Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-05-2010, 04:13 PM   #21
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,676
Are you really going to invest almost a million $s on the basis of feedback from an online board? You just threw one plan out and have come up with another with, as far as I can see, not much thought behind it.

Please read the books already mentioned. Let's see some real analysis on your part. Get a spreadsheet, get some historic data (there's a guy on the bolgeheads board that provides a spreadsheet - I think his user name is simba) and see how your strategy would have worked in different interest rate environments in the past.

I think this and other boards are a great resource for clarification of points, confirmation or for pointers to learn.

It is your hard earned money!
__________________

__________________
walkinwood is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-05-2010, 04:19 PM   #22
Thinks s/he gets paid by the post
 
Join Date: Feb 2008
Location: Indialantic FL
Posts: 1,196
If ever there was someone who needed professional financial planning advice it is floating doc.
__________________

__________________
JimnJana
"The four most dangerous words in investing are 'This time it's different.'" - Sir John Templeton
jimnjana is offline   Reply With Quote
Old 02-05-2010, 04:25 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
I like that someone has shown up with a different idea and run it through the gauntlet. There is a fair amount of "group think" that takes place on boards like this (myself included) and it is good to consider, or in some cases reconsider, alternatives to the conventional wisdom.
__________________
Gone4Good is offline   Reply With Quote
Old 02-05-2010, 04:42 PM   #24
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by . . . Yrs to Go View Post
I like that someone has shown up with a different idea and run it through the gauntlet. There is a fair amount of "group think" that takes place on boards like this (myself included) and it is good to consider, or in some cases reconsider, alternatives to the conventional wisdom.

I agree with this even though I poke fun at what appears to be a question that a little research would go a long way to answering.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 02-05-2010, 04:59 PM   #25
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,676
Quote:
Originally Posted by . . . Yrs to Go View Post
I like that someone has shown up with a different idea and run it through the gauntlet. There is a fair amount of "group think" that takes place on boards like this (myself included) and it is good to consider, or in some cases reconsider, alternatives to the conventional wisdom.
Fair enough!

I got the data from Simba's spreadsheet at
Bogleheads :: View topic - Spreadsheet for backtesting (includes TrevH's data)

There is no data on Long Term Investment Grade bonds, but there is data for High Yield bonds from 1985 to 2009. Nominal return for a 100% high yield bond portfolio is 7.51% nominal and 4.46% real with ALL dividends reinvested and NO taxes. SD is ~10.5%.

We've all learned by now, that average returns mean little if you're in the withdrawal phase, so this doesn't give us much useful information.

But it made me feel like I was doing something useful
I don't have the patience to create a spreadsheet with actual data to see how it would have fared with regular withdrawals, but maybe the OP will do that.
__________________
walkinwood is online now   Reply With Quote
Old 02-05-2010, 10:25 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,356
I think this is important. I can't imagine wanting to own zero stocks in a retirement portfolio.

The strong companies of the US (and the World) are big, powerful, and almost always making a ton of money. They are often able to get the laws of the land re-written to allow them to continue making money even when they screw up.

A good number of them are generally coming up with new ideas, and producing the products they sell more efficiently.

Why this strong desire to bet against all of the businesses in the world?

I can't imagine retiring without owning at least a few of the following companies (an index fund will own most of these)

Coke
Exxon-Mobil
Walmart
Target
McDonald's
Altria
3M
General Mills
Proctor and Gamble
Microsoft
Cisco
Home Depot
Lowes
US Bank
Fastenal (A personal favorite, to be pried from my cold, dead hands )

I've listed just US companies because I don't have a good understanding of most foreign companies. I own a bunch of foreign companies in some mutual funds though.

If the list of companies above does really badly, do you really think that having bonds is going help you? If the companies above aren't profitable, no one is going to be able to pay off your bonds, including the US government.

From my standpoint, if you are completely sworn off equities, you might as well be sticking to the guns, gold, and canned goods portfolio.


Quote:
Originally Posted by clifp View Post
But, I think it is worth you telling us what you have against stocks?
__________________
Hamlet is offline   Reply With Quote
Old 02-06-2010, 03:33 AM   #27
Recycles dryer sheets
 
Join Date: Oct 2009
Posts: 58
um....Hamlet....what do you think the long term corporate owns? Look at the holdings of this fund. The element that the stock market adds to fundamentals is FEAR. The vix closed over 20 on friday which tells me I am not alone, despite what you hear here.

