The Perils of Market Timing

[FD1000]

mustang: On the surface it sounds as if Ellis is talking about the bucket strategy that Morningstar talks about: cash, bonds, and stocks. The idea is that the investor replenishes cash every year from the best performing of the other two buckets. Some call it pruning back. Some years bonds outperform stocks so cash is replenished from them. Other years stock outperform bonds.

I think Morningstar makes the strategy overly complicated by using multiple bond funds and multiple stock funds so I have never really been fond of it.

FD: as usual, correct.  I wrote my own answer (link).

=========
chata: When you start RMDS and grow your taxable account, how will you generate money to live on? Will you still trade paying taxes on short term CGs? I get it that now we can trade on IRAs tax free but not forever. Just curious.

FD: generic answer. Most have the majority of their money in IRA as they used 401K(other vehicles) + Roth IRA.  That solves a lot of taxes. Every year, you should do Trad/Rollover (coming from 401K) conversion to your Roth IRA and pay from taxable account.  In most cases, and careful planning, most will not pay high taxes. If you have millions, you will pay taxes, it shouldn't bother you. There are more complicated options, trust and others, I don't know much about it and it's not my concern.

Most should not trade, forget about what I do. In your taxable account, hold index stocks + Munis. Since I mentioned FXAIX, I checked at Fidelity. I don't think you can set up a monthly order using ETFs, but you can use, FXAIX. So, just use FXAIX. After one year, all your monthly sell orders will be LT CG.
But there are other options. You can use SCHD, it pays 3+% annually.  Your Munis also pay income and so i your SS. You have all the power to do what ever, increase/decrease this amount any time or maybe you want to buy a new vehicle and sell more. Suppose you want to take less risk, one of my favorites funds of all times is PRWCX(allocation with about 60+% stocks), it only pays about 1% dist annually, lower than the SP00.
INCOME should never lead your decisions, ever.

==========

Sara: You are dismissive of tax impacts on a portfolio and now sequence of return risks.

FD: tax impact? See the above answer
Telling me I'm dismissive of sequence of return risks is like waving a red flag in front of a bull !  Do I need to post my performance, SD and Sharpe, the ultimate numbers for risk-adjusted returns?
I posted hundreds of posts about risk-adjusted and have been practicing it for decades.  I can easily show, as I have done for years, why CEFs are not better than stocks.  Income doesn't have any magic, especially very high income. If it was, the whole world would use only high income investing and all the experts would discuss it.
Joe investor should use KISS investing, I have done pretty well based on market conditions.

[Deleted]

Taxes - not sure what "most" translates to, but as always a quick google sheds some light. In 2012 - taxable brokerage had 4% more households than those that ONLY had deferred accounts and in 2020 tax deferred held 30% of equity value, taxable 25% and foreign accounts held most the balance. Seems like some might have some tax concerns.

www.sec.gov/spotlight/fixed-income-advisory-committee/finra-investor-education-foundation-investor-households-fimsa-040918.pdf

Joe needs to address sequence of risk no matter what method he uses and have some sort of plan in the event it occurs. Correct - there is no magic.  Many roads lead to Rome as Mozart summarized very nicely. 

[Mustang]

A sequence of return risk is typically associated with a fixed dollar withdrawal method. It is worse during periods of high inflation for inflation adjusted withdrawals. Losses in the first 10 years of retirement are more important than losses in the last 10 years. The portfolio simply has trouble recovering because far more shares are sold to meet the fixed dollar withdrawal.

A sequence of return problem usually occurs when the retiree retires around a market peak. A 4% withdrawal on a $1M portfolio is $40K. If the market drops 30% the next year a $40,000 withdrawal is 5.7% of the portfolio value. If the portfolio is 60/40 stocks to bonds and bonds are unaffected. Then the drop is 18% and the withdrawal is 4.9%.  Volatility is the enemy of a fixed withdrawal method.

Using historical data numerous studies have proven that the asset allocation should be between 50-75% stock. The worst time to retire was 1968 which was followed by bear markets and high inflation during the first 10 years. I tested a 1968 retirement using one of my favorite funds, Wellington. An initial 4% withdrawal adjusted for inflation is suppose to last 30 years. It lasted 25 before it ran out of money. Its stock and bonds were different from the test data and that caused a sequence of return failure. This is how theory and reality can differ.

The retiree could have used a variable or dynamic withdrawal method but it is sometimes hard to pay the bills using them. They provide less than planned income almost half the time. If I remember correctly a Vanguard study said it was 48% of the time. That was reduced to 45% of the time using upper and lower limits. I've read articles in Early Retirement Now that showed Guyton's guardrail method is even worse. It talks in percentages not dollars. It advertises a $50,000 withdrawal (5%) from a $1M portfolio but the 1968 retiree would have withdrawn less that $25,000 for nearly a decade. A 6% guardrail sounds great until it is 6% of $400,000.

