Should You Be Invested 100% in Stocks Before and During Retirement? A Recent Study Says Yes.

[ChapInTokyo]

Interesting podcast this.

Should You Be Invested 100% in Stocks Before and During Retirement? A Recent Study Says Yes.
https://moneyfortherestofus.com/460-sho ... -says-yes/

Me, I’m a bit like the podcaster. 100% stocks split 50:50 between domestic and international might give the best results, but my nerves probably won’t be able to take the ups and downs during retirement…

Any thoughts?

[northSaver]

I think there are a lot of moving parts, and it's difficult to generalise based on a study. For example, most people will have some pension income so what effect will this have on their strategy, especially foreign-based income which is subject to exchange rate and inflation risk? And what effect will domestic economic cycles, such as the bubble and bust in Japan, have on your domestic stock allocation? And how long will you live? Will advanced medicine delay your death in the future? Will you spend the same amount every year of your retirement? Of course not! But you won't know the exact amounts until you get there. And so on.

The study was interesting though, and the safe withdrawal rate of 2.26% they came up (using a broad basket of developed countries' data) - which even then would have failed 5% of the time - was eye-opening. Thanks for posting it.

I don't really know the answer to what's best in retirement. I'm currently leaning towards a three-bucket approach but realise that this has its disadvantages too. There are pros and cons to all of them, it seems. I guess go with the one you feel comfortable with, and prepare to be flexible in retirement if necessary

[captainspoke]

See my post in the other thread.


We're all walking our own green mile, just in different ways.

[captainspoke]

Interesting podcast this.

Should You Be Invested 100% in Stocks Before and During Retirement? A Recent Study Says Yes.
https://moneyfortherestofus.com/460-sho ... -says-yes/

Me, I’m a bit like the podcaster. 100% stocks split 50:50 between domestic and international might give the best results, but my nerves probably won’t be able to take the ups and downs during retirement…

Any thoughts?

Good grief, guy. You prattle on and on and on about this that and the other, jumping (apparently) from one retirement strategy to another.

Are you a bot? (seriously)

[ChapInTokyo]

Interesting podcast this.

Should You Be Invested 100% in Stocks Before and During Retirement? A Recent Study Says Yes.
https://moneyfortherestofus.com/460-sho ... -says-yes/

Me, I’m a bit like the podcaster. 100% stocks split 50:50 between domestic and international might give the best results, but my nerves probably won’t be able to take the ups and downs during retirement…

Any thoughts?

Good grief, guy. You prattle on and on and on about this that and the other, jumping (apparently) from one retirement strategy to another.

Are you a bot? (seriously)

Seriously, perhaps I should change my handle to ChapGPTinTokyo?

Your tip about the three bucket retirement strategy was interesting for me, although it struck me as being pretty much like a "balanced portfolio" with a somewhat smaller allocation to bonds, since the buckets containing between 6 to 10 years of one's 30 year long nest egg is comprised of savings accounts, bonds, dividend stocks, and REITS etc.

On the matter of the podcast mentioned in my original post in this thread, the 2024 paper by Anakulova, Cederburg, and O'Doherty "Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice" I found hard to ignore, even though my current inclination is to mimic Vanguard's Target Date Fund retirement allocation.

Especially where it says that "An optimal lifetime allocation of 33% domestic stocks, 67% international stocks, 0% bonds, and 0% bills vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests." Now that is certainly worth careful consideration!:

Abstract
We challenge two tenets of lifecycle investing: (i) diversify across stocks and bonds and (ii)reduce equity allocations with age. An optimal lifetime allocation of 33% domestic stocks, 67% international stocks, 0% bonds, and 0% bills vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests. Our lifecycle model preserves crucial time-series and cross-sectional dependencies in asset returns and addresses small sample issues in US data. Our investors prefer diversifying with international stocks, not bonds. Target-date fund investors need 61% more pre-retirement savings to match the all-equity strategy’s expected utility over retirement consumption and bequest.

[captainspoke]

...

Hey, I thought of you when I read this article.

Probably not fear, or not always. But at least some hesitation when having to make a choice, or commit to one thing (an allocation) or another.

“FOBO, or fear of a better option, is the anxiety that something better will come along, which makes it undesirable to commit to existing choices when making a decision,” author and venture capitalist Patrick McGinnis told HuffPost. “This specifically refers to decisions where there are perfectly acceptable options in front of us, yet we struggle to choose just one.”

What do you think?

[ChapInTokyo]

...

Hey, I thought of you when I read this article.

