Author Topic: Why not do 100% allocation, draw 4% at retirement, and yolo it?  (Read 26590 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.

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

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!

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. 

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 »

gerardc

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #310 on: July 24, 2018, 10:16:34 AM »
I haven't read the whole thread, but I think this is a sensible plan.

I ran historical simulations with variable stock/bond allocations, equity glide paths and flexible withdrawal strategies, and I observed that stock/bond allocations only play a small (if not negligible) effect. For example at 4% WR, you'd get 95% success rate over 30 years with 100% stock, and 96% success rate with 80% stock / 20% bond. You can further boost success rate to 97% with a 60% -> 90% equity glide path. I'm not sure this is statistically significant, and even if it is, it might not be worth bothering with bonds, especially with flexible withdrawals.

Flexible withdrawals (e.g. as a fraction of your current stash instead of inflated-adjusted original stash) become more biased towards stock, i.e. they work better with higher stock percentages. And this is the strategy that most people will end up using in practice if they adjust their spending/earning at all during FIRE. So in that case I'd just go 90% stock or even 100% for simplicity.

In the end, it's not going to matter more than one percentage point to your success rate, and there are better things to focus on.

grettman

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #311 on: July 25, 2018, 03:20:54 AM »
MMM's post on the long term gains of the stock market have made me pretty comfortable with its volativity. So here is what I'm wondering. Why not just dump everything into a 100% stock porfolio, draw 4% when you need to retire, and just yolo it along the way?

Would it be mathematically better to go with less volatility on retirement? If there are dips early on could these destroy your nest egg if you withdraw? Part of me just underscores the need to remain flexible?

Personally I see it this way. I'm 31, I don't actually hate working, and plan on earning a lot of money in life. I am a data scientist now, but I think when I am older I might pursue something else but still make money doing it. I plan on living in a paid off house ASAP, like dave ramsey suggests. And want 200k for health purposes or something by the time I'm 60. So I don't see the need to not be risky.

I am 47.  I am 90% equities.  I didn't panic during the crashes. (then again, I didn't need the money)... I don't have plans to change my allocation any time soon.

I am paying off my mortgage too.   I firmly believe in having the house paid of sooner than later...Especially if you are highly invested in the market.  Shift some of the excess cash to pay down your debts.

effigy98

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #312 on: July 26, 2018, 04:57:25 PM »
So I started investing in 2000...

Nearly doubling a 100% stock allocation with only 50% stocks in total returns... And my volatility is MUCH lower, around 20% max draw-down vs over 50% max draw-down with 100% stocks. I mean, you guys can ignore smart asset allocations like on https://portfoliocharts.com/ and work much longer when the next couple downturns hit, or you can be smart and hedge.  100% stocks is very time sensitive and I would only do this if you are emotionless and can ignore drops and have a very long time horizon before you need to touch the funds. Even then, you are leaving money on the table if we have another rocky decade like 2000. There are many systemic problems with the economy right now that were papered over with fed printing, it is only a matter of time for that to catch up with us.

Even Jack Bogle, the godfather of investing, only has a 50/50 allocation. Most of us are retired or close to that magic date. I see the appeal of the lazy 100% VTI approach, but in real life, it rarely does well for people due to emotions, life, etc... besides that, you can juice your returns with a little smarter asset allocation.
« Last Edit: July 26, 2018, 05:03:25 PM by effigy98 »

DreamFIRE

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #313 on: July 26, 2018, 06:08:25 PM »
Even Jack Bogle, the godfather of investing, only has a 50/50 allocation. Most of us are retired or close to that magic date. I see the appeal of the lazy 100% VTI approach, but in real life, it rarely does well for people due to emotions, life, etc... besides that, you can juice your returns with a little smarter asset allocation.

