Milwaukee Bogleheads

MUTUAL FUNDS:LUCK ANDMAKING YOUR MONEY LAST AS LONG AS YOU DORobert SchrammMilwaukee BogleheadsJanuary 6, 20151

Ages: 40 to retiredGraduate level expertise

2Elements of Risk(Role of LUCK)Sequence of ReturnsInflationReverse Dollar Averaging3

4Inflation

5Sequence of returns affects your portfolio early. Inflation takes its biggest bite later in the distribution.

5Reverse Dollar Cost AveragingCyclical trends can cause reverse dollar averaging

To minimize the effects of RDCA include cash or money market accounts

Do not withdraw from any fluctuating investmentFrequent rebalancing can cause significant damage: optimize rebalancing.6Reverse Dollar Cost Averaging

7Minimize Effects of RDCAKeep two years withdrawals in money market account.

Three years of withdrawals in a short term bond fund.RDCA = Reverse Dollar Cost Averaging89

http://www.businessinsider.com/illustration-of-bull-and-bear-markets-2014-129Minimize Effects of RDCA3. To rebalance from equities to fixed: top off money market, then short term bonds, then other bonds.

10Minimize Effects of RDCA4. If rebalancing from fixed income to equities, flow money from Long Term Bondsto Money Market,then Short term bonds, then equities.

1111Minimize Effects of RDCA5. If there is cash inflow into the portfolio, (dividends, interest or other cash deposits):

Add to the Money Market first

Do not reinvest them until the money market fund and short term bonds are topped off and full.1212Minimize Effects of RDCA6. Do not rebalance the equity-fixed income holdings too often.

If the withdrawal rate is 5% or less, its better to rebalance once every 4 years at the end of the US presidential election year.

1313Picking an Asset Mix

1460/40 generally advised. 55/45 MKE County Retirement. 50/50 at target retirement date to 30/70 in 5 years. 40/60 from Otar.14Optimal Asset Mix

15Total Stocks 70%

TI30%

Total Bond/IB50%TIPS50%STOCKSLarge Cap40%Small Cap20%REIT10%Devlp mkt20%Emerging mkt10%

BONDSTotal Bond mkt60%TIPS20%HY20%165 stock funds-Mark Hebner, 3 bond funds Ferri. 3 fund (4 with TIPS) Bogleheads, Intermediate instead of TBM Bogle for less treas-more corp.

16Simple OptimizationIf you do not need money from your portfolio:50% Equity, 50% fixed income

If you need small periodic income, 4% or less:40% equity, 60% fixed Income.

If you need larger periodic income, over 4%:35% equities, 65% fixed income

173 Significant Financial Risk Factors for a RetireeLongevity risk: Living too long

Market Risk: quantifies the probability of portfolio depletion.

Inflation risk: the ability to maintain purchasing power.18Sustainable Withdrawal Rate

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20Early loss of principle discouraging. Small beginning amounts dont create much money with high returns. Start with safer allocation.

20Warning Signs of Diminishing LuckCurrent market P/E > 12.5%

The 4th year Checkup 4>120 yr

Withdrawals exceed the Sustainable Withdrawal Rate. 15-20 yr

Final Warning: Withdrawals exceed 10% of portfolio value.8-18 yr21Is there any foreshadowing of trouble?21

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23What might affect the success of my portfolio?23Boglehead WIKI Referenceshttp://www.bogleheads.org/wiki/Asset_allocation

http://www.bogleheads.org/wiki/Lazy_portfolios

http://www.bogleheads.org/wiki/Safe_withdrawal_rates

http://www.bogleheads.org/wiki/Tools_and_calculators

http://www.bogleheads.org/wiki/Rebalancing24Helpful Bookshttp://www.retirementoptimizer.com/ Jim Otars site for his book and sample his retirement program

http://www.ifa.com/12steps/foreword/ Mark Hebners INDEX FUNDS on his website

http://doiop.com/Smartest Smartest Investment Book Youll Ever Read by Daniel Solinhttp://doiop.com/Ferri All About Asset Allocation by Richard Ferri25Milwaukee BogleheadsA DIY investment group, followers of John Bogle's Index investing strategies, the Milwaukee local chapter of Bogleheads.This presentation was made January 6, 2015 by Bob Schramm of our chapter.26DisclaimerAll examples are for illustration purposes only and are not investment recommendations.The views expressed in the presentation, are those of the presenter, commenters, guests and participants and may not reflect the views of the Bogleheads organization.Use your discretion in using examples presented here for your own investment purposes. 27