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Re: Do you recalculate SWR each year?
Old 06-22-2004, 01:08 AM   #21
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Re: Do you recalculate SWR each year?

Of course, the TIPS yield is stable and guaranteed, while the fund yield is neither.

So, it comes down to how much of a gambler you are. As a retiree, do you want a bird in the hand or two in the bush?

Or better yet, how about something like a bird in the bush and 1/2 a bird in the hand? (This metaphor is getting messy.)
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 01:08 AM   #22
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Re: Do you recalculate SWR each year?

Dont get me started again with the hands and the bush thing.

I'm way too tired to have any sort of restraint at all.

Now if the "historic" folks have any chops at all, they'll like this plan though. How can 80 years of history be wrong?

Most of your balanced funds are pretty new, so figuring out how well they'd have done isnt awfully easy.
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 04:29 AM   #23
 
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Re: Do you recalculate SWR each year?

"80 years of history " can be wrong, sinply because
it is history. Study it. Understand it. Don't count on it
repeating.

JOhn Galt
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 05:33 AM   #24
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Re: Do you recalculate SWR each year?

Sorry Cut_Throat

Women and dogs - I was diverted.

The U.S. Government and TIP's math - about as safe as it gets in todays world. To loosely use some of JWR's examples: At TIP's north of 2.2% - you can take an inflation adjusted 4% at spans of over thirty years(depending on the math) by eating principle down to zero - guananteed by the math and the U.S. Govenment inflation adjustment. You've got thirty years to wait for your chance to switch some to stocks and try to get 5-6% or higher. Or you can split - some TIP's and go for some 'div.' stocks now (heh, heh - Ben Graham's 25%).

Pretty tough bogey - and a good benchmark. So I happily throw the math in the trash can - why?

For me and me only: Life not math intrudes-

Core expenses(recurring, easy to spread sheet). Cover - uncola defined pension plus dividend stocks - provide a 'hope'(NOT math, slight historical correlation over a long period) a less than full but some inflation fighting effect.

Lagniappe - the fun expenses of ER - variable extras. Cover - SS (cola heh, heh ?like TIP's) and his and hers balanced index with a 15% REIT INDEX kicker. My trusty no. 2 pencil says minor 50% drop in U.S. stocks is minor given our set - up. Now a 60-80% Japanese type drop might be chewy.

2-4% variable take out and a cold blooded willingness to uncouple from inflation by taking 'nominal' dividends.

If you do the math ala JWR and keep it handy as a bogey/benchmark - Then you can measure - 'The thrill of victory or the agony of defeat' as you putter through ER.
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 07:24 AM   #25
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Re: Do you recalculate SWR each year?

"For me and me only: Life not math intrudes"

You "get it," unclemick.

The purpose of the tool is to add something, not to take anything away.

Retiring early is not a math exercise, it is a life-enhancement exercise. When you see math getting in the way of your achievement of important life goals, you ditch the math. When you see math helping you get to where you want to be, you squeeze in a little time for the math. Not because you like math. Because you like the stuff that math can sometimes do for you.

I hate math. I did the math on this stuff because I wanted to get to the place where the math could take me.

The new SWR tool provides you with information bits. You decide what to do with them. The math is not your boss. The math is your servant.

How can it possibly be a bad thing to know what the math says about what withdrawal rate is safe?
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 09:28 AM   #26
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Re: Do you recalculate SWR each year?

Quote:
I have to admit I originally thought it was pretty rude to only recently provide the 'valuable tool' you and junior have been using for 2 years (or is it 8 yrs?). *That is until I realized the stellar year 2003 was for stocks and stock recoveries. *NOW, I fully recognize your greatest contribution to the early retirees' community was keeping this tool to yourselves. *
Excellent observation!

The longer retirees can refrain from employing this 'valuable tool', the more likely they'll enjoy portfolio growth beyond inflation.

The folks who ignored ***** in 2003 were very happy with the results. <LOL>

intercst
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 10:36 AM   #27
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Re: Do you recalculate SWR each year?

Quote:

The folks who ignored ***** in 2003 were very happy with the results. <LOL>

intercst
OK, I ignored ***** in 2003. My portfolio (mostly S&P index funds) returned 30.59%. What did he suggest I do?

malakito

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Re: Do you recalculate SWR each year?
Old 06-22-2004, 11:26 AM   #28
 
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Re: Do you recalculate SWR each year?

Quote:

OK, I ignored ***** in 2003. *My portfolio (mostly S&P index funds) returned 30.59%. *What did he suggest I do?

malakito

:P

Stay in TIPS and CD's paying about 2-3%
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 11:35 AM   #29
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Re: Do you recalculate SWR each year?

