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Old 03-02-2013, 09:16 AM   #21
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If this ever got out to the masses, then nobody would bother saving anything at all.
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Old 03-02-2013, 01:00 PM   #22
Recycles dryer sheets
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If this ever got out to the masses, then nobody would bother saving anything at all.
Even if someone does publish some of Wade's work -- I think the masses are a little smarter.

Compounding absolutely does make a difference -- except to someone who thinks immediate annuities are the way to improve your compounded growth!
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Old 03-02-2013, 01:17 PM   #23
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My latest way to forecast is in a matrix. I take my existing assets and I FV them to ages 65, 60, 55, 50 using real rates from 1 to 8 percent. I then show safe withdrawal rates of 3 to 6 percent (with 6% meaning annuitize everything). I then manually color code all the ones that generate my projected expenses. For ages 60 and 65 I do a with and without assuming my projected age 62 social security with about a 25% haircut baked in.

I repeat the process using my projected retirement funds from my "5 year" plan. By having an income focus I am not particularly focused on "the number", even though applying withdrawal rates to the number is just math. I find it helpful to see that even with pitiful real returns age 60 is in the bag already (I am 40) and I am really not saving for retirement anymore. I am now saving for early retirement.

I also run firecalc and other calculators, but I have an affinity for my own spreadsheets.

WOW!
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Old 03-02-2013, 01:18 PM   #24
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Originally Posted by FinancialDave

Even if someone does publish some of Wade's work -- I think the masses are a little smarter than this dude.

Compounding absolutely does make a difference -- except to someone who thinks immediate annuities are the way to improve your compounded growth!
I sure hope your correct about compounding, as I want a piece of it the next 25 years. As far as the masses being smarter...I dunno... In a December survey by Edward Jones (according to Kiplinger's) nearly half of all Americans thought the S&P 500 was down or flat for the entire 2012 year. Kiplinger's stated the yearly gain at 16%, which I assume includes dividends.
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Old 03-02-2013, 01:54 PM   #25
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Wade Pfau's blog is one of the most thought provoking financial blogs that I am privileged to read. "The relentless rules of simple arithmetic" Bogle.
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Old 03-02-2013, 02:18 PM   #26
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Wade Pfau's blog is one of the most thought provoking financial blogs that I am privileged to read. "The relentless rules of simple arithmetic" Bogle.
Can't argue with Bogle. and I respect his opinion greatly, so much so I paid for him to send me a personally autographed copy of his new book "The Clash of the Cultures."

And yes Wade's blog has caused me to make some thought provoking comments on his blog as well - so John Bogle is absolutely correct. But, what I did not hear Bogle say is that he has changed any of his investing strategy because of it and though I haven't read all of Wade's material, I don't see any of it that is going to change mine either.
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Old 03-02-2013, 02:58 PM   #27
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I sure hope your correct about compounding, as I want a piece of it the next 25 years. As far as the masses being smarter...I dunno... In a December survey by Edward Jones (according to Kiplinger's) nearly half of all Americans thought the S&P 500 was down or flat for the entire 2012 year. Kiplinger's stated the yearly gain at 16%, which I assume includes dividends.
Yes, most of those statistics are quite sad, but the one that is a little encouraging is that more and more people are participating in their 401k's -- maybe because that is their best option with the demise of the pension plan.

The fact that they don't know what the average gain for the market index was nor how that compares to their returns, or even how to calculate their returns, is a problem that I try to correct on a daily basis, on a number of websites.

Suggesting that the average person figure this all out on an inflation adjusted basis is really just putting the cart before the horse. And not understanding that inflation adjustments for one family could be close to zero while another may be 3% or better shows a lack of understanding of the subject matter.

The reason why seems very clear, at least to me. An investor needs to focus on the things he can control, much like in life, and not worry about those that cannot be controlled. Also in investing, because of the extreme volatility of it, you need to understand if you are at least keeping up with the market (by most measures something like the SP500 index.)

Now I don't want to make this a lesson on indexing (that is for another time) but the one major impact an investor will have is on his or her total return. If returns equal that of the market index itself, there is a lot of data that says the investor will do better than 80% of the rest of the investing world -- so would not that be the one major item to focus on in the area of investing. Not to be "crying" about how inflation is affecting my wealth. If you make your goal of staying up with the market, you have done what you can - the inflation adjusted return percentage has really NOTHING to do with your "goal" as an investor. To put that differently, if inflation is averaging 5% and the market is averaging 3% (you are losing 2%) is that going to change your investing strategy if you are getting the market average of 3%. It should not! You have to work on something you can control - such as a better job, or just paring down your living expenses so you can save more. HOWEVER, and here is the kicker, just because some report tells you that inflation is rising at a rate of 5% this is not a reason for you to panic -- you need to understand via your budget if your expenses have risen while your income has stood still. It may very well be that your expenses have gone up by 5% and your income has gone up by 5% as well.

Don't get my wrong, I am not saying inflation is not important, it is certainly important when you are trying to predict how much money you might need 20 years in the future. I am just saying in the area of investment returns it is a waste of a lot of good "pencil lead."

fd
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Old 03-03-2013, 08:41 AM   #28
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IIRC, past US stock returns are 12% average, 10% annualized, 7% after inflation, 6% after expenses, 5% after taxes.

Expenses and taxes varied with each investor, but it gives a general idea of the past.

8% is just a number pulled out of the air and stuck in a calculator as far as I know.
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Old 03-03-2013, 01:44 PM   #29
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I simply ignore these types of articles since even if they are true what is the alternative?

Not about to buy an SPIA at this point, so trying to read and understand what is being said, for me, is a waste of time.
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