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Comment by ram_rar | Hacker News Reader

While dollar cost averaging and index investing are solid strategies, this article overlooks an important consideration: the Realistic Rate of Return (RoR) needed for retirement planning. Yes, US markets historically recover (lately that notion seems to be challenged more often than not), but timing matters significantly.

What happens if someone's retirement coincides with a market crash? Younger investors have time on their side for recovery, but as retirement approaches, blindly following market-based strategies without carefully considering your required rate of return could be problematic. Age-appropriate risk management becomes increasingly important as your investment horizon shortens.

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Meet Bob.

Bob is the world’s worst market timer.

https://awealthofcommonsense.com/2014/02/worlds-worst-market...

The bob scenario is educational, but isn't relevant here. The reason why bob is still fine is that the crashes all happen during the accumulation phase. What you don't want is a crash right as you retire, causing you to rapidly liquidate a much larger portion of your savings than expected.

But do you really liquidate „rapidly“ once you retire? You basically dollar-cost-average out of your portfolio when retirement begins.

That’s not to say that timing isn’t an issue — it absolutely is. It’s just not a make-or-brake issue imho.

You liquidate rapidly if the market is way down. If you are planning on withdrawing ~4% of your stating portfolio annually to pay your expenses, the market tanking by 50% means you are now consuming 8% annually.

In the accumulation phase the value of your equities is likely to return. You never end up selling anything. But in the retirement phase you liquidate in order to pay your expenses. If you end up liquidating down too far there won't be enough future growth to cover your retirement needs.

Market crashes right after retirement are very dangerous for retirees.

Bob also picked the best stock market to invest in. He would have done a lot worse investing in any other stock market. It's not surprising he did well, he picked the winner.

What are the chances the US is going to have the best stock market over the next 50 years? It's possible, but doesn't seem likely.

Sure, but the lesson is that the big story is what matters, way more than detailed RoR calculations. Bob made huge mistakes, but even then compounding was the stronger force and he ended up ahead.

The story makes it sounds like he's guaranteed to end up ahead. That's not true. For instance if he was investing in Germany starting before WW1 and invested at the peaks Bob would be massively underwater.

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens.

As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

What did you have nothing but TBills, TIPS? Not quite sure what you have where you could just sell them. But, ya, bit silly as your money is still in USD. Nothing is happening to US bonds or there are bigger problems and all your investments are at risk.

Good point, the website looks like it's 25+ years old so who knows what is running under the hood to keep it going.

It's actually improved a lot since I started using it in 2016, but yes. Your session breaks if you use your browser's "Back" button. It used to require you to enter your password by clicking around on an on-page keyboard, I would always open dev tools, "edit as HTML" the read-only password input and paste the password right in from my password manager.

I think this is an under appreciated comment. Almost all of our market data is predicated on a US government that places a huge emphasis on repaying its debts.

The current government is full of people who think it's clever, rather than short-sighted, to fuck people over.

It's not a joke that our credit ratings as a nation are slipping. It's real risk that those federal bonds may stop paying out.

Many Americans aren't saving for retirement. If Repubs cut SS the riots will start.

Are you going to post in the future when your panic is shown to be irrational?

Sure. Of course, if anyone had described what DOGE is doing 1 year ago, they would have been similarly dismissed. I wouldn't say what I am doing is "panicking" or "irrational", I would just say I'm hedging against turbulence that may well prove temporary but which might come at a bad time for me personally.

> Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds.

Not crazy given the incompetence in American political leadership.

BUT, if US treasuries default, your savings accounts, agency, municipal, state, international bonds, stocks - all will fail immediately.

Your literal checking account is backed by treasuries under the hood by the bank. Widespread bank runs will be likely. And even if you are at the front of the line in a run, you will not be able to withdraw $100k in actual dollar bills because banks don't have them in vaults like the old days.

What I'm hedging against is the possibility that technical issues at TreasuryDirect, and ensuing uproar, will temporarily prevent me from redeeming bonds at a time when I cannot afford to wait for a resolution.

maybe I am wrong but I view this as a very separate scenario from the US formally stating that it will default, which I agree would cause problems I'm in no way prepared for.

Yes, you are right. A savings account will be a hedge against technical/short term UST bond redemption issues.

Even a high-yield savings account should beat inflation on average. Such account has an interest rate similar to the Fed rate which is set to be above the expected inflation in normal economic conditions when the Fed is neither supporting nor slowing the economy.

You should always have 2-3 years of runway in cash or other safe liquid savings (CDs, Bonds) as you get older (6 months minimum when you’re in 20s and 30s). You shouldn’t be really relying on selling assets to pay your monthly bills.

> You should always have 2-3 years of runway in cash or other safe liquid savings (CDs, Bonds) as you get older (6 months minimum when you’re in 20s and 30s).

Just before and just after retirement it's considered a good idea to go bond heavy to help mitigate sequence of returns risk:

* https://www.kitces.com/blog/managing-portfolio-size-effect-w...

* https://www.schwab.com/learn/story/timing-matters-understand...

* https://www.td.com/content/dam/tdgis/document/ca/en/pdf/insi...

> While dollar cost averaging and index investing are solid strategies

Dollar cost averaging is a psychological strategy, not a financial one.

"The costly myth of dollar-cost averaging": https://web.archive.org/web/20050910142530/http://moneycentr...

"Debunking the Myth of Dollar Cost Averaging": https://news.ycombinator.com/item?id=36271061

Doesn't that assume that you're sitting on a pile of cash already and deciding how to invest it? That's not the situation for working class investors who didn't inherit a lump sum or win the lottery.

The optimal strategy for most retirement savers is "invest it as you get it" which is basically dollar cost averaging except in the rare cases when a pile of cash falls in your lap.

Yes. That's usually how the term is defined. You have a lump amount to invest and you invest it over a period of time.

Meaning shifts, and now the term is also being used in web forums to describe the investment strategy of "in each paycheck, invest a bit of money." This creates confusion.

surely as retirement approaches, you should be taking money out of your investments so that you can either live off those (and traditional savings interest) or investing in safer things like real estate?

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