The definition of insanity
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[quote=B24]CC,
We really need to stop comparing Warrenn Buffett to mutual fund managers or financial advisors. He does not get "in and out of the market". That's like saying Donald Trump should sell all his real estate before the RE market drops, or that GE should sell their turbine business before orders slow down, and then "jump back in" to turbines when orders start coming back. And as I've said before, most of Buffett's positions are so large, that he can not just jump in and out. He is not concerned about short-term setbacks. He buys good companies and holds them, theoretically, forever.[/quote]When he saw problems at FNM he sold the stock. I grant you that his positions are generally too big to dance around in and out, but the main point survives- $ that is allocated to the market for us and our clients should be left alone. If anybody has been invested in indexes over the past 10 years versus some kind of magical, voodoo strategy, i bet the person in the index won. But someone in munis over this same time period did fantastically.
DCA into a portolio of indexes- if someone has an initial allocation of 50% equities and that grows to 60% then maybe sell it down to 50%. If it gets down to 40% add to it.
I would look to innovate by increasingly using guaranteed insuarnce solutions as clients approach retirement. There are fixed and indexed annuities that have 8% compound income riders. Also, if there’s enough time, UL can also be a good solution for wealthier clients. You can’t lose principle, you guarantee a good income stream, and you eliminate downside market risk. Additioanlly, the actual account values grow at rates that beat other guarnateed solutions.
As mentioned previously, people are concerned, and shooting the same bullets that seeminly backfired last time won't go far in attracting new clients. Its important to differentiate yourself. I find it gives my clients incredible peace of mind having at least a portion of their retirement guranteed or insured. BTW - for full disclosure, I'm a big fan of MPT during earning years. As people approach retirement, I find it hard to beat simple annuity and insurance based solutions. If clients don't NEED higher returns, then why take the risk?[quote=ManOnTheCouch]I would look to innovate by increasingly using guaranteed insuarnce solutions as clients approach retirement. There are fixed and indexed annuities that have 8% compound income riders. Also, if there’s enough time, UL can also be a good solution for wealthier clients. You can’t lose principle, you guarantee a good income stream, and you eliminate downside market risk. Additioanlly, the actual account values grow at rates that beat other guarnateed solutions.
As mentioned previously, people are concerned, and shooting the same bullets that seeminly backfired last time won't go far in attracting new clients. Its important to differentiate yourself. I find it gives my clients incredible peace of mind having at least a portion of their retirement guranteed or insured. BTW - for full disclosure, I'm a big fan of MPT during earning years. As people approach retirement, I find it hard to beat simple annuity and insurance based solutions. If clients don't NEED higher returns, then why take the risk?[/quote] I think you can put together fixed income solutions that are as good as annuity/insurance based solutions, for less cost and more control, and adding in appropriate amounts of equities will help grow the long-term assets. However, I agree that annuities are good for a portion that you want a guaranteed "paycheck" from.This market changed my philosophy just a tad. Before, I was completely against fixed income for people my age but now I believe everyone can benefit from having some fixed income in their portfolio. With that being said, I will continue to believe in equities and MPT because over the long haul, it has worked. Using annuities and fixed products when someone nears retirement is a great idea to reduce risk but doesn’t that go hand in hand with asset allocation?
I will continue to believe in the United States of America and capitalism. I’m not going to follow the naysayers on CNBC and other media outlets who talk about the gloom and doom. This country has gone through this before and the same things were said: “This time it’s different”! “The world’s going to end”! “Go to cash”!
When you look at 10 year periods ended of the S&P 500 since 1935, 10 year returns were positive 95% of the time. I’ll take those odds any day of the week.
You, my friend, are the definition of sanity!!!This market changed my philosophy just a tad. Before, I was completely against fixed income for people my age but now I believe everyone can benefit from having some fixed income in their portfolio. With that being said, I will continue to believe in equities and MPT because over the long haul, it has worked. Using annuities and fixed products when someone nears retirement is a great idea to reduce risk but doesn’t that go hand in hand with asset allocation?
