"I took all my money out of the stock market and it feels amazing"

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Greg in Idaho
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Re: "I took all my money out of the stock market and it feels amazing"

Post by Greg in Idaho » Wed Nov 08, 2017 9:51 am

beardsworth wrote:
Wed Nov 08, 2017 9:38 am
TinkerPDX wrote:
Wed Nov 08, 2017 12:14 am
Levett wrote:
Tue Nov 07, 2017 6:13 pm
Some odd responses.

I am happy for her.

Lev
+1
I agree. And it's threads like this one that remind me of the extent to which the Bogleheads forum sometimes seems like a kind of faith-based movement, a sort of Magic Markets/Always Invest belief system, and not very tolerant of differing views.

Ms. Warren's essay linked in the original post is quite clear about her withdrawal from market speculation: "Did I feel some regret? Of course I did! Had I waited just a day, my bank account would be fatter than it is now. But that’s not the point. The point is no longer amassing as much money as I can. It’s peace of mind. And that’s what I’ve got."

Ruling out situations in which subsistence itself is an issue, i.e., assuming a modestly affluent life situation, it seems to me that there are two main ways to be satisfied in one's financial life: (1) to have more or (2) to want less.

This forum is mostly about the former. Ms. Warren is mostly about the latter.

Both views are usually coupled with a goal of "enough" for a comfortable retirement, which will lead to a lifestyle with a flexible schedule, no more need to tolerate absurd bosses and work environments, time to do volunteer work, exploration of new hobbies, etc. But the former, in order to achieve "enough," needs first to buy that separate vacation home, stock the wine cellar, and have enough wealth to always afford the latest model of Tesla and a really expensive watch.

Ms. Warren has chosen a more modest path. I admire her conclusions and the thoughtfulness that led to them.
Particularly for a group that so often claims "no one knows nuttin'" there are some pretty big assumptions that typically undergird the advice that follows that claim (and a fairly interesting mix at that, e.g. "the long term market trend is always up" and "it is not a matter of if but WHEN the next correction happens"). That said, I don't think the OP's strategy is all that prudent, and I also believe the basic BH assumptions about the market...(limited, fallible) knowledge is out there...

Greg in Idaho
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Re: "I took all my money out of the stock market and it feels amazing"

Post by Greg in Idaho » Wed Nov 08, 2017 10:04 am

Greg in Idaho wrote:
Wed Nov 08, 2017 9:51 am
beardsworth wrote:
Wed Nov 08, 2017 9:38 am
TinkerPDX wrote:
Wed Nov 08, 2017 12:14 am
Levett wrote:
Tue Nov 07, 2017 6:13 pm
Some odd responses.

I am happy for her.

Lev
+1
I agree. And it's threads like this one that remind me of the extent to which the Bogleheads forum sometimes seems like a kind of faith-based movement, a sort of Magic Markets/Always Invest belief system, and not very tolerant of differing views.

Ms. Warren's essay linked in the original post is quite clear about her withdrawal from market speculation: "Did I feel some regret? Of course I did! Had I waited just a day, my bank account would be fatter than it is now. But that’s not the point. The point is no longer amassing as much money as I can. It’s peace of mind. And that’s what I’ve got."

Ruling out situations in which subsistence itself is an issue, i.e., assuming a modestly affluent life situation, it seems to me that there are two main ways to be satisfied in one's financial life: (1) to have more or (2) to want less.

This forum is mostly about the former. Ms. Warren is mostly about the latter.

Both views are usually coupled with a goal of "enough" for a comfortable retirement, which will lead to a lifestyle with a flexible schedule, no more need to tolerate absurd bosses and work environments, time to do volunteer work, exploration of new hobbies, etc. But the former, in order to achieve "enough," needs first to buy that separate vacation home, stock the wine cellar, and have enough wealth to always afford the latest model of Tesla and a really expensive watch.

