Author Topic: 100% stocks in the accumulation phase?  (Read 32240 times)

DrF

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Re: 100% stocks in the accumulation phase?
« Reply #50 on: July 28, 2016, 08:29:02 AM »
Your savings rate is more important than your annual return during accumulation. "It takes over 25 years for the one with the awesome 10% return to come out ahead."

Again, don't sweat the asset allocation too much. Save, Save, Save. How much better would your line be if you save 30, 40, 50% of your income vs the schmuck that only saves 5% to get the match?


mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #51 on: July 28, 2016, 08:31:40 AM »
our market gains in some years are more then we even earned .

i started as an investor in 1987 .  i have used the fidelity insight newsletter for decades . using the growth model ,  100k with not a penny added is worth 2.2 million today using plain ole fidelity funds , nothing special .. the s&p 500 is not that far behind either . about 400-500k less  .

so your time frame and results are going to vary . for some the gains out pace the savings put in . for other time frames not so much .

realize too that time frames you look at are dependent on the time frames you are not looking at . so as an example the great bull market of the 1980's was off the hook . but the time frames leading up sucked . high inflation , the stagnant markets for 20 years and high unemployment all made it hard to save money .

so great the party started but most regular folks had little to invest or invested .
it took years accumulating money in the 1980's to reach a level that was meaningful enough to benefit from the great run up .


most folks also have different amounts at different points in time .

gains later in life when fuel tanks are full mean a whole lot more then early on when you do not have much invested .

today a 6% gain on our portfolio represents 9 years of maxing out our 401k contributions at catch up ,  25 years ago it may have been a months pay .

« Last Edit: July 28, 2016, 09:00:30 AM by mathjak107 »

Tyler

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Re: 100% stocks in the accumulation phase?
« Reply #52 on: July 28, 2016, 09:07:09 AM »
For me personally, I am adding to my equities positions.

@Arebelspy -- My impression (please correct me if that impression is incorrect or outdated) is that a significant percentage of your net worth over the years has been tied up in income-producing real estate.  FWIW, I'd also lay off bonds in your situation as you already have your fixed income covered in another way.  Your brokerage account may be 100% stocks, but your overall investments are actually well diversified.
« Last Edit: July 28, 2016, 09:29:17 AM by Tyler »

thd7t

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Re: 100% stocks in the accumulation phase?
« Reply #53 on: July 28, 2016, 09:22:08 AM »
Following this great discussion! Really nice depth and a fair diversity of opinions.

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #54 on: July 28, 2016, 10:26:51 AM »
My portfolio needs to last 30 years so should I go 100% stocks. That should provide the best returns shouldn't it.

Mine needs to last 60 years, maybe longer, and picking something that has underperformed every single time historically over that timeframe adds a lot of risk to it not making it.  It's not about "best returns" for its own sake, but for the sake of ER success.

I think that it should also be about sleeping well at night.

Definitely.  But the neat thing about that, is you can LEARN to live with volatility.  You can psychologically prepare yourself, and (for free!) be able to deal with it.  But you can't "learn" to deal with a portfolio that just didn't grow enough, and left you without enough, sadly.  So it is a real--and big--deal. 

Certainly sleep at night is one important thing.  And oversaving and going with a portfolio that underperforms, but at the tradeoff of less volatility is one solution. Then you can choose that portfolio, and accept that tradeoff.  But if you don't KNOW that's the tradeoff, if you're told this alternate portfolio is "nearly as good in CAGR" and this portfolio is constantly argued as the best in all scenarios, maybe you don't realize and save enough to compensate for that underperformance.  And then you're in trouble.

I basically agree with all of this. My only proviso is the volatility part of your argument. I think most people probably need some safe money to handle downturns.

Absolutely.  And a cash buffer I think is a fine way to help you sleep at night.  Much better than an AA that underperforms in the long run (which your ER likely will be), IMO.  But to each his own.  :)

The thing is just say you need a cash buffer and I think you do because when the markets crash you want to either buy or at least not sell. What percentage do you have in cash ? Why not just put that into bonds which should have a better return. I suppose you can have some cash and some bonds. If you only have an emergency fund you probably won't have a cash buffer that will help if a crash occurs anyway.

That starts looking like a typical stocks/bonds portfolio. It's just how much you put into each option.

I'm not sure on the best option myself. I just don't think a 100% stock option is going to work out that well. It doesn't give you any buffer if the stock market goes through a tough time. I suppose if you have a massive portfolio and you can live just off dividends then thats okay however my take is that would mean you are working too long as well.

Maybe there is no perfect solution including 100% stocks.

The point of the cash buffer wouldn't be to rebalance, or earn money, so putting it in bonds would be counter-productive.  It would be to live on (for up to two years before having to sell any stocks) when a crash happened.

As mathjak points out, cash buffers tend to just drag on portfolios--it wouldn't be for return purposes, but the sleep at night factor.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #55 on: July 28, 2016, 10:29:48 AM »
Your savings rate is more important than your annual return during accumulation. "It takes over 25 years for the one with the awesome 10% return to come out ahead."

Again, don't sweat the asset allocation too much. Save, Save, Save. How much better would your line be if you save 30, 40, 50% of your income vs the schmuck that only saves 5% to get the match?



Absolutely, and that's a great point if you're trying to convince someone to save more, or up their savings rate from 5% to 10% or whatever, but for this audience (Mustachians who are already going to try and max their savings rate), looking at the return is the next important step (not to chase yield, but to optimize).

E.g. if I'm going to have a 50-70% savings rate ANYWAYS, with no way to up it (per your initial analysis/suggestion of focusing on savings rate first), then looking at AA becomes the next important step.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #56 on: July 28, 2016, 10:36:15 AM »
For me personally, I am adding to my equities positions.

@Arebelspy -- My impression (please correct me if that impression is incorrect or outdated) is that a significant percentage of your net worth over the years has been tied up in income-producing real estate.

True.

Quote
FWIW, I'd also lay off bonds in your situation as you already have your fixed income covered in another way.

Bonds, yes, but you'd also lay off gold, tilting towards small caps, treasuries, etc.?  E.g. if you had rental properties covering all or most of your ER income, you'd just get 100% TSM?  I'm skeptical.  :P

Quote
Your brokerage account may be 100% stocks, but your overall investments are actually well diversified.

