ed6713

Good point, John. It is now. ed

1

My wife and I will take our first RMD's in 2014. I set them all up as quarterly. The hope, but certainly not the guarantee, is that the market will continue to improve. Rather then sell investments, say on January 1st, I'll sell smaller amounts each quarter. The reverse of dollar cost averaging I suppose. ed

finance.yahoo.com Why The 4% Retirement Rule Is No Longer Safe Ever since a California financial planner named William P. Bengen proposed it in 1994, retirees have relied on what’s known as the 4% rule – if they withdraw 4% of their nest eggs the first year of retirement and adjust that amount for inflation thereafter, their money would last at least 30 years. But Bengen’s rule has lately come under attack. It was developed when interest yields on bond index mutual funds hovered around 6.6%, not the 2.4% of today, raising clear questions about how well bonds could support a 4% rule. As one academic paper, published earlier this year in the Journal of Financial Planning, put it: “The 4 Percent Rule Is Not Safe in a Low-Yield World.” The paper by authors Michael Finke, Wafe Pfau and David M. Blanchett said that if current bond returns don’t spring back to their historical average until ten years from now, up to 32% of nest eggs would evaporate early. Mutual-fund managers T. Row Price and Vanguard Group as well as online brokerage Charles Schwab have all issued recent re-appraisals of the guideline. Such estimates are crucial to helping people figure out how much savings they will need to make it through retirement without running out of money. They are tied to the fact that long-term returns since 1926 have been 10% annually for stocks and 5.3% for bonds, according to Morningstar, the investment research firm. More Flexibility on Withdrawals Of course investors can’t count on those returns to materialize every year given that market prices, especially for stocks, gyrate unpredictably. As a result, they need some withdrawal-rate estimates based on computer simulations of future market returns. Even though some investment firms continue to advocate the 4% rule, several are advising retirees to be flexible and use a “dynamic” strategy by altering their withdrawals each year depending on the markets. A Morningstar paper by the three authors of the Financial Planning article found that a retiree with a 40% stock nest egg could withdraw only 2.8% initially and still have a 90% chance of success over a 30-year retirement. In an interview, author Blanchett attributed the difference to the impact of annual fund management fees, as well as lower expected future returns for stocks and bonds. In contrast, T. Rowe Price, which offers a retirement income calculator, still believes that “4% gives you a high likelihood of success,” said Christine Fahlund, a senior financial planner at the Baltimore, Md.-based mutual fund firm. In a fall 2013 newsletter, the firm said clients with a mix of 60% stocks and 40% bonds – a relatively risky profile – could use an initial withdrawal rate of 4.3%. They could use an even higher rate of 5.1% if they don’t take cost-of-living increases during years when their portfolios lost money, T. Rowe Price said. Risk-adverse retirees with all-bond nest eggs should use a lower 2.8% initial withdrawal rate. A ‘Dynamic Approach’ In October, Vanguard Group published an update which, like T. Rowe Price, also suggested “a more dynamic approach” under which withdrawals could be adjusted up or down depending on how markets perform. Vanguard says investors with a nest egg evenly split between stocks and bonds who withdraw 3.8% initially with inflation increases would still have a 15% chance of running out of money within 30 years. Vanguard estimates that an investor with 80% stocks and 20% bonds could withdraw 4% with the same 85% success rate. But Vanguard warned that a conservative investor with only 20% in stocks should limit initial withdrawals to 3.4% to have the same chance of success over 30 years. Two Other Alternatives In addition to the traditional Bengen model of starting with a set percentage and adjusting for inflation annually, Vanguard suggests two alternatives. One is to withdraw a set percentage such as 4% annually - but instead of maintaining the starting dollar amount plus inflation each year, the investor keeps the percentage constant and allows the withdrawal dollar amount to fluctuate depending on the balance. While this method ensures that the nest egg is never depleted, Vanguard warned that, “this strategy is strongly linked to the performance of the capital markets.” Because spending levels are based solely on investment returns, “short-term planning can be problematic” as withdrawal amounts bounce around. As a middle ground, Vanguard suggested that annual adjustments to the initial withdrawal amount be limited to a 2.5% reduction from the prior year when markets have declined and a 5% increase when markets have risen. Thus if the initial dollar withdrawal were $50,000, it could fall by $1,250 if markets decline in the first year or increase by $2,500 if markets go up. This method allows a heftier 4.9% withdrawal rate for a portfolio of half stocks and half bonds, with an 85% success rate over a 30-year horizon. Loading Up on High Yields Colleen Jaconetti, a senior investment analyst at Vanguard who co-authored both studies, said that because current bond interest rates and stock dividend yields both fall short of 4%, some investors who “don’t want to spend from principal” are tempted to load up on securities with higher yields. Instead, she recommends that investors “maintain a diversified portfolio” and “spend from appreciation,” meaning any price gains on stocks or bonds. At the online brokerage Charles Schwab, retirement income planning analyst Rob Williams says based on the firm’s current expectations for market returns, a 3% initial spending rate “may be more appropriate” for investors who need “a rigid rule of spending” and a high degree of confidence that their money will last. Advice: Stay Flexible However, Mr. Williams adds that even a 4% spending rate “may be too low” for investors who can remain flexible, are comfortable with a lower confidence level, and expect that future market returns will be closer to historical averages. To balance the two perspectives, Schwab suggests investors stay flexible and update their plan regularly. Schwab suggests that a plan with a 90% success rate may be too conservative, and that a confidence rate of 75% may be more appropriate. Two investment analysts at the Merrill Lynch Wealth Management unit of Bank of America, David Laster and Anil Suri, say that while the 4% rule may be overly simplistic, it isn’t too far off the mark. They also recommend a post-retirement stock allocation of 30% to 40%, lower than some competitors, to reduce the risk of a catastrophic shortfall that could result from a steep market downturn early in retirement. The Bottom Line Because women tend to live longer than men, the Merrill analysts say the average 65-year-old woman could initially only withdraw 3.9% annually, with cost-of-living increases, while a man the same age could start withdrawing at a higher 4.2% rate because he isn’t expected to live as long. Using similar logic, they add, younger retirees in their 50s should start spending at about 3%, while those in their 70s can spend 5%. Everything look okay? Send Silk feedback

