to retirement and are faced with a safer AA because of age, ability, ... etc. you redo the numbers and find out that the SWR is even lower than 3% to 4%. You are left with the idea that while you might have enough to make it to the end, maybe the spouse won't. (If VG TR funds have a 30% stock / 70% bond AA for a 70+ year old, that doesn't leave much room for portfolio growth if the spouse lives in her mid to late 80s.)

Maybe I just haven't fully convinced myself that I'm OK. In the interim before I reach that enlightened state of being, I've just decided to leave a note to those who think they'll inherit after DW passes on - "I don't know what she did with it. I left her enough when I croaked so she'd have some left over for you." Ought to make for a lively discussion at the wake when they distribute / dissolve the trust if things go South.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: The 2 comma paradox

Post by KlangFool »

RadAudit wrote:Thanks for the post, Op.

Yes, I have a number of concerns now that I'm a door keeper in the house of the two comma club.

It took a while to get there - close to 39 years of employment. And it took a rather aggressive AA through most of that time to have the chance to accumulate that amount of money. Once you get there you realize that a SWR of 3% or 4% really isn't sufficient to raise your standard of living all that much or provide all that much insurance against unanticipated events. (You begin to sort of wonder what was so special about $1 mil all that time ago and why did you spend so much effort getting there?)

Additionally, when you get in to retirement and are faced with a safer AA because of age, ability, ... etc. you redo the numbers and find out that the SWR is even lower than 3% to 4%. You are left with the idea that while you might have enough to make it to the end, maybe the spouse won't. (If VG TR funds have a 30% stock / 70% bond AA for a 70+ year old, that doesn't leave much room for portfolio growth if the spouse lives in her mid to late 80s.)

Maybe I just haven't fully convinced myself that I'm OK. In the interim before I reach that enlightened state of being, I've just decided to leave a note to those who think they'll inherit after DW passes on - "I don't know what she did with it. I left her enough when I croaked so she'd have some left over for you." Ought to make for a lively discussion at the wake when they distribute / dissolve the trust if things go South.
RadAudit,

If I read and seen the statistic correctly, only 10% of US household has asset of 1 million or more. If you have problem, how about the rest of the 90%?? How could they survive?? People adapt and survive with whatever they have. You have a lot more than many. Just be glad and enjoy your good fortune..

KlangFool
Dave1
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Re: The 2 comma paradox

Post by Dave1 »

Yup, I know exactly what you mean. For a while I used Mint.com which has weekly (I think) updates on your portfolio. Seeing the amount of $$$ gained or lost every week was quite disconcerting. I discontinued using mint for a number of other reasons, but not getting those emails was just fine with me. I am a "set it and forget it" kinda guy and constant alerts made me feel like maybe I should do something ... luckily good sense kicks in soon enough that I don't make any changes on a whim, but I understand what you're saying. There is a keen awareness of the need to protect what you have worked hard for decades to accumulate, especially when you know that you don't get a do-over after a certain age. I suppose it's a good problem to have.
555
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Re: The 2 comma paradox

Post by 555 »

100 years ago a millionaire was very wealthy, but in 2014, having $1M just means that you are probably on a solid financial footing, but, depending on other factors, you're going to have to keep working a while to reach financial independence.

With no pension nor SS, and a family to support, I figure I'll need at least $2M or $2.5M to be FI. So I look at $1M as being 0.4X or 0.5X. It's not yet time to take risk off the table, so I'll accept volatility, and if I go from $1.05M to $0.95M, then so be it. I'll be happy to do some cheaper accumulating, and I won't worry about fluctuating back across an arbitrary milestone.
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Abe
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Re: The 2 comma paradox

Post by Abe »

I thought that when I reached a certain point financially, I wouldn't have anything to worry about.
I found that this was a fallacy. Having some money is nice to have, but if you worried before you had it, you will probably worry after you get it. There is no silver bullet.
Slow and steady wins the race.
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in_reality
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Re: The 2 comma paradox

Post by in_reality »

I understand the feeling and have it too.

Whether up or down, I just do my usual thing of focusing on something delicious I've had to calm myself. I can really bring back memories from long ago of people and places long gone ... the rhubarb growing in the back yard where we played soccer and washed off and ate raw as we were starving...by remembering some food from that time.