Jack's older, so no need to be aggressive.  I've moved from 80/20 to 60/40 this year myself because I'm planning to FIRE in 2019, will draw SS in 15 years, and cFireSim gives me 100% with that allocation factoring in SS.  And that's with more than half of my approximate 4% WR going to discretionary spending, which means I also have a big cushion to cut back if I feel the need.

steveo

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #314 on: July 26, 2018, 09:38:00 PM »
So I started investing in 2000...

Nearly doubling a 100% stock allocation with only 50% stocks in total returns... And my volatility is MUCH lower, around 20% max draw-down vs over 50% max draw-down with 100% stocks. I mean, you guys can ignore smart asset allocations like on https://portfoliocharts.com/ and work much longer when the next couple downturns hit, or you can be smart and hedge.  100% stocks is very time sensitive and I would only do this if you are emotionless and can ignore drops and have a very long time horizon before you need to touch the funds. Even then, you are leaving money on the table if we have another rocky decade like 2000. There are many systemic problems with the economy right now that were papered over with fed printing, it is only a matter of time for that to catch up with us.

Even Jack Bogle, the godfather of investing, only has a 50/50 allocation. Most of us are retired or close to that magic date. I see the appeal of the lazy 100% VTI approach, but in real life, it rarely does well for people due to emotions, life, etc... besides that, you can juice your returns with a little smarter asset allocation.

I understand what you are stating but I'm not sold on this approach either or maybe better put I think that this approach may fail in the future.

Yes modern portfolio theory in relation to diversified assets makes sense but within limits. The past will be different to the future. You might be able to juice your returns via increasing your exposure to international small cap equities or commodities at the right time but it might also be a dismal failure over the longer term.

We don't know exactly how the future will pan out and we are just betting on probabilities that we are comfortable with. The math isn't 100% verified and clear cut.

talltexan

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #315 on: July 27, 2018, 07:24:47 AM »
I think I'd be a lot more relaxed during something like the tech crash in 2000-2002 if I were 50% bonds.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #316 on: July 27, 2018, 07:49:48 AM »
So I started investing in 2000...

Nearly doubling a 100% stock allocation with only 50% stocks in total returns... And my volatility is MUCH lower, around 20% max draw-down vs over 50% max draw-down with 100% stocks. I mean, you guys can ignore smart asset allocations like on https://portfoliocharts.com/ and work much longer when the next couple downturns hit, or you can be smart and hedge.  100% stocks is very time sensitive and I would only do this if you are emotionless and can ignore drops and have a very long time horizon before you need to touch the funds. Even then, you are leaving money on the table if we have another rocky decade like 2000. There are many systemic problems with the economy right now that were papered over with fed printing, it is only a matter of time for that to catch up with us.

Even Jack Bogle, the godfather of investing, only has a 50/50 allocation. Most of us are retired or close to that magic date. I see the appeal of the lazy 100% VTI approach, but in real life, it rarely does well for people due to emotions, life, etc... besides that, you can juice your returns with a little smarter asset allocation.

I understand what you are stating but I'm not sold on this approach either or maybe better put I think that this approach may fail in the future.

Yes modern portfolio theory in relation to diversified assets makes sense but within limits. The past will be different to the future. You might be able to juice your returns via increasing your exposure to international small cap equities or commodities at the right time but it might also be a dismal failure over the longer term.

We don't know exactly how the future will pan out and we are just betting on probabilities that we are comfortable with. The math isn't 100% verified and clear cut.

I would argue that the math is pretty solid. it is the assumptions that aren't clear cut.

FIRE@50

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #317 on: July 27, 2018, 01:06:41 PM »
I think I'd be a lot more relaxed during something like the tech crash in 2000-2002 if I were 50% bonds.
And if you had stayed 50/50 from 2002-2018, how would you feel?

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #318 on: July 27, 2018, 02:00:20 PM »
I think I'd be a lot more relaxed during something like the tech crash in 2000-2002 if I were 50% bonds.
And if you had stayed 50/50 from 2002-2018, how would you feel?

the chances of 50/50 saving you from a crash are much much smaller than the chances of it killing your portfolio due to inflation over a long FIRE timeline with withdrawals around 4%. At least if we look at history which is all we can really do here.

gerardc

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #319 on: July 27, 2018, 03:55:04 PM »
Forgot to mention: anything lower than 60% stock allocation and performance starts to drastically go down

steveo

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #320 on: July 27, 2018, 05:14:54 PM »
So I started investing in 2000...

