Article: Why not 100% equities

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abc132
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Re: Article: Why not 100% equities

Post by abc132 »

seajay wrote: Sun Jul 07, 2024 4:13 am
I haven't looked at US figures but believe that 1929 was another bad start of decumulation start year i.e. ran slap bang into the Wall Street Crash when stocks halved, halved again relatively soon. However prior to that were the Roaring 20's when stocks had doubled and doubled again. Applying/using a constant measure such as 25x yearly spending, 4% SWR isn't a good choice, as 1929 all stocks 3.8% SWR highlights. If you got to 25x due to rapid stock double and double again over a relatively short period (10 year) its risky to assume that 25x is enough/a 4% SWR is OK, the expected amount required should be increased/SWR % reduced, perhaps 3% SWR or 33x being required. In other cases after low real accumulation rewards or deep dips, a lower than 25x/higher SWR might also be assumed as potentially being OK, perhaps even 8% SWR.
Don't retire 2 decades earlier than planned when you hit 25x at age 40-45.

You can't anyway because you have more than 30 years remaining. You need 33x with 40-45 years to go.

You don't need any special market knowledge to see you would never be at 25x and only 30 years of retirement with any reasonable plan in a roaring 20's boom.

This is the typical type of comment that doesn't stand up to actual analysis. A plan that fails in any other sequence because of too low of accumulation still fails. A reasonable plan does great because of the boom.
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Sun Jul 07, 2024 10:12 am Well said. Ignoring the present state of affairs is a recipe for suboptimal planning and taking on uncompensated risk.
The bigger problem is retiring with 25x and 45 years to go.

It was already a poor plan and you are already retiring very early after such a boom.

There is no reason you wouldn't be at 30-35x before calling it quits a decade plus ahead of schedule.

We have to use common sense in our analysis with regards to funding 10+ extra years of retirement in a boom.
tj
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Re: Article: Why not 100% equities

Post by tj »

abc132 wrote: Sun Jul 07, 2024 1:00 pm
Circle the Wagons wrote: Sun Jul 07, 2024 10:12 am Well said. Ignoring the present state of affairs is a recipe for suboptimal planning and taking on uncompensated risk.
The bigger problem is retiring with 25x and 45 years to go.

It was already a poor plan and you are already retiring very early after such a boom.

There is no reason you wouldn't be at 30-35x before calling it quits a decade plus ahead of schedule.

We have to use common sense in our analysis with regards to funding 10+ extra years of retirement in a boom.
I disagree.

If you have 45 years ago, you are young enough to pick up some extra work if the economics are weak.

Most people with 25X see their portfolios continue to grow after years rather than deplete.

If you need to be 30x-35x, you are very likely to have oversaved.
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

tj wrote: Sun Jul 07, 2024 5:30 pm
abc132 wrote: Sun Jul 07, 2024 1:00 pm
Circle the Wagons wrote: Sun Jul 07, 2024 10:12 am Well said. Ignoring the present state of affairs is a recipe for suboptimal planning and taking on uncompensated risk.
The bigger problem is retiring with 25x and 45 years to go.

It was already a poor plan and you are already retiring very early after such a boom.

There is no reason you wouldn't be at 30-35x before calling it quits a decade plus ahead of schedule.

We have to use common sense in our analysis with regards to funding 10+ extra years of retirement in a boom.
I disagree.

If you have 45 years ago, you are young enough to pick up some extra work if the economics are weak.

Most people with 25X see their portfolios continue to grow after years rather than deplete.

If you need to be 30x-35x, you are very likely to have oversaved.
If you want more than a 50% success rate you plan based on conservative return estimates. Let's say you are at 10x expenses saving 0.15x expenses at age 40. If you assume 4% real returns you will hit 25x at age 59. Saving 15% of annual expenses would be a reasonable savings rate.

Instead the market returns 7% real and you hit 25x at age 52. You should always have over-saved in a good pre-retirement sequence because you don't assume above average returns for planning purposes.

