Close to retirement - locking in gains with each new market high

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HanSolo
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Re: Close to retirement - locking in gains with each new market high

Post by HanSolo »

politely wrote: Thu Aug 05, 2021 1:07 am
HanSolo wrote: Wed Aug 04, 2021 11:10 pm
politely wrote: Wed Aug 04, 2021 3:27 am If your dollars in fixed income are sufficient, why wouldn't you put every new dollar into equities?
It's not unusual that people reduce equity allocation as they get older.
I agree to the extent we're talking about being in the process of reaching "the number" (and in fact, I am also in the growing-more-conservative-with-age camp); however, for this thought experiment we're talking about excess above and beyond the number.
While I understand that some have a concept of "the number", I don't. That's because I don't know if I'll live to 70, 90, or 110, and also because I don't know if I'll run into massive unforseen expenditures. In my opinion, instead of "the number", there would have to be "the numbers", different numbers for different scenarios.

I get that "the number" is a trendy concept, but it's one I've never seen in any of my readings on asset allocation. In short, I choose to deal with this by not having a number (while having no objection to people having one).
If someone has confidence in their number, then it wouldn't seem unreasonable for that person to take a higher equity allocation using the excess money without taking on more practical risk.
It appears that when one hasn't defined "their number" (as in my case, and perhaps also for those who plan to stick with a target date fund), then the question disappears.

That being said, I'm aware of the Kitces/Pfau recommendation of a rising equity glide path in retirement (which is something I don't think any target date funds currently do). Perhaps that's more in line with your idea (with the exception that their analysis doesn't talk about "the number" either).

I think the answer is that different people have different investment philosophies and personal preferences, so they'll do different things. I'm not seeing any problem in that.

I think sometimes some people see a problem where one doesn't exist.
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james22
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Re: Close to retirement - locking in gains with each new market high

Post by james22 »

marcopolo wrote: Wed Aug 04, 2021 11:08 amMost people in retirement are not 80/20. For a balanced portfolio like 60/40, keeping a separate cash bucket is mostly mental accounting, and makes very little difference.
So? Given financial repression, I'm uninterested in 40% bonds.

And while a cash bucket may make no appreciable difference to a 60/40 portfolio, I'd expect it to in a portfolio with a higher allocation to equities.
marcopolo wrote: Wed Aug 04, 2021 11:08 amThis study certainly does not add any evidence that the same total amount of dollars, with some of it squirreled away in a cash bucket, improves outcome in any appreciable way.
You've any evidence it does not?

I've asked ERN if he might re-run his analysis assuming the cash bucket DOES reduce the bond investment in the portfolio. We'll see if he replies.
skierincolorado
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Re: Close to retirement - locking in gains with each new market high

Post by skierincolorado »

Generally speaking I like this strategy because shifting to a more conservative AA with age makes sense. That shift could be a little more pronounced because there's evidence that valuations should affect AA *slightly*, so as valuations rise, the AA could/should ever so slightly shift more conservative. And the whole psychological aspect that you've already made your number, this is just locking in gains.

It depends on your current age and health of course. For 30 years 50/50 or a little under 50/50 makes sense.. but for 35 or 40 years it doesn't. A healthy 55 YO should probably be more like 60/40 in my understanding, even in current market valuations.

I also don't agree with spending down the bonds/cash portion after retiring as this will shift the AA back to stocks again. Theoretically the AA should follow a smooth glide path with age (with maybe subtle adjustments due to valuation along the way). An easy way to accomplish this is just with a target retirement date fund. If you want to be a touch more conservative, pick one up to 5 years before your actual retirement date. And while investing in CDs and rebalancing all seem like manageable tasks today... they may not be easy to manage effectively as you age, and it's often too late before you realize it - I've seen this in my aging parents. The simplest plan is the best, especially with age.
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Re: Close to retirement - locking in gains with each new market high

Post by james22 »

Hope you don't think this unrelated, HomerJ.

Sure seems you are just practicing a cash reserve/buffer zone strategy:
HomerJ wrote: Thu Jul 29, 2021 11:25 amI'm building up a cushion of cash.

It's about risk management.

I feel like it lowers my retirement sequence of return risk.

I'm sitting pretty even if there is a large market crash.

I have a large buffer even if a crash happens the day after I retire.
Still struggling to find a study that addresses the strategy without replenishing the cash reserves, but:

https://www.kitces.com/blog/research-re ... ket-timer/

https://cpb-us-w2.wpmucdn.com/sites.ude ... -Rates.pdf
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Re: Close to retirement - locking in gains with each new market high

Post by marcopolo »

james22 wrote: Thu Aug 05, 2021 9:27 am
marcopolo wrote: Wed Aug 04, 2021 11:08 amMost people in retirement are not 80/20. For a balanced portfolio like 60/40, keeping a separate cash bucket is mostly mental accounting, and makes very little difference.
So? Given financial repression, I'm uninterested in 40% bonds.

