Avoid running out of money

[haha]

Wonderfully put. We all have insecurities about how much will be enough... and then there is that little devil on your left shoulder that keeps saying "go on ..one more year of w*rk will set you up nicely..."
Knowing when to knock that devil (greed) off your shoulder is hard

While for some it may be greed, I imagine much more commonly it is a fear of not having enough.

Ha

 

[ERD50]

Originally Posted by jags
... We all have insecurities about how much will be enough... and then there is that little devil on your left shoulder that keeps saying "go on ..one more year of w*rk will set you up nicely..."
Knowing when to knock that devil (greed) off your shoulder is hard

While for some it may be greed, I imagine much more commonly it is a fear of not having enough.

Ha

Yes, or even the opposite of greed. I want to keep my WR low enough (and/or build my portfolio large enough) to help assure that I don't become a financial burden on my kids. That's not greed, I don't think.

But I get what jags was getting at.

-ERD50

 

[UserRequested]

While for some it may be greed, I imagine much more commonly it is a fear of not having enough.

Ha

I understand. But say you can FIRE with a comfortable income and zero probabality of failure. And if you work one more year you can add another $10k p.a , 2 years $20k+ , another 3 years $30k+

When do you say enough is enough, coz the extra $10k buys a great holiday $20k even better. $30 - first class all the way baby.

See what I mean

 

[Ed_The_Gypsy]

What a stupid example. That couple was both stupid and greedy. I have no trace of sympathy for them. Swedroe is pitching in a different ballpark than mine.

 

[UserRequested]

What a stupid example. That couple was both stupid and greedy. I have no trace of sympathy for them. Swedroe is pitching in a different ballpark than mine.

Hey Ed

What are you doing in Azerbaijan? Holiday or second home?
Perhaps going by your reply on the International Living thread, you escaping the gun violence in the US

 

[Stanley]

The main problem with the 70 year old couple he used as an example is NOT that they were in equities, but that they were concentrated in tech stocks. Had they had a balanced portfolio, their wealth might have dipped ~30% and then recovered but 70% would not have evaporated.

+1

That kind of a hit shows a lack of diversification, or perhaps somebody was churning their account.

 

[photoguy]

But say you can FIRE with a comfortable income and zero probabality of failure.

Not to nit pick, but achieving a "zero probability" of failure is a fiction. No swr modeling tool can be that precise.

 

[obgyn65]

Thank you for the advice. I never thought of doing this. Will do so when time permits.

How about this for specific numbers:

Play around with FireCalc until you find the lowest portfolio amount that yields 100% success. Then take whatever is left over off the table and put someplace safe (CDs, short term bonds, interest checking,). Or, since you don't need the left over amount, invest it in equities and shoot for the moon!

 

[obgyn65]

Thank you, W2R. I just ordered this book.

The Only Guide to a Winning Investment Strategy You'll Ever Need: The Way Smart Money Preserves Wealth Today by Larry E. Swedroe

.

 

[obgyn65]

I guess we know when it is time but it is difficult to say goodbye to the additional money as there is no do-over. I know I am very close to making the jump though.

When do you say enough is enough, coz the extra $10k buys a great holiday $20k even better. $30 - first class all the way baby.

See what I mean

 

[obgyn65]

Pretty harsh comments. Would you say the same if they were your parents who only followed their adviser's recommendations?

What a stupid example. That couple was both stupid and greedy. I have no trace of sympathy for them. Swedroe is pitching in a different ballpark than mine.

 

[Sarah in SC]

Pretty harsh comments. Would you say the same if they were your parents who only followed their adviser's recommendations?

Yes. They aren't off the hook just by shifting the blame to some mythical "bad guy" advisor. It is their money, and ultimately, it is their responsibility to safeguard it.

