[AnthonyMouse]

> One time out of five, the consequence of that investment strategy is 'The market had a crash and I lose everything'.

Which is why that strategy doesn't actually beat the market. Keep using it for 30 years and you're bankrupt.

Whereas if you put your money in a major index 30 years ago and left it there, or even 50 or more years ago, what result? Are you even in a bad place if you put all your money into the market in 1926 and left it there for 100 years?

[akamaka]

Yes, if a retirement fund had put all their money into a stock index in 1926, it wouldn’t have been able to pay out pensions throughout the 1930s and 1940s and would have been bankrupt before the market eventually recovered.

Going full index is a great strategy for an individual person aged 20-50, but not a strategy for a pension fund which needs to continuously pay out.

[caminante]

> Going full index is a great strategy for an individual person aged 20-50, but not a strategy for a pension fund which needs to continuously pay out.

It's OK for a person in their 70s that has a few million in the bank.

This person (CPPIB) has 780 billion and has a sustainability rating for 75 years.

[akamaka]

$780 billion divided by 6 million current recipients is a little over $100,000, which is hardly comparable to your wealth retiree example.

[caminante]

Did you realize that CPP's support isn't full income replacement? It's only 10-20k/year per person.

While your metric is common to compare pensions, it's not relevant for debunking ability to survive a recession.

6 million x $100k is 600 billion.

Whereas the annual benefits paid is ONLY 1/10th that at 60 billion/year.

Turn off 80 billion/year in contributions and the investment income (50-60 billion/year) can sustain.

[akamaka]

During the Great Depression, the stock market stayed below 50% of its peak value for about 20 years. Imagine that the $600 billion turns into $300 billion overnight. It will only last 5-10 years without inflows, but the GDP has also dropped by 40% and inflows have plummeted.

[caminante]

I saw you say this in another comment.

It's still going back to the same assumptions that you're not only timing a depression but also

(a) don't have pre-funding (i.e., millions for an individual at the start of the depression),

(b) don't have CPPIB guardrails and auto-adjustment mechanisms,

(c) and it's not a partial income replacement scheme.

> It will only last 5-10 years without inflows

Without inflows? That's not realistic because people would still be contributing. In fact, CPPIB has triannual resets of contributions and in a recession, they'd up the contribution rate. In a recent actuarial audit, they found that if real returns dropped to 2.5%, then they'd only need to boost contributions from 9% to 11% to keep their 75-year sustainability target.

The advice that you need to taper off your investment portfolio risk as you get older doesn't really apply to people that have a nest egg. I know a lot of people that aren't necessarily living frugally and are told by their financial advisors that they might as well upgrade their cars, travel more, etc. They can cover their costs and don't have net worth > ~$3 million.