Sequence of Return Risk

Discussion in 'Share Investing Strategies, Theories & Education' started by dunno, 2nd Sep, 2017.

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  1. Nodrog

    Nodrog Well-Known Member

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    Fair point as he slaps himself with a dead catfish. You’re hardly the typical 60 / 40 (stock / bonds) Total Return investor:). And I’m not your typical dividend investor with a concentrated portfolio of high yielding shares. So yes you’re correct in that we’re both Equity investors. And it would appear we both have the majority of our investible wealth in equities which over the long term, if done sensibly, is actually less risky than many of it’s alternatives. But trying convincing the vast majority of that:rolleyes:.

    In reality it could be said that a sensible dividend investor who diversifies widely is simply a total return investor with more wealth:).

    Cheers to Equity Investors:cool::

    D1CBBDD1-7156-4B2E-83CD-38C11E0593AE.jpeg
     
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  2. Zenith Chaos

    Zenith Chaos Well-Known Member

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    Mmmmmmmmmmmmmmm beeeeeeeeeeeeeeerquities
     
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  3. Nodrog

    Nodrog Well-Known Member

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    Stop it, reading things like that in the morning gets me too excited:cool:.
     
  4. asw1

    asw1 Well-Known Member

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  5. dunno

    dunno Well-Known Member

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    Thanks for adding the link @asw1

    Sequence of return importance is totally under appreciated by most in my view.
     
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  6. asw1

    asw1 Well-Known Member

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    Couldn’t agree more! Unfortunately, as with most things investing it’s impossible to predict or control the future.

    Do you have any risk mitigation that helps you feel more comfortable about unpredictable future returns?
     
  7. Zenith Chaos

    Zenith Chaos Well-Known Member

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    Using a single 10 year period is hardly scientific, however it illustrates the point - luck is important in investing. Given that people can't predict the market and get paid as they work, DCA is probably one of the best options.

    My only suggestion as a complete novice is dollar cost value investing - buying more after dips and less after surges. In the special case when the market tanks - doing the opposite of everyone else and buying as much as possible with risk free leverage (no chance of margin call). Could be fraught with disaster - look at the Japanese market since 1980. Unfortunately there is no guarantee, just play the best game you can based on what you know. Aliens may wipe us out tomorrow, does that mean I should have been partying today?

    The other thing is to manage risk properly by reducing volatility as your risk appetite decreases, e.g. bond tent in years before and after retirement.

    If you've already won the game, there's no point to keep playing - take the win and walk away.
     
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  8. dunno

    dunno Well-Known Member

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    Yep - Resignation that the outcome is out of my control.

    But that 'resignation of outcome' inspires me to concentrate on what I can control and that is the 'process' of investing.
     
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  9. Nodrog

    Nodrog Well-Known Member

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    10 years is certainly significant for those nearing or in the early stage of retirement. But as you say ala Bill Bernstein one could take the view of “when you’ve won the game, stop playing”. However Bernstein also says that those with sufficient wealth to live on half the dividend stream (or equates to very low safe withdrawal rate for total returners) AND who have the risk tolerance to do so can be 100% equities.

    I expect I will always be very heavily invested in equities as I’m a huge believer in them and have been conditioned to market crashes over the decades. BUT whilst in the earlier stages of retirement we have a sizable cash holding. If the nasty sequence risk event(s) occurs during this higher risk period then that cash will opportunistically be deployed into the market. If not then as this risk decreases with age cash holdings will be progressively reduced. Or who knows, by then we may be content with less equities. Age can do strange things to us.
     
    Last edited: 23rd Oct, 2018
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  10. dunno

    dunno Well-Known Member

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    My take is that once you have the upper hand(won the game convincingly) the best course of defence is a good offence. Ala, the best way to fight long term purchasing power erosion is 100% productive asset exposure (equity)
     
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  11. Nodrog

    Nodrog Well-Known Member

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    He he, I knew you would say that:). And no doubt likely the best course of action. But whatever my strange psychological need for cash (perhaps opportunistic greed or maybe getting a bit more conservative than I realise) that’s how it currently stands.

    As for retaining purchasing power on what our spending level is then even as low as 30% equities would likely do it. But I love investing in equities regardless of whether we need to or not. Perhaps deep down there might be a little of that in you also? Will you really need 100% equities for inflation protection in retirement:)?
     
  12. dunno

    dunno Well-Known Member

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    It's not deep down, more like bubbling at the surface. I'm completely smitten with equities, totally biased. Probably like them nearly as much as you like home brew.:)
     
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  13. Nodrog

    Nodrog Well-Known Member

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    This entire area of risk and retirement planning is one I find very interesting. Being a keen equities investor I’ve kept this little piece which I look at every now and then to offer another perspective:
     
  14. SatayKing

    SatayKing Well-Known Member

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    I assume you and others realise that achieving those goals requires a level of stability which may not be there at some point? Health; income; stable relationship. Many external aspects for which the best laid plans.......
     
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  15. Nodrog

    Nodrog Well-Known Member

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    Well stop using excuses like when one who is wealthy beyond their needs needing to be 100% in equities purely for protecting purchasing power:D. Admit that we are just equity addicts. If the US tanked I would be near 100% equities again without hesitation. Maybe my sequence of return ramblings are just an excuse to be a market timer:).
     
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  16. Zenith Chaos

    Zenith Chaos Well-Known Member

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    Risk needs to be managed and for most people nearing retirement 100% equities is too risky.
     
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  17. Nodrog

    Nodrog Well-Known Member

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    Most but not all. Try telling Thornhill and those of similar view that. If one can live off dividends alone then drawing on capital is much less of a concern.
     
  18. dunno

    dunno Well-Known Member

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    I may be an equity addict - but regardless I beleive the assertion that size of capital in relation to expenses is the major determining factor in how asset allocation interacts with sequence risk.

    As @Zenith Chaos points out the best bet to address sequence risk is not a one size fits all propersition..
     
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  19. dunno

    dunno Well-Known Member

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    Somebody's got to make plans - God needs a good laugh.(obviously getting a bit uptight with all that fire and brimstone stuff)

    [​IMG]

    [​IMG]
     
  20. SatayKing

    SatayKing Well-Known Member

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    So true @dunno. One of mine is going through the last point I mentioned. Things are at a rather interesting stage but, in reality, I can only watch as it's sorted out. It'll probably get grubby.