Nearly doubling a 100% stock allocation with only 50% stocks in total returns... And my volatility is MUCH lower, around 20% max draw-down vs over 50% max draw-down with 100% stocks. I mean, you guys can ignore smart asset allocations like on https://portfoliocharts.com/ and work much longer when the next couple downturns hit, or you can be smart and hedge.  100% stocks is very time sensitive and I would only do this if you are emotionless and can ignore drops and have a very long time horizon before you need to touch the funds. Even then, you are leaving money on the table if we have another rocky decade like 2000. There are many systemic problems with the economy right now that were papered over with fed printing, it is only a matter of time for that to catch up with us.

Even Jack Bogle, the godfather of investing, only has a 50/50 allocation. Most of us are retired or close to that magic date. I see the appeal of the lazy 100% VTI approach, but in real life, it rarely does well for people due to emotions, life, etc... besides that, you can juice your returns with a little smarter asset allocation.

I understand what you are stating but I'm not sold on this approach either or maybe better put I think that this approach may fail in the future.

Yes modern portfolio theory in relation to diversified assets makes sense but within limits. The past will be different to the future. You might be able to juice your returns via increasing your exposure to international small cap equities or commodities at the right time but it might also be a dismal failure over the longer term.

We don't know exactly how the future will pan out and we are just betting on probabilities that we are comfortable with. The math isn't 100% verified and clear cut.

I would argue that the math is pretty solid. it is the assumptions that aren't clear cut.

I'm not sure what you mean. Can you expand on this ?

effigy98

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #321 on: July 29, 2018, 08:57:59 AM »
I think I'd be a lot more relaxed during something like the tech crash in 2000-2002 if I were 50% bonds.
And if you had stayed 50/50 from 2002-2018, how would you feel?

the chances of 50/50 saving you from a crash are much much smaller than the chances of it killing your portfolio due to inflation over a long FIRE timeline with withdrawals around 4%. At least if we look at history which is all we can really do here.

Using a modified golden butterfly (with only 50% stocks) end up with the following results from 2002-2018
100% stocks: $35,522 final balance, 50.89% max drawdown
50% stocks/50 other: $44,016, 21.77% max drawdown.

The only way the total stock strategy would probably do better, if you are constantly adding to your position during the downturn and are able to keep emotions in check, not listen to the news, and keep plowing money in. I remember in both early 2000's and 2008 crashes, the media made it sound like we are all living in cardboard boxes soon and we should get out of the market, then everyone starts saying the same thing and the pressure to do so is pretty high, much like when all your neighbors paint their house and fix up your yard and you are the last person to have old looking house and you feel like you need to fix it up too. So when that max drawdown of 50%+ hits you are telling me HALF my portfolio vanished... I worked very hard in a few shit jobs to accumulate that and now its gone? Gone forever. Should I start drinking? Shotgun time? Will it come back? Media says no... everyone says we are screwed... I am destined to work at this unfulfilling desk job forever.
« Last Edit: July 29, 2018, 09:01:09 AM by effigy98 »

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #322 on: July 29, 2018, 09:11:55 AM »
Cherry picking a year and a portfolio that doesn't even back test past the 70s and changing the variables in it does not make the statement I made incorrct bc my statement wasn't 50/50 equities to whatever the hell else you want. Shit 50/50 alpaca farm. It was specifically addressing 50/50 stock to bond. You're free to choose to believe golden butterfly will work in the future I don't believe it has enough longer term data to support it. Like many of the things on Tyler's site the data doesn't exist. I doubt you have the where with all to with stand a 50% draw down on 50% of your portfolio with the way you're talking. In general avoiding that in the first 5-10 years more or less guaranteed a successful fire.

