A question for the senior members of the group. Preparing for cognitive decline and more.

larryB

I have noticed that unless one is Tom Brady the timing of important life choices are often not optimal. One can sell the boat too soon or too late. One can downsize the home too soon or too late. You get the idea. It’s hard to get it just right. For those of us with spouses who aren’t involved in portfolio design and management how to simplify the portfolio so that it runs on auto pilot may be the next big question. Anyone else thinking about this? For me it keeps coming back to something like Wellesley….. Moderate income and some growth. And the equity allocation fits our current style.

hank

Wow. Who isn’t thinking about that? Depends so much on somebody’s situation. I tend to worry a lot. So I’ve long contemplated that the worst possible “1-2 punch” in retirement might be: (1) loose half or more of your invested assets in a market crash and than (2) get hit with very high inflation for the next decade. That’s not a prediction. Just a worst case scenario, Like I said, I worry a lot.

I’ve heard good things about Wellesley on the board over the years. It appears to be moderate risk with a beta according to Lipper of .38. I’d guess my own do-it-yourself portfolio (age 75) right now to have a beta somewhat lower than that - but have never attempted to measure it. At Lipper / Marketwatch, clicking on “Risk & Return” ” tab brings up a fund’s beta - one measure of volatility.

I think your thinking in terms of late life portfolio positioning is on the right track Larry. As far as the cognitive issues, it’s an area I can’t offer any insights on. I work out daily, eat a healthy diet, etc. etc.

bee

@hank said:

I think your thinking in terms of late life portfolio positioning

@WarrenBuffet said:

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers”.

warren-buffets-instructions-for-wifes-inheritance

bee

I charted three approaches:
100% VWINX (larryB Portfolio)
90% / 10% VFINX / VFSTX (Bufffet Portfolio)
100% PRWCX (Moderate Allocation Fund)

If we are at high valuations VWINX would provide the best downside protection, but over the long term not the best choice for capital appreciation.

I tend to like the historical performance of a fund like PRWCX. Historical performance doesn't repeat , but I tend to think it rhymes.

1988 -2022 (starting with $100K and a 4% WD rate):


200-2022 (from Tech High) (starting with $100K and a 4% WD rate):

hank

Thanks for all the data @bee. Since you quoted my humble words, I want to add here:

1. I’m not Warren Buffett.

2. To roughly paraphrase Christine Legarde today, “I don’t make unconditioned statements.” So note that I began my response saying “Depends so much on somebody’s situation.” In Larry’s case that would include (among many other factors) the age and health of his spouse as well as his legacy planning.

Aside from the above, Warren Buffett is the “perfect” investor to quote in this thread. Two ways to view it: (1) At 91 he himself may be in cognitive decline and an unreliable source or (2) at 91 he’s testament to our ability to continue making good decisions as we approach the century mark. I have a friend who’s 92 and her mind is sharp as a tack. Unfortunately, it’s the other parts that are giving out.

Would love to hear others debate the pros and cons of Buffett’s advice. All ears.

BTW - Most fiduciaries today allow seniors to designate a responsible individual to make decisions for them in the event their cognitive abilities fail them.

https://www.cnbc.com/2018/05/15/advisors-are-asking-their-clients-for-a-trusted-contact-choose-wisely.html

Mark

I like to explore so I substituted two funds I own, FCNTX and PRBLX, for VWINX. Interesting.

larryB

Gentlemen: Thanks for the thoughtful replies. As far as using WB as a model that has to be a non starter for most seniors. A 90 % equity allocation ? Everyone has a different set of circumstances. As for us, our withdrawal rate is essentially zero and I have no need to maximize returns. I do, or will have a need to simplify our already simple portfolio at an equity position close to our current allocation. Thanks again for responding.

hank

Buffett’s original advice (quoted by @bee) was initially offered 8-10 years ago as I recall. Go back and check the major indexes than (much lower). But I won’t dispute that he probably still adheres to the recommendation made when he was a youthful 82 or 83.

And we did “bat that one around” quite thoroughly here 8-10 years ago when it was first announced. Geez - would have been sometime in the first 2 or 3 years of MFO’s existence. Thanks @larryB for posting the question. All of us can reflect / learn from this.

For continuation of thread …

larryB said:

Gentlemen: Thanks for the thoughtful replies. As far as using WB as a model that has to be a non starter for most seniors. A 90 % equity allocation ? Everyone has a different set of circumstances. As for us, our withdrawal rate is essentially zero and I have no need to maximize returns. I do, or will have a need to simplify our already simple portfolio at an equity position close to our current allocation. Thanks again for responding.

sma3

I agree VWINX is a conservative choice that has been hard to beat, but with stocks at an all time high (VWINX PE is 15) and interest rates so low ( VWINX duration is 8) , both of these allocations may be bad places to be in the near future. In the past the bonds have saved VWINX during market crashes. Maybe not so much in interest rates shoot up

Most people who are left with money to manage without any experience or interest should probably hire someone, even if it is expensive

BenWP

Mike Holland appeared on Rukeyser’s show fairly often. His advice, IIRC, was all anyone needed was a good balanced fund. His own fund did not shoot the lights out, but the advice makes sense. I really ought to leave my heirs such a simple portfolio and designate an advisor for them to consult. Janus, Fidelity, Vanguard all have good funds for this purpose.

larryB

@sma3…. I agree that the duration of WWINX is all wrong for the near future. My current non equity holdings have a duration of about 1.5. Just short tips and bank loan funds. But if I let the equity allocation drive any one fund solution then duration will be too long. The price of simplicity I guess.