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Post by Deleted on Oct 8, 2021 13:05:24 GMT
I don't think anyone has the silver bullet for this. It's all about "you" - risk tolerance, time you want to spend, income needs, what you are already locked into, thoughts on expected returns/inflation. I think we have all shown many ways to accomplish this successfully. I do think selling out at certain times strategies are fine, but not for me - "you" just have to accept the risk and anxiety if it affects you. You got some good feedback here.
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Post by Karen on Oct 8, 2021 13:38:09 GMT
... What is the chance that anybody on this forum will do it? Zero From what my husband and I can tell, there are many intelligent people and experienced investors on this site. So agreed, nobody on this forum is going to adopt an investment strategy of momentum bond OEF trading that produces annual TRs significantly less than their current strategy and requires more work on their part. I'm glad that you seem to finally understand that. Accepting that and ceasing your daily postings of your strategy and Ali-style proclamations about yourself we understand to be entirely different matters. www.youtube.com/watch?v=J9CeC3yrcG4
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Post by richardsok on Oct 8, 2021 15:43:32 GMT
For me your approach is an unworkable DESIRE. You will NOT beat everybody out the door. With your equity allocation you'd better be REAL comfortable with a 20 to 25% portfolio decline. If you want to keep your port drops to less than 10% you need to cut your equities to 20 - 30%. Agree with both Norbert and Galeno! I don’t think it’s reasonable to expect to “beat everyone else to the exits”. When the market goes down it can be quick and ugly. Look at 2020, quick drop, caught all of us by surprise. By the time you realize we’re in a bear market, we’re already down significantly, and it may be too late. Set aside your “safe bucket” in high quality CD’s, bond funds, and then set up the rest in asset allocation you are “comfortable” with, say 30:70 or 40:60. I’m OK with holding a high equity allocation as I’m going to ride out any volatility. Leaning strongly towards having a “safe bucket” of 1 million, just as a fall back in case we had a BAD stretch. I think your fooling yourself if you think you can time it and get out “early”. Just my humble opinion. Win -------------------- Beg to differ. To my knowledge there has been ONE unknowable market crash: 9/11. All other sudden, deep drops had "early warning slips." Even October 1929 and Black Monday Oct 1987 were preceded by ugly market drops. In 1987 there were two famous nationally televised warning calls, one by Sam Donaldson on nationally televised ABC Sunday Morning (just before the crash) when, expressing fear for the slipping market, he famously leaned toward the camera, cupped his hand by his mouth and loudly said, "Sell!" The other was on PBS; Rukeyser's WallStreetWeek , my hero Marty Zweig nailed it the Friday before the crash -- pick him up at the 6:40 mark: www.youtube.com/watch?v=2MyToTwag34Now in my early 70s, I am just no longer willing to accept a 20% drop in portfolio value. I may not live long enough to recover. I believe, with a market this high, safety might be found in three ways (A) accept reduced total performance by keeping a bearish component to partially absorb losses in event of a crash .... AND/OR ... (B) be thoughtfully nimble using technical signals to promptly enter or exit low-volatility positions as signals occur ....AND ... (C) have a large well-covered dividend allocation so if you are late to sell (or just unlucky) you're compensated with a good income stream while the bear market works itself out. (Warning: "working itself out" might take ten years or more.) Of course, there's the reply, "When in a dip, how do you know whether it's to be shallow and brief or prelude to a crash?" The answer is, "You DON'T know." Every time you sell into a declining market and re-buy when it begins to recover, you will have a lost-opportunity cost. I maintain, however, that if you concentrate on low-volatility assets, those losses will be minimal and will be your salvation when the Big One comes. Buoyed by unfathomable rivers of money from aggressive government support, we have become used to our mild little dips. We expect them now. That is pure recency bias and, I believe, dangerous complacency. Today, inflation threatens sky-high valuations. We agreed on this forum some months back that equities are an effective inflation hedge. Well, it turns out -- not necessarily. The 1970s were a decade of brutal inflation and ALSO a miserable decade for equities, simultaneously. That was then. This is now. With our current political class, under what hellish conditions can you imagine another Paul Volker stepping forth to save us from inflation by applying 15% interest rates when we have a $20Trillion+ national debt? Yes, but inflation is transitory. Our political class is working ceaselessly to lay upon us NEW oceans of money and entitlements -- but somehow inflation will just ... happily dissipate? The dollar strengthens at $30Trillion debt? $40T? How? Imagine the stock market and your portfolio if, two years from now, a much-needed Paul Volker emerges to apply some desperately necessary "tough love" to interest rates. Now imagine the market if he doesn't.
