Retirement Portfolio Insights From Christine Benz

Comments on “Finding the Right Retirement Allocation and Withdrawal Strategy,” an interview with Christine Benz, in the October 2024 AAII Journal:

There is not much of a difference between a bucket strategy and maintaining a fixed percentage of equities, bonds and cash in a retirement portfolio. And counterintuitively, the larger the cash bucket, the less likely the retirement portfolio is to last 30 years. More cash cushion isn’t safer.
—John L. from New Jersey

Long ago, I read an interesting book on value averaging. Instead of dollar-cost averaging, value averaging means that you set the value/growth you want at regular intervals and add cash (buy low) if your portfolio has undershot or cash out (sell high) if your portfolio has overshot your target (e.g., 7% annual gain). In retirement, we often speak of a bucket strategy with a good amount of cash for short-term needs. Granted, it might require a good amount of cash to start, but I’d like to hear thoughts about applying a value averaging strategy in retirement as a means for timing your short-term bucket fill.
—James I. from Utah

Balancing Growth and Value

Comment on “Striking the Right Balance Between Growth and Value Stocks,” by Craig Israelsen, in the October 2024 AAII Journal:

I wonder to what degree small-cap growth returns are hindered by the best small-cap stocks growing out of the category. In other words, the very best growth stocks will not stay within a small-cap index, so you eventually lose their participation in the index. That’s a meaningful consideration to an individual stock-picker like me.
—Robert A. from North Carolina

Planning for Future Concerns

Comments on “Managing Personal Finances in Your Later Years,” by Charles Rotblut, in the October 2024 AAII Journal:

I am in my 70s and am a life subscriber. This article should be republished every so often, since as we age, we have new concerns and interests. I would not have bothered to read it 30 years ago. Today, I read it twice, just in case I missed something.
—P.H. from Illinois

As someone in the early days of retirement and without children, I am concerned about how my wife and I handle our finances, as our cognitive skills will very likely decline in the future. I was aware of professionals who can manage our investments, but I wasn’t aware of these daily money managers. The article and your Editor’s Note in this month’s issue have been eye-opening for me, and that’s why I still read the AAII Journal every month, as I have for the last 16 years. Thank you.
—Thomas S. from Oregon

Comparing Four Asset Classes

Comments on “12 Hidden Lessons From Investment History,” by Paul Merriman, in the October 2024 AAII Journal:

Excellent analysis. If possible, can mid-cap blend and mid-cap value be added in the next go around? The conclusions will certainly be the same, but I like allocating across these six asset classes instead of four.
—Bobby M. from New Jersey

It’s not particularly surprising that a combination of four things could never be better than the best of the four or worse than the worst of the four. The only rankings mathematically possible would be second, third or fourth of the group of five.
—Edwin W. from Pennsylvania

Edwin, I agree that relative returns risk is a foregone conclusion. In combination with the compound annual growth rate (CAGR), the attraction of the Four-Fund Combo is that returns are not far off from the best, while minimizing withdrawal timing risk. A side benefit could be bolstering your resolve to not bail in down years, since your relative return would not be as bad as the worst choice return.
—Hugh P. from Washington

One caution: The stacked quilt analogy may innocuously convey a false sense of “feel good” comfort, but it does not convey the magnitudes of the very wide range of returns for each box over the years (due to market beta). As the article says, asset class variances are very wide. Merriman simplifies and reinforces the main market mantras that the market dynamics pictured here may create optical illusions that your returns are temporarily “at risk” of decreasing in total value.
—Barry J. from Texas

Thanks to Paul Merriman for many thoughtful, useful articles backed by deep research and analysis of data beyond the reach of individual investors. Like many of us, Merriman’s views have evolved with time and experience in the market: He’s come a long way from when I first encountered him 40 years ago with his book on moving averages! The market humbles us all (well, most of us!) and offers instruction for those willing to learn.
—Jim L. from Michigan