Oh? You, the master of portfolio diversification would call my "all stocks and physical real estate" portfolio "well diversified"?  I wouldn't think that would be the case.  ;)

(In other words, with this post, I'm meaning to say that yes, my portfolio makes sense why I wouldn't have bonds, but there's reasons why I might invest in other assets besides TSM, yet I still argue for TSM--that's why my comments like "I am adding to my equities positions" is still relevant despite my large real estate holdings.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

DrF

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Re: 100% stocks in the accumulation phase?
« Reply #57 on: July 28, 2016, 10:54:05 AM »
Absolutely, and that's a great point if you're trying to convince someone to save more, or up their savings rate from 5% to 10% or whatever, but for this audience (Mustachians who are already going to try and max their savings rate), looking at the return is the next important step (not to chase yield, but to optimize).

E.g. if I'm going to have a 50-70% savings rate ANYWAYS, with no way to up it (per your initial analysis/suggestion of focusing on savings rate first), then looking at AA becomes the next important step.

But, see this thread started by hodedofome.
Basically, you could go blue in the face deciding which asset allocation is the "best" and there's a very good chance you'll choose incorrectly when you look back at your investments in 30+ years. Once you are "diverse enough" final tweaking of 10% vs 20% in this or that doesn't really change the outcome.

Honestly, tweaking may get you what, +/- 0.8%. Someone may get lucky and "market time" some event or buy an individual stock which would drastically alter their return for a few years, but if you are just indexing an AA of XX%/yy%/ZZ% then switching them slightly will be negligible. It's the human condition to tweak though, and think that you will "win".

edit: this line of thinking specifically addresses the title of this thread "...accumulation..."
« Last Edit: July 28, 2016, 10:57:22 AM by DrFunk »

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #58 on: July 28, 2016, 10:59:39 AM »
Absolutely, and that's a great point if you're trying to convince someone to save more, or up their savings rate from 5% to 10% or whatever, but for this audience (Mustachians who are already going to try and max their savings rate), looking at the return is the next important step (not to chase yield, but to optimize).

E.g. if I'm going to have a 50-70% savings rate ANYWAYS, with no way to up it (per your initial analysis/suggestion of focusing on savings rate first), then looking at AA becomes the next important step.

But, see this thread started by hodedofome.
Basically, you could go blue in the face deciding which asset allocation is the "best" and there's a very good chance you'll choose incorrectly when you look back at your investments in 30+ years. Once you are "diverse enough" final tweaking of 10% vs 20% in this or that doesn't really change the outcome.

Honestly, tweaking may get you what, +/- 0.8%. Someone may get lucky and "market time" some event or buy an individual stock which would drastically alter their return for a few years, but if you are just indexing an AA of XX%/yy%/ZZ% then switching them slightly will be negligible. It's the human condition to tweak though, and think that you will "win".

Those small percent differences, over a long time, add up to be quite a bit, which is the difference between ER success and failure (and between needing to sell extra years of your life or not). It's the same reason why minimizing fees is so important.

And that's giving the benefit of the doubt that you're "tweaking" between AAs that are fairly comparable (e.g. deciding exactly what percent in bonds is perfect).  Plenty of people come on here and have 300k in cash sitting because they're scared of the market.  Their AA is nowhere close to reasonable to a long-term ER, and "tweaking" their AA is a BIG deal.

I get your overall point, and I agree.  Once you've decided on a reasonable AA, tweaking is pretty minimal.  But we're arguing for fairly different AAs here, with quite different outcomes.  It's more than just minor tweaking ("should I do 25% bonds, or 30%" type tweaking).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Tyler

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Re: 100% stocks in the accumulation phase?
« Reply #59 on: July 28, 2016, 11:15:14 AM »

Bonds, yes, but you'd also lay off gold, tilting towards small caps, treasuries, etc.?  E.g. if you had rental properties covering all or most of your ER income, you'd just get 100% TSM?  I'm skeptical.  :P

Quote
Your brokerage account may be 100% stocks, but your overall investments are actually well diversified.

Oh? You, the master of portfolio diversification would call my "all stocks and physical real estate" portfolio "well diversified"?  I wouldn't think that would be the case.  ;)


Like I said, my personal bias is towards the benefits of diversification, not any single portfolio.  I very much respect your thoughtful approach to investing, and I just wanted to point out that we agree on the benefits of not putting all of our money in the stock market a lot more than this thread might indicate.  We just have different methods. 

If there was a practical and repeatable way of adding the stock/rentals "Arebelspy Portfolio" to the site, that would be a nice option.  ;)  Cheers!
« Last Edit: July 28, 2016, 12:18:31 PM by Tyler »

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #60 on: July 28, 2016, 11:21:08 AM »
I just wanted to point out that we agree on the benefits of not putting all of our money in the stock market a lot more than this thread might indicate.  We just have different methods. 

Absolutely.  And I enjoy a good discussion, even when I disagree, it's never personal.  I very much respect your opinion.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #61 on: July 28, 2016, 11:24:01 AM »
it all depends on goals and income . i never really had very high income so my investments had to do the heavy lifting all my life . on the other hand my son is a partner in a national law firm in his 30's and makes 2x what i retired at .  he stands a chance of not being so dependent on pedal to the metal growth  as i was .

DrF

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Re: 100% stocks in the accumulation phase?
« Reply #62 on: July 28, 2016, 12:29:01 PM »
Those small percent differences, over a long time, add up to be quite a bit, which is the difference between ER success and failure (and between needing to sell extra years of your life or not). It's the same reason why minimizing fees is so important.

And that's giving the benefit of the doubt that you're "tweaking" between AAs that are fairly comparable (e.g. deciding exactly what percent in bonds is perfect).  Plenty of people come on here and have 300k in cash sitting because they're scared of the market.  Their AA is nowhere close to reasonable to a long-term ER, and "tweaking" their AA is a BIG deal.

I get your overall point, and I agree.  Once you've decided on a reasonable AA, tweaking is pretty minimal.  But we're arguing for fairly different AAs here, with quite different outcomes.  It's more than just minor tweaking ("should I do 25% bonds, or 30%" type tweaking).

