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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

David Snowball's June Commentary Has Arrived
With apologies to OJ, Jerry and the others, Ted was the first to note that David's June Commentary was posted. I'm afraid my initial tongue-in-cheek remark may have been inappropriate or misinterpreted. It was intended to induce others to read this excellent commentary.
I'm a bit surprised at the seeming surprise David's cautionary market outlook seems to have generated. Regular readers of his monthly commentaries know that he has long voiced skepticism (I think well founded) ) about the durability of the bull market and valuations in general. If you also read Ed Studzinski's regular comments, he makes David look like a lotus eating optimist. (As most here know, Ed co-managed the Oakmark Equity and Income Fund for many years, turning out impressive results.)
I don't think MFO participants have been completely "in the dark" on the valuation issue or to the fact that stock markets can and sometimes do drop precipitously (25+% overnight) or flounder for incredibly long periods, as measured in years or decades. That's the risk you take for being in equities. If you read JohnChism's thread about "Bullish or Bearish" you'll find some of the same concerns David has recently raised - though certainly not as thoroughly explored or eloquently stated as only David can do.
To refresh readers' memories, I've clipped a few morsels from some of David's Commentaries dating back to November, 2013. Please read the commentaries in full, as they are easily retrievable on the MFO website. Apologies to David if, in pulling these out of context, I altered the meaning, omitted pertinent context, or changed the emphasis of any. There was no intent to do so.
Regards
-
November 1, 2013: "... a market that tacks on 29% in a year makes it easy to think of investing as fun and funny again. Now if only that popular sentiment could be reconciled with the fact that a bunch of very disciplined, very successful managers are quietly selling down their stocks and building their cash reserves again."
December 1, 2013: "Small investors and great institutions alike are partaking in one of the market’s perennial ceremonies: placing your investments atop an ever-taller pile of dried kindling and split logs. All of the folks who hated stocks when they were cheap are desperate to buy them now that they’re expensive...We have one word for you: Don’t."
January 1, 2014: If you’re looking for a shortcut to finding absolute value investors today, it’s a safe bet you’ll find them atop the “%age portfolio (invested in) cash” list ...They are, in short, the guys you’re now railing against"
February 1, 2014: "It makes you wonder how ready we are for the inevitable sharp correction that many are predicting and few are expecting."
March 1, 2014: "It’s not a question of whether it’s coming. It’s just a question of whether you’ve been preparing intelligently."
April 1, 2014: "Some (money managers) ... are calling the alarm; others stoically endure that leaden feeling in the pit of their stomachs that comes from knowing they’ve seen this show before and it never ends well."
June 1, 2014: ... all of this risk-chasing means that it’s Time to Worry About Stock Market Bubbles."
September 1, 2014: "Somewhere in the background, Putin threatens war, the market threatens a swoon, horrible diseases spread, politicians debate who among them is the most dysfunctional ..."
February 1, 2015: "The good folks at Leuthold foresee a market decline of 30%, likely some time in 2015 or 2016 and likely sooner rather than later. Professor Studzinski suspects that they’re starry-eyed optimists."
April 1, 2015: "(Sooner) ... Or later. That is, the stock market is going to crash. I don’t really know when. Okay, fine: I haven’t got an earthly clue. Then again, neither does anyone else."
May 1, 2015: "For investors too summer holds promise, for days away and for markets unhinged. Perhaps thinking a bit ahead while the hinges remain intact might be a prudent course ..."

Thanks Hank, not because I don't respect him, but I rarely have read any of David's monthly commentaries. So are you saying he is a persistent prophet of pessimism???
I sure would have hated to have missed 2014 as that year pretty much sealed my retirement.