Quote:
I have to admit I originally thought it was pretty rude to only recently provide the 'valuable tool' you and junior have been using for 2 years (or is it 8 yrs?). That is until I realized the stellar year 2003 was for stocks and stock recoveries. NOW, I fully recognize your greatest contribution to the early retirees' community was keeping this tool to yourselves.
This is called post hoc reasoning. It usually isn't considered very useful. What kind of a sample is one year?

Any sports bettor who survives for several years understands that bad bets can win. Just not a long string of bad bets.

As far as whether ***** and JWR were helpful, I appreciate what they offered on its merits, not on its short term performance. Neither they nor any other responsible bear using similar methods has suggested that high valuations necessarily precede poor short term results. They do say that high valuations are incompatible with high long term buy and hold returns. Like UncleMick says, this alone is very useful.

No one has to use these ideas. In fact, if I were ***** or JWR, by now I would be hoping that the hostile posters don't pay any attention to it. I would also be hoping that they would still be around this forum after the next big bear, because I would expect the posts to be very interesting.

Mikey

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Re: Do you recalculate SWR each year?
Old 06-22-2004, 01:58 PM   #30
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Re: Do you recalculate SWR each year?

Quote:
If disagreeing, makes one a hostile poster, I guess there are alot of hostile posters.
Usually I don't care abouot lack of recs a la TMF, but sometimes I wish I could, like now. How 'bout some smilies?

8) :

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Re: Do you recalculate SWR each year?
Old 06-22-2004, 02:26 PM   #31
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Re: Do you recalculate SWR each year?

Quote:
SOO, if bogus, bogus jr. and all the little bogus zealots<snip>... *If disagreeing, makes one a hostile poster, I guess there are alot of hostile posters. * : 8)
Caro amigo mio, it was not your disagreement that made you a hostile poster on this topic. It was your sarcasm.

M
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 02:45 PM   #32
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Re: Do you recalculate SWR each year?

"Geez Louise" (Dory), "high caliber ordinance" (Nords). Whoopee! I'm using a recyled dryer sheet to dry my tears of laughter.

Remember the benchmark/bogey? - 17 pages on the Yahoo Finance Quiz.

Heh, heh, heh, heh

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Re: Do you recalculate SWR each year?
Old 06-22-2004, 03:08 PM   #33
 
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Re: Do you recalculate SWR each year?

Like Rush Limbaugh, I am just a big loveable fuzz ball.
I do not think sarcasm automatically makes you hostile.
In fact, sarcasm, hyperbole and invective can make
writing and speech more interesting. Satire also.
What you may ask does this have to do with SWR??
Not a thing

John Galt
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 03:45 PM   #34
 
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Re: Do you recalculate SWR each year?

Quote:
No one has to use these ideas. In fact, if I were ***** or JWR, by now I would be hoping that the hostile posters don't pay any attention to it. I would also be hoping that they would still be around this forum after the next big bear, because I would expect the posts to be very interesting.

Mikey

Mikey,

One thing is for sure regarding the Market Direction. Anybody that says they know should be avoided. That is the reason we diversify and stay the course.

And yes, if it drops there will be folks claiming they were right and if it skyrockets there will be those that 'predicted' that also. But sitting on the sidelines waiting for the corrrection, so that you can invest is a gamble that I'm not willing to take. It must be gut wrenching to be 0% in stocks and waiting for the 'inevitable' correction while the market sits there and lets earnings catch up with valuations.

If the bear comes and you're are 60% stocks and 40% bonds - well then prepare to take a 25% hit - But if the bear does not come and the market inches up slower than earnings and you are waiting - I recall the saying "more money has been lost waiting for the correction rather than the correction itself!"

mikey - this is plain old 'Market timing' in another new wrapper.
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 07:31 PM   #35
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Re: Do you recalculate SWR each year?

Quote:
mikey - this is plain old 'Market timing' in another new wrapper.
Hi Cut-Throat,

You are 100% correct; this is a form of market timing. IMO, "market timing' is such a broad and values driven term that it can be good to get under the hood and differentiate among the various forms.

Valuation based timing, using PE10, or Tobin's Q, attempts to define what long term returns are "baked in the cake", so to speak. A basic fact of finance is that the more you pay for a collection of assets with a given earnings power, the smaller your returns will be. The companies reflected in the S&P are one such collection of earning assets, and their average real return going forward will be pretty much as it is now, with some slow growth thrown in. So the buy and hold investor knows that over time, he has to get a return roughly equal to the reciprocal of the PE, plus a little growth.

The fact that the 90's produced higher portfolio gains doesn't change this. Almost all the extra gain was PE expansion. One could bet on continued PE expansion, but that seems to me to be a very poor bet. So realistically, the best case will be as above, the reciprocal of the PE. But if one is slowly liquidating a portfolio, as many retired persons are, it could be much worse. We know how fast long term earnings can increase. There is over one hundred years of US data that establish the boundaries of this growth factor. We also know that PEs have always fluctuated, in a roughly mean-reverting way. What if PEs return to more normal levels? What if they get low?

