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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Re: Hi gang... wow!!! Date: 9/19/2013 1:48 PM
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This is TMF, where we voluntarily show up & contribute to each other without charge, remember?

Right, and Ray started the spreadsheet, and it shows what he thinks is a reasonable comparison between the IUL and a few different naked strategies, so that people can choose which one fits their own personal risk profile the best.

If you want to espouse a different viewpoint than Ray has portrayed, you are free to take his spreadsheet and contribute your views to it. I guess maybe you think it's reasonable for you to ask Ray to spend his freely given time to make the changes to show your viewpoint. If that's the case, I don't understand why you portray it as 'obstreporous' or 'face-saving' for Ray to say no, when he is voluntarily giving his time to you.

As I explained to SykeSix, since we are not the Fed we can't simply manufacture currency out of thin air... if we have $1M total, we cannot simply conjure up an additional $500,000 to support the risks of $1M in the S&P500.

I know - my point is - if your invested account principal grows fast enough (like it will in the later years) that even putting your total new investable/reservable dollars into the reserves won't bring the reserve account up to 50% of the invested accounts, how do you get the reserves up to 50%? Sell invested assets? That seems silly, since the invested assets may have suffered a drawdown (small or large), and the reason for having the reserves is to not have to sell invested assets during a drawdown. So, I'm still not understanding how you expect this to be accomplished. After all, as you said - we can't manufacture money.

However, if we *DID*... then our total capital would be $1.5M, right?
Our $1M at risk would be 2/3 of our total capital. 1/3 covering the risk.
1/3 is 50% of 2/3... see?


Right - 1/3 is 50% of 2/3, so reserves are 50% of the invested account value. You keep referring to a 50% drawdown that needs to be reserved for, so I was using the 50% terminology, see?

I never said a 50/50 market-to-reserves blend was necessary for the S&P. It has a typical historical drawdown expectation around 50%... thus, a risk-weighted allocation would be 66%/33% market-to-reserves, as I've explained.

Okay - as I explained, we were using different terminology to refer to the reserves being 50% of the invested account. However, you had asked for what the max drawdown is for the 50/50 blend account. That drawdown was less than 50% - so I'm asking why, since we seem to have now added a 50/50 mix as a naked strategy, you seem to still be insisting that the reserves need to be 50% of the invested account for that strategy.

AJ
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