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  • #16







    At a recent medical meeting, a speaker (retired MD) discussed his retirement plan.  He retired in 2007 with 100% in equities, saw a 42% decrease in his investments during the recession, but lived below his means, used a 4% withdrawal rate and now has more money than he started with at the time of retirement.  His sequence of returns risk was horrible retiring right before the 2008-2009 bust, but he didn’t sell and now has weathered the storm.

    Holding 100% equities in retirement seems risky, but he mitigates that risk by keeping 2 yrs of expenses in a money market account.  So if the market drops, he can weather the storm until things start to get better.

    Any advocates or opponents of using 100% equities with a side fund for surviving market downturns in retirement?
    Click to expand…


    Yes, this is exactly what we do and advocate. Not individual stocks, mind you, but a well-diversified portfolio of equity mutual funds/ETFs. It sounds as if your speaker was following a financial plan and/or working with a financial planner who follows Nick Murray. How it works is as follows:

    • Only that which you will not need for at least 5 years is invested.

    • That which you will need within the next 5 years is kept liquid or in bonds/CDs timed to mature at date of need.

    • Your 5 year needs in retirement include:

      • your planned distributions from investments within the next 5 years (living expenses and/or RMDs)

      • amounts needed to meet short-term goals above and beyond normal living expenses ($20k dream trip, $100k to grandhild’s 529, for example), and

      • 2 years of living expenses in cash defined as the amount you will need (in event of a bear market) beyond other income you are receiving (SS, pension, etc.). So, for example, if your SS is $5k/mo + pension $3k/mo and your living expenses are $10k/mo, you would set aside $24k. This prevents you from having to liquidate at the bottom of the market.




    Using this method (always combined with a plan) allows you to reap optimum returns from your investments at a time when you are most vulnerable and need to realize growth: when you are on a fixed income.

    And, yes, this is a 100% equity portfolio, unless you consider your emergency funds and savings to be investments.
    Click to expand...


    If you have either 2 years of living expenses or 5 years not invested then it is not 100% equity.  I like Christine Benz's bucket approach. She is head of personal finance at morningstar.  She advocates 2 years in cash and mmf, 8 years in bonds, the rest in equity.  A bad market year you refill the first bucket from the bond bucket and in good years you use the stock bucket.  It is just another way to think about it.

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    • #17
      I like the concept of a fixed number of years worth of expenses in cash / bonds, rather than a fixed percentage.

      I have advocated this, and I expect to retire with more than adequately funded accounts, so I expect my portfolio to grow, and my percentage of bonds / cash to slowly decrease as the years go on (assuming my portfolio does indeed grow larger).

       

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      • #18










        At a recent medical meeting, a speaker (retired MD) discussed his retirement plan.  He retired in 2007 with 100% in equities, saw a 42% decrease in his investments during the recession, but lived below his means, used a 4% withdrawal rate and now has more money than he started with at the time of retirement.  His sequence of returns risk was horrible retiring right before the 2008-2009 bust, but he didn’t sell and now has weathered the storm.

        Holding 100% equities in retirement seems risky, but he mitigates that risk by keeping 2 yrs of expenses in a money market account.  So if the market drops, he can weather the storm until things start to get better.

        Any advocates or opponents of using 100% equities with a side fund for surviving market downturns in retirement?
        Click to expand…


        Yes, this is exactly what we do and advocate. Not individual stocks, mind you, but a well-diversified portfolio of equity mutual funds/ETFs. It sounds as if your speaker was following a financial plan and/or working with a financial planner who follows Nick Murray. How it works is as follows:

        • Only that which you will not need for at least 5 years is invested.

        • That which you will need within the next 5 years is kept liquid or in bonds/CDs timed to mature at date of need.

        • Your 5 year needs in retirement include:

          • your planned distributions from investments within the next 5 years (living expenses and/or RMDs)

          • amounts needed to meet short-term goals above and beyond normal living expenses ($20k dream trip, $100k to grandhild’s 529, for example), and

          • 2 years of living expenses in cash defined as the amount you will need (in event of a bear market) beyond other income you are receiving (SS, pension, etc.). So, for example, if your SS is $5k/mo + pension $3k/mo and your living expenses are $10k/mo, you would set aside $24k. This prevents you from having to liquidate at the bottom of the market.




        Using this method (always combined with a plan) allows you to reap optimum returns from your investments at a time when you are most vulnerable and need to realize growth: when you are on a fixed income.

        And, yes, this is a 100% equity portfolio, unless you consider your emergency funds and savings to be investments.
        Click to expand…


        If you have either 2 years of living expenses or 5 years not invested then it is not 100% equity.  I like Christine Benz’s bucket approach. She is head of personal finance at morningstar.  She advocates 2 years in cash and mmf, 8 years in bonds, the rest in equity.  A bad market year you refill the first bucket from the bond bucket and in good years you use the stock bucket.  It is just another way to think about it.
        Click to expand...


        I agree. I am also 100% equities if you exclude cash, bonds, real estate, ownership in imaging centers, hedge funds, coin collection, silver rounds, and antique baby grand piano (exaggerating a bit to make the point).