Ms. Warren has chosen a more modest path. I admire her conclusions and the thoughtfulness that led to them.
Particularly for a group that so often claims "no one knows nuttin'" there are some pretty big assumptions that typically undergird the advice that follows that claim (and a fairly interesting mix at that, e.g. "the long term market trend is always up" and "it is not a matter of if but WHEN the next correction happens"). That said, I don't think the OP's strategy is all that prudent, and I also believe the basic BH assumptions about the market...(limited, fallible) knowledge is out there...
It kind of reminds my of the dialogues of Socrates...who often starts out making a big deal out of the fact that he knows so little...then proceeds to build an extensive set of claims that contradict his claimed ignorance.

SimplicityNow
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Re: "I took all my money out of the stock market and it feels amazing"

Post by SimplicityNow » Wed Nov 08, 2017 10:10 am

According to her article, she had a goal, met the goal and followed through on her plan. That's great and I hope it actually provides peace of mind going forward. I have an issue where she says she was worried about market declines or as she puts it "her net worth circling the drain".
If she presented that view we would tell her 60/40 was too aggressive an AA for her to "sleep well at night". Then she discusses getting back in at the bottom aka market timing.

She's a writer and her goal is to get published. She may have take a little creative license to prove her decisions as wise ones. She also included a political bash at the beginning and a plug for a lobby at the end. Which, if you believe in the primacy and recency effect: that was what she wanted you to remember from the article.

It is a nice story.

hudson
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Re: "I took all my money out of the stock market and it feels amazing"

Post by hudson » Wed Nov 08, 2017 10:16 am

SpringMan wrote:
Wed Nov 08, 2017 8:30 am
I have a friend that sold all his taxable account stocks a couple years ago locking in his profits. Because of this one year income bump, he and his jointly filing spouse were hit with higher medicare payments.[/b] This came as a complete surprise to them though it should not have. He never got back in the market. I can't see us having less than an allocation of 30% equity, maybe more when it becomes clear we are investing for our heirs.

Artsdoctor wrote:
Wed Nov 08, 2017 9:24 am

I would very much like to know her details regarding tax ramifications BECAUSE of her modest income. She's obviously done a great job saving. If you're not used to tax surprises, you may wind up with an unanticipated capital gains tax which has unintended consequences. If her investments were in tax-advantaged accounts, then say it. You'd hate to think that someone unfamiliar with tax bites would read the article and sell all appreciated assets in a taxable account without understanding the tax consequences.


Springman and Artsdoctor have very useful advice. The taxman is going to take his share whenever you sell out. One could have much higher medicare payments for at least a year. One would have to pay capital gains tax on any profit. I wonder how one would handle that? Maybe tax loss harvesting would work?

I personally don't want to own any stocks. If I ended up with stocks, I would probably want to unload them...even if I had to pay the capital gains tax. The higher medicare payments might give my heartburn.

I've read all of the studies and suggestions about owning at least 20% stocks. Knowing all of that, I still don't want any...too risky. Maybe having at least 20% stocks is good for most people, but it doesn't fit me.

TN_Boy
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Re: "I took all my money out of the stock market and it feels amazing"

Post by TN_Boy » Wed Nov 08, 2017 10:28 am

hudson wrote:
Tue Nov 07, 2017 7:07 pm
CULater wrote:
Tue Nov 07, 2017 4:56 pm
Now all my money is stashed in U.S. Treasuries, Treasury Inflation-Protected Securities (or TIPS bonds), and laddered CDs, which, in the years to come, I can count on to earn me essentially nada.

Why would I do this?

I once figured out exactly how much money I would need to live on — not lavishly, but comfortably — for the rest of my life. I promised myself that once I had that amount, I would actually do just that — take my money out of the market and live on it for the rest of my life.

Last week, I reached that goal.

Timing is everything. But you can’t time the market. I have no idea whether it’s about to go up or down. But I no longer care.
As Dr. Bernstein counsels: "when you've won the game, stop playing."

http://time.com/money/5003640/stock-mar ... ter_money

(I think CULater is quoting Roz Warren's article in Money...Retirement.)