Respectfully disagree, due to the topic of this particular thread. During accumulation, let's say you take a while (15 years) to accumulate a sufficient stache of $1MM, by investing on Jan 1 of every year, starting with $32,500 at the beginning of year 1 and increasing your contribution by 3% (cost of living raise) every subsequent year, and annual interest of 7%, you would have $1.044MM at the end of 15 years. Say you tweak your investments so that you get an additional 0.8% (now 7.8%) better than the example - that would give you $1.1147MM after 15 full years (you could stop 1 year early, at the beginning of year 15 when you put your contribution in you would have $1.034MM). But say you tweaked your investments poorly and you get 0.8% worse (now 6.2%) return than the example - which would give you $0.9786MM (but as soon as you put your contribution in on Jan 1 for year 16, you would have $1.029MM, meaning you would have to work exactly 15 years and 1 day). On average you would end up with $1.046MM +/- 6.5%. The point is, no matter how you "tweak" your AA during accumulation, the mustachian effect results in a relatively small difference in net worth due to the truncated time that compounding has to work with. On the other hand, if you were to increase your annual contributions by 10% rather than 3% year to year through badassity (raises, promotions, job hopping, side income, real estate) then you would be able to retire at the end of 12 years (assuming 7% annual returns) with $1.072MM. 3 years earlier than the planned 15, and 2 years earlier than due to "tweaking" one's investments. So what if you wanted to be ultra conservative and aim for 5% annual return? You would have to work 16 years and 1 day to end up with $1.039MM. Not a lot of extra time for the risk averse to work before hitting their savings goal.

Once you are not accumulating any longer, then I agree that compounding a higher % return is definitely worth "tweaking" your portfolio to try and get that additional 0.8% so that your portfolio lasts 40-60 years.

To be fair, now that I've written out the entire scenario, there seems to be almost non-existant downside (and a fairly significant upside) to trying to maximize annual returns during accumulation. Obviously, the benefit of "tweaking" decreases with shorter and shorter accumulation time frames. Additionally, different sequences of returns would alter the above examples slightly, but not much.
« Last Edit: July 28, 2016, 12:57:34 PM by DrFunk »

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #63 on: July 28, 2016, 12:38:37 PM »
time frame is key . the shorter the time frame the greater the chances the recovery will outlive you .  but if you retire young you still have money that won't be used to eat for 40 or 50 years and that is still long term money

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #64 on: July 28, 2016, 12:39:29 PM »
Excellent post, DrFunk.  I have nothing to disagree with.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Kaspian

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Re: 100% stocks in the accumulation phase?
« Reply #65 on: July 28, 2016, 02:47:16 PM »
To be fair, now that I've written out the entire scenario, there seems to be almost non-existant downside (and a fairly significant upside) to trying to maximize annual returns during accumulation.

Not for us, perhaps.  The downside on an aggressive portfolio for the average young/novice investor though is he/she invests their first $5K, 6 months later gets a statement and sees that it's down to $3400.  In a spot where the majority of the people on the MMM forum would giggle a little and slap each other upside the head, the terrified newbie takes the money off the table and never goes back to investing.  This happens all the time.  Because it's their first chunk of cash in, it's their new baby.  If I ever ended up one of those "advisors," I would be sure to begin a person with a balanced portfolio (so they don't get spooked) and then slowly encourage them to dial up the aggressive portion annually.   The math here is so often 100% correct, but the human psychology gets off.  Remember just last year on this MMM forum when so many people had decided the S&P was stagnant and there were better places to put their money?  ...I wonder where they put it.  :(

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #66 on: July 28, 2016, 02:52:50 PM »
bad investor behavior is all over and know's no bounds .

many  folks panic when they lose money and conservative funds have just as poor  investor returns vs what the fund got as do growth funds .

Shane

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Re: 100% stocks in the accumulation phase?
« Reply #67 on: July 28, 2016, 03:07:06 PM »
Coddling people who exhibit irrational behavior shouldn't be necessary on this board. Maybe normal people need that, but anyone reading this post shouldn't because we are NOT normal. Think about it, saving 50-80% of income is not normal behavior. Anyone who is able to understand the concept of FIRE should also be able to understand and internalize the fact that TSM is volatile and act accordingly.

We have friends who, literally, keep all of their assets in physical gold in a safe in their house and think we're crazy to trust TSM or US currency for that matter. Guess what, they're not reading this post. :)

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #68 on: July 28, 2016, 03:12:45 PM »
believe me you  have your share the same as bogleheads do and every other financial forum .  when folks have accumulated large sums of money and the crap hits the fan what they think or planned to do and will do may not be the same . i vouch for no one but myself , i learned that a long time ago .

DrF

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Re: 100% stocks in the accumulation phase?
« Reply #69 on: July 28, 2016, 03:31:49 PM »
Not for us, perhaps.  The downside on an aggressive portfolio for the average young/novice investor though is he/she invests their first $5K, 6 months later gets a statement and sees that it's down to $3400.  In a spot where the majority of the people on the MMM forum would giggle a little and slap each other upside the head, the terrified newbie takes the money off the table and never goes back to investing.  This happens all the time.  Because it's their first chunk of cash in, it's their new baby.  If I ever ended up one of those "advisors," I would be sure to begin a person with a balanced portfolio (so they don't get spooked) and then slowly encourage them to dial up the aggressive portion annually.   The math here is so often 100% correct, but the human psychology gets off.  Remember just last year on this MMM forum when so many people had decided the S&P was stagnant and there were better places to put their money?  ...I wonder where they put it.  :(

Agreed that human behavior is irrational, but the argument I've made is that your % savings rate is much more effective at producing wealth than return on investment. The greater your savings rate, the less investment return matters...during accumulation. Yes, sequence of returns matters in that a drop in 30% in your final year of saving will hurt much more than a drop of 30% in your first year of saving. That, I believe, is Tyler's main argument (please correct me if I'm wrong), that the risk of return sequence is so incredibly important that a person should tailor their portfolio to reduce it at the expense of return on investment. I disagree with that assessment (trying not to put words in Tyler's mouth here, I disagree whether or not that is Tyler's stance), because staying fully invested with additional contributions in 100% TSM through the trough of a bear market pullback would still likely get you to your target savings more quickly than a balanced portfolio designed to preserve principal. Statistically, 100% TSM is the way to go. Only a small percentage of the time would a broadly diversified portfolio consisting of multiple mostly non-correlated assets be superior during accumulation, and never ever never during a retirement of any minimal to lengthy period (20-60 years).

Although, settling for a mediocre return of 5% will not substantially change your fire time frame, which you are right in proposing that new investors should be much more diverse than advanced investors.

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #70 on: July 28, 2016, 04:01:06 PM »
My portfolio needs to last 30 years so should I go 100% stocks. That should provide the best returns shouldn't it.

Mine needs to last 60 years, maybe longer, and picking something that has underperformed every single time historically over that timeframe adds a lot of risk to it not making it.  It's not about "best returns" for its own sake, but for the sake of ER success.

I think that it should also be about sleeping well at night.

