UnThreaded | Threaded | Whole Thread (318) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76238  
Subject: Re: Hi gang... wow!!! Date: 9/14/2013 2:12 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Dave wrote: The S&P has periodic drawdowns of at least 53%. These cannot be waived away as insignificant risks to a naked buy & holder, and they cannot be waived away as insignificant because the drawdowns can be "waited out." Waiting out a drawdown is simply replenishing the principal from work earnings, which are already included in the initial principal calculation no matter how you slice it. In order to invest $100,000 (all at once, *or* over time) in the S&P B&H approach with a guarantee you’ll never have less than $100,000 liquid cash, you must *also* have a side reserve account of (rounding down from 53%) $50,000 to fill the bucket during the drawdowns. That means you must actually have $150,000 of cash, in order to invest $100,000 safely, in an S&P B&H strategy.

My translation. The S&P has historically declined as much as 53%. This means that to preserve principal of $100,000, you'd need a reserve account of (rounding) $50,000.

But, Dave, the decline could be more or it could be less. And money is money, whether you call it "principal" or "reserves." So I don't see how having reserves of $50,000 makes putting your principal at risk more tolerable.

To me, it's a matter of how much risk can one tolerate. One strategy (S&P B&H) may allow you to end up with more money than the other strategy (insured account) but then again, maybe not. The older I get, the less risk I'm willing to bear. Knowing this about myself, I'd rather end up with less, but have it guaranteed, than bear the risk of a 50% (+/-) loss when I can least tolerate it.

By my calculations--which I still don't know how to post to this board--one would end up with more money with a S&P B&H, but not without a lot of risk of loss at an inopportune time that I'm unwilling to bear.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (318) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Value Hounds

Considerable Headwinds for Profire Energy?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement