Author Topic: 100% stocks in the accumulation phase?  (Read 31899 times)

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #100 on: July 29, 2016, 08:18:49 AM »
your over all plan at the end of the day determines how you do . i have used fidelity managed funds for 27 years and did very well .  don't forget there are different index funds with different expenses and turnover . no one gets those returns since your own plan has you  buying in at different points , you add money at different times , rebalance differently , have different sell points and different tax structures .

somethings you will get  better and somethings worse .  but it is not about just the funds , it is about the total  portfolio working as a team .  my portfolio is dynamic , the funds change over time to fit the big picture . funds are used through their sweet spots and then traded for funds that fit better . so the funds may not beat their index's every year but your portfolio can beat indexing over time . 

it reminds me of the guy buying a new car . he pounds the dealer in to the lowest possible price , then beats up the finance guy for the best terms . what a great deal he got .

then a few years later he comes back and trades the car in wholesale .

in the mean time grandma paid more  for the car , a bit more interest but sold the car privately for a better over all deal .

it is very difficult if not impossible to play what if's  between  portfolio's since all the above are variable and like i say somethings you will do right and some wrong .

expenses are only a part of the story , but if the overall portfolio is getting alpha then it is worth every penny .

i have used the fidelity insight newsletter for decades . the growth model since 1987 with 100k in it has beaten the s&p 500 by over 400k . but that is about the only comparison you can make because the funds are all different and some have no index equals . there really is very little comparison you can do because of all the variables . so it isn't like i can say what if i used index funds instead . i can't so comparing is silly .

at the end it is all about  how you are doing overall and not some index in theory .

the biggest factor is how much  your balance is at any point in time . having great years with a small balance is going to be very different then great years when your balance is high .  so the fact an index did well over certain time frames may not help you much if you just started investing and had little invested  compared to if the index lagged when you have your max saved .

folks get to wrapped up in  just one aspect most of the time and miss the results of the bigger picture  .

overall many folks would do better concentrating on their later years tax structure then every penny in expenses . getting your social security taxed forever when a better tax structure could have avoided that is priceless .

what you pay for medicare , any aca subsidy's , rmd's , etc are all tied in to your tax structure .

there are so many aspects to your final plan that anyone of them can be slightly out of whack and the other parameters will make up for it if you do better planning  because none of us will get all those parameters perfect . .

i did well investing but dropped the ball on things i could have done better tax wise but didn't know what  i didn't know so i thought i knew all i needed to .  .
« Last Edit: July 29, 2016, 08:48:11 AM by mathjak107 »

Kevin K.

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Re: 100% stocks in the accumulation phase?
« Reply #101 on: July 29, 2016, 09:00:56 AM »
Lots of great discussion here!

I love the range of options and approaches Tyler offers on his site. Two allocations we haven't talked about here are William Bernstein's Coward's Portfolio and Paul Merriman's Ultimate Buy & Hold (with the latter having the distinction of having the highest net CAGR of any of the model portfolios featured). I think they're of interest because they both reflect the truly market-neutral approach recommended by Fama & French, Bernstein himself and the other main players in modern portfolio theory. In part the argument is since we don't know what countries or sectors are going to outperform going forward why not own the total market - of which the U.S. now represents under half of all investable assets? Of course there's a lot more to it than that, including demographic and equity valuation analysis of each country and macroeconomic trends.

I'm old enough myself that my investment time horizon is much shorter than many posters here, but if I were trying to plan for 50+ years in retirement I'd want a truly market-neutral approach.

Regarding mathjak107's point about gold, it applies to a whole lot of other investable asset classes too. The ability to (and history of) broad swaths of the public being able to invest in stocks altogether didn't really get going until the proliferation of mutual funds during the 1970's, while the ability to invest in narrow slices of the stock and bond markets is more recent still.

Here's an article by the principal of one of the top FA firms offering low-cost, fixed-fee access to DFA funds that I think makes a worthwhile "bookend" to Tyler's article about 100% stocks. There's another piece on the same site ("Stocks for the Long Run"?) that may also be of interest, but this particular piece deals really well with variability of returns, the value of truly broad diversification and (last not least) the only sane discussion of what gold can and can't do I've seen.

http://www.evansonasset.com/?Page=18

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #102 on: July 29, 2016, 09:09:10 AM »
pretty much nothing back then is  what it is today .  but we can still stress test mathematically .  since we  know in order to pass through those 4 worst time frames we need at least a 2% average real return over the first 15 years of a 30 year period .  that is what a 4% safe withdrawal rate boils down to .

