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

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B4Xt3r
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Re: “It’s probably wise to sell to the sleeping point.”

Post by B4Xt3r » Mon Oct 08, 2018 6:32 am

youngpleb wrote:
Sat Oct 06, 2018 3:43 pm
Interesting. The 5-10% reduction in stocks would have many here wagging their fingers and chanting “market timing” if someone mentioned doing that in a post.
If you actually read some of Jack Bogle's books, you would realize that there are a number of unbogleheads-forum things about Bogle himself. On some issues, Bogleheads have mutinied, sailed the ship further than the Bogle would have himself and looked back at the fading real real destination through Jack's telescope and quipped about the inhabitants being unboglehead. "Have you heard that they sometimes change there asset allocation once." "Market-timing savages."

:D

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

Post by AtlasShrugged? » Mon Oct 08, 2018 7:20 am

My thinking is at 15 years out I’d just hold steady, at 10 years start thinking but likely hold steady or just tweak a bit because you’ve learned a bit more about yourself or about investing, but by 5 years should be much clearer on realistic goals, what’s important and what’s not important, and take serious look at AA with possible changes to AA.
RandomWalker....I have been thinking very seriously about accelerating my glide path, so that I am at 30/25/45 (US/Intl/Bond) by age 62. My thinking is influenced by what I read in McClung's 'Living off your money'. By accelerate, I mean in 3% increments annually (currently 21% bonds) for 8-10 years. My original glide path got me to 35/25/40 by age 62....so not a big change. But I think it is enough for me.

It is not 'selling' to get sleep that matters to me. What does matter to me is my IPS. As I learn things, I add them. Thanks to livesoft, I know that when we get the inevitable correction or a huge RBD (3+% move in a day - pretty rare), I will rebalance without a second thought. Larry Swedroe's writings also influence my thinking greatly. What I have come to appreciate over time is his academic approach, and his open-mindedness to looking at new data, new approaches, new strategies.
“If you don't know, the thing to do is not to get scared, but to learn.”

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

Post by Bacchus01 » Mon Oct 08, 2018 7:25 am

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

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

Post by edgeagg » Mon Oct 08, 2018 8:07 am

afan wrote:
Sun Oct 07, 2018 1:02 pm
edgeagg wrote:
Sun Oct 07, 2018 8:40 am
afan wrote:
Sun Oct 07, 2018 7:13 am
I completely agree that I would love to KNOW the likelihood of large gains or losses for stocks over the next 2 years. If anyone KNOWS, please PM me.
Well, isn't that just trying to model recession probabilities? If so, you should see the thread on yield inversions.
Note the key word "know." Projections of what that distributions of returns might be are a dime a dozen.
Well, God probably doesn't type. Good luck!!

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

Post by Toons » Mon Oct 08, 2018 8:19 am

50/50
Sleep Well
Like A Baby

:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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

Post by MnD » Mon Oct 08, 2018 9:26 am

midareff wrote:
Sun Oct 07, 2018 4:20 pm
Rowan Oak wrote:
Sat Oct 06, 2018 8:00 pm
MnD wrote:
Sat Oct 06, 2018 7:46 pm
Random Walker wrote:
Sat Oct 06, 2018 3:34 pm
If someone is close to retirement or in retirement and has the retirement secured, I’d say don’t mess around. Consider doing something more definitive than just 5-10% to lock in the gains of the last decade. Monte Carlo Simulation can be very helpful for these decisions.
8 weeks from retirement and retirement secured. 70/30 for life on investment portfolio.
"Consider doing something more definitive than just 5-10% to lock in the gains of the last decade" is a textbook definition of "messing around" and letting emotions and garbage headlines drive your investment strategy.
If you've won the game why keep playing?
Exactly...... and why risk money you do need to try and make money you don't need?
Safe revenue streams for true needs, and the willingness and ability to accept higher variability in both returns and withdrawals (% of annual portfolio withdrawal). Provides a higher utility per unit of retirement savings, typically much higher. High bond portfolios are not necessarily safer - all increasing bonds did for the 1966 retiree on a fixed SWR was to accelerate portfolio depletion. 30% fixed income is plenty when 50% of your retirement income isn't coming from your investment portfolio. Sleep like a baby although I'll sleep much better when I ditch the office grind in 8 weeks.

