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  • AZdoc68
    replied




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

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  • StarTrekDoc
    replied
    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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  • jfoxcpacfp
    replied


    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.
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    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.

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  • AZdoc68
    replied





    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. 
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    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.
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    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.

     

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  • jfoxcpacfp
    replied


    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.

    Leave a comment:


  • nachos31
    replied
    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."

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  • AZdoc68
    replied




    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.

    Leave a comment:


  • Kamban
    replied


    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.
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    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.

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  • VagabondMD
    replied










    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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    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.

    Leave a comment:


  • PhysicianOnFIRE
    replied
    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).

     

    Leave a comment:


  • Hatton
    replied







    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.

    Leave a comment:


  • jfoxcpacfp
    replied
    I knew this would get interesting  ! I'll stick to my properly-diversified equity mutual fund portfolio and a financial plan. (Rebalanced annually, of course.)

    Leave a comment:


  • CM
    replied







    To jfoxcpacfp,

    CM pointed this out in several posts.  In the event of market correction and decreased ROI in equities,  2 years of living expenses may not be enough to weather bear market.

    https://www.researchaffiliates.com/en_us/asset-allocation.html

    Or like CM, do you encourage foreign equities at this time?
    Click to expand…


    A properly diversified equity portfolio already has an allocation to foreign equities.

    According to my trusty bear market illustration, the longest bear market since the end of WWII has been just over 3 years. During that time, should we have a record bear market, most everyone naturally curtails spending. If necessary, some withdrawals from principal if needed over the last few months won’t shock your portfolio as much as, say, a 40% allocation to bonds over a 30- to 40-year retirement of ever-inflating costs (except, as Zaphod pointed out, in a period of deflation) merely to prevent an uncontrollable emotional reaction in lieu of a properly executed plan.

    I can’t plan for my clients based upon what I fear or they fear might happen, even though it has never happened before but, instead, on the history we know.
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    Bear markets last much longer than 3 years when measured in real terms (i.e., the measure that matters).

    See: https://earlyretirementnow.com/2017/03/29/the-ultimate-guide-to-safe-withdrawal-rates-part-12-cash-cushion/. From Early Retirement Now (graphs at the link above):

    "The bottom panel plots the real S&P500, with drawdowns of 36+ months shaded in red (nominal chart in the top panel for comparison). Since 1910, there were seven major drawdowns in the real S&P500 index. Some of them were back to back with a short reprieve in between, and each time it was too short to restock the cash cushion in preparation for the next bear market. So we might as well interpret them as one single event, which means that in the last 107 years there were four major drawdown events:

    • 6/1911 – 8/1924: 13 years and 2 months comprised of two drawdowns with a short 13 months of reprieve in between.

    • 8/1929 – 12/1950: 21 years and 4 months comprised of two drawdown periods with a short 13 months reprieve in between.

    • 11/1968 – 1/1985: 16 years and 2 months comprised of two drawdown periods with a short 1-month reprieve in between.

    • 8/2000 – 5/2013: 12 years and 9 months


    In other words, over the last 107 years, we would have spent 60+ years in major, decade-long drawdown phases. Over the last 50 years, we would have spent almost 29 years in the red. So, pronounced drawdowns that require 10+ years of cash cushions are not the exception but the norm! Multiply the drawdown length above with our desired withdrawal rate (3.5%) and we get completely unrealistic, downright preposterous cash cushions of somewhere between 42% (12 years) to 73.5% (21 years). Ain’t gonna happen!"

    Leave a comment:


  • jfoxcpacfp
    replied


    The problem with all the super bear type theses is that they always call for total destruction of the market and capitalism. That is just highly highly unlikely, a regular boring old recession is the most likely scenario, no matter how disaster imprinted we are.
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    Should that happen, you'll be using bonds for toilet paper.

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