No where to hide

[Cortopassi]

There should be a poll done:

"Why did you change to the PP if you were in some other strategy?"

For those that didn't come upon this early or at the beginning of their investing life, I would suspect the highest response would be along the lines

"Because I was too heavily invested in stocks and got burned or couldn't handle the drawdowns without selling."

See the chart below for what was my major vehicle until late 2008, DODGX.  I started investing at the 1st arrow.  I made it through the circled area without bailing.  I bailed 100% at the 2nd arrow and started my precious metals/miners foray (uh huh).

If I would have stuck through and bought even more at the lows, I would have been more than fine now.  But I didn't, and I am pretty sure I couldn't if it happened again.

[mathjak107]

you really can't  compare since we are not japan.  long term even 100% equities has done quite well over every 30 year time frame.

Sorry but this is one of the dumbest things i've read here so far.
A Japan scenario is actually very likely for the US, might not happen, sure, nobody knows, but very likely.

You've lifted on one of the biggest bull markets ever, that's called luck, no more, no less, sorry.
You could've also be down 70%, nobody knows, that's why a lot of people here use the PP, i'm curious if in that case you would still say you don't like to plan for 'doom scenarios' (that are guaranteed to happen, we just don't know when).

Trying to prevent losing half or more of your lifesavings is called "being smart".

in 27 years I lived through only 2 crashes , both of which a few years later were a non event.

Until they are suddenly not a 'non-event'm guaranteed to happen, when? No clue.

to date no one would have lost a dime in the markets if they kept a long term investment for the long term. there has never been a 20 year period you could not have made a profit.

don't confuse folks acting in a fashion that hurts them by either exceeding their pucker factor or mismatching investments to time frames..


by the same token by gambling on the fact we will have a major calamity  you can leave an awful lot of money on the  table if we don'r.

so with markets up historically 67% of the time and only down 1/3 of the time the real gamble may be prepping for the big calamity that never plays out .

in the mean time no one ever would have lost a dime in the markets even being 100% equities if they were in diversified funds like an index.

it is only doing the wrong thing that would have hurt anyone even through the worst of times in 146 years of  market history.

diversification makes for comfort not gains.

[LC475]

1 year PP  .67%
3 year PP 2.33%
5 year PP 5.99%
10 year PP 7.67%

Look at that, it's like a yield curve.

all in all I think  the past was a lot kinder  than the present has been to the pp.

Exactly, you can see that from the figures above.  What it means is that yes, this has been a rough, below-average few years for the PP.  What follows from that, if you believe in the system and its underlying logic, is that now just might be a great time to get into the PP!  Then again, if you really believe in the underlying logic you won't be trying to predict the future, and thus: you never know... but that's a good possibility, the way I see it.

[MachineGhost]

to date no one would have lost a dime in the markets if they kept a long term investment for the long term. there has never been a 20 year period you could not have made a profit.

Only in the USA.  Other markets weren't so fortunate over the past 100 years.  But that is why I committed triage and cut off the offending parts.  My only consolation is to ride the losses out without selling.

OTOH, I wouldn't have become so risk averse and perceived the several flaws with the PP, so it's hard to be too upset about it.

[mathjak107]

It's just not going to end well but I think we'll be the last ship afloat in the seas due to our long-standing reputation and deep capital markets.  If we're lucky, we'll come out of this global sovereign debt crisis the least unscathed.