I've had a wealth of good experiences, and the bad ones seem ok in hindsight, and the simple act of remembering all the things I've enjoyed consuming changes my outlook. I don't even like spinach but after a while of thinking of all the good things, just for variety it comes up and for some reason even the bitterness seems a little appealing especially throwing in a little bacon and maybe salt.

So yeah, my holdings drop $15k on a not-so-good day and it is shocking because I had to save hard to get here, but even so, cherries go in and out of season and it is honestly difficult when they disappear from the shelves. They'll be back though and so will the money I think.

It's not the money so much for me as I get older, it's my swings in mood that bothers me. I need a way to stay really positive mentally and really sociable because that's who I have been and if I lose that ... yuck.

Focusing on my account balance, or not focusing on it knowing that it is as safe as can be, isn't going to maintain my mood. That's why I like having a portfolio I don't have to change. I can try and focus on what I do need to change.

PS. I know linking food to money and emotions is a weird post but honestly I don't eat too much and recalling positive experiences does help me keep a positive outlook when things are not at all going how I'd like
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HomerJ
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Re: The 2 comma paradox

Post by HomerJ »

StarbuxInvestor wrote:Many of us have worked very hard for a considerable amount of time to have our portfolios reach the 2 comma level. Years of finding a thousand there or a couple hundred here has helped us to accomplish this notable level. But now that we are there instead of sleeping better at night we worry more about our life's accumulation being undone. For most it was built by small amounts being invested frequently over time but now it changes daily by amounts that were at one time a year's worth of savings and while the percentage is low this still makes us uneasy because we remember how we fought to save those precious dollars to build our now impressive portfolio. Does anyone else occassionally suffer from the 2 comma paradox?
I hear what you're saying, but I DO sleep better at night... Because the house is paid off, and with my AA at 50/50, I have enough money to survive nearly everything... I mean 2 commas and a 50/50 portfolio means I have $500,000 in "safe" bonds... The market could crash 50% tomorrow, and I'd still have $750,000 and a paid-off house... That's pretty awesome.

I mean, there's pretty much no chance I'm ever going to starve at this point... I may not get to lead the retirement life I'm hoping for... I may have to sell the lake condo and the boat someday because I can't afford them, but I'm always going to have a roof over my head, and warm food to eat, and books to read, etc.

If you're worried about your life's accumulation being undone, move more out of stocks... Sell to your sleeping point...
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HomerJ
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Re: The 2 comma paradox

Post by HomerJ »

travellight wrote:SS seems like such a low number that it is hardly worth counting but, sure, that could be counted as well.
Heh... :)

Image

http://www.ssa.gov/pressoffice/basicfact.htm

Among elderly Social Security beneficiaries, 52% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.
Among elderly Social Security beneficiaries, 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income.
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HomerJ
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Re: The 2 comma paradox

Post by HomerJ »

RenoJay wrote:For those who would suggest that a proper AA will fix this, I'll disagree. Worry is an emotion and not necessarily tied to any logic. If I moved to 100% bonds, I'd still worry, so I might as well get the upside potential of equities.
I'd worry more at 100% bonds too... That's why I love 50/50... I'm not really making any stance at all... It's the ultimate waffle. :)
kaudrey
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Re: The 2 comma paradox

Post by kaudrey »

We only recently hit the 2-comma club, and I know I won't be particularly happy if we fall back below it; however, since we don't plan to retire for another 12 years, I don't worry about it.

Having said that, I think when I WILL worry is when we get close to our number. Hopefully it will happen near the time we plan to retire, but I can see myself being afraid of a market crash in the few years before and after we retire. Our AA will reflect those fears, and be much more conservative than it is today.
MGBGTV8
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Re: The 2 comma paradox

Post by MGBGTV8 »

Even without the 2-comma balance, I don't worry about losing it so much as being a good steward of what I have been able to save (5x current salary). It does need to be put to good use for me and my family. To me, the primary function of the retirement cache is to grow and to make a stream of income. To paraphrase the old scrubbing bubbles commercial, "to work hard, so I don't have to." Being the saver I am, there will probably be a lot left after I am gone, just because the income stream needs a critical mass to be close to self supporting for a long retirement. Hopefully i have a long time to think about that part of it, but how to put it to use at that point is a question for another day.