Probably not fear, or not always. But at least some hesitation when having to make a choice, or commit to one thing (an allocation) or another.

“FOBO, or fear of a better option, is the anxiety that something better will come along, which makes it undesirable to commit to existing choices when making a decision,” author and venture capitalist Patrick McGinnis told HuffPost. “This specifically refers to decisions where there are perfectly acceptable options in front of us, yet we struggle to choose just one.”

What do you think?

Oh wow… what do I think?…. Well, it is free world isn’t it, at least the last time I looked!

[ChapInTokyo]

This critique by Larry Swedroe of the "100% stocks portfolio" paper by Anarkulova, Cederburg and O'Doherty was a much needed reality check for me.

Should Long-Term Investors Be 100% in Equities? ‘Stocks for the long run’ at your own peril. by Larry Swedroe, March 2024

Investor Takeaways
There are several key takeaways for investors. First, they must accept that stocks will not always beat bonds, no matter the investment horizon. That is only logical because stocks are riskier, and while that risk should result in an ex-ante premium, if stocks always outperformed, there would be no risk and no risk premium! Said another way, there can be no equity risk premium if stocks are not risky, regardless of the horizon. Second, diversification of risk across unique assets is always a prudent strategy. Third, an investment policy statement should be tailored to an individual’s unique ability, willingness, and need to take risk, taking into account their capacity (both from a financial and psychological standpoint) to withstand the risks of severe equity drawdowns.

[RetireJapan]

This critique by Larry Swedroe of the "100% stocks portfolio" paper by Anarkulova, Cederburg and O'Doherty was a much needed reality check for me.

Should Long-Term Investors Be 100% in Equities? ‘Stocks for the long run’ at your own peril. by Larry Swedroe, March 2024

That was a very interesting read, thank you.

[captainspoke]

This critique by Larry Swedroe of the "100% stocks portfolio" paper by Anarkulova, Cederburg and O'Doherty was a much needed reality check for me.

Should Long-Term Investors Be 100% in Equities? ‘Stocks for the long run’ at your own peril. by Larry Swedroe, March 2024
...

One thing to consider is that during some of the time periods under discussion there were no central banks--e.g., the US Federal Reserve "was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics (particularly the panic of 1907)..." (wikipedia)

And even then that was not a magic wand--central bankers had to learn how to be central bankers, and it's arguable when they started to get the job down over the last 112 years. Paul Volker might have been the first to actively take the bull by the horns. I think Bernanke, who studied the great depression, handled the 2009 crisis well (tho it was touch and go in many ways), and Powell helmed the pandemic as well as anyone could have. And tho this paragraph is US-centered, the idea that central banks have gotten better at what they do could be applied elsewhere (or not...).

So one thing that may be related to the outperformance of equities post WWII is that central banks have provided an environment for that, whereas pre-WWII those banks were just getting started, or, in the 19th century didn't even exist.

This post-WWII period has also been a relatively peaceful period--two world wars in the few decades just preceding it, along with the 30s, which were pretty disastrous economically in many parts of the world.

And the 19th century? I googled it just to see, and this wikipedia list is awfully long. What was the impact of all those wars on the comparative bond/equity returns then--compared to the last~75yrs of relative peace?

Finally, there's one section in the original link, above that says:

Perhaps the most interesting conclusion of Anarkulova, Cederburg, and O’Doherty was that “Americans could realize trillions of dollars in welfare gains by adopting the all-equity strategy.” In his article “Why Not 100% Equities” in which he discussed several problems with the paper, AQR’s Cliff Asness noted: “Equities are already 100% owned. If some investors read this ‘new’ paper and decide to buy more equities, they have to buy those equities from other investors. This can force the price up, and the expected future return down, but everyone can’t suddenly have double the normal amount of equity dollar return out of thin air. Claiming there are trillions being left on the table is really just noneconomic hype.”

I can't quite put my finger on it, but there's seems to be view in that that equities are a zero sum game. Companies come and go, bankruptcies and IPOs. They can issue more shares (dilution), or buy their own shares back. How many of the Nifty Fifty maintain their past stature (or even exist) today? (a lesson for the magnificent 7)

Implied in the paragraph I just quoted is something like, 'but the bond market doesn't behave like that--it's different.' Well, the US government is issuing an awful lot of bonds these days, and budget-wise the US seems to have at least approached the line--across which lies default--a few times recently. Sure, default would bring down equities, too, but would stocks, or bonds, best rise out of the ashes?

My two cents for the evening...