Mathjak's Market Calls

[MachineGhost]

and for ghost the select fund portfolio is flat ytd . it recovered nicely since it was down more than the others

Did it have exposure to the energy or biotech sector?

BTW, how did you handle those really killer drawdowns from 2000-2003 and 2007-2009?  They were historic, to say the least.

[mathjak107]

no problem ,  volatility  didn't bother me as much back then since i wasn't retired . today i am comfortable with the swings of a 50/50 .

what you have to rember is the up cycles take you up that much higher so the roll backs are to levels you wouldn't even be at if you were  much more conservative

i have little interest in paying attention to draw down for  that reason .  Over the last 100 years the stock market has experienced on average a 5% correction three times per year, a 10% correction once per year and a 20% correction once every three and a half years.

over the full market cycle, investing to achieve short-term comfort costs a fortune." -- John Hussman

"Fear is a stronger emotion than hope, which is why bear markets are always swifter than bull markets. The secret of making money in stocks is not to get scared out of them. Never bet on the end of the world, It only happens once." -- John Templeton


as far as the selects  they held no energy but did have bio tech at on point  but no longer .

[MachineGhost]

]

what you have to rember is the up cycles take you up that much higher so the roll backs are to levels you wouldn't even be at if you were  much more conservative

i have little interest in paying attention to draw down for  that reason .  Over the last 100 years the stock market has experienced on average a 5% correction three times per year, a 10% correction once per year and a 20% correction once every three and a half years.

Well, that may be true in nominal terms, but in real terms that may not happen for 20-30 years.  I know you don't look at returns in real terms, but it is an illusion to think you're at a higher wealth level in the future in terms of purchasing power just because the stock market is still nominally higher even after a 50% correction.  As Hussman says, bear markets regular wipe out more than half of the preceding bull market gains, but hes talking nominally.  The situation can be far worse in real terms, like the last 15 years where the S&P 500 just recently got back to breakeven in nominal terms, but has yet to in real terms.

So what about how you handled the dual risk of both losing your job as well as having those 50% portfolio losses at the same time during an economic contraction?  That is where the real risk is, I think.  Extremely psychologically difficult, especially if you have to tap into that capital for unemployment purposes.

We keep talking about this stuff and I think I'll even get immune to the -80% "volatility" in the Great Depression!

[mathjak107]

Once you start with all the what if's in life odds are you will paralyze yourself as a successful long term investor.

Most successful investors both in the markets and real estate tend not to believe their own bull shit.

One of the country's most successful real estate investors was my partner . I learned so much from him about how our brains will paralyze us if we allow it.

Our brains will gladly just keep feeding us visions of disaster scenario's , all the things that can go wrong  and the loss of money.

Nothing has any guarantees in life  just calculated odds and risk.

This is why some of us do well as investors and others  not so well.  Those that want little risks or volatility usually will pay a price for that .

Most of what allowed me to retire has not been  what I saved from my pay checks. It was the years of compounding on the investments I made from that relatively little bit I saved from my checks.

[dutchtraffic]

It's pretty simple, if you're going heavy on stocks, you're betting that the US is going to go through another golden age.
It's fine if you believe that, but let's be realistic, the chance of that is like what, 0.004%..?

(ps: most pros pretty much agree we are in the 'twilight zone' and all is messed up beyond repair, and no, this never happened before)

[mathjak107]

40-50% in equity's is far from heavy in equity's if you are referring to my current allocations.  It is a nice comfortable very typical allocation for retirement .

If I was still in my accumulation stage I would change nothing I did . Yeah I don't expect those returns going forward but I do believe once again whatever the results are they would  still out do the other choices once again.

If I didn't believe that , I wouldn't be an investor. I would buy all  cd's ,short term bonds and tips

[Pointedstick]

Most of what allowed me to retire has not been  what I saved from my pay checks. It was the years of compounding on the investments I made from that relatively little bit I saved from my checks.

What would you recommend for someone who plans to retire in a small number of years? Say, four?

