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5% is straightforward
Old 09-08-2007, 02:14 PM   #1
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5% is straightforward

Reaching a 5% continuing withdrawal rate is straightforward. The key is to focus on dividends instead of total return. Never sell any shares.

Here are a couple of articles. [You can do even better.]

Dividend Blend Rule of Thumb
Dividend Blend Rule of Thumb


August 29, 2007 Letters to the Editor
August 29, 2007 Letters to the Editor

“With a 30%-70% allocation favoring the high yielding preferred stock, the combination allows you to withdraw 5.1% of the original balance (plus inflation) indefinitely.”


Have fun.

John Walter Russell
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Old 09-08-2007, 02:17 PM   #2
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Go away, h0suc v. 1.1.
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Old 09-08-2007, 03:18 PM   #3
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Go away, h0suc v. 1.1.
Oh be nice Brew, I like to read this stuff.

Ha
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Old 09-08-2007, 05:31 PM   #4
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Reading the stuff is fine following the advice can be hazardous to your financial health.
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Old 09-08-2007, 06:03 PM   #5
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If I am ever interested in watching the workings of disordered thinking, leading to unsupportable modeling, that is so horrible that back-testing it against it's own dataset won't even work unless I use "Eyeball estimates", then I'll go to the JWR cockeyed house of confusion website. Until then, thanks for the links, the madcap menu system, etc.

I must admit, it's worth a one-time visit to the site just to try to figure out what the crazy cobweb logic of that site must look like when reduced to a flowchart...

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Old 09-08-2007, 06:22 PM   #6
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I thought I would do a photo-chop user's guide of the JWR menu-system -- one that had quality in keeping with the content and thinking of the subject site:

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Old 09-08-2007, 06:44 PM   #7
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And to show what a really actually nice and helpful guy I am:

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Old 09-08-2007, 09:37 PM   #8
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This closes the deal for me. I retiring at a SWR of 5.1%. No reason to wait any longer.
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Old 09-08-2007, 10:01 PM   #9
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This closes the deal for me. I retiring at a SWR of 5.1%. No reason to wait any longer.

he he he

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Old 09-08-2007, 10:21 PM   #10
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Might not be as bad if it wasn't your first post.

Quote:
Originally Posted by JWR1945a View Post
Reaching a 5% continuing withdrawal rate is straightforward. The key is to focus on dividends instead of total return. Never sell any shares.

Here are a couple of articles. [You can do even better.]

Dividend Blend Rule of Thumb
Dividend Blend Rule of Thumb


August 29, 2007 Letters to the Editor
August 29, 2007 Letters to the Editor

“With a 30%-70% allocation favoring the high yielding preferred stock, the combination allows you to withdraw 5.1% of the original balance (plus inflation) indefinitely.”


Have fun.

John Walter Russell
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Old 09-08-2007, 10:50 PM   #11
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Might not be as bad if it wasn't your first post.
It's not his first post. He has been around for years, on this and other boards.

Anyway, what is wrong with his idea? I also favor an income oriented approach, and unlike some of you I have been living off a portfolio managed in this way for over 20 years. We'll see how well I do post divorce, but I think the odds favor an approach that while it welcomes portfolio gains, provides much of what is needed by virtue of recurring cash payments to the retired security holder. I am confident enough that although I am 66 I don’t draw social security yet.

I would love to be massively overfunded, so I could do fine with 2% dividend payers, but I am not, so I must be more inventive. Still, it's a long way from a hope and a prayer, which is what the "total return" approach is.

I will always want some issues chosen for their potential gain. So some may have no current yield. Then I must pick some others with higher than average yield to make up the gap. My overall portfolio average yield is a little over 3%.

By the way, I believe we woud be likely to learn more if people were to critique the arguments rather than attack the presenter.

Ha
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Old 09-08-2007, 11:03 PM   #12
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He says you can withdraw 5% if you have 50/50 split between 6-8% yielding bonds and 3-4% yielding stocks with dividends growing 10%/year.

OK.

Where do I find bonds with that yield with no default risk, and where do I find stocks that will consistently grow dividends 3% faster than GDP growth?

AFAIK, long-term growth rates for both dividends and earnings has been in the 6% range.
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Old 09-08-2007, 11:15 PM   #13
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Anyway, what is wrong with his idea? I also favor an income oriented approach, and unlike some of you I have been living off a portfolio managed in this way for over 20 years.
Nothing's wrong with his idea but he's notorious for unrealistic assumptions, data mining, and magic black-box formulae to arrive at an answer. In this case the answer doesn't happen to be too far from the conventional wisdom and, like blind squirrels & acorns, it might work out just fine. Except for 50-60 year periods and maybe 1966-82...