Junkster June 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
Oh, great, a snotty comeback from you; productive. It is not I who is kneejerk and does not give serious thoughtfulness to gradations and modulations of approaches. As I implied, tell us your thoughtful and substantiated philosophies about fluoride, seatbelts/helmets, taxes, vaccination, and all similar. Or rather, and more on point, is there no point to strong and effective incentives/disincentives for retirement saving via the workplace, do you think? What would you do to vigorously encourage better retirement planning? Just leave it alone and let it be? --- because freedom? Sow and reap, etc. Or is it that you do not think this is a problem that needs addressing? Freedom? Try to be contributory here and not just reactionary.

davidrmoran May 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
Kind of agree with davidmoran. Too many ppl WILL NOT set up their own retirement fund or plan, no matter how easy the mechanics of it are made. Recent example: low-mid-income couple with blinders on, enough income to invest for the long haul (rather than trade stocks short-term), always declared their retirement was in their property. It finally sold, for 75% less than they had anticipated. They will be through the proceeds by the time they are 70, at which point they will have only S.S.
That story is repeated over and over, even among college-educated folks who exercise business savvy in other matters and hunt for bargains. They simply WILL NOT.

InformalEconomist May 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
>> If employees want a retirement vehicle, they could do it on their own versus waiting for the company. If the employee is not interested, then it doesn't matter?
Because why, freedom?
The whole point is that it matters regardless. People know, but don't do. Anything that is 'enforces' extra-strong encouragement (default must be opted out of, for example) is gonna help. Anything expansive like Wash state and Illinois is gonna help.

davidrmoran May 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
I am not sure this is a real solution. Why not make it very easy for each employee to have their own retirement plan that would be portable? IRA's fit the bill but they would have to greatly increase the limits on contributions. If employees want a retirement vehicle, they could do it on their own versus waiting for the company. If the employee is not interested, then it doesn't matter? Education on what SS provides and what a personal retirement account could provide is necessary.
I like the portability issue due to the fact that today's workers will have several jobs in their working life. Also, by having your name on the account versus the XYZ company 401k, it promotes ownership of your retirement future.

JohnChisum May 2015 in Fund Discussions
The Bull is Closer to Its End
"No assumptions are necessary. Jim Stack is directing his advice to all investors: to you, to me, to MFOers, and to his legion of loyal followers."
---
Wow - If Stack's advice is to be taken seriously would his vision than not become a self-fulfilling prophecy?
Here's why: If all investors decided to ratchet-down their equity exposure by 10-15% based on Stack's forecast, equity valuations would than adjust downwards to reflect the new reality. In fact, they might well over-shoot on the downside.
I haven't learned a thing from this thread. There are hundreds of bright people like Stack whose views are worth reading. We can learn from all of them. None deserve the attention Stack seems to be receiving here. I got a lot more out of JohnC's thread on "bullish" or "bearish" as I was able to identify different types of investors (here at MFO) with the varying outlooks offered - and none of the views were served up as sacrosanct.
There's another issue here which seems to have largely escaped discussion. That's this whole notion of trying to time markets. Yes - Stack is merely advocating "reducing exposure". To me, that's a cute way of saying: try to time markets. And I think that's terrible advice for younger investors attempting to grow a retirement nest egg. For "oldsters" (probably the predominant group on this board) who have already accumulated a nest egg, timing makes a bit more sense from a defensive point of view, but is still a "dicey" (a begrudging nod to Vegas) proposition - the benefits of which are highly dependent upon both the investor's temperament and goals as well as a whole host of unknowns.

hank May 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
FYI: A growing number of state legislatures are trying to solve the nation’s retirement savings crisis.
Last week, Washington state became the second state in the nation—after Illinois—to authorize its own state-run retirement savings program for a broad spectrum of companies. The goal: to get small businesses, many of which don’t currently offer retirement savings plans, to deduct contributions from employees’ paychecks and funnel them into individual retirement accounts, where money can grow tax-deferred until retirement.
Regards,
Ted
http://blogs.wsj.com/totalreturn/2015/05/28/states-tackle-americas-retirement-savings-shortfall/tab/print/?mg=blogs-wsj&url=http%3A%2F%2Fblogs.wsj.com%2Ftotalreturn%2F2015%2F05%2F28%2Fstates-tackle-americas-retirement-savings-shortfall%2Ftab%2Fprint

