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I am interested in some feedback from this group. I am 54 and my wife is 51. She is going to retire in 4 years and me in 5. We are both long time public employees with define benefit plans and we are both in good health . Our combined DB will be about $10,500/mo , and I have an option of a lump sum cash out of about 700K in 5 years. My wife says that our combined DB is equivalent to someone else's 401K of about 3.3Million.(at a 4% withdrawl rate) We both have full medical benefits(perhaps saving another 200K over the next 30 yrs) and our DB pension is adjusted upward each year for inflation. She says it is a NO BRAINER..forget about the lump sum pay out. I on the otherhand, belive (with careful homework) I can manage the 700K lump sum into yields of about 20%/yr. Lots of investor have done this with careful study. A portfolio of about 30 stocks should give me enough diversification. Over time I believe I can soundly beat the DB monthly payment. What does this group think?

LaJollcowboy
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Since you are going to be the next Warren Buffet, can I give you $10,000 to invest for me?

Not to be too snarky, but the types of returns you are talking about--20% per year for a sustained period--are not realistic for ANYONE to expect. Some of the greatest investors in the history of the world have done it, but they are the exception to the rule and can be counted on one hand. Further, to even consider double digit returns you'd have to take on much more risk than I'd suspect you are interested in doing. For the type of capital preservation/income generation investing that you would want to do to protect your nest egg, you could strive for 5-6% returns. 5% of 700,000 is $35,000 per year, or around $2900 per month.

I think you need to do some reading and get some professional advice before taking the option. But realistically, I think your wife is right.

-VTJon
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I get $3.15 million, but whos counting, right?

There's simply no way you can expect to more than double the returns of the market no matter how much careful homework you did. If that was true, why would the majority of mutual funds fail to beat the market? Or, even without expenses, beat it by only fractions of a percent.

The kind of returns you're talking about are 'best investors of all time' kind of ratios, and its absolutely insane (sorry, but it is :) ) to project that kind of return. Especially for retirement money for which you need to have a distinct interest in portfolio invesments.

Why? Well, to get those kinds of returns you would need to take on risky investments (equities no doubt, but probably even riskier ones like small caps and microcaps and foreign small caps, etc). So lets look at this... returns would equal the DB payout at 18% returns. This means, should the market hit a bump in the first year, and decline by 20%, and you still did utterly amazing and beat it by 10%, netting a 10% loss, your net money would be $630K... MINUS the $10,500*12 defined benefit equivalent withdrawal, leaving you only $504K.

Even if you were to do utterly amazing and beat the market by 10% after that, your absolutely insane 20% returns could net you $100K or so per year, which even living on that amount only (less than your DB) would never ever ever get you back to the DB-level... ever.

They're offering you this buyout for a reason, and its not because its good for you.

I mean, really, you have it made. You will be pulling a risk free, guaranteed, government pension of $126K in retirement, which will be more than you need to live on and will let you do whatever you want with your lives, as well as the SS you'll eventually pick up, not to mention giving a significant portion to charities you want to support and leaving a nice built-up nest egg for your family with the extra. And you want to risk that? For what is nothing more than a pipe dream of 20% annual returns?

Yup, your wife is definitely smarter ;)
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I know I'm smarter than my wife is because of whom we both chose to marry. :-)

#29
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Actually, very few investors, (<1%) have managed to return 20%/year or more. I would probably opt for the inflation indexed DB payout of $10,500/month.

But somehow kahunacfa can return greater than 20% and he didn't brag about it in his response. That's weird.

IF
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I can manage the 700K lump sum into yields of about 20%/yr. Lots of investor have done this with careful study.

And lots of investors have lost money with careful study. I think 20%/yr. is way out of line as an expectation. I would use something more like 8% if you are going with 100% equities.
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Is my wife smarter than me?

If you don't know the answer to that one buy now, buy are you in trouble :P

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Wow was my keyboarding skills horrid in my previous post...

...that one by now, boy are you in trouble.

Something tells me it is about miller time.
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LMAO!