[mathjak107]

that is a tough question to answer .

i can't say what is right for you , that depends on so many factors  .  it depends on what your own needs , goals and expectations from your money are .

if i had enough money saved by that point and had a pension that covered my needs then depending on the person you are you might want to just leave that money  invested as it always was in the growth model since with that pension the pay check never stops .  or you may want to say screw it, i got all i need so i am going with short term bonds , tips and a longevity annuity .

then we have everything in between .

i can only say what  i did .

i was always an aggressive investor . i couldn't care any less about draw down since i was interested only in long term results . what happened during short term cycles just went with the territory .

whether equity's or real estate my interest was to make my money produce while keeping risk but not always volatility to an acceptable level .

so what i did is shift about 6-7 years before i thought i would retire down to a compromised level .

i still wanted growth but less swings so i stayed with with the insight models  and switched from 100% the growth model to a kinder , gentler model  and used 1/3 the capital preservation model and 2/3's the growth and income model . that worked out to a  50% equity's model .

i liked the idea of keeping it dynamic .  while the allocations to equity's  stay in the same range percentage wise  the types of funds change a few times over the years  reflecting the world's changes better .

yes , we even owned fidelity select precious metals at one point when it was  a good time to own them . we may own them again one day when there is reason to or more value there .

i can't talk to much about the model's holdings because folks pay for that info but right now the models hold defensive positions in funds ,  industrial's , healthcare ( not much  biotech ) and consumer discretionary spending are where the funds weightings used are today .

but even wellesley income i think would be an excellent choice . maybe wellesley with a mix of other types of bond funds may be even better . that way you can have bond funds that do well if rates stay low and bond funds that do well if rates rise or if the dollar stays strong or if it weakens .  you can season to taste as needed .

another very very popular mix on the popular early retirement forum that sponsors firecalc is a 50/50 mix of wellesley and wellington ..

there is no end to what you can do  for a retirement model .

bob clyatt in his book work less live more has a nice diversified retirement model . i adopted bob's 95/5  method of determining how much you can spend each year  in retirement  as my own method as opposed to the 4% rule .  a bit heavy on international but in the long term i think that will be just fine as well .

20% VFINX  S&P500
      8%  VTMSX Tax Managed Small
      6%  VGTSX  Total International Equity
      10% VINEX  Internat'l Explorer (small)
      6% VEIEX  Emerging Markets
      30% VBIIX Intermediate Bond Index
      11% BEGBX  International Bond
      5%  VGSIX  REIT Index
      4%  Money Market Fund


bob swenson has a nice zero equity model for those with no pucker factor which is a diversified income model ,  which i am not a big fan of right now but non the less it is a viable option.

25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)

25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)

10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)

10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)

7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)

7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)

7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)

7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)

i think you will find overall most retirees who do have a portfolio fall out between 40-60% equity's .  even the pp could be fine but i think the timing now for such heavy bets on interest rates holding on bonds and gold performing may be a bit to much  of a drag on equity's if as usual the lead horse is equity's  and their returns are below average as predicted . the pp needs very  strong trends in something  to do well and with all category's either fully valued or just to out of favor for the conditions they are in , strong trends may be years away . .  .  but that is my opinion .

[barrett]

Most of what allowed me to retire has not been  what I saved from my pay checks. It was the years of compounding on the investments I made from that relatively little bit I saved from my checks.

What would you recommend for someone who plans to retire in a small number of years? Say, four?

I know this thread is Mathjak's Market Calls and not Barrett's Market Calls, but my advice would be don't do it. Plan on working a few years longer. Better to work a bit longer and regret it than working fewer years and regretting it. Mathjak's track record of doing really well in stocks and real estate may be repeatable over your time horizon but, gosh, I wouldn't count on it.

Whether you are invested in the PP or something closer to MJ's 50/50 mix, returns are just really likely to be very low for the next few years. Either mix is barely eking out gains right now.

To re-phrase what MJ wrote, I think most of what will allow today's investors to retire will be what they are able to save. Wellesley could be a good option for income but its performance will get hurt by this low-rate environment too. My wife and I are getting close to retirement and I am thinking more and more about annuitizing a portion of our assets. That and working part time.

Being so young, PS, means that you have a lot more unknowns than someone who is already in their 60s. Mathjak and I are trying to figure out a 30-40 year investing horizon. You are looking at more like 70. Err on the side of caution. Besides, you're really good at what you do for money, right? You might stink at retirement!

[mathjak107]

working longer is always a silver bullet if you can do it and want to do it.

just the difference between 62 and 70 can take a poorly funded  , likely financially stress filled miserable retirement and turn it in to a pretty good one .

not only will your ss check be 76 % bigger forever plus colas ,  but:

you have 8 more years to grow investments

8 more years to add to investments

8 years of not spending down assets

possible reduced or employer sponsored medical insurance

8 years of life less to support .

that can be worth as much as having an extra 800k saved up .

on the other hand , i liked my job a lot but i got to tell you , BEING RETIRED IS AWESOME .