The times you can pin point where holding less than 80% equities to bonds wins are few and far between and involve cherry picking years.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #323 on: July 29, 2018, 10:56:57 PM »
Cherry picking a year and a portfolio that doesn't even back test past the 70s and changing the variables in it does not make the statement I made incorrct bc my statement wasn't 50/50 equities to whatever the hell else you want. Shit 50/50 alpaca farm. It was specifically addressing 50/50 stock to bond. You're free to choose to believe golden butterfly will work in the future I don't believe it has enough longer term data to support it. Like many of the things on Tyler's site the data doesn't exist. I doubt you have the where with all to with stand a 50% draw down on 50% of your portfolio with the way you're talking. In general avoiding that in the first 5-10 years more or less guaranteed a successful fire.

The times you can pin point where holding less than 80% equities to bonds wins are few and far between and involve cherry picking years.

woah i agree with you on something that is cray.


steveo

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #324 on: July 30, 2018, 03:07:12 AM »
Cherry picking a year and a portfolio that doesn't even back test past the 70s and changing the variables in it does not make the statement I made incorrct bc my statement wasn't 50/50 equities to whatever the hell else you want. Shit 50/50 alpaca farm. It was specifically addressing 50/50 stock to bond. You're free to choose to believe golden butterfly will work in the future I don't believe it has enough longer term data to support it. Like many of the things on Tyler's site the data doesn't exist. I doubt you have the where with all to with stand a 50% draw down on 50% of your portfolio with the way you're talking. In general avoiding that in the first 5-10 years more or less guaranteed a successful fire.

The times you can pin point where holding less than 80% equities to bonds wins are few and far between and involve cherry picking years.

woah i agree with you on something that is cray.

It's a first for me as well.

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #325 on: July 30, 2018, 08:50:01 AM »
Cherry picking a year and a portfolio that doesn't even back test past the 70s

But cherry picking has a purpose! 

Listen, If I'm using the 4% rule, I dont give a shit about about anything within about 1.5 standard deviations of historical norm...Why?... Because those situations work out with me dying rich as fuck with any allocation of mostly US stocks.  Why, would anyone want to wast time picking apart and analyzing those scenarios?

What I care about (and what anyone here should care about) are those outliers in which 4% failed or nearly failed AND personal ability to remain psychologically comfortably with AA.  The later avoids investing mistakes at critical times.  How can we address the former?  Well, how about cherry picking those known historical points of weak 4% rule performance and fiddle under the hood to see if any patterns emerge.

Like many of the things on Tyler's site the data doesn't exist.
This is a bold statement.  It reads as if you are stating Tyler's data is inaccurate?   Please clarify.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #326 on: July 30, 2018, 08:58:46 AM »
i didnt say his data was inaccurate just that it doesnt exist pre 1970 so you cant backtest theories past then.  I'm becoming more and more of the mindset that a 10-20% maybe even higher REIT allocation makes a lot of sense.  as REITs dont always track with stocks but generate similar returns.  the problem again here is the back testing ability since they havent existed long enough.  and as far as the golden butterfly there are miles of posts online discussing its ability to be the best portfolio in the future since its timed with the US coming off the gold standard and many other strange occurances that make it look really really good but likely are replicable in the future. 

to your other point - planning a portfolio around what worked in an outlier year seems dumb to me.  b/c those events arent likely to occur in the same way again- planning a portfolio that is successful most of the time is a much better play in my opinion.  which is why i'm exploring REITs - i wont however explore something that returns considerably less than equities to smooth out the unlikely bump that could kill my portfolio - b/c in doing so i could be creating a much worse situation. the one most rarely talk about which is too much smoothness leading to inflation erosion and a failed FIRE.

the "fear" of losing money is over valued by too many in my opinion but makes sense b/c its a natural human feeling to have.