Using Monte Carlo simulations instead of historical data and predicting stock and bond performance, Morningstar recommended a 3.3% initial withdrawal last year. That was prophetic. Bond returns were not normal and in their computer simulation they took that into consideration. In the article they said that reducing inflation increases would give the retiree a 3.9% initial withdrawal.

So there are other ways than not being able to pay the bills half the time to mitigate a sequence of return risk. A balanced portfolio, lowering the initial withdrawal rate and taking lower inflation increases are three. We spend 1-2% less each year as we grow older. Increasing the annual withdrawal by 1 percentage point less than inflation increased Wellington payouts from 25 years to just over 30 years.

The bucket strategy has some good ideas. I just think it is overly complicated. It also follows the upward glide slope that some are recommending as an additional mitigation to sequence of return risks. If the stock market crashes and stays down for several years replenishing cash from stocks becomes impossible. The retiree has to take annual withdrawals from bonds depleting them first.

In my succession plan I have incorporated many of these ideas for the non-IRA part of my portfolio. A two year cash reserve, two funds but not 50/50 stock to bonds. Instead it is 50/50 Wellington and Wellesley because of such low bond returns. Inflation increases of 1 percentage point less than CPI. And cash withdrawal from the fund with the highest previous end of year balance (pruning successes). Distributions are reinvested to replenish shares that are sold.

So far for my IRA distributions have been more than shares sold. I am sure that will not always be the case but one can hope. I also prefer LT capital gain distributions to dividends. They are taxed at a lower rate.

[steelpony10]

mozart522 ,

       I think you are correct. I see now if later life issues ever arise like home health care, assisted living or LTC human behavior will continue to follow the same pattern. The same reasoning applies to retirees as those that save so little during their work years. I suppose I’m more adaptable to changing circumstances, actual facts and not really hard wired to any one portfolio scheme. Also I have loose enough connections to adapt quickly. 

       I do accept as facts what markets are going to provide for me during retirement is unknown. On average 30% of those markets will be detrimental to my net worth. No amount of diversification or allocation in equities will change that as evidenced currently. Market timing into an unknown won’t change that. My opinion is trading into an unknown won’t change that. Equities look to me like a roll of the dice, you’re at the mercy of the dealer.

       That’s why equities are secondary or extra income for us, a surprise when markets come through. I’m not concerned with many of the variables you mentioned, no headlines, short term lulls, down markets, mistakes, home runs, TR etc. Whatever we spend is replaced each month. That’s about it. I pass and my wife continues on. I like working with my present knowns. When they change I can adapt to my new knowns. Pretty much a no brainer.

         

        

[FD1000]

Nov 14, 2022 16:55:36 GMT @slooow said:

Taxes - not sure what "most" translates to, but as always a quick google sheds some light. In 2012 - taxable brokerage had 4% more households than those that ONLY had deferred accounts and in 2020 tax deferred held 30% of equity value, taxable 25% and foreign accounts held most the balance. Seems like some might have some tax concerns.

www.sec.gov/spotlight/fixed-income-advisory-committee/finra-investor-education-foundation-investor-households-fimsa-040918.pdf

Joe needs to address sequence of risk no matter what method he uses and have some sort of plan in the event it occurs. Correct - there is no magic.  Many roads lead to Rome as Mozart summarized very nicely. 

I think you linked to this site before. It doesn't tell you the whole story. Most investors/retirees don't have money. The ones who have most of the money, are the ones who save regularly + get matching most times, hence 401K,403(b), Solo 401K, other.  The less money you have, the easier it is to convert to Roth.
Smart investors know how to deal with sequence of risk, you got several good answers, NONE MUST depend on CEFs. Most can use varieties of options, starting with stocks (SP500), allocation funds, bond funds, higher income stocks(SCHD). They can change options, withdrawals and more.

Joe investor should use KISS, never buckets, single stocks, CEFs, and trading.
Many times, the biggest problem is when investors are making unnecessary steps or stupid mistakes and shoot themselves in the foot. KISS avoid most of them.
Common sense is always important. If Joe withdraws 6% annually starting at age 65 for 30 years, he may have a problem.

My relative has been doing it for about 20 years using just 2 funds (link), I put him in 70/30 (VWIAX+VCCGX) per 35-40% stocks. Mustang use W/W for 50/50.

[chang]

“Joe investor should use KISS, never buckets, single stocks, CEFs, and trading.”

Never say never. My mother (“Jane Investor”) bought Home Depot at $12.67/share (years ago). Never sold.