And while a cash bucket may make no appreciable difference to a 60/40 portfolio, I'd expect it to in a portfolio with a higher allocation to equities.
marcopolo wrote: Wed Aug 04, 2021 11:08 amThis study certainly does not add any evidence that the same total amount of dollars, with some of it squirreled away in a cash bucket, improves outcome in any appreciable way.
You've any evidence it does not?

I've asked ERN if he might re-run his analysis assuming the cash bucket DOES reduce the bond investment in the portfolio. We'll see if he replies.
Well, it is quite obvious that there are many scenarios where having the cash drag will produce worse outcomes. There has been no evidence provided that it helps much in the "poor performance" scenarios. It is usually incumbent on those making the affirmative claim ("squirelling away cash helps outcomes") to prove their case. I have not seen anything convincing that shows that, have you? If so, I would definitely be interested in seeing it. If such studies exist, I would have expected them to have been discussed here.
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HanSolo
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Re: Close to retirement - locking in gains with each new market high

Post by HanSolo »

james22 wrote: Thu Aug 05, 2021 7:12 pm Still struggling to find a study that addresses the strategy without replenishing the cash reserves, but:

https://www.kitces.com/blog/research-re ... ket-timer/

https://cpb-us-w2.wpmucdn.com/sites.ude ... -Rates.pdf
marcopolo wrote: Thu Aug 05, 2021 7:34 pm Well, it is quite obvious that there are many scenarios where having the cash drag will produce worse outcomes. There has been no evidence provided that it helps much in the "poor performance" scenarios.
Apparently, the above is a subset of the observation "less equities" = "worse performance" (in most periods, especially longer periods).

But I'm not the one who will tell target date investors that they'd all be better off in VTSAX 100/0 permanently.
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Re: Close to retirement - locking in gains with each new market high

Post by vanbogle59 »

As best I can tell, we have consensus. Both of these statements are true:
1) 25X + 2 squirreled is statistically superior to 25X.
2) 27X is statistically superior to 25X + 2 squirreled.

Personally, I would be stunned if either were false.

But 27X is irrelevant in this case. Because 25X = "made my number".
The stats no longer matter! That's got to be what "made my number" means, right? What else could it mean?

So, do what makes you happy with the 2x. Buy a couple squirrels. Buy some crypto. Go to Vegas. Retire early.
De gustibus non est disputandum.

P.S. I'm using 25X to represent any "made my number" benchmark. Yours may be 33X or 20X. But whatever it is, once you've "made it", you no longer have to think about survivability stats. If you do, you haven't actually "made" anything.
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Re: Close to retirement - locking in gains with each new market high

Post by james22 »

marcopolo wrote: Thu Aug 05, 2021 7:34 pmI have not seen anything convincing that shows that, have you? If so, I would definitely be interested in seeing it.
I haven't found anything yet that 1) compares portfolios of equal value with and without cash reserves, 2) does not replenish the cash reserve, and 3) uses today's bond returns.
HanSolo wrote: Thu Aug 05, 2021 8:04 pmBut I'm not the one who will tell target date investors that they'd all be better off in VTSAX 100/0 permanently.
What if you could tell them they'd be better off with VTSAX and a cash reserve?
vanbogle59 wrote: Thu Aug 05, 2021 8:09 pm27X is statistically superior to 25X + 2 squirreled.
I'm not convinced of that.
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Re: Close to retirement - locking in gains with each new market high

Post by vanbogle59 »

james22 wrote: Thu Aug 05, 2021 8:17 pm
vanbogle59 wrote: Thu Aug 05, 2021 8:09 pm27X is statistically superior to 25X + 2 squirreled.
I'm not convinced of that.
For a 25x investment portfolio with 2x cash set aside to be superior to a 27x portfolio,
wouldn't cash have to outperform the portfolio?
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HanSolo
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Re: Close to retirement - locking in gains with each new market high

Post by HanSolo »

james22 wrote: Thu Aug 05, 2021 8:17 pm
HanSolo wrote: Thu Aug 05, 2021 8:04 pmBut I'm not the one who will tell target date investors that they'd all be better off in VTSAX 100/0 permanently.
What if you could tell them they'd be better off with VTSAX and a cash reserve?
Then somebody else would tell them that VTSAX 100/0 would be even better.