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Post by xray on Oct 8, 2021 19:27:11 GMT
richardsok, Agree with you but you covered a awful lot of ground in one post. It would probably take writing a book to answer everything you tried to cover. Below is what some of us believe [bottom line]: ---------- Reference one of my recent posts from "TipRanks"News: TipRanks Dividend Stocks Under $10 With 10% Dividend Yield TipRanks Fri, October 8, 2021, 9:57 AM Dividend stocks are the Swiss army knives of the stock market. When dividend stocks go up, you make money. When they don’t go up — you still make money (from the dividend). Heck, even when a dividend stock goes down in price, it’s not all bad news, because the dividend yield (the absolute dividend amount, divided by the stock price) gets richer the more the stock falls in price. Knowing all this, wouldn’t you like to own find great dividend stocks? Of course you would! Live Long and Prosper....
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Post by FD1000 on Oct 8, 2021 22:15:13 GMT
... What is the chance that anybody on this forum will do it? Zero From what my husband and I can tell, there are many intelligent people and experienced investors on this site. So agreed, nobody on this forum is going to adopt an investment strategy of momentum bond OEF trading that produces annual TRs significantly less than their current strategy and requires more work on their part. I'm glad that you seem to finally understand that. Accepting that and ceasing your daily postings of your strategy and Ali-style proclamations about yourself we understand to be entirely different matters. www.youtube.com/watch?v=J9CeC3yrcG4 Your usual, you missed again. My trading system isn't only for bond OEFs. For many years I used it for stocks. When I reached my goal number, I decided to lower my portfolio volatility. As it turned out, my system have been working pretty well since retirement. My portfolio performance is 3+ times my needs, with maximum loss from any last top under 1%. I definitely didn't "finally understand that", the results are the proof. My post was a direct response to the OP which is how to make money with lower volatility. Chang talked about 5-10% max loss and what to do. Then he mentioned Wellesley and Wellington. I have talked with several dozens of "experts"/financial advisor/fiduciaries and found they know very little what to do but they are experts how to charge big fees without a guarantee. They love to use the word fiduciary, which doesn't guarantee better performance and definitely not risk-adjusted performance. A true fiduciary that put his/her clients interest first 1) will not charge that much 2) need just 1-2 hours to do it after he/she have done 10 of these 3) charge by the hour and set up the client for years to come. I can't find any of these, if they do it, they can't make money. Finally, I'm waiting eagerly, for your great solutions for Chang.
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Post by richardsok on Oct 8, 2021 23:23:38 GMT
X -- Must confess, I do sometimes post with a broad brush when fully engaged.
Years ago when discussing market risk we'd refer to the unknowns, y'know -- the "known unknowns" and the "unknown unknowns".
While those risks still apply, I feel any thoughtful investor is obligated to also look ahead and behave as if future inflation is a CERTAINTY. For a half-century or more every administration (D or R) has labored to out-do its predecessor in spending & debt, and the newest increases now appear to be almost parabolic. We are perhaps already past the point of continuously demanding more and more where the Fed could plausibly apply an effective interest-rate brake.
And so I list three general strategies in reply to the OP. Some attention to basic commodity producers might be a fourth.
I'm concerned when I read someone blithely claim, "Oh yes, I could easily weather a 20% drop. In fact, I expect it and look forward to it."
Which pre-supposes there's a nice, safe floor down at 20%. Or 30%. Or forty.
-----------------
FD: In general, I agree with your viewpoint. However, you don't get extra points for snarky.
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Post by chang on Oct 8, 2021 23:35:09 GMT
I'm concerned when I read someone blithely claim, "Oh yes, I could easily weather a 20% drop. In fact, I expect it and look forward to it." Which pre-supposes there's a nice, safe floor down at 20%. Or 30%. Or forty. Rem acu tetigisti.
