mcbockalds

 

finance.yahoo.com

Why The 4% Retirement Rule Is No Longer Safe

 

Wouldn't this article better fit in the thread "Will My Retirement Funds Last?"

Cheers John

Vanguards version of asking "Are You Still In?"

It is pretty telling when Vanguard starts sending out emails to its customers about re-balancing (certainly not called market timing! - or is it?) with comments like:

"Buying stocks now may actually run counter to what many prudent investors should be doing,"

Cheers John

"Are You Still In?"

Bonds? No!

Vanguard Long Term Treasuries are down 12.6% YTD - with most of that fall coming since May. And yet with all the bond selling going on, the money is not being recycled into stocks. Hmmm.

Cheers John

http://www.tflguide.com/2011/04/how-investors-react-in-different-market-situations.html

Are you a:

Window shopper,

Seasonal trader,

Scapegoat,

Hi-Tech Lalaji,

Mr. Cool?

See the above article and see which characterization matches which posts most consistently. This is an insightful article that is entertaining in its approach. And so true!

No one has responded to your post, me neither, but this article by Bill Gross made me think of your post. Mostly what Gross' article reminds me of is that how well any of us do with our investments is a lifetime question, not a question of how well we are doing this year or even over the the past x years, but over a lifetime - just as one's character is not determined by a most recent immoral or moral choice, but over a lifetime of choices.

Cheers John

Cheers John

david3639, Congratulations on moving to I Savings Bonds at a pretty good time. And congratulations on kicking your addiction.

Treasury Direct is a good place to research the various US Bonds available. Today, the available interest rates are not very compelling. Actually the fixed rate on the 30 year I Savings Bond is 0%!! The current inflation rate which is added to the fixed rate is only 1.76%! So you bought in at a pretty good time compared to now (so did I and a friend I give financial advice to.)

What grinds me about some US bonds that are directly affected by the inflation rate is the less than honest/accurate method used to estimate inflation. As I have said before, the inflation rate when estimated by the "1990 methods" gives a current rate of about 5%.

So what is the actual, real world inflation rate? I sure don't know, but neither does the FED. However, their extra low estimate sure makes it easy for them to keep inflating the money supply with QE and thus forcing down market interest rates and thus discouraging bond investors and "forcing" some of them to move out of bonds and into the stock market which is nicely and temporally inflating the stock market.

Cheers John

So you missed a lot of the great momentum forward by not being in more during 2009? And by having so little in stock funds means that you've missed some good gains the past 4 years.

 

Barb

So you know what the other 98% of our retirement portfolio has been doing?? I don't think so! Sometimes it is good to think before speaking.

Cheers John

The last time I bought any stocks (always in mutual funds) was Oct. 2008 and that took our retirement portfolio up to a grand total of about 2% in stocks! I sold about half of those same stocks in April 2010 - at a decent profit - and that took our stock portion down to close to 1%. Now it is time once again to take some decent profit and I did - stock portion now down to about 0.5%.

Our mutual funds have a serious penalty for "frequent" trading so I can only buy or sell anything once every 3 months without paying the penalty. So if my stocks are higher 3 months from now I will likely sell some more (getting closer and closer to 0% in stocks). It is fun to sell HIGH and buy LOW (or sell on the way UP and buy on the way DOWN) even if it only happens every few years. And it will be fun to start buying stocks again in the future at falling prices - as surely as morning follows night.

Cheers John

John: I knew it, I knew it, you are a closet economist. "on the other hand".

True. But I refer to myself as a recovering economist.

I got my degree studying under the rather well known, nontraditional, ecological economist, Herman Daly, who has only one arm. He used to say, "What this world needs is a good one-handed economist

Cheers John

Here is another famous Farrell, Chris Farrell editor of Marketplace Money who is Rethinking Stocks for the Long Haul. Jeremy Siegel's famous book "Stocks for the Long Run" is the bible on the subject, but as with the other Bible, people have different interpretations and critical analysis of its content.

 

 

Interesting I suppose, but in a hundred words or less, what's the point you're trying to make?

 

ed

My point is simple, risk management in stocks is neither as easy nor as safe as Jeremy Siegel implies in his book.