My conclusion is to not tell others what's right or wrong for them. They're in a better position than I am to decide that.
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james22
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Re: Close to retirement - locking in gains with each new market high

Post by james22 »

vanbogle59 wrote: Thu Aug 05, 2021 8:27 pm
james22 wrote: Thu Aug 05, 2021 8:17 pm
vanbogle59 wrote: Thu Aug 05, 2021 8:09 pm27X is statistically superior to 25X + 2 squirreled.
I'm not convinced of that.
For a 25x investment portfolio with 2x cash set aside to be superior to a 27x portfolio,
wouldn't cash have to outperform the portfolio?
Assuming the portfolio is 60/40, it hasn't happened often:

https://theirrelevantinvestor.com/2020/ ... portfolio/

But given stock valuation and bond yields today, it seems ever more likely (especially if fear stagflation).

It would hurt if it happened early in retirement.
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Re: Close to retirement - locking in gains with each new market high

Post by vanbogle59 »

james22 wrote: Thu Aug 05, 2021 9:12 pm
vanbogle59 wrote: Thu Aug 05, 2021 8:27 pm
james22 wrote: Thu Aug 05, 2021 8:17 pm
vanbogle59 wrote: Thu Aug 05, 2021 8:09 pm27X is statistically superior to 25X + 2 squirreled.
I'm not convinced of that.
For a 25x investment portfolio with 2x cash set aside to be superior to a 27x portfolio,
wouldn't cash have to outperform the portfolio?
Assuming the portfolio is 60/40, it hasn't happened often:

https://theirrelevantinvestor.com/2020/ ... portfolio/

But given stock valuation and bond yields today, it seems ever more likely (especially if fear stagflation).

It would hurt if it happened early in retirement.
Not to beat a dead horse, but...
Doesn't this: "it hasn't happened often"
Mean precisely the same as this: "it is statistically inferior"

I think we are agreeing.
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Re: Close to retirement - locking in gains with each new market high

Post by james22 »

vanbogle59 wrote: Thu Aug 05, 2021 9:53 pm
james22 wrote: Thu Aug 05, 2021 9:12 pm
vanbogle59 wrote: Thu Aug 05, 2021 8:27 pm
james22 wrote: Thu Aug 05, 2021 8:17 pm
vanbogle59 wrote: Thu Aug 05, 2021 8:09 pm27X is statistically superior to 25X + 2 squirreled.
I'm not convinced of that.
For a 25x investment portfolio with 2x cash set aside to be superior to a 27x portfolio,
wouldn't cash have to outperform the portfolio?
Assuming the portfolio is 60/40, it hasn't happened often:

https://theirrelevantinvestor.com/2020/ ... portfolio/

But given stock valuation and bond yields today, it seems ever more likely (especially if fear stagflation).

It would hurt if it happened early in retirement.
Not to beat a dead horse, but...
Doesn't this: "it hasn't happened often"
Mean precisely the same as this: "it is statistically inferior"

I think we are agreeing.
Sorry, I'll be more clear: I'm not convinced 27X will be statistically superior to 25X + 2 squirreled going forward.
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Re: Close to retirement - locking in gains with each new market high

Post by averagedude »

I would do the same thing, but I can't bring myself to do it when the 10 year treasury is at 1.16%. Call me a market timer, buy I'm going to wait until the 10 year hits 1.75%. I am wondering how long I am going to have to wait. I am hoping that the old adage that low interest rates in the present, corresponds to higher stock prices in the future.
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Re: Close to retirement - locking in gains with each new market high

Post by vanbogle59 »

james22 wrote: Thu Aug 05, 2021 9:57 pm Sorry, I'll be more clear: I'm not convinced 27X will be statistically superior to 25X + 2 squirreled going forward.
Ah, that pesky "what will happen next?" question.
I must admit, I only "see through a glass, darkly".
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Re: Close to retirement - locking in gains with each new market high

Post by djm2001 »

HomerJ wrote: Thu Jul 29, 2021 11:25 am Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50...
You said that your plan is to stay 50/50 throughout retirement. What would you do if, 10 years after retirement, you find yourself with the same total portfolio size (inflation-adjusted) as you have today, and in a similar economic environment as today? Your preference to tilt towards bonds now (despite being employed and thus in a safer position) probably means that your "50/50 throughout retirement" strategy actually has some exceptions and caveats that you haven't stated and might even be unaware of.
AA = global stocks & bonds @ market weight (~60/40); EF = i-bonds; WR = -PMT(1%, 100-age, 1, 0, 1)
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

djm2001 wrote: Fri Aug 06, 2021 9:17 am
HomerJ wrote: Thu Jul 29, 2021 11:25 am Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50...
You said that your plan is to stay 50/50 throughout retirement. What would you do if, 10 years after retirement, you find yourself with the same total portfolio size (inflation-adjusted) as you have today, and in a similar economic environment as today? Your preference to tilt towards bonds now (despite being employed and thus in a safer position) probably means that your "50/50 throughout retirement" strategy actually has some exceptions and caveats that you haven't stated and might even be unaware of.
It's not the economic environment that is making me do this... It's retiring a couple years earlier than I thought I would, and being nervous about a crash the day after... But not because of "valuations" or another metric, but because a crash tomorrow is ALWAYS possible. It's always something I have to take into account, regardless of the economic environment.