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #327 on: July 30, 2018, 09:32:34 AM »
i didnt say his data was inaccurate just that it doesnt exist pre 1970 so you cant backtest theories past then. 
Got it, thanks for clarifying.  Precision vs accuracy though.  There is only so much data on historical performance.  IOW, to think that the economic details of today resemble the 1880's US equity market in any way, shape, or form is a bit silly. So, why include that in back testing performance at all?  Simply because it's available and, as such, does help with precision... but whats it doing to accuracy?...  something to reflect on at least.

and as far as the golden butterfly there are miles of posts online discussing its ability to be the best portfolio in the future since its timed with the US coming off the gold standard and many other strange occurances that make it look really really good but likely are replicable in the future. 
Agreed, things change and there are aberrations in data.  Does that mean we should compeltely exclude that data and ignore what happened?  Sounds like cherry picking :) .  In the very least it's useful to understand what happened from a macro economic perspective.
to your other point - planning a portfolio around what worked in an outlier year seems dumb to me.  b/c those events arent likely to occur in the same way again- planning a portfolio that is successful most of the time is a much better play in my opinion. 
Agreed.  Don't plan around an outlier, rather analyse, understand what happened, and have plans to mitigate an outlier.  I think your idea with REIT's is exactly that. 

The past will not repeat exactly, but certain fundamentals regarding return on capital remain present.  If there is a way to reduce risk exposure in the event of an outlier, it will come at a cost.   One way to pay the cost is substantial oversaving to a 3% WR (we see this all the time and the expense is years of life working).  Another is staying partially active in investments based on macro economic conditions. The expense here is risk of being wrong and requirement of higher levels of knowledge.  Or perhaps one could adjust AA in such a way risk of outliers is mitigated with the expense being the really fantastic outcomes are sacrificed.

Classical_Liberal

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #328 on: July 30, 2018, 09:58:05 AM »
the "fear" of losing money is over valued by too many in my opinion but makes sense b/c its a natural human feeling to have.

This is important as well.  Loss aversion is real and can be VERY damaging.  However, much like many potentially dangerous emotions, it has it's place and should be considered. My only advice here is know thyself. 

effigy98

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #329 on: July 30, 2018, 04:40:08 PM »
the "fear" of losing money is over valued by too many in my opinion but makes sense b/c its a natural human feeling to have.

This is important as well.  Loss aversion is real and can be VERY damaging.  However, much like many potentially dangerous emotions, it has it's place and should be considered. My only advice here is know thyself.

Agree with this assessment. People are the tiny minority if they can ignore the "fear", you are going to have a few, but they are very rare. Most people on this earth are driven by fear, especially when it comes to some complicated system that looks rigged and they feel like they have ZERO control over. I rather mitigate this fear and look at the dates where the portfolio failed and figure out ways to avoid that and still get the highest possible returns rather than ignore them and wing it.

In my working career, I have lived in back to back devastating recessions, both times my industry was hit very hard. I have seen people lose their job, house, family (due to being broke), and portfolio ALL at the same time. If they had just diversified, that would have not happened, but no, they were 100% stocks. I say this as a warning to all those following this blind 100% stock advice. I have seen real people kill themselves over this. PLEASE diversify, do not put all your eggs in one basket if it will risk other important things in your life. It is very irresponsible to not talk about diversification. Not everyone is a robot.
« Last Edit: July 30, 2018, 04:46:41 PM by effigy98 »

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #330 on: July 30, 2018, 06:01:11 PM »
This post is hyperbolic and ridiculous. I'm sorry. The people in these forums aren't at serious risk of what you speak. The mainstream American possibly.

DavidAnnArbor

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #331 on: July 30, 2018, 07:49:26 PM »

 I have seen people lose their job, house, family (due to being broke), and portfolio ALL at the same time. If they had just diversified, that would have not happened, but no, they were 100% stocks. I say this as a warning to all those following this blind 100% stock advice.

Around 2003 I had 80,000 in I Bonds
and approx. 80,000 in the Vanguard SP 500 Index.