so all you need to know is whether you are on track or not and you can apply those results to any investment .. the math will be different going out longer and i have not seen anything longer then 30 years quantified as far as what it takes to hold it . michael kitces did it out to 30 years . he found every failure in the worst cases was because real returns fell below 1% over the first 15 years . no matter how good things turned after that there was just to much spent down already .

so a  2% real return average should give you the clearance you need ,.  by the way the s&p 500 still has not seen that since 2000 .
« Last Edit: July 29, 2016, 09:12:49 AM by mathjak107 »

Tyler

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Re: 100% stocks in the accumulation phase?
« Reply #103 on: July 29, 2016, 09:38:11 AM »
pretty much nothing back then is  what it is today .  but we can still stress test mathematically .  since we  know in order to pass through those 4 worst time frames we need at least a 2% average real return over the first 15 years of a 30 year period .  that is what a 4% safe withdrawal rate boils down to .

BTW, there's a calculator for that, too.  Just set the timeframe to 15 years. 

https://portfoliocharts.com/portfolio/rolling-returns/

It's true that we don't have data for all of history for every asset.  But IMHO you can still learn something from working with what we have.  It's about knowledge, not guarantees. 

DavidAnnArbor

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Re: 100% stocks in the accumulation phase?
« Reply #104 on: July 29, 2016, 09:57:04 AM »
David Levine, former chief economist at Sanford C. Bernstein & Co., agrees that 100% equities is the way to go.

http://www.nytimes.com/2016/02/13/your-money/how-much-of-your-nest-egg-to-put-into-stocks-all-of-it.html

"Both the historic record and logic argue for stocks over bonds."

FIPurpose

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Re: 100% stocks in the accumulation phase?
« Reply #105 on: July 29, 2016, 10:09:40 AM »
I've been thinking a good bit about this lately, and I appreciate the number of people who have been posting here. I like the idea of being higher risk during your accumulation phase, and I think the reasons are twofold.

1. sequence-of-returns don't matter nearly as much. (Though still a little)
2. you're not dependent on your portfolio for income.

However, despite ER folks having such a short accumulation period, we spend rather little time discussing the survivability of withdrawing on those portfolios. Even though mathematically you most likely will come ahead using TSM. During your withdraw phase that is not nearly as correct. I have really been enjoying Tyler's website and calculators. Here are two charts comparing TSM and GB 4% withdraws

Over 30 years not only does GB show 100% success rate, it, at a minimum, doubles your money over 30 years. While I don't know what the success of GB will be going forward, I do know that many mustachians are taking on a lot of risk for their withdraw phases. I would instead suggest that once you've hit your number, stop playing.

Once you've hit your number, it shouldn't be about making the most the fastest. It should be about living a comfortable life with a reliable source of income. That is the benefit of GB or other similar low-volatility portfolios.

I'm still in my 20's and don't plan on fully living off my portfolio for about another 15 years, but even though I've been able to make several fantastic investments over the past couple years. I still have to consider:

1. withdraw survivability.
2. after I die, will my wife be able to maintain and manage that portfolio herself?
3. what beyond my ego would make me want to earn more money faster?

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #106 on: July 29, 2016, 11:45:23 AM »
While I don't know what the success of GB will be going forward, I do know that many mustachians are taking on a lot of risk for their withdraw phases. I would instead suggest that once you've hit your number, stop playing.

I 100% agree with the sentiment.

The issue is, you'll have to hit a lot LARGER number to then utilize decades of a portfolio that underperforms (for the benefit of less volatility).

If you love your job, and accumulate way more than necessary, then yes, you've won the game and can stop playing with risk, and take a low-volatility, lower returning portfolio.

If you don't like your job though, or have other things you want to FIRE to do, and you acquire "enough" under a higher returning portfolio though, one could argue you've "won the game" at that point, and stop playing (i.e. working for money).  In that case, a portfolio that doesn't return enough is fatal.

There's always trade offs. If you can't stomach volatility, and want to sacrifice some returns for less of it, great.  But you're trading your time to build up a larger portfolio to handle that (e.g.--look at the first charts I posted in the thread, maybe 4 or 5 replies in.  Say you need 1MM.  Look at when TSM tends to hit it, and when GB hits it.)

The other thing is, you've once again (as people have done a few times) switched the conversation from accumulation to draw down.  There are tangible draw backs to having a portfolio like GB in draw down (e.g. lower returns = need larger stache = longer working time, as above), but this thread is about in the accumulation phase (where, again, you have the drawback of lower returns=longer working time).  Either way though, GB, while it has many, many merits, isn't a free lunch.  And one can look at "winning the game" either way.

