@wallace471 Yes, "sticker prices" is a key phrase! What a mess. It's as bad as shopping for a new car. There are so many variables. It's good to be on the safe side, but I always counsel clients hard in this area. Are the kids willing, able, and motivated, or is this the parents' choice? Would they prefer to get started at a 2-year college, trade, or tech school? In the Kiss Your Money Hello book I have a whole chapter on how not to pay for higher education. Most folks can dramatically decrease their costs if they're willing to team up with their kids and do a little work. And I say in there, if the kids are pushing back and unwilling to help out, are they ready for college and all the work that entails? There are lots of options most folks aren't even aware of, and the steps to get free higher education start around 7th grade.
And while we're on the topic, it's October, if you have a kid going to higher ed, FILE THAT FAFSA now! The aid is first come, first served and when it's gone it's gone. It's simpler now and easier to fill out. Even if you think you'll get no help, file it.
Morningstar has published their "The State of Retirement Income" report for 2023.
A synopsis of the report findings is available here: https://www.morningstar.com/retirement/good-news-safe-withdrawal-rates
They note that a 4% withdrawal rate may now be applicable for a 30 year time horizon.
I was also interested in their (30 year) return projections for input into PRC, per our various prior discussions on this thread.
Attached is a summary of that for various asset classes and uses the M-star inflation value.
Case for buy and hold US Stocks over 20 plus years from Motley Fool:
Over the very long-term, no asset class has outperformed the (US) stock market on an annualized return basis. But over shorter timelines, the performance of the iconic Dow Jones Industrial Average(^DJI0.82%), broad-based S&P 500(^GSPC0.59%), and innovation-driven Nasdaq Composite(^IXIC0.55%), is no more predictable than a roll of the dice or flip of a coin.
... the best example of history and perspective working in investors' favor might just be the dataset Crestmont Research updates on a yearly basis.
The analysts at Crestmont examined the rolling 20-year total returns (including dividends) of the S&P 500 dating back to 1900. Though the S&P didn't come into existence until 1923, its components could be found in other major indexes prior to 1923. This made it relatively easy for analysts to back-test their calculations to 1900, which ultimately yielded 104 rolling 20-year periods (1919-2022).
The jaw-dropping takeaway from Crestmont's rolling 20-year total returns data is that all 104 periods would have generated a profit for investors. Regardless of whether you, hypothetically, purchased at a temporary peak or were lucky enough to buy an S&P 500 tracking index during a bear market, you'd have made money as long as you held your position for 20 years.
No matter what's to come for Wall Street -- even if it is a big move lower for stocks in the short-term -- a long-term, optimistic, and opportunistic investor mindset is, historically, a virtually foolproof moneymaking strategy. https://www.fool.com/investing/2023/12/03/money-supply-great-depression-big-move-for-stocks/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
So, based on this article and numerous others I have read, given a 20 year plus time horizon, does it really matter what your asset allocation is? 60/40, 90/10, 40/60? No it doesn't. Does it matter if you add developed international stocks? No it doesn't. Do you need to rebalance every year? Not really. Set up your asset allocation and your index funds and then leave it alone. My only caveat is to take advantage of big changes that only happen rarely, like doing ROTH conversions during a big market drop, buying US Treasuries (and CDs for that matter) when they make a big and quick jump in yield, or playing around with your MAGI to get the best ACA (ObamaCare) tax breaks. Is Pizza Man morphing into Lasagne man, maybe 🧐.
More evidence for Buy & Hold from Schwab: https://finance.yahoo.com/news/forget-timing-market-schwab-research-110000932.html
I agree with: “Set up your asset allocation and your index funds and then leave it alone.” For me it also means: Do not follow the smart gurus and the prediction articles. Also, do not use Timing; meaning, do not “take advantage of big changes that only happen rarely.”
Asset Allocation does matter. There is a different between 60/40, 90/10, 40/60 and adding international. They will all make money in the long run; the question is how much, and how much risk are you willing to take if you need to use the money.