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Post by Deleted on Oct 8, 2021 23:57:39 GMT
Richardsok - some thoughts - as far as knowing when markets will crash - I understand that in hindsight and even before some were prescient enough to avoid. But how many times did someone think a crash was coming and it didn't? So, the record of being able to foretell a crash might not be able to be readily evaluated. Second - the options. The first appears to be an equity/ bond allocation decision to avoid the 20% drop. The second is technical analysis. And the the third - source of income sufficient so you don't need to sell. For the first option you really need a good handle on expected returns/inflation to get the allocation right. Let's say the second is time consumint and subject to big consequences if you make a mistake. The third, you have to pick well and monitor, and have a bigger portfolio if you are going to avoid a drawdown situation. Correct?
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Post by ignatz on Oct 9, 2021 1:19:36 GMT
Richardsok - some thoughts - as far as knowing when markets will crash - I understand that in hindsight and even before some were prescient enough to avoid. But how many times did someone think a crash was coming and it didn't? So, the record of being able to foretell a crash might not be able to be readily evaluated. Second - the options. The first appears to be an equity/ bond allocation decision to avoid the 20% drop. The second is technical analysis. And the the third - source of income sufficient so you don't need to sell. For the first option you really need a good handle on expected returns/inflation to get the allocation right. Let's say the second is time consumint and subject to big consequences if you make a mistake. The third, you have to pick well and monitor, and have a bigger portfolio if you are going to avoid a drawdown situation. Correct?
I fully agree........
Nowhere do I see a described back-testable method of having more than a random chance of detecting which 5% declines will become 20 or 40%.
Low volatility assets? Something other than those that are also low return? Something other than those that are volatile down as well as up? Something other than simply a lower equity percentage overall? Something other than having a sufficiently large portfolio as to be indifferent to declines?
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Post by richardsok on Oct 9, 2021 11:20:25 GMT
Ignatz & Slooow –
A lot of ground to cover in your views. I'll reply to your first points now and perhaps revisit later.
I AGREE and have clearly posted, one cannot foretell when a dip is about to turn into a deep plunge. In the beginning crashes and dips look identical; when slips do turn serious, it is often too late to take effective steps. So, I say IN THAT BUCKET where you are willing to trade opportunistically, you follow tech signals on a three-month chart and apply them to a low-volatile stock or ETF.
For my purposes I use “volatility” as a term to describe the historic pattern of an asset's chart. Has it tended to roll gently in hills and valleys? Or does it zig sharply in sharp peaks? Granted, there's always exceptions in any history.
I have done a lot of searching through stocks and ETFs and have come up with a few tradable assets I like. Lately I have been using VOOG. It's sometimes more volatile than I really like, but I attempted to use it last month. Since I cannot tell when a crash is coming, I sell instantly when early signals indicate. I have already said I have a lost opportunity cost when a brief dip reverses back upward – BUT several mini-losses are far less than holding onto a big position when it thunders downward.
Two examples: When the big COVID-Spending began last year I determined gold would benefit from inflationary pressures and I bought a decent-size position in ASA when it started to rise.. Well, I was wrong, ASA reversed downward, but convinced I was right, I broke my rule and held on while (horror!) it dropped even further. For a year now I've been stuck with ASA about 22% under my buy price because I held to my opinion rather than my rule.
Second example: Follow my recent one month B-S-W posts reporting action in my big trading bucket. (I ignore trades made in my “income” bucket.)
Sept 9 VOOG struggling. Took gains on one block.
Sep 10 Mkt weak. Took gains on SPD. Bought 1st block of PSQ
Sept 13. Large sell. Now out of ¾ of VOOG
Sep 14. Sold last of VOOG Added to PSQ
Sep 17. Added to PSQ
Sept 20 Big market drop. Very small addition to PSQ – too late for a big buy.
Sep 21 Took gains on half of PSQ
Sep 22 Took gains on remaining PSQ and returned to one block of VOOG
Sept 24 Took small gains on VOOG. Bought BOMN
Sep 28 Took small gain on BOMN; small loss on remaining VOOG
Sep 30 & Oct 4. Two small buys in PSQ.