1. withdraw survivability.
2. after I die, will my wife be able to maintain and manage that portfolio herself?
3. what beyond my ego would make me want to earn more money faster?

Sure, and I can argue why all these point to TSM.

1. Agreed.  And typically higher returns, if you can ride out the volatility, lead to more survival.
2. Agreed. And if she can handle volatility, simplicity (i.e. TSM) is a virtue.
3. Maybe you don't like your job?  Maybe you have other things you want to do in FIRE?  Maybe you can use the money to some good (help a sick family member, donate money to charity, etc. etc.--hell your own blog is FI with a purpose...what is that purpose?)?  Ego has nothing to do with it (are you broadcasting how much you have on a billboard or something?), but there's lots of good that can be done with more, especially if that more can be gained at minimal cost (having a different AA, no real extra time or work required).
« Last Edit: July 29, 2016, 11:52:06 AM by arebelspy »
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Tyler

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Re: 100% stocks in the accumulation phase?
« Reply #107 on: July 29, 2016, 12:02:38 PM »
The issue is, you'll have to hit a lot LARGER number to then utilize decades of a portfolio that underperforms (for the benefit of less volatility).

That's actually not true.  Less volatile portfolios can support higher withdrawal rates, which means you don't have to save as much to maintain the same amount of retirement income as a high volatility portfolio.  The images in FIPurpose's post illustrate that pretty well.  The balance between speed of portfolio growth and durability of portfolio withdrawals is what the Financial Independence calculator addresses.

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #108 on: July 29, 2016, 12:05:12 PM »
but keep in mind , that would be higher draw rates from the less volatile portfolio  GIVEN EQUAL RETURNS . that is why fixed income which is not volatile can only support 2% safe withdrawal rates out to 30 years  and 100% stocks can support 4%  . that is a 100% increase in your pay check between the two .

given two assets , with the same return , the more volatile one would have to keep more powder dry .

but that is not the case here since 100% equity's over the long haul can support a higher draw rate over 25% equity's as an example

« Last Edit: July 29, 2016, 12:21:10 PM by mathjak107 »

Tyler

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Re: 100% stocks in the accumulation phase?
« Reply #109 on: July 29, 2016, 12:27:31 PM »
but keep in mind , that would be higher draw rates from the less volatile portfolio  GIVEN EQUAL RETURNS .

I understand it's unintuitive, but that's also not completely true.  Portfolios with lower returns can have higher withdrawal rates if the volatility is low enough.  Think of it this way -- if you could purchase 30-year TIPS that paid a guaranteed 4% every year adjusted for inflation, you could hold it to maturity and be 100% guaranteed to support your 4% WR.  The stock market has to average over 7% real to compensate for the volatility.  Different portfolios play in the spectrum in between. 

But that's off topic, and there are other threads for retirement talk. 

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #110 on: July 29, 2016, 12:34:37 PM »
you would still  have a higher draw from equity's and cash then 100%  tips .

looking at the sweet spots on the efficient frontier :

 the ideal mix for tips is 33% stock/ 67% TIPS   vs 64% stocks /34% cash    .

the tips support a slightly higher draw rate but the value of the portfolio at the end is reduced compared to 64% stock /34% cash .

for every 1k you started with , the 64% stock model ended with 2,551.00  left at the end as a balance  , the tips portfolio a bit over 1250.00  so you could take substantial raises over time in the non tip model .  this is why i say be careful , to really get the whole story you need to look at draw plus balance not draw alone .

for more volatile portfolio's the suggested glide path for taking a raise is every three years draw another 10% plus the normal inflation adjusting if your portfolio is above 50% more from where you started . that avoids the problem of having to keep so much dry powder if sequences and outcomes are better then worst case .





http://www.retireearlyhomepage.com/safetips.html
« Last Edit: July 29, 2016, 01:48:45 PM by mathjak107 »

bryan

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Re: 100% stocks in the accumulation phase?
« Reply #111 on: July 29, 2016, 12:40:29 PM »
what's interesting to me about the OP is that it seems to be not very controversial to have one portfolio before you FIRE and another after you FIRE. Maybe having some transitional states in between...

yet, to my knowledge no online tools/calcs are able to run the numbers for such cases. Best you can do is open multiple tabs in multiple windows and do a sort of piecewise exercise.

