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Author: JIMSR Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Old Apprentice Fool Date: 8/25/1997 2:13 PM
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I am 69 and just graduating from thinking that I couldn't do better than the Magellan fund. At this time, virtually all of my savings (6 figures) are in mutual funds, but I also have enough from SS and pensions for day-to-day expenses. I would appreciate comments on equity investing for a person in my position.

JimSr
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 217 of 76237
Subject: Re: Old Apprentice Fool Date: 8/25/1997 7:12 PM
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Greetings, JIMSR, and welcome to Fooldom.

<<I am 69 and just graduating from thinking that I couldn't do better than the Magellan fund. At this time, virtually all of my savings (6 figures) are in mutual funds, but I also have enough from SS and pensions for day-to-day expenses. I would appreciate comments on equity investing for a person in my position. >>

Me? I'm all for it! At your age you can easily look forward to another 20 years or so of investing. Therefore, to offset inflation I think there's nothing better than stocks. However, I also have a rule of thumb that says no money I know I must spend within five years can go into equities. That's because they are too risky in the short term, but over five years or longer not so risky. Another rule of thumb says the older I am, the greater the percentage of my portfolio that should be devoted to blue chips like the Dow and the less to pure growth stocks. That's because the blue chips have a history of solid, dependable dividends coupled with reasonable price appreciation per share. They may fall, but I won't be wiped out in the event I do have to cash them in.

Hey, in your position if you don't need the cash to live on, you're gonna make your kids quite happy by building up that estate. :-P

Regards.....Pixy

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Author: rayvt Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 220 of 76237
Subject: Re: Old Apprentice Fool Date: 8/26/1997 10:20 AM
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I'm not so sure that equity investing should be very different for an old person than for a young person, other than two things. 1) A young person probably has more years to ride out a downward fluctuation due to volatility. 2) A young person probably has only a little money invested, so he HAS to take higher risks--and can afford to, since he has little to lose.

But.....I think live expectancy is about age 80, so even at 69 you have 11 years to go.

FWIW, I think that if I had six figures to invest (assuming, of course, that we only count those digits that are left of the decimal point!), I'd put 10% into a UG5 portfolio, and split the rest in staggered UV4+ or UV5/6+ portfolios. However often you feel like trading (monthly, bi-monthly, or quarterly), set it up for the appropriate number of UV mini-portfolios. IOW, it you don't mind trading once a month, run 18 UV portfolios, one expiring each month, each with an 18 month holding period. Each month, rebalance in the UG, and in that month's UV. If you only want to mess with it once a quarter, run 6 UVs, one expiring each quarter, each with an 18 month holding period. Then once each quarter, rebalance in the UG, and in the UV that expires in that quarter.

For living expenses, each trading period (monthly or quarterly), withdraw as much cash as you'll need to live on until the next period. According to studies I have read, you should be able to draw down 8%-12% a year and still never run out of money.

OTOH, if all this is too much bother for you, I'd put it all in an index fund, or the O'Shaughnessey Cornerstone Growth/Value funds, and tell them to send me a check every month.

My only other thoughts would be to withdraw your money from those mutual funds, and invest it in the First National Bank of Ray.



Regards,

Ray Van Tassle





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Author: rayvt Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 221 of 76237
Subject: Re: Old Apprentice Fool Date: 8/26/1997 10:54 AM
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<<However, I also have a rule of thumb that says no money I know I must spend within five years can go into equities. That's because they are too risky in the short term, but over five years or longer not so risky.>>



After some hand-waving on my part, I ran some numbers, using the UV5/6+ statistics going back to 1961. Average CAGR was 20.1%.

Let's assume you have 6 figures plus $1: $1,000,000, and you want to draw down 10%, or $100,000 per year (No Alpo for me!)

The worst year was 1990, where UV5/6+ lost 23%--OUCH!



$1,000,000 - $100,000 = $900,000 invested. Lost 23%, leaving $693,000. Next year, take out $100,000 (by rights, you should take out only 10%, or $69,300--but why should you take a pay cut just because the market got a flat tire?), leaving $593,000 invested. Gain in 1991 was 75.2%, so this grows to $1,037,750.