[Deleted]

Most of the problems investors have is not staying the course with a simple strategy. As shown by the average return results of investors lagging the market return. Strategies are simple, behavior is not.


Edit - And in case y'all didn't notice, this ties is all back to Charley Ellis' view and the title of this thread!

[FD1000]

Nov 14, 2022 23:46:16 GMT @slooow said:

Most of the problems investors have is not staying the course with a simple strategy. As shown by the average return results of investors lagging the market return. Strategies are simple, behavior is not.


Edit - And in case y'all didn't notice, this ties is all back to Charley Ellis' view and the title of this thread!

Buy and hold is the only KISS strategy for Joe. Bogle, the pioneer and humble guy was the first who introduced very cheap index funds and build an empire, Vanguard, based on it for Joe. Stats show there are more successful investors holding 2-3 indexes, keep adding, and stop looking. My first investing book was Random Walk Down Wall St by Malkiel, the guy was on the board of Vanguard for 28 year. Read the interview(link).

Here is the bottom line for Joe investor and most others:
Quote"And I do all this knowing that it’s not very risky for me because I have a good strong retirement fund from my time at Princeton and my service on corporate boards, and that money is 100% indexed. As long as your core retirement portfolio is indexed, you can play around on the margins without much harm...."
This is what I have been saying for years, I learned it from the above.

Ellis? Nothing he said was new. He just repeated what Malkiel and Bogle said decades ago, and he never helped the little guy.

Wait, I keep looking where Malkiel mentioned INCOME or CEFs.

[Deleted]

From my morning reading - This Bear Market checklist also seems appropriate for this thread and offers some good tips to stay focused in your investing and stick to a strategy.

compoundadvisors.com/2022/a-bear-market-checklist

For me - I am well diversified (this has been my best friend in investing), buying a little international as well (unfortunately I didn't add to my TSM position yesterday and now will have to wait to until the Buffet furor dies down). I know my time horizons and when I will need the money (also well known advice recently reinforced by Charley Ellis). The bond information might be interesting for some - I am still staying out of this area. Tune out the noise (something steelpony10 has been saying as long as I have been on these forums) and proven correct time and time again. Lastly - look for opportunities - of course! This is the Big Bang Investors forum - not the Big Bang Beginning Investors forum!

[FD1000]

Nice generic article. Let's look at it as pros
The first part tells us about history, no problem.
The second part is the problem: it discusses the concept of regression to the mean. The problem is it can and was off by months and years.
1) Quote: "Time is irrelevant and stay invested:" sometimes it is that easy to see a semi-trailer coming toward you on a one lane road. You had to stay off for months. A retiree has 20-30 years in front of them, but why should they take a huge risk.
2) Quote: "Make Sure You’re Really Diversified": another myth that hasn't work since I started investing in 1995. 1995-2000=all US LC...2000-2010=don't use the SP500...2010-2021=use only US LC, mainly growth...2022=US LC value
3) Quote "short-term Treasuries (ex: $BIL ETF, +0.79%) and short-term corporate bonds (ex: $JPST ETF, +0.16%)" = mediocre idea.  We discussed it extensively. We had a long discussion (Thread by R48) about 2 years treasuries =VGSG starting in March 2022. MM=the easiest choice for the first 6 months. In June, rates were up nicely and we could find great rates for broker treasuries for 3-6 months. Both had zero volatility and made you more money
4) Quote: "floating rate leveraged loans (ex: $BKLN ETF, -3.42%)". Bank loan are known as a good category when rates rise...BUT...not in risky markets, after all, they are HY bonds. BKLN was down at -7% and still down -3.4% YTD. The goal is not losing less, but not losing at all. See item 3 above.
5) Quote: "we’ve seen value outperform by a sizable amount this year (ex: $IUSV ETF, -8.93%) while sectors with lower valuations like Energy (ex: $XLE ETF, +68.04%) have trounced everything else." That is correct, but it's about 10 months late   he also gave you the generic answer, more later
6) Quote: "Look for Opportunities to Rebalance". The author mentioned international. US LC value, should be your core, valuations are not stretched. Before I jump to international, I want to explore everything in the US, the Dollar is still king. See item 5.
7) Quote: "With a 97% correlation between starting 10-year yields and future bond market returns, this is great news for long-term bond investors."
Correct, but don't play it with treasuries.
8) Quote: While still not anywhere near “cheap” (CAPE ratio of 28 remains in the highest decile), they’re certainly cheaper than they were. And should the declines deepen from here, the potential future rewards would only continue to improve.
If you used CAPE as your leader, you would invest since 2012 abroad, and missed a much better risk-reward in US LC.