Yes, that's a lot of trading, even for me, But it was a very successful month, even in a difficult market. The big important trades were Sep 9-14. All the rest were relatively small potatoes, which worked b/c I moved quickly when the technicals changed.
It is only recently I have attempted to take big bearish positions. A problem is that I can't find a low-volatility bearish ETF, so I can take only very small bearish positions. 8% of PV is enormous for me. 4% is a far more typical maximum.
Lastly, I would NEVER suggest my tactics are superior to competent Security Analysis – what I do is a mere coping technique that attempts to systemitize the old saw, “Cut your losses and let your winners run.”
Remember, the OP of this thread; finding safety in a sky-high market. My reply is to suggest relative safety might be found by trading on technical charts in a disciplined manner. Trade your signals, not your opinions.
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Post by FD1000 on Oct 9, 2021 13:23:43 GMT
The following is an example how to do it. This is part of my system but I made it as easy as I can. Suppose I'm Chang and I practice my ideas 1) Limited number of funds: I would look for lower SD funds with reasonable performance. Let's select PRWCX(flexible allocation),FMSDX(Multi-asset),CTFAX(10/90<-->90/10). I can add more funds, in my case 5 funds is the max. More funds = more trading. 2) Sell any of the above at 6% max from any last top 3) Buy back using T/A Below you can see 3 years performance of the 3 funds. 1) In Q4/2018 you had to sell only PRWCX, then buy later, see below 2) In 03/2020 you had to sell all 3. Then buy later, see below PRWCX example So, in 3 years you had to sell only twice. How much do have to watch the above? very little.
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Post by racqueteer on Oct 9, 2021 13:54:53 GMT
The following is an example how to do it. This is part of my system but I made it as easy as I can. Suppose I'm Chang and I practice my ideas 1) Limited number of funds: I would look for lower SD funds with reasonable performance. Let's select PRWCX(flexible allocation),FMSDX(Multi-asset),CTFAX(10/90<-->90/10). I can add more funds, in my case 5 funds is the max. More funds = more trading. 2) Sell any of the above at 6% max from any last top 3) Buy back using T/A Just so everyone is clear, I think 2) above is: Sell on a 6% pullback from any last top. Is that correct, FD?
I didn't check, but while this process apparently works for THESE funds, are there some for which it DIDN'T work (in which case, the rules would be less helpful)? I looked quickly at other MA funds (MAPOX, BUFBX, VWELX) and all seem to mirror the moves. Helpful for many, I believe; good post!
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Post by FD1000 on Oct 9, 2021 14:01:48 GMT
The following is an example how to do it. This is part of my system but I made it as easy as I can. Suppose I'm Chang and I practice my ideas 1) Limited number of funds: I would look for lower SD funds with reasonable performance. Let's select PRWCX(flexible allocation),FMSDX(Multi-asset),CTFAX(10/90<-->90/10). I can add more funds, in my case 5 funds is the max. More funds = more trading. 2) Sell any of the above at 6% max from any last top 3) Buy back using T/A Just so everyone is clear, I think 2) above is: Sell on a 6% pullback from any last top. Is that correct, FD?
I didn't check, but while this process apparently works for THESE funds, are there some for which it DIDN'T work (in which case, the rules would be less helpful)? I looked quickly at other MA funds (MAPOX, BUFBX, VWELX) and all seem to mirror the moves. Helpful for many, I believe; good post!
What didn't work? I looked at MAPOX,FBALX,VWELX and they had only 2 sells in 3 years. If you don't like 6% you can use 7-8% or you can make up your own rules for different funds. More possible funds:VWIAX(only one sell),MNBIX,ABALX. Suppose you want international, these are global allocation: VGWAX,RPGAX. If I had to select 2 more funds I would go with VWIAX+VGWAX. Attachments:
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Post by racqueteer on Oct 9, 2021 16:26:06 GMT
Just so everyone is clear, I think 2) above is: Sell on a 6% pullback from any last top. Is that correct, FD?
I didn't check, but while this process apparently works for THESE funds, are there some for which it DIDN'T work (in which case, the rules would be less helpful)? I looked quickly at other MA funds (MAPOX, BUFBX, VWELX) and all seem to mirror the moves. Helpful for many, I believe; good post!