10 years from now, we'll both be getting Social Security checks, and have ten less years of retirement to fund.

I'll be a lot less nervous, since a crash then won't hurt as much... I'll still have the 50% in bonds/cash/CDs to see me through the crash, plus SS checks coming in every month.
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Re: Close to retirement - locking in gains with each new market high

Post by Leif »

HomerJ wrote: Thu Jul 29, 2021 11:25 am So look at me, I'm not staying the course!

It's about risk management, not maximizing gains, or even maintaining an consistent Asset Allocation.
I'm with you on this.

Your course is determined by plan. I think that is certainly up for change as you move from working to retirement. I find myself, being retired for a few years, not being such a slave to my AA. Not that it is abandoned, but I'm willing to let my AA float a bit (as in the book by McClung). Some posts here talk about how many X you should have for retirement. Most seem to me to be dancing on the head of a pin.

I was planning to use McClung's Prime Harvesting. But, it seems a bit too much (unnecessary ?) work. So, I'll just get cash needs from the stock or bond side that is over allocated, and within that the particular asset class. I think for me, to minimize risk, I will be selling stocks only. I will not be rebalancing by buying stocks. Plus a bit of TLH if available. Less likely over time due to not buying stocks, except for some dividend/cap gains reinvestment positions.
Last edited by Leif on Fri Aug 06, 2021 12:29 pm, edited 1 time in total.
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Re: Close to retirement - locking in gains with each new market high

Post by reln »

HomerJ wrote: Thu Jul 29, 2021 11:25 am So, I'm close to retirement, have made my number, and now I'm just locking in gains every few months lately, when the market hits new highs.

I'm not just rebalancing back to my original AA, I'm building up a cushion of cash, but this slowly changes my AA.

So look at me, I'm not staying the course!

It's about risk management, not maximizing gains, or even maintaining an consistent Asset Allocation.

This will cost me in the long-run, since I will be missing out on compounding. In the short-run, I feel like it lowers my retirement sequence of return risk.

For instance, imagine I have $1 million in stocks and $1 million in bonds/cash/CDs. 50/50 portfolio

Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)

If the market goes up another 10%, I still make another $100,000 on the stock side... It could have been $105,000 if I had rebalanced to 50/50, so I'm out $5000... which is a good chunk of money. If someone handed me $5000 today, I'd be pretty excited.

But I already hit my number, so I'm not too worried about missing out on compounded gains in the short-term. I still make another $100,000 if stocks keep going up... I'm not that worried about missing out on the extra $5000. I'd be pretty happy with the extra $100,000 (which I would then lock in again by selling the gains - so then I would be at 45/55)

Yes, over multiple years or multiple 10% gains, compounding that extra money adds up, so this method would be a terrible idea for an accumulator, but I won't do this very long.

Just until I retire in a year or two, at which point, I'll spend all those locked-in gains first, and slowly get back to 50/50... Or there will be a crash, I'll get back to 50/50 quickly

The point is, by locking in ALL the gains, I'm sitting pretty even if there is a large market crash. Because I've already cashed out the gains, and now have a pretty nice buffer on the cash side.

If the market drops 30%, I'd be out $300,000 in stocks, but I would have already locked in $200,000 in gains, so I'd still be in great shape for retirement. I can spend from the bond/cash/CDs side until stocks recover. And if the market doesn't crash, I still spend from the bonds side until I'm back to 50/50 (and then spend from whichever side has the most money each year going forward)

I guess I'm crazy conservative, but this sure lets me sleep at night...

Am I wrong in thinking this helps with Sequence of Return risk?

In my example above, locking in $200,000 in gains, instead of just $100,000 from normal rebalancing means I have an extra 1+ year of expenses already locked into cash.

