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Old 02-09-2013, 06:08 PM   #101
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My reaction to the video was that, while the example may not have been the best one, the point is well taken that at some point you need to determine what you really need.

In addition, it also points towards the value of diversification and rebalancing. Being part of a tech company and understanding the IT industry, I was much more heavily invested in tech equities the latter half of the 90's. At one point probably 80% of my portfolio was weighed towards that. However, equity growth "scared" me in that when things grow to fast, its time to balance them into slower, safer things.

I have several stocks I still own that back then more than doubled in a short time frame, and my reaction was to take out my original investment and what I have expected to profit in those items and put them into investments with much less risk. I left the rest in as I figured even if I lost what I left, I had preserved my original investment plus an above average return.

I also was fortunate with my age and timing. I had just entered my 40s in 1999 and thought it was time to take a little less risk. In addition, when things were peaking, it was also 4 and 6 years before our 2 oldest kids were due to go to college. That caused us to balance more of our portfolio towards cash and bonds. Based on our research it seemed 4-6 years was too risky to keep what we planned to use for college expenses in the stock market.

Better than the proverb, I liked the comment at the end (which my old mind is likely misquoting now ): "The strategy for getting rich is not the same as the strategy for staying rich". Of course, one has to determine what one needs to be "rich" and at that point, focus less on making more and more on preservation. However, the siren call to make more and more and get higher returns than the market is tough for many to resist.

Finally, one item the video brought to my mind about having enough. I know my wife and I have enough for the things we can control. The doubt comes from the things we cannot control.

The number one item for us that we cannot control is health. While we do endeavor to eat healthy and keep active, and currently are getting good reports from our doctors, that can (and will change) in the future - we just don't know when. And the costs for health insurance and health care, in my view are the highest and most unpredictable items to plan for. Other than still liking a lot of my job, that is probably the main issue that keeps me working. I'm not the only one, I can count at least a dozen friends who also work for the same company and are eligible for retirement that say a huge reason they are still working is to keep health benefits for them and their families for as long as possible.
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Old 02-09-2013, 07:05 PM   #102
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Old 02-09-2013, 10:59 PM   #103
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True generally speaking, and fine in most cases.

However along the same lines as Katsmeow's POV, I'd guess most if not all of us have basic/essential spending AND elective spending. I suspect someone spending $30K/yr would have a substantially higher % in the basic category than someone spending $300K/yr - IOW they're probably not proportional and therefore not as scalable as part of a plan B. Basic spending is harder to change by definition, elective spending should be expenses that can be cut dramatically if not entirely. For example if HC costs double in 10 years, it may be more difficult for the $30K/yr household to adapt than the $300K/yr estate. Just one of many potential examples.

Or from the nest egg perspective, I would have a slightly different mindset responding to someone planning on $30K/yr than someone else planning on $300K/yr even I'd they were both planning on a 3.5% WR.

YMMV
I agree, the total amount matters. For instance if the couple had 1.3 million in aggressive stock portfolio, but they lived in an expensive place. Maybe they really felt they needed to double their money to stay in say San Francisco, or plan B was to downsize and move someplace less expensive. In this rare circumstance than all growth stock portfolio may make sense.

But with 13 million, they almost certainly had enough money to live anywhere they wanted with a nice live style 2% of 13 million = 250K+
So having concentrated portfolio was a foolish risk on their part.Since they had "won the game"

On the other hand different people have different definitions of what winning is and also what risk is.

I am sure many people would look at my portfolio of just shy of $3 million, and think I am taking a crazy amount of risk .I look at my asset allocation which only includes 15% "safe" assets 8% bonds and 7% cash (including CDs). The remaining 85% includes investment in small Hawaii/tech companies, rental real estate, and about 70% in equities in addition to traditional index funds, also include 40 odd individual stocks and sector ETFs and two stock positions which are about 15% of my net worth.

The way I look at it I need at least 2% real return to support my life style and I can easily spend 3%. Currently 10 year TIPs are yielding a negative .5% and 30 year TIPs are yielding +.5% So a ladder of TIPs bonds lets me keep up with inflation. So in theory I could spend 2% of my principal and hope I die in the next 50 years.

But I'd like to always have easy access to $1 million dollar (in today's dollars). The nicest care homes in Hawaii require an upfront payment of a $800,000 plus require $4,000+ in monthly income. So when you put a $1 million floor for my portfolio. The lower risk investments actually appear to be quite risky to me. Because if I invest heavily in them I pretty much guarantee to come close to running out of money or die young. IMHO, the dividends (not the stock price) of blue chips companies with strong international presence (e.g. Dow stocks) are among the least risky investment if you take a 30+ year time horizon.