What didn't work? Where did THAT come from?
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Post by ignatz on Oct 9, 2021 22:11:02 GMT
Racq:
Re your
"I didn't check, but while this process apparently works for THESE funds, are there some for which it DIDN'T work (in which case, the rules would be less helpful)? I looked quickly at other MA funds (MAPOX, BUFBX, VWELX) and all seem to mirror the moves. Helpful for many, I believe; good post!"
Even more than that.....any fund with at least 50 percent equity is likely to have multiple 6% declines per decade.
To properly evaluate a method, you'd need to back test over a longer time period using actual sell and buyback prices....for each fund under examination....with particular attention paid to what generates a buyback signal. On what date and for what reason.
I've fiddled with this in Excel to little avail due to whiplashes and the inexorable headwind of long term mountain charts (buy and hold). If only that headwind went away.
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Post by Capital on Oct 10, 2021 0:58:50 GMT
I strongly believe in "Capital" preservation.
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Post by Norbert on Oct 10, 2021 6:12:28 GMT
Richardsok - some thoughts - as far as knowing when markets will crash - I understand that in hindsight and even before some were prescient enough to avoid. But how many times did someone think a crash was coming and it didn't? So, the record of being able to foretell a crash might not be able to be readily evaluated. Second - the options. The first appears to be an equity/ bond allocation decision to avoid the 20% drop. The second is technical analysis. And the the third - source of income sufficient so you don't need to sell. For the first option you really need a good handle on expected returns/inflation to get the allocation right. Let's say the second is time consumint and subject to big consequences if you make a mistake. The third, you have to pick well and monitor, and have a bigger portfolio if you are going to avoid a drawdown situation. Correct? Ha! Yes, some of us predicted 12 of the last 3 major corrections.
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Post by Norbert on Oct 10, 2021 6:27:48 GMT
richardsok"Buoyed by unfathomable rivers of money from aggressive government support, we have become used to our mild little dips. We expect them now. That is pure recency bias and, I believe, dangerous complacency. Today, inflation threatens sky-high valuations. We agreed on this forum some months back that equities are an effective inflation hedge. Well, it turns out -- not necessarily. The 1970s were a decade of brutal inflation and ALSO a miserable decade for equities, simultaneously. That was then. This is now. With our current political class, under what hellish conditions can you imagine another Paul Volker stepping forth to save us from inflation by applying 15% interest rates when we have a $20Trillion+ national debt?" Good comment. We've observed that central banks and governments lately appear determined to eliminate the word "recession" from our vocabulary. Or, maybe it was all part of an effort to avoid deflation? Debt and prices have soared. What happens if inflation takes hold, maybe thanks to soaring energy costs as the Green Brigade outlaws carbon fuels? I agree that complacency is widespread and that's typically a good contrarian, bearish indicator. The panic of March 2020 has been replaced by euphoria, to some degree. That's why I suggested to Chang that he set aside money to fully pay for his RE and several years of living. After that, keep stocks at 30-50% with the remaining investment money. Instead of attempting to time the next crash, maybe just stay conservative. (Good grief. He has enough; why risk losing it?) But, if we do get a major correction and valuations are sane, maybe that's the moment to increase risk exposure. Just be patient for now.
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Post by chang on Oct 10, 2021 7:42:37 GMT
That's why I suggested to Chang that he set aside money to fully pay for his RE and several years of living. After that, keep stocks at 30-50% with the remaining investment money. Instead of attempting to time the next crash, maybe just stay conservative. (Good grief. He has enough; why risk losing it?) But, if we do get a major correction and valuations are sane, maybe that's the moment to increase risk exposure. Just be patient for now. Norbert I took the point seriously and have already taken some actions to get there. I am somewhat surprised that many, perhaps most, opinions on this point advise riding out the next bear just like I have successfully done during the last three. I guess those people have a tougher stomach lining than I do.