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

Post by Rowan Oak » Mon Oct 08, 2018 10:30 am

Toons wrote:
Mon Oct 08, 2018 8:19 am
50/50
Sleep Well
Like A Baby

:mrgreen:
50/50 to 60% stock/40% bond seems to be the choice of many long-time Bogleheads nearing or in retirement. I plan on going with 50/50 at retirement considering my risk preferences and whole financial program (Social Security, etc.).
Last edited by Rowan Oak on Mon Oct 08, 2018 11:17 am, edited 1 time in total.
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Taylor Larimore
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Asset-allocation in retirement? My simple plan.

Post by Taylor Larimore » Mon Oct 08, 2018 11:08 am

Bogleheads:

We have many posts and many different opinions about the best Asset-Allocation in retirement. My asset-allocation is simple:

* I put what I cannot afford to lose in safe fixed-income, primarily Total Bond Market for 1-fund bond diversification.

* I put the rest in stocks, primarily Vanguard Total Stock Market (for diversification and simplicity).

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

2015
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Re: “It’s probably wise to sell to the sleeping point.”

Post by 2015 » Mon Oct 08, 2018 1:04 pm

Call_Me_Op wrote:
Mon Oct 08, 2018 6:22 am
youngpleb wrote:
Sat Oct 06, 2018 3:43 pm
Interesting. The 5-10% reduction in stocks would have many here wagging their fingers and chanting “market timing” if someone mentioned doing that in a post.
No. Strategically reducing market exposure because of (for example) getting older or having "enough" is not market timing. Market timing is when you buy and sell based upon what you think the market is going to do in the near term.
:thumbsup. Yup.

There's a chasm between making decisions and taking actions based on macroeconomics versus microeconomics. People make this mistake all of the time when they play in metagames of others having little or no bearing on their own particular situation.

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

Post by TravelforFun » Mon Oct 08, 2018 1:10 pm

minimalistmarc wrote:
Sun Oct 07, 2018 2:38 am
Namashkar wrote:
Sat Oct 06, 2018 9:58 pm
Ask yourself the following questions.

1. What are the odds for the equity market (TSM) to gain 20% from this year’s S&P 500 high vs 20% loss within a couple of years considering the current valuation?
I don’t know. Can you tell me the answer please?
Someone asked the same question on this board 2-3 years ago. Hope that person didn't sell.

TravelforFun

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

Post by CULater » Mon Oct 08, 2018 3:38 pm

I can tolerate risk -- it's losing money that bothers me.

Sleeping well with lots of cash stuffed in my pillow...
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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

Post by fortyofforty » Mon Oct 08, 2018 5:40 pm

All this talk of market tops and the need to sell is making me think it's still time to buy. :confused
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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

Post by FIREchief » Mon Oct 08, 2018 8:20 pm

I wonder if anybody here is on the flip side of this coin. When I was in my thirties, I may have been just as likely to lose sleep over worrying about having to work until 80 as I would have worried about a stock market losing to bonds for 30 plus years. Fortunately, I went 100% equities until FIRE. Worked for me. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Asset-allocation in retirement? My simple plan.

Post by abuss368 » Mon Oct 08, 2018 11:23 pm

Taylor Larimore wrote:
Mon Oct 08, 2018 11:08 am
Bogleheads:

We have many posts and many different opinions about the best Asset-Allocation in retirement. My asset-allocation is simple:

* I put what I cannot afford to lose in safe fixed-income, primarily Total Bond Market for 1-fund bond diversification.

* I put the rest in stocks, primarily Vanguard Total Stock Market (for diversification and simplicity).

Best Wishes
Taylor
Hi Taylor -

Are you using Mr. Bogle’s Two Fund Portfolio?
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

smectym
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Re: Asset-allocation in retirement? My simple plan.