To use a football analogy. Eventhough I have not won the game, I think I am well ahead on the scoreboard in the 3rd quarter. It is much to early to stop trying to score points. I am better passer (i.e. stock guy) so I stick with a lot of passing, but I'll make sure I run the ball, make safer passes etc. I am keeping my eye both on the score and the clock and sometime in the 4th quarter bring out the prevent defense. But I really believe that is 15 years from now.
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Old 02-10-2013, 01:13 AM   #104
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I was talking about absolute numbers, not relative ones. Being a non financial person, I find it reassuring sometimes to know other forum participants' absolute numbers because they help me in my decision to make the jump. No worries if you don't want to..
I also like to see other forum members' absolute numbers from time to time for the simple reason that I am living on a much lower income than nearly everyone else here (I think). Most of the time, percentages work fine for me in helping me to determine that I am withdrawing from my portfolio at a level that is sustainable over the long-term with some hope of an increase in the WR in the future. However, sometimes, it's good to know that I'm not the only ER soul living on < 20K/year.

Even though I am in the SF Bay area, the cats and I are comfortable and content at this income level but then, it doesn't take much to make us happy. All they need are some treats and catnip from time to time in addition to their food, and I don't need much more . I doubt that many here can relate to a guy who's pushing 50, and living in a small studio apartment with just a bicycle for transport, but it works for us.
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Old 02-10-2013, 09:49 AM   #105
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However, sometimes, it's good to know that I'm not the only ER soul living on < 20K/year.
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Old 02-10-2013, 09:58 AM   #106
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My wife and I live on a little more than twice that. I think I could live on 20K if I was single and rearranged my life a bit.
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Old 02-10-2013, 10:13 AM   #107
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Interesting video. Thanks for posting it OBYGN. It pushes me to look at my finances more closely. I am slightly embarrassed to admit that at this time I could not answer how much money I have in equities, bonds and cash. I have my TSP in the L income fund, my 401K at my present job is 100% in equities, my DH's 401K is still with his former employer and in several different funds and our IRAs are in Vanguard Target funds, CDs at the credit union and Wellsley. Watching the video, I see the need to look at each one and add the amounts to see how much we have in stocks, bonds and cash. I will add that I know this is not a smart way to manage your money. We have not used any of this money, since I retired from my career job and my DH became disabled. He is 61 and I will soon be 60. We have been relying on our pensions and his SS. I need to quit being so lazy and get busy.
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Old 02-10-2013, 11:50 AM   #108
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I doubt that many here can relate to a guy who's pushing 50, and living in a small studio apartment with just a bicycle for transport, but it works for us.
I have not followed posters budgets very closely, but let me check what I think I just read about your budget. You live in Bay area in a studio, pay rent, and do it all on no more than $20,000/yr?

From living there years ago. I know there are really different rents in different communities in the Bay Area, and even different defiitions of what is the Bay Area, but anywhere BART accessible a studio must cost at least $1400-1500/mo. So you are really running your life well.

I tend to feel that where a person lives is more important than other things that cost money toward overall satisfaction, perhaps moreso for single people.

Ha
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Old 02-10-2013, 01:28 PM   #109
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I have not followed posters budgets very closely, but let me check what I think I just read about your budget. You live in Bay area in a studio, pay rent, and do it all on no more than $20,000/yr?

From living there years ago. I know there are really different rents in different communities in the Bay Area, and even different definitions of what is the Bay Area, but anywhere BART accessible a studio must cost at least $1400-1500/mo. So you are really running your life well.

I tend to feel that where a person lives is more important than other things that cost money toward overall satisfaction, perhaps more so for single people.
Ha
Thanks Ha, though it wasn't that hard a feat to pull off once I found a nice place to live in at a very affordable rent. I live in a small (300 sq ft) studio apartment in an old (1908) converted house. It's rather lovely - lots of wood paneling, and my apartment has a bay window that overlooks the dog park (which is great kitty TV for my cats.) It's in a good part of Oakland, 20 minutes walk from Bart, for which I pay $640/month including utilities. The place is owned by en elderly gentleman who is more interested in having good tenants than in maximizing his investment. Furthermore, once you are in, he almost never raises the rent.

Occasionally, places like this do come up on Craigslist if you look often, and act fast. The other way to find good deals is by word of mouth. A gentleman who lives 2 blocks away owns the oldest building in the immediate neighborhood (1898). It's in good shape and well maintained. He rents out the entire top floor of one of the buildings in his mini-complex for $700/month. It looks like it is about 900 sq feet. A deal like that will almost never hit Craigslist, as he rents to people he knows, or those who come to him via word-of-mouth.

I think I've seen you mention before that living in a large metropolis needn't be as expensive as some think, and I agree. While housing may be more expensive, you don't have to travel as far to get to things. While a car is always a handy thing to have, it is by no means a necessity in a city with good public transport and in some areas might even be considered a disadvantage. Add to that the many cheap and free cultural events that take place in many cities, and things are starting to look pretty good. You don't even have to bear the cost of eating out. A free concert in the park with sandwiches, an apple and a piece of banana bread sounds like a very enjoyable way to spend an afternoon to me.

