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Old 01-22-2015, 11:18 AM   #21
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"It's not the school I hate ... it's the principal of the thing!"
The principal of principal principle is an established principal in finance.


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According to the Jefferson Library Spell a word only one way (Quotation) « Thomas Jefferson’s Monticello



As Abraham Lincoln famously said "At least half of the quotes on the internet are totally made up."
I had never heard the Jefferson quote before. I work with a lot of non-native language English speakers. I tell them you can't consider yourself truly fluent in the English language unless you can spell most words at least two different ways. They also have to watch out for words that sound the same or are spelled the same that mean totally different things.
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Old 01-24-2015, 10:04 AM   #22
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As I said, this is more of a thought experiment than an actual plan of mine, but to answer some more of the comments…
The 2nd rental house covers all of it’s bills and leaves a couple hundred left over every month.I also have a separate line item in my expenses for additional maintenance and vacancies of both of my rental properties, so these expenses should be adequately covered.Very good point though.
Yes, scrabbler, I was looking at this as phase 1 and phase 2, with contingencies.If the HY fund with income from rental #1 could get me to the 60 YO mark, the rest looks pretty easy.As you say ‘unfettered’ access to retirement accounts open up, plus at that time, my 2nd rental would be fully paid off and the option to sell or take income from it presents itself.In a couple more years SS is available if needed, and in a few more years, medicade comes on line. Along the way I have some options to sell some property or downsize my current home to generate some more $$ if that ride from 45-60 isn’t very smooth.
My current plan is to build up my diversified portfolio and count everything as a whole.Then, take 2.5-3% draw based on the whole value. I “believe” that the HY bond fund plan would work, but I also agree with most of the coments here that the risks are substantial and currently my “buckets” aren’t overflowing.
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Old 01-25-2015, 01:51 AM   #23
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Conceptually I like many elements of your plan.

When I was planning my retirement, my simple plan was to take most of my taxable portfolio and stick in California muni which were pay 5% at the time. My IRA would be invested mostly stocks and would be inflation hedge, and then social security would be available if everything went to hell, and on strippers, and fancy vacations if nothing went to hell.

But I never executed on the plan because as I learned more the diversification risk scared me. As it turns out there was a ton, I didn't know about muni which I found out the hard way.

The problem with your plan is the 800K in junk bonds. Brewer, is somebody who really knows his stuff about fixed incomes, and he was jumping all over them in 2009 and a year ago or so said to avoid them at all cost.

The collapse of oil price is could very easily be bad news for junk bonds, many are issued by 3rd tier oil companies and oil drillers. It would not take too long of $<50 oil for a lot of this guys to go under, and then the next run of junk bonds will be banks who made a loans to the same oil companies.
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Old 01-25-2015, 06:59 AM   #24
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The problem with your plan is the 800K in junk bonds. Brewer, is somebody who really knows his stuff about fixed incomes, and he was jumping all over them in 2009 and a year ago or so said to avoid them at all cost.

The collapse of oil price is could very easily be bad news for junk bonds, many are issued by 3rd tier oil companies and oil drillers. It would not take too long of $<50 oil for a lot of this guys to go under, and then the next run of junk bonds will be banks who made a loans to the same oil companies.
I own no junk bonds so take my comments with that in mind. I consider it an asset class that requires constant oversight. You just don't throw X% of your portfolio in to them and rebalance as needed annually.

Junk bonds are typically great when the underlying credit worthiness of these companies are improving. When falling, not so much. The other key is out of Investors Manifesto where Bernstein discussed failure rate. If the interest on normal corporate bonds are x% and the failure rate of junk bonds is y%, junk bonds make financial sense if junk bonds yield greater than (x+y)%. His comments were in regard to the 2008 meltdown where junk bond yields went very high. At a certain point, they made sense and that depended on an outrageous spread even in periods of increasing defaults.

I agree with your comment on 3rd tier oil companies being in trouble. I'm seeing the contraction first hand. Unemployment in the whole O&G and E&C world is getting hit big time. In a couple of months the principal GDP engine for the US is going to go the other way big time. The "recovery" in the last 5 years was primarily driven by this segment. I would not be surprised to see the US contract and possibly enter another recession.

People that got into the Houston rental house market in the last few years may get to relive in 1980s. What I saw then has been the basis for my continuing skepticism of individuals placing too many of their financial eggs in this basket. It went from "can't miss" to "can't survive" very quickly. I got to watch a few personal bankruptcies over it. Right now people seem to be saying that this will be a "mild" contraction but that's what was said back in 1984.
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Old 01-25-2015, 08:02 AM   #25
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I own rentals as well and are big portion of my portfolio. Real estate and rents, however, don't necessarily track inflation from a micro perspective. Your locations could see great changes over time that could be a huge windfall or wreck your plans.

A real world example:

40 year time period:
Rental purchased in affluent suburb of major city. Rents increased with inflation for 15 years followed by 20 years of no nominal growth and only recently saw a huge increase as the suburb went from affluent to stable, to failing, back to hipster chic.
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Old 01-25-2015, 10:13 AM   #26
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But I never executed on the plan because as I learned more the diversification risk scared me. As it turns out there was a ton, I didn't know about muni which I found out the hard way.
This is where I am at with the HY fund as well. The diversification risk scares me and I am certainly not an expert on HY. With enough 'backups' my thinking is it would be successful, but since I don't "have" to do this, I will not. I also certainly agree with the risks to HY in the current environment.

The point about rentals and rent not always increasing is certainly also true, as rentals only reflect the local environment, which is one reason they are risky.

I appreciate everyone's comments here. I'm going to stick with my current plan and portfolio and will work to get to the point where a 2.5%, or at the very least, a 3% draw will cover my expenses.
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Old 01-25-2015, 03:46 PM   #27
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"It's not the school I hate ... it's the principal of the thing!"
Hey Hey Hey. Be careful- there are principals lurking about this message board........meaning me!!

LOL
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