Bottom line is that we should expect our retirement savings to work for us, and there will be ups and downs no matter what it is invested in. The only question is if our money is doing what each of us needs it to do on an individual basis.
freebeer
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Re: The 2 comma paradox

Post by freebeer »

LeeMKE wrote:...
I decided to get serious about looking for a less speculative method for investing and landed here. This approach should keep me from using anymore "gut instinct" or "magical thinking" and I'm documenting it with my husband and in writing so if I can't manage the portfolio on my own, others have specific instructions that a) can be followed and b) can't be disputed as ill advised.

I'm well aware of the fact that by age 70, our decision-making skills are deteriorated to a degree we should avoid complicated management of assets. I want to be a little ahead of that curve, and have things streamlined and easy to manage before age 70.
Congratulations on your success and thoughtful planning.

But, your last statement seems an over-generalization: Warren Buffett is 83. Sumner Redstone is 91. Etc.

I doubt that there's any studies to support it, but I suspect "use it or lose it" applies, i.e. continuing to do complicated management of assets may even be a positive activity, relative to overall well-being!

That doesn't mean your plan is bad as certainly there's a non-trivial possibility of deteriorating decision-making skills by age 70 in any given individual.
inbox788
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Re: The 2 comma paradox

Post by inbox788 »

freebeer wrote:But, your last statement seems an over-generalization: Warren Buffett is 83. Sumner Redstone is 91. Etc.

I doubt that there's any studies to support it, but I suspect "use it or lose it" applies, i.e. continuing to do complicated management of assets may even be a positive activity, relative to overall well-being!

That doesn't mean your plan is bad as certainly there's a non-trivial possibility of deteriorating decision-making skills by age 70 in any given individual.
I don't know the answer, but there are problems creating good studies to answer them. The number of high level leaders like these are relatively few. You sometimes see them in government. Creating a suitable control group is going to be challenging.

While there are studies showing "use it or lose it", which may be a factor, these few examples may be more a case of "haven't lost it yet". Plenty of execs have been pushed out far before retirement age. And those that have lost it are pretty much out.

This is the same problem of determining elderly driver qualification. There is no Litmus Test for either (elderly driver or aging investor) continuing to perform. And plenty of younger adults would fail any such test and they're still out there.

Warren Buffett has been doing this so long that he can do it in his sleep. Long after he's unable to drive, he could probably still assess intrinsic value in companies and find value investing better than you or me. Again, it may be a "use it or lose it" or it could be more like riding a bicycle, even if he didn't do it a while, it's so ingrained that he could just pick it right back up.
TheScarletPimpernel
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Re: The 2 comma paradox

Post by TheScarletPimpernel »

On a more serious note, if someone is risk averse why not buy TIPS?
Because TIPs normally will not keep pace with the inflation most retirees or even middle aged adults are likely to encounter. Keep track of what you spend money on and compare it to the TIPs rate. It is very eye opening.

And I think the 2 comma paradox has a lot to do with where you come from in life. Those who have known real hunger, have literally been homeless and slept under bridges or lived out of their car for an extended period of time are likely to have far more anxiety once they join the 2 comma or multiple there of club. One reason for that is they are more likely to equate dollars lost with tangible things. People who had been actually destitute tend to translate dollars into the basic things they could buy, i.e x months rent, 6 months of food, the price of a car, the price of a house etc. rather than just I lost x amounts of dollars.
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swimirvine
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Re: The 2 comma paradox

Post by swimirvine »

VictoriaF wrote:This is a manifestation of the endowment effect, you value more what you have than what you don't have. Before reaching the two-comma status, becoming a millionaire is an enticing dream. Once you become a millionaire, you are horrified of losing it.

Victoria
Nice behavioral finance evaluation Victoria!

If you believe that his fear is having a negative effect on the choices your making or if it's causing you not to sleep well at night you might want to try and think about your portfolio from a different perspective. Tell yourself that you just won a retirement lottery in the exact amount of your portfolio and it's your job now to either keep growing it if you're in the accumulation phase or make it last indefinitely if you're in the withdraw phase. Today is Day 1 with this retirement lottery portfolio.

