Let's say the DOW climbs from 13300 today to 33500 in 3 years, in May 2010. Like it did running up to the 1929 crash....If you retired in May 2010, would you actually go for an 85/15 allocation and withdraw 4% going forward? I don't think most on this board would.I prefer the 1965-66 years as a better scenario to be prepared for.--whyohwhyoh
>> Let's say the DOW climbs from 13300 today to 33500 in 3 years, in May 2010. Like it did running up to the 1929 crash....If you retired in May 2010, would you actually go for an 85/15 allocation and withdraw 4% going forward? I don't think most on this board would. <<If the stock portion of my portfolio (about 70/30) tracked the Dow's performance (up 150% in three years), I could retire and go with a considerably more conservative allocation, more like 60/40.#29
Let's say the DOW climbs from 13300 today to 33500 in 3 years, in May 2010. Like it did running up to the 1929 crash....Here's the thing I see in something like this: A run-up of that magnitude means you either reach your retirement goals earlier than you expected or you have more money at your designated retirement time than you had anticipated. The two situation require very different approaches IMO.Case 1 -- Reach retirement goals early:I would continue to work for a year or two, but I would make sure my overall allocation matched my desired "in retirement" allocation. Ideally, when I reach retirement, I will have the following overall portfolio:1-year's expenses in a liquid account (i.e. ING Direct)5-year's expenses in a CD ladder20-year's (or more; I'm hoping 25) expenses in investmentsThe investment allocation would be around 85/15, but this would mean a total allocation that is more like 65/35.The problem with retiring early when you get there due to massive increases in your equities is two-fold:(1) The gains are not likely to be sustainable; and(2) There is a bigger than normal chance of a significant drop in equity values shortly after you retire.I would prefer to work an extra year or two and get to a super-safe position. This likely still means I retire earlier than my initial calculations, but I do so with a greater margin for error.Case 2 -- You have extra moneyYou are retiring when you expected, but the run-up in the markets gives you more funds than you anticipated. In this case, I would simply decrease my initial withdrawal rate as a percentage of my overall assets. If things go poorly the first few years, I am less likely to notice. On the other hand, if things go ok the first few years, I can think about increasing my withdrawals at a rate greater than the overall inflation rate.I prefer the 1965-66 years as a better scenario to be prepared for.I think one should be prepared for a wide range of possible retirement environments. Even when following the safe-withdrawal rate studies, I don't think people should stop analyzing their situation. You have to gradually modify your plans even after reaching retirement.Acme
I prefer the 1965-66 years as a better scenario to be prepared for.You don't have a choice. And, neither do I.I retired about 2 months ago. The strategy I used was to work very hard for about 20 years, 40 hours on my job, and extra time on a sideline of real estate. DW and I are looking at a pretty high-end retirement. If things go wrong, we will scale back to merely very comfortable. if things go worse we can still scale back more. While we don't want a merely "average" retirment, we will accept that if everything goes wrong at once.
In reality you are posing a market timing question. A 100% bonds portfolio might be ideal if you truely believe stocks will crash. But it will only be successful if you switch to 100% bonds at the right time--ie when the market really does crash.If you have the resources to retire based on 100% bonds, why are you buying stocks? Most of us take the stock risk because it offers better returns over time, and hence a better chance to keep up with inflation.But those who truely believe the stock market is likely to crash need a different resource allocation from what is usually described here. But they also have to be right. Personally I don't think a 1929 style stock crash is likely to recur. But that does not mean we will avoid some severe stock market corrections in the future.Remember it is the massive deflation that followed the stock market crash that caused most of the economic pain. That followed from collapse of money supply which the feds already had power to control, but failed to implement. The second leg of the Great Depression was the Smoot Hawley tariffs, which had the effect of shutting down the global economy. I don't think those severe events are likely to recur.
As a spokesman for the old (or "odd"?) fashioned economic thought, here goes: So much discussion of investing, or the sub-genre of retirement investing, seems to think the universe (or history) only consists of stocks and bonds. While these are, of course, the main categories of "sensible" investments, there is more to the story, maybe.Why so seldom any talk of disaster hedging? Where is the gold or silver? The real assets?Do you have even a thumbnail overview of economic history of the modern (or not so modern) world? Do you know the sorry history of paper money systems and/or debt-ridden empires, and their usual demises? Not a happy picture.Nobody can predict the future, even the immediate future of course. Still, anyone with wealth in (summer of) 1929 would have been very well advised to take some cash out of stocks (duh!) and put it in U.S. Bonds or even cash. In those days cash was paper -- but also was U.S. $20 gold coins. Four years later, during the bsnk run, anyone who hoarded cash did well. Those who (illegally?) stashed their cash in gold soon nearly doubled their money -- as the Feds illegalized gold (in violation of the U.S. Constitution) and raised the price from $20 to $35. Foreigners knew a devaluation was coming (that's why gold was leaving the USA). A similar situation occurred in the 1960s, ahead of the 1971 complete severing of the dollar from gold backing.I'm not saying that gold is the answer to all your problems. But on the other hand, I don't see a problem with keeping a fraction of your wealth in gold stashed somewhere safe. A safe deposit box, if you trust the government; somewhere else if you don't!
Why so seldom any talk of disaster hedging? Where is the gold or silver? The real assets?In a real disaster, gold and silver will be worthless, the real currency will be food and ammunition.foolazis
foolazis:<<<<Why so seldom any talk of disaster hedging? Where is the gold or silver? The real assets?>>>>"In a real disaster, gold and silver will be worthless, the real currency will be food and ammunition."and fuel - Have you never seen The Raod Warrior movies?Regards, JAFO
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