Do you want a less than 50% chance of success or do you want to over-save in what turns out to be a good pre-retirement sequence? Pick one of the two. In my case I am just adjusting optional expenses upwards. It's not particularly a problem to retire early and spend more than planned.
Circle the Wagons
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Re: Article: Why not 100% equities

Post by Circle the Wagons »

abc132 wrote: Sun Jul 07, 2024 1:00 pm
Circle the Wagons wrote: Sun Jul 07, 2024 10:12 am Well said. Ignoring the present state of affairs is a recipe for suboptimal planning and taking on uncompensated risk.
The bigger problem is retiring with 25x and 45 years to go.

It was already a poor plan and you are already retiring very early after such a boom.

There is no reason you wouldn't be at 30-35x before calling it quits a decade plus ahead of schedule.

We have to use common sense in our analysis with regards to funding 10+ extra years of retirement in a boom.
Even with a "standard" 30 year retirement looming, 25x with a very aggressive AA (e.g., 100% U.S. equity) and CAPE / ERP where they are today is ... extremely risky. In a different valuation and yield environment, it would be much less risky. If you ignore current asset prices and assess relative AA riskiness based solely on historical backtests across the accompanying historical range of yields, you're effectively ignoring this difference.
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Mon Jul 08, 2024 2:04 pm
abc132 wrote: Sun Jul 07, 2024 1:00 pm
Circle the Wagons wrote: Sun Jul 07, 2024 10:12 am Well said. Ignoring the present state of affairs is a recipe for suboptimal planning and taking on uncompensated risk.
The bigger problem is retiring with 25x and 45 years to go.

It was already a poor plan and you are already retiring very early after such a boom.

There is no reason you wouldn't be at 30-35x before calling it quits a decade plus ahead of schedule.

We have to use common sense in our analysis with regards to funding 10+ extra years of retirement in a boom.
Even with a "standard" 30 year retirement looming, 25x with a very aggressive AA (e.g., 100% U.S. equity) and CAPE / ERP where they are today is ... extremely risky. In a different valuation and yield environment, it would be much less risky. If you ignore current asset prices and assess relative AA riskiness based solely on historical backtests across the accompanying historical range of yields, you're effectively ignoring this difference.
I just showed that one would be at more than 35x if they planned for 25x today. It is simply not possible to use a reasonably conservative estimate of 3-4% real, get average or above above average returns, and not be well above the goal of 25x with 30 years to go.

I'm at 40x expenses as anyone would be who was shooting for 25x expenses on todays date. I don't care about your future predictions because I am not at 25x expenses. Yes if you ignore reality you can argue how bad it is for stocks to go up when you have your biggest lifetime portfolio. If you include reality and combine it with a reasonable plan there should be nothing to worry about.

If one couldn't meet savings goals or started late they are still lucky to have a run-up. Being at 25x expenses is better than being at 10x expenses. Even if your predictions are correct everyone has benefitted from that thing that you think is so scary. If we are short of goals we need a higher savings rate and yes more bonds. That has much more to do with meeting goals than future predictions.
Circle the Wagons
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Re: Article: Why not 100% equities

Post by Circle the Wagons »

abc132 wrote: Mon Jul 08, 2024 2:14 pm
Circle the Wagons wrote: Mon Jul 08, 2024 2:04 pm
abc132 wrote: Sun Jul 07, 2024 1:00 pm
Circle the Wagons wrote: Sun Jul 07, 2024 10:12 am Well said. Ignoring the present state of affairs is a recipe for suboptimal planning and taking on uncompensated risk.
The bigger problem is retiring with 25x and 45 years to go.

It was already a poor plan and you are already retiring very early after such a boom.

There is no reason you wouldn't be at 30-35x before calling it quits a decade plus ahead of schedule.

We have to use common sense in our analysis with regards to funding 10+ extra years of retirement in a boom.
Even with a "standard" 30 year retirement looming, 25x with a very aggressive AA (e.g., 100% U.S. equity) and CAPE / ERP where they are today is ... extremely risky. In a different valuation and yield environment, it would be much less risky. If you ignore current asset prices and assess relative AA riskiness based solely on historical backtests across the accompanying historical range of yields, you're effectively ignoring this difference.
I just showed that one would be at more than 35x if they planned for 25x today. It is simply not possible to use a reasonably conservative estimate of 3-4% real, get average or above above average returns, and not be well above the goal of 25x with 30 years to go.