I will continue to believe in the United States of America and capitalism. I’m not going to follow the naysayers on CNBC and other media outlets who talk about the gloom and doom. This country has gone through this before and the same things were said: “This time it’s different”! “The world’s going to end”! “Go to cash”!
When you look at 10 year periods ended of the S&P 500 since 1935, 10 year returns were positive 95% of the time. I’ll take those odds any day of the week.
Army, you are missing the point. So what if 95% of 10 year periods are positive? How about the 10 year periods with 4% average annual returns? What about the 10 year period that was positive but had a big 40% negative “whoops” in it? Some people miss the concept of Compound Annual Growth Rates (CAGR). You could have two 10 year periods with identical 10 year average returns (which is what virtually all funds and software use to depict average returns), but one of them has a far lower ending value, as in dollars in your pocket, because the big negative year dropped the compound return.
Simple example: Investment A Year 1: +10% Year 2: -10% Average return = 0% Ending Value of $100 invested = $99 Investment B Year 1: 0.0% Year 2: 0.0% Average return = 0% Ending Value of $100 invested = $100 Point is, big negative years have a MUCH bigger impact on returns than positive years in a series of sequential returns. SO people can look at annual returns and say "WOW -40% was bad, but, hey they made back 45% the next year." WRONG! You start with $100, after a -40% and a +45% you are left with $87. You need to make 67% to get abck to even after losing 40%. I know you know all this, but the point is in trying to miss the BIG MISTAKES. If you miss the big downers, you don't need much of the upside during the recovery.Not with my money you won't. To be clear, i'm not talking doom and gloom. I'm talking protection for people who need it. I've already made my money. I don't want to hang around for ten years to make it back again because some genius with a pie chart pointed to a long term stat instead of moving me from harm's way. This thread isn't about charts. It's about people.This market changed my philosophy just a tad. Before, I was completely against fixed income for people my age but now I believe everyone can benefit from having some fixed income in their portfolio. With that being said, I will continue to believe in equities and MPT because over the long haul, it has worked. Using annuities and fixed products when someone nears retirement is a great idea to reduce risk but doesn’t that go hand in hand with asset allocation?
I will continue to believe in the United States of America and capitalism. I’m not going to follow the naysayers on CNBC and other media outlets who talk about the gloom and doom. This country has gone through this before and the same things were said: “This time it’s different”! “The world’s going to end”! “Go to cash”!
When you look at 10 year periods ended of the S&P 500 since 1935, 10 year returns were positive 95% of the time. I’ll take those odds any day of the week.
Those aren't very good numbers and poor statistical sampling... So in roughly 7 samples(70 years plus 1935) you are positive 95% of the time... But what about the 5% that kills your entire portfolio?This market changed my philosophy just a tad. Before, I was completely against fixed income for people my age but now I believe everyone can benefit from having some fixed income in their portfolio. With that being said, I will continue to believe in equities and MPT because over the long haul, it has worked. Using annuities and fixed products when someone nears retirement is a great idea to reduce risk but doesn’t that go hand in hand with asset allocation?
I will continue to believe in the United States of America and capitalism. I’m not going to follow the naysayers on CNBC and other media outlets who talk about the gloom and doom. This country has gone through this before and the same things were said: “This time it’s different”! “The world’s going to end”! “Go to cash”!
When you look at 10 year periods ended of the S&P 500 since 1935, 10 year returns were positive 95% of the time. I’ll take those odds any day of the week.
Those aren't very good numbers and poor statistical sampling... So in roughly 7 samples(70 years plus 1935) you are positive 95% of the time... But what about the 5% that kills your entire portfolio?[/quote] Everyone has a unique circumstance, and the question really comes down to how soon are you going to need this money? I think that is the all important first determination. If it is 10 years or more, equities have historically made the most sense. I understand B24 with black swan events, but would like to know how you are going to predict them with regularity going forward. It is one thing to say avoiding them is key. How you avoid them is a different matter all together.[quote=army13A]This market changed my philosophy just a tad. Before, I was completely against fixed income for people my age but now I believe everyone can benefit from having some fixed income in their portfolio. With that being said, I will continue to believe in equities and MPT because over the long haul, it has worked. Using annuities and fixed products when someone nears retirement is a great idea to reduce risk but doesn’t that go hand in hand with asset allocation?
