Thread: Boghies Account Talk

Originally Posted by Birchtree

burrocrat,

It's time to start building yourself a Roth IRA base and only buy equities that pay dividends. Over time you will see the gains build and those gains will be tax free. Any dividends you get will be reinvested for free. It's simply another way to dollar cost average. The higher in price our TSP funds go the more difficult it becomes to accumulate shares - the days of $8 prices are gone forever. The advantage of TSP is the cost effectiveness of trades and share accumulation but you'll need more. Everyone's tax basis is based on adjusted gross income and you don't have to take money out of TSP until the IRS forces you at age 70. I'm collecting serious income in my oceanic account so I don't like to sell shares unless I'm forced due to margin requirements. I'm rebuilding my sacrificial lamb chop account again that will be sold first to protect my income base. It's all on autopilot but I remain cognizant of history.

Can retirees without EARNED INCOME start/contribute to an IRA?

Burro,

First of all, note that I have not met the ‘C Fund’ return for the past 3 years – so I have not been particularly successful by my or any other measure. Sitting in the ‘C Fund’ would have done me better than all the moving around I did. Hence, after last year, I am moving around a lot less. I got caught up in my own perceived excellence after 2008 and 2009 – yuk, yuk. The AutoTracker is a great tool for both data mining and modesty enhancement.

Anyway, risk is both an objective and a subjective measure. It isn’t what you think it is.

Objectively, it is simply the standard deviation of a fund on its return curve. That sounds awful and messy, but I really don’t mess with all the math anymore. I use Quicken (which continuously updates the ‘Risk’ of indexes that somewhat match ours) and the calculators at MoneyChimp. But, just to be clear, the objective element of ‘Risk’ is based mostly on the standard deviation of the annual return curve – which means that for any single ‘year’ you can expect to hit the zone 68% of the time.

Subjectively, there is an assumption (most of the time a good one) that divergent assets have divergent return curves. You have heard that stocks will trend up as bonds trend down. BT just made a similar comment in the “Fiscal Cliff” thread. That assumption is more than subjective – it is a very good rule. However, there are collapsing markets (like 2008) where everything but casholla dumped. Regardless, why would Japanese equities dump because General Motors is going bankrupt? Why would a rapidly growing software company get wiped out because Proctor and Gamble lost 10%? So our various funds will poke along on their own curves. Thus, mixing the funds in allocations should smooth the ride quite a bit. One funds peak will coincide with another's ride and yet another's trough.

Thus, when BirchTree sat in the ‘C Fund’ through the entire collapse of 2008 you are assuming that his ‘Risk’ was 100% because he was 100% in equities. In actuality, his ‘Risk’ was 18.82% - meaning that he could expect a return of between -8.26% and 29.38% with an average return of 10.56%. That he landed 3 deviations away was a measure of that market collapse. He didn't panic and allowed the smart money investors to bring his account back to the norm. By the way, because of the differing return curves, his current 20%:C / 80%:I should return between -6% and +22% with a norm of 8% according to Quickens allocation tool (with a risk of 14%). Personally, I don’t like that allocation – but that is what the game is about, eh…

My normal allocations are:

• Aggressive: 2% G, 15% F, 48% C, 19% S, 16% I Expected Return: 6%, Expected Variance: 9%
• Normal: 12% G, 22% F, 39% C, 15% S, 12% I Expected Return: 5%, Expected Variance: 8%
• Conservative: 12% G, 27% F, 37% C, 13% S, 11% I Expected Return: 5%, Expected Variance: 7%

Where ‘variance’ is ‘risk’ and the ‘return’ is inflation adjusted. Yowser. Thus, you can see that my personal goal is to reduce the variance and come closer to guaranteeing my return hits the mark. These numbers come from Quicken's Asset Allocation Tool.

Why then am I not sitting in one of my normal allocations? Because I am an idiot and thought that the idiotic, old, non-practicing lawyers who know nothing of finance that we tend to elect to high office would set a Black Swan to flight. I figured the non-scientific risk was too great to be invested. Thus, in December I made 0.79% while the ‘C Fund’ made 1.70% (most of it just yesterday). That is why I am trying to get away from market timing. I, personally, don’t believe in it as a short term option. I do believe in it on a more long term view – that is, seeing the 2008 crash and the 2009 rebound.

Anyway, hope that helps. Simplest advice is to (1) read Ric Edelman's 'The Lies About Money' and 'The Truth About Money, (2) read Burton Malkiel's 'A Random Walk Down Wall Street', (3) buy Quicken and play with the Investment module, (4) review the MoneyChimp site, and most importantly (5) know that equities trend up by a large number – say 9% or 10% because greedy capitalistic pigs really want your money and therefore try to set their companies to build and service things you want. So sitting in the ‘G Fund’ when you are trying to accumulate assets doesn't reduce your risk. Why not use the abilities of thousands – or millions – of business people to make money for you. They like it too because it gives them the assets to grow and expand their dreams. Win-win and a bigger pie. Get (5) right and you will be choosing to travel the world by cruise line, jet, or motor home.

Ouch, sorry Burro.

I think you are trying to get a short term measure of risk over time where time is a short term variant. Can't really help you there. I'm more in BirchTree's camp. My 'over time' is in years. I do make moves, but unlike JTH and CH and IT and RMI and MJR and TSPTalk and some others I do it AGAINST my beliefs and AGAINST my better judgement. It HAS helped me avoid market troughs with the result that my long term gains are better than the market. If by long term we are talking about a decade or so - yuk, yuk.

