Retirement

[SuppaTime]

...Markets are efficient and irrational at the same time.

I was out surfing this morning and observed just that dichotomy. There is one main peak at the spot I was at which is pretty good but is typically crowded so you have to be polite and wait your turn for a wave. There is also a lesser break off to the side, not as good and not as consistent as the main peak. But definitely less crowded. I went for the side peak and caught tons of waves. After 3 hours I was exhausted. But none of them were as good as those being pumped out on the main peak.

It was interesting watching the behavior of people in the line ups. There was a slow migration between the two breaks, but the overall ratio was staying pretty much the same. An equilibrium had been reached where people understood the "economic" trade off of leaving one peak and going to the other - more waves, but of lesser quality. The irrational part of this is some people constantly flitted from one break to the other, which means they were spending more time paddling than actually sitting in one of the line-ups. Both of these behaviors are exact analogues for how investors behave.

I know, pretty geeky thing to be contemplating out on the water. Not exactly Zen like.

...but there's more to retirement than investment.

For my wife and I, we went from urban living in Seattle, to a rural, back-to-the-land thing. We bought 2 acres here on Maui that we have been clearing (the jungle takes over anything left for longer than a couple of months), fixing the damage caused by previous pineapple growers, and are now planting a small orchard of citrus, avocados, papaya, bananas, and huge garden. It is a lot of work and consumes a lot of our "retirement" time. But we are really enjoying it. My wife spends her other time as a water color painter and runs all over the island painting things. I of course spend my other time on the water.

[PonoBill]

Subber, I've been more or less retired since 2009, though I started backing off in 2006. I started and then sold Ke Nalu in that period, but that was not a very serious business for me and in fact will be part of the retirement story I tell.

Sterbo--I think and important element of retirement is simplification of possessions, it's a part I haven't mastered yet, but I understand it and aim for it. I've always believed that things you own, own you.

[eastbound]

the greatest risk is to take none.

and yes, we need to avoid "the cancerous discipline of security".

but forward planning is important, and, PB, we are on the same page. key item is to advocate for yourself: there is no issue with whether or not you are operating with your best interests in mind. no competing agenda.

and a properly balanced portfolio, which considers an individual's unique circumstances, simply aint rocket science. it can be done "robo" and also with weekly or monthly self-tweaking.

the other nice thing re vanguard is that they do re-hypothecate shares--your shares are in their custody, unlent in stock loan or other schemes--your securities in truly "custodied" ay Vanguard. If Vanguard blows up, you own your shares which they were holding for you. At Goldman, say, your securities are in a complex daisy-chains of levertaged lending (something you sign off on in fine print)--so if Goldman blows up you have no rights but to pennies on the dollar after a bankruptcy lliquidation. I had a friend who margined positons at MF Global with gold depository receipts--so, like, they were holding his actual physical bars of gold in a vault, where the value of the gold served to margin postions he carried at MF. when mf blew up he closed hios positions out (profitably) and for the cash funds in his acct, and for his gold bars. Not surprisingly his money got tied up int the liquidation, but so did his gold bars. incredible. but this is another key attrinute of vanguard. in fact vguard stock looks undervalued via many metrics--it's because they forego the big profits that wild west hypothecation provides the goldmans and fidelity's of the world.

gotta love bogle--what a terrific guy.

and where the riskless real rate of return is zero (or negative), who in their right might would yoke their money with 1-3% "management" fees? not me.

i plan to pull back from my biz gradually, and cede more of the fruits to my amazing much younger partner. i may always keep my office and "work" a few months on, a few months off. i could probably afford to retire now, but wouldn't leave much for my kids. much as i feel obligated to provide them the best education money can buy, and they they can earn accesss to; i dont feel obligated to leave them money. but i'd like that i leave them with some security and safety (form this shithole world of ours), and i'd like to help make sure their offspring have similar access to education. i wasd one of five for whon my parents did that, too--though that was it, and that was plenty, in my case.

[PonoBill]

I'm not a big believer in leaving an inheritance that enriches someone who didn't work for it, even for my own daughters. I do believe in leaving them some kind of protection from the vagaries of life, if not from the consequences of poor choices. I'm working on that. Also the grandkids--529 plans for education, and maybe a backup for something entrepreneurial. As Buffet (I think) said, "enough to do something, but not enough to do nothing".  Some of the articles I plan will be about that kind of estate planning.

I think the core risk of modern portfolio theory is that there isn't any true diversification. I'm not looking to go long on Armageddon, but I don't want to ignore it. Still researching, still thinking.

I can't believe how silly I was to engage with financial advisors who universally espouse MPT, and then charge a lot of money to implement it in the most expensive way. My excuse is that I was busy making money. Now that I'm not, there's no excuse.