I'm at 40x expenses as anyone would be who was shooting for 25x expenses on todays date. I don't care about your future predictions because I am not at 25x expenses. Yes if you ignore reality you can argue how bad it is for stocks to go up when you have your biggest lifetime portfolio. If you include reality and combine it with a reasonable plan there should be nothing to worry about.

If one couldn't meet savings goals or started late they are still lucky to have a run-up. Being at 25x expenses is better than being at 10x expenses. Even if your predictions are correct everyone has benefitted from that thing that you think is so scary. If we are short of goals we need a higher savings rate and yes more bonds. That has much more to do with meeting goals than future predictions.
Just like we can't predict the future, we can't change the past. Reality. We're talking about someone making an AA decision today while at 25x and 30 years of retirement ahead, not that they could have been much higher than 25x today had they had a higher allocation to equity during accumulation.

Do you believe 100/0 is equally risky for this new retiree regardless of current yields? At what "x" for this retiree would you say 100/0 is reasonable, and does your answer change at all with changing asset prices?
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Mon Jul 08, 2024 2:27 pm
Just like we can't predict the future, we can't change the past. Reality. We're talking about someone making an AA decision today while at 25x and 30 years of retirement ahead, not that they could have been much higher than 25x today had they had a higher allocation to equity during accumulation.
I would be far more concerned about their ability to form and stick to a reasonable plan. That investor issue is a good 100x more dangerous than any controllable issues from your ERP predictions. They should keep working a few more years because they don't have a good grasp or ability to control savings. This is also a retirement spending concern.
Circle the Wagons wrote: Mon Jul 08, 2024 2:27 pm Do you believe 100/0 is equally risky for this new retiree regardless of current yields? At what "x" for this retiree would you say 100/0 is reasonable, and does your answer change at all with changing asset prices?
100/0 is reasonable for 0x to 15x portfolios. A decline actually helps them when considering new additions.
100/0 is reasonable for larger than 15x portfolios if there is a plan to work at least another decade.
100/0 is reasonable for larger than 40x portfolios (although even a few years of fixed income is helpful).


I do not care at all about your ERP. It has been non-actionable my entire investing career and I will still benefit from having ignored it if it is now accurate. I believe if you hit your goal 10 years early you will naturally work a few more years. That is what everybody here has been doing. There is no problem here to be solved by ERP.
Circle the Wagons
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Re: Article: Why not 100% equities

Post by Circle the Wagons »

abc132 wrote: Mon Jul 08, 2024 3:13 pm 100/0 is reasonable for 0x to 15x portfolios. A decline actually helps them when considering new additions.
100/0 is reasonable for larger than 15x portfolios if there is a plan to work at least another decade.
100/0 is reasonable for larger than 40x portfolios (although even a few years of fixed income is helpful).
Appreciate this specificity. Homing in here ... our example retiree slots in between your second and third scenarios at 25x. Maybe they had a bad plan during accumulation but now want a good one. They can't / won't work longer. How much equity? Is there a sharp dip from 100/0 at 15x down to "all TIPS and suck it up with your spending" and then back up again at 40x (though our guy won't get there)? Do asset prices matter?
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Mon Jul 08, 2024 3:51 pm
abc132 wrote: Mon Jul 08, 2024 3:13 pm 100/0 is reasonable for 0x to 15x portfolios. A decline actually helps them when considering new additions.
100/0 is reasonable for larger than 15x portfolios if there is a plan to work at least another decade.
100/0 is reasonable for larger than 40x portfolios (although even a few years of fixed income is helpful).
Appreciate this specificity. Homing in here ... our example retiree slots in between your second and third scenarios at 25x. Maybe they had a bad plan during accumulation but now want a good one. They can't / won't work longer. How much equity? Is there a sharp dip from 100/0 at 15x down to "all TIPS and suck it up with your spending" and then back up again at 40x (though our guy won't get there)? Do asset prices matter?
If I am retiring today at 25x I am picking a 70/30 portfolio. That would be true a year ago, five years ago, and ten years ago regardless of asset prices. At 25x we don't know if we need more growth or more fixed income because we don't know the timing of our sequence.