"Wow was vs. Wow were"
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>>She says it is a NO BRAINER..forget about the lump sum pay out. I on the otherhand, belive (with careful homework) I can manage the 700K lump sum into yields of about 20%/yr.<<

(1) WhatwhatWHAT?

(2) Whaddya need extra money for? You mean $10K in DB per month (adjusted for inflation, no less) isn't enough to live on in retirement? There's no reason to risk money just for the heck of it, especially on this scale and at this stage.

(3) Do you have any investing experience? Now's a heckuva time to decide to start that new hobby, and that's a heckuva amount to blow through in no time.

(4) If you're a public employee, maybe financial wizardry isn't exactly your forte. I am, and it sure ain't mine.

(5) If your wife's smart enough to beat feet if you blow your retirement funds on some harebrained scheme, and then come looking for hers . . . then best to let this idea go. ;-) And for sure, gin up some other retirement hobby. :-D

Soooz


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LaJollacowboy: "I am interested in some feedback from this group. I am 54 and my wife is 51. She is going to retire in 4 years and me in 5. We are both long time public employees with define benefit plans and we are both in good health . Our combined DB</> will be about $10,500/mo , and I have an option of a lump sum cash out of about 700K in 5 years.

My wife says that our combined DB is equivalent to someone else's 401K of about 3.3Million.(at a 4% withdrawl rate) We both have full medical benefits(perhaps saving another 200K over the next 30 yrs) and our DB pension is adjusted upward each year for inflation.

She says it is a NO BRAINER..forget about the lump sum pay out. I on the otherhand, belive (with careful homework) I can manage the 700K lump sum into yields of about 20%/yr. Lots of investor have done this with careful study. A portfolio of about 30 stocks should give me enough diversification. Over time I believe I can soundly beat the DB monthly payment. What does this group think?"


The group has responded.

As someone noted, (10,500*12)/.04 = $3,150,000.

As virtually everyone else has noted, if you are so good at managing money to generate 20%/year, what have you been doing until now with the rest of your life. OW, you are off by alot.

No one, apparently has noted that the 10,500/month was combined DB, and then asked what your share or, IOW, how much of the 10,500/month would be gone if you take the 700k???

700k * 4% = 28,000/year or $2,333.33/month.

Managing the money for 20% return/year will be work; do you not want to retire?

Regards, JAFO



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Wow was my keyboarding skills horrid in my previous post...

...that one by now, boy are you in trouble.

Something tells me it is about miller time.


Not only that, your taste in beer is horrid.

IF
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Being female automatically gives you a +1 to Intelligence and Charisma. (Sorry, had to drag Dungeons & Dragons into the conversation.)

The only way I would be okay with taking the lump sum payment would be if the "scheduled retirement payments" money is not inheritable by your spouse or any dependents you may still have. If that is a concern, I would take the lump sum and stick it into safer investments, and not expect anything close to 20%. (I would be happy with 6%-8%.)

Check and see the survivorship rules for your benefits.

Lara Amber
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Thanks VTJon

I was thinking of putting 200K of the lump sum in fixed assets (bonds and money market) for 4 years...withdrawing 50K/yr and managing the 500K in small cap value stocks.I figured 4 years is enough time to ride out stock market bumps. I did the calculation and I think I came up with a 14% return averaged over 4 yrs would beat a 5K/mo pension check. I read Kiplinger's and all the time and they feature investors who have over the period of 4 years averaged returns of greater than 60%...
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<Not only that, your taste in beer is horrid.>

I figured I would get called out on that one, and rightly so.
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I was thinking of putting 200K of the lump sum in fixed assets (bonds and money market) for 4 years...withdrawing 50K/yr and managing the 500K in small cap value stocks.I figured 4 years is enough time to ride out stock market bumps. I did the calculation and I think I came up with a 14% return averaged over 4 yrs would beat a 5K/mo pension check. I read Kiplinger's and all the time and they feature investors who have over the period of 4 years averaged returns of greater than 60%...