=============

Let me summarize what I posted starting 2022.
1) MM was a good starting point and and stayed that way for months.
2) Stocks: if you must invest: In 01/2022: value takes the lead after growth dominated since 2010, a couple of months later, energy.  This means SCHD + HDV(heavy in energy). Still, no international. Looking at everything, VALUE can be the one for years to come. The beauty of SCHD: it's good for growth + value + PE about 14 is reasonable. I saw that growth made more lately, but that's for traders. In my world, it means 50/50 SCHD/HDV. For others, it could mean, 40/40/20 VOO/SCHD/HDV.
3) Bonds: MM=the easiest choice for the first 6 months. In June, rates were up nicely and we could find great rates for broker treasuries for 3-6 months. Both had zero volatility and made you more money.  Last week, I posted why it's good to start investing and if I get in, I would use HY Munis.  This special category has better risk/reward than treasuries on the way up.

What the above involved: concentrating + not much trading.
Stocks: Value, a couple of months later HDV
Bonds: MM for months, ST broker treasuries, start nibbling in HY Munis.

[Mustang]

Here is video that touches on the subject. www.biggerpockets.com/blog/money-351

Michael Kitces discusses if the 4% rule and passive investment is broken. His answer is no. He points out that is was specifically created for today's market environment. He was talking from memory so I looked it up. The SP500 hit 873 in 1968 and didn't get back to it until 1992, 28 years of flat performance. www.macrotrends.net/2324/sp-500-historical-chart-data

He spoke about interest rates. He said interest rates rose from 4% in 1966 to 14% in 1981. He said that sequence-of-return failures don't happen if the market has a bad year. They happen if it is a bad decade.

I thought this was interesting. William Bengen, creator of the 4% rule was a active investor. He sometimes took his clients completely to cash. Although retired he went to cash earlier this year. Some wonder if they should go to cash as well. It is too late. Kitces said that after a 20% drop investors should be looking and when to get back in. To time the market an investor must be right twice, when to get out and when to get back in.

Michael Kitces, on the other hand, is a passive investor. He said he doesn't even look at his statements and he didn't go to cash. He is young and still holds three years of cash. Not to protect withdrawals but to meet business payroll and maybe create new businesses.

The video is an hour long but I found it interesting.

[ECE Prof]

Market timing or no timing? It all boils down to making money—cash – in any form of investments. So, there is nothing wrong to adjust a portfolio based on a prevailing market conditions. The market value of S&P 500 did not return for 28 years. LOL. I did not even work that many years in this country. My real good job with a good pay started after 1986 and quit after 22 years. That does not mean that I did not make money. TIAA paid very interest during those years. Yet, I kept buying CREF equity also (TIAA:CREF = 15%:85%). Under the unusual period now, where both bonds and equities did not do well, there are other alternate investments, specifically, loan guys, who are making good money because of the increased interest rates. Is it market timing? Probably, yes. But, you can make – mint – money.

[steelpony10]

ECE Prof ,

      The longer this lasts the better I like it. Maybe I could be a loan guy at 10% + processing, etc. etc……. Wait that’s a junior loan shark. 🤫

       I call this opportunity banging on my door. Market timing to those on the sidelines and in the shadows watching the clearance sale while it lasts. Then it may be back to 10 years of “overvalued” when values constantly go up in waves, then due for a correction etc. etc.

[ECE Prof]

steelpony10 ,

Loan business runs in my blood from my father. My father was a banker to many villagers back home, very much similar to BDCs here. In fact, my wife bought some jewelry for my grandchildren from an income as recently as three years ago – after my parents have been dead for several decades. I get 1/3, where all others have to split in many ways.

[FD1000]

Nov 15, 2022 17:24:51 GMT Mustang said:

Here is video that touches on the subject. www.biggerpockets.com/blog/money-351

Michael Kitces discusses if the 4% rule and passive investment is broken. His answer is no. He points out that is was specifically created for today's market environment. He was talking from memory so I looked it up. The SP500 hit 873 in 1968 and didn't get back to it until 1992, 28 years of flat performance. www.macrotrends.net/2324/sp-500-historical-chart-data

He spoke about interest rates. He said interest rates rose from 4% in 1966 to 14% in 1981. He said that sequence-of-return failures don't happen if the market has a bad year. They happen if it is a bad decade.

I thought this was interesting. William Bengen, creator of the 4% rule was a active investor. He sometimes took his clients completely to cash. Although retired he went to cash earlier this year. Some wonder if they should go to cash as well. It is too late. Kitces said that after a 20% drop investors should be looking and when to get back in. To time the market an investor must be right twice, when to get out and when to get back in.

Michael Kitces, on the other hand, is a passive investor. He said he doesn't even look at his statements and he didn't go to cash. He is young and still holds three years of cash. Not to protect withdrawals but to meet business payroll and maybe create new businesses.

