Hi Guys,
Charles’ recent “Irrational Markets - Proof Positive” post prompted me to initiate this topic. That discussion highlighted the discordant opinions and recommendations made by supposedly financial and investment experts. The cacophony is loud, endless, and often much less than useful. Chaotic investing is a likely outcome.
The Charles post emphasized the mind-bending character of old wisdom saws like “Out of the mouths of babes comes wise insights, yet, only with age comes wisdom”.
If the latter is true, I have accumulated much wisdom. I guess you should seek investment advice from either young Wharton business school graduates or perhaps from older, more senior graduates. I listen to both, but weight them differently.
For many years, an industry agreement seemed to have been reached with regard to an acceptable retirement portfolio drawdown rate. Portfolio survival for an extended retirement period is the obvious goal.
These earlier studies mostly suggested something approaching a 50/50 mix of equity and fixed income holdings. High portfolio survival rates were estimated when withdrawal rates were limited to roughly 4% per year adjusted for inflation. The original work in this arena was done at Trinity University in 1998 and has been frequently updated.
Here is a Link to one readable update written by Wade Pfau in 2010:
http://wpfau.blogspot.com/2010/10/trinity-study-retirement-withdrawal.html
The Pfau analysis didn’t much change the earlier study findings. However, some concern over the current overpriced marketplace, coupled with a very low interest rate environment, has persuaded a few gurus to shorten the recommended drawdown schedule from the standard 4% rule-of-thumb to an even lower 3% annually.
Now for the controversial analysis and recommendation that wants to upset this comfortable apple cart. It will surely add to Charles’ distress over conflicting and competing financial advice. That’ll never change.
It is a retirement study from the Director of Research at the Putnam Institute. Here is the Link to this cart upsetting 16-page, 2011 release:
https://www.putnam.com/literature/pdf/PI001.pdf
Please give it a road test. It merges portfolio returns uncertainty with life expectancy probabilities for both men and women separately. The methodology deploys a novel Retirement Present Value (RPV) model to project portfolio survival likelihoods.
The RPV’s surprising and controversial output is that the retirement portfolio that offers the best survival prospects includes a much smaller fraction of equity holdings than does the original Trinity study and other follow-up Monte Carlo analyses. Check it out; controversy is good.
Personally, I’m not comfortable with the Putnam work product. The manner in which the “optimum” portfolio equity/fixed income mix was determined escapes me. Certainly a portfolio with only a single Index-like equity position is retirement dangerous because of its volatility (standard deviation). But fixed income is likely more dangerous because of muted annual returns.
The standing answer has been broad portfolio diversification that trades off a little annual return for a major decrease in overall volatility. Outcomes are definitely timeframe dependent, but I still trust this generic and time-tested approach.
You get to choose your own poison. My head spins off-axis as often as Charles’ does. Let MFO members know your thinking on this matter.
Best Regards and Happy Holidays.

And they want to screw that up why?

That's what Congress people are good at. I would bet that neither of these two has any inkling about investing for retirement.

FYI: Many workers want to put their retirement accounts on autopilot.
That's the lesson from new data that show that recently hired plan members flock to balanced funds — which include target-date funds
Regards,
Ted
http://license.icopyright.net/user/viewFreeUse.act?fuid=MTg3NzE2ODQ=
Enlarged Graphic: http://news.investors.com/photopopup.aspx?path=webMFbalanc122214.png&docId=731592&xmpSource=&width=1000&height=562&caption=&id=731583

@johnN,
"Is another black-swan or turmoil like event coming soon in 2015? Any thoughts how to play this market?
I am still 80/20 but still have many yrs left. thinking about buying more oil."
IMO, black swans come suddenly and without warning. There is no way to plan for them. You can invest based on the possibility of one happening but that could leave you vastly underperforming the markets when the situation does not materialize. Plus, when the black swan event occurs, you would be super lucky to get out unscathed. Try to call your fund company in the event. All lines busy. Markets might be closed such as after the Sept. 11th attacks.
It sounds like you have a long time horizon ahead. All you can do is make sure your asset allocation is what you want. As you get closer to retirement, going to a more conservative allocation would cushion the effects of a major market downdraft.