I'm sure I could start a newsletter tomorrow and do the same thing. I could show you a guy who got 60% last year, and then a month later should you a guy who got 50% last year. What I don't do is come back a year later and show you that the guy who got 60% took a 90% nose dive in year 2.

Small caps are not the magic bullet. In fact the latest Smart Money magazine had an article discussing how in recessions small caps are not what you want to invest in, you want to invest in S&P 500 companies that produce necessities (medicine, food, power) and are on firm footing. Quite a few people are predicting a recession around the corner. If a recession hits hard, you're going to be real glad for that monthly check.

Lara Amber
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Sorry I messed up my formatting.

Read through your post one more time. Four years is nothing in the stock market. Are you only planning on being retired for 4 years? You are talking about retirement for 30 years or more.

Plus, you might be in great health now, but how great do you think your stock decisions will be when you're 90 and have alzheimers?

Lara Amber
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I'm sure I could start a newsletter tomorrow and do the same thing. I could show you a guy who got 60% last year, and then a month later should you a guy who got 50% last year. What I don't do is come back a year later and show you that the guy who got 60% took a 90% nose dive in year 2.


That 60% is an average over 4 years not just one. But your point is well taken There are alot smart people in this forum and thank Gogd i married my wife...


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... I can manage the 700K lump sum into yields of about 20%/yr..

This is not realistic, but I suspect that you won't take our word for it and will always grumble about how well you could have done if you only got a chance.

Since it sounds like you have ample means I would assume that you also have money in other retirement accounts. If this is the case, you could test your skills and transfer $50K into a separate IRA account and try managing that yourself. If you can really get the 20% per year, then it should go steadily upwards and a little bit over 8 years it will be worth half a million dollars. (This assumes that you can afford to loose most of the $50K.)

To make this test fair you will also open a separate account for $5,000 which will be invested in a low cost total stock market index fund with all dividends reinvested. In theory your managed account should always be more than 10 times your index fund if you can at least match the index. The catch is that if your stock fund is ever less than 8 times the index fund when you get your quarterly statements, then you will have to concede that you can't even do as well as an index fund(much less 20% per year) and you will convert the stock account into index funds.

You will have to also agree that if you should do very well with your investments, that there is a chance that it was just luck, and you will not EVER transfer more money into the stock account. If you let a hundred monkeys pick stocks a few of them will do well, you could just be a lucky monkey for the first few years.

.... Is my wife smarter than me?...

She must be, because if you can really invest that well then you could have retired decades ago on your investments. Even if you enjoy your job, why did you make your wife work all these years!!!!! (just kidding)

...My wife says that our combined DB is equivalent to someone else's 401K of about 3.3Million.(at a 4% withdrawl rate)..

To calculate the value of you pension you can go to an annuity calculator on the Fidelity or Vanguard web site and plug in your numbers (with the inflation adjustment) and find out how much an annuity would cost that yields the same amount. This would be the approximate value of your pensions. I didn't crunch the numbers, but it will probably be much less, probably in the ball park of the amount that you can cash it out for.

...We are both long time public employees with define benefit plans...

Private employees with pensions like yours are getting shafted all the time. The public pensions requirlemts are huge, I wouldn't bet my entire retirement that public employees will safe for the next 50 years. The decision as to take the benefit or cash it out may not need to be ablack or white decision. It could be that you could do something like take half the cash and half the pension and end up with an inflation indexed $5,250 per month and a check for $350K. It would be good to get a fee only(by the hour) financial planner to look at your situation. (If they try to sell you an annunity a fund with a load, you are likely getting taken for a ride, run!!)

Greg
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My wife says that our combined DB is equivalent to someone else's 401K of about 3.3Million.(at a 4% withdrawl rate)..

To calculate the value of you pension you can go to an annuity calculator on the Fidelity or Vanguard web site and plug in your numbers (with the inflation adjustment) and find out how much an annuity would cost that yields the same amount. This would be the approximate value of your pensions. I didn't crunch the numbers, but it will probably be much less, probably in the ball park of the amount that you can cash it out for.


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Sorry I messed up my formatting.

