Historic Stock Market Levels

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8Toretirement
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Historic Stock Market Levels

Post by 8Toretirement »

I am interested in why an individual would stick to a buy and hold portfolio, when on the balance of things we are most likely in for a reduction in stock prices than a constant rise in the stock market. The fundamentals just don't add up for substantial price increases. I know this reeks of market timing, however, even Buffet once removed himself from the market when pricing just didn't make sense.

If the thesis above is correct then,

The rational investor should then consider taking some profit and reverting to a more conservative portfolio.

The alternative is hold, with a good chance your profits will melt in a market decline.

The alternative belief would be the market is under valued at these historic prices and will continue to climb, regardless that profits or economic fundamentals don't match the outlook for continued gains.

Interested in a rational debate. I know buy and hold might have got you to where you are at, but does it make sense moving forward.
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Re: Historic Stock Market Levels

Post by brucecohen »

8Toretirement wrote:I am interested in why an individual would stick to a buy and hold portfolio
Because deviating from that requires getting two timing decisions right:
-- When to sell
-- When to buy back in
It's very hard to get both right. And, from personal experience, I can tell you that psychologically the second decision is very difficult if the first one avoided a big drop. I luckily avoided all carnage from the 2007-08 crash but then missed the subsequent sharp rebound because unknowingly I was so mentally invested in a bearish outlook. Every day it's easy to find reasons to buy and also not to buy. This was discussed just the other day on NPR. The interviewee suggested that the market rise has been fueled by expectations that simply can't be met by Trump and the Republican congress so a downturn is likely. But, citing the problem of having to get two decisions right, she advised retail investors not to dump long-term holdings but to rebalance.

Also, someone with a taxable account has to factor in the tax due on realizing a capital gain. A paper loss is theoretical. Tax due is a real loss.
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Re: Historic Stock Market Levels

Post by SoninlawofGus »

In addition to what Bruce just wrote...
- The market could move sideways for years to come, instead of drop. In the meantime, yields may very well be higher than FI, especially in taxable accounts.
- There is a notion of the "equity premium," which essentially refers to the reward you get from taking the risk with equity. William Bernstein, for example, values future market returns -- even at these valuations -- around 3-3.5% real. Finding those returns in other areas, such as FI, could be challenging.
- RRBs provide virtually no real return, or a negative real return.
- Markets can remain irrational both to the up or downside far longer than any rational person might believe.
- Historically speaking, FWIW, markets are down over 10-year periods very rarely.

Added: Markets were essentially flat from the last 68s to the early 80s, but CAPE valuation went from roughly 24 to 6 during that time. So, to build on point 1, the valuation will not necessarily reflect the market behavior. (Also, as StuBee wrote, I already have a balanced portfolio as well.)
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Re: Historic Stock Market Levels

Post by StuBee »

I like my holdings and would rather take the risk of giving them back to the market than to certainly give them to the government i.e. very important embedded capital gains. Besides even if there is a substantial correction, the income stream ought not to be too much affected.

Anyway, I am at 68:32 equity to FI (though my goal is 65:35) since I have been slowly liquidating some legacy international equity mutual funds. I am not sufficiently off balance to merit a significant rebalancing.

Furthermore, I question the rational (in my case) of rebalancing since, in absolute dollars, I have plenty of FI.
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Re: Historic Stock Market Levels

Post by OnlyMyOpinion »

As others have already described:
Heck even I can recognize juicy capital gains. My difficulty is on the other end - Is this the low? Do I buy back in now? Is this a dead cat bounce? Maybe buy some now and some later? Boy that's a lot of cash sitting not collecting dividends. Cripes the market recovered quickly when I was traveling or unable to trade.

So while maybe not optimal, the big $ minicorrections like occurrred in January weren't upsetting and in hindsight I wouldn't have done well trying to be out and then in at the right time.

"Hey we're in income mode
So we'll just buy and hold."
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Re: Historic Stock Market Levels

Post by 8Toretirement »

brucecohen wrote:
8Toretirement wrote:I am interested in why an individual would stick to a buy and hold portfolio
Because deviating from that requires getting two timing decisions right:
-- When to sell
-- When to buy back in
It's very hard to get both right. And, from personal experience, I can tell you that psychologically the second decision is very difficult if the first one avoided a big drop. I luckily avoided all carnage from the 2007-08 crash but then missed the subsequent sharp rebound because unknowingly I was so mentally invested in a bearish outlook. Every day it's easy to find reasons to buy and also not to buy. This was discussed just the other day on NPR. The interviewee suggested that the market rise has been fueled by expectations that simply can't be met by Trump and the Republican congress so a downturn is likely. But, citing the problem of having to get two decisions right, she advised retail investors not to dump long-term holdings but to rebalance.

