Hi William,
A video/podcast I digested yesterday from respected researchers and investing folks made me question the conventional wisdom about stocks and bonds and percentages in retirement and turn my thinking on its head.
See https://rationalreminder.ca/podcast/284
The study referenced by researcher and professor Scott Cederburg included 13 countries, including the US, and hundreds of thousands of people and lots of data.
The study essentially questions the long-held belief that stocks must be buffered by some kind of bond or fixed income mix to mitigate stock market losses during downturns and avoid running out of money in retirement. It asserts that "ruin rates" (where a retiree runs out of money) are almost double for a mixed stock and bond/fixed income portfolio than for an all stock (50/50 domestic/international stock portfolio.
Yes, an eyebrow raising conclusion.
Scott urges more research aimed at studying a better approach than the Target Date Retirement (TDR) fund ramp up of bonds and fixed income in a portfolio with age, because the failure rate of this approach vs. the 50/50 dom/Intl. stock portfolio was so much higher.
His worry is that workers are funneled into the TDR fund at signup and many rarely revisit this until leaving the TDR fund or to retire. I'm an old Dietitian, and it reminded me that new research can either add weight to existing beliefs, or turn them completely cattywompus, and forge a new understanding, much like the belief 30 yrs ago that eggs (a couple eggs a week) was contraindicated for those with high cholesterol. We now know that the body makes most of its own cholesterol (2/3) and that eggs contribute little to an escalating cholesterol level that requires intervention to prevent heart disease). I'd certainly like some feedback from others on Humble Dollar about this. I'm a weekly reader and enjoy all the knowledge I've gained from writers and commentators alike.
This study was a whump upside the head for me, and I was glad I chose to get a 20 yr SPIA to fund my income floor in the years before I choose to start Social Security. That allows me to worry a LOT less about my portfolio ups and down and its higher stock percentage.
Mr. Bernstein, you were the first author on investing I read back in my early 40's (the 4 pillars). That book drove my investments for future years at Vanguard, and even after the financial toll of divorce, I still accumulated what I considered "enough", (no, not a million) given my temperament and pursuits, to retire, shy of 59. Now 63, having read Wade Pfau's 1st edition of Retirement Planning when it first came out, I'm living on 3 annuities, initiated at two different times. I have a FIA, a variable annuity and a SPIA, to cover my income floor plus a little extra. I'm holding on taking Soc. Sec. until later and planning on a Reverse Mortgage line of credit on my paid off home for funding any need for in-home or other care. I could not afford the LTC insurance premiums and saw the cost skyrocket for those who could. I'm no longer losing sleep with the vicissitudes of the markets or the rising costs of healthcare.
The 3 annuities satisfied my innate curiosity over which would turn out to be better: all 3 appear to have their merits in the fluctuating financial environment I've lived through, and have allowed my IRA and ROTH to weather the markets and grow.
Mr. Bernstein, this is my VERY large "THANK YOU!" for your first "Pillar" book, and now, your follow-up book. The first book supported what is to me a "KISS" approach (keep it simple, stupid!). I'm patiently waiting while my small-town library fulfills my request for your second edition:)
I extend my appreciation as well to Jonathan and all the writers on Humble Dollar: you never know who you'll be helping with your articles. Perhaps you'll change the financial course of a reader's life with your writing, as Mr. Bernstein did mine, and make retirement a daily joy, instead of a worrisome and unattainable goal. So keep the keyboard clacking, and many, many thanks for your contributions, all of you!
Comments
Hi William, A video/podcast I digested yesterday from respected researchers and investing folks made me question the conventional wisdom about stocks and bonds and percentages in retirement and turn my thinking on its head. See https://rationalreminder.ca/podcast/284 The study referenced by researcher and professor Scott Cederburg included 13 countries, including the US, and hundreds of thousands of people and lots of data. The study essentially questions the long-held belief that stocks must be buffered by some kind of bond or fixed income mix to mitigate stock market losses during downturns and avoid running out of money in retirement. It asserts that "ruin rates" (where a retiree runs out of money) are almost double for a mixed stock and bond/fixed income portfolio than for an all stock (50/50 domestic/international stock portfolio. Yes, an eyebrow raising conclusion. Scott urges more research aimed at studying a better approach than the Target Date Retirement (TDR) fund ramp up of bonds and fixed income in a portfolio with age, because the failure rate of this approach vs. the 50/50 dom/Intl. stock portfolio was so much higher. His worry is that workers are funneled into the TDR fund at signup and many rarely revisit this until leaving the TDR fund or to retire. I'm an old Dietitian, and it reminded me that new research can either add weight to existing beliefs, or turn them completely cattywompus, and forge a new understanding, much like the belief 30 yrs ago that eggs (a couple eggs a week) was contraindicated for those with high cholesterol. We now know that the body makes most of its own cholesterol (2/3) and that eggs contribute little to an escalating cholesterol level that requires intervention to prevent heart disease). I'd certainly like some feedback from others on Humble Dollar about this. I'm a weekly reader and enjoy all the knowledge I've gained from writers and commentators alike. This study was a whump upside the head for me, and I was glad I chose to get a 20 yr SPIA to fund my income floor in the years before I choose to start Social Security. That allows me to worry a LOT less about my portfolio ups and down and its higher stock percentage.
Post: Aging Into Bonds
Link to comment from December 30, 2023
Mr. Bernstein, you were the first author on investing I read back in my early 40's (the 4 pillars). That book drove my investments for future years at Vanguard, and even after the financial toll of divorce, I still accumulated what I considered "enough", (no, not a million) given my temperament and pursuits, to retire, shy of 59. Now 63, having read Wade Pfau's 1st edition of Retirement Planning when it first came out, I'm living on 3 annuities, initiated at two different times. I have a FIA, a variable annuity and a SPIA, to cover my income floor plus a little extra. I'm holding on taking Soc. Sec. until later and planning on a Reverse Mortgage line of credit on my paid off home for funding any need for in-home or other care. I could not afford the LTC insurance premiums and saw the cost skyrocket for those who could. I'm no longer losing sleep with the vicissitudes of the markets or the rising costs of healthcare. The 3 annuities satisfied my innate curiosity over which would turn out to be better: all 3 appear to have their merits in the fluctuating financial environment I've lived through, and have allowed my IRA and ROTH to weather the markets and grow. Mr. Bernstein, this is my VERY large "THANK YOU!" for your first "Pillar" book, and now, your follow-up book. The first book supported what is to me a "KISS" approach (keep it simple, stupid!). I'm patiently waiting while my small-town library fulfills my request for your second edition:) I extend my appreciation as well to Jonathan and all the writers on Humble Dollar: you never know who you'll be helping with your articles. Perhaps you'll change the financial course of a reader's life with your writing, as Mr. Bernstein did mine, and make retirement a daily joy, instead of a worrisome and unattainable goal. So keep the keyboard clacking, and many, many thanks for your contributions, all of you!
Post: Courage Required
Link to comment from July 22, 2023