Lies, Damn Lies and Statistics (1976) is a very good book. It helps you know how to present proper statistical presentations. On the other hand it helps you to recognize deception, and errors in analysis, reasoning and conclusions. Stocks for the Long Run is a decent book, but due to some statistical "errors" (?) it is not a very good book and yet it is the bible from which we get the idea of "buy and hold" for the long run.

Cheers John

Just a suggestion for you investors out there might be to read "The Lazy Person's Guide to Investing" by Paul B. Farrell, JD., PHD., columnist, CBS Marketwatch, 2004. While the numbers ($) are out of date the concepts are not. Basically what he says is that the best outcomes on investments are those that buy indexed funds to the market, 60/40 mix, hand's off, and reposition once a year. He has worked the statistics for past years markets to come to these conclusions.

Here is another famous Farrell, Chris Farrell editor of Marketplace Money who is Rethinking Stocks for the Long Haul. Jeremy Siegel's famous book "Stocks for the Long Run" is the bible on the subject, but as with the other Bible, people have different interpretations and critical analysis of its content.

Here is one criticism of his book (4th ed. if you have it), take a look at Figure 2-2 "Average Total Real Returns after Major 20thC. Market Peaks." For those without the book it shows that even investing in stocks at their peak (his examples are years, 1901, 1906, 1915, 1929, 1937, 1946, 1968, 1973) 30 years later you are better off compared to investing in bonds. He shows that $100 invested for 30 years at each of the eight peak years listed above would have an average total real return of $585. (Bonds much less.) A serious problem with the average return of $585 over those eight 30 year time periods is that 85% of that average return was made in only the last two time periods (1973 to 2003 and 1968 to 1998) and only 15% was made in the previous two time periods (1946 to 1976 and 1937 to 1967) and ZERO percent (zero dollars) was made in the first four time periods. How would you like to have been a stock investor in those first four periods or even the next two?

That example is only one of a number of problems with Siegel's conclusions. There are others that are fairly will known among a few critical economists, but hardly known at all among the general public.

Here is another example, made simple, to show you the problem with other parts of his data analysis. He argues that average annual returns on stocks have never been negative when measured over any period of 17 years or more. Technically true, but a portfolio does not earn or grow by "average annual returns." A portfolio earns or grows by annual compound returns. Here is what I mean. If stocks over a 3 year period earned annual returns of 10%, -20%, and 10% the average annual return is 0%. But 0% is not the compound return that stocks would have actually earned. Here is the math. Start with $100 growing the first year by 10% ($100 x 1.1) to $110 then falling the second year by 20% ( $110 x 0.8) to $88 then growing in the 3rd year by 10% ($88 x 1.1) to $96.80. Stocks lost $3.20, they did not earn or grow by 0%. (BTW this is no trick, change the numbers to occur in any order you want, the result is the same) That loss of $3.20 is a negative compound return. The average annual compound return is approximately -1.1%. Here is the math, $100 x 0.989 x 0.989 x 0.989 = $96.74

Finally, here is a web site that will give you more than you will ever want to read on the problem with Siegel's Stocks for the Long Run.

This is partly why I said Paul Farrell might be right. Or not. It ain't an easy question, and the data may well be skewed by the huge stock prices run up from about 1982 to 2000 (easy money years). Lop those numbers off the tail end of the data from 1900 or even 1800 and the Siegel's conclusion about the safety of stocks for the long run does not look good.

Cheers John

But I do not trust this market - there are too many fundamental things wrong, and since I am no longer a "trader" I'm not playing market changes.

I do not often post stuff by Schiff, because I think he often goes "over the top," but here he is scaring me without going over the top, IMO.

Cheers John

To try to offset the excited exuberance, here is a rather frightful prophetic set of emotions posted way back in April 2000 (by John Hussman). I clearly remember back then a couple of scenes where grown husbands and wives, crying in public, were telling friends or family members what happened to their stock portfolios...it still wrenches my guts just to remember them.

"This is my retirement money. I can't afford to be out of the market anymore!"

"I don't care about the price, just Get Me In!!"

"It's a healthy correction"

"See, it's already coming back, better buy more before the new highs"

"Alright, a retest. Add to the position - buy the dip"

"What a great move! Am I a genius or what?"

"Uh oh, another sell-off. Well, we're probably close to a bottom"

"New low? What's going on?!!"