I will continue to believe in the United States of America and capitalism. I’m not going to follow the naysayers on CNBC and other media outlets who talk about the gloom and doom. This country has gone through this before and the same things were said: “This time it’s different”! “The world’s going to end”! “Go to cash”!
When you look at 10 year periods ended of the S&P 500 since 1935, 10 year returns were positive 95% of the time. I’ll take those odds any day of the week.
Those aren't very good numbers and poor statistical sampling... So in roughly 7 samples(70 years plus 1935) you are positive 95% of the time... But what about the 5% that kills your entire portfolio?[/quote] We're talking like 70 rolling 10-year periods, not just round decades. But your point is still correct. If you fall into the 5%, YOU LOSE![quote=army13A]This market changed my philosophy just a tad. Before, I was completely against fixed income for people my age but now I believe everyone can benefit from having some fixed income in their portfolio. With that being said, I will continue to believe in equities and MPT because over the long haul, it has worked. Using annuities and fixed products when someone nears retirement is a great idea to reduce risk but doesn’t that go hand in hand with asset allocation?
I will continue to believe in the United States of America and capitalism. I’m not going to follow the naysayers on CNBC and other media outlets who talk about the gloom and doom. This country has gone through this before and the same things were said: “This time it’s different”! “The world’s going to end”! “Go to cash”!
When you look at 10 year periods ended of the S&P 500 since 1935, 10 year returns were positive 95% of the time. I’ll take those odds any day of the week.
Those aren't very good numbers and poor statistical sampling... So in roughly 7 samples(70 years plus 1935) you are positive 95% of the time... But what about the 5% that kills your entire portfolio?[/quote] We're talking like 70 rolling 10-year periods, not just round decades. But your point is still correct. If you fall into the 5%, YOU LOSE![/quote] The other point that is overlooked is that most people will be taking money out, so even if the return was positive what does it look like with a 4% withdrawl rate?[quote=chief123][quote=army13A]This market changed my philosophy just a tad. Before, I was completely against fixed income for people my age but now I believe everyone can benefit from having some fixed income in their portfolio. With that being said, I will continue to believe in equities and MPT because over the long haul, it has worked. Using annuities and fixed products when someone nears retirement is a great idea to reduce risk but doesn’t that go hand in hand with asset allocation?
I will continue to believe in the United States of America and capitalism. I’m not going to follow the naysayers on CNBC and other media outlets who talk about the gloom and doom. This country has gone through this before and the same things were said: “This time it’s different”! “The world’s going to end”! “Go to cash”!
When you look at 10 year periods ended of the S&P 500 since 1935, 10 year returns were positive 95% of the time. I’ll take those odds any day of the week.
[quote=B24]Army, you are missing the point. So what if 95% of 10 year
periods are positive? How about the 10 year periods with 4% average
annual returns? What about the 10 year period that was positive but
had a big 40% negative “whoops” in it? Some people miss the concept of
Compound Annual Growth Rates (CAGR). You could have two 10 year
periods with identical 10 year average returns (which is what virtually all funds and software use to depict average returns), but one of them has a far lower ending value, as in dollars in your pocket, because the big negative year dropped the compound return.
Then what's your strategy? The way you put it, exposure to equities should be limited. Invest in fixed annuities for the rest of their lives?
Where did I imply that 100% of a client's portfolio would be 100% invested in the S&P regardless of where they are in their life? That's where asset allocation comes in. Let's just see where the market is a couple of years from now. The markets always recover, always.
[quote=BondGuy]
Not with my money you won't. To be clear, i'm not talking doom and gloom. I'm talking protection for people who need it. I've already made my money. I don't want to hang around for ten years to make it back again because some genius with a pie chart pointed to a long term stat instead of moving me from harm's way. This thread isn't about charts. It's about people. [/quote]Genius with a pie chart? I never insulted you in any way but whatever.
Again, where did I say 100% of a client's assets should be invested in the S&P? As an individual gets closer to retirement, of course they need to start shifting more conservatively. But the notion that some people have that when someone gets to 65 and needs to be 100% fixed income is crazy. You can have equities inside of protected vehicles such as VA's and there's nothing wrong with that.