Ted May 2015 in Fund Discussions
A query on American Funds
I agree with Desota - I would be quite surprised if you could get an R-class share outside of an employer-sponsored retirement plan.
When American Funds came out with class F shares (now called F-1), they were available not only through advisors, but through some offbeat discount brokers (e.g. Citicorp Investment Services - doesn't exist any more). Later, when American Funds added F-2 (same as F-1 but w/o 12b-1 fee), they seemed to tighten up on access to the F-1 shares.
Nevertheless, there appear to be a few access points remaining. I don't know how useful any of this will be, but here's what I know about those access points.
Several HSA (Health Savings Accounts) offer access to a limited number of mutual funds (i.e. they have a menu, like an employer's 401(k) plan does). Among these offerings one can often find one or two American Funds (class F-1). For example, here's the fund list from HSA Bank.
Some HSAs offer brokerage options, and these tend to be treated as retirement accounts or institutional accounts, rather than generic retail accounts. As such, they seem to offer greater access to some investments. Many of these HSA accounts use TDAmeritrade as the brokerage partner, and it looks like AMPFX (AMCAP F-1) may be available that way, NTF, despite a search on the brokerage site turning up a page saying the fund is not available for sale there.
Another back door is via a no load VA. What you get there are usually clones of the retail funds, but that's often close enough. You can access the American Funds Insurance Series VA funds through Jefferson National Monument Advisor VA. There isn't a clone for AMCAP, but there is one for Growth Fund of America.
Finally, there's the solution for the high rollers - dump $1M into American Funds, and you can get their A shares without a load. (Though there's a 1% redemption fee if you sell within a year.) If you're investing that much, you're probably not worrying about whether there's a transaction fee.

msf May 2015 in Fund Discussions
Taxes Matter In Fund Investing, Even When There's No Bill
FYI: Most of us don't worry about taxes when it comes to mutual funds.
We don't need to because we invest in them through a 401(k), IRA or another account designed to delay taxes until after retirement. More than half of all money invested in mutual funds is in tax-deferred accounts. That makes it easy to ignore whether other shareholders in the same fund are getting a big tax bill just because they're holding it in a taxable account.
Even so, it can pay to consider a mutual fund's tax history, regardless of whether your money is in a taxable or tax-deferred account. That's because funds that keep tax bills down tend to have better returns, even before taxes are taken into account.
Regards,
Ted
http://abcnews.go.com/Business/print?id=31217658

Ted May 2015 in Fund Discussions
Scott Burns: The Thinness Of Wealth
FYI: Are we heading toward a retirement crisis, or not?
It’s a simple question. But when a question has many answers, we should pause. Earlier this year three researchers examined the scope of the estimates. They found an astounding range. On the optimist side, economists William Gale, John Karl Scholz and Ananth Seshadri found only 26 percent of American households were inadequately prepared for retirement. On the pessimist side, the National Institute for Retirement Security found that a whopping 84 percent of us were unprepared for retirement
Regards,
Ted
http://assetbuilder.com/scott_burns/the_thinness_of_wealth

Ted May 2015 in Fund Discussions
The Risks and Rewards Of Self-Managing Investment Portfolios
FYI: WHEN Ken Kavula of Genesee, Mich., retired from his job as a high school principal at age 53, he decided to defy conventional wisdom and manage his own financial life — including his retirement accounts and a mix of stocks and bonds he had either accumulated on his own or inherited.
Fifteen years later, Mr. Kavula, now 68, has ridden the huge highs and crushing lows of the markets so well that he has enough to live off, for now, without even tapping some accounts.
Regards,
Ted
http://www.nytimes.com/2015/05/23/your-money/the-risks-and-rewards-of-self-managing-investment-portfolios.html

Ted May 2015 in Fund Discussions
Cash flow in retirement - not from Art Cashin
I've been posting a lot about budgeting, near cash, and cash flow.
Here is my current cash flow calculation for this year as of today's date.
Budget (28,500)
Cash Back 243 - credit cards
checking/Int 753
STHBX 16,449
Money Market 1,700
Pension 8,058
Spent 12,494 - this the amount spent to date
Total 11,197 - this is the amount remaining of STHBX I estimate I will have at year end.
I could show you future years but basically it is a adding in dividends and reducing STHBX until SS begins.
This is the first year that the pension kicked in.
Get back to basics with your planning. But, as I said before, the younger a person, the less likely they will be able to have a comfortable retirement.