"Alright, it's too late to sell here, I'll get out on the next rally"

"Hey!! It's coming back. Glad that's over!"

"Another new low. But how much lower can it go?"

"No, really, how much lower can it go?"

"Good Grief! How much lower can it go?!?"

"There's no way I'll ever make this back!"

"This is my retirement money. I can't afford to be in the market anymore!"

"I don't care about the price, just Get Me Out!!"

Cheers John

Were any of your favorites correct about the outcome of the stock market for 2012?

 

I'll go with the long term,

Ed

Do I see a double standard (short vs long) in your post if I highlight the above portion?

I imagine some of the "experts" I quoted would like to point out that investing is a long term, many years, even lifetime process. Some years are good and some bad with most probably in between.

It is the long term result that finally determines how well our investments do and I really do hope that we all do well in the long run. In the mean time we are all likely to disagree about which strategies are best. Of course that is mostly because best is going to be defined differently by each one of us and rightly so. Not everyone defines best as the highest return.

Different attitudes toward risk, volatility, liquidity, are some factors that affect one's definition of best return. Other more personal factors are: age, taxes, family member relationships, money vs other goals......I suppose the list ends somewhere.

I don't picture investing like a football game which ends when the clock runs out (Dec. 31, 2012) and the team with the most points wins and the other team loses. Perhaps it is more like a life long dance party where each person/couple decides when to dance and how to dance and how often to dance while realizing that others are making their own decisions on how to best enjoy the dance. Each person/couple may try to explain why they dance the way they do and even recommend it to others without suggesting that their way of dancing is the best way for everyone to dance.

This thread has been fun for me to follow and participate in because I have seen it as a chance to explain why I currently dance a particular way or only dance at particular times or for only so long. I also enjoy reading about others way of dancing especially when it is explained. I don't think my way of dancing (or those of my dance teachers, "experts") is the only or even best way to dance for everyone. I have, however, reacted negatively when accused of doing so and when others seem to be doing so.

If someone thinks I or someone else doesn't know much about dancing because we weren't dancing to the music in 2012, well lets hope we all like the music better in the future.

Cheers John

Just a suggestion for you investors out there might be to read "The Lazy Person's Guide to Investing" by Paul B. Farrell, JD., PHD., columnist, CBS Marketwatch, 2004. While the numbers ($) are out of date the concepts are not. Basically what he says is that the best outcomes on investments are those that buy indexed funds to the market, 60/40 mix, hand's off, and reposition once a year. He has worked the statistics for past years markets to come to these conclusions.

He might be right. Or not.

PS. Every year we have taken out the MRD (usually in January) from hubby's 401K we have made the MRD back and MORE during the rest of the year!!!!

Even in 2001 and 2002 and 2008?

Cheers John

I totally agree, John. Not that it matters.....

Right you are. Ha. Just two similar opinions!

Cheers John

I suggest one may want to study some of the contrarian articles that Mauldin reprints. There are some interesting perspectives there. Also, while one might feel that Mauldin is a "perma bear" he is not always that - if you study his data longer term you might find differently. However, he certainly has a bear view right now. IMO with good reasoning. That does not mean the market will go down though....the market rises during bear periods as well as goes down....and there is much opportunity.

I think you are correct.

***Warning*** The following is theory. I think Mauldin is better understood as a "secular bear," not a "perma bear." That is, he believes we have been in a secular (long term) bear market since 2000. Prior to 2000 I think he would argue we were in a secular bull market from roughly 1982 to 2000. (But I am putting words into his mouth because I don't think he tends to use these exact terms.) He may be even less inclined to use the terms "cyclical bear" and "cyclical bull" markets, which are short term markets.. But others do use these terms.

A pretty thorough explanation of these terms can be found in this recent article by Adam Hamilton. So in Hamilton's words, we are in a secular bear market which started in 2000. And within that long run secular bear we are currently also in a short run, cyclical bull market that started in 2009. Not surprisingly he argues that prior to this cyclical bull we were in a cyclical bear market from late 2007 to 2009.

All of this theory is not just about defining terms, but it is trying to make sense of past short term and long term bull and bear markets. You don't have to completely buy into this theory to actually get something out of it. The theory helps you to think. That is the fun of theory, at least I think so.