        I also embrace Benz's bucket concept, or some variation thereof. Implemented correctly, you should never be forced to sell stocks during a bear market.

        Comment


        • #19


          At a recent medical meeting, a speaker (retired MD) discussed his retirement plan. He retired in 2007 with 100% in equities, saw a 42% decrease in his investments during the recession, but lived below his means, used a 4% withdrawal rate and now has more money than he started with at the time of retirement. His sequence of returns risk was horrible retiring right before the 2008-2009 bust, but he didn’t sell and now has weathered the storm. Holding 100% equities in retirement seems risky, but he mitigates that risk by keeping 2 yrs of expenses in a money market account.
          Click to expand...


          As pointed out by others this is not 100% of retirement money in equities, since he had 2 + years of cash for expenses.

          What I suspect he meant was the stock market portion was held 100% in stocks and none in bonds. But if he had cash, or other sources of income like real estate it is not 100% in equities.

          Comment


          • #20




            Yes, this is exactly what we do and advocate. Not individual stocks, mind you, but a well-diversified portfolio of equity mutual funds/ETFs. It sounds as if your speaker was following a financial plan and/or working with a financial planner who follows Nick Murray. How it works is as follows:

            • Only that which you will not need for at least 5 years is invested.

            • That which you will need within the next 5 years is kept liquid or in bonds/CDs timed to mature at date of need.

            • Your 5 year needs in retirement include:

              • your planned distributions from investments within the next 5 years (living expenses and/or RMDs)

              • amounts needed to meet short-term goals above and beyond normal living expenses ($20k dream trip, $100k to grandhild’s 529, for example), and

              • 2 years of living expenses in cash defined as the amount you will need (in event of a bear market) beyond other income you are receiving (SS, pension, etc.). So, for example, if your SS is $5k/mo + pension $3k/mo and your living expenses are $10k/mo, you would set aside $24k. This prevents you from having to liquidate at the bottom of the market.




            Using this method (always combined with a plan) allows you to reap optimum returns from your investments at a time when you are most vulnerable and need to realize growth: when you are on a fixed income.

            And, yes, this is a 100% equity portfolio, unless you consider your emergency funds and savings to be investments.
            Click to expand...


            This is a bit semantic-only but calling this strategy (which seems very logical to me) a "100% equity portfolio" is simply untrue or at least a misleading description.  The next-5-years-needs portion of the individual's money is kept in "bonds/CDs" by your own admission.  At a 4% withdrawal rate, that equates to approx 20% of his/her savings at minimum as it may also include other anticipated needs/wants beyond living expenses.

            So, to be more accurate, this is in effect a 80% stock, 20% fixed income/cash allocation.

            Comment


            • #21
              I too find it disingenuous to call having a portion of your retirement portfolio in MMF/CDs/bonds and call it "savings" while touting that the rest of the portfolio is 100% equities. Having money for short-term or downturn needs as described above is essentially the fixed income portion of the portfolio. Kamban AZdoc was being kind calling it semantics. It's like saying, "I'm 100% vegan except for my daily cheeseburger and milkshake."

              Comment


              • #22


                This is a bit semantic-only but calling this strategy (which seems very logical to me) a “100% equity portfolio” is simply untrue or at least a misleading description.  The next-5-years-needs portion of the individual’s money is kept in “bonds/CDs” by your own admission.  At a 4% withdrawal rate, that equates to approx 20% of his/her savings at minimum as it may also include other anticipated needs/wants beyond living expenses. So, to be more accurate, this is in effect a 80% stock, 20% fixed income/cash allocation.
                Click to expand...


                My preference has been never to include cash and bonds as investments. I define an investment as the purchase of something with the intent to produce an appreciation in value. Bonds and cash do not fit that definition, at least for our purposes. Same for the furniture and the baby grand   I don't have any problem with your including a bank account as an investment. It doesn't make sense to me, but it doesn't have to - it's your portfolio and under your control.

                To be fair, all retirement portfolios would be 100% equity under this definition and the taxable portfolios would be a split %. I don't really have a problem with that there as long as the meaning is understood, i.e. the definition is clarified. iow, that would mean those of you who invest in real estate may be allocating a huge % to real estate in your portfolios, as in 50% real estate, 40% equities, 10% cash/bonds. Is that how you measure your portfolio? Probably would make a lot of sense as it could point to the fact that many who invest in RE have highly imbalanced portfolios, so perhaps a better perspective. And to include the value of the business as an investment (which it is)? Any investments should be included in the breakdown, in this scenario.

                I don't agree that this is merely semantics, but a difference in my definition and yours.
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #23





                  This is a bit semantic-only but calling this strategy (which seems very logical to me) a “100% equity portfolio” is simply untrue or at least a misleading description.  The next-5-years-needs portion of the individual’s money is kept in “bonds/CDs” by your own admission.  At a 4% withdrawal rate, that equates to approx 20% of his/her savings at minimum as it may also include other anticipated needs/wants beyond living expenses. So, to be more accurate, this is in effect a 80% stock, 20% fixed income/cash allocation. 
                  Click to expand…


                  My preference has been never to include cash and bonds as investments. I define an investment as the purchase of something with the intent to produce an appreciation in value. Bonds and cash do not fit that definition, at least for our purposes. Same for the furniture and the baby grand  ? I don’t have any problem with your including a bank account as an investment. It doesn’t make sense to me, but it doesn’t have to – it’s your portfolio and under your control.