Read through your post one more time. Four years is nothing in the stock market. Are you only planning on being retired for 4 years? You are talking about retirement for 30 years or more.

Plus, you might be in great health now, but how great do you think your stock decisions will be when you're 90 and have alzheimers?

Lara Amber

Hi Lara

After the 4 years is up I put 250k into fixed assets for another 4 yrs and continue to manage a fund that has grown to about 800K (previous 4 yrs)
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What does this group think?

You've got a guaranteed $120k per year retirement. Plus its going to increase with inflation. You've got your health care taken care of.

What more do you want????!!??

Listen to your wife.

--Peter
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What does this group think?

You've got a guaranteed $120k per year retirement. Plus its going to increase with inflation. You've got your health care taken care of.

What more do you want????!!??

Listen to your wife.

--Peter

Thank You Peter

I had hoped you would respond

Lajollacowboy
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OK - perhaps a more reasoned response is in order.

1. You're 20% per year assumption is just outrageous. If you could guarantee 12% per year, you'll have lots of people throwing money at you to invest. A more realistic number is closer to 8%.

2. As has been noted, you don't mention how much of that 10,500 per month would be lost in favor of the $700k lump sum. That has a significant bearing on the decision.

3. Another factor is your personal life expectancy. Generally, the worse your health and life expectancy, the more valuable that lump sum becomes. I am assuming that the monthly pension would stop at your death. You need a reasonable expectation of surviving long enough for the monthly payouts to exceed the lump sum value. With a somewhat early retirement (about 55 for your wife and 60 for you) those monthly checks should keep going for a a good long time.

And while you're thinking about those monthly checks, are they for your life only, or is there a survivor benefit? Is there any minimum guarantee if you or your wife die soon after starting the monthly payments?

I guess a more reasoned response is that it is quite likely the monthly payments are the much better deal for you. But there are some mitigating factors that could make the lump sum a better choice for certain individuals. And those factors have nothing to do with how good you are at investing the lump sum.

--Peter
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Thank You Peter

You're quite welcome.

I had hoped you would respond

I've got groupies? I've never had groupies before. ;-)

--Peter
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OK - perhaps a more reasoned response is in order.

1. You're 20% per year assumption is just outrageous. If you could guarantee 12% per year, you'll have lots of people throwing money at you to invest. A more realistic number is closer to 8%.

2. As has been noted, you don't mention how much of that 10,500 per month would be lost in favor of the $700k lump sum. That has a significant bearing on the decision.

Not only is my wife Smarter than me,better looking,but she also makes more money.. our projected retirement pension breaks down 5k/mo for me (in lieu of the 700K lump sum) and 5.5K for her (no lump sum)

3. Another factor is your personal life expectancy. Generally, the worse your health and life expectancy, the more valuable that lump sum becomes. I am assuming that the monthly pension would stop at your death.

We are both healthy and there is longevity on both sides of our families.. but we are also 100% covered on each other and so neither pension checks would stop (unless of course I took a lump sum)

You need a reasonable expectation of surviving long enough for the monthly payouts to exceed the lump sum value. With a somewhat early retirement (about 55 for your wife and 60 for you) those monthly checks should keep going for a a good long time.

And while you're thinking about those monthly checks, are they for your life only, or is there a survivor benefit? Is there any minimum guarantee if you or your wife die soon after starting the monthly payments?

We both have a survivor benefit..we both can both claim one dpendant in addition to our spouse.

I guess a more reasoned response is that it is quite likely the monthly payments are the much better deal for you. But there are some mitigating factors that could make the lump sum a better choice for certain individuals. And those factors have nothing to do with how good you are at investing the lump sum.

--Peter



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One thing to check on is by taking a lump sum, do you give up the medical benefits? If that's the case, I wouldn't do it. I assume you both have coverage so you could be covered by your wife's, but double coverage means you'll have very little out-of-pocket medical expenses to pay.

While I'll likely be investing through retirement, I don't want it to become a job. I think double digit returns would be a full-time job plus the worries about worries about money during down market periods.