Cheers John

The story about the shepherd who cried wolf when he knew there was no wolf, is a story about liars. I may be wrong about what I think is going on in our economy, but I hope no one actually believes I am lying - I don't really think any one does think that.

So, here is another negative view of our economy that may be wrong, but I don't think they are crying wolf either, John Mauldin's "Outside the Box." The section of the article toward the end titled "Can the Fed Create Demand" is going to be "over the top" for some who have not had an econ course or for whom it has been a long time since having one, so don't fret about it. My advice is to just skip it and read the last section titled "Treasury Bonds."

Cheers John

edit: I forgot, you have to freely subscribe to Mauldin's site. Then you are looking for the article in the section:

Outside the Box

Hoisington Quarterly Review and Outlook

Well you see that is the problem. Perhaps you have enough to live the rest of your time in the lifestyle you want. But perhaps others should continue growing their nest eggs so they can live comfortably or live a little beyond "frugal" if market returns are realized.

 

And you are the "coach"??? spewing all the pessimism, quoting the losers like Hussman, and almost trying to convince others not to be in the market.

 

Well you were wrong. In my opinion your coaching has been of little or negative value (if folks believed the hype). I am sure you are a nice guy. I am not. Who cares. The only thing that matters is your BS can possibly convince some that they should be sewing money into their mattresses like you.

 

Why not stop being a coach? And maybe I won't jump on your BS.

 

Hey, maybe I can earn a warning for this one.

I do find your anger curious. It causes me to wonder, why would someone who has made such a killing on his investments that he, "paid cash for another new home, car, vacations, etc" be so angry at someone who is making next to nothing? Can anyone make a guess? And as a hint, I never put any stock (pun intended) in anyone's online claims about their personal investment returns. So I usually try not to discuss my own, because I don't expect anyone to put any stock in my claims either.

Cheers John

 

Thankfully I did not sit around with my thumb up my .... reading and posting the pessimistic trash and getting scared away from the market.

I must admit a fault of mine, I like to read stuff like this because it makes me look even nicer than I really am.

Cheers John - your sideline coach.

" Will you commit yourself? In your opinion, when will the calamity you predict come to pass? What month & year? "

I have no clue when this re-inflated market will pop. The Fed is a powerful balloon blower as we have already seen over the past 20 or more years. These are amazing times we are living in. Never has the Fed been this active in manipulating financial markets for so long and the final results are far from in.

Yes, I said, "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. "

And then you refer to a post of mine from Aug. 2011: "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%"

But I really did mean posts from 2007 to 09. However, to answer your question: Nope, even less than 0.25%!! But I try not to brag. Ok, just a little bragging. Our 5-10% in bond funds did great until we got out in Dec 2011 which proved to be very good/lucky timing.

"Still waiting on the "significant correction" ?? Or are you back in the game?"

Still waiting, but let me tell you why it is easy for me to be "Just standing on the sidelines watching the game." In 2000 I estimated that my wife and I had sufficient funds in our retirement portfolio (including Social Security of course) to last us through the age of 100 if our portfolio just kept up with inflation. Needless to say, that was a wonderful discovery, and it still is true. I'm 68 and for the rest of my life our investments only have to match inflation. Why? Because we are rich? Nope. For two main reasons: my wife and I have always lived frugally and it is natural for us to do that because we have never had a need for lots of stuff. This is who we are - most likely because of the families and the faith we were raised in. But enough of that faith talk! Sorry.

Cheers John

 

 

We made quite a bit this year on investments (and trading) and put tons of $$$ back into the economy. No, we are not in the 1% or are any of our friends. But we did very well this year. We paid cash for another new home, car, vacations, etc.

 

Perhaps the charts are wrong...

Well the article did not say that the 1% got it all, others got 7%. Congratulations, sounds like you got a very nice slice of the remaining 7%. I don't think the average person has recovered quite enough yet to pay "cash for another new home...."

Cheers John

Looking at those charts and the CNN article makes me wonder if an increasing number of people are deciding that it is time to sell - you know, "buy low sell high?" They also make me wonder how the markets keep going higher if more and more people are selling like the CNN article seems to say?