Post by smectym » Mon Oct 08, 2018 11:28 pm

Taylor Larimore wrote:
Mon Oct 08, 2018 11:08 am
Bogleheads:

We have many posts and many different opinions about the best Asset-Allocation in retirement. My asset-allocation is simple:

* I put what I cannot afford to lose in safe fixed-income, primarily Total Bond Market for 1-fund bond diversification.

* I put the rest in stocks, primarily Vanguard Total Stock Market (for diversification and simplicity).

Best Wishes
Taylor
Taylor, we have different definitions of "safe." I would put what I could not afford to lose into Vanguard Treasury Money Market or similar. Why wouldn't you do the same?

Smectym

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Taylor Larimore
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Re: Asset-allocation in retirement? My simple plan.

Post by Taylor Larimore » Tue Oct 09, 2018 9:38 am

abuss368 wrote:
Mon Oct 08, 2018 11:23 pm
Taylor Larimore wrote:
Mon Oct 08, 2018 11:08 am
Bogleheads:

We have many posts and many different opinions about the best Asset-Allocation in retirement. My asset-allocation is simple:

* I put what I cannot afford to lose in safe fixed-income, primarily Total Bond Market for 1-fund bond diversification.

* I put the rest in stocks, primarily Vanguard Total Stock Market (for diversification and simplicity).

Best Wishes
Taylor
Hi Taylor -

Are you using Mr. Bogle’s Two Fund Portfolio?
Tony:

I did not realize I am invested in "Mr. Bogles Two Fund Portfolio" until your question. I had a 3-fund portfolio which included Total International. However, when I started withdrawing from my taxable account, my Total International had the smallest capital gains so I liquidated it first. It was a choice between immediate-tax or better diversification.

If I could start my investing life over again, I would invest in The Three-Fund Portfolio.

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

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

Post by RAchip » Tue Oct 09, 2018 9:51 am

It's easier if you have a portfolio of dividend stocks. That way you just say to yourself, who cares about the ups and downs of the market prices. You get paid quarterly (at least) and the amount generally goes up 3-5% every year.

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Re: Asset-allocation in retirement? My simple plan.

Post by abuss368 » Tue Oct 09, 2018 10:46 am

Taylor Larimore wrote:
Tue Oct 09, 2018 9:38 am
abuss368 wrote:
Mon Oct 08, 2018 11:23 pm
Taylor Larimore wrote:
Mon Oct 08, 2018 11:08 am
Bogleheads:

We have many posts and many different opinions about the best Asset-Allocation in retirement. My asset-allocation is simple:

* I put what I cannot afford to lose in safe fixed-income, primarily Total Bond Market for 1-fund bond diversification.

* I put the rest in stocks, primarily Vanguard Total Stock Market (for diversification and simplicity).

Best Wishes
Taylor
Hi Taylor -

Are you using Mr. Bogle’s Two Fund Portfolio?
Tony:

I did not realize I am invested in "Mr. Bogles Two Fund Portfolio" until your question. I had a 3-fund portfolio which included Total International. However, when I started withdrawing from my taxable account, my Total International had the smallest capital gains so I liquidated it first. It was a choice between immediate-tax or better diversification.

If I could start my investing life over again, I would invest in The Three-Fund Portfolio.

Best wishes.
Taylor
Thanks Taylor!