Not because I think a big crash is coming, but because I'm retiring very soon, and that way I have a large buffer even if a crash happens the day after I retire.
Holding more bonds around the start of retirement helps reduce the sequence of returns risk. So risk aversion should lead you to hold a lot more bonds than your pre-retirement AA.
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Re: Close to retirement - locking in gains with each new market high

Post by ram »

I would consider your actions as within the realm of "reasonable". However I plan to be somewhat more aggressive with my AA as I approach retirement.
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Re: Close to retirement - locking in gains with each new market high

Post by Forester »

reln wrote: Fri Aug 06, 2021 12:27 pm Holding more bonds around the start of retirement helps reduce the sequence of returns risk. So risk aversion should lead you to hold a lot more bonds than your pre-retirement AA.
Only through the lens of the last few decades, if there's a period of sovereign debt defaults around the globe then stocks & hard assets could get bid up while bonds crash.
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

Forester wrote: Sat Aug 07, 2021 12:48 am
reln wrote: Fri Aug 06, 2021 12:27 pm Holding more bonds around the start of retirement helps reduce the sequence of returns risk. So risk aversion should lead you to hold a lot more bonds than your pre-retirement AA.
Only through the lens of the last few decades, if there's a period of sovereign debt defaults around the globe then stocks & hard assets could get bid up while bonds crash.
Almost every word in that sentence is nonsense.

(1) Lens of the past 150 years, not last few decades. Risk aversion is about bonds holding their value when stocks crash. It's not about bonds having high returns all the time.
(2) There will be no mass period sovereign debt defaults around the globe. Inflation is a risk (THAT's how most governments and especially the U.S. could handle too much debt), but no mass defaults.
(3) What part of 50/50 don't you understand? If stocks get bid up, then I don't care if bonds do poorly.
(4) And it's bonds doing poorly, not "crash".
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Re: Close to retirement - locking in gains with each new market high

Post by Forester »

HomerJ wrote: Sat Aug 07, 2021 12:02 pm
Forester wrote: Sat Aug 07, 2021 12:48 am
reln wrote: Fri Aug 06, 2021 12:27 pm Holding more bonds around the start of retirement helps reduce the sequence of returns risk. So risk aversion should lead you to hold a lot more bonds than your pre-retirement AA.
Only through the lens of the last few decades, if there's a period of sovereign debt defaults around the globe then stocks & hard assets could get bid up while bonds crash.
Almost every word in that sentence is nonsense.

(1) Lens of the past 150 years, not last few decades. Risk aversion is about bonds holding their value when stocks crash. It's not about bonds having high returns all the time.
(2) There will be no mass period sovereign debt defaults around the globe. Inflation is a risk (THAT's how most governments and especially the U.S. could handle too much debt), but no mass defaults.
(3) What part of 50/50 don't you understand? If stocks get bid up, then I don't care if bonds do poorly.
(4) And it's bonds doing poorly, not "crash".
The US 60/40 portfolio 1973-1981 lost 4% annually after inflation, bonds did not hold their value in fact they fared worse than the US stock market. All I propose is the risk of a similar scenario except spread across the developed world, Swiss or German bonds and so on, offering no refuge, which makes sense as today economies are more in sync with each other.
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Re: Close to retirement - locking in gains with each new market high

Post by HomerJ »

Forester wrote: Sat Aug 07, 2021 12:15 pm
HomerJ wrote: Sat Aug 07, 2021 12:02 pm
Forester wrote: Sat Aug 07, 2021 12:48 am
reln wrote: Fri Aug 06, 2021 12:27 pm Holding more bonds around the start of retirement helps reduce the sequence of returns risk. So risk aversion should lead you to hold a lot more bonds than your pre-retirement AA.
Only through the lens of the last few decades, if there's a period of sovereign debt defaults around the globe then stocks & hard assets could get bid up while bonds crash.
Almost every word in that sentence is nonsense.

(1) Lens of the past 150 years, not last few decades. Risk aversion is about bonds holding their value when stocks crash. It's not about bonds having high returns all the time.
(2) There will be no mass period sovereign debt defaults around the globe. Inflation is a risk (THAT's how most governments and especially the U.S. could handle too much debt), but no mass defaults.
(3) What part of 50/50 don't you understand? If stocks get bid up, then I don't care if bonds do poorly.
(4) And it's bonds doing poorly, not "crash".
The US 60/40 portfolio 1973-1981 lost 4% annually after inflation, bonds did not hold their value in fact they fared worse than the US stock market. All I propose is the risk of a similar scenario except spread across the developed world, Swiss or German bonds and so on, offering no refuge, which makes sense as today economies are more in sync with each other.
But bonds didn't "crash". Stocks crashed 40% from 1973-1974. Bonds did not. They did poorly over time because of inflation. It was a tough time to retire indeed.

Today we have inflation-protected bonds, and shorter-term bond funds, short-term CDs will recover quicker if interest rates are raised to combat inflation. There are options.

Look Forester, you act like we're all blind optimists here. Most of us are aware that bonds won't do as well going forward as they did from 1982-2020. I don't expect bonds or stocks to do well all the time. I am aware of the bad periods in the past and I'm aware there will be indeed be bad periods in the future and I am trying to prepare for them.