In 2018 the I bonds are worth approx. $139,000
the Vanguard SP 500 Index is worth approx. $300,000

No changes were made to these particular investments during those 15 years.

sherr

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #332 on: July 31, 2018, 08:11:26 AM »
"Please diversify" is not really an extreme stance though, it is solid, fundamental, universal investment advice. Even if you are a 100% stock advocate I'm sure you are still telling people to diversify across broad indexes.

It is also a perfectly valid point that some people / professions are more at-risk during a downturn than others, and that you are in fact more likely to be loosing your job at precisely the same time as the stock market is crashing and your ROI is negative.

My investments are in 100% stocks (for now), however I mitigate that risk by having a large 6-month-expenses emergency-fund and I am also unlikely to be laid off in a downturn. If either of those things are not true for you then diversifying into bonds or something is a very practical step you can take to reduce your risk.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #333 on: July 31, 2018, 08:14:19 AM »
"Please diversify" is not really an extreme stance though, it is solid, fundamental, universal investment advice. Even if you are a 100% stock advocate I'm sure you are still telling people to diversify across broad indexes.

It is also a perfectly valid point that some people / professions are more at-risk during a downturn than others, and that you are in fact more likely to be loosing your job at precisely the same time as the stock market is crashing and your ROI is negative.

My investments are in 100% stocks (for now), however I mitigate that risk by having a large 6-month-expenses emergency-fund and I am also unlikely to be laid off in a downturn. If either of those things are not true for you then diversifying into bonds or something is a very practical step you can take to reduce your risk.

depending on the size of your stache and what your income level is i'd consider your 6 month emergency fund a huge waste of little soldiers. this also isnt a 100% stock allocations you have cash as part of your allocation which without knowing your stache size could be a large percentage.

talltexan

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #334 on: July 31, 2018, 09:04:17 AM »
Are you younger? Higher savings rate? Managing callable debt?
Married to a high-earner? These all affect what the optimal emergency fund would be.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #335 on: August 04, 2018, 12:32:50 AM »
I'm building my emergency fund to 5 months and slowly going to ramp to 6. Maybe more. But bear in mind, I don't need much to live off of. Also EM funds are for other things besides losing a job. Doing so will only require 2 months of savings at my current income.

I swear all of this makes me really want to experience a downturn. I just want to understand what it is like. We will see. I think with low expenses, a tech job, and a fully built out EM fund I'll be fine.

nihilism122

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #336 on: August 09, 2018, 02:38:33 PM »
What is the harm in having 20-30%  in bonds? You will appreciate it when the markets tank.  Imagine having $1 million invested 100% in equities and the markets drop 50%.  Now you have 500k invested.  That would not stress you out?  You would still have 600k at 20% bonds and 650k at 30% bonds.  I understand that you won't have the highest possible return if you have bonds in your portfolio, but that has never been the reason for bonds. 




boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #337 on: August 09, 2018, 02:48:20 PM »
What is the harm in having 20-30%  in bonds? You will appreciate it when the markets tank.  Imagine having $1 million invested 100% in equities and the markets drop 50%.  Now you have 500k invested.  That would not stress you out?  You would still have 600k at 20% bonds and 650k at 30% bonds.  I understand that you won't have the highest possible return if you have bonds in your portfolio, but that has never been the reason for bonds.

pretty sure the stress is the same for everyone in those 2 scenarios..

The reason for bonds was that they dont track with stocks. and create less volatility thru being deversified. I think a REIT index actually meets this need better as the returns are on the level of stocks but they dont move the same way as stocks.

PDX Citizen

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #338 on: August 09, 2018, 02:52:11 PM »
What is the harm in having 20-30%  in bonds? You will appreciate it when the markets tank.  Imagine having $1 million invested 100% in equities and the markets drop 50%.  Now you have 500k invested.  That would not stress you out?  You would still have 600k at 20% bonds and 650k at 30% bonds.  I understand that you won't have the highest possible return if you have bonds in your portfolio, but that has never been the reason for bonds.