Best regards.
Tony
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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

Post by fortyofforty » Tue Oct 09, 2018 12:38 pm

With periodic rebalancing, you are buying into the teeth of a bear market. I plan to do just that. However, it is no guarantee against losses. In fact, you buy into losses. I wonder how many of us would be ready, willing, and able to keep buying all the way down if the stock market loses twenty, or even forty or fifty percent or more. And I wonder how many of us would truly be steadfast in the face of such extreme losses. Stay the course is easy to say, nearly impossible to do in the worst of times.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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

Post by Rowan Oak » Tue Oct 09, 2018 1:05 pm

RAchip wrote:
Tue Oct 09, 2018 9:51 am
It's easier if you have a portfolio of dividend stocks. That way you just say to yourself, who cares about the ups and downs of the market prices. You get paid quarterly (at least) and the amount generally goes up 3-5% every year.
Not sure this is different than a total return strategy other than being forced to pay taxes on dividends (unless one is in a low enough tax bracket to pay 0%)?
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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

Post by Rowan Oak » Tue Oct 09, 2018 1:13 pm

fortyofforty wrote:
Tue Oct 09, 2018 12:38 pm
With periodic rebalancing, you are buying into the teeth of a bear market. I plan to do just that. However, it is no guarantee against losses. In fact, you buy into losses. I wonder how many of us would be ready, willing, and able to keep buying all the way down if the stock market loses twenty, or even forty or fifty percent or more. And I wonder how many of us would truly be steadfast in the face of such extreme losses. Stay the course is easy to say, nearly impossible to do in the worst of times.
Some here already know the answer to your question and many do not.
The best way to measure your investment risk is to go stand in front of the nearest mirror. Stare into it, and think long and hard about whether you’ve tested your assumptions.

Jason Zweig
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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

Post by MnD » Tue Oct 09, 2018 1:30 pm

fortyofforty wrote:
Tue Oct 09, 2018 12:38 pm
With periodic rebalancing, you are buying into the teeth of a bear market. I plan to do just that. However, it is no guarantee against losses. In fact, you buy into losses. I wonder how many of us would be ready, willing, and able to keep buying all the way down if the stock market loses twenty, or even forty or fifty percent or more. And I wonder how many of us would truly be steadfast in the face of such extreme losses. Stay the course is easy to say, nearly impossible to do in the worst of times.
I use percentage-based rebalancing bands versus "periodic rebalancing" but yes, I re-balanced once in 2008 and once again in 2009 when percentage thresholds from target were exceeded, both times involving 100's of thousands of dollars in fixed income sales and US/ex-US equity purchases. If you can't hold to your your stated asset allocation in a bear market that's a strong indicator you have too much in equity and are holding a fair-weather only portfolio. Being unable/unwilling to sell equity in a bull market to restore your asset allocation percentages because things are "just too good right now" is another sign of portfolio management error.

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

Post by DartThrower » Tue Oct 09, 2018 1:35 pm

fortyofforty wrote:
Tue Oct 09, 2018 12:38 pm
With periodic rebalancing, you are buying into the teeth of a bear market. I plan to do just that. However, it is no guarantee against losses. In fact, you buy into losses. I wonder how many of us would be ready, willing, and able to keep buying all the way down if the stock market loses twenty, or even forty or fifty percent or more. And I wonder how many of us would truly be steadfast in the face of such extreme losses. Stay the course is easy to say, nearly impossible to do in the worst of times.
When faced with these anxieties I am reassured by the fact that I "own the world" and therefore I am not catching a falling knife by rebalancing. Little country risk. No company risk. If the worldwide stock and bond markets both collapse and fail to come back during my investing lifetime I will have bigger problems to worry about than monetary ones. This mindset worked great in 2008-2009 and I'm sure it will work again (I am 10 years older and correspondingly more conservative in my investments).
A Boglehead can stay the course longer than the market can stay irrational.

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

Post by fortyofforty » Tue Oct 09, 2018 6:08 pm

Rowan Oak wrote:
Tue Oct 09, 2018 1:13 pm
fortyofforty wrote:
Tue Oct 09, 2018 12:38 pm
With periodic rebalancing, you are buying into the teeth of a bear market. I plan to do just that. However, it is no guarantee against losses. In fact, you buy into losses. I wonder how many of us would be ready, willing, and able to keep buying all the way down if the stock market loses twenty, or even forty or fifty percent or more. And I wonder how many of us would truly be steadfast in the face of such extreme losses. Stay the course is easy to say, nearly impossible to do in the worst of times.
Some here already know the answer to your question and many do not.
The best way to measure your investment risk is to go stand in front of the nearest mirror. Stare into it, and think long and hard about whether you’ve tested your assumptions.

