Ghost Story (...an investment analogy*)

[AZryan]

Check it out... I live in this really old, supposedly 'haunted' house called, Stock Market Manor.
Lived here for decades. Plan on living here for 50 more years. It's actually a murder house.

Back in 1918 some dude went mental, killed his whole family here. I got a great deal when I bought it 'cuz so many buyers were so scared of the place -still are.

Now, over the years I've seen and heard the random 'really freaky happening', but its never bothered me. Sun always came up. Everything's fine.
 
All this time I've had this neighbor down the road, Charlie Bond. Says he's a freelance security guard. Keeps trying to get me to hire 'im to patrol my property, install motion sensors, all sorts of different suggestions to protect me from my 'ghost'. I never took the bait.

But I just learned something... It turns out that the 100th anniversary of this murder is coming up, and in actual fact there are several newspaper records showing that people have died in these so-called 'haunted murder houses'. And it's almost always right around that anniversary date. They seem to suddenly get deathly ill and never really recover -dying long before anyone expected them to.

So, I'm thinking it'll be somewhat of a waste of money to hire Mr. Bond, but I might do it for a short time since. As a centennial event, the risk is only at this one point in my life. It's 'just in case' something 'gets me', and I'd like some advice about what sort of security measures you all think make the most sense right now?

General Forum response -

"Dude, you obviously have a HUGE fear of ghosts. You need to sell that place and move."

What? I ain't afraid of no ghost!? It's just a short term concern that I might die, because people have died and I can't be sure what caused it -only when is seems to begin. It shouldn't cost much to hire Mr. Bond, but it depends on if he's just going to do some Short Term patrols of the grounds, or if I let him rent this elaborate surveillance gear that he says might actually add quite a bit to the cost. He said, 'it depends', but didn't say 'on what' exactly.

"If you really think a ghost, or anything might kill you, you need to hire Mr. Bond for the rest of your life and be glad you didn't die yet."

Why? Records show that it's really only around a murder's 100th anniversary when people have been known to get deathly sick in the same house. If you live through that -whether you do get sick or not- I really don't hardly see any examples of mysterious deaths way outside that anniversary date?

"There's no reason to believe in ghosts. You need to grow up. A ghost will not kill you."

But, I don't believe in ghosts. I do, however, believe in the fact that really freaky, unexplained shit does happen in this house, and there are plenty of verified records of people dying starting right around the centennial of a murder inside the houses of those murders. Is that a ghost? I don't think so, but far more importantly, something killed those people who were in the situation I'm in now. Why not take a little precaution at this point?

"Just because some people died, doesn't mean you will."

Well, obviously. But my chances seem to have shot way up compared to any other time in my past, and ought to go way back down over the decades to come.

               -----------------------------------------------------------------------------------------------------------------

*note
In actuality I think people who believe in ghosts are genuine suckers, but the story is meant to be an analogy for how it seems I'm being taken for wanting to guard against 'sequence of returns risk' at and around my approaching early retirement date. I've been, and still want to be, ~100% stocks for the long haul, but looking at a short term hedge of bonds (or other).

It seems like this concept, this 'around the start of retirement' strategy, is being called 'market timing' or just plain 'daft' to most people who've responded here. But it seems like logic based on statistics and rational possibilities to me.

Oh well... hope this was amusing to anyone.

[h2ogal]

Nice amusing story to start the weekend 😃

[wtjbatman]

Am I freaking out, man?

[Rezdent]

Interesting.
You are saying that you don't believe in ghosts, but you want to hedge bets by hiring Mr. Bond?
I'm a belt and suspenders person but if I don't believe something, no reason to spend resources protecting against it.

However, to follow the story...you are absolutely going to die someday, possibly of an illness in your haunted house - but there are so many other ways to die.  If you don't die there because of that, it won't change things much in the big picture.

If you actually do believe in ghosts, hire Mr. Bond.  It will cost you, but you'll be safe ONLY if Mr. Bond can deliver.  Problem is, he can only protect you against this one specific scenario, whereas there are a multitude of others that can kill you and eventually one of them will.

Full disclosure:  I actually once did buy a horrific murder house, complete with intact crime scene, for pennies on the dollar, cleaned it up myself and my family was horrified.  I lived there 15 years.  Never saw a ghost.

[Eric]

In actuality I think people who believe in ghosts are genuine suckers, but the story is meant to be an analogy for how it seems I'm being taken for wanting to guard against 'sequence of returns risk' at and around my approaching early retirement date. I've been, and still want to be, ~100% stocks for the long haul, but looking at a short term hedge of bonds (or other).

