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If you make less money then you aren’t preserving anything. Losing money is not protecting capital. You’ll have less at the end of the day, basic math.
You can usually match inflation. What's most important is the known outcome, which isn't possible with equity, so you're protected from any catastrophe.

ltr
 

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You understand taxes right? It means, between taxes and inflation you get less...this is the true known outcome, but feel free to keep lying to yourself as it makes you feel better obviously, some of us prefer to actually make money. Don’t forget your valuable HISA to guarantee poverty in your future. The catastrophe you weren’t protected from was sleeping in math class.
 

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Discussion Starter #23
JAG,

What's your take on Velocity Banking? Basically taking a HELOC/LOC and figuring out an amount averaged over 12 months and using that to skip interest payments on a mortgage. Pre-paying essentially. Your pay cheques are deposited into the LOC to pay it down. When the LOC is paid of, do it again.
 

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Ok @Just a Guy , so my friend Alpha started broke in 1995 and invested 2000$/month in the US Stock Market. My friend Beta did the same investment but in 10-year Treasury. My friend Charlie did the same investment but 60/40.

My three friends wanted to retire at $1M. Alpha reached it in March 2013. Beta reached it in April 2013. Charlie reached it in September 2012.

My friend Delta had $1M in 1998, happily retired withdrawing 5000$/month. All his money is in the US Stock Market. My friend Echo is in the same situation, but all his money is in 10-year Treasury. My friend Foxtrot is 60/40.

As of today, Delta has $70,000 left. Echo has $169,000. Foxtrot has $541,000.
 

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My friend Delta had $1M in 1998, happily retired withdrawing 5000$/month. All his money is in the US Stock Market. My friend Echo is in the same situation, but all his money is in 10-year Treasury. My friend Foxtrot is 60/40.

As of today, Delta has $70,000 left. Echo has $169,000. Foxtrot has $541,000.
Visually this can be seen here. I also pasted a graphic below.

The blue line (portfolio 1) is all stocks ... this outcome was the worst
The red line (portfolio 2) is all bonds ... this outcome is better
The yellow line (portfolio 3) is 60% stocks 40% bonds ... this outcome is best

The portfolios with bonds did the best. Just a Guy mistakenly thinks this is all about rate of return, but there's more going on.

If someone is retired or drawing money out of their portfolio, an allocation to bonds is important to reduce Sequence Risk. I would argue that bonds are also very important from a behavioural risk standpoint. Investors with less volatile portfolios will have a less stressful experience and have an easier time staying invested. So one benefits both from a behavioural standpoint, plus a reduction in sequence risk.


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So, your buddies suffered from a stock market crash, big deal. If we compared that to my investments I’m worth more today, despite taking money out than when I started withdrawing, probably by several millions, despite not owning a single bond. Even the stocks I chose went up significantly in the last few years. your comparison is meaningless as they didn’t buy the same things, or even the withdrawal rates which could be different. I can build a nice chart to “prove” whatever I want too, I used to have a marketing company...we produced stuff like that all the time...you could even pretend it’s true based on hindsight, but how’d your buddies do if they’d invested in fang stocks instead? It’s easy to manipulate your results without even lying using the right selections...


reality is, you put money in a bond and get less than 4% means you start off with $100 buying power and wind up with less as 2% goes to taxes and 2% goes to inflation. Less than 4% roi, means you get less buying power at the end of the day. Having a million dollars in savings which cast you 1.2M to acquire has the same types of losses, you just don’t see it on your chart.
 

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JAG,

What's your take on Velocity Banking? Basically taking a HELOC/LOC and figuring out an amount averaged over 12 months and using that to skip interest payments on a mortgage. Pre-paying essentially. Your pay cheques are deposited into the LOC to pay it down. When the LOC is paid of, do it again.
it’s not something I’d care much about for two reasons, first I don’t have a paycheque, next I don’t have a personal mortgage.I imagine you want to do this to write off the mortgage interest, which I’m not sure cra would allow in this case as you’re not using the heloc for new investments. You could get into trouble with an audit.
 