I'm not looking through the lens of just the past few decades.

If most developed nations default on their debt, all bets are off. You like to bring up doomsday scenarios as if they are likely with no explanations. I'm don't think it's helpful.

If you want to discuss WHY you think sovereign debt defaults or other doomsday scenarios are likely, that might be useful, instead of just stating the scenarios matter-of-factly.
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Re: Close to retirement - locking in gains with each new market high

Post by firebirdparts »

vanbogle59 wrote: Thu Aug 05, 2021 8:09 pm As best I can tell, we have consensus. Both of these statements are true:
1) 25X + 2 squirreled is statistically superior to 25X.
2) 27X is statistically superior to 25X + 2 squirreled.

Personally, I would be stunned if either were false.
That’s plenty good enough for me.
This time is the same
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Re: Close to retirement - locking in gains with each new market high

Post by vanbogle59 »

HomerJ wrote: Sat Aug 07, 2021 12:52 pm we're all blind optimists here
Blind? No way.
Optimists? Well, yes. At least according to certain standards...
HomerJ wrote: Sat Aug 07, 2021 12:52 pm If most developed nations default on their debt, all bets are off
I have a good friend. Smart guy. Serious prepper.
We laugh when he tells me stories about why he collects baby-food jars: some are filled with silver dimes and buried in the back yard, others are filled with home-made napalm and stored in the garage.
He kinda half-knows he's crazy, but he still does it.
(He also holds a substantial portfolio of dividend-paying stocks at E-Trade. Cuz that's how his daddy got rich. :D )

I consider myself an optimist because:
for the long run I invest in equities instead of ammunition
for the short run I hold fixed-income instruments instead of hoarding water and dried squirrel meat.
Last edited by vanbogle59 on Sun Aug 08, 2021 5:52 am, edited 1 time in total.
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Re: Close to retirement - locking in gains with each new market high

Post by james22 »

Buffett:

...bonds are *not* the place to be these days. ... Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.

https://berkshirehathaway.com/letters/2020ltr.pdf
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sf_tech_saver
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Re: Close to retirement - locking in gains with each new market high

Post by sf_tech_saver »

The Westin Maui went from ~$400 a night-- to often more than $1,000 this year.

Are you really sure that owning more bonds protects you from this travel cost inflation risk?
VTI is a modern marvel
clip651
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Re: Close to retirement - locking in gains with each new market high

Post by clip651 »

vanbogle59 wrote: Sat Aug 07, 2021 2:12 pm
I consider myself an optimist because:
for the long run I invest in equities instead of ammunition
for the short run I hold fixed-income instruments instead of hoarding water and dried squirrel meat.
We'll really know the world is in trouble if we run out of fresh squirrels! No need to hoard dried ones. :wink:
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gmaynardkrebs
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Re: Close to retirement - locking in gains with each new market high

Post by gmaynardkrebs »

james22 wrote: Sat Aug 07, 2021 7:45 pm Buffett:

...bonds are *not* the place to be these days. ... Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.

https://berkshirehathaway.com/letters/2020ltr.pdf
If interest rates go up, it will be no less ugly for stocks, given their ultra-long duration. I really don't get where Buffet is coming from on this.
Beardog
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Re: Close to retirement - locking in gains with each new market high

Post by Beardog »

gmaynardkrebs wrote: Fri Aug 13, 2021 3:19 pm
james22 wrote: Sat Aug 07, 2021 7:45 pm Buffett:

...bonds are *not* the place to be these days. ... Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.

https://berkshirehathaway.com/letters/2020ltr.pdf
If interest rates go up, it will be no less ugly for stocks, given their ultra-long duration. I really don't get where Buffet is coming from on this.
It is all panic porn, Buffet included. Yep, we all face a bleak future. None of us ever have or ever will escape planet earth alive (that is a pretty
'bleak future"). Like the OP, as we close in on retirement sometime in the next 3-36 months, I am shifting us to a slightly more conservative stance (we are chronic 60/40'ers). Whether it includes more cash or more short to intermediate bonds, it matters little. Nothing wrong with that. People have done it since the beginning of "retirement" as we know it. We often forget that risky retirement allocations are a must for many of our peers. They have to go for broke, or just live on their Social Security income. Most of us here at BH don't have to take on a lot of risk to live comfortably in our senior years. We carefully saved and took on most of our risk long before we would need the money in retirement. Stay the course. If things ever are "really different this time", then 95% of folks around us will still be far worse off than us.
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mikejuss
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Re: Close to retirement - locking in gains with each new market high

Post by mikejuss »

HomerJ wrote: Thu Jul 29, 2021 2:42 pm
RickBoglehead wrote: Thu Jul 29, 2021 2:33 pm
HomerJ wrote: Thu Jul 29, 2021 11:25 am Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)


Thought I posted a reply, can't find it.