Is it 1998 or 2000?
Circle the Wagons
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Re: Article: Why not 100% equities

Post by Circle the Wagons »

abc132 wrote: Mon Jul 08, 2024 4:36 pm
Circle the Wagons wrote: Mon Jul 08, 2024 3:51 pm
abc132 wrote: Mon Jul 08, 2024 3:13 pm 100/0 is reasonable for 0x to 15x portfolios. A decline actually helps them when considering new additions.
100/0 is reasonable for larger than 15x portfolios if there is a plan to work at least another decade.
100/0 is reasonable for larger than 40x portfolios (although even a few years of fixed income is helpful).
Appreciate this specificity. Homing in here ... our example retiree slots in between your second and third scenarios at 25x. Maybe they had a bad plan during accumulation but now want a good one. They can't / won't work longer. How much equity? Is there a sharp dip from 100/0 at 15x down to "all TIPS and suck it up with your spending" and then back up again at 40x (though our guy won't get there)? Do asset prices matter?
If I am retiring today at 25x I am picking a 70/30 portfolio. That would be true a year ago, five years ago, and ten years ago regardless of asset prices. At 25x we don't know if we need more growth or more fixed income because we don't know the timing of our sequence.

Is it 1998 or 2000?
Got it. I don't like winging it, so I plugged all this into TPAW (actually SPAW). Took about 5 minutes btw, despite the "dozens of layers of complexity" required. To achieve 95% confidence requires assuming stocks ER of 9.5% real, or a current ERP of 7.4%. For transparency and to sense check (no claims here of being an expert), folks can see it here:

https://tpawplanner.com/link?params=aYT ... w1NKcueTOl

I have heard your views regarding considering asset prices, willingness to dig in and specifically refute Merton / lifecycle / use of TPAW, etc. So I just post this for other readers who may be considering how aggressive to be and what information and inputs to consider in making that decision. And how complex or actionable it all is.

Rather than roll the dice on 70/30 and unplausible real returns, I would suggest this investor needs a lot more bonds, specifically duration matched TIPS. Perhaps also with a plan for annuitization to try to cover longevity risk beyond the 30 year retirement of the scenario.
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Mon Jul 08, 2024 6:07 pm
abc132 wrote: Mon Jul 08, 2024 4:36 pm
Circle the Wagons wrote: Mon Jul 08, 2024 3:51 pm
abc132 wrote: Mon Jul 08, 2024 3:13 pm 100/0 is reasonable for 0x to 15x portfolios. A decline actually helps them when considering new additions.
100/0 is reasonable for larger than 15x portfolios if there is a plan to work at least another decade.
100/0 is reasonable for larger than 40x portfolios (although even a few years of fixed income is helpful).
Appreciate this specificity. Homing in here ... our example retiree slots in between your second and third scenarios at 25x. Maybe they had a bad plan during accumulation but now want a good one. They can't / won't work longer. How much equity? Is there a sharp dip from 100/0 at 15x down to "all TIPS and suck it up with your spending" and then back up again at 40x (though our guy won't get there)? Do asset prices matter?
If I am retiring today at 25x I am picking a 70/30 portfolio. That would be true a year ago, five years ago, and ten years ago regardless of asset prices. At 25x we don't know if we need more growth or more fixed income because we don't know the timing of our sequence.