Another scenario would be to think of your portfolio as belonging to a close friend with whom you have no ulterior motives. When making decisions about your portfolio ask yourself "what advice would I give a close friend in the same situation?"
The way I invest my money is not the right way to invest, it's the right way for ME to invest.
LadyIJ
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Re: The 2 comma paradox

Post by LadyIJ »

VictoriaF wrote:This is a manifestation of the endowment effect, you value more what you have than what you don't have. Before reaching the two-comma status, becoming a millionaire is an enticing dream. Once you become a millionaire, you are horrified of losing it.

Victoria
RIGHT! When can we relax? You can't take it with you!
LadyIJ
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Re: The 2 comma paradox

Post by LadyIJ »

travellight wrote:
I think the most common boglehead point of view is that pensions and social security are worthless and should not be allowed to have any commas or comma status.
I personally believe pension should be counted. SS seems like such a low number that it is hardly worth counting but, sure, that could be counted as well.

There can be a huge difference between someone with a pension and someone without.
Ss a low number? If someone takes it a 70 and lives to 85 - average ss would be around $500,000.
Barefootgirl
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Re: The 2 comma paradox

Post by Barefootgirl »

When I was married, we joined the club during the late 90s tech boom. During our separation in 2008, we divided marital assets and lost club membership. Through diligence, less than 5 years later, I was back in the club again this time as a single person, with only 40% of the previous household income. It may not seem like a big achievement, but all things considered it's big to me.

BFG
How many retired people does it take to screw in a lightbulb? Only one, but he takes all day.
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dmcmahon
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Re: The 2 comma paradox

Post by dmcmahon »

This happened to me during the 2008 crash. The bigger you are, the harder you fall. In my case, the large size of my portfolio meant that I was absorbing losses that would take years of after tax earnings to replace. Worse than that was the thought that I had less years of such work earnings to replace the lost assets. If you take your real income, times the number of years you have left until retirement, you'll have a number approximating your remaining human capital. As you get nearer retirement this number is shrinking while your portfolio is hopefully growing. Thus, the impact of a given % drawdown, as a fraction of remaining human capital, can reach levels that can produce entirely rational anxiety.
ArthurO
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Re: The 2 comma paradox

Post by ArthurO »

Prepare yourself for worst case scenario, 50% loss of 1M is 500K, 50% loss of 5M is 2.5M, % wise same thing but in absolute terms huge difference, rebuilding 2.5M may take years, so manage your risk profile carefully, everyone talks about % allocation in this or that, but we need to look at losses in absolute terms to manage them effectively...
Ultimately, in my view, and unfortunately how much we have depends on when in our working lives the crashes occur, if they do so when we are small and building wealth we will be in good shape, but if the really bad crash happens when we are unprepared and hoping for these extra few bucks the damage can be devastating,

so walk carefully my friends, learn from others mistakes or misfortunes, not your own...
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Abe
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Re: The 2 comma paradox

Post by Abe »

ArthurO wrote:Prepare yourself for worst case scenario, 50% loss of 1M is 500K, 50% loss of 5M is 2.5M, % wise same thing but in absolute terms huge difference, rebuilding 2.5M may take years, so manage your risk profile carefully, everyone talks about % allocation in this or that, but we need to look at losses in absolute terms to manage them effectively...
Ultimately, in my view, and unfortunately how much we have depends on when in our working lives the crashes occur, if they do so when we are small and building wealth we will be in good shape, but if the really bad crash happens when we are unprepared and hoping for these extra few bucks the damage can be devastating,

so walk carefully my friends, learn from others mistakes or misfortunes, not your own...
I absolutely agree with this. We need to think in terms of absolute dollar loss instead of percentage loss. As you said, a 50% loss sounds bad but not near as bad as $2.5 million loss. It reminds me of a technique insurance salesman use to sell insurance. They say it only cost $2.00 per day; they don't say it cost $730.00 a year.
Slow and steady wins the race.
ArthurO
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Re: The 2 comma paradox

Post by ArthurO »