It seems like this concept, this 'around the start of retirement' strategy, is being called 'market timing' or just plain 'daft' to most people who've responded here. But it seems like logic based on statistics and rational possibilities to me.

First, anyone who claims that this is market timing doesn't know what market timing is.  If, prior to seeing market conditions, create a plan and stick to it, there's no "timing" about it.

Second, what you're referring to, increasing bonds at the start of retirement and then gradually going back into higher stock allocation has been dubbed the "rising equity glide path" by Pfau and Kitces (two preeminent retirement writers/planners if you don't know them)

http://www.onefpa.org/journal/Pages/Reducing%20Retirement%20Risk%20with%20a%20Rising%20Equity%20Glide%20Path.aspx


I liked the story by the way.

[trailrated]

Twist ending: What if Mr. Bond IS THE GHOST?!

[scintilates]

Huh, Eric, that Pfau study was surprising to me for two reasons.  First, the success rate for a 4% withdrawal over 30 years was at best ~75%, which is a bit different than the numbers I usually hear around SWR.  Second, the equity percentages they showed as optimal were surprisingly low.

I suppose the second can be explained just by 30 years being a relatively short time frame when you already have 25 years worth of money saved at the start, but any idea why the former is different from e.g. the Trinity study?

[beltim]

Huh, Eric, that Pfau study was surprising to me for two reasons.  First, the success rate for a 4% withdrawal over 30 years was at best ~75%, which is a bit different than the numbers I usually hear around SWR.  Second, the equity percentages they showed as optimal were surprisingly low.

I suppose the second can be explained just by 30 years being a relatively short time frame when you already have 25 years worth of money saved at the start, but any idea why the former is different from e.g. the Trinity study?

Most of the tables suggest lower future returns than historical averages.  The data using historical averages, similar to the Trinity study, appear in table 6, which shows peak success rates of 95%.

[AZryan]

Thanks Eric for the term and link!

Rezdent,
"-but if I don't believe something, no reason to spend resources protecting against it."

Agreed. But I showed you the newspaper clippings and then we looked up the death certificates. These people did die , and all of a wasting sickness that started around this unique anniversary date. So, it's that I want to guard against. Mr. Bond hanging around and keeping an eye out for 'ghosts' will yield zero ghosts. But, maybe he catches something or someone who wants to make it look like ghosts and is secretly killing people? Fitting with the analogy, there's little other way I can go about trying to make sure I don't get killed in this bizarre way, and it's a small price vs. big risk.

Yeah, you can die from lots of stuff, but that's beside the point.

Hey... true story... someone I know went to a 'haunted house' once, came back and said, "It's real! We stood there and started getting hit with these little pebbles!"

She thought I didn't believe her because I thought she was lying and I refuse to accept the existence of ghosts because I'm too close-minded.

I'm like, "No. I just think it's FAR more likely that someone was throwing rocks at you at this tourist trap you fell for. If it was me, I woulda' tried to find the little fucker whippin' stones."
Did she Nancy Drew the place, at all? Nope. Went home saying, "Ghosts."

She also thinks Palin would make a good President, and an angel saved her from dying in a motorcycle accident -rather than say, the lady who called 911 and the literally world-famous surgical team that barely got to her in time.

[Eric]

Huh, Eric, that Pfau study was surprising to me for two reasons.  First, the success rate for a 4% withdrawal over 30 years was at best ~75%, which is a bit different than the numbers I usually hear around SWR.  Second, the equity percentages they showed as optimal were surprisingly low.

I suppose the second can be explained just by 30 years being a relatively short time frame when you already have 25 years worth of money saved at the start, but any idea why the former is different from e.g. the Trinity study?

Well, this study used Monte Carlo simulations, not historical simulations (like the Trinity study).  They also used some future return assumptions.

With the Evensky return assumptions used as a baseline in this study, the optimal end point of the glide path was generally less than with historical return assumptions, as the equity risk premium is less. This reduces the return-enhancing benefits of equities.

  Or in plainer English, they used a lower interest rate environment simulation (like today) and also low stock allocations.  So lots of bonds with low yields.  This caused a lower success rate, which makes sense.

As far as low equities, it's a product of them being financial advisors.  Its hard to recommend 90% equities to a client, only to have them bail when the market drops.  And the kind of people who bail when the market drops are the kind that seek out financial advisors. 

Pfau has written a few different articles on the Rising Equity Glide Path.  If you're interested in it, I'd search out those as well.  They may have a more flexible AA data set.