Also, someone with a taxable account has to factor in the tax due on realizing a capital gain. A paper loss is theoretical. Tax due is a real loss.
Removing the taxable equation I don't believe we have a two decision equation that is insurmountable.

Most pundits would say the markets are stretched. Certainly markets cant keep going up at this pace or we will be in for a major correction when they become rational. We are at historic peaks, due to what exactly?

If an investor has profit, taking some is not a portfolio killer. You are locking in profit, that is real money. The main decision is what to do with the profit.

In this scenario you are locking in profit, but forgoing future profit on the amount you withdrew from the market at historic highs. I am not suggesting cashing in it all, simply trimming exposure where it makes sense.

So the sell decision is not a difficult proposition based on rational thought. History is not always repetitive like analysts try to establish.

On the buy side: If there is a market sell off and you buy in at a level less than you sold (accounting for transactional costs) then you have the basis for the buy side equation wherever that may be.

I'm not going to call a market correction because I don't know, but from my perspective two issues are prevalent.

1) Markets are high based on what? speculation, the hope that business can continue to raise prices on a consumer that has not seen significant wage increases in decades? Wages by the way, are the antithesis to companies generating higher profit. But a requirement for increasing business prices. The consumer has compensated by dipping into debt markets at worrying levels, thus limiting future spending ability, which ties back into companies generating higher profits.

On what basis can sales and prices for goods and services continue their upward trend? Take a look at where we started in 2009. What has changed and what needs to change to continue this climb. A business is ultimately worth its revenue stream. The rest is pie in the sky crap.

It seems there is a lot of faith that business can continue to raise profits to account for increasingly higher stock prices, and this balancing act will continue forever.

Just my thoughts
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Re: Historic Stock Market Levels

Post by Shurville »

It can take a long time to recover from a 10-15% correction . At my age I may not have enough years and patience. I have taken profits to move to a 50% cash position.Makes me feel better!
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Re: Historic Stock Market Levels

Post by doom_diver »

On what basis can sales and prices for goods and services continue their upward trend? Take a look at where we started in 2009. What has changed and what needs to change to continue this climb. A business is ultimately worth its revenue stream. The rest is pie in the sky crap.
Well we've already seen the drop in the bucket.
http://www.cnbc.com/2017/02/17/skorea-c ... krupt.html

I moved my money right in last year in Febuary, and I've made some huge gains off of that original money. I considered Trump winning the election the bonus on the cake.

What needs to change to continue this climb, or how can I make the most money off of these unique opportunities that present themselves.
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Re: Historic Stock Market Levels

Post by Peculiar_Investor »

I concur with Bruce's viewpoints, particularly the need to get two decisions correct. I generally ignore stock market levels and the talk about them. They are just a number and for the most part noise in my view. Forecasting if/when a market correction will occur is a mug's game and no one has a crystal ball that can accurately predict the future.

As a buy and hold investor, I'm purchasing part of a business and as long as I have faith in the management team to deliver solid results and grow the business, I'm a happy shareholder. If there is a significant change in the business and/or the financial results I'll re-examine whether I want to remain a shareholder.

Most, if not all, of my decision making process in this regard is documented in my investment policy statement (IPS) which at a high level guides my asset allocation decisions and sets our target allocations to equities, fixed income and cash (and equivalents), plus the acceptable ranges. generally plus/minus five percent, before I'll make a move to rebalance back to target. It also specifies the limits on individual equities holdings and although I'm a buy and hold investor, if a particular stock holding becomes too large (or too small), then it becomes a candidate to trim (or add) to the position to bring it back to within acceptable limits.

For taxable accounts, there is some prudent consideration that must be given to tax consequences and triggering capital gains and/or harvesting capital losses.

If you have an appropriate asset allocation for your individual circumstances, i.e. the sleep at night factor, and a properly diversified portfolio, I'm not sure why anyone would be monitoring or tracking the current or historical market level and making investment decisions strictly based on whether they are too high or too low.