Tyler

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Re: 100% stocks in the accumulation phase?
« Reply #112 on: July 29, 2016, 02:00:05 PM »
what's interesting to me about the OP is that it seems to be not very controversial to have one portfolio before you FIRE and another after you FIRE. Maybe having some transitional states in between...

yet, to my knowledge no online tools/calcs are able to run the numbers for such cases. Best you can do is open multiple tabs in multiple windows and do a sort of piecewise exercise.

I'm working on it.  ;) 

Mathjak's example illustrates the conundrum.  Different portfolios can support very different withdrawal rates, and the percent stock does not tell the whole story.  Different portfolios also support different average end values, which as we've discussed can also vary by the timeframe you're talking about.  And a portfolio that is superior for one priority may be inferior for the other.  It's a complicated problem, and there are no easy answers suitable for all investors.  That's why it's important to take the time to understand the tradeoffs and make the best decision for you personally. 

Like I said in the article, I do believe that if you take the time to find a dependable, efficient, and sustainable portfolio that works for you in accumulation, switching to something entirely different at retirement probably won't seem so appealing. 
« Last Edit: July 29, 2016, 10:59:47 PM by Tyler »

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #113 on: July 29, 2016, 02:07:35 PM »
the same reasoning is why we are delaying social security . we can take bigger draws day 1 by delaying because ss combined with our own investing allows higher draw rates because it has no sequence risk .

in the case of ss though if you live long enough you get a bigger balance as well as the bigger draw . you can take that bigger draw  early on from day 1 while delaying too .

we use bob clyatts dynamic spend down method . it works well for us . it lets us spend a bit more when we are up but restricts the cuts to a max of 5% if we are down .

it tests out at 100% beyond 40 years .
« Last Edit: July 29, 2016, 02:14:32 PM by mathjak107 »

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #114 on: July 29, 2016, 02:19:28 PM »
what's interesting to me about the OP is that it seems to be not very controversial to have one portfolio before you FIRE and another after you FIRE. Maybe having some transitional states in between...

Oh, I could rant about this, too.  :)

I think for the disciplined investor, having two different portfolios is a mistake.  It's a psychological crutch, like many things we do in investing.

It's accepted, but that doesn't mean I think it's optimal, or something i'd practice personally.

(Others obviously agree--GCC, for example, with the 100% equities in ER, and I think he'd, now, advocate the same for before.)
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mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #115 on: July 29, 2016, 02:27:24 PM »
that is where we disagree . the answer is it depends on individual situations .

my pre retirement portfolio was all about growing richer .  my retirement portfolio is all about not growing poorer . we want the minimum amount of volatility that we can get down to and still maintain our income and legacy goals .


 i used the fidelity insight growth model all my accumulation years , that was always 90-100% equity's and a beta that ranged from 10% less then the s&p to 10% more .

today in retirement i use their income and preservation model for 2/3's of our money , beta is .33 and i use 1/3 the growth and income model , beta .69.


the combo has us right where we want to be and we can still see 40k swings in one day . a few weeks ago that is the drop we saw in one day  , it was an insane amount of dollars  .

others may still want to tolerate high volatility and growth , others may meet goal with just something like the income model .

« Last Edit: July 29, 2016, 02:30:25 PM by mathjak107 »

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #116 on: July 29, 2016, 02:33:38 PM »
the answer is it depends on individual situations .

Of course. 

But in most situations, your investment time horizon isn't the X years to ER, it's the total years you have left.
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.
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mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #117 on: July 29, 2016, 02:40:57 PM »
for us it was about winning the game . getting to retirement with enough money to carry us through at a lifestyle we want .

now that we won the game we don't have to keep playing and tolerating drops in one session  that represent what folks make in a year .

now we want as little dependence on the whims of markets and rates as we can get down to .

if it was up to my wife we would be doing an integrated strategy .

spia's for income , life insurance for heirs and some of our own investing for growth and inflation protection with as little left to chance anymore as she could get .


i have to say , i have been a hardcore , high risk investor my whole life but her thoughts do interest me .

FIPurpose

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Re: 100% stocks in the accumulation phase?
« Reply #118 on: July 29, 2016, 02:50:42 PM »
what's interesting to me about the OP is that it seems to be not very controversial to have one portfolio before you FIRE and another after you FIRE. Maybe having some transitional states in between...

Oh, I could rant about this, too.  :)

I think for the disciplined investor, having two different portfolios is a mistake.  It's a psychological crutch, like many things we do in investing.

It's accepted, but that doesn't mean I think it's optimal, or something i'd practice personally.

(Others obviously agree--GCC, for example, with the 100% equities in ER, and I think he'd, now, advocate the same for before.)