Is it 1998 or 2000?
Got it. I don't like winging it, so I plugged all this into TPAW (actually SPAW). Took about 5 minutes btw, despite the "dozens of layers of complexity" required. To achieve 95% confidence requires assuming stocks ER of 9.5% real, or a current ERP of 7.4%. For transparency and to sense check (no claims here of being an expert), folks can see it here:

https://tpawplanner.com/link?params=aYT ... w1NKcueTOl

I have heard your views regarding considering asset prices, willingness to dig in and specifically refute Merton / lifecycle / use of TPAW, etc. So I just post this for other readers who may be considering how aggressive to be and what information and inputs to consider in making that decision. And how complex or actionable it all is.

Rather than roll the dice on 70/30 and unplausible real returns, I would suggest this investor needs a lot more bonds, specifically duration matched TIPS. Perhaps also with a plan for annuitization to try to cover longevity risk beyond the 30 year retirement of the scenario.
Your model is not very good if it suggest 30/70 or 50/50 as a solution.

A 25x portfolio already only has about a 95% chance of success and AA is not what helps.

I don't have to wing it, I earned 40x expenses by ignoring your low return predictions for the past 10 years. It sounds like you have really underperformed and now hold much more risk than me. For those reading, the choice was to invest conservatively and have to worry about AA or to invest more aggressively and be able to pick any AA you like. I'm pretty happy with my choice.

The chance of expenses being higher than expected (medical, divorce, life situation, longevity) crushes your TIPS ladder at 25x expenses. It's a bad idea. It's a much better idea at 35x expenses.
Circle the Wagons
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Re: Article: Why not 100% equities

Post by Circle the Wagons »

abc132 wrote: Mon Jul 08, 2024 6:18 pm
Circle the Wagons wrote: Mon Jul 08, 2024 6:07 pm
abc132 wrote: Mon Jul 08, 2024 4:36 pm
Circle the Wagons wrote: Mon Jul 08, 2024 3:51 pm
abc132 wrote: Mon Jul 08, 2024 3:13 pm 100/0 is reasonable for 0x to 15x portfolios. A decline actually helps them when considering new additions.
100/0 is reasonable for larger than 15x portfolios if there is a plan to work at least another decade.
100/0 is reasonable for larger than 40x portfolios (although even a few years of fixed income is helpful).
Appreciate this specificity. Homing in here ... our example retiree slots in between your second and third scenarios at 25x. Maybe they had a bad plan during accumulation but now want a good one. They can't / won't work longer. How much equity? Is there a sharp dip from 100/0 at 15x down to "all TIPS and suck it up with your spending" and then back up again at 40x (though our guy won't get there)? Do asset prices matter?
If I am retiring today at 25x I am picking a 70/30 portfolio. That would be true a year ago, five years ago, and ten years ago regardless of asset prices. At 25x we don't know if we need more growth or more fixed income because we don't know the timing of our sequence.

Is it 1998 or 2000?
Got it. I don't like winging it, so I plugged all this into TPAW (actually SPAW). Took about 5 minutes btw, despite the "dozens of layers of complexity" required. To achieve 95% confidence requires assuming stocks ER of 9.5% real, or a current ERP of 7.4%. For transparency and to sense check (no claims here of being an expert), folks can see it here:

https://tpawplanner.com/link?params=aYT ... w1NKcueTOl

I have heard your views regarding considering asset prices, willingness to dig in and specifically refute Merton / lifecycle / use of TPAW, etc. So I just post this for other readers who may be considering how aggressive to be and what information and inputs to consider in making that decision. And how complex or actionable it all is.

Rather than roll the dice on 70/30 and unplausible real returns, I would suggest this investor needs a lot more bonds, specifically duration matched TIPS. Perhaps also with a plan for annuitization to try to cover longevity risk beyond the 30 year retirement of the scenario.
Your model is not very good if it suggest 30/70 or 50/50 as a solution.

A 25x portfolio already only has about a 95% chance of success and AA is not what helps.

I don't have to wing it, I earned 40x expenses by ignoring your low return predictions for the past 10 years. It sounds like you have really underperformed and now hold much more risk than me. For those reading, the choice was to invest conservatively and have to worry about AA or to invest more aggressively and be able to pick any AA you like. I'm pretty happy with my choice.