[eastbound]

star with the basic bogleism: have your age in fixed income

be careful your state's is a good one. and for many states there is a tax-dedectability feature at the time of investment, which makes that home-state fund advantageous on surface.

not if it's one of the crappy states, tho. search a forbes article fro a couple years ago which speaks of good states (like ny, which has used tiaa-cref, and vanhuard) and bad staes, where, the governors brother (with zero prior investing experience) runs the fund poorly and with 3% mgmt fees. i think that one was arkansas. despite the fed tax advatage, the feds left it up to individual states to run their own funds/programs. buyr beware that.

i have no vision to lv wealth to my kids, but i'd love to be able to help when they need, maybe with a first real estate urchase, or if a grand kid gets sick, or job gets lost, and of course with grandkids" education expenses. if i get luck and have wealth to leave, i will certainly entrust such that it doesnt disincent my kids to have a good productive life.

[Subber]

The other nice thing re vanguard is that they do re-hypothecate shares--your shares are in their custody, unlent in stock loan or other schemes--your securities in truly "custodied" ay Vanguard. If Vanguard blows up, you own your shares which they were holding for you. At Goldman, say, your securities are in a complex daisy-chains of levertaged lending (something you sign off on in fine print)--so if Goldman blows up you have no rights but to pennies on the dollar after a bankruptcy lliquidation. I had a friend who margined positons at MF Global with gold depository receipts--so, like, they were holding his actual physical bars of gold in a vault, where the value of the gold served to margin postions he carried at MF. when mf blew up he closed hios positions out (profitably) and for the cash funds in his acct, and for his gold bars. Not surprisingly his money got tied up int the liquidation, but so did his gold bars. incredible. but this is another key attrinute of vanguard. in fact vguard stock looks undervalued via many metrics--it's because they forego the big profits that wild west hypothecation provides the goldmans and fidelity's of the world.

I think that concept is hugely important and very very few understand it or even know about it.
It will be very important if or when we have the next financial meltdown of our house-of-cards debt pyramid financial structure.
Could very well be the same situation with regular banks also, unfortunately.

[Subber]

I think the core risk of modern portfolio theory is that there isn't any true diversification. I'm not looking to go long on Armageddon, but I don't want to ignore it. Still researching, still thinking.

I can't believe how silly I was to engage with financial advisors who universally espouse MPT, and then charge a lot of money to implement it in the most expensive way....

Amazingly silly...and....the fund rating services/websites that don't point that out.

As for "diversification" it usually works at the top when you don't really need it,
but it fails at the deep bottoms when you do - like in early 2009 when stocks,
bonds, commodities and real estate all went down together.  The only thing
going up was the U.S. Dollar (if you'd had U.S. Dollars in the banks that had failed,
and they weren't bailed out, you'd have lost there also).

[eastbound]

Yes. And apologies for my haste (and lack of caps and abbrev).
My prior post which spoke of different states' products referred to 529 college-savings accts. If you are saving for college, this is likely the best vehicle, except if the funds which run your state's program are crappy.
Of course you can invest in the 529 fund of any state, but some states provide tax-deductions on contributions, so to invest out-of state compromises a small tax saving.

[PonoBill]

So I'm investigating the two primary robo MPT systems, Betterment and Wealthfront. I've read a lot of reviews on the two systems, they look very similar in most ways. One issue I wonder about is custodial--it's not clear to me how that is approached. I'd assume they simply buy shares of ETFs and hold them in the customer's name, but I've learned not to trust assumptions. I know Betterment uses APEX to clear transactions, does that represent a custodial advantage?

[Subber]

Some mutual funds also do "stock lending."

In fact, that was how some of the five star rated equity funds,
"earned" their high risk-adjusted ratings....until the financial crash,
when they underperformed (when down more) badly and their risk-adjusted ratings plumetted. 
Again, the risk those "top performers" were taking, were not well
known, nor disclosed, nor pointed out by the rating services, media, etc.

It maybe that no mutual funds lend securities any more - they took a big beating.
But, what they were doing, what happened, and how everyone found out
pretty much after the fact, is telling of the industry.

[juandoe]

So I'm investigating the two primary robo MPT systems, Betterment and Wealthfront. I've read a lot of reviews on the two systems, they look very similar in most ways. One issue I wonder about is custodial--it's not clear to me how that is approached. I'd assume they simply buy shares of ETFs and hold them in the customer's name, but I've learned not to trust assumptions. I know Betterment uses APEX to clear transactions, does that represent a custodial advantage?

Both use Apex but I do not know the answer to your question.  It is incredibly easy to talk to a live person at both sites.  I had a couple of question I emailed them about and received phone calls unexpectedly. 

[Subber]

Subber, I've been more or less retired since 2009, though I started backing off in 2006. I started and then sold Ke Nalu in that period, but that was not a very serious business for me and in fact will be part of the retirement story I tell.

Looking forward to reading it.

[PonoBill]

Here's another installment. working up to robos. thanks Juan, I'm one of those guys that HATES to talk on the phone except to friends, but I'll give them a call.

http://www.ponostyle.com/modern-portfolio-theory/

[SlatchJim]

but there's more to retirement than investment.