I missed the part where you have $100,000 to invest in the bond market after selling, because you need to save off taxes for your short term capital gain that you just generated.
I sell in the 401k or IRA accounts.
Dumb question: in a taxable account, if one turns off reinvestments and uses his gains from the stock market to buy bonds (or vice versa), is that a taxable event?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
delamer
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Re: Close to retirement - locking in gains with each new market high

Post by delamer »

mikejuss wrote: Sat Aug 14, 2021 10:51 am
HomerJ wrote: Thu Jul 29, 2021 2:42 pm
RickBoglehead wrote: Thu Jul 29, 2021 2:33 pm
HomerJ wrote: Thu Jul 29, 2021 11:25 am Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)


Thought I posted a reply, can't find it.

I missed the part where you have $100,000 to invest in the bond market after selling, because you need to save off taxes for your short term capital gain that you just generated.
I sell in the 401k or IRA accounts.
Dumb question: in a taxable account, if one turns off reinvestments and uses his gains from the stock market to buy bonds (or vice versa), is that a taxable event?
Yes. It doesn’t matter whether you reinvest or spend interest/dividends generated in a taxable account, you still have to pay taxes on those earnings (assuming your total income is high enough that taxes are due).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
mikejuss
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Re: Close to retirement - locking in gains with each new market high

Post by mikejuss »

delamer wrote: Sat Aug 14, 2021 12:35 pm
mikejuss wrote: Sat Aug 14, 2021 10:51 am
HomerJ wrote: Thu Jul 29, 2021 2:42 pm
RickBoglehead wrote: Thu Jul 29, 2021 2:33 pm
HomerJ wrote: Thu Jul 29, 2021 11:25 am Market goes up 10%, I sell the entire $100,000 gain in stocks and move it into the bonds/cash/CDs side of the portfolio, instead of just rebalancing back to 50/50.

So now I have $1 million in stocks and $1.1 million in bonds (47/53)


Thought I posted a reply, can't find it.

I missed the part where you have $100,000 to invest in the bond market after selling, because you need to save off taxes for your short term capital gain that you just generated.
I sell in the 401k or IRA accounts.
Dumb question: in a taxable account, if one turns off reinvestments and uses his gains from the stock market to buy bonds (or vice versa), is that a taxable event?
Yes. It doesn’t matter whether you reinvest or spend interest/dividends generated in a taxable account, you still have to pay taxes on those earnings (assuming your total income is high enough that taxes are due).
But one pays taxes on stock or bond earnings only when they're sold, right? If, for example, you're not reinvesting your stock earnings and you're redirecting them to your money market fund, those earnings can be used to buy bonds without a tax hit, no? I could be totally overthinking this...
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Ed 2
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Re: Close to retirement - locking in gains with each new market high

Post by Ed 2 »

Every time I see threads like this and makes me wonder how OP invested all his or her life and and making such a quick market timing move . Are they for real or just wanted to grab some attention?
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
delamer
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Re: Close to retirement - locking in gains with each new market high

Post by delamer »

mikejuss wrote: Sat Aug 14, 2021 12:44 pm
delamer wrote: Sat Aug 14, 2021 12:35 pm
mikejuss wrote: Sat Aug 14, 2021 10:51 am
HomerJ wrote: Thu Jul 29, 2021 2:42 pm
RickBoglehead wrote: Thu Jul 29, 2021 2:33 pm



Thought I posted a reply, can't find it.

I missed the part where you have $100,000 to invest in the bond market after selling, because you need to save off taxes for your short term capital gain that you just generated.
I sell in the 401k or IRA accounts.
Dumb question: in a taxable account, if one turns off reinvestments and uses his gains from the stock market to buy bonds (or vice versa), is that a taxable event?
Yes. It doesn’t matter whether you reinvest or spend interest/dividends generated in a taxable account, you still have to pay taxes on those earnings (assuming your total income is high enough that taxes are due).
But one pays taxes on stock or bond earnings only when they’re sold, right? If, for example, you're not reinvesting your stock earnings and you're redirecting them to your money market fund, those earnings can be used to buy bonds without a tax hit, no? I could be totally overthinking this...
You’re incorrect.

You only pay taxes on gains in the share value of stocks & bonds when you sell shares.

