tag:blogger.com,1999:blog-5465015914589377788.post1557337483234290132..comments2020-01-21T17:12:20.695-05:00Comments on Michael James on Money: Equity Allocation vs. AgeMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-5465015914589377788.post-89483487279262565692009-08-16T16:51:25.400-04:002009-08-16T16:51:25.400-04:00Larry: Thanks for the information about how you c...Larry: Thanks for the information about how you came up with the table. I've been following and enjoying your blog for a while now.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-22300073465164351712009-08-16T15:26:10.059-04:002009-08-16T15:26:10.059-04:00I just learned of your blog and was checking it ou...I just learned of your blog and was checking it out and found this post.<br />Here is how I came up with the table.<br /><br />First, you should not have money in the market if you know that you will need your money with certainty within a three year period. Just to risky as the last few years have demonstrated.<br /><br />Second, at horizons of 10 years stocks had outperformed bonds about 70% of the time. So that seemed like a reasonable guideline as the MOST risk one should take. <br /><br />Third, at 20 years stocks have beaten bonds almost all the time. So you could take UP TO 100 percent risk. But one should only do so if you also had the ability and need to take it.<br /><br />For years 4-10 I simply added 10% a year. Then beyond 10 years added another 10 percent in two more brackets.<br /><br />I hope that is helpful<br /><br />BTW-feel free to email anytime at lswedroe@bamstl.com. Always happy to answer questions from readers. <br /><br />And note that I have a new blog that I hope you will find of interest at http://moneywatch.bnet.com/investing/blog/wise-investing/?tag=content;col2Larry Swedroehttps://www.blogger.com/profile/06887421468167044156noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-50464169971796166972009-03-29T21:45:00.000-04:002009-03-29T21:45:00.000-04:00Patrick: ... unless he cashed out all his stocks i...Patrick: ... unless he cashed out all his stocks in July! I'm not a fan of selling all stocks at the start of retirement, but it certainly makes sense to have at least 3 years of living expenses in fixed income. At least then you can plan to make 3 years worth of cash stretch to cover 4 years and avoid selling any stocks for at least a year.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-24414314563990483802009-03-29T21:35:00.000-04:002009-03-29T21:35:00.000-04:00I guess now, just a few short months later, we're ...I guess now, just a few short months later, we're pitying the guy who retired in October 2008...Patrickhttps://www.blogger.com/profile/16816252455472704262noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-76122107094573258292008-03-19T16:04:00.000-04:002008-03-19T16:04:00.000-04:00AAI:Testing on historical data is an interesting i...AAI:<BR/><BR/>Testing on historical data is an interesting idea. Maybe I'll try to put this together sometime soon.<BR/><BR/>As for the guy who retired in September 2001, as long as he had 3-5 years worth of money he needed to live on in fixed income, he could have weathered the storm reasonably well. It's always possible to find a period where some strategy works well. Even the all penny stock portfolio works if you choose the right penny stock at the right time.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-50181172725087927782008-03-19T15:32:00.000-04:002008-03-19T15:32:00.000-04:00One way to look at Patrick's question would be to ...One way to look at Patrick's question would be to test your theoretical asset allocation for people retiring every quarter from 1926 to 1994. How many retirees of the roughly 270 would be up or down x% from the time they started shifting away from equities, to the time they retire? I'd hate to be the guy with the target retirement date of Sept '01. Would that guy be better off using the the more traditional & gradual rotation away from equities?AAIwww.assetallocationinsights.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-51786235077885997892008-03-06T23:06:00.000-05:002008-03-06T23:06:00.000-05:00Patrick:I've got an idea to make it possible to co...Patrick:<BR/><BR/>I've got an idea to make it possible to compute an answer in a reasonable amount of time. Look for something next week on this. I'll get my PC crunching on it this weekend.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-51391039056660088722008-03-06T21:45:00.000-05:002008-03-06T21:45:00.000-05:00Hi Michael,Well, I'm not sure what I'm suggesting ...Hi Michael,<BR/><BR/>Well, I'm not sure what I'm suggesting either. Maybe start with your minimum-expected-time as a baseline, then use a confidence-interval kind of calculation that says "this strategy gets you within X% of the minimum expected time Y% of the time" and then fix X (or Y) and maximize Y (or minimize X). That math would be way beyond me but I imagine it's possible in principle.Patrickhttps://www.blogger.com/profile/16816252455472704262noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-50661313451331866712008-03-06T19:55:00.000-05:002008-03-06T19:55:00.000-05:00Patrick:I agree with your comment, but I'm not exa...Patrick:<BR/><BR/>I agree with your comment, but I'm not exactly sure how it applies to my post. All my computations took full account of the variability of returns.<BR/><BR/>Since I computed a strategy that minimized the expected time to reaching a target amount of money, perhaps that is what you are referring to. It would be interesting to key on say the 99th percentile of time to reaching the target and devise a strategy that minimizes this time. I'm not immediately sure of how to do this, but I'll give it some thought.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-24253676755329040102008-03-06T19:09:00.000-05:002008-03-06T19:09:00.000-05:00Be careful using expected values when devising a s...Be careful using expected values when devising a strategy for something you'll only do once. The entire notion of "expected value" is based on the law of large numbers; if you're talking about your retirement plans, you only get one shot, and so you can't use expected values to combine risk and reward into a single metric.Patrickhttps://www.blogger.com/profile/16816252455472704262noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-9872848181245889172008-03-06T10:25:00.000-05:002008-03-06T10:25:00.000-05:00Jay:The numbers I used came from Norstad's paper w...Jay:<BR/><BR/>The numbers I used came from Norstad's paper which is based on the S&P 500 from 1926 to 1994. I'd be happy to re-run the simulation with other numbers, but I haven't dug around enough to find parameters for global equities over a long enough period.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-5220098646046379902008-03-06T10:14:00.000-05:002008-03-06T10:14:00.000-05:00Hi Michael,great post as usual.When doing your num...Hi Michael,<BR/>great post as usual.<BR/><BR/>When doing your number crunching, what kind of equity portfolio did you use? Do you use one basic equity index like the S&P500 or a globally diversified one?<BR/><BR/>ThanksJaynoreply@blogger.com