But what to do with all your cash? An interesting article with no great conclusion. Fact is, no one has the answer. http://money.cnn.com/2013/12/05/investing/stocks-investing-experts.pr.fortune/index.html?iid=HP_LN Wish I knew. ed

Pick your favorite guru, of course, but the consensus seems to be that we will continue to see very low rates through 2014. I agree with you. Some day bonds will take a hit just like gold has done recently. All investments need to be reviewed on a continuing basis and your personal asset allocation reworked if appropriate. Personally, I rarely invest more then about 10% of my funds in any stock, mutual fund, etc. but I am making an exception here. VWINX represents 20% of my portfolio. My 10% rule pretty much protects me from taking a major hit. If I lost 50% of a 10% investment, life would go on. Might be drinking a Bud rather then a Heikenen but I'd manage. These are the Average annual returns for this fund: 1 year 3 year 5 year 10 year since 07/1970 Wellesley Income Fund Inv 11.54% 10.71% 8.29% 7.63% 10.23% This time period represents the entire spectrum of the economy for the last 43 years. Quite impressive in my opinion. Since I'm a long haul investor, I don't really focus on todays headlines. A great 10 year and 43 year result impress me more then the current crop of talking heads. As always, YMMV ed

We're in a similar position. Started the RMD's this year. I've shifted the emphasis of our investments to preservation of capital. We've reached the point where if we took a really big hit it would be difficult to recover. My very modest goal is to earn 5% to 6%/year on our portfolio. Given that we are only taking the minimum of the RMD, that should work just fine. VWINX a Vanguard fund, is among my personal favorites. https://personal.vanguard.com/us/funds/snapshot?FundId=0027&FundIntExt=INT Now if we could only go back to the days where CD's were paying 15% plus a free toaster. But without a 17% rate of inflation. Take care: Ed

Unless, of course, they are also borrowers in which case life is good. Which is better? A CD paying 12% with 15% inflation like we saw in the late '70's/early 80's? Or a CD paying 1% with 2-3% inflation? I don't know because I don't put my money in CD's so I've not given it any thought. Here is an alternative to CD's. Dividend paying stocks. https://www.fidelity.com/viewpoints/investing-ideas/dividend-sweet-spot?ccsource=email_weekly You might want to take a look at VDC. Vanguard Consumer Staples ETF. Currently yielding 2.75%. Not very risky as the stock market goes. http://finance.yahoo.com/q?s=vdc https://personal.vanguard.com/us/funds/snapshot?FundId=0955&FundIntExt=INT#tab=1 I would be careful with bonds. Long and medium term especially. As soon as inflation takes hold, and it's inevitable, bond holders are going to take a good butt kicking. At least say the investment guru's of which I am not. Wishing you the best results with whatever your decision may be. ed With the usual caveat that my advice is worth every cent you paid for it.