Dex May 2015 in Fund Discussions
Chuck Jaffe: What The Supreme Court’s Fixes For Retirement Savings May do to Your 401(k)
FYI: (This is a follow-up article)
3 ways Tibble vs. Edison International could change retirement savings.
The U.S. Supreme Court prescribed some fixes to the retirement-savings world this week, but the long-term side effects could have some workers thinking they’ve been given bad medicine.
Regards,
Ted
http://www.marketwatch.com/story/what-the-supreme-courts-fixes-for-retirement-savings-may-do-to-your-401k-2015-05-22/print

Ted May 2015 in Fund Discussions
Is $1 Million Enough to Cover the Average American's Expenses in Retirement?
Hi Dex,
I believe you are wrong.
The analysis is a simple money flow balance usually done on an annual basis. To oversimplify, portfolio value at the beginning of the year plus annual incomes plus/minus portfolio returns minus total expenditures equates to an end balance. It is a money balancing equation done yearly. If the bottom line goes negative, the portfolio does not survive.
But let's assume you are right. Adding another constraint to the global money balance (what you termed cash flow) will only lower portfolio survival probabilities. My second 6 set of simulations included your entire resources and represents a maximum survival rate likelihood. Any other money transfers within those resources will only contribute to failure. Sorry, but that is the analyses outcome.
Bad mouthing Monte Carlo simulations is fruitless and a Loser's game. Monte Carlo tools have been developed by Nobel quality researchers like Bill Sharpe for two decades and by nuclear designers for about eight decades. It is a time tested and verified tool. Certainly some codes are better than others. I like the Flexible Retirement Planner tool that I referenced earlier.
Please do not elect to swim against the tide. More progress will made going with the now accepted flow. Your reluctance to do so speaks volumes.
Best Wishes.

MJG May 2015 in Fund Discussions
Is $1 Million Enough to Cover the Average American's Expenses in Retirement?
Hi Old Joe,
Thanks for the Bay Bridge update. Obviously I knew nothing about its status or current crop of deficiencies. The bridge doesn't impact me whatsoever. The repair list is disappointingly long.
I'm sure these problems will all be addressed and be successfully resolved. Ultimately, we set things right. I would hope that politics did not influence the bridge contract awards, but that is not likely to be the case. Too bad.
But our exchange did not center on bridge construction. Its center piece was retirement planning. The retirement planning industry has advanced by huge leaps in the past two decades. Good for them and good for future retirees. Part of that advancement can be attributed to improved computational tools like Monte Carlo.
As mentioned in earlier posts on this subject, Flexible Retirement Planner is one such organization with superior tools. I finally got my kids to use it.
I hope we can continue discussions on the friendly basis that ended this exchange. Life is far too short for guttersniping. Comments are better directed at the message, and not the messenger.
Best Wishes.

MJG May 2015 in Fund Discussions
Is $1 Million Enough to Cover the Average American's Expenses in Retirement?
Hi Davidrmoran.
I completely agree with your recommendation that the Flexible Retirement Planner would serve upcoming retirees well. I too recommend that superior tool. Thank you for your contribution.
Best Wishes.

MJG May 2015 in Fund Discussions
Is $1 Million Enough to Cover the Average American's Expenses in Retirement?
Hi Dex,
Given the 12 Monte Carlo simulations that I completed, your objections to exactly how the composite 350K nest-egg presumed in the analyses was deployed is at the noise level.
The final 6 simulations I ran postulated that the total 350K was entirely invested in a portfolio earning at an annual 7% rate. That is a bounding calculation.
That bounding calculation set does project a higher portfolio survival expectation. The survival odds get much better, but a significant potential bankruptcy is still in the picture. The results were too close to the cliff for my comfort.
Many workarounds exist, like changing the annual spending profile downward after a market negative year (the wine is an attractive target). Small changes impact portfolio survival prospects. Monte Carlo analyses should never be the only input in retirement decision making.
You seem to have made your decision. You asked and didn't like my analyses outcomes. I didn't give you the confirmation encouragement that you were seeking. I certainly am not trying to dissuade you from your decision. I'm simply reporting the results of very few calculations.
I never make stock or mutual fund recommendations on MFO or anywhere else either. Do what you want to do. Just go for it. Good luck.
Best Wishes.