                  To be fair, all retirement portfolios would be 100% equity under this definition and the taxable portfolios would be a split %. I don’t really have a problem with that there as long as the meaning is understood, i.e. the definition is clarified. iow, that would mean those of you who invest in real estate may be allocating a huge % to real estate in your portfolios, as in 50% real estate, 40% equities, 10% cash/bonds. Is that how you measure your portfolio? Probably would make a lot of sense as it could point to the fact that many who invest in RE have highly imbalanced portfolios, so perhaps a better perspective. And to include the value of the business as an investment (which it is)? Any investments should be included in the breakdown, in this scenario.

                  I don’t agree that this is merely semantics, but a difference in my definition and yours.
                  Click to expand...


                  As you said, if you exclude everything but stocks from being categorized as an "investment", then by definition one's "investment portfolio" will always be 100% stock.  Even if you own nothing more equity-wise than 1 share of Apple.  I'm not sure that meets the spirit of the law so to speak.

                  i understand that you exclude bonds/CDs/MMF from being defined as "investments" because they are debt instruments rather than ownership of a business but you have to admit that's a non-traditional view.  When researching asset allocations, the vast majority of authors include those items in the pie chart.  I think most of us are accustomed to thinking of the "pie" as all one's potentially investable funds outside of home equity, petty cash in a checking account, and the coins that fell between the cushions of the couch.

                  And there are (rare) years in which bonds, and even MMFs, out-perform stocks.  I'm sure no qualified professional would advise a client to truly be "100% stock" in or near retirement.  Whether you call the non-stock portion of their financial assets "savings" or the "bond/cash component of the portfolio" is really just a label.

                   

                  Comment


                  • #24


                    And there are (rare) years in which bonds, and even MMFs, out-perform stocks.  I’m sure no qualified professional would advise a client to truly be “100% stock” in or near retirement.  Whether you call the non-stock portion of their financial assets “savings” or the “bond/cash component of the portfolio” is really just a label.
                    Click to expand...


                    Again, we do not "invest" in bonds. They are not a "performance" part of our portfolio. Our only use for bonds is to give our clients a higher rate of interest in the short term than they would receive on CDs or MMAs. The bonds themselves are held to maturity and purchased for that purpose, according to projected needs in the client's 5-year plan. No bond funds.

                    A single year in the life of a long-term financial plan and investment strategy holds no interest to me other than in the execution of the plan and being available for our clients. It means nothing in the context of investment returns and a plan. We are not that short-sighted, as I have tried, albeit unsuccessfully, to explain.

                    As a professional, I'm quite qualified to analyze and construct flexible, comprehensive financial plans that differentiate liquidity needs in the next 5 years from long-term investment needs for growth of capital. Retirement has nothing to do with it other than adjusting the plan to have more liquidity. Think about it. If you don't need anything from your investments - according to a well-executed plan - for at least 5 years, what fault do you find with a properly-diversified equity mutual fund/ETF portfolio? Tell me how that portfolio would have hurt you in 2007 if you had retired just before the bottom fell out. A lot of people hurt themselves due to lack of proper planning or by succumbing to irresponsible emotional reactions, but the market didn't.

                    Or perhaps we'll just have to agree to disagree. I don't invest my clients' savings in cash or bonds. You do. I'm ok with that.
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #25
                      When I think investment portfolio, I'm thinking 'net worth'  Assets that can be, one way or another, liquidated in some manner to get dollars to spend on my Tesla and Tahiti trips.   It maybe a weird way of thinking a real estate asset or a bond as an investment.  Then again, some people believe shoving cash into a mattress is investment (vs savings perhaps) but nevertheless, part of 'net worth' which ultimately affects what and how we can live in retirement.

                      With that in mind, how many folk here have their post retirement 'net worth' 100% committed into equities?   I'm FI, but probably 10 from -RE but more likely 15-20 from completely retiring:   have about 40% of 'net worth' in hard real estate assets.  20% in bonds for security holds and 40% in growth equities for the 'long haul'.

                       

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                      • #26
                        I think few actual retirees are 100% equities.  The only exception might be those with generous pensions.

                        Comment


                        • #27




                          I think few actual retirees are 100% equities.  The only exception might be those with generous pensions.
                          Click to expand...


                          Likely correct.  The example cited by Johanna isn't 100% equities either.  It's a bucket strategy with the (approx) 80% bucket in stocks and the other (approx) 20% "savings" bucket in bonds/CDs/MMFs etc  The overall allocation is ~ 80/20.  I'm not criticizing that at all--it makes excellent strategic sense--merely pointing out that calling it "100% stock" is not really the full truth.

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