Bikerdude...I am not as ignorant as you seem to think I am. I am sorry to have wasted your time on my question. Is that not what this board is for?

The plan yields at least 90k pre tax annually under the following assumptions: Remember, the point of this plan is not to have a swr of any percentage of the portfolio. I intend to live off the dividends with reinvestment of the nonspent portion as an inflation offset.

1. The net asset value DOES NOT RISE. Thats right, this assumes the worst case scenario would be had IF THE VALUE OF MY ORIGINAL INVESTMENT ACTUALLY INCREASES. (In other words, the risk you cite with declining share price actually helps the portfolio's purchasing power). If interest rates rise (likely), share price declines, more shares are purchased going forward.

2. I remain on this planet for 7 years and am able to work. And then for 30 years beyond that (age 80) AND THE FUND CONTINUES TO PAY AT LEAST 4 CENTS PER SHARE PER MONTH.

3. My marginal tax rate is 30% and taxes are paid on the portfolio annually out of dividends and removed PRIOR to reinvesting (no loss risk to tax dollars). I plan to pay dividends to money market, then reinvest 70% back in the fund the next day.

4. Inflation...3%? I have decided to sell my boat and not have such a large payment therefore my expenses are solidly under 40K per year. I live on the water and have a number of smaller toys to keep cool with in the summer.

5. Interest rates? They cant go down, can they?

6. Reinvest what is not spent monthly +maybe..My wife and I will likely work part time after we pull the plug- doing something else.

6. Reverse mortgage adds 200k to portfolio at age 62

7. Social security (yah right) maybe beginning at age 62.
__________________
floatingdoc is offline   Reply With Quote
Old 02-06-2010, 05:40 AM   #28
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,571
Like the previous thread, I find this discussion interesting and useful.

As others have said, the main issue with putting all your money (or too much money) in one asset class is risk. Personally, I like risk - it's one of the things which creates oppotunities to earn more than zero real return on our investments. But as a lot of banks could tell you right now, you can have too much of a good thing.

If the OP is going to put a lot of money into long dated corporate bonds (though a fund to at least get diversification within the asset class), the time to do it is when the spreads between long dated corporate bonds and long dated treasuries are wider than their historical average (a year ago would have been a good time to do this - not so sure about now). When the spreads narrow exit the position.

In this the guys who ran LTCM were correct and an individual can avoid the problems that fund had by avoiding (i) the use of leverage and (ii) using illiquid instruments/a crowded trade - to avoid being put in a position where a continued widening of the spread caused margin calls etc etc.

Needless to say patience and discipline is needed (both to wait for the opportunity and to ride out a continued widening of the spread after making the trade) and, if it were me, I would not be doing this with all of my money and would not try to squeeze the last dollar out of the position. Lastly, as a US taxpayer you would want to do this in tax protected space.

I'll now sit back and wait for the market timing police to bust me.
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline   Reply With Quote
Old 02-06-2010, 07:15 AM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
With the added info of the presence of a spouse and maybe a reverse mortgage (high fees?) it seems to me that an inflation-adjusted immediate annuity is really what you want.

This means that the suggestion elsewhere of a 3-legged stool of TIPS, SPIAs, and SS would exactly fit your risk profile better than just about anything else.

So I expect in a week or so a new thread from you:

"TIPS, SPIAs, and SS?? (be gentle)"
__________________
LOL! is offline   Reply With Quote
Old 02-06-2010, 08:21 AM   #30
Recycles dryer sheets
 
Join Date: Oct 2009
Posts: 58
Lol, lol
__________________
floatingdoc is offline   Reply With Quote
Old 02-06-2010, 08:25 AM   #31
Recycles dryer sheets
 
Join Date: Oct 2009
Posts: 58
I have analyzed this extensively. The monthly expenses (detailed) are 3900.

This portfolio yields 8103 monthly pretax if spent entirely starting in 7 years.
(about 6888 after taxes)
At age 62, add 200k

At 51, add 150k when office building sold.

Remainder of monthly dividend is reinvested, hopefully at lower share price
__________________
floatingdoc is offline   Reply With Quote
Old 02-06-2010, 09:20 AM   #32
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,356
I don't think you should be letting fear completely dictate your retirement strategy.