The video is an hour long but I found it interesting.

Michael Kitces is one of the best retirement analysts. I read many/most of his articles. I adopted one of his ideas (maybe he changed it later) of starting retirement with lower risk/volatility=stocks and start increasing risk/SD at later age. In my case, age 75 looks OK.
IMO, the first 10 years of a retiree age 60-65 are critical for longevity.

[habsui]

What I learned on this thread:

Unless you are the great market timer, don't even try.  That makes me a Joe, and I should move to 3 index funds and be done.

The fact that some people here have beaten the market average for years with a diversified portfolio plus some occasional tactical trading can be explained as an anomaly in the space time continuum.

For example, bond funds should/will return more in yields for some time to come than in previous years. And maybe equities will not return much more. If so, according to the Ellis model, more of your cash would come from bonds. Nothing wrong with that for this (younger) retiree.

Also, I would think that for quite a few folks on here ignoring taxes does not work. And I never liked KISS, their songs suck.

Good investing..

[chang]

Nov 15, 2022 17:24:51 GMT Mustang said:

Here is video that touches on the subject. www.biggerpockets.com/blog/money-351

Michael Kitces discusses if the 4% rule and passive investment is broken. His answer is no. He points out that is was specifically created for today's market environment. He was talking from memory so I looked it up. The SP500 hit 873 in 1968 and didn't get back to it until 1992, 28 years of flat performance. www.macrotrends.net/2324/sp-500-historical-chart-data

He spoke about interest rates. He said interest rates rose from 4% in 1966 to 14% in 1981. He said that sequence-of-return failures don't happen if the market has a bad year. They happen if it is a bad decade.

I thought this was interesting. William Bengen, creator of the 4% rule was a active investor. He sometimes took his clients completely to cash. Although retired he went to cash earlier this year. Some wonder if they should go to cash as well. It is too late. Kitces said that after a 20% drop investors should be looking and when to get back in. To time the market an investor must be right twice, when to get out and when to get back in.

Michael Kitces, on the other hand, is a passive investor. He said he doesn't even look at his statements and he didn't go to cash. He is young and still holds three years of cash. Not to protect withdrawals but to meet business payroll and maybe create new businesses.

The video is an hour long but I found it interesting.

Thanks Mustang. I listened to the entire podcast. It’s overly repetitive (it could have been 15 minutes long), and the interviewers are very annoying, but there are some good nuggets and a lot of wisdom there. Worth it.

[FD1000]

Nov 16, 2022 0:41:34 GMT habsui said:

What I learned on this thread:

Unless you are the great market timer, don't even try.  That makes me a Joe, and I should move to 3 index funds and be done.

The fact that some people here have beaten the market average for years with a diversified portfolio plus some occasional tactical trading can be explained as an anomaly in the space time continuum.

For example, bond funds should/will return more in yields for some time to come than in previous years. And maybe equities will not return much more. If so, according to the Ellis model, more of your cash would come from bonds. Nothing wrong with that for this (younger) retiree.

Also, I would think that for quite a few folks on here ignoring taxes does not work. And I never liked KISS, their songs suck.

Good investing..

Fortunately, you are a good timer 
On the other ha....

[Norbert]

Nov 16, 2022 0:41:34 GMT habsui said:

What I learned on this thread:

Unless you are the great market timer, don't even try.  That makes me a Joe, and I should move to 3 index funds and be done.

The fact that some people here have beaten the market average for years with a diversified portfolio plus some occasional tactical trading can be explained as an anomaly in the space time continuum.

For example, bond funds should/will return more in yields for some time to come than in previous years. And maybe equities will not return much more. If so, according to the Ellis model, more of your cash would come from bonds. Nothing wrong with that for this (younger) retiree.

Also, I would think that for quite a few folks on here ignoring taxes does not work. And I never liked KISS, their songs suck.

Good investing..

Yeah, give me ABBA anytime.

I'm thinking that we should employ indexing more often on this discussion board. For example:

23: "I let the market tell me what to do."

31: "Tom Lee is a perma-bull."

8: "I went to cash in January."

53: "It's all about risk-adjusted returns."

17: "Siegel's forecasts are mostly wrong."

76: "Joe should just use the S&P 500."

76a: "Unlike Joe, I know how to trade the market." (subtext)

76a: "KISS."

7: "Just own 2-3 funds. I don't diversify."

7a: I'm always right." (subtext)

So, for example, when FD wants to attack Jeremy Siegel, he can just type "17". Everyone has memorized his talking points. There are only a few dozen and he repeats them over and over again.

Easier and faster for everyone!

53. 7a! 76a.