Definitely.  But the neat thing about that, is you can LEARN to live with volatility.  You can psychologically prepare yourself, and (for free!) be able to deal with it.  But you can't "learn" to deal with a portfolio that just didn't grow enough, and left you without enough, sadly.  So it is a real--and big--deal. 

Certainly sleep at night is one important thing.  And oversaving and going with a portfolio that underperforms, but at the tradeoff of less volatility is one solution. Then you can choose that portfolio, and accept that tradeoff.  But if you don't KNOW that's the tradeoff, if you're told this alternate portfolio is "nearly as good in CAGR" and this portfolio is constantly argued as the best in all scenarios, maybe you don't realize and save enough to compensate for that underperformance.  And then you're in trouble.

I basically agree with all of this. My only proviso is the volatility part of your argument. I think most people probably need some safe money to handle downturns.

Absolutely.  And a cash buffer I think is a fine way to help you sleep at night.  Much better than an AA that underperforms in the long run (which your ER likely will be), IMO.  But to each his own.  :)

The thing is just say you need a cash buffer and I think you do because when the markets crash you want to either buy or at least not sell. What percentage do you have in cash ? Why not just put that into bonds which should have a better return. I suppose you can have some cash and some bonds. If you only have an emergency fund you probably won't have a cash buffer that will help if a crash occurs anyway.

That starts looking like a typical stocks/bonds portfolio. It's just how much you put into each option.

I'm not sure on the best option myself. I just don't think a 100% stock option is going to work out that well. It doesn't give you any buffer if the stock market goes through a tough time. I suppose if you have a massive portfolio and you can live just off dividends then thats okay however my take is that would mean you are working too long as well.

Maybe there is no perfect solution including 100% stocks.

The point of the cash buffer wouldn't be to rebalance, or earn money, so putting it in bonds would be counter-productive.  It would be to live on (for up to two years before having to sell any stocks) when a crash happened.

As mathjak points out, cash buffers tend to just drag on portfolios--it wouldn't be for return purposes, but the sleep at night factor.

I don't think that this is correct but correct me if I'm wrong. If you have an index bond fund ala Vanguard you should be able to simply withdraw from that at any point with no penalty. It should be very similar to cash but with a higher return.

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #71 on: July 28, 2016, 04:06:08 PM »
I get your overall point, and I agree.  Once you've decided on a reasonable AA, tweaking is pretty minimal.  But we're arguing for fairly different AAs here, with quite different outcomes.  It's more than just minor tweaking ("should I do 25% bonds, or 30%" type tweaking).

I'm not sure what we are discussing here though. My impression was that there is an argument that 100% stocks is always the right approach. I don't agree with that. I think you should have a certain amount in bonds and some in cash.

My gut feel is that a 75 stocks /25 bonds and some cash buffer somewhere will do basically just as well as any 100% stock portfolio. Maybe via backtesting you will get better returns most times via 100% stocks but I don't trust backtesting to derive the best possibly asset allocation now and into the future.

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #72 on: July 28, 2016, 04:11:32 PM »
believe me you  have your share the same as bogleheads do and every other financial forum .  when folks have accumulated large sums of money and the crap hits the fan what they think or planned to do and will do may not be the same . i vouch for no one but myself , i learned that a long time ago .

This is why I'm not a fan of 100% stocks. When there is a 50% drop and you retired yesterday on a 5 % WR  it's going to hurt. If you can sit back and state well I'm not pulling any money out of stocks for the next 5 years so I'll just wait it out I think that is going to hurt less. What if you are in this situation and then you go back to work. Isn't that what we are trying to avoid ?

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #73 on: July 28, 2016, 04:15:39 PM »
I don't think that this is correct but correct me if I'm wrong. If you have an index bond fund ala Vanguard you should be able to simply withdraw from that at any point with no penalty. It should be very similar to cash but with a higher return.

Well you'd have to sell the bonds, and potentially pay taxes and stuff.  And the value can fluctuate up and down.  So no, it's not really similar to cash at all.  :)
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Re: 100% stocks in the accumulation phase?
« Reply #74 on: July 28, 2016, 04:21:44 PM »
I get your overall point, and I agree.  Once you've decided on a reasonable AA, tweaking is pretty minimal.  But we're arguing for fairly different AAs here, with quite different outcomes.  It's more than just minor tweaking ("should I do 25% bonds, or 30%" type tweaking).

I'm not sure what we are discussing here though. My impression was that there is an argument that 100% stocks is always the right approach. I don't agree with that. I think you should have a certain amount in bonds and some in cash.

My gut feel is that a 75 stocks /25 bonds and some cash buffer somewhere will do basically just as well as any 100% stock portfolio. Maybe via backtesting you will get better returns most times via 100% stocks but I don't trust backtesting to derive the best possibly asset allocation now and into the future.

Many of us disagree.  GCC has a good argument as to why:
http://www.gocurrycracker.com/path-100-equities/

There's been a ton of research into this topic, most around stock/bond mixes (60/40 is quite typical).  Cash tends to just be a drag.  If you can stay the course though, many of us argue that 100% equities is better in the end, despite any gut feel to the contrary.  :)

believe me you  have your share the same as bogleheads do and every other financial forum .  when folks have accumulated large sums of money and the crap hits the fan what they think or planned to do and will do may not be the same . i vouch for no one but myself , i learned that a long time ago .

This is why I'm not a fan of 100% stocks. When there is a 50% drop and you retired yesterday on a 5 % WR  it's going to hurt. If you can sit back and state well I'm not pulling any money out of stocks for the next 5 years so I'll just wait it out I think that is going to hurt less. What if you are in this situation and then you go back to work. Isn't that what we are trying to avoid ?

You'd ride it out, selling stocks as needed.  Going back to work wouldn't be necessary, if your WR was low enough.  Flexibility in early years (in case of sequence of returns risk) means with 100% TSM your portfolio would grow enough that you can easily ride out volatility, yes, even selling stocks while they're down, and end up with more overall (and ending up with more not for the sake of more, but to prolong/improve one's ER chances). 