Actually wouldn't you do better than that with the 20% and 30% bond allocations? I thought that in a stock crash that bond funds generally increase in value, as people seek a safer place to move their money? The assumption above is that bonds stay flat in value while stocks tank.

OurTown

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #339 on: August 09, 2018, 02:52:28 PM »
https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

This article sets forth the reasons for a glide path decreasing your equity exposure in the 10 years or so leading up to retirement and then increasing your equity exposure during the 10 years or so after your retirement date.  The idea is to mitigate the sequence of returns risk. 

Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #340 on: August 09, 2018, 02:52:44 PM »
What is the harm in having 20-30%  in bonds? You will appreciate it when the markets tank.  Imagine having $1 million invested 100% in equities and the markets drop 50%.  Now you have 500k invested.  That would not stress you out?  You would still have 600k at 20% bonds and 650k at 30% bonds.  I understand that you won't have the highest possible return if you have bonds in your portfolio, but that has never been the reason for bonds.

The main reason is that it can be more risky to hold a high % of bonds.

Using cFIREsim:

- 40yr FIRE 100% stocks at 4%WR gives a success rate of ~92%
- 40yr FIRE 70/30 stocks/bonds at 4%WR gives a success rate of ~89%

If you retire early:

- 50yr FIRE 100% stocks at 4%WR gives a success rate of ~90%
- 50yr FIRE 70/30 stocks/bonds at 4%WR gives a success rate of ~80%

Second issue is that in your example of losing 50% on stocks [let's assume bonds stay flat] during a crash your 100% stock portfolio will get to the crash with more money in it than the 70/30 portfolio so the differential between the two will not be as dramatic as you suggest. By outperforming bonds before the crash stocks will mitigate the severity of the crash when it happens.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #341 on: August 09, 2018, 07:04:16 PM »
What is the harm in having 20-30%  in bonds? You will appreciate it when the markets tank.  Imagine having $1 million invested 100% in equities and the markets drop 50%.  Now you have 500k invested.  That would not stress you out?  You would still have 600k at 20% bonds and 650k at 30% bonds.  I understand that you won't have the highest possible return if you have bonds in your portfolio, but that has never been the reason for bonds.

The main reason is that it can be more risky to hold a high % of bonds.

Using cFIREsim:

- 40yr FIRE 100% stocks at 4%WR gives a success rate of ~92%
- 40yr FIRE 70/30 stocks/bonds at 4%WR gives a success rate of ~89%

If you retire early:

- 50yr FIRE 100% stocks at 4%WR gives a success rate of ~90%
- 50yr FIRE 70/30 stocks/bonds at 4%WR gives a success rate of ~80%

Second issue is that in your example of losing 50% on stocks [let's assume bonds stay flat] during a crash your 100% stock portfolio will get to the crash with more money in it than the 70/30 portfolio so the differential between the two will not be as dramatic as you suggest. By outperforming bonds before the crash stocks will mitigate the severity of the crash when it happens.

This is the number one thing overlooked. People trying to mitigate volatility always do so assuming that they had that AA at the height of a market crash and not before. The risk of opportunity cost is far greater.

DreamFIRE

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #342 on: August 09, 2018, 07:35:39 PM »
https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

This article sets forth the reasons for a glide path decreasing your equity exposure in the 10 years or so leading up to retirement and then increasing your equity exposure during the 10 years or so after your retirement date.  The idea is to mitigate the sequence of returns risk.

I'm sort of doing that, but I decreased my equity mostly in the final year leading up to retirement from about 80% to 60%.  After FIRE, I plan to use a rising equity glide path over a longer time period as in the article.  Factoring in future benefit income, cFireSIM gives me 100% with my current AA even without the glide path, based on total expected spending, not just bare bones.

Andy R

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #343 on: August 10, 2018, 12:15:27 AM »
pretty sure the stress is the same for everyone in those 2 scenarios..