This is why I don't fear long bonds. Sure we were due for a rate bounce, and I'm sure it'll continue for awhile, but I find the deflationary spiral doomer porn more convincing than the rates will soon skyrocket doomer porn.

the flaw in the logic here is long bonds are leveraged in the respect that a 1% increase in the short end would hardly be a blip on the economy but to a long bond holder it can be a 20-30% loss.

that is a lot of recovery needed and that is only a 1% change.

if you think about it you are making a heavy bet on interest rates staying low at a time when they are in the 2-1/2- to 3-1/2% range and the historical norm is 6% .

catching things at the tipping point and then hoping for deflation to bail out the investment to me is a long shot when the  normal rates are more than double where we are and presents no deflationary spirals historically. .


in the accumulation stage you can take the shot and wait the cycle out.

but if you are retiring near term betting the ranch on volatile long term bonds when market returns are below average can be a recipe for disaster in retirement if spending down.

in fact the 4% safe withdrawal rate is a result of the work of bill bengan as well as the trinity study  . the difference between the results bill bengan got in the safemax study  vs the trinity study was the higher failure rates in the trinity study . the trinity used longer term 7-10 year corporate bonds vs bill's 5 year treasury's.

the longer term more volatile bonds hurt more  retirement time frames when the cycles were caught wrong.

[mathjak107]

to date no one would have lost a dime in the markets if they kept a long term investment for the long term. there has never been a 20 year period you could not have made a profit.

Only in the USA.  Other markets weren't so fortunate over the past 100 years.  But that is why I committed triage and cut off the offending parts.  My only consolation is to ride the losses out without selling.

we can only discuss here .  those in other countries could  have and did invest here as well . i would not base anything i said on any where else.

[LC475]

yes ,  I did it today.

I made the change before I got to far behind.  I think for being as close to retirement as I am it was bad timing trying the pp.

I think pp may work and I could be wrong but I wasn't happy the way the current environment was interacting at this point in time .

to close for comfort . but I still enjoy  talking about the pp and I think I will always have a certain fondness for it.

Wow, yes, I can just imagine the pressure with so much money and essentially the rest of your life on the line!  Investing is tough, no doubt about it, and especially so close to retirement.  I can't say I fault you, even if I have a different perspective.

Let me ask: have you read any of Harry Browne's books on investing?  If not, how did you learn about the PP?

Stick around, mathjak, it's fun to have contrary points of view on a forum.

[mathjak107]

averages and statistic are actually useless to most of us.

as humans we can only have two outcomes in life . things work out as planned or they don't.

those are the only two outcomes we can have unlike insurers .

as i mentioned earlier , simply just following the newsletter for decades through thick and thin and staying the course is all that mattered. sticking to a plan is 99% of winning as even the worst asset will eventually have its day in the sun. things can turn out better with better allocations but just sticking to a plan can even make the worst allocations pan out okay.

[mathjak107]

yes ,  I did it today.

I made the change before I got to far behind.  I think for being as close to retirement as I am it was bad timing trying the pp.

I think pp may work and I could be wrong but I wasn't happy the way the current environment was interacting at this point in time .

to close for comfort . but I still enjoy  talking about the pp and I think I will always have a certain fondness for it.

Wow, yes, I can just imagine the pressure with so much money and essentially the rest of your life on the line!  Investing is tough, no doubt about it, and especially so close to retirement.  I can't say I fault you, even if I have a different perspective.

Let me ask: have you read any of Harry Browne's books on investing?  If not, how did you learn about the PP?

Stick around, mathjak, it's fun to have contrary points of view on a forum.

i discovered harry back in the 80's and i read every book terry coxen and  harry wrote.  i still have my why the best laid investment  plans fail

[Tyler]

averages and statistic are actually useless to most of us.

as humans we can only have two outcomes in life . things work out as planned or they don't.

those are the only two outcomes we can have unlike insurers .

as i mentioned earlier , simply just following the newsletter for decades through thick and thin and staying the course is all that mattered. sticking to a plan is 99% of winning as even the worst asset will eventually have its day in the sun. things can turn out better with better allocations but just sticking to a plan can even make the worst allocations pan out okay.

Sorry for deleting the post you replied to. Sometimes I post and immediately want to take more time to think about a better way to put it. . You're fast. . (For others, I pointed out that long term averages don't always work out on your own personal timeframe, and volatility really does matter).