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Post by xray on Oct 10, 2021 8:24:30 GMT
richardsok, Your: 1.... Years ago when discussing market risk we'd refer to the unknowns, y'know -- the "known unknowns" and the "unknown unknowns". 2... While those risks still apply, I feel any thoughtful investor is obligated to also look ahead and behave as if future inflation is a CERTAINTY. For a half-century or more every administration (D or R) has labored to out-do its predecessor in spending & debt, and the newest increases now appear to be almost parabolic. We are perhaps already past the point of continuously demanding more and more where the Fed could plausibly apply an effective interest-rate brake. 3... And so I list three general strategies in reply to the OP. Some attention to basic commodity producers might be a fourth. 4... I'm concerned when I read someone blithely claim, "Oh yes, I could easily weather a 20% drop. In fact, I expect it and look forward to it." Which pre-supposes there's a nice, safe floor down at 20%. Or 30%. Or forty. ---------- 1... How true especially when the market is considered [currently] beyond fair value. Many of us share your concerns.... 2... Any investor without current market concerns has to be considered a fool or has unlimited resources [money to lose] and doesn't really care. These are the same investors who haven't learned yet ["LESSONS LEARNED"] that investing is not a gambling tool for "LONG TERM" fast money IMHO. Some are making the "fast money" but if/when a "unsuspected event" happens [unplanned and a unknown], they will be the first to complain about what just happened.... 3... My current data this weekend showed that some securities continue to "collapse" [day-to-day, wk-to-wk]. Some others are in a trading range going no where [wk-to-wk] while some others are doing quite well. We all strategize but quite differently and so criticism of any one methodology is quite easy for non believers who do not use analysis. Without a strategy of some sort, losing money in this type of market is quite easy.... 4... 20%+ drop believers who look forward to it are basically "short" players where some easy money can be found if they are some sort of predictor analyst. Short players can make a fortune in a on-going down market [and they have been known to do this in the past] but as a simple investor [over many years now], I leave that to the so called experts currently in the market.... Live Long and Prosper....
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Post by ignatz on Oct 10, 2021 8:44:23 GMT
I'm at a point where I have "won the game" and have enough dough to live on, even if I put it all in the bank and suffered the ravages of inflation. However, that is obviously too risk-averse a position to take.
Taking the above literally, why obviously?
I suppose it matters if your annual expenditures are 10 percent of your net worth rather than 1 percent.
When faced with a choice of:
A: living more modestly than I have or would prefer
or
B: accepting a market risk that makes me uncomfortable
I would choose A without batting an eye, assuming I would then have somewhere near a middle class income.
Personalities differ. I'm in the market ONLY because I have a net worth below X and have no better idea. I mean ONLY.
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Post by chang on Oct 10, 2021 10:37:08 GMT
I'm at a point where I have "won the game" and have enough dough to live on, even if I put it all in the bank and suffered the ravages of inflation. However, that is obviously too risk-averse a position to take. Taking the above literally, why obviously? Well, I meant "in the bank" is too risk averse. I would sleep plenty easily with 100% in S/T bonds, and that beats the bank. Actually I would never go below 20% stock. I know that will secure me a little bit of long term growth and inflation protection, without imperiling my solvency. (Even if it went to $0, I would be OK.)
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Post by ignatz on Oct 10, 2021 10:57:21 GMT
What's the over-riding reason you don't go to your stated minimum (20% equity) tomorrow.....considering that 100% ST bonds would allow you to sleep plenty easily and you've already won the game?
You'd sleep plenty easily, but only if it were in the rear-view mirror and done, rather than something you had to convince yourself to do tomorrow?
Missing the non-monetary aspects of a game you've won....the casino aspect, excitement?
Not really sure you've won?
I assume if your net worth was double what it is, it wouldn't make any difference, since you've already won.
Just trying to understand your apparent reluctance.
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Post by Chahta on Oct 10, 2021 12:26:53 GMT
Taking the above literally, why obviously? Well, I meant "in the bank" is too risk averse. I would sleep plenty easily with 100% in S/T bonds, and that beats the bank. Actually I would never go below 20% stock. I know that will secure me a little bit of long term growth and inflation protection, without imperiling my solvency. (Even if it went to $0, I would be OK.) Rates will rise higher at some point (I believe that is a given) and the downside of that has shown itself the last few months. This economy is too wacky and unpredictable. S/T bonds have been losing and will continue for years as rates go back to "normalcy". 1 1/2% 10 year IT bonds will not be around for long. JMHO. I watch in amazement at one investor (not on BB) that tries to eke out 4% a year in bonds. A small screw up and you make 2% or net 0% maybe.