The reason for bonds was that they dont track with stocks. and create less volatility thru being deversified. I think a REIT index actually meets this need better as the returns are on the level of stocks but they dont move the same way as stocks.

I agree with this.

If you were retiring now, what do you think your your AA would be? including all the classes (cash, bonds, reits, infra, equities, etc)?

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #344 on: August 10, 2018, 04:31:46 AM »
No more than 10% bonds with 20-40% REITs. The rest equities

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #345 on: August 10, 2018, 04:35:32 AM »
Doesn't really matter how many bonds you have if you get hot with a 50% drop the first 5-8 years historically you're very likely to fail. Reverse equity glide path may prevent this failure in some cases. But to just assume more bonds are the answer is highly inaccurate

Andy R

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #346 on: August 10, 2018, 05:54:03 AM »
Thanks boarder42.

Thats a ton of REITs Do you have any opinion about splitting that into some infrastructure?

Yeah I've been thinking about a reverse glide path slowly going back up to more equities over the first 10 years of retirement, but in the country I am from cash and bonds yield about the same, which is the rate of inflation, so the more bonds you have, the more money that is going nowhere in real terms. The present is very different to the past where we had a 30 year bull run on bonds due to massive inflation and interest rates steadily coming down and there is no more down for it to go. I am thinking 5 years of cash, which along with 10 years of dividends would give me 10 years of no selling equities from the point of retirement. That would automatically give me a reverse glide path back upto more equities over the 10 years. The downside with using buckets this way instead of a percentage is, if there is a crash, I don't have any fixed interest to rebalance into equities to be able to buy equities when they are low.
« Last Edit: August 10, 2018, 05:56:33 AM by Andy R »

Retire-Canada

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #347 on: August 10, 2018, 07:26:19 AM »
The downside with using buckets this way instead of a percentage is, if there is a crash, I don't have any fixed interest to rebalance into equities to be able to buy equities when they are low.

I never understand this logic. People want to hold a significant chunk of dry powder [cash/bonds, gold, etc...] that hurts their returns for the 90%+ of the time there are no major crashes just so when there is a 30%-50% crash they can buy stocks on sale. That does not compute for me. You lost more than that with your dry powder waiting for the crash. All it did was feel good for a few days when you made the buy. It hurt you the rest of the time.

ol1970

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #348 on: August 10, 2018, 08:14:47 AM »
Just my opinion, but I think most people who don't believe in bonds to smooth things out are most likely right on the cusp of having their numbers work to support their retirement using the 4% rule.  Math and history dictates that these people are correct in their plan and will be totally fine.

Now imagine for a minute that you had your 100% equity stash (or damn close), and lets just you had a windfall of an amount great enough that if invested in boring old bonds would pay for your "fatfire" dream lifestyle forever including inflation.  You can still keep your original stash 100% equities and never need to touch it...it just keeps growing, but you never have to even blink or consider money ever again. 

Now you are a true mustacian, so you don't believe in lifestyle inflation, you aren't greedy, and you already know what lifestyle will make you the happiest and have planned for that.  What reason other than 1) You really undersold your "fatfire" number in the first place to make yourself feel better, but it was really much higher 2) Charitable endeavors 2) Creating generational wealth, admittedly I don't believe in 4) Ego associated with having your name on a building, would their be to take on the added risk?

I know many people who would be considered very wealthy in the $10M to $200M range and not one of them thinks like this.  I'm just saying that there are going to be some people on this forum who blow way by their # years down the road, and I'm guessing their tune will change when instead of having 33X their annual burn they have 100X or more.  Anyway, just food for thought, that might be a reason to not totally poop on the idea of owning a bond portfolio.

FIRE@50

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #349 on: August 10, 2018, 08:22:06 AM »
Not needing the money would be all the more reason to remain aggressive with it.

Also, if I do end up with more money than I need for my current lifestyle expectations, I would absolutely spend it on more of what I already plan to do in retirement.