Calvin
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One thing to check on is by taking a lump sum, do you give up the medical benefits? If that's the case, I wouldn't do it. I assume you both have coverage so you could be covered by your wife's, but double coverage means you'll have very little out-of-pocket medical expenses to pay.

While I'll likely be investing through retirement, I don't want it to become a job. I think double digit returns would be a full-time job plus the worries about worries about money during down market periods.

Calvin

Hi Calvin

I have gotten so much great advice..I am truly astounded @ just how smart the people in this forum are!

LaJollacowboiy
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I on the otherhand, belive (with careful homework) I can manage the 700K lump sum into yields of about 20%/yr.

If you really believe this, then I have a rock in my garden which is smarter than you.

Lots of investor have done this with careful study.

And lots of investors, with careful study, have pissed away a million dollars.

Over time I believe I can soundly beat the DB monthly payment. What does this group think?

I think you have five years until retirement. Since you apparently think you can achieve your annual goals pretty easily, why not set up a "phantom account" right now and see how you do over the next five years? Then, in the year 2011, you will have a five year "track record" of how you did, and you will have an arguable case.

Do not fret that you will have "lost" five years, since you can't get the lump sum payment now anyway.

Before you get into the big leagues, you need to have played ball in the minors, or at least in college. Or at least in high school. Consider the next five years your "training", and hopefully you will come to your senses and realize what a fabulous deal you have in pocket, which you seem determined to throw out the window to chase a chancey future, at best.
 
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Ya better follow the joelxwil plan of investing . . . . .
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I have gotten so much great advice..I am truly astounded @ just how smart the people in this forum are!

LaJollacowboiy



Well most of us have retired early.. It was NOT all luck :-) (ok in my case some of it was).

I plugged some number into Vanguard's annuity website, and given your ages a $5,000 monthly income with inflation protection and survivor benefits that started paying next Aug would required an investment of approximately $1.55 million in pre-tax money. Now the amount would be lower in 4-5 years but basically you can figured that a $700K lump sum would purchase a pension about 1/2 has generous as yours.

It is obvious that in the back of your mind you believe you can make great returns in the market. The good news is with a $10K+ pension you can afford to take lots of risks. Start your new investment hobby/career as soon as possible.

Skip bonds, index funds, and all those boring safe things.
Go invest in small cap value funds and stocks, see how you do in the next four or five years, if you make 15-20% CAGR well then you can think about taking part of your pension as a lump sum. Just don't get to cocky if we have a bull market for the next four or five years...

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One more thing to think about with regard to a pension.

You are mentally & physically pretty sharp right now, and will be for quite some time. But, there will come a day when both you and your wife start to decline.

I have read a lot of stories about people being swindled out of their entire portfolio later in life. If you take a lump sum, you can lose it all in any number of ways. If you take a pension, you might lose current income to a shyster, but you can't lose future income.

Basically, you will be "moderately afluent" without working at all for the rest of your life, guaranteed, if you take the pension. The game is over and you have won.

If you need the "thrill of the chase" set up some kind of business and run it in retirement. Or develop a serious hobby. But don't risk everything by taking a lump sum.


Old One

Who has a similar situation, but does have a portfolio also.
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Basically, you will be "moderately afluent" without working at all for the rest of your life, guaranteed, if you take the pension. The game is over and you have won.

If you need the "thrill of the chase" set up some kind of business and run it in retirement. Or develop a serious hobby. But don't risk everything by taking a lump sum.


Old One

Who has a similar situation, but does have a portfolio also.





This is very good advice, indeed. I do not think you are "Old One" perhaps "Wise one" may be more approiate..

LaJollacowboy





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Question, how many years have you been investing?

How many years have you been getting 20% plus returns.

And how is your ulcer doing?

It really is a no-brainer and to think anyone, but/except a newsletter seller is going to back you...well...

0x
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Is my wife smarter than me?

LC-

I'll try to be nice. Find a hobby and forever leave the finances to your wife. You truly do not understand just how fortunate you are.