I agree for ER people. I know I was a little off topic with talking about a draw down portfolio, but if a lot of people on this forum are only accu. for about 15% of their investing life (10 years acc. and 50-60 retired) then the question you want to ask is not what's the best portfolio for accumulation but what is the best portfolio for longevity and safe cash flow.

For people who work 30 years w/ 30 year retirement, that's a very different horizon. Those are 2 separate long-term goals which would be why most retirement funds at vanguard or fidelity work a smooth transition from an aggressive growth strategy to a higher bond mix strategy close to draw down.

But the accumulation phase is such a small window for an ER'er, it might be better to start with the portfolio you want in actual retirement.

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #119 on: July 29, 2016, 02:54:57 PM »
age you retire has a lot to do with allocations . don't forget we retired at more traditional ages . if we retired in our 40's we would have to have stayed a lot more aggressive longer .

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #120 on: July 29, 2016, 02:56:31 PM »
what's interesting to me about the OP is that it seems to be not very controversial to have one portfolio before you FIRE and another after you FIRE. Maybe having some transitional states in between...

Oh, I could rant about this, too.  :)

I think for the disciplined investor, having two different portfolios is a mistake.  It's a psychological crutch, like many things we do in investing.

It's accepted, but that doesn't mean I think it's optimal, or something i'd practice personally.

(Others obviously agree--GCC, for example, with the 100% equities in ER, and I think he'd, now, advocate the same for before.)

I agree for ER people. I know I was a little off topic with talking about a draw down portfolio, but if a lot of people on this forum are only accu. for about 15% of their investing life (10 years acc. and 50-60 retired) then the question you want to ask is not what's the best portfolio for accumulation but what is the best portfolio for longevity and safe cash flow.

For people who work 30 years w/ 30 year retirement, that's a very different horizon. Those are 2 separate long-term goals which would be why most retirement funds at vanguard or fidelity work a smooth transition from an aggressive growth strategy to a higher bond mix strategy close to draw down.

But the accumulation phase is such a small window for an ER'er, it might be better to start with the portfolio you want in actual retirement.

I agree, but I would argue it's more important for ER people not to choose an overly conservative portfolio that under-performs after decades, because their portfolio needs to last them so much longer (versus someone retiring at a much older age).
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 #121 on: July 29, 2016, 02:59:24 PM »
being to conservative has sent more failed retirements to the failed retirement graveyard then being to aggressive .  the longer you spend in retirement the greater the risk of running out of money before you run out of time .

if you think it sucks working or finding a job at 60 , try it at 80

FIPurpose

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Re: 100% stocks in the accumulation phase?
« Reply #122 on: July 29, 2016, 03:20:21 PM »
Yep I'm on board MMM style ER's should probably use 1 portfolio. Something Tyler mentioned before was the Coward's portfolio 55 stock - 40 short treas. - 5 REIT. That provides a good blend of return and marginal safety. There is definitely more than one portfolio that can accomplish this, but like many have said before on this thread: "Find something that works and you're comfortable with then stick with it."

The Coward's Portfolio (CP) on the 30 year backtest provided a median final value only 9% smaller than the TSM port. and a minimum value that was 88% higher.

I don't have anything against 100% TSM. You will be rewarded greatly for investing long-term with it, but I believe there are portfolios that can provide much greater lower volatility for a relatively low reward trade-off.

Good luck in your decision OP.

arebelspy

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Re: 100% stocks in the accumulation phase?
« Reply #123 on: July 29, 2016, 03:26:31 PM »
The Coward's Portfolio is interesting.  The name is quite off putting.  Needs to be catchier. The hedger's portfolio.  Something like that.  ;)
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.
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Shane

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Re: 100% stocks in the accumulation phase?
« Reply #124 on: July 29, 2016, 08:23:38 PM »
the answer is it depends on individual situations .

Of course. 

But in most situations, your investment time horizon isn't the X years to ER, it's the total years you have left.

^This.

Right now, during retirement, DW and I are holding about 5% cash in a savings account and 95% VTSAX, because our time horizon for investing is 40+ years!

Thinking of the accumulation phase and the withdrawal phase of retirement as two discrete things makes no sense to me. When someone starts saving and investing at, say, age 25, even if he's only planning on working 10 years and ERing at age 35, from the beginning he needs to be thinking about the fact that the money he's saving may need to sustain him and his family for 70+ years. In that case, IMO, the only rational choice is to invest in TSM.