MJG May 2015 in Fund Discussions
Is $1 Million Enough to Cover the Average American's Expenses in Retirement?
Hi Old Joe,
I really enjoyed our current exchange. This is the way it should always be.
The planned Bay Bridge section will be a huge success and will be a lasting example of American engineering expertise for a century or more. It will be designed with gusting aerodynamic wind load modeling based on an extensive statistical data set, and likely a Monte Carlo workup of that data. Here’s what happens if dynamic wind loads are not properly assessed and integrated into a bridge design:

The same could be said of a retirement portfolio that is constructed without the aid of Monte Carlo simulations. Is it a mandatory exercise? Of course, not, especially if the planned drawdown ratio is a small single digit number like 4% or lower. Huge safety margins make decisions easy, but are costly. Heuristic rules can simplify the retirement decision, but exceptions always exist. Monte Carlo analyses can better define the danger zones.
A Monte Carlo retirement toolkit is a rather recent invention. It didn’t exist roughly 2 decades ago. Spreadsheet analysis was the only viable option in that timeframe. It can be made to work with some reservations, as in your case Old Joe. Kudos for your persistence.
The reservations are associated with the highly variable nature of stock market returns. The conventional Spreadsheet analysis will fail to capture the portfolio survival compromises caused by these huge variations and their random behavior. A Monte Carlo code, when properly implemented, is up to that task. Here is a Link to a nice graph that summarizes the significant variability in annual stock market returns:
http://observationsandnotes.blogspot.com/2009/04/stock-market-returns-by-year.html
This annual variability is tough to capture in a Spreadsheet analysis. Annual returns bounce all over the map in an erratic manner.
Old Joe, I agree that we carried this discussion far enough. As Lao Tzu said: “He who knows that enough is enough will always have enough”. I suspect we both experienced enough on several dimensions.
Permit me a last closing thought. Just as you don’t need to be an auto mechanic to drive a car well, you need not be a mathematician to usefully deploy Monte Carlo codes. These codes are both fun and easy.
Best Wishes.
Out

MJG May 2015 in Fund Discussions
Is $1 Million Enough to Cover the Average American's Expenses in Retirement?
Eeek!
Some incredible numbers-crunching & analysis.
- Did anyone mention that staying healthy for as long as possible is an "investment" - and one you have a great deal more control over than stock and bond market gyrations? I'm talking about not smoking, limiting alcohol intake, lots of fruit & veggies, daily workouts, etc. Those medical bills for in-home care will kill you. Poor health will rob you of the ability to enjoy the fruits of your investments. And, if your health deteriorates to the point you can no longer manage your own finances, what good is Monte Carlo or any of this other mumbo-jumbo?
- Has anyone mentioned that investments which appreciate the most during inflationary periods might offer the best protection in retirement? The current low inflation environment may favor bonds and equities. However, the underperforming (typically "hard") assets in today's economy are precisely the ones which should outperform during periods of high inflation. So, investing for current growth may be different than buying future inflation protection. The worst thing about inflation is that prices compound in the same manner that money does. At 10% annual inflation, a $2 loaf of bread today will cost you $3.22 five years from now and about $5.20 in ten years. A new car selling for $20,000 today would "inflate" to $32,210 in five years and $51,875 in ten years. Apply the same rate of increase to insurance premiums, property taxes, medical expenses, and you've got a serious problem that - I'm afraid - few retiring today even contemplate.
- Anyone who has ever constructed a household budget in retirement knows that while income tends to remain fairly static and mostly beyond our control, the expense side is much more flexible and allows for considerable control. Small steps like driving an older vehicle an extra 5 years, cutting out one vacation a year or doing more of your own home maintenance can all have a positive impact on the bottom line.
This is not intended to be comprehensive - just some other factors that may have been overlooked in the preceding deliberations.

hank May 2015 in Fund Discussions
Is $1 Million Enough to Cover the Average American's Expenses in Retirement?
"Over forty years, though, those ups and downs will be smoothed to some sort of a long-term performance."
Since we are talking about retirement, forty years should be taken as the upper limit of possible scenarios if one starts at age 60. Perhaps this is the issue as time is constrained. What is the least amount of time a spreadsheet or analysis can be trusted over? Or, maybe it is a period of market cycles?
May you and everyone here live to be 100 years old.
BTW, Warriors take the first game. I hope they go all the way. It's been a long time.

JohnChisum May 2015 in Fund Discussions