I think what they are saying is timing the market a little is ok. Allocations should change, and not just on “age” and “risk tolerance”. I know it’s counter-intuitive to everything the FPA stands for, but the financial markets are so complex that it makes sense to constantly monitor our theories.
Asset allocation to me, is short term thinking dressed up as long term strategy.
[quote=Moraen]I think what they are saying is timing the market a little is ok. Allocations should change, and not just on “age” and “risk tolerance”. I know it’s counter-intuitive to everything the FPA stands for, but the financial markets are so complex that it makes sense to constantly monitor our theories.
Asset allocation to me, is short term thinking dressed up as long term strategy.
[/quote]
True. Never heard it put that way, but totally true.
I will try to post a link, but Bank Investment Consultant has a decent article this week about MPT. It actually stated in the article that if you were to buy 20 yr Treasuries from 1969 - 2009 you would have beaten the S&P. There wasn’t much detail to the authors comment. Can that be true ? If so I need to change my thinking!
http://www.bankinvestmentconsultant.com/bic_issues/2010_2/rethinking-modern-portfolio-theory-2665530-1.htmlThe typical person is screwed when it comes to retirement. It has very little to do with what investment strategy they used. Most people simply never put enough money away. It’s awfully tough to have a fighting chance for a decent retirement when one is 65, still has a mortgage and other debt and never put more than 5-10% of their income away.
In general, whoever puts away the most money ends up with the most. The other advantage to putting away more money is that it's easier to maintain one's standard of living. In fact, isn't that what people typically want in retirement? Compare two people who make $100,000 after taxes. One put away 10% of his income. The other put away 20%. Obviously, the one who put away 20% will have more money, but not as obvious to our clients is the fact that he'll only need to maintain an $80,000/year lifestyle and not a $90,000 life style.[quote=anonymous]The typical person is screwed when it comes to retirement. It has very little to do with what investment strategy they used. Most people simply never put enough money away. It’s awfully tough to have a fighting chance for a decent retirement when one is 65, still has a mortgage and other debt and never put more than 5-10% of their income away.
In general, whoever puts away the most money ends up with the most. The other advantage to putting away more money is that it's easier to maintain one's standard of living. In fact, isn't that what people typically want in retirement? Compare two people who make $100,000 after taxes. One put away 10% of his income. The other put away 20%. Obviously, the one who put away 20% will have more money, but not as obvious to our clients is the fact that he'll only need to maintain an $80,000/year lifestyle and not a $90,000 life style. [/quote]Amen to that. It's a fact that most Americans will not live the life they want in retirement because they're too worried about "keeping up with the Jones" now.
I have a close friend who wanted me to help them get a budget straight because they were living paycheck to paycheck and contemplating taking money out the 401k to make ends meet. I start going through the budget and I see personal training sessions, private kung fu lessons for the kids, new car note, etc. I start looking at the person and say which one of these do you want to cut out? Answer was none b/c they couldn't live without those things.
Ice, I wish I had more clients like that. That’s somebody that you couldn’t screw up if you tried.
More typical is the 63-year-old man with 200k, invested at 50-50 because the models show the worst than can happen is he loses maybe 10 pct. Only last year he fell to 150k.
So that guy was SOL. He’s lost three years of his retirement.
Or the guy who was 66 and retired with 200k, taking 8k per year to supplement Social Security (except he’s really taking 10k because he has decided he’s not going to live to 90) and invested 50-50 because I told him he’s got a 30-year horizon and he’s got to keep up with inflation. Now he’s sitting at 140k and he really’s SOL.
The typical person makes 50k a year can’t possibly save enough for retirement. He’s got kids to raise, car payments, taxes… his company doesn’t have a pension anymore. He knows he needs to save something, but he has a chance to spend his kid to U of M so he’s going to bite the bullet and pay for that so his kid can have a better life. He had a 401k but the match is gone and it just lost 40 percent. Maybe he loses his job for six months and spends whatever he has. I just don’t know how these people are going to make it.