I don't have any problem with 100% fixed income as long as the instruments are AAA/AA or better. The above portfolio fits that. I would watch rates and move the treasuries and TIPS to CDs if I could get a better deal. When I have money to invest, I start following Kevin M's contributions.
I have a problem with 100% fixed income for anybody, even if everything is AAA or better, and even if they have "won the game." Because I think 100% fixed income is less conservative, and less safe, than 10% to 20% equities. She is taking no stock market risk, but increasing other risks.

Valuethinker
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Re: "I took all my money out of the stock market and it feels amazing"

Post by Valuethinker » Wed Nov 08, 2017 10:36 am

CULater wrote:
Tue Nov 07, 2017 4:56 pm
Now all my money is stashed in U.S. Treasuries, Treasury Inflation-Protected Securities (or TIPS bonds), and laddered CDs, which, in the years to come, I can count on to earn me essentially nada.

Why would I do this?

I once figured out exactly how much money I would need to live on — not lavishly, but comfortably — for the rest of my life. I promised myself that once I had that amount, I would actually do just that — take my money out of the market and live on it for the rest of my life.

Last week, I reached that goal.

Timing is everything. But you can’t time the market. I have no idea whether it’s about to go up or down. But I no longer care.
As Dr. Bernstein counsels: "when you've won the game, stop playing."

http://time.com/money/5003640/stock-mar ... ter_money
The historic data suggests that a 20% weighting in equities is preferable to a 100% bonds portfolio.

It has actually given lower volatility and higher return than 100% bonds (I believe those studies were run just with US Treasury bonds; TIPS have not been around long enough to give us a good feel for it). And we should be wary that the strong performance of bonds since 1981 has biased the data- -bonds mathematically cannot show that level of performance again (unless we make assumptions about negative yields that just seem improbable, and suggest if we reached them that we'd be in a lot worse problems).

That said, one has to be able to afford that the equities can drop by say -50% -- that's a reasonable expectation for a bear market in the S&P 500 (particularly from now).

DrGoogle2017
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Re: "I took all my money out of the stock market and it feels amazing"

Post by DrGoogle2017 » Wed Nov 08, 2017 10:59 am

I’m not sure it’s a good idea to be so extreme, 100% in anything. I often hedge my bet just in case I’m wrong. But I think 20-30% is considered low already.

CULater
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Re: "I took all my money out of the stock market and it feels amazing"

Post by CULater » Wed Nov 08, 2017 11:01 am

There should be a goal for investing in speculative assets. And one should have the need, ability, and willingness to do so in order to achieve the goal. The allocation to speculative assets is driven by the least of these three factors. If there is no longer a perceived need, or if one is at or nearing the point where their human capital is becoming dissipated, or if one lacks the willingness to assume higher risk then investing in speculative assets is irrational. We each have different investing goals and different perceptions of our need, ability, and willingness to invest in speculative assets. We should carefully examine our perceptions to ascertain their validity, and act accordingly. Sometimes, I have the feeling that people just think that owning stocks is a great idea independent of a careful examination of their investment goals, and the need/ability/willingness to assume risk. I think the OP article is a good reminder of what investing is really all about. Life is an uncertain journey no matter what path we choose to follow. Taking risks investing in speculative assets with uncertain returns doesn't make it any less uncertain, does it?
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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Portfolio7
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Re: "I took all my money out of the stock market and it feels amazing"

Post by Portfolio7 » Wed Nov 08, 2017 11:20 am

I agree with the several posts that 100% fixed income fails to minimize risk. I forget the source, but I've read that your AA should vary between 75/25 and 25/75. I think that's directionally correct, but the conclusion I came to after playing with all sorts of potential allocations is that anything less than 15% equity generally reduces returns and increases volatility. However, 100% FI is better than doing something overtly risky with your AA. She seems likely to do well enough in retirement; congratulations to her for executing a solid plan.
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Re: "I took all my money out of the stock market and it feels amazing"