IIRC a number of published studies have shown that time in the market and the compounding effect are the investor's best friend and the impact of market timing and the possibility of being out of the market for "best days" has a significant impact on long term returns. That's not a risk I'm willing to take, so I ignore the noise and stick to policy and continue to just implement our plan.
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Re: Historic Stock Market Levels

Post by 8Toretirement »

Peculiar_Investor wrote: IIRC a number of published studies have shown that time in the market and the compounding effect are the investor's best friend and the impact of market timing and the possibility of being out of the market for "best days" has a significant impact on long term returns. That's not a risk I'm willing to take, so I ignore the noise and stick to policy and continue to just implement our plan.
William Bernstein has done a lot of research into this area and has stated that once an investor has reached their retirement targets then they should significantly reduce their exposure to the markets. He actually states, "get out of the game."

Why continually risk what you have if you have enough to live at the standard of living you want when in retirement or nearing retirement? I am not saying we should be out of the market, but I don't understand continually rolling the dice knowing the odds are stacking up in favour of the house.

Your comment above rings true for a young investor, but the repercussions for an older investor are compounded by the time horizon of the investor. In effect the risk and repercussions of being in the market are greater for retirees and near retirees than for non retired workers. When you are working it's a paper loss, when nearing or in retirement these paper losses are actual losses when the portfolio is drawn down. They represent a loss in lifestyle.
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Re: Historic Stock Market Levels

Post by AltaRed »

That is one approach but is not necessarily one that can provide the most fruitful retirement. If one use's the Variable Percentage Withdrawal (VPW) methodolgy year by year during one's retirement, there is almost no risk of outliving one's money AND one can have a much 'richer' retirement at the same time. Google it (see Finiki or Bogleheads) for the spreadsheet.

Now if one wants to be conservative, by all means reduce one's equity allocation as one approaches retirement and perhapd the early years of retirement to avoid 'sequence of returns' risk, but also consider the constraints one can place on their lifestyle by not actually boosting their equity component as they age. There comes a point where, perhaps at 80 years old, one can take more risk (and play more) because now the money only needs to last another 15 years (20 years if you insist).

What one does is totally dependent on their 'sleep at night' factor and their willingness to do a little spreadsheet work every few years. I am 11 years into retirement and my equity asset allocation is now increasing (by intent). That said, it is easy to say this with now exactly 8 years to the day of the most recent bull market. But that just changes the amount one can withdraw safely each year. If equities drop 30% this next year, it just means my withdrawal is much less in 2018.
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Re: Historic Stock Market Levels

Post by Peculiar_Investor »

I'm no longer a young investor, although still in the accumulation phase, with retirement approaching. I've read some of Bernstein's material on "winning the game" and IIRC there have been a number of FWF discussions on the topic.

Our investment policy statement reflects some of that knowledge. Every five years it calls for us to reduce our equity allocation. I however cannot imagine a scenario where I'd "get out of the game" as future expenses, longevity and spending patterns will never be exactly know. We can forecast a variety of scenarios for them to determine some idea of a retirement target, but again the crystal ball cannot forecast the future, so how do I really know that I've "won the game"? What has always worked well for us is a simple truism, spend less than we earn.* If earnings dip, then reduce/eliminate some of the discretionary spending.

As I've learned things we've tinkered with our investment policy statement to reflect some of the things I've learned as one approaches and plans for retirement. We've taken steps to ensure that our cash and fixed income investments are appropriate structure to immunize ourselves from sequence of risk issues at the beginning of retirement. But that's independent of any notion of historical stock market levels.
8Toretirement wrote:I am not saying we should be out of the market, but I don't understand continually rolling the dice knowing the odds are stacking up in favour of the house.
Who says the odds are stacked in favour of the house?

* "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." Dickens.
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Re: Historic Stock Market Levels

Post by ghariton »

Agree with P_I and AltaRed. I settled on a buy-and-hold approach around 2004, after having disastrous experiences with both stock picking and market timing earlier. The buy-and-hold strategy saw me through 2008 with a minimum of worry. I expect it would see me through a fifty per cent drop in equity markets, were one to occur.

Bu8bbles are not necessarily a calamity. I was caught up in the 2000-2001 tech bubble, where I learned about my tolerance for risk/volatility. I lost two thirds of my money from the peak to the trough. But in all honesty, I should add that I started investing heavily in tech around 1993. After the dust had settled and I had ridden the roller coaster up and down, I was ahead. My numbers show a cumulative gain of 40% from 1997 to 2003, but those numbers are not "clean" as they do not properly account for additions and withdrawals. Nevertheless, I think it is fair to say that the early gains, as the bubble was inflating, more than made up for the later losses, as the bubble burst.