But you pay taxes on earnings thrown off by stocks & bonds in the year they are earned, regardless of what you do with those earnings — reinvest in the same asset, send them to your money market fund, buy a different asset.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
mikejuss
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Re: Close to retirement - locking in gains with each new market high

Post by mikejuss »

delamer wrote: Sat Aug 14, 2021 1:08 pm
mikejuss wrote: Sat Aug 14, 2021 12:44 pm
delamer wrote: Sat Aug 14, 2021 12:35 pm
mikejuss wrote: Sat Aug 14, 2021 10:51 am
HomerJ wrote: Thu Jul 29, 2021 2:42 pm

I sell in the 401k or IRA accounts.
Dumb question: in a taxable account, if one turns off reinvestments and uses his gains from the stock market to buy bonds (or vice versa), is that a taxable event?
Yes. It doesn’t matter whether you reinvest or spend interest/dividends generated in a taxable account, you still have to pay taxes on those earnings (assuming your total income is high enough that taxes are due).
But one pays taxes on stock or bond earnings only when they’re sold, right? If, for example, you're not reinvesting your stock earnings and you're redirecting them to your money market fund, those earnings can be used to buy bonds without a tax hit, no? I could be totally overthinking this...
You’re incorrect.

You only pay taxes on gains in the share value of stocks & bonds when you sell shares.

But you pay taxes on earnings thrown off by stocks & bonds in the year they are earned, regardless of what you do with those earnings — reinvest in the same asset, send them to your money market fund, buy a different asset.
Thank you. I was conflating gains in share value and earnings. Still figuring this stuff out.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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LilyFleur
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Re: Close to retirement - locking in gains with each new market high

Post by LilyFleur »

So you have $2.1 million for two people. There is so much that we don't know. How old are you? What is your spend each year? What about health insurance premiums during retirement? Are you able to start collecting a pension? What percentage of your savings is in tax-deferred?

I am very cautious. In addition to studying this forum, I meet with my Schwab advisor once a year for a complimentary financial planning meeting. He has access to Schwab's proprietary software to run a Monte Carlo simulation (Evidently this is also available on a do-it-yourself basis inside the Schwab customer online portal.)

Anyway, I got a part-time job earning $20,000 a year last year (I had retired at 57 and am now 61), and when he added this into the plan earlier this year, for just two years of employment, it increased the chances of my portolio's success by 10%. The Schwab advisor gives me a report which shows my recommended spend (after taxes) for each year of retirement, up to age 90. My advisor is recommending a 60/40 asset allocation, so I have let it drift upwards and am almost there.

I think a second opinion is wise when embarking on a new life venture (retirement) that has a multi-million dollar price tag.

Your wife has it good! You are working as long as you have to in order to travel as much as she wants to.
james22
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Re: Close to retirement - locking in gains with each new market high

Post by james22 »

Ed 2 wrote: Sat Aug 14, 2021 1:05 pmEvery time I see threads like this and makes me wonder how OP invested all his or her life and and making such a quick market timing move . Are they for real or just wanted to grab some attention?
One only retires once. And things that didn't matter before (income, sequence of returns, etc.) now do.
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gmaynardkrebs
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Re: Close to retirement - locking in gains with each new market high

Post by gmaynardkrebs »

HomerJ wrote: Sun Aug 01, 2021 1:15 pm Maybe I should look at short-term TIPs bond funds as well.
I worry about inflation too, but I'm not convinced that short TIPS is the best solution for us retirees. Too much reinvestment risk for me, especially over the term of a long and hopefully healthy retirement. I've come to prefer LTPZ in my taxable/long TIPS bonds in my 401K. Buying TIPS when inflation is high will be very expensive protection, I fear.
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Zardoz
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Re: Close to retirement - locking in gains with each new market high

Post by Zardoz »

james22 wrote: Sat Aug 14, 2021 2:43 pm One only retires once. And things that didn't matter before (income, sequence of returns, etc.) now do.
Well said. I'm surprised that the concept of guarding against sequence of returns risk by reducing equity allocation in retirement generates so much controversy here. There's a reason that target date funds do this.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
Barefootgirl
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Re: Close to retirement - locking in gains with each new market high

Post by Barefootgirl »

Congratulations Homer.....well done! I have enjoyed your posts over the years.

I get what you're saying and the mental gymnastics that go with it. I retired a few months ago and have employed a similar strategy.

Nevertheless, I feel compelled to come clean about something. I feel as if I've been reading Boglehead threads making the same or similar arguments many times over since joining the forum.

At the conclusion of each, I'm left feeling as if I have a multiple personality disorder.
As I read through the thread, I vacillate between

(A) OMG! I'm going to run out of money in my later years!

or

(B) I haven't been conservative enough, I'm going to lose my shirt! and probably tomorrow!
How many retired people does it take to screw in a lightbulb? Only one, but he takes all day.
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