 

[mathjak107]

while i think the couple was financially ignorant and paid the price of being ignorant. i do believe in the story though. .

while i was an aggressive investor my entire life today it is no longer my goal to get richer. now it is about not getting poorer.

there are two ways of approaching retirement spending.

one way is go with a high allocation of risk or should i say higher allocation to risk and then base your lifestyle around 3.5% to 4% of your nest egg plus whatever income you have additional comming in..

in that case that would allow us a greater lifestyle and higher spending then we do now.

or we can stay with our current lifestyle and back into the lowest risk we can take and achieve that income we need and not elevate our lifestyle or spending from where it is now..

we are more comfortable cutting the risk and keeping our withdrawals at 2% or so since we have other income coming in.

as you see we had a decision to make.. does the dog wag the tail or does the tail wag the dog?

do we want 165-170k a year and go 40-60% equities or do we want our current life style at 100-120k a year and maybe 20-30% equities.. right now we are only 3% equities but as bond funds shift so will we.

we are going with the 120k lifestyle and lower risk. we always have the option of going to higher allocations and higher income.

 

[MichaelB]

Thank you, W2R. I just ordered this book.

Hope you find time to read it and, if it raises any questions, to ask them here.

 

[clifp]

I think fundamentally my problems with this video is that like so many other discussion of financial products is Larry make the assumption that historical volatility equals risk.

He concludes that equities are risker because their price fluctuates more than most other asset class. However, he fails mention the real problem. Back in 1999 equities in general and high tech stocks in particular were highly over valued. Frankly you didn't need to be a rocket scientist to know this, it was widely reported. The couple never had a portfolio worth $13 million, sure that individual couple could have sold it for $13 million to some other people for that price. But only a small fraction of the people who owned tech stocks could have sold their portfolio and stuck the proceeds into say Muni bonds, as the events over the next year proved. Price is what you pay, value is what you get. Stocks in 1999, by any measure P/E Price to Book, Price to Sales, dividend yield, discounted cash flow, were not worth what people were paying.

Houses, especially when purchased with low or minimal leverage, were never considered risky because historically the volatility almost never exceeded 20% in a single year in a market, and nationally they never went down. The same thing is true for Mortgage Backed Security, historically low volatility means they are safe.
Obviously starting in 2007, these safe investments were no longer at all safe.

So it seems to me rule #1 for preserving principal is to follow Buffett's advice and don't lose money. A simple way is to not buy or hold too much of an over valued asset class. In some years this is equities, in other years in could be real estate, in other years it could be bond, gold etc.

Now there are lots ways of doing this. Certainly the simplest and most fool proof way, is having a diversified portfolio, with periodic rebalancing. I realize that have been wrong about long term treasury bonds for the better of 4 years, but that hasn't changed my opinion that they are overvalued so I don't own any.

 

[obgyn65]

Well there are some posters (like you, W2R, ziggy, FIREd, Braumeister, Rambler, Midpack,Alan, pb4uski, frayne, Nords, Sarah in SC, and a few others) with whom I would feel comfortable asking specific questions, sharing my income data, spreadsheets, working assumptions, the international taxation issues US/EU that I face etc.. This is a website I feel happy and privileged to be part of. However, I am a bit less comfortable sharing more real life, concrete data on this open forum. Especially after sharing some key data over the last few weeks and being told that my profile is quite an outlier...

Hope you find time to read it and, if it raises any questions, to ask them here.

 

[Richard4444]

Thank you, W2R. I just ordered this book.

+1

 

[sheehs1]

But I'm sure there are people who hit 25X their required annual withdrawals and decide to "take risk off the table" by going from a balanced portfolio with equities to 100% CDs and bonds. Doing that heaps a PILE of risk on the table.

That wasn't exactly the level I was talking about but your point is well taken. I suppose I recognize there are others out there that have WAY more than they will ever need, well above and beyond the 25X and don't need to take any risk at all. I'm not one of them. But they are out there.

Also doesn't mean they do not want what they have to keep up with inflation but it is not required with the level of assets they have.

I think the video was specifically addressing "those" people . Wish I WAS one of them.

 

[Midpack]

What a stupid example. That couple was both stupid and greedy. I have no trace of sympathy for them. Swedroe is pitching in a different ballpark than mine.