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Discussion Starter #28
it’s not something I’d care much about for two reasons, first I don’t have a paycheque, next I don’t have a personal mortgage.I imagine you want to do this to write off the mortgage interest, which I’m not sure cra would allow in this case as you’re not using the heloc for new investments. You could get into trouble with an audit.
Not writing anything off, just a way to accelerate payments and pay less interest.
 

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@Just a Guy I'll admit something that you'll like. I don't plan on buying bonds in the next 10 years or more. I plan to be 100% equity.

But my example with the US Stock Market and the 10-year Treasury is to show the reality of what has happened on average. That average tells us a story where bonds are a good choice.

But I must admit that if someone has invested in Small Cap Value stocks, he probably did better than the US Stock Market aggregate. It's proven. But that person has to be good enough to select those Small Cap Value stocks. But it's still not enough to remove bonds. And then you can select even better stocks depending on your strategy. And at that point, sure, 100% equity will do better because of the broad range of stock performance compared to bonds. But you have to be very good at selecting and managing stocks. But we all know you are a better-than-average and an outperformer, Just a Guy.

And I'm going all-in 100% equity simply because I'm a beginner who still believes (dreams naively?) that I can do better with stock-picking and ETF-picking than just buying some highly diversified market cap weighted aggregate indexing passive ETF. But that's because I'm - myself - still biased by the better-than-average effect. But I'm a risk-taker, so even if I'm aware of all this, I'm still trying it.
 

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Discussion Starter #30
And I'm going all-in 100% equity simply because I'm a beginner who still believes (dreams naively?) that I can do better with stock-picking and ETF-picking than just buying some highly diversified market cap weighted aggregate indexing passive ETF. But that's because I'm - myself - still biased by the better-than-average effect. But I'm a risk-taker, so even if I'm aware of all this, I'm still trying it.
I'm also 100% equity on my investments at the moment. I was using bonds to hold cash and make a little more than a savings account. When March came calling and the market tanked I sold off the bonds and went 100% equities. It paid off. Reason why I was holding cash? I don't like buying things at record high prices.
 

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I'm also 100% equity on my investments at the moment. I was using bonds to hold cash and make a little more than a savings account. When March came calling and the market tanked I sold off the bonds and went 100% equities. It paid off. Reason why I was holding cash? I don't like buying things at record high prices.
I believe it's always good to hold some cash to be able to jump on opportunities.
 
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As the graph of the 10 year bond yield shows, bonds have been in a bull market since 1982. Buying bonds now is buying in a bond bubble. Big mistake. I agree with Ramsey. Stay away from bonds. Also Ramsey's outlook for stocks is in the context of a 20 year time frame so 10% + in a well managed fund is reasonable.

Go into debt for a car? Not for personal use.
10yrbond.PNG
 

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Visually this can be seen here. I also pasted a graphic below.

The blue line (portfolio 1) is all stocks ... this outcome was the worst
The red line (portfolio 2) is all bonds ... this outcome is better
The yellow line (portfolio 3) is 60% stocks 40% bonds ... this outcome is best

The portfolios with bonds did the best. Just a Guy mistakenly thinks this is all about rate of return, but there's more going on.

If someone is retired or drawing money out of their portfolio, an allocation to bonds is important to reduce Sequence Risk. I would argue that bonds are also very important from a behavioural risk standpoint. Investors with less volatile portfolios will have a less stressful experience and have an easier time staying invested. So one benefits both from a behavioural standpoint, plus a reduction in sequence risk.


View attachment 20835
Not that I disagree that bonds dont have their place, but you literally picked the best years to prove your point. 3 straight years of down years for the US market. Extremely rare. Do the math starting in 1994.
 

