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Old 07-29-2013, 04:38 PM   #61
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And there is never a recovery from inflation. Prices go up and they stay up. There has never been a significant, lasting recovery from inflation.
As point out to get a recovery for inflation you need a great depression, which did lead to deflation, but the medicine was worse than the disease. With about 8 and 10% deflation in 1931/1932 (partly due to money in banks just vanishing). Inflation was conquered, but at what price.
Plus long term recall that since most people have negative cash balances over most of their life, if you include the mortgage, but not the value of the property, inflation is a positive benefit to them, in that their mortgage takes less time to pay. The masses have always wanted inflation. Soft money which is part of inflation lead to Shay's rebellion in 1784, and of course Bryan in 1896 was all for it.
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Old 07-29-2013, 04:45 PM   #62
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By 1980 the CD rates hit 13% or so, and mortgages hit 18-20%. But its not clear even then that between inflation and the taxes due on interest you could have kept up with inflation in cash at the time.
True, keeping up with inflation was hard during those years. Yet I still remember those 10% 10 year CD's I bought back then, and the 15 year 8.75% bond I bought. Ahhhh.... How sweet it was!
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Old 07-29-2013, 05:05 PM   #63
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True, keeping up with inflation was hard during those years. Yet I still remember those 10% 10 year CD's I bought back then, and the 15 year 8.75% bond I bought. Ahhhh.... How sweet it was!
Those high interest rates I remember very well, but not really the inflation end of it as I was in college then, and I didn't spend much money to notice inflation. But I did max borrow the limit on student loan money and rolled them the first 3 years of college into CDs of 12-15%. The interest alone was so much, it paid for my last year of college for free. In fact the CD rates continued to be higher than the student loan rates were, so I never did cash the CDs, and just paid the loans off out of pocket. That original loan money is still in CDs, but the percentage of return is now missing that key second digit!
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Old 07-29-2013, 06:17 PM   #64
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In 1980, we bought our 1st home with a 14% mortgage. At the start of my career, my salary was rising quicker than inflation, so I did not feel any pain. And as newlyweds starting a new life together, we were oblivious to misery if any around us.

My regret was that while I was booksmart, I was financially illiterate. Other than being frugal and saving money in a credit union account (paying 15-16% at times), I did not follow the stock market, nor lock in any of the high rate in longer term financial instruments. I did refinance that house when the interest rate went down. Twice in fact, before selling it 8 years later.

It is funny how, years later, when talking to some smart younger engineers, I observed how their awareness of financial matters was so lacking. I guess people who are good at their career often tune out everything else at their peril. I kept urging them to educate themselves about money, but did not know if that was any good.

One thing I observe is that engineers tend to be frugal and conservative. I have not seen a flamboyant playboy engineer. That's what saves their skin despite their ignorance, yours truly included. My son, another engineer, exhibits the same frugal trait.
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Old 07-29-2013, 07:05 PM   #65
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For a greedy guy like myself who wants to have his cake and eat it too, I am curious to see what chance a guy can live off his portfolio and yet does not draw it down.
Have you looked at Otar's book. His approach to minimize RDCA is to have 2 years in cash, 3 years in ST bonds, the rest in IT bonds and stocks. He also explains how to replenish depending on what the market is doing.
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Old 07-29-2013, 07:12 PM   #66
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I have downloaded Otar's book (does he have more than one?), and read it a while back.

I will go through the book again, but do not see how one can swim against the tide in the bad years, such as the stagflation of the 1960-1980 decades. When there's no real growth, the best one can do is to get even with inflation, be it stocks, bonds, or CDs, and only if your WR is 0.

Your WR of 3.5% or 4% will draw it down, and seeing one's status of a millionaire getting demoted down to thousandaire would hurt. But again, I am greedy, and if finding myself in that situation, should be grateful that I am still not living under a bridge.
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Old 07-29-2013, 08:14 PM   #67
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I have downloaded Otar's book (does he have more than one?), and read it a while back.

I will go through the book again, but do not see how one can swim against the tide in the bad years, such as the stagflation of the 1960-1980 decades. When there's no real growth, the best one can do is to get even with inflation, be it stocks, bonds, or CDs, and only if your WR is 0.

Your WR of 3.5% or 4% will draw it down, and seeing one's status of a millionaire getting demoted down to thousandaire would hurt. But again, I am greedy, and if finding myself in that situation, should be grateful that I am still not living under a bridge.
You're right you can't swim against the tide for a decade or two. I was referring to your comments about 1973 vs. 1974 vs. 1975 and avoiding withdrawing from stocks during a big drop in the market.
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Old 07-29-2013, 08:53 PM   #68
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I don't know, do you want to be in your 80s or even mid 70s and still see millions in your portfolio and perhaps no longer have the energy to do anything interesting with the money?

Wouldn't it be more troubling to have a lot of money left when you pass on? Unless you really want to spoil your children and grandchildren that is.
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Old 07-29-2013, 09:10 PM   #69
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I don't know, do you want to be in your 80s or even mid 70s and still see millions in your portfolio and perhaps no longer have the energy to do anything interesting with the money?
I am not sure what I will do with the extra money. As I often said here, I do not care for bigger homes, fancy fast cars, or a class A RV. However, having saved this much money, it hurts me to see that bottom line in Quicken going down. That's particularly true if it may shrink to 1/4 or less of what it is now, according to the worst case run in retirement simulation. Yes, I am scroogy, and do not want to lose the millionaire status.

Well, I may change my mind when I get older. Or if I get sicker, then I would not give a crap. Perhaps seeing my stash growing proves to me that I manage my money properly, that I read the world economy correctly, the same way sports fans pat themselves on the back for winning a bet.

Anyway, right now, I am ogling a fancy class B RV called the E-Trek that costs $140K. I cannot see myself getting something like that, even though I may have the money for it. If the market cooperates, I can convince myself more readily. I need to get $5, so that I will be willing to spend $1.
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Old 07-29-2013, 09:18 PM   #70
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And the best case simulation often shows the nest egg growing to well over $10 million by the time you're well into your 80s.

That has to be a cruel cosmic joke. Well, the heirs would be able to enjoy a lifestyle that the benefactor never could enjoy ...
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Old 07-29-2013, 09:27 PM   #71
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By tweaking my spending and the portfolio composition, I have seen the number as high as $30MM+ after 30 years. And that is inflation adjusted, so in nominal value it would be even higher. Wow!

But that ecstasy proved to be short-lived when I considered that I would not be able to constrain my expenses like that. Most importantly, the time period when Jack's bean stalk grew to the sky was gone, and it will not be repeated. Just one time in the US history. I do not see any development that parallels the Peace Dividend period of 1980-2000. Of course, I will be glad to be proven wrong.

So, I turned pessimistic (when was I ever optimistic?), and looked for downfall. Hence, the reason for this thread...
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