Jason Zweig
I still think there's a difference between believing you've tested your assumptions and living through it personally.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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

Post by smectym » Tue Oct 09, 2018 10:56 pm

I have money that I cannot afford to lose.
Should I put that money in Vanguard Total Bond Market, or should I put it in Vanguard Treasury Money Market, or maybe I-bonds or bank CD's?

Thanks,

Smectym

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

Post by fortyofforty » Wed Oct 10, 2018 4:52 am

smectym wrote:
Tue Oct 09, 2018 10:56 pm
I have money that I cannot afford to lose.
Should I put that money in Vanguard Total Bond Market, or should I put it in Vanguard Treasury Money Market, or maybe I-bonds or bank CD's?

Thanks,

Smectym
There is a continuum of risk, starting at bank savings accounts and CDs, fully guaranteed by the FDIC, through money market funds like those offered by Vanguard, through short term treasury funds, and so on. You will likely have to post your question in the Help with Personal Investments section for specific recommendations, based on your individual situation.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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

Post by ivk5 » Wed Oct 10, 2018 5:44 am

smectym wrote:
Tue Oct 09, 2018 10:56 pm
I have money that I cannot afford to lose.
Should I put that money in Vanguard Total Bond Market, or should I put it in Vanguard Treasury Money Market, or maybe I-bonds or bank CD's?

Thanks,

Smectym
If you truly can't afford any loss of principal for any period, you need instruments with essentially zero credit risk - treasuries or FDIC-insured account, both backed by the full faith and credit of the US.

But to get more specific requires more info.
- When do you need the money? How important is liquidity? Can you accept some term risk in exchange for reasonable yield premium?
- What are your state/federal marginal tax rates?
- Ballpark amount? Some vehicles have min investment ($50K for VG Treasury MM for example), and there are FDIC limits to watch for large amounts.

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

Post by bayview » Wed Oct 10, 2018 5:51 am

For those of us who have met our retirement number, but who have little wiggle room, it makes sense to have that floor for needed income, and then all the rest in a flexible investment portfolio. The traditional SS/BB/$$ AA just addresses proportions, not specific dollar figure needs.

We have 20 years of a comfortable annual draw-down amount needed from retirement savings, 25 years of the minimum, in G fund, Treasuries up to two years, CDs up to 3 years, and Money Market. The rest of the portfolio (~20% of total) can do its thing over time. This remainder is currently 90% stock index funds/10% MM, which will be adjusted to move toward 70/30 via portfolio growth (in the years where there is growth) and perhaps some PT retirement income. It might not be perfect by some standards, but it's the best solution for us in terms of need/ ability/ willingness to take risk.

Since DH is already retired and my last day of FT work is Friday :shock:, we pretty well meet the definition of "retirement is imminent." :D
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

ivk5
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Re: “It’s probably wise to sell to the sleeping point.” - Jack Bogle

Post by ivk5 » Wed Oct 10, 2018 6:13 am

bayview wrote:
Wed Oct 10, 2018 5:51 am
For those of us who have met our retirement number, but who have little wiggle room, it makes sense to have that floor for needed income, and then all the rest in a flexible investment portfolio. The traditional SS/BB/$$ AA just addresses proportions, not specific dollar figure needs.

We have 20 years of a comfortable annual draw-down amount needed from retirement savings, 25 years of the minimum, in G fund, Treasuries up to two years, CDs up to 3 years, and Money Market. The rest of the portfolio (~20% of total) can do its thing over time. This remainder is currently 90% stock index funds/10% MM, which will be adjusted to move toward 70/30 via portfolio growth (in the years where there is growth) and perhaps some PT retirement income. It might not be perfect by some standards, but it's the best solution for us in terms of need/ ability/ willingness to take risk.

Since DH is already retired and my last day of FT work is Friday :shock:, we pretty well meet the definition of "retirement is imminent." :D
Reasonable minds could differ. I would just call this a 18/82 allocation.