The chance of expenses being higher than expected (medical, divorce, life situation, longevity) crushes your TIPS ladder at 25x expenses. It's a bad idea. It's a much better idea at 35x expenses.
This is an example of not digging in.

Also, my personal situation is nothing like our example retiree :wink:
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Mon Jul 08, 2024 6:25 pm
This is an example of not digging in.

Also, my personal situation is nothing like our example retiree :wink:
Your TIPS ladder at 25x will fail in the 30% chance of a divorce. It fails if expenses are higher than expected or if spending is lumpy. It fails if you have longevity. There are so many holes in your advice that we can see you are not able to make a realistic comparison of the options. You considered none of these???

Nobody should suggest a TIPS ladder for 30 years and compare it to a 25x expenses portfolio. Every TIPS ladder suggestion besides yours has the ladder plus some additional amount to cover lumpy expenses, longevity, etc.

It takes more than 25x expenses to get rid of risk for a 30 year sequence. Your suggestion has a higher than 5% failure rate. Divorce alone will result in 30% failure chance. That 70/30 AA has a 50/50 chance of surviving a divorce, putting it 15% ahead of your suggestion. We have a more than 5% chance of not estimating expenses exactly putting the 70/30 AA further ahead of your suggestion.

How were you not able to input any of these important variables into your input-->output model? It's going to be a tough sell that you have an actionable model given your recommendation.

We could start a new thread, "Why not 100% in a TIPS ladder?" but this link will explain why it is a bad idea.

viewtopic.php?t=412123
Circle the Wagons
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Re: Article: Why not 100% equities

Post by Circle the Wagons »

abc132 wrote: Mon Jul 08, 2024 11:22 pm
Circle the Wagons wrote: Mon Jul 08, 2024 6:25 pm
This is an example of not digging in.

Also, my personal situation is nothing like our example retiree :wink:
Your TIPS ladder at 25x will fail in the 30% chance of a divorce. It fails if expenses are higher than expected or if spending is lumpy. It fails if you have longevity. There are so many holes in your advice that we can see you are not able to make a realistic comparison of the options. You considered none of these???

Nobody should suggest a TIPS ladder for 30 years and compare it to a 25x expenses portfolio. Every TIPS ladder suggestion besides yours has the ladder plus some additional amount to cover lumpy expenses, longevity, etc.

It takes more than 25x expenses to get rid of risk for a 30 year sequence. Your suggestion has a higher than 5% failure rate. Divorce alone will result in 30% failure chance. That 70/30 AA has a 50/50 chance of surviving a divorce, putting it 15% ahead of your suggestion. We have a more than 5% chance of not estimating expenses exactly putting the 70/30 AA further ahead of your suggestion.

How were you not able to input any of these important variables into your input-->output model? It's going to be a tough sell that you have an actionable model given your recommendation.
I said more TIPS, not necessarily 100% TIPS. The lower the ERP, the more in TIPS. Risk aversion etc. matter too, but I think most folks would find a more comfortable probability outlook of spending with more bonds today than what historical backtests advise.

And for the retiree close to the edge, in any yield (and inflation) scenario, it would at least help assure the 25x survives over the parameters we're discussing (4% initial WR, 30 years).

Of course unexpected expenses are a potential issue. So are low expected returns. Consider it all. That's what I'm saying. The backtest that spit out your 70/30 isn't sufficient to inform an AA decision for anyone's specific situation or the times we're in right now.

No debate that more money is better than less. No debate that working longer is safer than retiring earlier. But for a broad swath of folks, I think AA does matter and should be carefully considered.

P.S. It's not my model. Credit to people way smarter than me, including several active on this forum.
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Tue Jul 09, 2024 12:00 am
I said more TIPS, not necessarily 100% TIPS. The lower the ERP, the more in TIPS. Risk aversion etc. matter too, but I think most folks would find a more comfortable probability outlook of spending with more bonds today than what historical backtests advise.
Any amount you put into TIPS requires even more returns from the stock portion of the portfolio. This is because the stocks have higher expected return to begin with. Did you know that in a slow decline you actually do worse by spending TIPS first? Your partial TIPS portfolio still relies on stocks to perform and you are making a strong bet on when they will perform and underperform. Only the full TIPS ladder properly addresses risk.
Circle the Wagons wrote: Tue Jul 09, 2024 12:00 am And for the retiree close to the edge, in any yield (and inflation) scenario, it would at least help assure the 25x survives over the parameters we're discussing (4% initial WR, 30 years).
The 4% rule is not a withdrawal rule. It indicates that retiring with 25x expenses has been safe even when ERP was low.