Post by randomguy » Wed Nov 08, 2017 12:32 pm

z3r0c00l wrote:
Wed Nov 08, 2017 8:44 am
Some important details missing here, such as home ownership, life partner, family/dependents, health insurance and medical history, pensions, and actual value of investments at this time. Working part time as a librarian to me means no pension or insurance, which would require a hefty amount of cash at 62 to last the estimated 22 years life expectancy. Medical costs over the next 8 years could clean her out if something goes wrong and yes, let's be grim for a moment, this is the age where cancer and heart disease start to loom. I like the idea of quitting once you have won the game, but it is far from clear that she has actually done that. I would want a home paid off and more than a million in a low COLA to do this.
Well as long as the cancer/heart disease is fatal, it isn't a problem:). It is more getting something that prevents you from working while at the same time not killing you.The questions is what does enough money mean. If the plan is work til 70, have SS pay 2/3s of the bills and get an extra 10k/year out of investments you only need say 200-300k. That is a lot different than retiring at 62 and expecting SS to pay say 1/4 of your expenses.

Without knowing all the details I am not going to make guesses about if she is increasing or decreasing her chances of winning the game in her specific case. I will say that there are very few cases I have seen/thought about where going 0/100 is better than 25/75 for someone with a 30-40 year time frame. As the time frame drops to 10-15 years, going 100% bonds (or at least have a bond ladder for 10-15 years) starts making more and more sense.

TN_Boy
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Re: "I took all my money out of the stock market and it feels amazing"

Post by TN_Boy » Wed Nov 08, 2017 12:41 pm

randomguy wrote:
Wed Nov 08, 2017 12:32 pm
z3r0c00l wrote:
Wed Nov 08, 2017 8:44 am
Some important details missing here, such as home ownership, life partner, family/dependents, health insurance and medical history, pensions, and actual value of investments at this time. Working part time as a librarian to me means no pension or insurance, which would require a hefty amount of cash at 62 to last the estimated 22 years life expectancy. Medical costs over the next 8 years could clean her out if something goes wrong and yes, let's be grim for a moment, this is the age where cancer and heart disease start to loom. I like the idea of quitting once you have won the game, but it is far from clear that she has actually done that. I would want a home paid off and more than a million in a low COLA to do this.
Well as long as the cancer/heart disease is fatal, it isn't a problem:). It is more getting something that prevents you from working while at the same time not killing you.The questions is what does enough money mean. If the plan is work til 70, have SS pay 2/3s of the bills and get an extra 10k/year out of investments you only need say 200-300k. That is a lot different than retiring at 62 and expecting SS to pay say 1/4 of your expenses.

Without knowing all the details I am not going to make guesses about if she is increasing or decreasing her chances of winning the game in her specific case. I will say that there are very few cases I have seen/thought about where going 0/100 is better than 25/75 for someone with a 30-40 year time frame. As the time frame drops to 10-15 years, going 100% bonds (or at least have a bond ladder for 10-15 years) starts making more and more sense.
Interesting that last sentence. To me, for any time frame over a year or two, 0% equity is more risky than 10% to 20% equities. See Valuethinker's post. Why (that's a real question) do you think 100% bonds could ever be better than a portfolio with a small equity percentage for timeframes such as 10 years? Even for a really conservative investor?

CULater
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Re: "I took all my money out of the stock market and it feels amazing"

Post by CULater » Wed Nov 08, 2017 12:46 pm

Portfolio7 wrote:
Wed Nov 08, 2017 11:20 am
I agree with the several posts that 100% fixed income fails to minimize risk. I forget the source, but I've read that your AA should vary between 75/25 and 25/75. I think that's directionally correct, but the conclusion I came to after playing with all sorts of potential allocations is that anything less than 15% equity generally reduces returns and increases volatility. However, 100% FI is better than doing something overtly risky with your AA. She seems likely to do well enough in retirement; congratulations to her for executing a solid plan.
As Dr. Bernstein points out, during the investing years, it makes sense to consider all investment assets as a single portfolio with an expected return and volatility. But during retirement, not so much. The data for stock/bond portfolio returns represent long time periods in which there are no withdrawals being made. And furthermore, the data typically represent the returns of nominal and not inflation-adjusted bond returns.