I agree with you here. Finding a plan you can stick to through good times and bad really is the best thing you can do. I personally don't care for newsletters, but I'm happy that it's worked for you and hope it continues to in the future.

[mathjak107]

thanks.

i  can put portfolio's together in my sleep but i liked the newsletter because i never had to second guess myself or plot my next move . 30 seconds a week reading an update is all i needed to do with a fund swap happening once in a long while.

the only reason i moved away from it is the growth and income model at 72% equities was more than i want or need now .  the more conservative model was 25% a balanced fund and the rest bond funds.  much to bond heavy for my taste.

plus some bond funds over lapped so i had much more than i wanted.

my feeling is we are going to see rates rise both on the short end and the long end so i did not want the bonds  pulling down the stocks to much if it turns out stocks are the only horse producing some gains. so i decided to put my own model together it and to nudge it a bit as conditions change.

at 45-50% equities it is still conservative enough and the  bond funds i picked are not to interest rate sensitive.

i really abandoned the pp because after watching the bond action i did not want to place such a big bet on rates at this point with the bond  market yield s trend being up lately for months  and stock market gains just squeaking out .


that to me is a risky bet when you first enter retirement  and start  spending down  day one.

[D1984]

you really can't  compare since we are not japan.  long term even 100% equities has done quite well over every 30 year time frame.

Even retirees spending down would have withstood every 30 year time frame since 1926 even if they used 100% equities.

diversification historically is like using cash buckets in retirement.  they smooth out the same ride to the same place.

long term we have never had devastation in our stock markets. even retirees in 1926 and 1937 would have done just fine spending down from their portfolio's over 30 years.

I'm just curious...can you run a simulation of a hypothetical 4% withdrawal (the rate used in the Trinity study that established 4% as the "safe" rate) portfolio staring on any of the following:

January 1929

September 1929

October 1929

January 1969

January 1973

and have it last 30 years at 100% equities using the following rules:

1. The first year's withdrawal is 4% of the portfolio value (for instance, on a million dollar portfolio the withdrawal would be $40K)

2. The next year's withdrawal is whatever the first year's withdrawal is, but incremented up or down for inflation (for instance, if as above the first year's withdrawal was $40K and there had been 2% inflation over the following year, then the next year's withdrawal would be $40,800, etc)

3. The portfolio has to last at least 30 years with at least $1 in value left in it.

4. No "cheating" by using things like inflation-adjusted QLACs, RCLAs, variable annuities with GMWBs, etc

5. For that matter, no cheating by only withdrawing 4% of the current portfolio value, rather than an inflation adjusted value of 4% of the original portfolio...I consider this cheating since ANY portfolio (even one made up 100% of something volatile like a 3X daily ETF) could by definition survive under those rules (and since doing so would slice your standard of living by 50% or more in some cases)


I'm not sure if the above is possible (A 100% equity portfolio lasting 30 or more years under such withdrawal rules). That's why the "traditional" retirement portfolio was a 70/30 or 60/40 or 50/05 or 40/60 of stocks and bonds...the bonds over the long run won't give the returns stocks do, but having a balanced portfolio that isn't all stocks really helps if you hit a rough market patch early on (especially a multi-year rough patch like 1929-32, 1973-77, or 2000-02) when being 100% all stock would mean dipping into assets at a huge loss and thus depleting your capital more and more (since the original 4% withdrawal amount was based on 4% of the original portfolio but after, say, a 50% market fall you are now withdrawing 8%--ore more, if there has been any inflation in the meantime--of the actual current real portfolio value).

[mathjak107]

we can't do it with pp.  .  gold was not an investment that could be tracked during the actual failure periods in the trinity.

but 100% equities had a fine success rate of 93% .  going out to 40 years it beat a 50/50 mix  i posted the chart here earlier. i will try a smalle resize.  is this what you wanted to see ?

