Good Afternoon from near Boyne City, MI.,
A current discussion (working after age 65) reminds me of a few thoughts from a bit more than 3 years ago at FA. OJ and I both have technical backgrounds related to the electronic and mechanical areas for much of our work lives. I don't recall verbatim, our words; but the considerations of our knowledge requirements and/or skills and methods for "fixing" something do require a certain type of mental process. I do recall a few of the words that basically noted that for myself, for my work methods and somewhat related to our investments might be a scenario of a starting point "A" for a function of an electronic or electro-mechanical device and what is supposed to happen, but the finished function does not arrive at point "E". First, check; point "A"......is the power "on"? Okay, move to function "C", the middle point......yes or no at this point? Well, you get the idea; and this is a simple form of troubleshooting, that may indeed become very complex when many functions are involved.
OJ, or myself found ourselves digging, thinking and analyzing what happened between point "A" and "Z" to cause a problem with an entire function, and then had to set about a plan to correct the process.
The main thrust is whether a person's natural or learned skill sets have any impact upon their ability to analyze and then make sense of the data (whatever it may be) to form a sensible investment plan with appropriate holdings for their risk and reward.
Lastly, it is understood that age, experience, stress, time and many other outside factors influence this entire process. A graduate student may have already written a paper about such a study; but I will presume that given a normal IQ across a large population group may find that certain natural/learned skills lend to more success than others, with investment decisions.
Back to the beach,
Catch
Comments
In this case plan B is simply to listen to the experience and advice of the many wonderful contributors to MFO and the previous FundAlarm sites. I've benefited from the help and experience of so many contributors here- Fundmentals, Bob C, FundAlarm/JR, Investor, you, rono, Scott, bee, David... just to name a quick few in no particular order off the top of my rapidly thinning head. I've willfully and enthusiastically cheated by stealing some great ideas from all of you, and I'm sure to have forgotten others who have helped. What a stellar collection of experience and wisdom to draw from!
Thanks, David, for making all of this possible, and to all of you for helping me to make a few bucks that I surely wouldn't have without you all!
Regards to all- OJ
Headed towards the coast myself on Thursday.
In regard to your post and in keeping my answer short ... A whole lot.
I will explain my answer, keep it simple, and relate this to the game of checkers. The more experienced and skilled player most likely will fare better over time against the less skilled and less experienced player. Think on this. How many times did your grandfather or father beat you as a child at this game? Did they teach you certain setups that they knew? Did you gain knowledge through experience?
However, the less skilled and less experienced player became a better player as they came to better understand the game thus gaining both knowledge and skill by playing the game, through time, against the more skilled. And, in time, they themselves became the more experienced and skilled becoming a master of the game.
It also helps if you have a good teacher or journeyman to help you, the less skilled, along the way.
And, I believe this is why the board is here. I don't think of it is stealing ... I think of it as sharing.
In closing, I call this the "learning curve process" to gaining knowledge.
Good Investing,
Skeeter
An interesting, quite valid question. When this sort of thing comes up, I leap to what is more familiar: The sort of personality-type frame of reference provided by the MBTI. It may sound like a truism, but it was a revelation to me to read something so simple, but which so thoroughly affects one's entire Big Picture view of the world: "S" types tend to think of intelligence in terms of thoroughness of understanding. "N" types wrap it in terms of quickness of understanding."
There are 16 "types." We all need to use them all to some degree. But we all have our built-in preferences, and this is what MBTI shows us: ourselves. Being an "N" type, I often find that I've hit upon the right answer, but I can't tell you step-by-step how I got there.
As for investing, we must do our due diligence, which would seem to be an "S" -type predilection. Analysis, concrete comparisons. Measuring reults. I certainly do my share of that before deciding upon a fund. Yet in the end, my results must "jive" with what my instincts tell me, too. It's not just a matter of playing a hunch, and we are dealing with a Marketplace that is very fickle. On Monday, I may be wrong. The same fund shows me on Thursday that I was right. Most important, have I been more correct or more in error over the course of 12 years, attempting to build a foundation for retirement...
I’ve taken the liberty to simplify your question: You are seeking a map of the road to retirement.
Allow me to propose one candidate road; I’m sure it is not unique. It is one that I did not travel. I was not smart enough during my early investment years to follow any special pathway. Also the tools and the investment options needed to execute my proposal were not readily available prior to the Internet’s rapid and historic growth.
If I had absolutely zero confidence in my skills or qualifications to invest, I would punt and secure the services of a financial life cycle planner who had developed specific tools for this purpose. Scot Burns AssetBuilder organization comes to mind. I am not endorsing his products, but here is a Link to his website to serve as an illustration:
http://assetbuilder.com/company/about_assetbuilder.aspx
If you feel qualified to independently proceed, your zero order step should be buy into a Lazy-man’s portfolio. The portfolio should give you something like a balanced 50/40/10 equity/bond/cash mix of holdings while you assemble the data that permits a better definition of your goals, current savings, expected living costs, and a more precise asset allocation determination. Here is the Link to Paul Farrell’s Lazy-man portfolio array:
http://www.marketwatch.com/lazyportfolio
Identify your target retirement goal. Estimate your portfolio survival requirements by estimating your probable life expectancyl age. Add 5 years to that number as a safety factor. Here is a Link to a life expectancy calculator:
http://www.livingto100.com/
Using last year’s expenditures assemble an estimate of likely living costs during retirement. Adjust for inflation of at least 3 % annually. Total your liquid savings from all sources. Total your annuity-like (retirement plans, social security) cash inflows. Consider the option of downsizing your home. The difference between the cash inputs and outflows are your minimum portfolio returns target.
Monte Carlo simulations suggest that annual withdrawal rate levels should be about 4 % of the initial portfolio’s value with an increase each year to accommodate inflation rate. That number reflects an allowance for portfolio return volatility. A decade or so ago, Peter Lynch ignored this factor and recklessly recommended a 7 % drawdown rate. If you are disciplined enough and flexible enough the 4 % withdrawal rate can be expanded to 5 % if drawdowns are reduced during market negative years.
As you accumulate more experience, you might become more aggressive with your portfolio management and carefully select some actively managed mutual funds. Flexibility, patience, and persistence are essential for investing success. Some luck is also needed.
You might also opt to allow a major mutual fund provider (Fidelity, T. Rowe Price, Vanguard) do the heavy lifting. All these outfits have resources and computer tools that will construct a portfolio designed for your special requirements. I specifically know that Fidelity provides this service using Monte Carlo simulations to calculate future return projections.
You might be interested in allowing a more independent outfit do the Monte Carlo analysis for you. Bill Sharpe, a Nobel laureate, has developed a code for that purpose. The code is the functioning tool sold by Financial Engines. They charge for that service, but free access can be acquired by visiting Terry Savage’s website to secure, of course, the Savage Number, a doable plan, and a lot more. Click to her favorite websites section. Click again to get a one-year free window to test the Financial Engines product. There are many other attractive features on Terry Savage’s website. Here is the Link to it:
http://www.terrysavage.com/
I’m not sure if this is a satisfactory response to your posting. But I am sure that I omitted some significant considerations and tradeoffs. I’m equally sure that I made some mistakes in this reply; I did it in considerable haste. If you have questions, please ask.
If I had to make these challenging decisions today, this is a rough outline of how I would plot my journey. This approach should tilt the odds of success just a little more in an investor’s direction.
Best Wishes.