I'm 50 years old, stopped working a little over a year ago and am planning on a 40+ year retirement. During the accumulation phase my wife and I always held 100% equities. I absolutely could care less about volatility. The dollar value of each share of VTSAX that I own does not affect me in any way, except when I sell shares. Obviously, when share prices drop significantly, we will be flexible and try to minimize the number of shares we sell for a couple of years, hustle a little bit, maybe make some money, maybe come up with some creative ways to spend less while still enjoying a high standard of living, but we're not going to panic.

I've watched the share prices of the equities I was holding plummet 3 times in my life: 1987, 2000 and 2008. The first time, I was young, and didn't know any better, so I sold all my stocks after the market crashed in October of '87. After that, I learned, and in 2000 and 2008, even though there was a lot more money in my accounts, I didn't sell anything, and a few years later my account balances were 2-3x what they had been before the crashes. Obviously, the fact that I kept buying stocks during that time, helped a lot.

I agree with ARS that how conservative you are in retirement depends on how much money you've got saved. If you've got way more than you need, then I guess it might make sense for some people to dial back their portfolios to be less volatile and try to preserve what they've got as much as possible. For many of us, though, ER is more of a continuation of the accumulation phase. Many of us will either make money and/or find creative ways to live on less during the early years of our retirements, in hopes that our 100% stock portfolios will continue to grow, even without our continuing to dump our paychecks into them.

Recently, I had my free investment consultation from Personal Capital. The investment advisor was like, "So, when you're 90 years old, your portfolio is still going to be 100% stocks?" My answer was, "Yes." He said, "That would be really risky!"

I told him, "I'm sorry, but I disagree." What risk could there be to my portfolio being 100% equities when I'm 90+ years old? If the stock market drops 50%, so what? I've still got the other 50% of my money, which will be more than enough to continue to draw 3-4% of the starting amount/year, or more, until we die.

All the charts from Tyler's site I've looked at in this thread only go back to 1972, so it's basically just one 40+ year period. Using FIREcalc and cFIREsim, we can look back at ~100 forty year periods and analyze how various AA's of bonds, stocks and cash would've performed. I trust those numbers more than just one 40 year period for GB.

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #125 on: July 29, 2016, 09:47:54 PM »
Yep I'm on board MMM style ER's should probably use 1 portfolio. Something Tyler mentioned before was the Coward's portfolio 55 stock - 40 short treas. - 5 REIT. That provides a good blend of return and marginal safety. There is definitely more than one portfolio that can accomplish this, but like many have said before on this thread: "Find something that works and you're comfortable with then stick with it."

The Coward's Portfolio (CP) on the 30 year backtest provided a median final value only 9% smaller than the TSM port. and a minimum value that was 88% higher.

I don't have anything against 100% TSM. You will be rewarded greatly for investing long-term with it, but I believe there are portfolios that can provide much greater lower volatility for a relatively low reward trade-off.

Good luck in your decision OP.

This is why I think asset allocation can work really well.

steveo

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Re: 100% stocks in the accumulation phase?
« Reply #126 on: July 29, 2016, 09:48:46 PM »
Thinking of the accumulation phase and the withdrawal phase of retirement as two discrete things makes no sense to me.

I completely agree with this. I don't see the difference.

I agree with ARS that how conservative you are in retirement depends on how much money you've got saved. If you've got way more than you need, then I guess it might make sense for some people to dial back their portfolios to be less volatile and try to preserve what they've got as much as possible. For many of us, though, ER is more of a continuation of the accumulation phase. Many of us will either make money and/or find creative ways to live on less during the early years of our retirements, in hopes that our 100% stock portfolios will continue to grow, even without our continuing to dump our paychecks into them.

I don't really want to go back to work. I might but I don't think I'll do that. I may though want to spend a little more at times. I basically though agree with this point. My account balance doesn't matter to me in that I don't care if people have more than me. I am though interested in safety. Safety in my situation will probably require a lot of growth assets rather than defensive assets. If I get to the point where I have too much I may consider dialling down the stock percentage within my portfolio.
« Last Edit: July 29, 2016, 09:52:24 PM by steveo »

Radagast

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Re: 100% stocks in the accumulation phase?
« Reply #127 on: July 29, 2016, 10:13:44 PM »
Previously I made some comments which I realize were off topic, because the topic is clearly "accumulation phase."