Spending is lumpy. We have unexpected expenses. We have some optional expenses and we don't fail just because your model says so. We cut spending when a sequence looks bad. You could re-run with 30x expenses for someone with the ability to cut expenses by 20% and come up with something at least reasonable for the 70/30 portfolio. I'll bet the odds of both living that long and actually failing are really low.
Circle the Wagons wrote: Tue Jul 09, 2024 12:00 am Of course unexpected expenses are a potential issue. So are low expected returns. Consider it all. That's what I'm saying. The backtest that spit out your 70/30 isn't sufficient to inform an AA decision for anyone's specific situation or the times we're in right now.
When I consider it all I find 70/30 clearly better and for clearly stated reasons (divorce, longevity, unexpected spend rate, lumpy spending, ability to not spend optional expenses, some ability to earn money, higher average return, etc). Why are you NOT considering it all?

I am supportive of the full TIPS ladder with at least 35x expenses (25x in ladder, remainder in stocks) for those that are risk averse.
Circle the Wagons wrote: Tue Jul 09, 2024 12:00 am No debate that more money is better than less. No debate that working longer is safer than retiring earlier. But for a broad swath of folks, I think AA does matter and should be carefully considered.

P.S. It's not my model. Credit to people way smarter than me, including several active on this forum.
I do not think you know how to use this model correctly but you could get some input from the people that made the model and who you consider way smarter than you.
Circle the Wagons
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Re: Article: Why not 100% equities

Post by Circle the Wagons »

abc132 wrote: Tue Jul 09, 2024 12:40 am
Circle the Wagons wrote: Tue Jul 09, 2024 12:00 am And for the retiree close to the edge, in any yield (and inflation) scenario, it would at least help assure the 25x survives over the parameters we're discussing (4% initial WR, 30 years).
The 4% rule is not a withdrawal rule. It indicates that retiring with 25x expenses has been safe even when ERP was low.
4% is simply the initial WR associated with this 25x scenario. I'm not referring to any rule.
Spending is lumpy. We have unexpected expenses. We have some optional expenses and we don't fail just because your model says so. We cut spending when a sequence looks bad. You could re-run with 30x expenses for someone with the ability to cut expenses by 20% and come up with something at least reasonable for the 70/30 portfolio. I'll bet the odds of both living that long and actually failing are really low.
When pressed at 25x, I'm supposing we can't just increase the 25 to 30, or declare part of the x optional, with a wand wave.
Circle the Wagons wrote: Tue Jul 09, 2024 12:00 am Of course unexpected expenses are a potential issue. So are low expected returns. Consider it all. That's what I'm saying. The backtest that spit out your 70/30 isn't sufficient to inform an AA decision for anyone's specific situation or the times we're in right now.
When I consider it all I find 70/30 clearly better and for clearly stated reasons (divorce, longevity, unexpected spend rate, lumpy spending, ability to not spend optional expenses, some ability to earn money, higher average return, etc). Why are you NOT considering it all?
The blind spots in the consideration set seem to be asset prices and the full lifecycle of income and spending needs. I think these are important and actionable and there are easy to use tools available.

OK if we don't close this chasm. The readers have the arguments.
abc132
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Re: Article: Why not 100% equities

Post by abc132 »

Circle the Wagons wrote: Tue Jul 09, 2024 1:49 am OK if we don't close this chasm. The readers have the arguments.
:sharebeer

I think we agree on much. 100% stocks can be appropriate under some circumstance and TIPS can help under some circumstances.

Thanks for your thoughts.
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