[Deleted]

Nov 16, 2022 5:54:22 GMT Norbert said:

Nov 16, 2022 0:41:34 GMT habsui said:

What I learned on this thread:

Unless you are the great market timer, don't even try.  That makes me a Joe, and I should move to 3 index funds and be done.

The fact that some people here have beaten the market average for years with a diversified portfolio plus some occasional tactical trading can be explained as an anomaly in the space time continuum.

For example, bond funds should/will return more in yields for some time to come than in previous years. And maybe equities will not return much more. If so, according to the Ellis model, more of your cash would come from bonds. Nothing wrong with that for this (younger) retiree.

Also, I would think that for quite a few folks on here ignoring taxes does not work. And I never liked KISS, their songs suck.

Good investing..

Yeah, give me ABBA anytime.

I'm thinking that we should employ indexing more often on this discussion board. For example:

23: "I let the market tell me what to do."

31: "Tom Lee is a perma-bull."

8: "I went to cash in January."

53: "It's all about risk-adjusted returns."

17: "Siegel's forecasts are mostly wrong."

76: "Joe should just use the S&P 500."

76a: "KISS."

7: "Just own 2-3 funds. I don't diversify."

So, for example, when FD wants to attack Jeremy Siegel, he can just type "17". Everyone has memorized his talking points. There are only a few dozen and he repeats them over and over again.

Easier and faster for everyone!

habsui , Norbert ,

What I have learned is there really is nothing new as to various investing strategies.  I have learned, partly from Norbert stating that "merely" approaching the S&P returns was extraordinary, that is indeed correct.  i was surprised to find that out. It is true by a wide margin that the average return isn't close and doesn't keep up with inflation.  I have read that bond returns in the short run have beat annual returns of equities in 3 out of 5 years, but not in the long run by a fair shot.  That is one reason that it is difficult to stay invested in the market - investors can't see past their noses. 

Why do I bring this up?  We all know that #76 is good advice - pretty much originating with Graham.  The S&P is just a diversified basket of companies. So holding a diversified basket of companies yields close to the same result.  So why #76 - it is so easy just to say these things, yet evidently incredibly hard to execute. If the average investor can't execute #76, how in the world will they execute holding 30 individual companies?  They won't so an index makes sense.  But they can't even do this.  Joe freaks out and panics, thinks he knows better and that the market talks to him through headlines. Yet Joe is just a victim of Mr. Market's schizophrenia. Since Joe can't be trusted to HOLD the market through thick and thin - Joe needs an advisor to hold his hand to try and protect him and his family from himself.  Or just earn long term returns well below that of the market. 

Nothing in investing is simple.  Someone wants to argue this, write reams and reams of counterpoints, fine.  It doesn't change the stats or human behavior.  Theory vs Actual don't match up. Just like the stats on investor households that hold taxable accounts doesn't change along with the need for investors to consider taxes. From the stats, Joe most likely has tax issues to consider too. Arguing for argument sake is not a strategy. 

Sometimes we hear a statement over and over - just #76 - and accept that is an option and could be true. Upon examination, it likely isn't and anecdotal evidence doesn't change that.  So, take heart habsui, your efforts cannot be distilled down to simple numbers and phrases. This stuff is hard, even for the average investor.

[steelpony10]

@slooow ,

The problems Joe has, probably the majority of retirees, are:

1. Reluctance to spend “I may need the money for something some day”.

2. “That’s too much for …fill in the blank. See #1.

3. Gas is expensive, cars are expensive, houses are expensive, those doctors just want your money etc.

4. Knock offs are just as good. We can share the flip phone. Cover that up with a rug.

5. I’ll go to Alaska for our 50th anniversary this winter when it’s cheaper. We’ll drive and sleep in the car. Relive our honeymoon, woo, woo.

6. The markets been going up for a long time. If I take gains when that continues “I’ll lose money”. Conversely only drive when we need food and I’m turning the thermostat down. My God it’s been 10 months already we “lost” 20% we’ll have to wait until things positive again next month “ I think” Mr. Market or my favorite scribe will tell me.

7. Why throw out anything when it still works fine. There’s laundromat you know? Day old bread tastes fine. Every store has a bargain bin etc. 

8. Got a place for this stuff?

9. I’ll get it fixed in the spring when our investments do better.

10. Joe passes at 73 when he chokes on Spam leaving his grieving wife alone except for her daily meetings at the whine bar with her rich widow friends lamenting about “Joe never told me anything about our finances” I think I’ll just cash everything in and put it in the bank. I’m so lonely. How about we all take a years cruise around the world, I have the 100k I think. The kids will help me out if I ever need money.

That’s as high as me and Joe could count but Robert Frost had it correct. Something about a road less taken. 