[mathjak107]

the failure periods for the bengan  study were 1907  1926 1937 and 1965-66. the 4% swr is based on starting your retirement in those  years .  they represent the worst periods to date although the hypothetical y2k retiree is on track to fail ..

the difference between bill bengans work and the trinity was bill used 5 year treasury bonds and the trinity used longer term coroporates. the trinity had more failure periods belive it or not using the more volatile longer term corporate bonds.

those were only 7-10 year bonds and they caused more failures tha the 5 year treasury's. i can only imagine if 30 year were used and you caught the cycle wrong.


so i am of the opinion that while having the long term bonds in the accumulation stage may be helpful , that can be a huge bet on rates in the decumulation stage that can hurt your retirement if you guessed wrong.

that is what led me to change course after realizing that a below average stock market and interest rates that are more likely to rise than not can be a deadly retirement combo today.

mot only are you depending on markets for gains but  if those gains are weak the longer term bonds can destroy them in a heart beat in a rising climate.  that can be deadly when spending down initially before some good up cycles provide a cushion.

[D1984]

we can't do it with pp.  .  gold was not an investment that could be tracked during the actual failure periods in the trinity.

but 100% equities had a fine success rate of 93% .  going out to 40 years it beat a 50/50 mix  i posted the chart here earlier. i will try a smalle resize.  is this what you wanted to see ?

That works, thank you. Can you provide me the location of where the original study you got that chart from was?

Also, is a 93% success rate really good enough? Would you play, say, Russian Roulette with a 93% chance of success (I wouldn't)? The 75% stock (and although not shown here, the 60% stock would likely have as well) portfolios had higher 30-year, 35-year, and 40-year survival rates than the 100% stock portfolio. Next, since no one can choose what the market will do after they retire, what would you suggest those poor unfortunates who hypothetically retired with 100% equities in 1907, 1966, 1937, and 1929...(was it  actually 1929 and was 1926 was a mistype and they really meant 1929?.....the reason I ask is that the person who retired in January of 1926 would have had three good years that would've virtually doubled his portfolio and theoretically provided a buffer whereas the 1929 retiree would have been down almost immediately after retiring and would have been making good-sized withdrawals during the depths of the Depression)? They would have ran out of money at advanced ages when they likely would have needed it most (health care, LTC, etc). On top of this, even if the portfolio did surve in the end, it would;ve taken nerves of steel not to sell in 1932/33 or late 1974 or late 2008/early 2009 or the like and thus get out at or near the bottom...not everyone has the ability to sit and wait and not panic when they are invested 100% in stocks and see their portfolio lose mroe than half its real value over a year or two.

Finally, what happens if someone lives more than 30 or 35 or even 40 years after retiring? I guess that's where the QLACs (or other deferred annuities) come in...chop off the fat tails of longevity risk.

Just as an aside, has anyone that you know of ever done a study comparing a high/low/high equity curve retirement portfolio vs a 75/25 equity/bond and 60/40 equity/bond and "bucket" approach? I'd be interested to see the results of that.

[mathjak107]

it comes from michael kitces's web site. i am not sure exactly which paper  as he has sooooooooooooo many . he is one of the top retirement researchers today along with dr pfau and blanchette.


what michael did is substitute back the 5 year treasuries instead of the corporate bonds in the trinity  so it was comparable to bengans study

[mathjak107]

we can't do it with pp.  .  gold was not an investment that could be tracked during the actual failure periods in the trinity.

but 100% equities had a fine success rate of 93% .  going out to 40 years it beat a 50/50 mix  i posted the chart here earlier. i will try a smalle resize.  is this what you wanted to see ?

That works, thank you. Can you provide me the location of where the original study you got that chart from was?