But this thread isn't even talking about that, it's talking about TSM for the accumulation phase.  While working.  So there's no need to withdraw at that point, you're adding to.  If a crash happened right as you're going to ER, yes, it could delay you ERing a bit, but it's better then than right after, and most likely you'd still have more money after 30 years (even with a crash) with TSM than with other portfolios due to TSM's 30-year record (see Tyler's charts/graphs posted in this thread), so you'd probably have already FIRE'd earlier, or you'd have more money so you could still FIRE.
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Re: 100% stocks in the accumulation phase?
« Reply #75 on: July 28, 2016, 04:22:06 PM »
sorry for short comment, we are in a B&B in the middle of nowhere Ireland and I have a shite data connection

This may be relevant to the discussion:
"Note that in no year does a lower allocation of equities (less than 100%) help us reach our FI goal sooner."
http://www.gocurrycracker.com/financial-independence-how-long-will-it-take/


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Re: 100% stocks in the accumulation phase?
« Reply #76 on: July 28, 2016, 04:49:07 PM »
I don't think that this is correct but correct me if I'm wrong. If you have an index bond fund ala Vanguard you should be able to simply withdraw from that at any point with no penalty. It should be very similar to cash but with a higher return.

Well you'd have to sell the bonds, and potentially pay taxes and stuff.  And the value can fluctuate up and down.  So no, it's not really similar to cash at all.  :)

I hear this a lot but I'm not convinced. The volatility isn't that bad. It's nothing like stocks. Plus if bonds go down in value you'd expect the return to increase. So increased interest rates should decrease the value of bonds but increase the yield.

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Re: 100% stocks in the accumulation phase?
« Reply #77 on: July 28, 2016, 04:52:30 PM »
I get your overall point, and I agree.  Once you've decided on a reasonable AA, tweaking is pretty minimal.  But we're arguing for fairly different AAs here, with quite different outcomes.  It's more than just minor tweaking ("should I do 25% bonds, or 30%" type tweaking).

I'm not sure what we are discussing here though. My impression was that there is an argument that 100% stocks is always the right approach. I don't agree with that. I think you should have a certain amount in bonds and some in cash.

My gut feel is that a 75 stocks /25 bonds and some cash buffer somewhere will do basically just as well as any 100% stock portfolio. Maybe via backtesting you will get better returns most times via 100% stocks but I don't trust backtesting to derive the best possibly asset allocation now and into the future.

Many of us disagree.  GCC has a good argument as to why:
http://www.gocurrycracker.com/path-100-equities/

There's been a ton of research into this topic, most around stock/bond mixes (60/40 is quite typical).  Cash tends to just be a drag.  If you can stay the course though, many of us argue that 100% equities is better in the end, despite any gut feel to the contrary.  :)

believe me you  have your share the same as bogleheads do and every other financial forum .  when folks have accumulated large sums of money and the crap hits the fan what they think or planned to do and will do may not be the same . i vouch for no one but myself , i learned that a long time ago .

This is why I'm not a fan of 100% stocks. When there is a 50% drop and you retired yesterday on a 5 % WR  it's going to hurt. If you can sit back and state well I'm not pulling any money out of stocks for the next 5 years so I'll just wait it out I think that is going to hurt less. What if you are in this situation and then you go back to work. Isn't that what we are trying to avoid ?

You'd ride it out, selling stocks as needed.  Going back to work wouldn't be necessary, if your WR was low enough.  Flexibility in early years (in case of sequence of returns risk) means with 100% TSM your portfolio would grow enough that you can easily ride out volatility, yes, even selling stocks while they're down, and end up with more overall (and ending up with more not for the sake of more, but to prolong/improve one's ER chances). 

But this thread isn't even talking about that, it's talking about TSM for the accumulation phase.  While working.  So there's no need to withdraw at that point, you're adding to.  If a crash happened right as you're going to ER, yes, it could delay you ERing a bit, but it's better then than right after, and most likely you'd still have more money after 30 years (even with a crash) with TSM than with other portfolios due to TSM's 30-year record (see Tyler's charts/graphs posted in this thread), so you'd probably have already FIRE'd earlier, or you'd have more money so you could still FIRE.

There are a lot of good points here. I get the argument from a rational perspective. I'm just not sure if I get it from a reality perspective of living through a bear market. I also think that there is always a chance of a Japan like deflation period.

Maybe my concern is about what if scenarios that are unlikely to occur but if they do then you aren't protected. You are betting on everything going well or maybe better put there is a chance you are optimising based upon backtested results.

I completely agree that the key point is not to become the richest but to maximise the chance of success within ER.

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Re: 100% stocks in the accumulation phase?
« Reply #78 on: July 28, 2016, 05:04:27 PM »
john templton's famous words have still never been wrong .     The four most expensive words in the English language are "this time itís different." .

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Re: 100% stocks in the accumulation phase?
« Reply #79 on: July 28, 2016, 05:15:19 PM »
@Tyler, are the CAGR reported on your site median or average (heat map)? Or am I a newb and thinking of it wrong..

The CAGR in each cell of the heat map are for every single investing period (hover your mouse over the cells in the calculator to see specific values).  The point is to illustrate how different they can be for the same portfolio just based on timeframe.  The one reported in the "long-term CAGR" field is the longest one from 1972-2015 (the top-right cell on the chart).  You can find the median CAGR for any portfolio (and any timeframe) using the Long Term Returns chart/calculator.

Great! Thanks, those bits weren't immediately obvious to me. Makes sense now that I look closely.

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Re: 100% stocks in the accumulation phase?
« Reply #80 on: July 28, 2016, 05:25:19 PM »
john templton's famous words have still never been wrong .     The four most expensive words in the English language are "this time itís different." .

I agree with this but I think that there is a little more to the story of asset allocation than just going 100% stocks all the time.

I should add that I have a high percentage of my asset allocation in stocks.

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Re: 100% stocks in the accumulation phase?
« Reply #81 on: July 28, 2016, 09:57:48 PM »
Many of us disagree.  GCC has a good argument as to why:
http://www.gocurrycracker.com/path-100-equities/
If you can stay the course though, many of us argue that 100% equities is better in the end, despite any gut feel to the contrary.  :)
I have seen this link posted a couple of times. Am I the only one who noticed that 100% stocks did not lead to the highest success rate ever in the entire post? It looks to me like 10%-20% bonds led to the greatest success rate every time. I'm going to be Tyler-lite and suggest a higher backtested future success rate will probably include 10% invested in each of either two or three of these: series I savings bonds, long term US treasuries, gold. (I realize the latter is a strange one, I haven't been able to talk myself into it despite the pretty backtests).