[FD1000]

This is what I have seen.
The Bogleheads site runs by indexers, I don't like indexing but is works very well for most. Anybody who needs encouragements can join this site.
In the last several years I joined a club with many activities, they have 3 investment clubs. These investors have serious money, after all, many are MDs, lawyers, university profs and upper management exec. All have most of their money in deferred accounts. All are mostly buy and hold their core, indexes have been used by all. Sure, they have play money, this is where they trade stocks.
They "complain" (not really) they pay for Medicare plan B over $500 per month, that implies yearly RMD between at $360-75OK or more.
Millions are now investing thru 401K, and most offer cheap Target funds and most use simple cheap indexes. All my IT co-workers over decades invested thru 401K where they have most of their portfolio in target funds. The most popular were VG target funds. In the last decades, all the companies I have worked for offered about 15-20 choices, and 15 were index funds.
The real big money depends on special wealth management.

Sure, anyone can screw up a good plan. It can be Joe or very sophisticated investors and institutions, see Maddoff, hedge funds, the last crypto and other debacles.

[retiredat48]

@ Mustang,...who posted: " The SP500 hit 873 in 1968 and didn't get back to it until 1992, 28 years of flat performance. www.macrotrends.net/2324/sp-500-historical-chart-data"
-------------------------------------

From 1968 to 1992, I get 24 years at best...not 28, unless my Penn State Engrg degree is worthless!

Second, most including me use the period to 1981, as when the market went above its late 1960's value...or 16 years. I haven't looked up S&P returns...are these indices w/o dividends included?

R48

[retiredat48]

For all those posting sources who state it is impossible to time the market, remember this:

The guru's speak with no data. You see, most investors(including me) had no way to save data/trades/portfolio results to be measured. All the evidence is anecdotal by the guru's (who have a lot of vested interest), stating they do not know anyone who was successful. Really, no-one!

The Jack Nicklaus Florida golfing community I bought into 28 years ago had an average age of 53 for year of retirement; many of these retirees had used market timing to a degree.

And they could hit four irons in golf, another impossible task for many a finance guru!

The key is to stop defining timing as "all in/all out"; there are many other forms of "timing."

R48

[ECE Prof]

Nov 16, 2022 5:54:22 GMT Norbert said:

Nov 16, 2022 0:41:34 GMT habsui said:

What I learned on this thread:

Unless you are the great market timer, don't even try.  That makes me a Joe, and I should move to 3 index funds and be done.

The fact that some people here have beaten the market average for years with a diversified portfolio plus some occasional tactical trading can be explained as an anomaly in the space time continuum.

For example, bond funds should/will return more in yields for some time to come than in previous years. And maybe equities will not return much more. If so, according to the Ellis model, more of your cash would come from bonds. Nothing wrong with that for this (younger) retiree.

Also, I would think that for quite a few folks on here ignoring taxes does not work. And I never liked KISS, their songs suck.

Good investing..

Yeah, give me ABBA anytime.

I'm thinking that we should employ indexing more often on this discussion board. For example:

23: “I let the market tell me what to do.”

31: “Tom Lee is a perma-bull.”

8: "I went to cash in January."

53: "It's all about risk-adjusted returns."

17: "Siegel's forecasts are mostly wrong."

76: "Joe should just use the S&P 500."

76a: "Unlike Joe, I know how to trade the market." (subtext)

76a: "KISS."

7: "Just own 2-3 funds. I don't diversify."

7a: I'm always right." (subtext)

So, for example, when FD wants to attack Jeremy Siegel, he can just type "17". Everyone has memorized his talking points. There are only a few dozen and he repeats them over and over again.

Easier and faster for everyone!

53. 7a! 76a.

"53. 7a! 76a.” LOL.

[junkster]

Nov 16, 2022 20:45:17 GMT retiredat48 said:

@ Mustang ,...who posted: " The SP500 hit 873 in 1968 and didn't get back to it until 1992, 28 years of flat performance. www.macrotrends.net/2324/sp-500-historical-chart-data"
-------------------------------------

From 1968 to 1992, I get 24 years at best...not 28, unless my Penn State Engrg degree is worthless!

Second, most including me use the period to 1981, as when the market went above its late 1960's value...or 16 years. I haven't looked up S&P returns...are these indices w/o dividends included?

R48

What am I missing here?  The S@P most certainly wasn’t anywhere close to 873 in 1968.  More like 95.  It started 1992 at 416.  The chart by macro trends is completely erroneous.

Edit.  OK I get it.  That was an inflation adjusted chart of the S@P.

[retiredat48]

Another BTW folks. The most successful fund in history, Renaissance Medallion, was SOLELY based on market timing...each day...using algo's.