Also, is a 93% success rate really good enough? Would you play, say, Russian Roulette with a 93% chance of success (I wouldn't)? The 75% stock (and although not shown here, the 60% stock would likely have as well) portfolios had higher 30-year, 35-year, and 40-year survival rates than the 100% stock portfolio. Next, since no one can choose what the market will do after they retire, what would you suggest those poor unfortunates who hypothetically retired with 100% equities in 1907, 1966, 1937, and 1929...(was it  actually 1929 and was 1926 was a mistype and they really meant 1929?.....the reason I ask is that the person who retired in January of 1926 would have had three good years that would've virtually doubled his portfolio and theoretically provided a buffer whereas the 1929 retiree would have been down almost immediately after retiring and would have been making good-sized withdrawals during the depths of the Depression)? They would have ran out of money at advanced ages when they likely would have needed it most (health care, LTC, etc). On top of this, even if the portfolio did surve in the end, it would;ve taken nerves of steel not to sell in 1932/33 or late 1974 or late 2008/early 2009 or the like and thus get out at or near the bottom...not everyone has the ability to sit and wait and not panic when they are invested 100% in stocks and see their portfolio lose mroe than half its real value over a year or two.

Finally, what happens if someone lives more than 30 or 35 or even 40 years after retiring? I guess that's where the QLACs (or other deferred annuities) come in...chop off the fat tails of longevity risk.

Just as an aside, has anyone that you know of ever done a study comparing a high/low/high equity curve retirement portfolio vs a 75/25 equity/bond and 60/40 equity/bond and "bucket" approach? I'd be interested to see the results of that.

i follow most of the retirement research and studies . i can go on for days on the topic .

there has been much work looking at buckets and according to pfau and kitces there is little difference whether you use cash and bond buckets or not . it is just more comforting to the mind using buckets rather than pulling equally from the total pie keeping origonal allocations.

with a bucket you are actually increasing equities as you spend down cash and bonds. you can be 80 and 90% in equities if you wait until almost empty to refill .

on the other hand keeping a fixed allocation and pulling from all parts equally ,even selling equities when down offered no negative difference compared to using cash buckets.

the extra cash and bonds acted as a drag on the gains in up markets  so the higher gains without so much cash cushioned any selling at a loss you did when pulling equally.

[bedraggled]

mathjak107,

Good thought on life insurance (dead bodies)

Moda knows a lot about insurance.  Time to get his input here.

Moda, if you would, please.

[Mark Leavy]

Wow, yes, I can just imagine the pressure with so much money and essentially the rest of your life on the line!  Investing is tough, no doubt about it, and especially so close to retirement.  I can't say I fault you, even if I have a different perspective.

Let me ask: have you read any of Harry Browne's books on investing?  If not, how did you learn about the PP?

Stick around, mathjak, it's fun to have contrary points of view on a forum.

I was just about to post something very similar.

There's nothing like hearing from someone that has been there and done that.  It may not be gospel, but it is pretty damn good.

[MediumTex]

thanks.

i  can put portfolio's together in my sleep but i liked the newsletter because i never had to second guess myself or plot my next move . 30 seconds a week reading an update is all i needed to do with a fund swap happening once in a long while.

the only reason i moved away from it is the growth and income model at 72% equities was more than i want or need now .  the more conservative model was 25% a balanced fund and the rest bond funds.  much to bond heavy for my taste.

plus some bond funds over lapped so i had much more than i wanted.

my feeling is we are going to see rates rise both on the short end and the long end so i did not want the bonds  pulling down the stocks to much if it turns out stocks are the only horse producing some gains. so i decided to put my own model together it and to nudge it a bit as conditions change.

at 45-50% equities it is still conservative enough and the  bond funds i picked are not to interest rate sensitive.

i really abandoned the pp because after watching the bond action i did not want to place such a big bet on rates at this point with the bond  market yield s trend being up lately for months  and stock market gains just squeaking out .

that to me is a risky bet when you first enter retirement  and start  spending down  day one.

Great posts mathjak.  Even if you're off the PP for now, please hang around.