Abe wrote:
ArthurO wrote:Prepare yourself for worst case scenario, 50% loss of 1M is 500K, 50% loss of 5M is 2.5M, % wise same thing but in absolute terms huge difference, rebuilding 2.5M may take years, so manage your risk profile carefully, everyone talks about % allocation in this or that, but we need to look at losses in absolute terms to manage them effectively...
Ultimately, in my view, and unfortunately how much we have depends on when in our working lives the crashes occur, if they do so when we are small and building wealth we will be in good shape, but if the really bad crash happens when we are unprepared and hoping for these extra few bucks the damage can be devastating,

so walk carefully my friends, learn from others mistakes or misfortunes, not your own...
I absolutely agree with this. We need to think in terms of absolute dollar loss instead of percentage loss. As you said, a 50% loss sounds bad but not near as bad as $2.5 million loss. It reminds me of a technique insurance salesman use to sell insurance. They say it only cost $2.00 per day; they don't say it cost $730.00 a year.
Exactly right, and also never forget Great Depression when US stock market plummeted ~90%. So there is a potential however unlikely of loosing it all. We all need to ask, if I lost it all, would I be OK? Would I have enough time in my life to pick up the pieces and rebuild? If the answer is NO, you are taking too much risk... I know if I lost it all I would be more or less OK, but that's only because I have about 200K currently invested, as this number grows I don't know how I will feel, so it is catch 22, build wealth to reach a goal, at the same time protect what you've got, we can't have it both ways, and finding balance between the 2 is the hardest thing to achieve even for a boglehead.

The smartest thing I've ever heard is the bucket strategy and I apply it even though I am only 40. I have money in safety that I hope to grow slowly and not loose, I have money for retirement that I try to grow and if I loose it all, OH well, I will just start again, and I have money for everyday needs. I don't even know what is my overall portfolio balance and I don't really care, as long as I am comfortable with my buckets... and can chug along for good times and bad, I don't intermingle money that I want to grow, money that I need for current expenses, and money that I like to have as security blanket and would not have a stomach to lose.

Last comment, people who give financial advice are usually filthy rich, if black swan event happens and Warren Buffet ends up with only 10billion instead of 100 billion, his life will not change one bit, If I invested my entire net worth of cash which is about 1M right now and lost 900K of it in black swan, my life would be changed forever and recovery would be tough, more psychologically and less materially (after all I am only 40). This is exactly why majority of small retail investors are on the sidelines still and haven't jumped into this bull market we have right now, they have not recovered psychologically from 2008 crash and this psychological damage has impact on many lives in material way.
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Zabar
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Re: The 2 comma paradox

Post by Zabar »

HomerJ wrote:http://www.ssa.gov/pressoffice/basicfact.htm

Among elderly Social Security beneficiaries, 52% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.
Among elderly Social Security beneficiaries, 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income.
Interesting. The Social Security Administration estimates that my benefits at age 70 will be roughly $40K/year. If my wife, then age 62, takes 50% of my benefits at that time, we'll be receiving $60K/year. Let's say that the market tanks a bit between now and then, and our investments at that time are $1.4-million. At a 4% SWR, that would yield $56K/year, and would mean that more than half of our income would come from Social Security, despite being in the two-comma club!
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VictoriaF
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Re: The 2 comma paradox

Post by VictoriaF »

ArthurO wrote:Last comment, people who give financial advice are usually filthy rich, if black swan event happens and Warren Buffet ends up with only 10billion instead of 100 billion, his life will not change one bit, If I invested my entire net worth of cash which is about 1M right now and lost 900K of it in black swan, my life would be changed forever and recovery would be tough, more psychologically and less materially (after all I am only 40). This is exactly why majority of small retail investors are on the sidelines still and haven't jumped into this bull market we have right now, they have not recovered psychologically from 2008 crash and this psychological damage has impact on many lives in material way.
Black Swans are subjective. What you have described would be a Black Swan for you, but not for Warren Buffett. Furthermore, people who give financial advice are not necessarily rich. Frequently, they are journalists with a degree in Tadzhik studies who are prone to more Black Swans than you and I, even apart from a famine in Tajikistan.

Victoria
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