Here's from google and Wiki:

"Renaissance's flagship Medallion fund, which is run mostly for fund employees, is famed for the best track record on Wall Street, returning more than 66 percent ...

Their signature Medallion fund is famed for the best record in investing history. Renaissance was founded in 1982 by James Simons, a mathematician who formerly worked as a code breaker during the Cold War."

---------------------------------------

In interviews, Simons stated the words "can't time the market" were a challenge to him to do it. He succeeded big time.  He is now one of the wealthiest people in the world.

R48

[richardsok]

Nov 16, 2022 5:54:22 GMT Norbert said:

Nov 16, 2022 0:41:34 GMT habsui said:

What I learned on this thread:

Unless you are the great market timer, don't even try.  That makes me a Joe, and I should move to 3 index funds and be done.

The fact that some people here have beaten the market average for years with a diversified portfolio plus some occasional tactical trading can be explained as an anomaly in the space time continuum.

For example, bond funds should/will return more in yields for some time to come than in previous years. And maybe equities will not return much more. If so, according to the Ellis model, more of your cash would come from bonds. Nothing wrong with that for this (younger) retiree.

Also, I would think that for quite a few folks on here ignoring taxes does not work. And I never liked KISS, their songs suck.

Good investing..

Yeah, give me ABBA anytime.

I'm thinking that we should employ indexing more often on this discussion board. For example:

23: "I let the market tell me what to do."

31: "Tom Lee is a perma-bull."

8: "I went to cash in January."

53: "It's all about risk-adjusted returns."

17: "Siegel's forecasts are mostly wrong."

76: "Joe should just use the S&P 500."

76a: "Unlike Joe, I know how to trade the market." (subtext)

76a: "KISS."

7: "Just own 2-3 funds. I don't diversify."

7a: I'm always right." (subtext)

So, for example, when FD wants to attack Jeremy Siegel, he can just type "17". Everyone has memorized his talking points. There are only a few dozen and he repeats them over and over again.

Easier and faster for everyone!

53. 7a! 76a.

Only Wednesday and Norbie wins the LOL post of the week.

[Deleted]

Nov 16, 2022 21:15:51 GMT retiredat48 said:

Another BTW folks. The most successful fund in history, Renaissance Medallion, was SOLELY based on market timing...each day...using algo's.

Here's from google and Wiki:

"Renaissance's flagship Medallion fund, which is run mostly for fund employees, is famed for the best track record on Wall Street, returning more than 66 percent ...

Their signature Medallion fund is famed for the best record in investing history. Renaissance was founded in 1982 by James Simons, a mathematician who formerly worked as a code breaker during the Cold War."

---------------------------------------

In interviews, Simons stated the words "can't time the market" were a challenge to him to do it. He succeeded big time.  He is now one of the wealthiest people in the world.

R48

For those interested, please read - ofdollarsanddata.com/medallion-fund/.  Notice the statement - "With a 40% management fee, the S&P 500 would have outperformed the Medallion Fund by 4x by the end of 1999."  Renaissance also runs other funds not doing as well. This is a quant computer generated system. Not only should you not try this at home - you can't. 

[FD1000]

Nov 16, 2022 21:50:24 GMT @slooow said:

Nov 16, 2022 21:15:51 GMT retiredat48 said:

Another BTW folks. The most successful fund in history, Renaissance Medallion, was SOLELY based on market timing...each day...using algo's.

Here's from google and Wiki:

"Renaissance's flagship Medallion fund, which is run mostly for fund employees, is famed for the best track record on Wall Street, returning more than 66 percent ...

Their signature Medallion fund is famed for the best record in investing history. Renaissance was founded in 1982 by James Simons, a mathematician who formerly worked as a code breaker during the Cold War."

---------------------------------------

In interviews, Simons stated the words "can't time the market" were a challenge to him to do it. He succeeded big time.  He is now one of the wealthiest people in the world.

R48

For those interested, please read - ofdollarsanddata.com/medallion-fund/.  Notice the statement - "With a 40% management fee, the S&P 500 would have outperformed the Medallion Fund by 4x by the end of 1999."  Renaissance also runs other funds not doing as well. This is a quant computer generated system. Not only should you not try this at home - you can't. 

This article is one of the most misleading articles I have seen in years. Let's assume it's correct that medallion charges 5 and 44.  That means 5% annual fees you must pay + 44% of positive performance. This guy runs the numbers for 40% management fee no matter what.

Let's see an example:

What does it mean if you invest 1 million Dollar?
If medallion lost 10%=100K. You pay medallion only the annual $50K fee. Now you have only $850K.

The author says let's test it with a flat fee of 40%. This means, you lost 10% + 40% = 50%.
So, instead of being down just $150K, you will be down $500K

The author is a genius or Madoff? I let you pick.