Additionally, I see a lot of people talking about being all stocks and seeming to mean 100% US total stock market. I do not know what combination of investments will produce the highest safe rate of withdrawal in the future, but I will bet (not against you guys, sorry, I only bet against the market :) ) that it will not be 100% US TSM. It will probably not be 100% stocks either. I suggest a major proportion of stock ownership be invested internationally. My current theoretical favorite is my version of the "four slice ultimate buy and hold" from the Bogleheads forum. For my version this is an equal split between US large cap stock index (S&P500 or total market), US small cap value, international developed market small cap, and international emerging market value. If I include those four at 20% each combined with two of the three from above at 10% each, I am likely to greatly improve my odds. The original TrevH four slices of S&P500, US small cap value, international small, international value would work also. The deaths of diversification and modern portfolio theory have been greatly exaggerated, especially for retirees who need to sell regularly. OK, you end up with six asset classes instead of one. Toughen up cupcake. (<-- cunning reversal on Jim Collins).

In any case, 100% stocks is probably as good an allocation as any while accumulating. Just, don't forget international, kids.

Edit: I looked at the gocurrycracker snapshot at the bottom and noticed it actually reads 61% US stocks, 16% international stocks, 10% bonds, and 10% "alternatives". Almost exactly what I had in mind, so not 100% equities after all. However I'll agree with posters above that cash drags.
« Last Edit: July 28, 2016, 10:09:26 PM by Radagast »

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Re: 100% stocks in the accumulation phase?
« Reply #82 on: July 28, 2016, 10:08:23 PM »
Additionally, I see a lot of people talking about being all stocks and seeming to mean 100% US total stock market. I do not know what combination of investments will produce the highest safe rate of withdrawal in the future, but I will bet (not against you guys, sorry, I only bet against the market :) ) that it will not be 100% US TSM.

I wouldn't take that bet, I agree with you.

BUT, I don't think I can predict which WILL have the highest SWR in the future, nor can anyone, and I think TSM is more likely than most--i.e. it's about your best shot to have it be the highest, and if it's not the highest, it'll be up there.

Other portfolios that backtest well but don't pass the sniff test might be up there, but I think their chances of being the highest are lower than TSM's chance of being the highest, and it's equally likely that they'll be much lower.

In other words, TSM probably won't be the highest, and I think there's little chance that it will be, but it's still the safest bet.
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Re: 100% stocks in the accumulation phase?
« Reply #83 on: July 28, 2016, 10:50:42 PM »
Additionally, I see a lot of people talking about being all stocks and seeming to mean 100% US total stock market. I do not know what combination of investments will produce the highest safe rate of withdrawal in the future, but I will bet (not against you guys, sorry, I only bet against the market :) ) that it will not be 100% US TSM.
In other words, TSM probably won't be the highest, and I think there's little chance that it will be, but it's still the safest bet.
I have to disagree. I think any reasonable attempt is nearly certain to outperform TSM over a 50 year drawdown period. For example, 60% US TSM, 30% international stocks, 10% US government bonds if you are trying to keep it simple. There will be multiple times in the future when the US stock market does not support a high safe withdrawal rate, but many or most other possible investments will. Even if US stocks perform best in isolation, there will be periods you need to sell when it is down which will more than justify not being 100% TSM. Mandatory selling will make 100% TSM suboptimal, even if it is the highest returning asset class in the whole world for the next 50 years. You can modify it with whatever you want: tilts, international stocks, bonds, real estate, gold, 10-20% pretty much of anything will improve the odds. And that statement is made even with the assumption the US will be the best performing for the next 50 years. If it isn't, then a much lower allocation to TSM would be better.
« Last Edit: July 28, 2016, 11:07:42 PM by Radagast »

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #84 on: July 28, 2016, 11:19:18 PM »
I think any reasonable attempt is nearly certain to outperform TSM over a 50 year drawdown period.

Wow.  I could not disagree more.

I think it'd be extremely difficult to beat TSM over a 50-year period (especially accumulation, but even during drawdowns).

Quote
there will be periods you need to sell

Yes, and that will hurt, but it will grow so much more in the periods you AREN'T in a crash (i.e. the vast majority of the time) that you'll end up ahead, in the end.

Reasonable minds differ, obviously.  :)
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Re: 100% stocks in the accumulation phase?
« Reply #85 on: July 29, 2016, 12:32:20 AM »
Quote
there will be periods you need to sell

Yes, and that will hurt, but it will grow so much more in the periods you AREN'T in a crash (i.e. the vast majority of the time) that you'll end up ahead, in the end.
It has nothing to do with pain. It is about better results. As I see it there are three reasons to not be 100% US stocks:
1. You want the highest ending value. Not my perspective because I don't care if I am dead, but 10-40% international stocks will probably result in a higher ending value for a retiree (it is less clear for accumulators).
2. You want the greatest chance of success for a withdrawal rate, or a higher maximum withdrawal rate. In this case 10-40% international stocks will increase your odds, and so will adding 10-30% low-returning low-correlation assets (bonds, gold).
3. You want to be diversified in case the future is not like the past. In this case you probably want 50% or less in TSM.

I can think of two reasons to be 100% TSM:
1. America is best. (<--Warren Buffet, John Bogle)
2. Simplicity. I would agree more strongly with this if Vanguard did not also offer a Total World index fund, which seems far more zen-like to me.

I find the first three more compelling than the second two.

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #86 on: July 29, 2016, 12:39:18 AM »
See, and I would move your one and two down to the bottom, so only your number 3 remains, and I'd accept that adding international is "more diversified," but that TSM is probably diversified enough anyways, so that's not a huge deal.

I'm okay with international, though (thinking about getting some myself, beyond the international exposure I have via domestic stocks, mainly for the currency hedge it provides).  In fact, when we argue for 100% stocks, that could include international just fine.  The case for 100% equities (the topic of this thread) remains true even if some of those equities are non-domestic.  The international v. domestic is its own interesting aside.
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mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #87 on: July 29, 2016, 02:15:32 AM »
if you have a high percentage of stocks there is nothing wrong selling when down to raise cash for spending .

the up years generate that extra cushion which you would not have being more diversified .

100% stocks has produced the highest success rates over every rolling 40 year period going back to 1926 . 50/50 has done the best out to 30 years .

in all fairness you can't test any portfolio  for a true safe withdrawal rate that has gold in it .

the american citizen could not own gold nor did it trade here except as collectible coins until 1975 .

the  term safe withdrawal rate  by definition means the portfolio was stress tested against the 4 actual worst case scenario dates , 1929 ,1937 ,1965/1966 .  there was no gold market here for americans so we have no way of knowing how gold would have done under a free trading market . it was also influenced heavily because it came off the gold standard in its early years .


the term swr also does not consider the pile left over at the end .

if you pick random time frames and stress test say the permanent portfolio  , which you accurately  can't test pre 1975  you really are missing all the worst case scenario's .

so you can show some pretty high success rates as well as draw rates  using other time frames . but if we eliminated those dates above from a 70/30 mix the average safe withdrawal rate would be not 4% but 6.50% .

so while we can get portfolio's with small equity allocations to pass a 4% draw rate the difference is what is left at the end .