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

Post by bayview » Wed Oct 10, 2018 6:57 am

ivk5 wrote:
Wed Oct 10, 2018 6:13 am
bayview wrote:
Wed Oct 10, 2018 5:51 am
For those of us who have met our retirement number, but who have little wiggle room, it makes sense to have that floor for needed income, and then all the rest in a flexible investment portfolio. The traditional SS/BB/$$ AA just addresses proportions, not specific dollar figure needs.

We have 20 years of a comfortable annual draw-down amount needed from retirement savings, 25 years of the minimum, in G fund, Treasuries up to two years, CDs up to 3 years, and Money Market. The rest of the portfolio (~20% of total) can do its thing over time. This remainder is currently 90% stock index funds/10% MM, which will be adjusted to move toward 70/30 via portfolio growth (in the years where there is growth) and perhaps some PT retirement income. It might not be perfect by some standards, but it's the best solution for us in terms of need/ ability/ willingness to take risk.

Since DH is already retired and my last day of FT work is Friday :shock:, we pretty well meet the definition of "retirement is imminent." :D
Reasonable minds could differ. I would just call this a 18/82 allocation.
Sure, but in terms of meeting needs, there's a real difference among 18/82 applied to $250k in savings, $500k in savings, and $1 million in savings.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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

Post by dziuniek » Wed Oct 10, 2018 9:16 am

Something to shake up everyone's confidence in their allocation every now and then isn't bad. :)

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

Post by smectym » Thu Oct 11, 2018 2:35 am

ivk5 wrote:
Wed Oct 10, 2018 5:44 am
smectym wrote:
Tue Oct 09, 2018 10:56 pm
I have money that I cannot afford to lose.
Should I put that money in Vanguard Total Bond Market, or should I put it in Vanguard Treasury Money Market, or maybe I-bonds or bank CD's?

Thanks,

Smectym
If you truly can't afford any loss of principal for any period, you need instruments with essentially zero credit risk - treasuries or FDIC-insured account, both backed by the full faith and credit of the US.

But to get more specific requires more info.
- When do you need the money? How important is liquidity? Can you accept some term risk in exchange for reasonable yield premium?
- What are your state/federal marginal tax rates?
- Ballpark amount? Some vehicles have min investment ($50K for VG Treasury MM for example), and there are FDIC limits to watch for large amounts.
ivk5, Thanks a lot for the response. My query was in reaction to the post of a justly prestigious member on this forum who stated that he put money he “could not afford to lose” in Vanguard Total Bond Market Fund.

But I would suggest that the volatility of that fund rules it out as a safe money alternative.

We might have different definitions of “safe” and different ideas of what it means to protect money we “can’t afford to lose”, but to me it means, frankly, a stable NAV as well as (notionally) zero default risk.

So that would encompass Vanguard Treasury money market (which I would prefer over Vanguard Prime). Direct ownership of treasury bills would also qualify. I would also include I bonds or CDs if the investor could live with potential redemption penalties; but apart from that – – I would never invest in a intermediate or long term bond fund with “money I couldn’t afford to lose.”

Am I wrong, or missing something?

Thanks again,

Smectym

ivk5
Posts: 405
Joined: Thu Sep 22, 2016 9:05 am

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

Post by ivk5 » Thu Oct 11, 2018 3:16 am

smectym wrote:
Thu Oct 11, 2018 2:35 am
ivk5 wrote:
Wed Oct 10, 2018 5:44 am
smectym wrote:
Tue Oct 09, 2018 10:56 pm
I have money that I cannot afford to lose.
Should I put that money in Vanguard Total Bond Market, or should I put it in Vanguard Treasury Money Market, or maybe I-bonds or bank CD's?

Thanks,

Smectym
If you truly can't afford any loss of principal for any period, you need instruments with essentially zero credit risk - treasuries or FDIC-insured account, both backed by the full faith and credit of the US.