Simply, I am not smart enough technically to make money on a quick in-out basis.

Originally Posted by MohammadXX

Can retirees without EARNED INCOME start/contribute to an IRA?

I don't think you can contribute to a traditional IRA unless you or your spouse has earned income for the year. I'm not sure about a Roth IRA.

Originally Posted by Boghie

Ouch, sorry Burro.

I think you are trying to get a short term measure of risk over time where time is a short term variant. Can't really help you there. I'm more in BirchTree's camp. My 'over time' is in years. I do make moves, but unlike JTH and CH and IT and RMI and MJR and TSPTalk and some others I do it AGAINST my beliefs and AGAINST my better judgement. It HAS helped me avoid market troughs with the result that my long term gains are better than the market. If by long term we are talking about a decade or so - yuk, yuk.

Simply, I am not smart enough technically to make money on a quick in-out basis.

thanks boghie, both answers are helpful to the thought process, but yes short time periods is what i'm trying to figure out. nothing technical about it though, trades like that have to be feel-based i think. but one can select their fear indicators and there might be a way to put a number on it for comparison to other trading stategies.

now the year is over i'm going to work on a spreadsheet for the answers. my idea is based on trading days vs return annual return. if 3 people get the same return, say 10%, but spend different time in the market what does that look like? 10% return/100% in market=0.1. 10%/50%=0.2. 10%/25%=0.4.

is a higher or lower coefficient better? does risk increase or decrease with time? if you are in 100% of the time are you exposed to every drop? or gauranteed to catch every gain? is there an ideal coefficient that maximizes gain while reducing risk? do you stand to make more or lose more by picking only the most volatile times to be in? what if the mathmatical model was run on the historically successful autotracker performers, what would it say?
that's what i'm trying to learn. by using myself as a guinea pig. because if i figure it out i'm going to be filthystinkingrich!

Back when we had unlimited IFT transfers, I would trade frequently - sometimes daily. I was proudly one of the 3,000 that got the letters to cease making more than 2 transfers per month. I've since found (after they imposed the 2 transfer limit) that I would agonize way too much over whether I should get in, or get out. If I missed a good upswing (like today), I'd be upset and usually make a dumb move and try to chase the money. I was also very fearful of a drop. I've since done what you are attempting to do (spreadsheets) until I found something that works for me. I now ride my system that's a hybrid of BT's buy-and-hold-and-never-get-out and trying to minimize risk in a crash. With only 2 transfers (that's really only one IMO), I've found it's too hard to time on a monthly basis. I can say, now that I've worked out a system that I'm happy with, my agonizing is completely gone. Now, I made the decision last week to get mostly out of the markets (against my system) because of the fiscal cliff debacle. Calculated risk. I'm not happy I'm missing the gains, but it was the choice I made (and I would have been smugly elated if we were in a 2% drop right now instead). I'm also not happy that today I'll be buying in at the top of what looks like a 2% pop, but you've gotta pay to play, right?

I, personally, do not believe the 'Fiscal Cliff' is over. The credit rating agencies want spending under control so they will know they can collect on existing debt, no...

However, some of the hard lifting is complete. We will probably clear about $50 Billion out of our $1,200 Billion annual deficit with the new revenue stream. Therefore, this turtle has to pull his head out a bit. Just a bit. Moving to a modified 'Conservative' allocation:

G: 19%
F: 20%
C: 37%
S: 13%
I: 11%

Expected Annual Return: 5%
Expected Risk: 7%

My normal conservative allocation is 27/12/37/13/11 G/F/C/S/I. I am over-weighting the 'F Fund' for three reasons: (1) I want to buy in on a dip, (2) the 'G Fund' is a cash holding, and (3) I don't want our free spending gubmint using my assets in some double borrow shell game. Also, it doesn't affect the risk or return.

Worst case (I hope) is that S&P, Fitch, etc. downgrade us and bond holdings dump 10% for each 1% in interest rate hike. Say we get a 3% hike, than my 20% holding will result in a 6% drag on my total account. Hope it doesn't happen. Hope the credit rating agencies issue a strong warning a month before they do this to give the new retired lawyers a chance. But, it ain't a kill shot either way and the mullah has to flow somewhere.

My only problem is something Burrocrat is working on. I don't actually see the charts for how each fund interacts with the others. All Quicken shows me (kindof) is the end numbers. So, maybe I am destabilizing my risk curve by changing one of Edelman's allocations. Maybe I is just dumb money - hopefully smarter than the dumbest money. Keeping in front of the slowest runner.

Belay the last

My normal 'Conservative' allocation is: 12% G / 27% F / 37% C / 13% S / 11% I

Uuuggggghhhhhhhh. Real dumb money. Drink coffee before making IFTs. But, by pure luck, I think I like the allocation I submitted. Moves cash out of the turtle allocation into equities, under-weights the danger in the bond fund (F), still buys a little F on the dip, and is much closer to Edelman's hopefully scientific allocation.

All better, it should be fun to watch.

What do you think our mutual friend amoeba will do this year? Is he salvageable or should he be kicked to the curb.

Originally Posted by Birchtree

What do you think our mutual friend amoeba will do this year? Is he salvageable or should he be kicked to the curb.

I noticed that he actually has a decent equities position - at least for him.

That made me worried about my IFT into equities today - there is lots of money in being a ContrarianAmoeba investor

Seriously, I think I have noticed a smallish change. Hope he realizes that the 'G Fund' guarantees the 'Alpo Meal Deal Retirement Plan'.

I do hope he chimes in, haven't noticed him in awhile