[mathjak107]

thanks everyone , i do intend to stick around. i love the conversation and most of all i find everyone who disagrees quite civil.

remember , i am not anti pp. i loved harry's books and thoughts.

but what i am realizing is there is a difference between the pp in the accumulation stage  and in the decumulation stage when rates are so far below the norm and it scares me,

there are no do overs in retirement . .

in effect those long term treasuries are a pretty heavy bet on rates not rising .

like the trinity study found , catching the rate cycle at the wrong time while having an under performing stock market can be deadly when spending down assets in the decumulation stage .  you don't want anything having the ability to double team you and do substantial damage..  having a 5 or 6% return in equities and down 30% from a 1 point rise will cause excessive spending and if stocks turn negative from a rise in yields in bonds you really got issues early on in retirement .

as much as we think the pp is the lowest risk , it is only true if you can wait out the long cycles of gold and rates because you are not spending down.

i believe it becomes very high risk in the low rate , sluggish markets of today if you are retiring .

remember , there is nooooooo point in history low interest rates and high stock valuations ever appeared together like now.


the flaw in any  claims to the pp standing up to bad times in retirement while spending down is not accurate.

there was no way to actually use the time frames retirement planning is based on which are all pre the 1970's.

just picking out inflationary times or recession times because they had some bad years is not the same thing or conditions that causes a failed retirement time frame, that is a very important point to remember.

i will discuss those horrible conditions it took in a thread later on.

[mathjak107]

i really abandoned the pp because after watching the bond action i did not want to place such a big bet on rates at this point with the bond  market yield s trend being up lately for months  and stock market gains just squeaking out .

Earlier I did some volatility checking of bonds from 1925 to date and various subsets, especially the bond bear from 1946 to 1981 which had low rates at the outset comparable to today.  Unfortunately, it seems that monthly data really masks the volatility one would experience on a daily basis as I was getting low volatility values not in any way comparable to 1977 to date (13.09%).  Isn't it normal to annualize by multiplying the square root of a value by the standard deviation of the returns representing the sampled temporal interval?  i.e. 12 for monthly data?

I don't know what the answer to the bond conundrum is, but I do know one thing.  The 1970's is no longer representative because it was high rates increasing higher (minimal duration).  We're at 1940's low rates that are going to increase higher (maximum duration).  If anyone is not scared, they should be.

yep , unless we have some extended calamity betting to heavy on rates now can be betting against the house , fighting the fed and forgetting the trend is your friend.

these sayings are there for a reason.

in the financial world not making the money you could is akin to losing that money .

getting overly defensive and leaving a pile of money on the table just for the fear of fear is in effect losing that much.

don't forget this important fact.

you only get one shot at building up everything you need  for retirement .  to leave money on the table because of fear of some calamity you come up with in your head that may never come to be and likely won't  may be very dangerous to your wealth .


the accumulation stage is the time to try to go for that pedal to the metal approach . after all even 2008 recovered in 5 years.  trying to overly protect against the outside chance everything goes to crap can cost you dearly and odds are Armageddon isn't around the corner.

just something to think about if you are still years from retirement ..

the most important thing financial  i learned , i learned from jason zweig . (his dad was marty zweig -famed wall street week elf ) .

jason's book your money your brain taught me our brains are geared to sabotage us .

the brain hates losing money and when it stresses over real money it even uses different sections for reasoning  then it does when you hypothetically think about doing something .

so your brain will get you to take the safest path and throw reason after reason at you as to why you should not take  that more volatile path.

when i was debating buying in to that real estate venture which would cost more money than i even owned and had no guarantees , i was up night after night as my brain pounded me with every reason as to why i should not do this.

but reading jasons book i knew i was not being handed a rational decision.

so i bit the bullet , did the deal , borrowed more money than i ever dreamed i would and it was the best thing i ever did. 

it was a calculated risk but a risk. the first lease buy out of a tenant fetched 7 figures for the apartment and our share paid off the loans.  we still had 7 more apartments left and a 10% stake in the commercial lease rights to the building .

those lease rights were sold last year for the whopper of an amount , 18 million dollars .  we got 16 million cash and they are paying us out the other 2 million over 4 years .  we held a 10% stake in this deal.

this deal which cost us all of 500k to buy in turned out to be amazing.

but if i listened to my brain i never would have done it.

here is the story of our lease right sale if anyone cares to read it.