But to get more specific requires more info.
- When do you need the money? How important is liquidity? Can you accept some term risk in exchange for reasonable yield premium?
- What are your state/federal marginal tax rates?
- Ballpark amount? Some vehicles have min investment ($50K for VG Treasury MM for example), and there are FDIC limits to watch for large amounts.
ivk5, Thanks a lot for the response. My query was in reaction to the post of a justly prestigious member on this forum who stated that he put money he “could not afford to lose” in Vanguard Total Bond Market Fund.

But I would suggest that the volatility of that fund rules it out as a safe money alternative.

We might have different definitions of “safe” and different ideas of what it means to protect money we “can’t afford to lose”, but to me it means, frankly, a stable NAV as well as (notionally) zero default risk.

So that would encompass Vanguard Treasury money market (which I would prefer over Vanguard Prime). Direct ownership of treasury bills would also qualify. I would also include I bonds or CDs if the investor could live with potential redemption penalties; but apart from that – – I would never invest in a intermediate or long term bond fund with “money I couldn’t afford to lose.”

Am I wrong, or missing something?

Thanks again,

Smectym
Sorry, rhetorical questions sometimes don't translate well to online forums, guess I missed it.

I can't speak for Taylor of course but I'm guessing by money he "can't afford to lose" he meant "can't afford to expose to equity volatility/risk." This is about orders of magnitude. Of course you're right that TBM carries some risk of, say, a 5% drawdown (or more); in exchange, it compensates with a credit premium and term premium. That's still in a different league from equities. Think most would agree that if a few percent variance one way or the other is going to make or break your retirement, you're in a pretty precarious place; and there are other unknowns that will introduce at least that much variance for most people (like the unknowability of some future expenses).

I think there's a bit of logical fallacy in the distinction you draw between TBM and direct ownership of treasury bills, I bonds, or CDs. You've even pointed it out by saying "if the investor could live with potential redemption penalties." Those are not zero-duration instruments, and while they each have some unique properties, they generally carry the equivalent of some term risk too (for I Bonds, specifically up to five years). I suggest asking yourself to what extent your discomfort is about term risk versus credit risk. If credit risk is the issue, how would you feel if Taylor had said he uses an Intermediate Term Treasury Fund instead of TBM (as some BHs do)? Or a mix of Int Term Treasuries and Treasury Money Market to achieve a shorter but non-zero effective duration?

Your instincts might be more toward the concept of a Liability Matching Portfolio or other form of Liability Driven Investment strategy. If you need to lock in specific amounts of spending power on specific dates, you can come pretty close to buying that with relative certainty (with TIPS, for example, though with some complications). That's different from asking how to allocate the Fixed Income portion of a Risk Portfolio. Lots of prior threads here on LDI/LMP, and a few prolific BHers who have contributed mightily to exploring those topics.

DJN
Posts: 128
Joined: Mon Nov 20, 2017 12:30 am

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

Post by DJN » Thu Oct 11, 2018 5:09 am

Thank you for this conversation, I find it very helpful.
I am beginning to look at the whole issue of risk and the need for asset growth and income in a slightly different way to following the BH way. That being of course: working out your risk tolerance, and then based upon your specific allocation using a BH portfolio of say 3 typical funds. I am aware that no matter which way you look at this problem someone will point out that whatever you individually come up with, it is really just another version of a BH portfolio when you have a simple set of assets. But I find it helpful to try and think differently in order to address my age (63), my upcoming retirement age (65), my annual costs say $110,000, my time horizon of 35 years (post 65), the uncertainty in the markets and most importantly my complete unwillingness to relinquish my hard earned cash at this stage. The idea of a liability matching portfolio becomes interesting. My version is as follows:
- cash for 10 years living expenses in ladder = 25%
- bonds etf = 25%
- property which is really an alternative store of wealth for later phase liquidation = 25%
- global stocks etf and em etf = 25%

I am sure that this type of approach will have some type of name and some people might think I am daft, some will say its maybe 25 / 75 or similar.
DJN

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