-$$$
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Thanks VTJon

I was thinking of putting 200K of the lump sum in fixed assets (bonds and money market) for 4 years...withdrawing 50K/yr and managing the 500K in small cap value stocks.I figured 4 years is enough time to ride out stock market bumps. I did the calculation and I think I came up with a 14% return averaged over 4 yrs would beat a 5K/mo pension check. I read Kiplinger's and all the time and they feature investors who have over the period of 4 years averaged returns of greater than 60%...



One of the issues is everything looks so simplistic in theory. I will do this, I will do that, and this should get me there. The reality is sooo different. The volatility of small caps and mid caps is a lot more of a roller-coaster ride than you think. Fall behind on your intended goal, and you start taking riskier moves to catch up. Another poster made a helpful suggestion...paper trade for the next four years, and see how you do. By the way, paper trading may not give you a full impact of the emotions involved when real money is involved.

In addition, you are discounting the adjustment-for-inflation a little too casually in these scenarios. That small amount will add up to a significant number over the long term. I think your wife's suggestion is the smarter option, but good luck to you.


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The volatility of small caps and mid caps is a lot more of a roller-coaster ride than you think.

More than that. "Small caps" have, at times, been the worst performing sector of the market. And, at other times (like the four-year period he's looking at) been the best.

Every asset class has its day in the sun, becomes fully valued (or, if you prefer, over-valued) and then sits and waits, sometimes for a decade until other classes catch up.

I can't find it at the moment, but I was given a presentation by Edward Jones a few years ago which showed the various asset classes and how they had done in each 5 year period over the past 20-25 years. Not one of them repeated at #1, and it was rare if any of them repeated in the same position at all. Frequently you would find one class jockeying from #4 to #2 back to #3 then to #1 and back to #3.

What I took from it was that if you chase the most recently successful asset class (following an asset allocation model rather than individual stocks) you were sure to underperform the market on a regular and continuing basis. (This is quite the same as buying last year's most successful mutual fund, because those guys rarely repeat their stellar performance year over year. There are exceptions, of course, Peter Lynch being the most famous.)

Even if you screened "individual stocks" by "small market" or "large cap" (or introduced other classes such as REITs) you would always find yourself wondering why they did so well before, and now that you own them, they're not doing so well anymore.

It is, I think, because of the herd mentality of investors - including those running mutual funds - that "hey look, that's successful, I better buy some of that", only to find out that it's already had its run, and you're just a little late to catch the train.
 
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Even if you screened "individual stocks" by "small market" or "large cap" (or introduced other classes such as REITs) you would always find yourself wondering why they did so well before, and now that you own them, they're not doing so well anymore.

It is, I think, because of the herd mentality of investors - including those running mutual funds - that "hey look, that's successful, I better buy some of that", only to find out that it's already had its run, and you're just a little late to catch the train.



That is why I said paper trading might not capture the full emotions that go through the mind when it is happening to a real money account. I would love to be less emotional when investing in the market, but that takes time to get the experience. With the OP thinking of starting to investing, there is a huge learning curve, plus he doesn't really have the same luxury of time he would have had if he started earlier. Sure, the portfolio may start out larger than most, but can the OP keep their emotions steady if the portfolio goes down 10%, 15%, or more?
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Goofyhoofy puts it a bit harsh, but the truth is that it is very unlikely that you will even beat the market over 5 years straight, let along manage an utopian 20% a year.
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I can't find it at the moment, but I was given a presentation by Edward Jones a few years ago which showed the various asset classes and how they had done in each 5 year period over the past 20-25 years. Not one of them repeated at #1, and it was rare if any of them repeated in the same position at all. Frequently you would find one class jockeying from #4 to #2 back to #3 then to #1 and back to #3.
-------------------

A chart that may be similar to what you are speaking of is "The Callan Periodic Table of Investment Returns (1986 - 2005)":

http://www.callan.com/resource/periodic_table/pertbl.pdf


Regards,
Bill

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A chart that may be similar to what you are speaking of is "The Callan Periodic Table of Investment Returns (1986 - 2005)":
http://www.callan.com/resource/periodic_table/pertbl.pdf


Yes, it's similar, and a terrific illustration of what I was talking about.