I feel that for anyone who can stand to watch large losses on a computer screen, 100% equities is appropriate for accumulation. I have a little double standard here because I keep 8% of my tax sheltered accounts in very long duration treasury bonds, but I admit there is only about a 50% chance of them being useful. In fact I will take it a step farther and say that 100% Total US stock market is not risky enough for an accumulator. Ideally I would suggest the most volatile corners of the stock market, which not by coincidence frequently have the highest returns. Small cap stocks, small cap value, international small cap, emerging markets, all of these are appropriate additions. After eliminating unacceptable funds I might even recommend sorting your available funds by standard deviation, eliminating the remaining unacceptable funds, and invest in the funds which are most volatile. <-- Use this with caution. My reasoning for thinking this is as follows:

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2016&lastMonth=12&endDate=07%2F29%2F2016&initialAmount=1000&annualOperation=0&annualAdjustment=1000&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=4&showYield=false&reinvestDividends=true&symbol1=VFITX&allocation1_1=100&symbol2=VEIEX&allocation2_2=100
Above is a comparison of Vanguard's emerging market (VEIEX) and intermediate term treasury bond (VFITX) funds from 1995 (inception of VEIEX) to 2016 (present). Over this time period VEIEX had a CAGR of 5.82% and standard deviation of 24.23%. The bond fund returned 6.07% annualized and had a standard deviation of 4.77%. Emerging market stocks were an absolutely bad investment, while US treasury bonds made all other investments seem stupid over this period. Clearly the bond fund was a terrible choice for an accumulator, but EM was a good one. Why?

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2016&lastMonth=12&endDate=07%2F29%2F2016&initialAmount=1000&annualOperation=1&annualAdjustment=1000&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=4&showYield=false&reinvestDividends=true&symbol1=VFITX&allocation1_1=100&symbol2=VEIEX&allocation2_2=100
Above is a comparison of VEIEX and VFITX for a person who contributed $1,000 per month throughout that period. The emerging markets investor ended with $697,000, but the bond investor ended with only $584,000! The higher returning asset did worse by a wide margin! This is possible because VEIEX's repeated fire sales allowed the frequent purchaser to acquire a huge number of shares, which later turned in huge capital gains. Not only does volatility often denote asset classes with higher expected returns, but the mere existence of volatility is a benefit to accumulators in itself. Even if the volatile fund does not give the returns you hoped for, there is a substantial margin for error because of the volatility. It's a double whammy. Don't use this if you can't hold on.

It works in reverse if you are regularly selling.



TomTX

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Re: 100% stocks in the accumulation phase?
« Reply #128 on: July 31, 2016, 07:15:20 AM »

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 ?

Yeah, it will hurt - just not as badly as people seem to think.

You have a $1,000,000 portfolio in TSM and plan on taking out a 5% WR.

Market crash, you have $500,000 in TSM and take out $50k, right? 10% of your stocks sold.

NOPE.

You take out roughly $30k and receive roughly $20k in dividends. (possibly slightly worse if dividends were cut) - only 6% of your stocks were actually sold.

mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #129 on: July 31, 2016, 07:48:32 AM »
but it is more complex then that since perhaps if you were more conservatively invested  the 1 million would be a lot less as a starting balance   . in which case spending down from the more aggressive model in a down turn  may leave you with a higher balance then the more conservative model after the down turn .

traditionally that is usually how it plays out . the drag on the more conservative portfolio never develops the cushion in up markets that the more aggressive model does

Kevin K.

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Re: 100% stocks in the accumulation phase?
« Reply #130 on: July 31, 2016, 08:50:51 AM »
Radagast makes some good points and I'd take it a bit further to point out that if someone is going to go 100% stock or close to it doing so using only U.S. TSM means choosing to ignore everything we've learned from modern portfolio theory and market history. These days slicing and dicing for size and value and having a truly agnostic all-world equity portfolio can be as easy as just signing up with Betterment, or for those averse to paying their .15% fee just implementing the most aggressive allocation of Merriman's Ultimate Buy & Hold:

http://paulmerriman.com/vanguard-tax-deferred-etf-portfolios/

Tyler's site, great as it is, doesn't allow you to model complex portfolios with uneven allocations to various subequity classes, but that's what the computers at DFA and robo-advisor sites like Betterment are for.