So what you're saying, John, is very much in line with my hero Ben Franklin who is reputed to have said "Believe nothing you hear (read) and only half of what you see". I guess making money in the market boils down to Investing Rule #1. Buy low. Sell high. All else is commentary. Take care: ed

John, this thread goes back to August, 2011. You have quoted from, or referenced, lots of your personal favorite "experts" and advised us of good "sell opportunities". Were any of your favorites correct about the outcome of the stock market for 2012? I'll go with the long term, balanced investment view. For most, but surely not all, years that will turn out to be a very wise investment strategy. Enjoyed a nice, profitable 2012. I'm predicting a rather modest return for 2013. Will be happy to see 5%-6% for the year(sure beats 0.05% for a CD). My guess sees the S&P 500 at 1,500 by year end. Time will tell. Enjoy your 2013 travels. Ed

I mostly hear it as "The bears make money, the bulls make money, the pigs make none" Same idea. ed

" Problem with that is about half the population doesn't own any stocks and most of the growth in income generated during the "recovery" is going to the top 1%. " I'm far from the top 1%, but like a lot of others who decided to stay the course and invest long term in a well balanced portfolio, I've done very well since the mid-60's. Started off with Sears and AT&T. A market timer I'm not. Life is good in our financial world. Should the market be this high? Don't know. Is the Fed pumping it up? Yes. I do know that it's tough to fight reality. If the market wants to continue going up for reasons I don't fully understand, nor really care to, I won't complain. I have every expectation that five years from now, my portfolio will have grown by about 6%/year. That's my personal long term goal. "Oh well, be happy, it is always fun to be on the right hand side of the charts, but there is always another left side and it is the next left side that takes the cake - literally." Given time, you'll be right. There will always be a correction for some reason. The question is when. Will you commit yourself? In your opinion, when will the calamity you predict come to pass? What month & year? "Wouldn't it be educational to be able to look back at the posts on this forum in "Finances and Investing" say back in 2007 to 2009? I may be a pessimist, but I think being reminded of what life is like on the left side of the charts might be beneficial. " Here is one of your posts from 2011. You seem to be just the type of retail investor CNN Money was talking about. Just standing on the sidelines watching the game. What sort of return did you get from the MM fund? Let me guess. 0.25% "From then until now we have been about 95% in Money Market funds. I did not trust the past 2-year bull rally, so stayed out and have been waiting for a significant correction such that stock valuations "match" the real economy which I think is still in a long run recession. I look forward to once again investing in stock funds and getting back to a diversified portfolio. Obviously these days I am smiling. This post has been edited by mcbockalds: 08 August 2011 - 01:40 PM" Still waiting on the "significant correction" ?? Or are you back in the game? ed

An interesting article: From CNN Money If you're in for the long haul, say 5 years+, the stock market still will produce a decent return. What are better alternatives? ed

It's been a truly remarkable 12 months for the stock market. Here's hoping you ignored the gloom & doom types. You don't suppose they will apologize to their paid subscribers for all the bum advice they passed out over the past year? Naa. The DOW: up 20.54% Nasdaq Composite: up 24.82% S&P 500: up 23.60% CBOE Mkt Volatility index (VIX) down 59.06% The usual disclaimer applies "Past performance is no guarantee bla, bla, bla" Here's hoping the positive trend continues. My personal guess is that the major indexes will end the year higher then they are now.. What do you think? Higher or lower?? ed

John. Are you referring to this Bill Gross, http://www.forbes.com/sites/petercohan/2012/02/25/bill-grosss-bad-call-cost-investors-5-7-trillion/ or another one? ed

I know what will cause the balloon to pop, John. What I don't know is just when. $200/barrel oil will bring the world economy to a screeching halt. If you like $4 gas, just imagine $10 gas. What will cause $200 oil? A military attack on Iran's nuclear facilities. I personally believe it's inevitable but don't know *when* it will happen. My personal, unsupported by any facts or insight, guess is between 12 and 24 months from now. Until then it's laissez les bon temps rouller. With the very typical peaks & valleys based on the crisis de jour. (Took two years of French in high school.) ed Please. This is not an attempt to politicize the Iran issue in any way whatsoever. It's simply my answer to the question posed. The oil gurus tend to believe that Middle East tensions make a huge contribution to todays $100+ oil. Can you just imagine Mid-East *tension* to the tenth power??