if it is not in retirement account...
one would think you want to compare after tax performance of the etf vs the mutual fund you are looking at. assuming they have similar risk.
I would think the one main disadvantage is when you sell mf, if there was any appreciation, the sale will result in you paying capital gains on the sale to buy something else.
vanguard has a comparison feature on their site.
the general advantage of etf's you can buy and sell them make frequent reading without penalties.

from the DSENX report end September:
\\ In the six-month period ended September 30, 2014, the DoubleLine Shiller Enhanced CAPE returned 7.39% and the S&P 500 Index returned 6.42%. The DoubleLine Shiller Enhanced CAPE performance was due to a 6.05% return from exposure to the Shiller Barclays CAPE U.S. Sector Total Return Index and a 1.34% return from the fixed income portfolio. Hence the key driver of outperformance was the fixed income portfolio. The Shiller Barclays CAPE U.S. Sector Total Return Index was exposed to the healthcare, industrials, technology and energy sectors throughout the six-month period. All four of these sectors contributed positively to return with technology contributing the largest amount (2.58%) and industrials contributing the least (0.36%). The fixed income collateral pool was primarily driven by a rally in emerging market debt and mortgage-backed securities. The worst performing sector of the bond market was the high yield sector as new issuance was in excess of investor demand.
Don't know whether to transfer retirement equity fund moneys into this or not.

The term "investor" tends to be used too broadly in investment product contexts yet, being that a majority of middle age workers are underfunded in their retirement plans, a 7% return from these products won't get these "investors" very far in accumulating assets. A different question to ponder should be, how can they invest in order to achieve "excess" returns in order to secure a decent retirement lifestyle ( similar to what they've been used to ) ?
An Employee Benefit Research Institute (EBRI) study polled
workers age 55 and older who said the following about their retirement savings:
60% have less than $100,000 in retirement savings
43% have saved less than $25,000
36% have saved less than $10,000
Further, it is a little known fact that healthcare premiums have risen by a 7% compounded rate over the past 15 years. An inflation adjusted return from a "balanced fund" won't even cover this essential expense. https://docs.google.com/document/d/1UyAulQv9gUgjq5g-TUrs_Wa7lbIEQ3K72StlUVewoKw/edit?usp=sharing
This population will need to produce returns via programs that can produce steeper expected return trajectories with risk mitigation. https://docs.google.com/presentation/d/1Ua-R53o7c588nUr705hY4YaBEcG1qOrNvtonQIwpVws/edit?usp=sharing

@dicksonL
You note that you monitor your holdings; and though some may consider your holdings aggressive (equity rich), the fund choices, IMO; are very decent choices.
Yes, there is likely overlap in some areas; but as our house currently prefers, the funds are U.S. centric.
I wouldn't change anything; and maintain VSTAX for the large blend.
You mentioned a course correction related to retirement. You would be able to replace any of these funds, yes? Except perhaps PRWCX, which I recall is closed to outside investments.
Take care,
Catch

@MJG, no, no flipping of intent, or a dropped not, and I thank you much for your thoughtful analyses and data provision.
It all depends on how much diversification the word wants to mean.
I was going chiefly by my memory of
http://www.investopedia.com/articles/financial-theory/09/international-investing-diversification.asp and
http://usatoday30.usatoday.com/money/perfi/columnist/waggon/story/2011-12-01/euro-crisis-your-portfolio/51554946/1 and
http://usatoday30.usatoday.com/money/perfi/funds/2009-01-06-diversification-stock-fund-losses_N.htm (note the Doll quotes).
Perhaps in the future things will return to the rather less correlated statuses. But in retirement I have cut back on general international funds and bothering to research them while contrarily adding (small) some Matthews Asia and a couple of Japan funds.