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Post by Mustang on Oct 10, 2021 12:59:17 GMT
It seems to me the only way to achieve what you want is to do what you don't want.
There have been many good suggestions. Following intent of the bucket strategy of putting away two to three years of expenses in cash accounts sounds like a good one. I have done that. It doesn't prevent the effects of a crash on your portfolio but allows the portfolio to recover before making withdrawals.
Even then if watching the portfolio fall creates too much heartburn then the only alternative is to go to less risky assets. I have chosen two moderate-allocation and one conservative allocation funds. The moderate-allocation funds did fall 20+ percent in 2008. The conservative-allocation fund 9.8%. One of the moderate-allocation funds (in our traditional IRA) is using a dynamic withdrawal strategy. This protects the the portfolio's value. If the market crashes 30% the withdrawal is 30% less.
Other techniques for preserving capital is to start with a lower initial withdrawal (many experts are recommending 2-3% instead of 4%). Another method is taking less than inflation increases each year. 1% point less makes a big difference over a 30 year retirement and studies have found that retirees spend less as they grow older at a rate of around 1% less per year. Many authors write about the smile pattern because health care expenses increase as we grow older.
Some studies show that how you withdraw money makes a big difference. The best method was one using Sharpe's CAPE ratio. I thought that was too complicated so we are going to use the second best method, withdraw from the fund that performs the best. That study also showed that re-balancing back to the original allocation was the worst possible method.
There are ways to mitigate the risk but the only way to eliminate it is to get out of the game. But that itself is extremely risky. When inflation comes back (and I believe it will) a 2-3% return will not provide a stable lifestyle. High inflation will erode purchasing power enough to notice in only a few years. I intend to keep our portfolio somewhere around 50/50 and hope cash will let us ride out the crash.
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Post by saratoga on Oct 10, 2021 17:18:58 GMT
Mustang: Sharpe's CAPE ratio. I thought that was too complicated so we are going to use the second best method, withdraw from the fund that performs the best. That study also showed that re-balancing back to the original allocation was the worst possible method.
You mean Shiller CAPE? Would you please elaborate: re-balancing back to the original allocation was the worst possible method?
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Post by Mustang on Oct 10, 2021 21:08:04 GMT
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Post by Capital on Oct 10, 2021 21:36:30 GMT
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Post by chang on Oct 10, 2021 21:57:45 GMT
Interesting that "Equal Withdrawals" produced the second highest ending value. So often "less is more" in investing.
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Post by FD1000 on Oct 10, 2021 22:19:23 GMT
The above is from 2016. CAPE failed as a system predicting the future. See ( link)... ======== However, Shiller's views have been criticised as overly pessimistic and based on the original definition of CAPE, which fails to take into account recent changes in the way earnings are calculated under accountancy rules; an analysis by Jeremy Siegel suggests that once the resulting bias is accounted for, the CAPE is shown to underestimate likely equity returns.[7]
The measure exhibits a significant amount of variation over time, and has been criticised as "not always accurate in signaling market tops or bottoms".[2] One proposed reason for this time variation is that CAPE does not take into account prevailing risk free interest rates. A common debate is whether the inverse CAPE ratio should be further divided by the yield on 10 year Treasuries.[8] This debate regained currency in 2014 as the CAPE ratio reached an all-time high in combination with historically very low rates on 10 year Treasuries.======== CAPE has been high since 2011( link) and the SP500 is on a tear. CAPE for other countries has been much better than the SP500 but the SP500 has done much better. The Fed is the cause of that. So, when the CAPE failed, Shiller offered an alternative CAPE in 2018. ======== The biggest problem of most articles is not taking into account a specific loss, especially for a younger retiree. I want to know if they can tell me which way is the best to have max loss lower than 10% to age 75. Most who have (more than) enough until the end don't care if their portfolio end result will be 5 million or 10, most care a lot more about not losing to a certain age + sleeping well. When you have more than enough, the success rate is 100% using 20/80 or 80/20 and under 2%(maybe 2.5-3%) withdrawal.
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