Three weeks ago, and one week before my heart attack, I went in to see my financial adviser (yes I know PB, take responsibility, and I hope to soon).  I've always planned on retiring between 60 and 65 but I chose 62 as my target and have been working toward that with tying up loose ends debt wise, simplifying, and planning the spending that will occur after I retire.  I was tracking just right.

After the heart attack, you're susceptible to some introspection on what really constitutes your remaining years.  After thinking for a while, I decided that my plan has been solid and progressing nicely all these years, it's not a good idea to jump ship and become a hippy just yet. 10 more years of working, flipping at least one more wreck of a house, and coming out of the other end of the tunnel with no debt and prepared to retire in the community of our choice while being near enough to kids to make it count family wise is how it stacks up currently.

The unrealized bonus of the heart attack is that I'm saving another 10 to 15 bucks on breakfast/lunch every day by bringing healthy stuff from home.  61 sounds good too! 

Loved the articles PB.  Keep em coming.

[OUTSIDEWAVE]

Totally  _____ed! that is what I am looking at. Here is my story.
I got married at 28, Big mistake,  but well we all make them,   had three kids and started a company .  Really struggled as my partner and I bootstrapped the thing up.   little background  got out of school t 22  started working for   geo consulting firms. made my way up the latter and through  the ranks. Started at  an ew firm when i was 26, met my  soon to be  future partner there,  He was there only until  a mother guy in the firm passed his engineer license.
 So when that happen the head guy of the firm  told greg A that he had to get out >Greg A was the engineer and lived in palos verdes at the time 1981-. well he   got a job done here in San diego . I was still working for  the other guy, lets call him Dan,  at the time and had been promoted to branch manager.. So Dan fires Greg   who then gets a job in San Diego.  He comes to live with me during the week and we give  him a  room  food etc.   Dan  gets wind of this thanks to  another  sort of ex friend in the firm and  I get the axe too,  Next  thing we know it s 1982 the interest rates are though the roof, construction is DOA,  and I have no job and have relocated to Carlsbad   to  run the Carlsbad  office,  but wait !! The office gets closed and I get fired.  So with nothing else better to do Greg and I start a company  and incorporate in 1983,  we make it through the recession, the 80s happen business is booming and it looks like i have  lived the American dream..  so  mid nineties and three kids later I finds my self  going through a divorce.    so now I have to buy back the  part of the company I own. from my ex wife and pay her outrageous sums  Like 5700.00 a month for  years. The divorce  cost me a million in cash over the years.

She being the B that she is  keeps me in court for the next 7 years and subpoenas  every  accounting document  that the company every had.  The company by now is 4 offices and 50 people doing 8 mill year gross.   Anyway my  partner Greg  who is now on his 4th marriage  I was best man for his third.   has an affair, gets the girl pregnant and is in a divorce  so he wants to cut out salaries.  so he doesn't have to pay as much alimony and child support . I tell him we can't do that  it is already in the court records and you will get reamed  by the judge for cutting the salary and you  will still have to pay based upon the old  salaries. So we have benign business for 20 years.

 During the preceding years we had some pretty good  years in the company  we declared bonuses   but didn't take them,     because sometimes we were cash poor   so we borrowed against bonuses.    now  as greg is getting the little Russian girl pregnant   he suddenly sees that the is going to have to pay  for  it  in the divorce..     this is where  things get nasty . one day he comes to me and says we need  to put our houses up as collateral against the loans  asking for a second  on the house.( the loans were getting paid back on each payroll check)  I tell him  NO  not happening well this goes on and on and one day I am tired and I cave..  A week later he fires me and says  if  cause any trouble  he is going  to foreclose on my house....!!!!!  This is my partner, a guy I fed under my roof, stood up for at his wedding, took his load when he was injured.  kept the company afloat when his office was floundering ..   I   Was  stunned,   any way  that was 2003 I left the company and found out that  40% of a 8 million  isn't 3.2 like I thought  even though our insurance crisscross buy out said so,  so here  I am and I sue him only I have no funds to pursue  it, and he is using corporate  money to defend and to  out spend us  lawyer v lawyer. Eventually I run out of my already weakened 401 k  money ( remember the divorce from my  wife.)        and I am forced to settle or  get nothing so in the end I get  with  about 560,00 over 8 years (taxable as capital gains)  and  there I  am starting over at 50.

its  now 2015, I have no money left  had to sell the house  that i had  in this past recession  and  am now 61, working every chance I get and   barely managing to  hang on..  so Retirement,  I AINT GONNA GET NO STINKIN' RETIREMENT ....   but the  silver lining is it  that Greg is a  bastard and with the  kind of black  soul with a heart made in hell It   is good to be away from  a  soul so dark,   I just don't know how I missed it for so long,

 I found out later that most of the rest of the industry  hated  his guts.   

Still starting over at age 50  is  tough haul and in the end what the bastard really took from me was my retirement, so  I'll probably work till the day I die  and will probably die with my  boots on.