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> Someone investing at age 18 might care about the subsequent 50 years. I get what you are saying, but your math here is a bit off. 50+18 = 68. People gener

by zie 4y ago

> Someone investing at age 18 might care about the subsequent 50 years. I get what you are saying, but your math here is a bit off. 50+18 = 68. People generally can live longer than 68 years old, If we go out on longevity and assume people can live to 100 or 120, then it's more like 100 years. Your next thought is, but people will retire before/around 68, fair enough, but they stay invested generally the entire rest of their lives. So if the US dominance ends in the next 100 years, then today's teenagers might need to care about it. People in their 30's or 40's probably don't though. The next 150 years, you are right todays teenagers might not need to care, unless many/all of our aspirational longer living goals happen.

purpleblue 4y ago
No, this is poor investment advice. The closer you get to retirement, the more your money should be in extremely short term, non-volatile investments like T-bills. You should not be invested in the stock market, because the risk is too high that you could lose a lot of your savings just before you really need it.
- zie 4y ago
  I never talked about asset allocation, you did, but going 100% equities to 0% equities is not reasonable either. Yes you probably want some bonds, but you still need some equities. The default answer is something around 20% to 60% equities in retirement.
  - FooBarBizBazz 4y ago
    Everybody says this, but stocks and bonds go up and down together now. I guess it's less an issue if you're holding bonds to maturity and laddering, but that might just be psychological, not sure.
    - zie 4y ago
      Not really, they are somewhat correlated, but they are not completely correlated. Duration has a lot to do with it as well. Look up Long Term Treasuries(TLT/EDV are funds that hold these) and compare that to US stocks like VTI. Bonds are like buying future cash-flow, stocks are about future growth. i.e. if you buy a bond that's paying you $25k/yr, then you will get that $25k/yr regardless of what happens to the NAV until maturity(and/or bankruptcy obviously).
      - hindsightbias 4y ago
        A future US Govt default is not exactly an infinitesimal black swan event looking at Capitol Hill this week.
        deleted 4y ago
        [deleted]
        zie 4y ago
        Temporary defaults have happened in the history of the US govt, it's not exactly breaking news. Other governments have as well. Long term default is an entirely different matter. Obviously you default temporarily enough times and people will stop thinking your promise is worth anything. So far that hasn't happened, let's hope it doesn't.
        FooBarBizBazz 4y ago
        Example: https://www.forbes.com/sites/beltway/2011/05/26/the-day-the-united-states-defaulted-on-treasury-bills/ https://www.forbes.com/sites/beltway/2011/05/26/the-day-the-...
      - weatherlite 4y ago
        As long as interest rates keep rising is it a mistake to buy something like TLT? I'm looking into these products and am a bit lost. I am thinking a managed bonds fund is better than an automatic ETF bonds fund in this time. A manager could wait for interest rates to peak, but the ETF just mindlessly keeps buying treasuries. Is that a fair assessment?
  - brianwawok 4y ago
    Not convinced bonds are useful. There are other things that get you away from 100% equity.
    - zie 4y ago
      Sure, there are different asset classes that might be OK, but if you look across the landscape, bonds are still quite nice to have. Bonds are just converting today's money to future cashflow. TIPS are inflation adjusted bonds, so you can get a real return > 0% with bonds, guaranteed by the US govt. For baseline retirement expenses, it's hard to beat. Right now they are up over 3%/yr real. You can't buy inflation adjusted annuities anymore, basically Social Security is it. If one has 50X expenses invested, it doesn't really matter what they do, they would be hard pressed to screw it up so badly as to run out. If one only has 20X yearly expenses invested, they need to be a lot more careful, as they might not make it, especially if they get a bad sequence of returns. It all depends on your personal financial situation, it's hard to make general rules that can apply to everyone. It's called personal finance for a reason. Bonds are just a great default tool, but like all tools, they are not perfect.
- sokoloff 4y ago
  On the first day of a typical someone’s retirement, they should probably be 40-50% invested in equities. An often cited rule of thumb is for your equity exposure in percentage to be 100 minus your age in years; others suggest 110 minus your age.
  - GCA10 4y ago
    Directionally right. I saw older family members switch out of stocks at 65, only to discover that their ultra-safe fixed-income investments failed to keep pace with the next 25 years' relentless increases in medical and care expenses. Assuming that you're not facing an immediate health catastrophe, your time horizon at age 65 is still decades, not single-digit years.
- bushbaba 4y ago
  That would depend on the drawdown rate and total wealth.