We're off to a good start. Here's hoping 2012 ends that way. ed :) http://money.cnn.com/2012/03/30/markets/stocks/index.htm?iid=HP_LN

A person can be fully invested but without a major concentration in any one asset or asset type. You could roll the dice on flybynight.com or go with the quality of Apple, or get just as diverse as you want. One of my personal, long term favorites is PRPFX. https://www.google.com/finance?client=ob&q=MUTF:PRPFX From the prospectus: In pursuit of its investment objective, the Portfolio invests a fixed “Target Percentage” of its net assets in each of the following investment categories: Investment Category Target Percentage Gold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% Silver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% Swiss franc assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% Stocks of U.S. and foreign real estate and natural resource companies. . . . . . . . . . . . . . . . 15% Aggressive growth stocks . . . . . . . . . . . . . . . . . . . . . . 15% Dollar assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% Total 100% There are some very diverse, and conservation, ETF's like XLU (utility companies) or VDC (Consumer staples) to name just two. You're fully invested in stocks, but not in any given stock. So just because someone is "all in" that doesn't mean "all in" in flybynight.com. It means, to me at least, that I don't have much cash parked in the bank. Ed All in. In a moderately conservative way.

The long term danger of abandoning the stock/bond markets. Even for us old guys. And girls. http://money.cnn.com/2012/03/16/pf/expert/retirement-asset-mix.moneymag/index.htm?iid=HP_LN ed All in. But in a moderately conservative way.

NEW YORK (CNNMoney) -- Stocks finished higher Thursday, with the S&P 500 topping the 1,400 mark for the first time in nearly four years, as investors considered a batch of better-than-expected economic news. Reports showed that jobless claims are at their lowest level in four years, manufacturing activity continues to expand and inflation remains tame. "The economic data has dramatically improved over the last couple of months," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "The jobs numbers are gradually getting better, and that's the most important factor for the economy and stock market." But the day's gains were slight after investors had already pushed stocks up more than 2% this week. The Dow Jones industrial average (INDU) rose 59 points, or 0.4%, logging its seventh straight day of gains and finishing at its highest level since December 2007. The S&P 500 (SPX) gained 8 points, or 0.6%, ending above the 1,400 level for the first time since June 2008. The Nasdaq (COMP) added 16 points, or 0.5%, closing at the highest level since November 2000.

An article worth reading. Explains why some people are so afraid to accept the reality that the US economy is improving. http://finance.yahoo.com/news/why-americans-avoiding-stocks-ask-225638447.html

Here's hoping you didn't buy into the gloom & doom investment scenario. The year's off to a great start. Of course, come December 21, all bets are off. NEW YORK (CNNMoney) -- U.S. stocks rallied late Tuesday to close sharply higher on news that most of the nation's largest banks have passed the government's latest test of their financial health. The Dow Jones Industrial average (INDU) rose 218 points, or 1.8%, to close at 13,177. It was the highest close since Dec. 31, 2007, when Dow closed at 13,264.82. The S&P 500 (SPX) added 25 points, or 1.8%, to 1,396. The Nasdaq (COMP) jumped 56 points, or 1.9%, to 3,040. It was the highest closing level since Nov. 15, 2000.

That is exactly my dilemma, John. My "buy" post was on January 31st, which, as it turns out, was a very good day to buy most of the ETF's that reflect the broad market. Now the question is what to do on Monday Feb 6th? Do I sit tight or sell and take some profits? If I sell, what do I do with the cash? Put in a MM account earning just a hair over 0%? Buy bonds? Buy foreclosed real estate? ???? As several have said, and a large group of investment companies can prove, market timing rarely works. I'm here for the long haul. I have nothing invested in the stock market that I'll need for the next 5 to 10 years. But, it is nice to book a profit now and then. Sometimes the Dark Side takes control over common sense and I just can't avoid market timing. Decisions, decisions. On Sunday I'll see what the stock futures are doing then decide. Stock Futures Site: http://www.bloomberg.com/markets/stocks/futures/ What I really should doing on Monday is nothing. But will I?? ed

http://money.cnn.com/2012/02/03/markets/markets_newyork/index.htm ed