.
http://therealdeal.com/blog/2014/01/29/ ... r-for-18m/

[mathjak107]

another point i want to bring up .

i told you i could talk about this stuff all day  ha ha ha  .

be careful when looking at all these charts and comparisons.

like comparing indexing to managed investing they are all strawman results that no one gets.

we all have different buy in points , sell points , rebalance points , we add money at different times and some even dollar cost average in.

few ever get anything resembling a posted year over year return.

even how you tax structure can wipe away any advantage's  lower expenses can have.

i am often reminded when i see charts and figures , of  grandma and her car buying days.

you have mr savvy investor  going in to buy a car.

he beats the  salesman into submission getting the lowest price he could . then he pounds the loan officer for the lowest possible financing.

3 years later he comes back and trades the car back in wholesale to the dealer.

on the other hand grandma walks in , pays top dollar for the car , gets a higher rate but sells the car privately for far more money.

grandma wins.


the fact is until all the pieces are figured in how something does in a chart has little bearing on what you did .


our models we used in the fidelity insight newsletter were not always funds that beat their index's . but by using funds through their sweet spots and trading them for better suited funds when the big picture changes  the funds working together beat their index's most of the time while individually they did not.


how you are doing is only unique to your own situation and not comparable to anyone else or anyone's charts and figures ..

you can have slightly more expensive funds , not the best allocations , or even have funds under perform a bit but a better retirement tax plan that allows you to draw a 6 figure income at near zero tax beats any boglehead any day.


i have a lot to say about retirement tax planning too but i will spare you all. 

remember too , i am not in the business , i am not a pro and these are just the opinions i have .

the funny thing is i have been quoted more times in the wall street journal than most people in the business and what the heck do i know.  lol

[mathjak107]

thanks everyone , i do intend to stick around. i love the conversation and most of all i find everyone who disagrees quite civil.

remember , i am not anti pp. i loved harry's books and thoughts.

but what i am realizing is there is a difference between the pp in the accumulation stage  and in the decumulation stage when rates are so far below the norm and it scares me,

there are no do overs in retirement . .

in effect those long term treasuries are a pretty heavy bet on rates not rising .

like the trinity study found , catching the rate cycle at the wrong time while having an under performing stock market can be deadly when spending down assets in the decumulation stage .  you don't want anything having the ability to double team you and do substantial damage..  having a 5 or 6% return in equities and down 30% from a 1 point rise will cause excessive spending and if stocks turn negative from a rise in yields in bonds you really got issues early on in retirement .

as much as we think the pp is the lowest risk , it is only true if you can wait out the long cycles of gold and rates because you are not spending down.

i believe it becomes very high risk in the low rate , sluggish markets of today if you are retiring .

remember , there is nooooooo point in history low interest rates and high stock valuations ever appeared together like now.


the flaw in any  claims to the pp standing up to bad times in retirement while spending down is not accurate.

there was no way to actually use the time frames retirement planning is based on which are all pre the 1970's.

just picking out inflationary times or recession times because they had some bad years is not the same thing or conditions that causes a failed retirement time frame, that is a very important point to remeber.

so what conditions did the pp miss in those time frames  that caused those retirement failures ?


want to know what the actual results were over the worst 30 year periods ever for someone retiring in that starting  year ?

suppose you were so unlucky to retire in one of those worst time frames ,what would your 30 year results look like with a standard 60/40 mix  :