One "class" in it, for instance, is "foreign", which after two stellar years (#1 best return) in 1986 and 1987, moves to last place (8th place) for the next 4 years, including several negative years.

More to the point of the original poster, the Russel 2000 (small cap) has done very well over the past 5 years - but if you look at the precending 20 years, not so much. Indeed, it placed last for a couple of years, had mediocre performance (compared to other asset classes) for many of those years, and came in first or second only 3 times in the first 15 years of the chart.

So basing an investment strategy going forward of realizing the kinds of gains in "small caps" that we have seen recently is unrealistic, to put it mildly.

I would love it if the chart showed even more classes: REITs, for instance - and even utilities, hard assets, and so on, but that would complicate it even further.

Interesting that the Lehman Bond Index seems to show the worst results of all, ongoing, and with only a few intermittent periods of outperformance - during the period of (internet) stock deflation around 2000 particularly. I wonder if that's a harbinger of what is coming with the real-estate bubble popping?

Anyway, thanks for the link. That's a great chart!
 
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I would love it if the chart showed even more classes: REITs, for instance - and even utilities, hard assets, and so on, but that would complicate it even further.
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Not to beat a dead horse, but "Franklin Templeton Investments" used to have a Periodic Table of Investment Returns available online for public consumption that included REITs as well as Emerging Markets.

http://www.franklintempleton.com/retail/jsp_app/home/ft_home.jsp

It looks like they decided either to keep it exclusively for staff and clients or they just quit publishing it...period. The one I have is for the period 1984 - 2003. It's very interesting - too bad it can't predict future returns. Darn it!

Regards,
Bill

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LaJollacowboy and all who have replied in this thread,

This series of postings is an example of why I value my subscription to the Motley Fool. Many perspectives and references to other resources have been offered. And, the advice from people who understand that your 20%/yr assumption is foolhardy, has been civil and good-willed.

Here's something that I think maybe only one other person has addressed. Yes, you should decline the lump sum payout. But no, you should not leave your financial future entirely in the hands of the two (or maybe even one? don't think you mentioned whether you and your wife will be paid by the same plan) defined benefits plans.

DB plans, even public ones, are not risk-free. In your specific circumstances, it seems to me that the best rationale for you (and your wife, who sounds like an apt student) to learn about investing is not so that you can increase your income while living or your distributable assets at death, but so that you can reduce the risk of greatly diminished income.

And the starting point for reducing risk would be to divert a substantial portion --perhaps a third or more -- of the monthly income from the DBs into places that will continue to provide income to you if/when the DB income streams, and/or the medical benefits, become diminished or disappear.

This could be a mix of equities, annuities, bonds or other instruments. The point is: the income stream from the DBs is large enough that you can afford to regard some of it as well-"spent", insurance-style, by investing it outside of the DB plans and thus avoiding a "too many eggs in one basket" risk scenario. Who knows, you might even earn better returns on the diverted funds, than from the DBs. But that would just be gravy.

A fee-only financial adviser would be a good idea when you get close to the time that you begin collecting from the DBs. Between now and then, there is time to continue on your path of learning about retirement investing. This will be beneficial regardless of how little, or how much, of the work you and your wife choose to do yourselves, in managing the diverted-from-DB funds.

You will get a gentler ride financially and emotionally by diverting the funds from the DBs gradually, rather than via an initial lump-sum payment.

hirundo
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...I am 54 and my wife is 51. She is going to retire in 4 years and me in 5. We are both long time public employees with define benefit plans and we are both in good health . Our combined DB will be about $10,500/mo...

None of my business of course but how does one get a job with a defined benefit plan of 120,000 a year and still even consider the possibility of 20% a year over four years? Net of friction costs, of course.

Bush Treasury Department? Office of Management and Budget?

The new Bush Office of Dynamic Analysis at Treasury? :)

http://budgetblog.americanprogress.org/2006/02/08/new-treasury-office-division-of-dynamic-analysis/

Forgive my unforgivable nosiness, but now I'm really afraid.
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