Over shorter periods, when portfolio assets are being drawn down, anything can happen and this behooves retirees or near-retirees to consider their investible assets individually. You just don't know what can happen during your particular retirement period. There have been times when the U.S market lost 90% of it's value and took decades to recover; and 50% losses are not uncommon. Now, imagine yourself with $100K of your $500K portfolio invested in stocks and sitting there while that $100K turns into $10K while you are also withdrawing money to live on. Now, your carefully-crafted portfolio allocation that was intended to last for at least 25 years is worth maybe less than $400K with many years to go yet. Your portfolio will never recover to where it needs to be to support the income withdrawals you had planned.

And during the period from the mid-1960s to the early 1980s, both stocks and bonds got slammed. According to Dr. Bernstein, no matter what your allocation was between stocks and nominal bonds, you would have run out of money well before your planned 25-year retirement period had expired if your withdrawal rate was 5% real or greater.

It can't happen, right? But retirement income planning is all about planning for worst-case scenarios, because you no longer have the resources to recover from them if they happen to occur. It's all about the possible downside and not the upside. Pascal's Wager.
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: "I took all my money out of the stock market and it feels amazing"

Post by mickeyd » Wed Nov 08, 2017 12:54 pm

Nice suggestion Roz. But, how do you plan on keeping up with inflation w/o equities in the mix? You may wish to keep about 20% or so in stocks to take care of this.
Last edited by mickeyd on Wed Nov 08, 2017 12:55 pm, edited 1 time in total.
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Re: "I took all my money out of the stock market and it feels amazing"

Post by Kevin M » Wed Nov 08, 2017 12:54 pm

SGM wrote:
Wed Nov 08, 2017 5:24 am
If she chooses a 4% withdrawal rate with an increase of 2% per year in withdrawals to cover inflation her portfolio may not last 30 years even with TIPs.
I believe this is correct. With the 10-year TIPS at 0.44% and the 20-year at 0.69%, I'll conservatively guesstimate the average real return of a 30-year TIPS ladder at 0.5%. At this rate and a 4% real withdrawal rate (adjusted for inflation), the ladder would last about 27 years: 26.8 =NPER(0.5%,4%,-1,0).

So what real withdrawal rate would a 30-year TIPS ladder support with an average real return of 0.5%? I get 3.6% =PMT(0.5%,30,-1,0).

For all we know, here required withdrawal rate could be even less than 3.6%. As others have said, there's way too much information missing to comment much on how well she has assessed her ability, need and willingness to take risk. Clearly she believes her need to take risk does not warrant holding any stocks. Perhaps she has the ability to hold some stocks, but her willingness isn't there anymore now that she thinks there is no need.

With regard to possibly buying stocks after a crash, perhaps she thinks her willingness to take risk would be higher at that point. Maybe it will, maybe it won't, but at that point I'd also want to revisit ability to take risk.

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Re: "I took all my money out of the stock market and it feels amazing"

Post by garlandwhizzer » Wed Nov 08, 2017 1:13 pm

When has one "won the game" with a high level of certainty? Life expectancy is clearly increasing on average and for an individual the years of life remaining are uncertain. Many these days live well into their 90s and to be prudent one should probably estimate lifespan to be at the high end of the range. Another wild card is expenses like long term care, unexpected emergencies 15 years from now, medical setbacks like strokes or Alzheimer's which require skilled and expensive round-the-clock care. All of these are impossible to anticipate and therefore very difficult to financially prepare for in advance. Finally there is the question of the impact of inflation. We have become accustomed to lower and lower levels of inflation for decades now and therefore don't think much about it. If we enter a multi-decade period of ever increasing inflation (which we did following the last time bonds yielded this little, 1940s) nominal bond returns in real inflation adjusted dollars are are likely be negative like they were from 1940 to 1980. If expenses exceed real returns like they did then for 4 decades one's arithmetic about "wining the game" fails unless one is exclusively in TIPS which have ridiculously low returns, close to xero.