I WISH I DID IT EVEN EARLIER.

as far as annuty's i think immediate annuity's may be playing a part in many of our retirements going forward . if not so much for us but if we have a spouse ,especially a wife who is not in to investing  pensionizing a piece of your non discretionary spending in to a check n the mail box can help her  a lot .

the reason i say "wife " is women live longer and while 80% of married men die married 80% of married women die alone .


also don't forget when i started investing the out look like now sucked . i entered the work force in the 1970's .

it looked like market returns were dead  forever .  well we know how that turned out .  so while the near term looks crappy the potential for world growth eventually is huge .

[barrett]

also don't forget when i started investing the out look like now sucked . i entered the work force in the 1970's .

it looked like market returns were dead  forever .  well we know how that turned out .  so while the near term looks crappy the potential for world growth eventually is huge .

I really do wish I shared your optimism about world growth, MJ. Having travelled a lot I guess I just think that there are reasons much of the world has not experienced growth. And many of those reasons are not going away anytime soon. Maybe one could have said the same in the 1970s. I don't know.

[mathjak107]

I am not optimistic at all. In fact my entire retirement plan is based on the worst case scenarios.

But i do think that no matter how tepid returns are a position of 40-60% equity's will work fine as well as can  do even better through my retirement if things are even just average , not even above average

Anything better then worst case will be an upside surprise.

[Pointedstick]

Being so young, PS, means that you have a lot more unknowns than someone who is already in their 60s. Mathjak and I are trying to figure out a 30-40 year investing horizon. You are looking at more like 70. Err on the side of caution. Besides, you're really good at what you do for money, right? You might stink at retirement!

That is certainly true. I know for a fact that "retirement" for me means "freedom to work on my own money-making projects." If I could't be productive, I'd be one of those people who retires and is dead in a year.

I am definitely considering working a few more years. Somehow I have been able to raise my net worth by $100k a year for the past three years, so if I can keep that up, it might be a no brainer to just work a bit longer and sock away a lot more money.

[mathjak107]

i doubt many enter retirement and don't wish they had even more saved  , self included . my want and dream list is far longer then our budget . so eventually everything becomes a balance .

there are rarely days we are not out and about or traveling now . each day is another adventure now that we are retired , especially living in the nyc / long island area . we were already at the gym this morning and at oakland lake shooting the foliage and it is only 10:28 in the morning .

we may head to central park later or tomorrow morning .  .  yesterday we were out shooting the foliage in the morning  which i posted and at the target range in the afternoon  sighting in for hunting season ..

for us we have little down time at this point  in retirement .  i still do consulting 2 days a month and enjoy that interaction with others since it is just my wife and i 24/7 if we are not with the kids and grand kids .

[Tyler]

Being so young, PS, means that you have a lot more unknowns than someone who is already in their 60s. Mathjak and I are trying to figure out a 30-40 year investing horizon. You are looking at more like 70. Err on the side of caution. Besides, you're really good at what you do for money, right? You might stink at retirement!

That is certainly true. I know for a fact that "retirement" for me means "freedom to work on my own money-making projects." If I could't be productive, I'd be one of those people who retires and is dead in a year.

One of the things I've found out quickly as a very early retiree is that interesting work finds you.  Let's be honest -- the type of skill, drive, dedication, and thoughtfulness required to become financially independent at a young age is quite rare and that doesn't go away when you stop showing up at the office.  New opportunities I never expected show up all the time, and I recently started a fun part time gig where I found myself in a unique situation to name my own terms.  It's much more about being mentally free and nimble to pivot on the spot than it is about being mentally retired. 

For a very early retiree, financial independence is really not about checking out and living off of investments for 60 years.  It's about throwing off the previous constraints on your life and opening up maximum opportunities.  With that kind of drive and blank canvas, making money at various points along the way is inevitable.  So don't limit yourself to thinking about accumulation purely in terms of your current career before you "stop working", don't fall into the mental trap of pigeon-holing yourself into a single work specialization to maximize income, and don't assume that higher investment returns automatically make your life better.  Life is about so much more than money.  Start thinking in terms of freedom, flexibility, and sustainability rather than dollars and career path, and IMHO life gets a lot more interesting. 

[mathjak107]

this is  very true . in fact the job offers i have been getting from competitors are just insane .  if i didn't enjoy retirement so much they are tempting .

[mathjak107]

no fund swaps .

as of 11/6

growth model up 4.10% ytd

growth and income model up 3.00%

income and capital preservation model up 1.21%


pp - down 1.92%

[lazyboy]

"as far as annuty's i think immediate annuity's may be playing a part in many of our retirements going forward . if not so much for us but if we have a spouse ,especially a wife who is not in to investing  pensionizing a piece of your non discretionary spending in to a check n the mail box can help her  a lot ."