But if the 1991 growth had been only average (20.1%), the $593,000 would grow to $712,193, and you'd slowly pull ahead. Even though you are taking out $30,700 too much, you greedy old fart.



Of all the ten-year period from 1961 to 1997 (27 such periods), the very worst had a CAGR of 8.8%. If you take out 10% per year, you'll slowly deplete your initial hoard at the rate of 1.2% per year, so after 10 years, you would still have around 85% of it left. (FYI, the average 10-year period had CAGR of 19.8%)



For 15-year periods (22 of them), the lowest CAGR was 15.4%, so your 10% draw will still leave you with an account that is slowly GROWING.



Ray

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 222 of 76237
Subject: Re: Old Apprentice Fool Date: 8/26/1997 2:08 PM
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<<Let's assume you have 6 figures plus $1: $1,000,000, and you want to draw down 10%, or $100,000 per year (No Alpo for me!) >>

Hardly realistic for the vast majority of today's retirees. One-to-three tenths is more like it, and that smaller starting pot casts a whole new light on the subject. This weekend, I'll try to post some 25 very long missives in which exactly this topic was analyzed in depth on the AOL boards. It provides for some very provocative thoughts that shows the UV5, while valuable, can provide a very bumpy ride for a retiree. These, too, go back to 1961 so as to encompass some bad patches in the market. They also tend to prove that no matter how you hack it, one can safely take around six percent of a portfolio, but anything over that may lead to rapid depletion.

I'm not sure this forum will handle the spreadsheets involved. Lord knows I had a hard enough time getting them up on AOL. But I'll give it a shot. If successful, I'm sure more than one or two seasoned eyes will bulge outward. I know mine did.

Regards.....Pixy


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Author: gilvid One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2164 of 76237
Subject: Re: Old Apprentice Fool Date: 3/11/1998 1:21 PM
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Ray,
Have just been reading a message you left 8/25/97 and Pixys many page Retiree Portfolio of 8/28/97 and need some definitions of abbreviations used. Can you please tell me what UG5,UG4,UG2,UG3, UG5/6, IOW,UG, CAGR are/or mean? Took me a while to realize BTD meant beat the Dow, but I need help with the rest.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2184 of 76237
Subject: Re: Old Apprentice Fool Date: 3/13/1998 1:28 PM
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Gilvid,

<<Have just been reading a message you left 8/25/97 and Pixys many page Retiree Portfolio of 8/28/97 and need some definitions of abbreviations used. Can you please tell me what UG5,UG4,UG2,UG3, UG5/6, IOW,UG, CAGR are/or mean? Took me a while to realize BTD meant beat the Dow, but I need help with the rest.>>

UG is "unemotional growth," a term coined by Robert Sheard. It's really just a substitute for BTD. IOW means "in other words," and CAGR means "compounded annualized geometric return." The latter is a fancy-dancy mathematical term, but it provides a measure of average annual return that's been smoothed to show the constant rate of return necessary to provide the same growth the uneven actual rates of return did over the years in question.

Regards….Pixy



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Author: JeanDavid Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2195 of 76237
Subject: Re: Old Apprentice Fool Date: 3/14/1998 10:58 AM
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<UG is "unemotional growth," a term coined by Robert Sheard. It's really just a substitute for BTD.>

Nit Pick Alert!!!

In my understanding, UG is "Unemotional Growth", as you said, but that is NOT a BTD strategy. The "other" BTD strategies are the UV (Unemotional Value) ones.

End Nit Pick Alert.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2199 of 76237
Subject: Re: Old Apprentice Fool Date: 3/14/1998 1:28 PM
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JeanDavid,

<<Nit Pick Alert!!!

In my understanding, UG is "Unemotional Growth", as you said, but that is NOT a BTD strategy. The "other" BTD strategies are the UV (Unemotional Value) ones.

End Nit Pick Alert.>>

LOL. You are absolutely correct. It's the UV and not the UG that's the BTD look-alike. Like many, I find that the profusion of so many dratted acronyms tends to befuddle my already clouded mind. Anyway, thanks for the correction.

Regards....Pixy

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