90% of   every rolling 30 year period  a 70/30 mix left you with more then you started with , while providing that income stream . 2/3's of the time frames it left you with more then 2x what you started with .

so when comparing allocations and stress testing for a safe withdrawal rate you have to look at the whole picture . it is not about squeaking through with a buck left and deeming it a good plan because it held a constant dollar cash flow .
« Last Edit: July 29, 2016, 07:02:25 AM by mathjak107 »

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #88 on: July 29, 2016, 02:57:53 AM »
The international v. domestic is its own interesting aside.

I think we should discuss this at the end of this discussion. I'm unclear on this point as well.

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #89 on: July 29, 2016, 03:03:41 AM »
100% stocks has produced the highest success rates over every rolling 40 year period going back to 1926 . 50/50 has done the best out to 30 years .
.....
90% of   every rolling 30 year period  a 70/30 mix left you with more then you started while providing that income stream . 2/3's of the time frames it left you with more then 2x what you started with .

All interesting points.

This is just for me but I have three phases. One to get to 60. One from 60 to about 70. A government pension from 70 onwards.

I have to do all of this though from a backdrop of not getting the pension and still just trying to have a 40 year potential plus retirement. I probably won't live that long but it could happen and I'd rather leave my kids with money than leave them with debt.

So if I look at that scenario maybe it's smarter to have a higher percentage of cash or bonds than go 100% stocks especially in the money to get me to 60.
« Last Edit: July 29, 2016, 03:05:23 AM by steveo »

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #90 on: July 29, 2016, 03:10:30 AM »
This is just for me but I have three phases. One to get to 60. One from 60 to about 70. A government pension from 70 onwards.

I have to do all of this though from a backdrop of not getting the pension and still just trying to have a 40 year potential plus retirement. I probably won't live that long but it could happen and I'd rather leave my kids with money than leave them with debt.

So if I look at that scenario maybe it's smarter to have a higher percentage of cash or bonds than go 100% stocks especially in the money to get me to 60.

It very much depends on the size of the stache.  If you're underfunded, you may need the higher returns (and accept the volatility that comes with) to get there (it's a gamble, and you may be going back to work).  If you have enough, you can dial down the volatility, smooth the ride, and not worry that you're ending up with less, as long as you end up with some (which again, may not happen if the stache isn't big enough, and you don't give it enough returns to grow enough).

If you're more conservative, it's probably worth doing OMY, and a less volatile portfolio.  If you're okay with volatility, but not giving up more years of your life, you may not want to water down a portfolio with uncorrelated (and lower returning) assets.

Tyler does a good job showing some portfolios that do their best at that trade off (i.e. much less volatility for not that much worse of returns), but you are still giving up something (i.e. no free lunch), and whether or not what you give up is worth it depends on your priorities.
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mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #91 on: July 29, 2016, 03:23:10 AM »
100% stocks has produced the highest success rates over every rolling 40 year period going back to 1926 . 50/50 has done the best out to 30 years .
.....
90% of   every rolling 30 year period  a 70/30 mix left you with more then you started while providing that income stream . 2/3's of the time frames it left you with more then 2x what you started with .

All interesting points.

This is just for me but I have three phases. One to get to 60. One from 60 to about 70. A government pension from 70 onwards.

I have to do all of this though from a backdrop of not getting the pension and still just trying to have a 40 year potential plus retirement. I probably won't live that long but it could happen and I'd rather leave my kids with money than leave them with debt.

So if I look at that scenario maybe it's smarter to have a higher percentage of cash or bonds than go 100% stocks especially in the money to get me to 60.

my plan was grow all i could until my late 50's .  that meant maximizing returns in both my market investments and real estate .

ben franklin said a penny saved is a penny earned , plus taxes i might add but what he left out is that penny will always be a penny without good  compounding .

once i pretty much hit my savings goals  i cut back to about a 60/40 mix pre retirement  .

finally at retirement in light of low rates and high valuations i am using a rising glide path . i am at 35% equity's and over the next 15 years will increase by 2% a year up to 50/50 eventually .

the risk of a extended flat or downturn at this point is pretty high and i don't want to get caught in it day 1 of retirement so having just completed 1 year in retirement i still need a good up cycle to build that cushion .

we are delaying social security so while my draw now is about 3.50% from our portfolio once ss kicks in we will drop to 2% . that means very little dependency on markets so we can leave things at about 50/50 or we can reduce equity's way down because the draw is so little .

having options and choices in life is what having money is about . money may not buy happiness but it sure buys choices .
« Last Edit: July 29, 2016, 06:36:50 AM by mathjak107 »

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #92 on: July 29, 2016, 03:55:29 AM »
This is just for me but I have three phases. One to get to 60. One from 60 to about 70. A government pension from 70 onwards.

I have to do all of this though from a backdrop of not getting the pension and still just trying to have a 40 year potential plus retirement. I probably won't live that long but it could happen and I'd rather leave my kids with money than leave them with debt.

So if I look at that scenario maybe it's smarter to have a higher percentage of cash or bonds than go 100% stocks especially in the money to get me to 60.

It very much depends on the size of the stache.  If you're underfunded, you may need the higher returns (and accept the volatility that comes with) to get there (it's a gamble, and you may be going back to work).  If you have enough, you can dial down the volatility, smooth the ride, and not worry that you're ending up with less, as long as you end up with some (which again, may not happen if the stache isn't big enough, and you don't give it enough returns to grow enough).

If you're more conservative, it's probably worth doing OMY, and a less volatile portfolio.  If you're okay with volatility, but not giving up more years of your life, you may not want to water down a portfolio with uncorrelated (and lower returning) assets.

Tyler does a good job showing some portfolios that do their best at that trade off (i.e. much less volatility for not that much worse of returns), but you are still giving up something (i.e. no free lunch), and whether or not what you give up is worth it depends on your priorities.

I actually think that I'll retire with a reasonably aggressive WR. I will be higher than 4% for sure. If I choose to do OMY I think I'll do it part time. That additional year gives me more stash but it's also another year of not drawing down.

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #93 on: July 29, 2016, 03:58:09 AM »
having options and choices in life is what having money is about . money may not buy happiness but it sure buys choices .

I've never really thought money or stuff was that important. I think it's critically important to have a baseline level of money but past that point I think it's not important at all.