It seems to me that the level of uncertainty and risk in reliably calculating when one has "won the game" is no less than the level of risk associated with equity volatility over long time frames. I believe it is prudent when determining if one has "won the game" to add a substantial margin of error because, like the market itself, this calculation has a substantial range of outcomes and your calculation should cover all of them. If you underestimate your future needs, you run out of money when you no longer have a job to back it up which seems like a bigger problem than tolerating some level of equity volatility.

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Re: "I took all my money out of the stock market and it feels amazing"

Post by CULater » Wed Nov 08, 2017 1:16 pm

mickeyd wrote:
Wed Nov 08, 2017 12:54 pm
Nice suggestion Roz. But, how do you plan on keeping up with inflation w/o equities in the mix? You may wish to keep about 20% or so in stocks to take care of this.
That used to be an issue before the invention of something called a Treasury Inflation Protected Security (or TIPS), which I believe she said she purchased. There are also I-Bonds that can serve the same purpose. Dr. Bernstein suggests this as one of the better safe real income investments available. Besides, stocks haven't always been a great inflation hedge over given time periods.
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: "I took all my money out of the stock market and it feels amazing"

Post by HawkDriver » Wed Nov 08, 2017 1:49 pm

azanon wrote:
Tue Nov 07, 2017 9:35 pm
Wasn't one of the few truths or take-aways from Modern Portfolio Theory is that the only portfolios that we know are mathematically illogical are those with less than ~ 20-25% equities, because below that level, two things happen; your expected return drops, and your expected risk (relative to inflation) rises.
No. What is illogical is to define risk exclusively by standard deviation. If she has enough money to live on presently, is it logical to continue to hold equities when the risks have become so asymmetrical? I.e. a 10% gain may help you take an extra vacation but a 10% loss means you no longer have enough to retire.

MPT is helpful as a framework for understanding how diversification works IMO. It has many flaws in practical use, including the fact that it requires a correlation matrix, but correlations are seldom stationary and likely move toward one under market duress. Also, I believe one on the key assumptions in MPT is that returns are normally distributed...I wouldn’t hang my hat on that one.

Good for her! She patiently planned and kept at it. Now she’s won the game and stopped playing. Dr. Bernstein would be proud.

EDIT: I am assuming she has properly assembled a liability matching portfolio (LMP) IAW her projected needs. If she’s planning to work part time and defer SS until 70, my guess is she’s likely set with a paid-off mortgage and no debt.

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Re: "I took all my money out of the stock market and it feels amazing"

Post by CULater » Wed Nov 08, 2017 2:17 pm

No-one can accurately estimate their future spending needs in retirement; likewise, no-one can accurately estimate just how large their nestegg will need to be at the point of retirement. But plan we must, regardless. Hopefully, like good engineer, you "overbuild" your financial "bridge" just to allow for a good margin of error to help avoid collapse. Once you've done that, it's time to start driving over it.

I fail to see the logic that one should stay invested in stocks because the future is cloudy and stocks will enable a higher survival probability in exchange for the inconvenience of a few unplanned temporary drawdowns in portfolio value. I don't recall that Mr. Market ever promised me anything; do you?

Compensate for an uncertain future by investing in assets with an uncertain return? I think the only people who ought to be thinking that way are the ones who can afford to lose the money they invest without compromising their planned standard of living. At least have a "floor" to support that standard of living in the safest real-return assets that are presently available before wandering into the casino. Those who believe they must invest in stocks to support their desired standard of living in retirement are probably the last people who should be doing it.
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Re: "I took all my money out of the stock market and it feels amazing"

Post by VictoriaF » Wed Nov 08, 2017 4:37 pm

The Bogleheads responses here are so out of character! From the level of criticism, you would think that the woman has put all her money into bitcoins, or alternative energy sources on the Moon.

As a writer and librarian, she seems to have done quite well. She probably maintained a low cost of living throughout her life and is not planning to raise it. She is prudently delaying her Social Security until the age of 70. She knows about Vanguard and TIPS. She should be a Bogleheads hero!

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Re: "I took all my money out of the stock market and it feels amazing"

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