Whatever the income level, I find self-determining people to be the most inspiring i.e. those who live their lives consciously and with vigor, as opposed to those who allow themselves to be controlled by their circumstances. My ex-boss, Richard Branson, and this fellow, who lives on ~5K/year are at opposite ends of the income spectrum, but both live their lives with a degreee of self-determination that I think we can all draw inspiration from.
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Old 02-10-2013, 01:34 PM   #110
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Old 02-10-2013, 01:50 PM   #111
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Thanks Ha, though it wasn't that hard a feat to pull off once I found a nice place to live in at a very affordable rent. I live in a small (300 sq ft) studio apartment in an old (1908) converted house. It's rather lovely - lots of wood paneling, and my apartment has a bay window that overlooks the dog park (which is great kitty TV for my cats.) It's in a good part of Oakland, 20 minutes walk from Bart, for which I pay $640/month including utilities. The place is owned by en elderly gentleman who is more interested in having good tenants than in maximizing his investment. Furthermore, once you are in, he almost never raises the rent.

Occasionally, places like this do come up on Craigslist if you look often, and act fast. The other way to find good deals is by word of mouth. A gentleman who lives 2 blocks away owns the oldest building in the immediate neighborhood (1898). It's in good shape and well maintained. He rents out the entire top floor of one of the buildings in his mini-complex for $700/month. It looks like it is about 900 sq feet. A deal like that will almost never hit Craigslist, as he rents to people he knows, or those who come to him via word-of-mouth.

I think I've seen you mention before that living in a large metropolis needn't be as expensive as some think, and I agree. While housing may be more expensive, you don't have to travel as far to get to things. While a car is always a handy thing to have, it is by no means a necessity in a city with good public transport and in some areas might even be considered a disadvantage. Add to that the many cheap and free cultural events that take place in many cities, and things are starting to look pretty good. You don't even have to bear the cost of eating out. A free concert in the park with sandwiches, an apple and a piece of banana bread sounds like a very enjoyable way to spend an afternoon to me.

Whatever the income level, I find self-determining people to be the most inspiring i.e. those who live their lives consciously and with vigor, as opposed to those who allow themselves to be controlled by their circumstances. My ex-boss, Richard Branson, and this fellow, who lives on ~5K/year are at opposite ends of the income spectrum, but both live their lives with a degreee of self-determination that I think we can all draw inspiration from.
Great post; thank you. I lived for a while on ALcatraz, just east of San Pablo Ave. I really liked being close to the Bay on the sunny side, and also plenty close to walk up to UC.

Your rent, and the other flat you mention are fantastic. I was walking to Trader Joe about a week ago and I saw sign on a building-large top floor one bedroom $2100/-parking available. I almost fell over at what they are trying to get. East Bay costs more than Capitol Hill Seattle, according to recent arrivals, so you really have a find.

Your technique of finding a good self managing landlord is very important. When I found my apt 7 years ago I had just been kicked out of living with my wife in a hoped for reconciliation, so I needed to find something fast. I found a good place; it was managed well but pedal to the metal by an agressive but quality minded firm- no coin was ever left on the table. When I decided to buy I planned a very long shopping period, and I got a few agents tired of my choosiness, but it was somewhat like your technique for finding a good rental. Budget time, and look in nooks and crannies. Something like a park across the street is a big plus, gives a lot of pleasure for no or almost no additional cost.

Another thing I think of reading your post- you have really learned to live in a small space. For me this i still a WIP.

Ha
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Old 02-10-2013, 08:44 PM   #112
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I agree, the total amount matters. For instance if the couple had 1.3 million in aggressive stock portfolio, but they lived in an expensive place. Maybe they really felt they needed to double their money to stay in say San Francisco, ....
Well, I guess this is something people just look at differently. So for you and the others in on this discussion, I'll just wrap it up and then move on...

In all the examples that were provided, I still see them as spending ranges. If we hold one thing constant - that each of these retirees wants their portfolio to last 30+ years, then history says that can be done within a range of AA, and at a WR below X.X%. Those numbers (as Midpack's recent thread shows) are independent of amount.

Sure, in general one would expect that a high spending amount (and therefore a high portfolio amount) means they probably could accept a hit and just cut back on discretionary expenses. But I still say it is clearer to take those variables into account on the spending side - because that is exactly what they are, spending ranges. To infer the spending ranges from a portfolio size, could be a mistake. Maybe the high portfolio person has high medical costs that can't be reduced, is caring for some dependent relatives, or any number of things that they could not cut back on?

I guess I'm just (over?) sensitive to this, as all through my career I've seen things needlessly complicated (and worse), by linking one number to another by inference, rather than just examining that number directly. Software engineers do it - I won't bother with a separate variable for that condition, it's always TRUE when this other value is TRUE (until one day it isn't). Managers do it while setting goals Time is related to money, so the goal is to reduce process time - so someone reduces process time while increasing costs. The real goal was cost reduction - so that should be measured directly, not by inference.

Given that, I have a very strong preference for assigning the variation to the cause of that variation, and calculate from there. Nothing else really makes sense to me.

Hopefully later tonight, I'll have that thread started on handling some short term, high WR. I think it builds off a lot of these recent threads, with some practical applications.

-ERD50
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