How are you managing your Roth if retired and over 70, more interested if over 80? Leaving it for heirs or spending it? Invested conservatively and safe or otherwise?

Hi @JohnChisum
You noted: "So anyone holding the SP500 index has a 12% exposure to healthcare already"
>>> I did some quick checks at Fido and found the following:
---Most large cap funds, including etfs and indexes are weighed about 14% towards healthcare
---mid and small caps vary from 9-12% in healthcare
---growth funds trend to be higher, with some funds holding in the 22% range for healthcare
---value funds trend more towards the 8% range
---balanced funds, both conservative and moderate, range from 14-18% healthcare exposure
The question would be what an individual considers overweight positions for their portfolio. Assuming an investor has 80% of their portfolio in equity via SPY , VTI or a large cap U.S. index fund, and that about 14% is healthcare, they would have 11.2% exposure to healthcare. They may consider this sufficient. Using the 14% healthcare exposure as an average for equity funds and an investor having 80% of their portfolio in U.S. equity; any healthcare sector exposure above 11.2% could be considered overweight by some.
For many close to or in retirement and perhaps having reduced their equity exposure to 50% or lower, the exposure to healthcare moves to 7% and less. A conservative allocation for a retired investor may have a 30/70 ratio for equity/bond style. This equity style would provide about 4.2% exposure to healthcare. Perhaps an individual in this scenario could move 10% of the bond holdings into a dedicated healthcare fund, etf, etc.
These individual "benchmarks" into a given sector should be a consideration regarding an under or overweight position.
Just a few early morning thoughts without enough coffee.....yet.
Take care,
Catch

Hi @LLJB
You noted: "I have a question for you related to your points here and in another post about not investing less than 5% in "whatever" because it takes that to make any difference in your portfolio. I agree with you but I also realize it can depend on how you define your "whatevers". For instance, my position in PRHSX is 1% of my portfolio but I could count it as healthcare or I could count it as large cap growth or both. Either way it doesn't make or break the 5% rule in this case, but when you think about your 5% threshold, do you double count? And if not, how do you decide which "whatever" things get allocated to?"
>>>What I posted in another thread: Our house remains U.S. centric in the equity area, gathering whatever international exposure from the fund holdings. The only direct exception being, GPROX; at this time.
A serious consideration going forward is to maintain VTI / ITOT or similar holding for 40% U.S. equity exposure and PIMIX (our largest bond holding) for bond exposure, also at 40%.
The remaining 20% would be allocated to "other", as determined by market observations. Currently, this would be the healthcare sector. Any of these holdings would be subject to change, not unlike June of 2008, as previously noted. None of the 20% floater money would hold less than 5% in any one area; as too little forward appreciation could likely be the result. This could mean, however; that more than one fund could result in a given market sector.....i.e.; energy; to provide the 5%.
Regarding the 5% consideration for the "whatever" money.
The 5% minimum I personally use is for investments I consider favorable for my risk/reward tolerance; and that present what appears to have a decent capital appreciation potential.
This is relative to what I noted above; with maintaining 40% in each for VTI and PIMIX. Healthcare holdings are about 14% of VTI. This would meet my needs, if I wanted at least 5% in healthcare (14% of 40% of the total portfolio).
Obviously, 40% each to VTI and PIMIX indicates a major part of a preference for an overall portfolio, and is U.S. centered with the exception of non-U.S. companies within VTI, or more so, the earnings of U.S. companies generated outside of the country. So, one could weakly argue some foreign exposure.
Now, what to do with the other 20%? Cash at this house has been some form of bond holding. If we want to buy something else, we always have to sell some of a bond fund for the transaction (at least as of today :) ).
This is the part that generally has the consideration for the 5% to make any difference; for the investment to be worthwhile to the overall portfolio. Usually the 5% is purchased at one time. Although, I think it is fine to average into a holding, too. But, I if averaged into a particular holding; it would likely be within a one month time frame.
Today, with 80% of a portfolio in the above two holdings; this would be the mix for the remaining 20% if split 4 ways: GPROX (although now closed), FRIFX (conservative, decent performing real estate), GASFX (utiliy/energy) and FSPHX. Or the whole 20% into FRIFX , GASFX or FSPHX.
This is obviously a lot of fiddling around with a portfolio. With enough choices, one may also consider 20% into 5 balanced/conservative allocation/moderate allocation funds or etfs to spread manager risk. I note this as one balanced fund with a very nice return record for several years is in the tank this year....... VILLX is running a negative return YTD. Lots of folks with this fund who are not happy. We do not hold this fund, thankfully.
>>>You also noted: "For instance, my position in PRHSX is 1% of my portfolio but I could count it as healthcare or I could count it as large cap growth or both. Either way it doesn't make or break the 5% rule in this case, but when you think about your 5% threshold, do you double count?"
PRHSX is a sector fund and that is the only way I view such a holding. It is a special consideration; separate from a LC, MC, SC, growth or value equity. Such a fund could be a combination with tight restrictions from managers; such as a small cap healthcare fund, but it is still a dedicated sector.
>>>Also noted: " but when you think about your 5% threshold, do you double count?"
I will presume you mean overlap within holdings to form the 5% threshold. Yes.
I write singular here; but the portfolio is a household portfolio. At one time we both had several 401k/403b from investment vendor changes over the years. Early in 2009 we wanted a high percentage exposure to the HY bond area. We had about 45% of our portfolio invested in this area at one time, split among several investment houses within the retirement accounts. The same would apply to 1% from here and another 2% from somewhere else to meet the 5%.
I have not checked, but I suspect many broadbased equity funds have fairly high percentages of healthcare holdings. Depending upon your funds, you may have a fairly high overall percentage of healthcare.
In theory for some, is that diversification helps ease the pain when the markets are "mad". One could suppose finding 20 investment areas and givng 5% to each. I'm not convinced this method is of value.
I probably missed something with this long write; which was not intended to be this chatty.
Like me know about clarity; as it is too late at night for me, today.
Regards,
Catch

