Author Topic: Why not do 100% allocation, draw 4% at retirement, and yolo it?  (Read 17433 times)

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #300 on: July 03, 2018, 08:26:11 AM »
I think youíre dramatically overstating the probability of an equities win with your roulette wheel analogy. But then we didnít define the game. To be clear weíre talking about pre-FIRE.

If the time horizon is 20-25 years then your analogy may be reasonable. Equities are almost guaranteed to win.

If the time horizon is 3-5 years then about 1/3 of the wheel should be green.

And, your risk of suffering a large and sustained loss is much greater betting against green.

not really - your still guessing and youre guessing wrong.
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jacoavluha

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #301 on: July 03, 2018, 08:33:10 AM »
But thatís the data. Historically bonds beat equities about 1/3 of the time looking at rolling 3 year periods. A little less than 30% of the time over 5 year periods. I think that data I saw was only through 2010. Would be a little worse if brought up to date. I think that went back to 1927.

If I was 3 years from FIRE right now Iíd be awfully nervous sitting at 100% equities.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #302 on: July 03, 2018, 08:38:54 AM »
But thatís the data. Historically bonds beat equities about 1/3 of the time looking at rolling 3 year periods. A little less than 30% of the time over 5 year periods. I think that data I saw was only through 2010. Would be a little worse if brought up to date. I think that went back to 1927.

If I was 3 years from FIRE right now Iíd be awfully nervous sitting at 100% equities.

it'd be awfully dumb to feel nervous sitting in 100% equities
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Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #303 on: July 03, 2018, 08:40:09 AM »
If I was 3 years from FIRE right now Iíd be awfully nervous sitting at 100% equities.

I'm a few years out from FIRE and 100% equities. I'm not worried at all. The main reason is that there is no amount of bonds [that I would reasonably hold] that would get me to pull the retirement trigger right at the start of a serious market crash. I'd keep working a bit longer [probably only part-time] until I saw the recovery was in full swing. So to me shifting to a significant portion of bonds a few years out just pushes my FIRE date further away in most cases and in the case of a crash doesn't mean I'll FIRE and sail away into the sunset.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #304 on: July 03, 2018, 08:46:47 AM »
If I was 3 years from FIRE right now Iíd be awfully nervous sitting at 100% equities.

I'm a few years out from FIRE and 100% equities. I'm not worried at all. The main reason is that there is no amount of bonds [that I would reasonably hold] that would get me to pull the retirement trigger right at the start of a serious market crash. I'd keep working a bit longer [probably only part-time] until I saw the recovery was in full swing. So to me shifting to a significant portion of bonds a few years out just pushes my FIRE date further away in most cases and in the case of a crash doesn't mean I'll FIRE and sail away into the sunset.


bingo!
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jacoavluha

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #305 on: July 03, 2018, 09:00:21 AM »

 you 100% guarantee you have failed at FIRE every extra year you work to have a lower equity AA.

So if you have to work a little longer before FIRE because you didnít take enough risk, thatís a failure? But if you have to work a little longer before FIRE because you took too much risk, thatís not a failure?

Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #306 on: July 03, 2018, 09:11:19 AM »
So if you have to work a little longer before FIRE because you didnít take enough risk, thatís a failure? But if you have to work a little longer before FIRE because you took too much risk, thatís not a failure?

If the probability of one event is 70-90% and the other 10-30% [we can argue about the numbers] it would be smart to have a plan that works best in the first case. Essentially what you are saying is "I am okay with a 100% chance of working more to avoid and 10-30% chance of having to work more." That doesn't compute for me.
« Last Edit: July 03, 2018, 09:54:14 AM by Retire-Canada »

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #307 on: July 03, 2018, 10:05:51 AM »
So if you have to work a little longer before FIRE because you didnít take enough risk, thatís a failure? But if you have to work a little longer before FIRE because you took too much risk, thatís not a failure?

If the probability of one event is 70-90% and the other 10-30% [we can argue about the numbers] it would be smart to have a plan that works best in the first case. Essentially what you are saying is "I am okay with a 100% chance of working more to avoid and 10-30% chance of having to work more." That doesn't compute for me.

yet again you word your answers much better than i would. 
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steveo

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #308 on: July 03, 2018, 05:31:41 PM »
Really all I am getting from this thread is if you are confident in your emotions, then 100% equities and YOLO it.

Otherwise hold bonds.

The comment about not everyone being a 30 something tech worker is interesting. I am really curious if there is a correlation between older people, people with kids, and people with health concerns vs someone younger and with less responsibilities or needs.

I still don't see this as being as simple as the initial statement however there is nothing wrong with 100% equities. I think the big risk is SORR. That is why you have some bonds/cash as a buffer. You may retire and stocks drop 50%, you are 100% equities and you have to go back to work as you are withdrawing way too much stock to survive 30+ years. That to me is an ER failure.

If you have a way to manage SORR and you are okay with taking up that option then I suppose 100% equities is good.

In some ways I also view this as a keeping score approach compared to a conservative I've won and all I have to do is stay in the game. You can go 100% equities and you will probably end up with the biggest stache but does that really matter to you.

I've reflected on the idea of having the biggest stache when I die and it is appealing but it's not as appealing to me as being able to stay retired if the markets crash at the wrong time for me.

Some people only care about having the biggest stache. Some people want to work till the day they die.

i think you're dramatically overstating the risk but thats just my opinion.  you 100% guarantee you have failed at FIRE every extra year you work to have a lower equity AA.  in general with 90% + equities it takes 10-15% of your withdrawal that is either cut by spending less or just earning that little bit extra in FIRE if you hit SORR in the first few years.

I don't see any dramatic overstating of risk. It just is what it is. You can flip the whole conversation and state that you are increasing your risk for no benefit. Extra money past already getting to a decent WR is not required.

The idea is to get a portfolio that can support you for life but post that point extra money by taking on extra risk is only going to enable you to die with more money with the potential to lose more.
« Last Edit: July 03, 2018, 05:48:12 PM by steveo »

steveo

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #309 on: July 03, 2018, 05:53:40 PM »

 you 100% guarantee you have failed at FIRE every extra year you work to have a lower equity AA.

So if you have to work a little longer before FIRE because you didnít take enough risk, thatís a failure? But if you have to work a little longer before FIRE because you took too much risk, thatís not a failure?

There are some mental gymnastics happening here. It's cool whatever you want to do as well because it's a choice. It's a choice weighing up the risks on either side. If there is a crash just after or before I FIRE or even right now (say a maximum of 5 years till I RE) I can use my smallish bond percentage to help manage those events. The closer I move towards FIRE the more lower volatility assets I personally want to obtain.

As I move further into retirement I will probably increase my equity allocation.

If you choose to take on a mortgage or increase your equity allocation you are just taking on more risk over shorter time periods in return for gaining potentially increased returns over the longer term. Those longer term returns may actually not be required. So you may in fact be taking on increased risk that you will have to work more for a potential long term benefit that probably won't be required.

Each to his own on these issues but it's not black and white.
« Last Edit: July 03, 2018, 05:59:43 PM by steveo »