When I retired in 2007 I bought an immediate annuity through Vanguard with about half my retirement savings. On reflection, I'm OK with having done that- the annual payout was high at that time -over 8% a year for a lifetime. It created an immediate pension. Since than, payouts are less. Of course the down side is the money's locked up and can't be withdrawn for emergencies or other investments. That's why they recommend using no more than 50% of retirement assets to buy one.
My question MJ: Would you be more in stocks as a % of remaining investment if you bought an immediate annuity?  Or would your 40-60% in stocks stay the same ? 

[mathjak107]

i would simply replace some of the bond portion with the spia  and the allocation would still stay the same .

the more conservative the portfolio the bigger the difference an spia can make .  i would not use an inflation adjusted spia . that is what your own equity's would be for , the cost of an inflation adjusted spia is just to high .

one other thing you may want to compare is the cost of a joint spia to a single  spia with a separate life insurance policy .


that combo has done the best in 70% of the time frames looked at .  unlike the taxable spia the insurance is tax free to a spouse  .

in fact the best value has turned out to be not buying term insurance  and trying to invest the difference when you are younger but permanent life insurance and your own investing .

while 100% of the time term and investing gave you a bigger balance  at retirement age the tide shifts right after that point . no one really looked beyond that point before pfau's white paper in great detail .they just accepted what was believed up to retirement age . . .

an integrated strategy using an spia and permanent insurance when coupled with your own investing gave you a higher income 100% of  the time and a bigger balance for heirs 70% of the time .

you have the spia which can throw off much higher income early on then bonds and cash , you have your own investing for inflation adjusting and growth and permanent life insurance for a spouse that is never taxed .

new research by kitces and dr pfau today are opening up doors to strategy's  that no sane investor would have ever considered as the better choice .

but cheaper simpler  single premium immediate annuity's changed all that since they are like buying a cd . if you like the payout  that is your deal . no other fees or expenses . vanguard seems to have the cheapest ones  , even a bit cheaper than immediateannuity.com


the older you are and the higher rates go the  better the spia deals get .

i would start to ladder them in my 70's if i did it .


do not consider variable annuity's . they are to expensive and to complex to even figure out .

[lazyboy]

Thanks Mj. Very good information on spia options and also answered my question about about investment balance.

[mathjak107]

You are welcome.

There are lots of academic study's now on using integrated stratagy's with spia's ,life insurance and your own investing.

You can google the work of dr wade pfau , michael kitces . Moshe milevsky, blanchette  and william bernstein for a good education on this stuff.

[lazyboy]

Thanks, Mj, good information on strategies. I also found this bogleheads discussion link about spia and balancing a portfolio:
https://www.bogleheads.org/forum/viewtopic.php?t=99684
It seems what strategy you take depends on the consideration of what risk level you are willing to have to meet your goals.

[mathjak107]

That is all it is about. Matching your pucker factor to realistic goals. 
As most find out looking at pretty charts and driving looking in the rear view mirror rarely gives you the results it shows previously.
Your returns and growth are all going to be unique to only you and your time frame.

The fact the pp had a good run when you had little money in it or the fact the stock markets had a great 17 year run when i had little money invested is a moot point.

What hits the hardest is what happens when you have maximum dollars accumulated.

In my case had i missed the last 5 years in equity's it would have had a huge effect on my retirement budget.  Like i said earlier , i couldn't care less that returns were weak from 2000 on . The proportion of money invested in 2000 was way way less.

So everything is about what happens to your biggest pile of dollars at any point in time.

There is likely not going to be one strategy or allocation that works all the time and forever .

It is up to you to monitor your own growth and find your own measuring stick to determine if you are on track or not.

Even small ups and downs can have pronounced effects depending on dollars accumulated.

The difference between the pp being down 2.50% and my model being up 2% is 120,000.00 dollars. That is more than most americans even have saved.
So little differences in how you allocate can produce big differences up and down.

Since 2000 volatility has become far greater and swings in allocations have been getting wider for the same allocation..

Perhaps future investing will involve insurance products designed to protect volatility from to much volatility. You can see on some down days even the pp swings more than 1% . That is like a 350 point drop in a  50/50 mix so the pp isn't really isolated either.
Going forward is going to have some pretty tough headwinds no matter what we do.

No matter what the plan you always need a plan B .
My plan B is my allocation allows me quite a few years in cash and bonds to wait out any down turns. The bonds are way less interest rate sensitive than long term bonds so if i have  to sell them during rising rates the losses will be slight.

I would hate to have to sell bonds that were as volatile as stocks if i needed to refill cash.



I also have taking social security as part of plan B . By filing it drops withdrawals way down..

Your plan B will vary.

[ochotona]

Another "Cash is King" morning!

[mathjak107]

it will be like this until the rate increase .