If you examine correlation history, and not just recent, global markets very often do not provide much diversification. Cost reduction can be v good, though not if your cheap active funds do better (the few that do so consistently). Not paying an adviser works best for me. A lame article, and ending with 12y cash/bonds to boot. Wow. How *not* to survive a long retirement. That adviser has done no study of historical bounceback, unless he is going to cite many decades ago.

Hi JoJo,
Cresci did a very fine job at HLMRX, so JOSAX looks good to me. I would likely target JOSMX (ER 1.24 vs. 1.49 for JOSAX), which is apparently available in Fidelity retirement accounts for a $500 minimum + TF according to a test trade I just made. Another fund to consider, which has a value bias, is BISMX, and this fund is available at Scottrade for a $2500 minimum in both types of account with a TF.
Kevin

FYI: Successful investing during retirement often means learning how to play defense without giving up on offense.
Regards,
Ted
http://online.wsj.com/articles/how-retirees-can-manage-market-risk-1417309973?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird

Two Vanguard etfs for retirement income:
2 Vanguard ETFs For Steady Retirement Income

In retirement now the chief reason I have so much with the Yackts is the comparatively shallowness of their dips, this year and historically, vs SPY and the rest.
I also do wonder how much longer DSENX's secret rotational (?) sauce is going to work.
Otherwise I would be all in SCHD, 'tis true.

