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Old 07-05-2012, 04:56 PM   #21
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Hi Huston55, I certainly don't want to imply that you have made a poor choice for yourself. Your RE is likely to be a very solid choice. Of course, this all depends on your acumen in making the local selection and in property management.

I'm only referring to what Bernstein might mean by his LMP. I'm thinking that such a thing should be able to pay guaranteed returns at set intervals. Personally I do not do this and have a set equity/FI allocation with a market timing component to the equity. Bernstein would probably not bless this either. If I could back up some years I'd have held my TIPS, but I did not. Going forward, IMO there is nothing out there at present to fund a Bernstein like LMP.
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Old 07-05-2012, 05:20 PM   #22
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Originally Posted by Huston55 View Post
My 5% return is net of all expenses, including professional management. For me, it's very much a retirement friendly (as in it takes virtually no time from me) investment. I wish I had 10 such properties.
That's great, and I don't blame you for wanting more of the same.
I'd like to find a group of local investors who want to band together, research and buy a small number of homes, and pay someone to manage them. Or invest in a small, lean company doing that. Spreading the risk over a few properties would minimize the all/nothing aspect of owning just one rental. And I do think well-chosen properties will eventually appreciate, adding to the investment return.
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Old 07-05-2012, 06:43 PM   #23
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That's great, and I don't blame you for wanting more of the same.
I'd like to find a group of local investors who want to band together, research and buy a small number of homes, and pay someone to manage them. Or invest in a small, lean company doing that. Spreading the risk over a few properties would minimize the all/nothing aspect of owning just one rental. And I do think well-chosen properties will eventually appreciate, adding to the investment return.
Sam-

Shame you don't live in TN; we could form our own real estate consortium.
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Old 07-06-2012, 12:52 AM   #24
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So I finished Bernstein's book. After at times slogging through his previous tomes there was a definite shock when I finished it in two short session. But like a rich appetizer at fancy restaurant, it was a tasty morsel that left me wanting more.

Wade review was quite thorough so I wouldn't review the book just add a few observations. I should add that forum regulars and bogleheads are almost certainly the target of this book and I think it should be added to the recommended list for the forum.

The early stage: His analysis about how beneficial for those in the early accumulation to have a early sequence of bad returns letting you buy stocks cheap was eye opening. A new investor that started out investing 5 to 10 years ago is actual very lucky even if his IRA has barely seemed to grow. Having a bear market when you have very little to lose is a very good thing cause it reduces the likelihood of having one when you have serious money to lose.

Also with today's extraordinary low interest rates a young person can easily use the suggested 2-1 leverage that is recommended (but very difficult to implement) by mortgaging his house or with rental properties.
Overall if you have a son or daughter in their early 20s with a good jobs and have managed to passed on the LBYM/saving values to them, they are in very good shape for being able to retire. Just encourage them to stick with stocks.

The end stage: The concept of having a safe income stream and riskier pool for luxuries is not new and I don't think Berstein adds much. However the guy deserves kudos for doing something which almost nobody else does (include sadly Wade Pfau) pointing out that these safe investment today are basically mythical. Yes by all means delay SS till 70 that is a nice start but hardly sufficient for many of us.

Annuities have 4 problems , insurance companies like to make a profit, you can't make withdrawals during an emergency, you give up ownership of the money, the insurance company can go broke.

I have written often of my concern of a financial crisis impacting the insurance insurance as whole. Berstein shares my concern. "An insurance company, of course is most likely to go under during a systemic crisis that results in multiple failures. In that case the state guarantees will not offer so much as speed bump on the way to default." I must have tried to expressed this same sentiment a dozen time in the last 1/2 dozen years and spent many an hour composing paragraphs of prose. From now on I shall simply steal Bernstein's pithy phrase.

TIPs ladders offer promise but not much with current <1% rates. The lightbulb that went for both my own situation and explaining to new folks on the board. Was this observation "safe investments keep up with inflation, if you are lucky". This means that if you take your current assets divide by reasonable optimistic life expectancy (~90 for most of us) if you got that amount than you can afford to take no risk. If not, you need to work longer, spend less or take more risk.

I also found his discussion of dividends helpful. For purpose of a safe income stream, you can treat 1/2 of the dividends as safe. (There is data to back this up). You can spend all of your dividends but be prepared to cut spending if your dividends decrease.

Middle Stage. This is the area I wish the book went into to more depth and detail. The key take away for me is when you hit your magic number you need to be prepared to make dramatic changes to your portfolio. When you won the game stop playing. The other thing I realized is that I actually hit this point back in 2000, when I had more (real ) money and TIPs were paying 3.5+%. I give myself 1/2 a pat on the back for making reasonably aggressive moves. I just wish I had done more.
I am unfortunately not there today, meaning I can't simple stick my money in TIPs, CDs and live comfortably for the rest of my life. This means I am not actually in the end stage but still stuck in the middle stage of investing. I am pretty sure this applies to most everybody under 60 without a large government COLA. So we have to continue to take risk, work, or make investment in things like real estate that look suspiciously like work.
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