More generally, I think that the stock market is a random walk, with an underlying upward drift. Ther4e will be ups and downs, some of them pretty big and scary, but over all, it's better to be in the market than out of it. I act accordingly -- well, almost. I admit to recently having increased my cash reserves from 0 per cent to 1 per cent, as a result of delaying the reinvestment of interest and dividends. Call it inertia rather than market timing.

As for quitting the game once you have made "enough". I'm human, and so I reject the concept of enough. My wife and I don't need any more money for ourselves, true, but we have three children and four grandchildren, with more on the way. One reason to invest successfully is to help the grandchildren get started -- especially the ones in Vancouver, if they ever want to buy houses. There are other charities too, to whom we will be leaving bequests or giving money before our deaths. The more money we have, the more we can do.

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Re: Historic Stock Market Levels

Post by 8Toretirement »

Peculiar_Investor wrote: I've read some of Bernstein's material on "winning the game" and IIRC there have been a number of FWF discussions on the topic.

Our investment policy statement reflects some of that knowledge. Every five years it calls for us to reduce our equity allocation. I however cannot imagine a scenario where I'd "get out of the game" as future expenses, longevity and spending patterns will never be exactly know. We can forecast a variety of scenarios for them to determine some idea of a retirement target, but again the crystal ball cannot forecast the future, so how do I really know that I've "won the game"? * "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." Dickens.
I think what Bernstein is trying to project through his research is that investing is a risk, that compounds over time. Contrary to popular financial advisor investment advice, market risk is greater for a retiree as they are not generating new funds which they can invest on dips, and they have shorter timespans. Also tied into this is the sequence of returns risk that follows withdrawals from portfolios that have dropped when in the withdrawal phase.
You might die at 90 but you may not be effective as an investor for 10-20 years prior to death. This timespan increases your overall risk, and that's for a competent investor. This risk increases in multiples for the average Joe.

Bernstein is relaying that once your retirement goals are met, based on your expected needs, which a retiree can calculate with fair accuracy especially in Canada; then individuals should reduce exposure to market risk. There are other ways to preserve longevity of funds. One of which is to delay CPP, which provides about an 8% increase each year, fully indexed. Another is to structure income to reduce tax exposure. Another is to reduce yearly expenditures to match the portfolio.
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Re: Historic Stock Market Levels

Post by AltaRed »

Different strokes for different folks.

I suppose Bernstein may be thinking mostly of those who do not want to manage portfolios all that much, nor to trust an advisor to do it for them, or truly do want to disengage from the financial marketplace. Most of the older co-hort that remember the '30s are quite content to have their CDIC guarantees and not have to think anything other than to rollover their GICs. One can also argue there is another cohort that doesn't want to do anything other than cash in their annuity cheques, aka per the commercials from Manulife and Sun Life. If that is what helps them sleep at night.... then yes, re-arrange the portfolio accordingly and avoid those distractions.

However, there are many investors who have the acumen and desire to mitigate sequence of returns risk, have the savvy to operate a spreadsheet and re-calculate their VPW for this year, follow the markets and perhaps make a few trades, etc, etc. The world of finance remains a hobby of mine and I will continue to play it rather than go golfing or reading a book on a freaking hot beach. I hate golf by the way as I do broiling in the sun. If and when I tire of managing my portfolio, I hope I have the sense to make it more bulletproof and capable of idling away with no one in the driver's seat before becoming incompetent. Retirement is a long adventure for many and I am not ready to get off this horse just yet.
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Re: Historic Stock Market Levels

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ghariton wrote: As for quitting the game once you have made "enough". I'm human, and so I reject the concept of enough. My wife and I don't need any more money for ourselves, true, but we have three children and four grandchildren, with more on the way. One reason to invest successfully is to help the grandchildren get started -- especially the ones in Vancouver, if they ever want to buy houses. There are other charities too, to whom we will be leaving bequests or giving money before our deaths. The more money we have, the more we can do.

George
I think mentally you have split your funds into two portions, one for living and another to see how much money you can generate for a legacy. All good. But not the average experience for the average Joe.