Is there any doubt?
that:"We're all Keynesians (Krugmans)now."The last two paragraphs from a Bill Gross perspective posted today @ Seeking Alpha
"But now at 500% to 600% of GDP (shadow debt included), it’s a Sisyphean struggle just to stay above water. Inflation, in other words – or in simple math – is required to pay for prior inflation. Deflation is no longer acceptable.
Such is the dilemma facing central bankers (and supposedly fiscal authorities) in 2014 and beyond: How to create inflation. They’ve made a damn fine attempt at it – have they not? Four trillion dollars in the U.S., two trillion U.S. dollar equivalents in Japan, and a trillion U.S. dollars coming from the ECB’s Draghi in the eurozone. Not working like it used to, the trillions seem to seep through the sandy loam of investment and innovation straight into the cement mixer of the marketplace. Prices go up, but not the right prices. Alibaba’s stock goes from $68 on opening day to $92 in the first minute, but wages simply sit there for years on end. One economy (the financial one) thrives while the other economy (the real one) withers.
Perhaps sooner rather than later, investors must recognize that modern day inflation, while a necessary condition for survival, is not a sufficient condition for increasing wealth at a rate necessary to satisfy future liabilities associated with education, health care, and a satisfactory retirement. The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue. Until then, Grant’s deflation remains a growing possibility – not the kind that creates prosperity but the kind that’s the trouble for prosperity."
-William H. Gross
http://seekingalpha.com/article/2699545-the-trouble-with-porosity-and-prosperity

I agree with most of the posters on this. The market does not NEED to drop 25%. Indeed it COULD drop 25%. Unlikely, but it could. Just because I did not have everything in the S&P 500 the last five years does not mean I want a big sell off. My below-market returns (because of my wide diversification) are still in my NEED range for future retirement. This was not one of Mr. Clements best moments.

http://www.sec.gov/Archives/edgar/data/889366/000089271214000828/bmo497egnr.htm
497 1 bmo497egnr.htm PROSPECTUS SUPPLEMENT
Filed pursuant to Rule 497(e)
Registration No. 033-48907
BMO FUNDS, INC.
BMO Global Natural Resources Fund
Supplement dated November 17, 2014 to the Prospectus dated December 27, 2013,
as supplemented May 27, 2014, July 29, 2014, and September 12, 2014 and Summary
Prospectus dated December 27, 2013, as supplemented May 27, 2014
On November 5, 2014, the Board of Directors of BMO Funds, Inc. (the “Board”) approved a Plan of Liquidation (the “Plan”) for the BMO Global Natural Resources Fund (the “Fund”), subject to shareholder approval, upon the recommendation of BMO Asset Management Corp. (the “Adviser”) to liquidate the Fund. After considering a variety of factors, the Board concluded that it was in the best interests of the Fund and its shareholders that the Fund be closed and liquidated.
Shareholders of record on December 8, 2014 will receive a proxy statement discussing the Board’s decision to recommend liquidation of the Fund and requesting that shareholders vote to approve the Plan at a special meeting of shareholders on December 22, 2014. If the Plan is approved by shareholders, the Fund will be liquidated on or about December 23, 2014. You may continue to purchase and redeem shares in the ordinary course, or exchange your shares for shares of other BMO Funds, until the date of liquidation. Any shareholders who have not redeemed their shares prior to the close of business on December 23, 2014 will have their shares redeemed in cash and will receive a check representing their proportionate interest in the net assets of the Fund as of December 23, 2014. Shareholders (other than tax-qualified plans or tax-exempt accounts) will recognize gain or loss for tax purposes on the redemption of their Fund shares in the liquidation.
Important Information for Retirement Plan Investors
If you are a retirement plan investor, you should consult your tax advisor regarding the consequences of a redemption of Fund shares. If you receive a distribution from an Individual Retirement Account or a Simplified Employee Pension (SEP) IRA, you may roll the proceeds into another Individual Retirement Account within sixty (60) days of the date of the distribution in order to avoid having to include the distribution in your taxable income for the year. If you receive a distribution from a 403(b)(7) Custodian Account (tax-sheltered account) or a Keogh account, you must roll the distribution into a similar type of retirement plan within sixty (60) days in order to avoid disqualification of your plan and the severe tax consequences that it can bring.
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