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By the way, I believe we woud be likely to learn more if people were to critique the arguments rather than attack the presenter.
Yes, but this JWR has been cheek-by-jowl with H0cus for so long that, until we checked IP addresses, we actually thought they were the same poster. He burned through his goodwill and the strength of his arguments long ago and there's no credibility remaining. I'd rather read Gummy Stuff.

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We'll see how well I do post divorce...
I haven't read every thread but I haven't seen you mention divorce before. I'm sorry that it's come to this.
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Old 09-08-2007, 11:21 PM   #14
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Where do I find bonds with that yield with no default risk, and where do I find stocks that will consistently grow dividends 3% faster than GDP growth?
I believe an enterprising investor can likely find the stocks. The bonds I doubt. I woudn't try anyway. For me bonds are mostly a parking place, and a source of dry powder.

I admit that 5% is an aggressive goal; still we might remember that the same difficult arithmetic faces total return investors, they just don't realize it yet.

Ha
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Old 09-08-2007, 11:33 PM   #15
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I believe an enterprising investor can likely find the stocks.
Enterprising? That doesn't seem like a good fit for retired folk.

I try to guess which sectors will grow faster than GDP, but it's still a guess.

Another problem I see with this strategy is taxes. The withdrawal rate implicitly includes taxes. This means you generally want to minimize taxes to ensure safety. A 50/50 mix of high yield bonds and high yield stocks, in which the "excess" interest and dividends are supposed to be reinvested, seems like close to worst-case tax inefficiency.
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Old 09-08-2007, 11:45 PM   #16
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Another problem I see with this strategy is taxes. The withdrawal rate implicitly includes taxes. This means you generally want to minimize taxes to ensure safety. A 50/50 mix of high yield bonds and high yield stocks, in which the "excess" interest and dividends are supposed to be reinvested, seems like close to worst-case tax inefficiency.
This is likely true, and I would not approach it in this exact way. The most tax efficient way is probably the total return approach of regular planned sales. However, it exposes you to some bad mojo in a prolonged market downturn, which does not necessary equate to a prolonged bad business environment.

I think some excess generated is worth paying the tax on, because it provides liquidity for enterprising re-investment. I possibly have paid more taxes than some, but I have never paid a tax on a loss.

Good to see your specific concerns about this strategy.

Ha
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Old 09-09-2007, 02:41 AM   #17
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I don't think bonds were a part of the plan. He's suggesting high yield investments, REITs and MLPs come to mind. I would probably add some bank stocks in the current environment.

I don't think its a bad plan. One drawback is that you have to build a portfolio out of fairly limited choices. You probably are going to have to be weighted heavily in a few sectors.

I think at some point you will need to choose between yield and diversification.

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He says you can withdraw 5% if you have 50/50 split between 6-8% yielding bonds and 3-4% yielding stocks with dividends growing 10%/year.

OK.

Where do I find bonds with that yield with no default risk, and where do I find stocks that will consistently grow dividends 3% faster than GDP growth?

AFAIK, long-term growth rates for both dividends and earnings has been in the 6% range.
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Old 09-09-2007, 03:50 AM   #18
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I don't think bonds were a part of the plan. He's suggesting high yield investments, REITs and MLPs come to mind. I would probably add some bank stocks in the current environment.
The second link gives some context. He talks about preferreds, which I view as callable bonds with more BK risk. REITs might be better, but there are few with that kind of yield.

MLPs seem like the best fit, but you get both stock-like risk with the business cycle and bond-like risk with changes in interest rates.

No free lunch. If you reach for yield, you're increasing your exposure to risk.

If a retiree is willing to take on that much risk, why not just load up on ScV and increase your SWR based on expected returns of 14% or so? I think there's a thread here somewhere that suggests one could increase their SWR to something like 5-7% based on such a strategy.

If he presented some evidence that risk-adjusted returns should be better than more traditional approaches, that would be interesting to see. But I believe the academic consensus is that selecting high-yield stocks is nothing more than a poor way of gaining a value tilt.
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Old 09-09-2007, 07:59 AM   #19
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By the way, I believe we woud be likely to learn more if people were to critique the arguments rather than attack the presenter.

Ha
In 99.999% of cases, fine. In this case, I think an immediate permanent ban from the forum is indicated. If it isn't done, either the puff of marsh gas sugesting this srategem will wreck the board, or several posters (myself included) will post nothing else but direct confrontations with the creature that crawled out of *****'s swamp.
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Old 09-09-2007, 08:13 AM   #20
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To those of you who haven't been around the forum for an extended period of time and may not be aware of it, JWR1946 is closely allied to a world-class troll. Responding to his posts can be hazardous to your mental health.

IMHO
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