However, if we were to start with a blank slate and distill the genesis of the argument into retirement funding for your average person. Should they really gamble it all by riding the market in retirement or would using other strategies to limit market exposure, especially on historic market highs be a better life choice? For the average person, lets put it that way.

Here are a few strategies that might be preferable to riding the market for the average Joe:
1. working until they can fully fund a portfolio
2. delaying CPP
3. living within the portfolios means
4. minimizing taxes
5. limiting losses that cannot be recovered
6. part time work
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Re: Historic Stock Market Levels

Post by AltaRed »

Indeed, all of those 6 items are a reasonable approach. But the first item can be interpreted a dozen ways. What does a 'fully funded portfolio' mean? You have to define the withdrawal plan and lifestyle to come up with a reasonable answer.
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Re: Historic Stock Market Levels

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AltaRed wrote:Indeed, all of those 6 items are a reasonable approach. But the first item can be interpreted a dozen ways. What does a 'fully funded portfolio' mean? You have to define the withdrawal plan and lifestyle to come up with a reasonable answer.
I simply took my current yearly expenditures as we don't have any debt and added some funds for entertainment and travel and came up with a number. Making it last to 90, with more funds for travel earlier on, good to go. We will check our expenditures each year, reduce travel if we need to trim expenses. In reality, I doubt I will live past 85, wife should survive me but can live easily on remaining income streams.

Kids get whatever is left which should be the house plus some left over funds. Worst case scenario, the house is in the back pocket.
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Re: Historic Stock Market Levels

Post by kcowan »

I heard this kind of talk related to real estate in Vancouver most of the past 10 years.

I also heard many people talking it up in November when the Trump win would lead to a meltdown.

I think it is a good discussion topic though as these are core issues that need to be exercised.

For me, my FI continues to convert from long term bonds and debentures to short term holdings. No panic, just the inevitable conversions and maturities: 32% shifting from juicy long term to pukey short term yields.

I am also torn about the rumoured increase in capital gains inclusion rates. Is now the time to crystalize and take the tax hit? Once I sell, will I sit on the sidelines? For how long?
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Re: Historic Stock Market Levels

Post by ghariton »

kcowan wrote:I am also torn about the rumoured increase in capital gains inclusion rates. Is now the time to crystalize and take the tax hit? Once I sell, will I sit on the sidelines? For how long?
I think that you are dealing with two separate issues here. The first is whether to crystalize capital gains and pay tax now, or wait, grow some more on a tax-deferred basis, and eventually pay capital gains at a rate that might be much higher than today. A tough call for me, especially as it is psychologically loaded. If I were to crystallize and pay taxes now, I would feel poorer, although in truth I would not be.

Once you make allowances for your taxes on capital gains, by setting aside the requisite funds, there is nothing to prevent you from promptly reinvesting the rest in look-alike securities. You might want to delay, thus raising your cash reserves, but that has nothing to do with the capital gains you have just crystallized.

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Re: Historic Stock Market Levels

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8Toretirement wrote:
William Bernstein has done a lot of research into this area and has stated that once an investor has reached their retirement targets then they should significantly reduce their exposure to the markets. He actually states, "get out of the game."

Why continually risk what you have if you have enough to live at the standard of living you want when in retirement or nearing retirement? I am not saying we should be out of the market, but I don't understand continually rolling the dice knowing the odds are stacking up in favour of the house.
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.
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Re: Historic Stock Market Levels

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8Toretirement wrote:
1) Markets are high based on what? speculation, the hope that business can continue to raise prices on a consumer that has not seen significant wage increases in decades? Wages by the way, are the antithesis to companies generating higher profit. But a requirement for increasing business prices. The consumer has compensated by dipping into debt markets at worrying levels, thus limiting future spending ability, which ties back into companies generating higher profits.

On what basis can sales and prices for goods and services continue their upward trend? Take a look at where we started in 2009. What has changed and what needs to change to continue this climb. A business is ultimately worth its revenue stream. The rest is pie in the sky crap.

It seems there is a lot of faith that business can continue to raise profits to account for increasingly higher stock prices, and this balancing act will continue forever.