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #94 on: July 29, 2016, 04:05:38 AM »
choices become important and choices take money . plus the older you get the more important money for choices become .

would you rather be forced in to a nursing home 100 miles away from family in a medicaid facility  or have the dough to modify your own home so you can stay there ?

as i get older tent camping and shoddy rooming houses to stay in while traveling no longer cut it . today i need the extra leg room in planes with more expensive tickets  and i want more comforts in hotels .

i learned early on just how important money can be and how important choices in life are .

just a quick story .

i was pretty low end growing up and lived in a new york city housing project .  well one day my best friend was arrested and he was arrested for something he didn't do . but his family was just over the limit for legal aid  and they could not afford a lawyer so he was going to  plead guilty to something he didn't do rather then risk a jury trial and it was all because he had no choice  financially .

oh , and how did i know he didn't do it ?  at the last minute he and i chickened out and did not go with the group that night .

at the last minute a relative took a loan and got him a lawyer and all charges were dropped .

 here was a teenager going to plead guilty to something he didn't do just because of lack of money and lack of choice.

it was that moment in my life i realized not only do i never want to go back to the projects  as an adult with my own family , but i always wanted to have money for choices . that motivated me for decades to do well financially one way or another .

i don't regret it for one moment . one of  the greatest feeling's you can have in life is choices  but choices can take money .
« Last Edit: July 29, 2016, 04:16:50 AM by mathjak107 »

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #95 on: July 29, 2016, 04:22:42 AM »
@mathjak - I get what you are stating but I still don't see the point of working too long to have a massive buffer. To me that is more of a risk than working to the point where I feel reasonably safe.

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #96 on: July 29, 2016, 04:24:29 AM »
one thing that has changed since 2000 is volatility . today we say greater volatility in markets . if in days of old you were comfortable with a 60/40 mix along came 2008 and the swings were far in excess of what you likely signed on for . today a 50/50 or even 40/60 may be the equivalent comfort range .

i prefer to maintain my portfolio by beta as opposed to a fixed allocation .

so as an example i am 35% equity's right now , but 1/3 the bond budget is a high yield fund . the high yield fund acts as a proxy for stocks in this case not bonds . when i bought it the  high yield market was beaten to a pulp . it priced things like 1/2 the energy company's were defaulting .  there was a lot of value there  in high yield .

so the high yield fund has returned 10% ytd total return  beating our  stocks , yet it has a beta of 1/2 of what the s&p 500  does .

so at times you can achieve better returns at less risk by watching beta on the total portfolio instead of fixed allocations .

 in retirement i try to maintain a beta about 40% to 60% less then the s&p 500 .
« Last Edit: July 29, 2016, 04:59:00 AM by mathjak107 »

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #97 on: July 29, 2016, 04:27:05 AM »
@mathjak - I get what you are stating but I still don't see the point of working too long to have a massive buffer. To me that is more of a risk than working to the point where I feel reasonably safe.

i can't tell you what is enough for you , only you can do that . but everything has a balance point . it is up to you to find it .

the problem is as humans our logic only deals with what we know . it does not take in to consideration all the things we don't know yet or that will eventually be important .

my list of priority's have  changed so much  as i age and i am only 63 . .

in fact we owned a 2nd home in the pocono's of pa.  where we had planned to retire to eventually . why not , it was cheaper , we loved hunting and fishing and small town life .

well once we reached the point where we could retire i switched to my retirement hat and boy were our heads turned around .

now we are realizing everything we would want as we aged we lacked .

limited medical facility's  with few choices

limited specialists with few choices

limited doctors with few choices

no public transportation system  if we could not drive . you can't get milk without a 15 minute drive .

if i wanted to work a bit there were only low paying near minimum wage jobs

after 5 years there we were running out of things to do daily .

we were to far from family if we needed help or some care .

we were to far to be a weekly or daily part of our grand kids lives .

the list went on and on and we ended up selling and retiring right here in queens in nyc where we lived  .  it has everything we want in retirement although at a higher price but to us , well worth it .

when we first thought about buying the place and retiring in pa , these thoughts were not even on the radar and were totally left out of the equation by our brains at the time. .

so we were glad we developed the leval of savings we did . the life we planned around in pa was not the life we ended up really wanting .

at the end of the day only you know how much is enough , but i will say odds are that  number will change as you go through life and different things become more important .

in our case we always wanted to live better in retirement then we did while  saving , investing  and struggling raising a family . it was our reward for reaching that point so we wanted as much as we could muster while retiring , still  young enough to do anything we wanted . so we found our balance , everyone else has to find theirs .

« Last Edit: July 29, 2016, 05:08:37 AM by mathjak107 »

Retire-Canada

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Re: 100% stocks in the accumulation phase?
« Reply #98 on: July 29, 2016, 07:38:00 AM »
@mathjak - I get what you are stating but I still don't see the point of working too long to have a massive buffer. To me that is more of a risk than working to the point where I feel reasonably safe.

People also seem to forget that if you are going to retire early and have a 40 - 50yr+ retirement it's unlikely you'll never earn another dollar again.

I won't be particularly shocked if I want to do some PT work 20yrs after I FIRE to keep active and stay engaged. First I've got a ton of mountain biking, surfing, fly fishing, etc... to do and missing out on that while my body and mind are healthy would be a crime. ;)

Kaspian

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Re: 100% stocks in the accumulation phase?
« Reply #99 on: July 29, 2016, 08:01:22 AM »
It's strange but I agree with both sides here.  The 100%ers are mathematically super-correct.  I'm personally a 60/40 splitter and still in the accumulation phase.  However, initially I was insanely conservative.  Psychologically, I wanted a solid "chunk" of about $150K that I knew wasn't going away before I increased volatility.  Mentally it felt as though I was building a solid foundation to build upon.  Would I have been better off as 100% equities?  Maybe, but maybe not--that $150K in bonds (Canadian investor for the record) returned something like 13-25% annually over the 2007-2009 timeframe.  Over the same period, I was able to then move a good portion of those returns into equities while they were at the bottom.  I know it wouldn't always workout that way, but it did well.  Either way, once I had a sizeable chunk as foundation I was and still am much more comfortable with adding risk.  Should I dial up the equities portion even more now?  Maybe.  Probably.  My portfolio could become unbalanced quite a bit now and it wouldn't really phase me.  But my 8-year old Personal Investment Policy states in several places to stick with the plan and not fuck around.  (Also possible I was insanely conservative at the beginning (2004-2006) because I'd figured out for myself that regular mutual funds were bullshit yet hadn't learned of indexing yet.)