I think we need to separate the accumulation phase from the Pre and Post retirement phase. It's the Pre and Post retirement phase that interests me at this point.Mordko wrote:8Toretirement wrote:
First of all, the odds are in favour of a diversified investor.
Secondly, Bernstein specifically advises that one should not try to time the market.
Yes, he does advise that asset allocation should change as you approach retirement. And the recommended allocation to short-term bonds and TIPs depends on the fund value. For those who "won the game", Bernstein recommends to hold enough in FI to cover many years worth of your expenditure (taking into account various other income streams you have such as CPP). Obviously people with larger funds will have a larger percent allocated to stocks, even after retirement.
Moving everything into FI and cash isn't risk-free either. One is always "in the game" until the light is out.
I have not suggested a complete withdrawal from the equity markets makes sense, however, if you have met your goals for retirement funds it doesn't make sense to continue rolling the dice, especially at these historic market levels. I understand the markets can continue to rise, but on the balance they are tipped toward a decline and if you have met retirement goals you are risking a guaranteed outcome from the perspective of retirement savings goals from earlier years.
Using the current market levels that are at historic highs. For people that are near retirement, and have met or are close to meeting their retirement goals it does make some sense to take profit and adjust the equity portion downward and accept a lesser return to guarantee a long term goal.
After all, if you have met a goal that has taken decades to obtain, why would you continue to roll the dice if the outcome is guaranteed. I should say my retirement income goals do not include future returns at the same rate as historic past when I was in the accumulation phase.
I am willing to accept lower returns, through the lowering of my equity position to secure my retirement funds as the difference of returns will not affect the outcome. Sequence of returns risk is the basis for this re-evaluation. I am 5 years from retirement and there are numerous research papers that have shown that losses immediately prior and post retirement are the greatest risk to a portfolio not returns.