Just my thoughts
This isn't a zero some game called "profits vs wages". Markets have been rising on the expectations of growth rather than price gauging by all them nasty businesses. And perhaps the markets are wrong and lower taxes won't lead to growth and higher profits. Or maybe the lower taxes won't materialize at all. We don't know that. You can always bet against the market. Good luck.
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Re: Historic Stock Market Levels

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Mordko wrote:Moving everything into FI and cash isn't risk-free either. One is always "in the game" until the light is out.
Well said. A bout of high interest rates and inflation could do a lot of damage to the returns of a fixed income or cash portfolio.

Inflation was low in the 50s and 60s and many people thought it would stay low forever. Inflation was high in the 70s and 80s with expectation that it would be high forever. Now inflation is low, and expectations are it is not going up any time soon.

I don't think planning a 30 year retirement, or a 60 year financial plan without having assets that provide at least some inflation protection is wise. Equities, indexed pensions and deferring CPP all provide inflation protection. Balance is the key.
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Re: Historic Stock Market Levels

Post by Wallace »

ISTM that investment strategy depends to a great extent on how much capital you have.
#1 - The 0.0001%. If you have so much money that you can live off fixed income products without touching the capital, you don't need to be in the market. It's so easy to make a small fortune if you start with a large one.
#2 - The 1%. If you can't live off FI without touching the capital but can live off dividends, go for 100% blue chips. It doesn't matter what the price of the stock is if you're never going to sell it.
#3 - The 10%. This is where I am. I have a decent dividend income but can't live off that alone. I have to dip into capital each year. I've chosen to go 85% stocks and 15% cash which gives me enough cash to live on for a couple of years in a downturn. I use VPW as noted by AltaRed and so far so good.
#4 - The next 50%. Moderate savings but will it be enough to last throughout retirement? This is the toughest group. If a 15% dip in the market makes a significant difference to your yearly withdrawals, it's going to be increasingly dangerous to not have FI. OTOH, FI will bring down your returns, no question. Whether you have 90/10, 70/30, 60/40 split depends a lot on your comfort level. ? Annuities.
#5 - The next 20%. If you have a small nest egg in retirement, you should seriously question any involvement in the market. Again and annuity might be a possibility. The trouble with small savings is that the government will take them if you need admission to a nursing home. Why not just spend the money on making yourself more comfortable?
#6 - Lottery tickets.
All comments are assuming you are in retirement or close to it. If you're still in accumulation stage you'll have a good idea where you're aiming.
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longinvest
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Re: Historic Stock Market Levels

Post by longinvest »

GreatLaker wrote:
Mordko wrote:Moving everything into FI and cash isn't risk-free either. One is always "in the game" until the light is out.
Well said. A bout of high interest rates and inflation could do a lot of damage to the returns of a fixed income or cash portfolio.
GreatLaker,

Do you mean that inflation would hurt Real Return Bonds (RRBs)? I always get confused when people say that bonds* are vulnerable to inflation. I have yet to find a single stock which is guaranteed to deliver as robust an inflation-adjusted stream of income as well as inflation indexing of par value as an RRB. Actually, a stock has no par value whatsoever! What am I missing?

* A Real Return Bond is a bond!
GreatLaker wrote:I don't think planning a 30 year retirement, or a 60 year financial plan without having assets that provide at least some inflation protection is wise.
In his The Ages of The Investor booklet, William Bernstein is in favor of a “liability matching portfolio” (LMP) that is structured to provide an adequate lifetime income and a “risk portfolio” (RP) of funds in excess of the LMP that serves for luxuries and bequests. He writes:
Consider, first, the LMP. In a perfect world, this should consist of an inflation-adjusted, highly secure annuity.
...
The cheapest and most secure “annuity” you can get can be had simply by deferring your Social Security payments until you reach age 70.
...
If the Social Security “annuity” does not provide enough coverage and you don’t want to purchase a conventional annuity, a Treasury Inflation Protected Securities (TIPS) ladder can serve much—but not totally—the same purpose as the commercial inflation-indexed annuity and allow the retiree to keep control of most of his or her nest egg in an investment vehicle that is almost perfectly safe.
...
When using TIPS to fund your retirement, do so with a ladder whose maturities at least approximately match your projected needs
Note that Social Security is the US equivalent to OAS + CPP, and TIPS are the US equivalent to RRBs.

So, Bernstein is not promoting to get out of the stock market and put the money into a portfolio of nominal bonds. He is talking about building a robust lifelong inflation-adjusted stream of income to cover basic needs, and leaving the rest into a risky portfolio (one built of risky assets such as stocks and nominal bonds).
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
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