Subject: Re: Yale Finance Prof. advises 100% stock
Well, I'm not a retirement advisor. In fact, neither is Dr. Choi, and he admits that later on in his article.

But, the general principle should be to avoid bad left tails, i.e., try to structure your portfolio in such a way that you avoid catastrophic or potentially catastrophic outcomes.

E.g. unrecoverable sequence of returns risks in the first 5-10 years of retirement from which your portfolio can't recover.

This generally means you need some asset or asset classes uncorrelated or only weakly correlated with the global equities markets.

For American-based investors, the starting point is short or intermediate term nominal or inflation protected treasuries or treasury funds. Because I feel that sticky inflation is a greater risk than a deflationary recession--which history shows Congress and the Fed will probably act to stimulate our way out of it as quickly as possible--and I am retired, I lean heavily towards short and intermediate TIPS funds held in a pretax IRA, although I still hold some nominals of similar duration.

Other than that, broad based global equities such as VT. All debt has been paid off.

This also implies that portfolio growth to the upside will be potentially limited compare to someone who holds 100% equities or other high number. I feel 60/40 is about right for me, although for various reasons right now it's closer to 55/45 (I'm letting it ride.)

Being fully insured is also part and parcel of the plan. Living in a nice middle class area but not super fancy is part of the plan. That's kind of who we are anyway LOL.

One thing that I don't see very often, if ever, is whether people evaluate the marginal utility of X number of extra dollars in return they hope to generate by being 100% equities. For us, the marginal utility of accumulating extra dollars beyond what we already have is fairly confined. That doesn't mean we have "a lot" compared to others here, I'm sure that's not the case. We just bought a couple of new appliances to replace the old worn out stove and fridge. Now what we got are a basic GE stove and Fridgidaire top freezer model. Nothing fancy, just basic stuff. We could supposedly have bought fancier models 3x or 4x more expensive but for us they would have had negative marginal utility.

Since this is anonymous I can tell you exactly what the plan for us is: We want a "safe floor" consisting of our basic needs in inflation protected assets. Our combined social security should be around $60k even after a 25% slash due to the well known SS funding issues. We have about $1,000,000 in short and intermediate TIPs funds and I bonds, and about $400,000 in intermediate investment grade nominal bond funds. This should be enough to generate $30-40k in inflation adjusted income for a 30 year period which is our projected retirement period (we are in mid 60's so this will take us to mid 90s). So let's say conservative that's $90k in inflation adjusted dollars for the next 30 years. That's enough to cover our basic needs and then some. It won't cover major home renovations, a new car, or some other unforseen issue. But if the market takes a dump for 10 or 15 years we should be perfectly OK. Then of course we also have about an equal amount in global equity index funds to provide us with growth, aspirational spending, or leave to our children.

Neither of us were ever tenured college professors nor life long government employees with fat pensions and gold plated retirement plans so we come at this entire thing from maybe a different perspective than a lot of others. You'll note the experts advocating 100% equities for everyone are almost exclusively tenured academic professors or similar folks who actually never need to probably draw a single penny from their investment portfolios to be doing just fine and dandy.

In my POV, with respect to In Paradise and others similar to her, the people on these kinds of forums who proclaim loudly and confidently that they are "100% stocks forever!" are engaging in psychological or cognitive bias. They may give intellectual lip service to the notion that in theory the market could crash 50% or 60% or even more, and stay down for many years, longer than their projected life times, thus preventing a recovery in their portfolio. But they don't really believe it. They don't believe it could actually happen to themselves. They don't believe that a huge economic shock, and market crash, could ever coincide with other issues going on in their lives where they might have to withdraw large sums at the worst possible time and thus all the monte carlo simulations go out the window.

I don't know what kind of work In Paradise and her spouse do, but she herself said there were times along the way where they were very concerned about their job security. The way she sees it, not actually losing their jobs at those points doesn't mean she got lucky. It means the risk wasn't a real risk. It means she's immune or invulnerable from any kind of weird extreme black swan or even gray swan risk ever materially affecting her in such a way that maybe she would have been better off with a healthy allotment of TIPS or nominal bonds in her portfolio. That's a cognitive distortion on her part. Sure, roll the dice and 9 times out of 10 you'll probably do O.K. But none of us gets 10 runs through the monte carlo simulation, much less 10,000 like firecalc. We each only get exactly one single run through the simulation called "life." To me, I think there is at least a 20%-25% chance during a 30 year retirement of encountering a very bad unusual bear market and/or market crash and or financial crisis that's somewhat the same yet somehow different from all of the ones that came before it. And a non-zero chance our economic and government masters can't engineer a quick bounce back from it.

My point of view is I want my portfolio, and lifestyle, to survive EVEN IF the shit hits the fan. Because it will. We just don't know when or how.

And if I'm wrong, guess what? I'll make out like a bandit with the half of my portfolio (actually it's a little more than half now, general target though is 60/40) that's in global equities. That will take care of itself.