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Not that I disagree that bonds dont have their place, but you literally picked the best years to prove your point. 3 straight years of down years for the US market. Extremely rare. Do the math starting in 1994.
So you don't like my starting point and instead want to start your analysis during the strongest years in all stock market history?

There's a way to solve this debate over start dates ... monte carlo simulations, which play out different market scenarios. All of this has already been studied in any case (Trinity studies, Bengen etc) and they have repeatedly found that some % in bonds helps protect against sequence of returns risk.

It makes sense to be all equities while you accumulate wealth, but once you're in withdrawal mode, you pretty much need bonds in the allocation.
 

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So you don't like my starting point and instead want to start your analysis during the strongest years in all stock market history?

There's a way to solve this debate over start dates ... monte carlo simulations, which play out different market scenarios. All of this has already been studied in any case (Trinity studies, Bengen etc) and they have repeatedly found that some % in bonds helps protect against sequence of returns risk.

It makes sense to be all equities while you accumulate wealth, but once you're in withdrawal mode, you pretty much need bonds in the allocation.
Disagree. You dont need bonds. Pick almost any other year then you did, and the all stock portfolio will win out. You only need bonds for your risk tolerance - NOT for better returns.
 

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Disagree. You dont need bonds. Pick almost any other year then you did, and the all stock portfolio will win out. You only need bonds for your risk tolerance - NOT for better returns.
Review the Trinity studies and SWR.

If you're withdrawing from a portfolio, 100% equity is not advisable
 

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@Just a Guy But we all know you are a better-than-average and an outperformer, Just a Guy.
pretty sure you’re being facetious, however the best way to outperform the “average” is to not be average in what you do... I believe in common sense investing and common sense, as it turns out isn’t very common, as this whole argument proves. Why people even look seriously at single digit returns and crow about them is just plain silly. There are plenty of better investments, which aren’t super risky out there, but of course the indoctrinated don’t believe it...
 

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Not writing anything off, just a way to accelerate payments and pay less interest.
I’m also not against paying interest, as the interest I do pay tends to make me wealthy and I don’t mind sharing. as for your scheme, I don’t see anything wrong with it, some people aren’t disciplined enough to do it without a system which forces them to do something. Personally, I’d borrow from the heloc, buy a rental, and have someone else pay down my mortgage for me. Thereby paying less interest.
 

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Not that I disagree that bonds dont have their place, but you literally picked the best years to prove your point. 3 straight years of down years for the US market. Extremely rare. Do the math starting in 1994.
@james4beach was showing the graphs of my examples so I'll defend my point. First, I agree with you, I don't like when people compares the outcome based on a specific timeline. What I don't like though, is when the comparison is for a single investment at a specific point in time instead of a cashflow. That's why my examples were about cashflows.

Still, it's a specific timeline, I agree with you.

What I usually use for comparison is rolling returns. Unfortunately, Portfolio Visualizer doesn't calculate the outcome for the rolling returns of a cashflow. Still, it provides an overview of the average, min and max returns experienced for any window during the full timeline available.

From 1972 to 2020 :
  • A 100% US Stock Market provided an average CAGR of 11.03%, a max of 17.62% and a min of 4.75% for any 15-year investment during that 48-year period
  • A 60/40 portfolio provided an average CAGR of 10.38%, a max of 14.68% and a min of 6.19% for any 15-year investment during that 48-year period

The average of both portfolios is pretty similar, but the 100% equity has a higher max, but a lower min, though.

Having bonds has not been a bad choice, it's just a personal choice about the spread of the possible outcomes and the financial context (withdrawals, contributions, etc.).

I was just trying to say that - in the past - bonds were not a bad choice. That being said, I will not debate the current situation. I'm 100% equity and it's a personal choice which fits my style. Not only am I 100% equity, I don't buy stocks with high dividends. That's me. Others can make other choices which fits their personality.

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About debt, I agree with others. Reasonable debt is good if it's for an investment, but any debt for personal use is bad. Personal cars are definitely not an investment.
 
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