Do you need to rebalance every year? Not necessarily. But eventually, if you do nothing, 40/60 will turn into 60/40. Do you want to take this risk?
All good points. But for me taking advantage of the rare events, which I do not consider timing, has saved me $10,000's and allowed me to retire early. Following the great recession of 2008-2011, I moved to an asset allocation of close to 90/10. The following 10 years resulted in BIG US stock index returns that allowed us to retire early. In March 2020 when the stock market tanked due to COVID-19, I did a big ROTH conversion which resulted in good returns in the following run-up, plus no taxes in the future, not to mention the likely reverting to pre-TCJA 2017 tax rates. That ROTH conversion has also allowed us to greatly reduce our MAGI for 2023 (and will also for 2024/2025) which allowed us to get the enhanced ACA rebates (Obama Care) saving us about $8,000/yr as well as greatly reducing our State and Federal tax bill. As far as rebalancing, if you believe in Wade Pfau's Rising Glide Slope https://www.quantitativesingularity.com/wp-content/uploads/2018/08/Retirement_RisingEquityGlidePath_ssrn-id2324930-2.pdf then increasing stock allocation is not so bad.
Anyone else have thoughts??
I try to fight the urge to market time, but sometimes will play around the edges. Usually when I try, I am way too early and move money long before whatever turn I was predicting happens, if it ever does.
It's good to keep an honest scorecard, it's easy for me to remember the few thousand $ I put into the market just before the March 2020 bottom (within minutes of the bottom), but I was surprised when looking back through my records that I was holding ten times that much cash as part of my fixed income 2021, but made sure I got it into bonds by early 2022 as I saw rates inching up and I didn't want to miss out. I dang sure didn't miss out 🙁
My latest experiment is to start lengthening bond duration by adding some BLV under the theory that surely we're done with the bond bear by now. (There is a good theory of duration matching to have your bond duration match 1/2 your retirement length). We'll see how this adventure goes.
Here is a great memo from Howard Markets that speaks to this issue. I find that he is a very thoughtful investor who does not experiment much. I have the view of "Don't try to predict just be prepared". This creates a portfolio that is short on big bets and long on diversification.
https://www.oaktreecapital.com/insights/memo/taking-the-temperature
@ricke, I think I may have heard that rule of thumb but based on my research, the holding period needs to be greater than the duration and depending on the interest path it could be up to two times the duration. So I keep that range in mind when I am buying bond funds.
Also, those looking for great fixed income returns, look at MYGA's, 5 year rates between 5.5% and 6%. Probably won't last for awhile anyway but MYGAs are slower to respond to interest changes that we have seen in the recent run up and elevator ride down.
This probably does not fit in this thread but since there have been a few comments on market timing which is a decision, I am including it here.
We all have an investment strategy and an investment decision process by default, or we would be paralyzed. However, I think it is always good to reflect on our strategy and decision-making process from time to time. Although I have a background in decision analysis, I found this recent podcast by Howard Marks and Annie Duke to be a good reminder of some of the elements that can improve our decision making. It is a little long, but I hope you enjoy it as much as I did.
The paradox is it's best to set things up optimally, then do the necessary minor housekeeping at end of year or other appropriate time, but if you're into this stuff, the interweb knows it and you get fed a constant stream of click-baity articles with all kinds of cool new strategies and techniques.
Thus, there's an urge to implement, kind of like going shopping when you don't need anything and getting lured in by on-sale items and product positioning. I enjoy the stories of people who find long-lost 401ks or other accounts that haven't been touched in decades due to neglect and have outperformed the experts 🙂
I always remind clients that get caught up in this exercise that if something happens to them, where does that leave the spouse or partner that's not the financial driver in the family? With a complicated thing that has to be managed? Will they then be forced to turn to those high-price advisors, planners, or insurance people for help, and get fleeced? Will you make a mistake as you age, if it's a ladder or other thing that requires management?
Simple is better for lots of non-math reasons. Maybe just tinker, speculate, and dabble in your brokerage or get a new hobby 🙂