1907 stocks returned 7.77% -- bonds 4.250-- rebalanced portfolio 7.02- - inflation 1.64--

1929 stocks 8.19% - - bonds 1.74%-- rebalanced portfolio 6.28-- inflation 1.69--

1937 stocks 10.12 - - bonds 2.13 - rebalanced portfolio -- 7.24 inflation-- 2.82

1966 stocks 10.23 - -bonds 7.85 -- rebalanced portfolio 9.56- - inflation 5.38

for comparison the 140 year average's were:

stocks 8.39--bonds 2.85%--rebalanced portfolio 6.17% inflation 2.23%

so what made those time frames the worst ? what made them the worst is the fact in every single retirement time frame the outcome of that 30 year period was determined not by what happened over the 30 years but the entire outcome was decided in the first 15 years.

so lets look at the first 15 years in those time frames determined to be the worst we ever had.

1907--- stocks minus 1.47%---- bonds minus .39%-- rebalanced minus .70% ---inflation 1.64%

1929---stocks 1.07%---bonds 1.79%---rebalanced 2.29%--inflation 1.69%

1937---stocks -- 3.45%---bonds minus 3.07%-- rebalanced 1.23%--inflation 2.82%

1966-stocks minus .13%--bonds 1.08%--rebalanced .64%-- inflation 5.38%

it is those 15 year horrible time frames that the 4% safe withdrawal rate was born out of since you had to reduce from what could have been 6.50% as a swr down to just 4% to get through those worst of times.

while 6.50% to 4% does not sound like a lot 1 million at 4% is an initial draw rate of 40k , at 6.50% you could have had 65k . that is a whopping 60% more .

so what it boils down to is any time you fall below a 2% real return average over the first 15 years you run the danger of 4% not holding. but even a 1/2% cut in spending will make you whole again over the next 15 years or longer.


which is why i always say if you have little discretionary spending you can cut from then you should not be in equities in retirement .

although the odds of being a worst case is very very low it can happen and the y2k retiree may be one as stock and bond returns have fallen below 2% real return the last 15 years so spending cuts may be in order.

but to say these worst ever  down turns have caused retirees to lose everything is just myth ..


phew ! i think i posted enough for now,  my hair hurts  from thinking.

[mathjak107]

Hmm, now I have to choose between not looking and bitching.
As the saying goes: if you don't look, you can't bitch.

as i said above , you get one shot in life to grow your retirement assets. picking a path  that maximizes that effort while staying within your pucker factor is key.

being overly protective can cost you more in the end then you stand to lose if your pucker factor is higher . you should invest to meet your goals .

all these scenario's our brain cooks up to scare us will likely never play out . kind of like those doomsday preppers on tv ..

investing is not as simple as we like to make it. there are definite times to avoid certain assets and times to be in them.

the fed did everything but drop leaflets from helicopters telling folks do not use cash instruments as your primary investment.

of course all you needed to do was switch to nice safe treasury's and you did very well.

well now the fed is saying we don't know just when rates will rise but the return towards historical norms will begin sooner than later.


ding ding ding.    now may not be the best time to make leveraged bets on interest rates.

inflation is quite low , the dollar quite high ,  ding ding ding , now may not be the best time for high gold positions either especially with a looming rise in rates.


with stocks fully valued and returns projected to be below average i would think the less asset classes you have damaging those weak returns the better.

nothing is fixed though for life , as the big picture changes the portfolio should be nudged with it for best results.


not paying attention to results is probably not the answer  .


while no one can predict what is next it isn't a bad idea to go with what stands the best chance of returning positive returns . going with less interest rate sensitive bond funds may actually make the portfolio less risky at this point .

i know if you are retiring now it sure does.


when spending down , bad sequences and returns the first 5 years can harm things a lot.  interest rate cycles and gold have very long cycles when you are at the extremes and those long cycles may require n=more time excessively spending down than you have time for since interest rates and gold can take decades to reverse many times.