As a personal aside, I bought General Foods in 1980 or thereabouts at a yield of 8%. No way am I predicting reruns of this, but I also would not say that levels very much lower than what most people are thinking about would be impossible to achieve.

An irony in this situation is that in order to achieve acceptable returns from today's valuation levels, one will have to become a market timer! He will have to sell on an even greater run-up, perhaps back to PE levels seen just before the millennium.

Well, my sincerest best wishes to any and all who are trying this. I will toast their success, and learn from it. Incidentally, my personal situation is not 0% stocks. I have >$200,000 in oil and gas alone. Much of this I've owned almost 20 years. I have $150,000 in one stock that I bought 4 years ago at an average yield of 10%. My cost was about $70,000. Some of these things I would sell if they were not so appreciated, some I wouldn't. I have $100,000 (marked to market) in Japanese stocks. I just sold $45,000 worth of a German pharmaceutical maker. I have a few more positions that I think (and hope!) will display no more than .5 correlations to the S&P. I own small positions in some gold stocks. I am not convinced on this, but I think that although I could lose my whole investment, I will very likely make a whole lot more. Also, I own some LEAP puts on the QQQ. So far, this has been a slow drain on my returns. I buy down the line, and way out of the money. I'm not worried about 20% market drops. But in a strong down market, I'll make money. It happened only a few short years ago. At current levels, I am agnostic on TIPs. My wife uses them because she is very risk intolerant. I had some with real yield of 3 3/8, but sold them. Unwisely, I now believe. I have some I-bonds, @3% real. Unfortunately, I have only a small amount. My largest class is cash.

Some posters may be promoting timing. I am not. I don't promote anything unless I am paid to do so. I don't plan to write a book, don't plan to be a financial planner, and have no feelings of responsibility to the community, other than the responsibly to try to think clearly, and then express that accurately. (To the extent that I express anything at all on important topics.) Little stars and "Recs" don't run my motor. I am more of a cash kind of guy. I do enjoy debate, and although I will often be wrong, my intellectual position will always be accurately reflected in my writing. And, if I mention my investment position, that will also be accurate. I appreciate that many people on this board are also very forthcoming about how they approach portfolio management.

Mikey
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Re: Do you recalculate SWR each year?
Old 06-22-2004, 11:25 PM   #36
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Re: Do you recalculate SWR each year?

Thanks, Mikey, for a refreshingly hyperbole-free, jihad-free, bernstein-bible-thumping-free, super-sized-font-free post.

I almost agree with you, but I think it's a mistake to look at P/E values in a vacuum. For example, if you believe stock returns are basically a function of earnings growth + a risk premium over the risk-free rate, then you should at least consider the current interest rate environment and whether factors could justify a lower risk premium.

Having said that, I think stocks are headed downhill for a variety of reasons, but I wouldn't put outrageous valuations at the top of my list.
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Re: Do you recalculate SWR each year?
Old 06-26-2004, 09:18 AM   #37
 
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Re: Do you recalculate SWR each year?

Sorry, it didn't even occur to me that my question would be controverial, at least beyond mild differences of opinion. Anyway, I appreciate all the responses and the great information in them.

I tend to lean toward the idea of maintaining a minimalisic SWR lifestyle and then splurging with some of the excess gains in the good years. I also like the idea of a laddered buffer varying between maybe 36 and 60 months of SWR . I guess the trick there is deciding when to replenish, and how much...

There is one thing that concerns me about the SWR calculation. As years go by, results from 2000, 2001 and 2002 will increasingly come into play as "early" years in some branches. Has anyone attempted to quantify how this might affect all-stock SWR's? It seems to me that those years might be a pretty strong argument for the 50-50 mix?

Thanks again...

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Are we back on topic?  What's up with that?!?
Old 06-26-2004, 10:15 AM   #38
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Are we back on topic?  What's up with that?!?

cc,

You touched a personalities nerve that has little/nothing to do with SWR.

As for the 50/50 question, take a look at John Greaney's updated study on "real" retiree portfolios. (http://www.retireearlyhomepage.com/reallife04.html) Your laddered buffer would have supported you through that breathtaking volatility with slightly better returns (especially if you trusted Warren Buffett!). Our retirement portfolio was down over 40% at one point in 2002 but when you don't have to withdraw anything, it doesn't matter. We did ditch Fidelity Equity-Income for Berkshire Hathaway and our kid's college fund is pretty much on autopilot after that decision. (We still haven't touched the retirement portfolio but we'll tap it to replenish the cash later this year.)

I also suspect that 50/50 would have helped you sleep better at night, so your optimal solution probably lies somewhere in between. If your pension covers most of your expenses then IMO you can afford to be more aggressive with your retirement portfolio. But be an informed reader before you make a decision!
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