by zie 4y ago

purpleblue 4y ago

No, this is poor investment advice. The closer you get to retirement, the more your money should be in extremely short term, non-volatile investments like T-bills. You should not be invested in the stock market, because the risk is too high that you could lose a lot of your savings just before you really need it.

zie 4y ago
I never talked about asset allocation, you did, but going 100% equities to 0% equities is not reasonable either. Yes you probably want some bonds, but you still need some equities. The default answer is something around 20% to 60% equities in retirement.
- FooBarBizBazz 4y ago
  Everybody says this, but stocks and bonds go up and down together now. I guess it's less an issue if you're holding bonds to maturity and laddering, but that might just be psychological, not sure.
  - zie 4y ago
    Not really, they are somewhat correlated, but they are not completely correlated. Duration has a lot to do with it as well. Look up Long Term Treasuries(TLT/EDV are funds that hold these) and compare that to US stocks like VTI. Bonds are like buying future cash-flow, stocks are about future growth. i.e. if you buy a bond that's paying you $25k/yr, then you will get that $25k/yr regardless of what happens to the NAV until maturity(and/or bankruptcy obviously).
    - hindsightbias 4y ago
      A future US Govt default is not exactly an infinitesimal black swan event looking at Capitol Hill this week.
      - deleted 4y ago
        [deleted]
      - zie 4y ago
        Temporary defaults have happened in the history of the US govt, it's not exactly breaking news. Other governments have as well. Long term default is an entirely different matter. Obviously you default temporarily enough times and people will stop thinking your promise is worth anything. So far that hasn't happened, let's hope it doesn't.
        FooBarBizBazz 4y ago
        Example: https://www.forbes.com/sites/beltway/2011/05/26/the-day-the-united-states-defaulted-on-treasury-bills/ https://www.forbes.com/sites/beltway/2011/05/26/the-day-the-...
    - weatherlite 4y ago
      As long as interest rates keep rising is it a mistake to buy something like TLT? I'm looking into these products and am a bit lost. I am thinking a managed bonds fund is better than an automatic ETF bonds fund in this time. A manager could wait for interest rates to peak, but the ETF just mindlessly keeps buying treasuries. Is that a fair assessment?
- brianwawok 4y ago
  Not convinced bonds are useful. There are other things that get you away from 100% equity.
  - zie 4y ago
    Sure, there are different asset classes that might be OK, but if you look across the landscape, bonds are still quite nice to have. Bonds are just converting today's money to future cashflow. TIPS are inflation adjusted bonds, so you can get a real return > 0% with bonds, guaranteed by the US govt. For baseline retirement expenses, it's hard to beat. Right now they are up over 3%/yr real. You can't buy inflation adjusted annuities anymore, basically Social Security is it. If one has 50X expenses invested, it doesn't really matter what they do, they would be hard pressed to screw it up so badly as to run out. If one only has 20X yearly expenses invested, they need to be a lot more careful, as they might not make it, especially if they get a bad sequence of returns. It all depends on your personal financial situation, it's hard to make general rules that can apply to everyone. It's called personal finance for a reason. Bonds are just a great default tool, but like all tools, they are not perfect.
sokoloff 4y ago
On the first day of a typical someone’s retirement, they should probably be 40-50% invested in equities. An often cited rule of thumb is for your equity exposure in percentage to be 100 minus your age in years; others suggest 110 minus your age.
- GCA10 4y ago
  Directionally right. I saw older family members switch out of stocks at 65, only to discover that their ultra-safe fixed-income investments failed to keep pace with the next 25 years' relentless increases in medical and care expenses. Assuming that you're not facing an immediate health catastrophe, your time horizon at age 65 is still decades, not single-digit years.
bushbaba 4y ago
That would depend on the drawdown rate and total wealth.