MMM himself has a nice little graph that tells you all you need to know about why TSM as your only stock choice makes little sense:

http://www.mrmoneymustache.com/betterment-vs-vanguard/


mathjak107

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Re: 100% stocks in the accumulation phase?
« Reply #131 on: July 31, 2016, 08:58:08 AM »
a total stock market fund is really not total market .  the s&p 500 is influenced  by just 50 of its top holdings . the total market of 5000 stocks is heavily influenced to the tune of 75-80% s&p 500  which in turn is dominated by just 50 stocks .

for years recently the   mid-caps and small caps were beating the s&p 500 by 5-6% a year . a total market fund saw about a 1% difference .

for best results use an s&p 500 fund and an extended market fund and season to taste

DrF

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Re: 100% stocks in the accumulation phase?
« Reply #132 on: August 04, 2016, 03:49:15 PM »
I've been studying up on Tyler's portfolio charts site, and I've completely changed my mind in that I now think one should NOT be 100% stocks during the entire accumulation phase. My previous post merely showed that lower returns did not cause a huge lag on time to FI (basically, you could retire at almost the exact same time with a lower CAGR/IRR). The scenario I described didn't account for sequence of return risk. Using Tyler's Rolling Returns calculator it shows that if you were 100% TSM and started saving in 1997, you wouldn't earn more than 6% per year over the next 10 years for every year up until the last year data are available (2006). If you had FIRED in 1999 or 2000, you would have lost more than 2% per year for the next 10 years. If you were trying to save during this time, or if your final few years of saving your stash were in 2000-2001, then you would have had to extend your working years by much much longer. Tyler's Financial Independence calculator gives a nice pictorial of what would happen during best and worst case scenarios, basically if you started saving 50% of your income in 100% TSM, the absolute least amount of time it would take you (based on historical backtesting) to be FI was 11 years (which is pretty good). But...there is not an insignificant spread in how long it would take you to be FI based on what year you began. The most amount of time it would take you, still saving 50% and 100% TSM, would be 23 YEARS!!!! There are many periods in between representing a large fraction of the time that you would have to continue working much longer if you were 100% TSM. Alternatively, if you were super, super conservative and did the golden butterfly AA, the earliest you would be FI is 12 years (so, only 1 year more than 100% TSM), but the latest you would be FI is 15 years (A WHOLE 7 YEARS FASTER THAN THE WORST 100% TSM). I don't know about you, but when I realized this, it scared the shit out of me. Even the worst rolling 10 year average return using golden butterfly was almost 4% (starting in 1999). Let's say you think golden butterfly is an anomaly of freakishly good backtesting. Then you could substitute in another balanced portfolio of 20% TSM, 20% INTL, 20% TBM, 10% LTT, 10% STT, and 20% REITS, which gives you 12 years to FI (only 1 year slower than 100% TSM) as fastest, and 19 years (4 years faster than 100% TSM) as slowest. Sequence of return risk matters. Don't think it doesn't.

Personally, I'd go 100% TSM the first 40% of my march to FI. Then I'd switch my allocation to something much, much, much more conservative (UNLESS**, there is a huge 2000 or 2008 level market correction, in which case I'd immediately switch my allocation to 100% TSM again). Once I'd reached FI, I'd keep my AA very conservative for the first 5-10 years, each year slowly making more aggressive towards 100% TSM beginning on year 11.

My 2 cents, but it's way better to work 1-4 more years with a very conservative AA, than get caught in the worst return sequence possible and end up having to work 12 ADDITIONAL years.

By the way Tyler, it'd be nice if you had on option on some of your calculators to increase how much you are saving each year (eg, 50% Y1, 55% Y2, 60% Y3, or even a flat 10% increase year over year, to account for people's earnings increasing, but their spending staying the same).

Excellent tools, thanks Tyler!
« Last Edit: August 04, 2016, 03:51:42 PM by DrFunk »

pha999

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Re: 100% stocks in the accumulation phase?
« Reply #133 on: September 19, 2016, 09:45:33 PM »
when I first started investing at age 18, I was 100% index stock funds. Mind you early in the game, I had very little capital and skin in the game. It wasn't until about age 30 after i accumulated over 650k in invested assets, then I started to divert funds into bond funds and CDs and investments that were not in public equities. In the start when you have very little capital I do not think it matters a whole lot, since your income should be gaining more momentum than the ups and downs of a relatively small portfolio. 

TomTX

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Re: 100% stocks in the accumulation phase?
« Reply #134 on: September 24, 2016, 11:29:32 AM »
As I have posted elsewhere, returns on gold are artificially inflated due to the starting date when gold price was unpegged. They are also a very short timeframe compared to stocks or bonds.

Shane

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Re: 100% stocks in the accumulation phase?
« Reply #135 on: September 24, 2016, 01:12:52 PM »
To me, owning gold is not really an investment. It's just a way of hoarding money. It's no better than stuffing cash under the mattress, IMO.

I'd much rather own businesses that are producing things and providing valuable services to people who need them than to lock some gold bars up in a safe or bury them in the backyard.

I just think it's a waste to own something that is so useless.

To each his own I guess.