While I agree it was a terribly "far fetched" example, I've read and followed Larry Swedroe for many years, and he is a (deservedly) well respected financial author/source. A 70 year old couple with $13M investing 100% in risky equities is (I'll be kind) "not normal or typical."

I'm not sure why he chose such an outlier example to make the valid point he was going for in the video - the example distracted from, even obscured the message unfortunately.

FWIW...

 

[Stanley]

Yes. They aren't off the hook just by shifting the blame to some mythical "bad guy" advisor. It is their money, and ultimately, it is their responsibility to safeguard it.

This article makes a great case for buying some brains by putting the money into a few balanced funds like Wellesly and letting an impartial adviser invest and balance it automatically. When a person gets to old to do it themselves, this would be a great alternative.

I wonder if the adviser violated her fiduciary duty to put people into investments that make sense for their age, risk tolerance, etc.

 

[ERD50]

I'm not sure why he chose such an outlier example to make the valid point he was going for in the video - the example distracted from, even obscured the message unfortunately.

Agree completely.

And just to test that this isn't driven by any bias on my side (I'm a 75/25 AA type), let's turn this video around a bit. Imagine that couple had $13M in five junk bonds, and four of them defaulted, leaving them with the same ~80% drop in asset value.

I sure would not try to use that as an example of why someone needs more stocks in their AA. The message from me would be the same - they need appropriate investments, diversification, and a reasonable AA. Easy to do with a target fund, a couple index funds, etc. Silly video.

-ERD50

 

[NotMyFault]

His Chinese proverb makes a lot of sense to me. Once you have "won the game", as many forum participants here have, there is no need to take additional risks, as the consequences of being wrong later in life can be disastrous.

Maybe this depends on your definition of the game. Someone who is only investing in high risk high growth potential stocks is definitely playing a game with their future. I would suggest that people using broad market index funds and a reasonable asset allocation were never playing the game to begin with.

 

[REWahoo]

...being told that my profile is quite an outlier...

You don't think that's an accurate assessment of your often expressed plans to eschew all investments other than annuities, municipal bonds and CD's for a 40+ year retirement horizon? Please point to any other forum members who have plans to retire in their 40's with similar investment plans.

 

[W2R]

Well there are some posters (like you, W2R, ziggy, FIREd, Braumeister, Rambler, Midpack,Alan, pb4uski, frayne, Nords, Sarah in SC, and a few others) with whom I would feel comfortable asking specific questions, sharing my income data, spreadsheets, working assumptions, the international taxation issues US/EU that I face etc.. This is a website I feel happy and privileged to be part of. However, I am a bit less comfortable sharing more real life, concrete data on this open forum. Especially after sharing some key data over the last few weeks and being told that my profile is quite an outlier...

I can understand that! We would be glad to help, but you may not need any help. Either way, I think Swedroe is a sensible guy and his books are really good. I hope you enjoy reading it.

Richard4444, you too! Hope you like the book.

 

[ERD50]

Hope you find time to read it and, if it raises any questions, to ask them here.

... However, I am a bit less comfortable sharing more real life, concrete data on this open forum. Especially after sharing some key data over the last few weeks and being told that my profile is quite an outlier...

No need to get to specifics, I think most questions can be asked/answered in general, using % rather than actual figures.

But I am curious, what is it about having your profile characterized as an 'outlier' that makes you 'uncomfortable'? I seem to recall that comment (heck, it might have even been from me, but I don't think so), and I saw it only as an observation, not judgmental in any way.

And as an observation, I think it's true. Very few on this forum, let alone the general population, could consider retirement in their mid-40s, with a low WR and zero equities.

And as a judgement, ... well, I guess I just don't see it that way at all.

Here's another, more subjective observation - perhaps your sensitivity knob is 'set to eleven'? Google "this is spinal tap" and "eleven" if that doesn't ring a bell.

ooops, I see another poster said some of the same.. oh well, submit!

-ERD50