Oh, I forgot, the Fed's stated policy is to inject money into financial markets to give them a boost (others call it re-inflating markets) so we once-again-wealthy folk will go back to our spending-ways and help the recovery. 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%. So instead of that extra income going to buy more goods and thus helping the economy, it goes into investments (stocks, bonds, gold, land, luxury goods) the places the 1% put their increased incomes. The 1% (and other very wealthy folks) don't increase the amounts of milk, bread, clothes, shoes, gasoline, etc. etc. when they get more income because they have not had to cut back on these purchases during the downturn like many of the rest of us have had to do.

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.

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.

Cheers John

t I'm keeping my stops pretty tight because I don't trust it long term.

Given the Long Term view of the S&P 500, tight stops might be a good idea.

The enthusiasm must have been pretty high in the Fall of 1999 when the S&P was hitting new highs in the 1400s. But then not so much after that. Then enthusiasm was growing again in the Fall of 2007 as the S&P approached its 1999 highs. But once again not so much after that. Now the enthusiasm is growing yet again as the S&P edges yet again to the highs of 1999. Oh my.

Stocks For The Long Run (by Jeremy Siegel)? Well, maybe not. But I suppose they are better than a poke in the eye with a sharp stick.

Cheers John

 

Federal Reserve economists who swim not in the real world (it is much too complicated and messy) but in their computer models of a much simpler world, where by mathematical design, crises and catastrophes never happen because they can't happen. Now that sounds like "Sha Na Na" land to me.

 

Well Alan Greenspan is finally starting to see a little bit of the light that a few other economists (Bill Gross, John Hussman, John Mauldin, and others) have been seeing for a few years. Greenspan says in the early part of the video, "...Macroeconometric models"...at the IMF, Fed,{and others}...are wholly inadequate in understanding how the complex financial system works both in the U.S. and globally. The consequence is that you can not forecast crises of any sort because they all are fundamentally financial crises."

Now doesn't that give you a lot of confidence? The Federal Reserve, our central bank, which is responsible for understanding the financial system and how it is affected by monetary and fiscal policies, the money supply, interest rates, the levels of loans, debt, and credit and on and on, does not have a model that understands the financial system!

Also, after Greenspan made that statement, I can't imagine why the interviewer didn't stop the interview right there and say something like, "Alan, did you really mean what you just said? Would you like to take back or re-phrase that just a little? Do you realize that you basically just said the the Fed, IMF, and central banks world wide have no clothes on? Are we really in that bad of shape?"

Greenspan just dropped a bombshell that I have yet to see any response to in the financial press that I read. We will see if anyone picks up on this.

Cheers John (I can't believe he said that.)

You missed the humor in the statement when you said to not believe everything you read. So you were in effect saying don't believe anything you read except my writing. I pointed out the humor good naturedly and apparently that wasn't taken that way. I am sorry but that is for you to work out. I am going to another thread. I have been posting here only because that is where I started out on this. I don't know how many ways I can say I am ignorant of playing the market, and that I think all the analysts are BS. And that I don't care what they say. And to disregard anything I say, except to note if my "predictions" about Elon Musk doing what he said he would is reliable. See they aren't predictions. The plan has been laid out for years, and posted publicly on the Tesla website. I am simply parroting that back in both my posts and my investing. If you want analysis from me or me to read yours sorry. I don't know enough to give you a good challenging exchange. And don't care to. That sincerely said not in anger. Your anger is your problem, not mine. As much as this may be hard to believe, it just does not matter to me. I am fine in my world ignorant of all the market except what my investment is doing. I wish you the best in your endeavors to convince others of yours.

Safe investing! (Or not)

I did not miss the humor. I am not angry with anything you said. I did not expect you to critically analyze any of my posts, because you have made it clear in the past that macroeconomics/finance is not one of your areas of interest.

If I have any anger, and I probably do, it is toward what I perceive as bad analysis. "Bad" analysis is not defined as analysis that I disagree with! Here are just a few examples of errors in thinking that lead to bad analysis: rationalization, oversimplification, unwarranted assumptions, faulty common sense, stereotyping, hasty conclusions.... I look for these and in "trash" analysis they are glowing and flashing to someone who is looking for them.

Finally, the reason I said that I welcome critical comment on my posts is not that I think I am never wrong, or that I think I can win out against anyone's criticisms of me, but because I don't want to be peddling bad analysis. Simple as that.

Cheers John