The whole purpose of an asset allocation is to harness that fear and use it. If you own 50% stocks and 50% bonds, and fear drives stocks down, you rebalance and buy stocks at the time when everyone else is giving them away cheap.

Likewise, if stocks get expensive because people are too excited about stocks, you rebalance and sell stocks when everyone else is paying too much for them.

It's not like long term corporates are immune to fear. How did they do in the meltdown? They had a scary drop as well, I believe.

The overwhelming problem with owning just long term corporates is the inflation risk that everyone here has mentioned. I don't know if inflation is going to occur soon, but with budget deficits of $1.5 trillion, I wouldn't rule it out.

In an environment of 110-12% inflation, I'd much rather own Coke stock than long term Coke bonds yielding 6%. Coke will raise prices with inflation, and their profits will likely keep pace with it, but those 6% bond coupons won't get any bigger.


Quote:
Originally Posted by floatingdoc View Post
um....Hamlet....what do you think the long term corporate owns? Look at the holdings of this fund. The element that the stock market adds to fundamentals is FEAR. The vix closed over 20 on friday which tells me I am not alone, despite what you hear here.
.
__________________
Hamlet is offline   Reply With Quote
Old 02-06-2010, 11:15 AM   #33
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
The plan yields at least 90k pre tax annually under the following assumptions: Remember, the point of this plan is not to have a swr of any percentage of the portfolio. I intend to live off the dividends with reinvestment of the nonspent portion as an inflation offset.
Just because you are not considering SWR, some, probably many (possibly most?) of the people on this board could interpret the success or failure, in general terms, because of this one factor.


SWR does not imply selling shares to generate income. It is a historical tested percentage based on trinity study.

Of course you are not following asset allocation history, so SWR history might not mean much to you...


I am learning a little bit from your threads... and I think biggest issues you are dealing with are believing the only valid assumptions are the ones you come up with (that might sound harsh, it is not intended to be... just pointing out that your set of assumptions appears rather limited to me).

Quote:
1. The net asset value DOES NOT RISE. Thats right, this assumes the worst case scenario would be had IF THE VALUE OF MY ORIGINAL INVESTMENT ACTUALLY INCREASES. (In other words, the risk you cite with declining share price actually helps the portfolio's purchasing power). If interest rates rise (likely), share price declines, more shares are purchased going forward.

2. I remain on this planet for 7 years and am able to work. And then for 30 years beyond that (age 80) AND THE FUND CONTINUES TO PAY AT LEAST 4 CENTS PER SHARE PER MONTH.

3. My marginal tax rate is 30% and taxes are paid on the portfolio annually out of dividends and removed PRIOR to reinvesting (no loss risk to tax dollars). I plan to pay dividends to money market, then reinvest 70% back in the fund the next day.

4. Inflation...3%? I have decided to sell my boat and not have such a large payment therefore my expenses are solidly under 40K per year. I live on the water and have a number of smaller toys to keep cool with in the summer.

5. Interest rates? They cant go down, can they?

6. Reinvest what is not spent monthly +maybe..My wife and I will likely work part time after we pull the plug- doing something else.

6. Reverse mortgage adds 200k to portfolio at age 62

7. Social security (yah right) maybe beginning at age 62.
You are assuming $.04 share dividend. If that is cut by a penny, then what (you have a risk the fund pays a smaller dividend). Even if there is a 1% chance the fund cuts its dividend, that might be part of your worst case scenario.

You are assuming you live until 80. What happens if you live to 100? Tongue in cheek here... you being alive is a risk to this plan failing or succeeding.

If tax rules on dividends and interest change, that is a risk to you.

Interest rates are a risk and you do acknowledge the risk is there. The risk is you think rates cannot go down.

Reverse mortgage adds 200k is a good planning tool, but what if you cannot maintain house and have to move. An 80 yo in upstate NY will not want to shovel snow (I have lived off Lake Ontario before, I know that 3 feet of snow will happen 2-3X per year minimum). What if you decide to move south in 15 years? Reverse mortgage is removing an asset from your name. It is a risk.

Inflation is a risk, especially with any bond investment plan. 3% average is not the real risk, what if inflation is much much higher than historical averages. Like 10-20% per year for 3 straight years.


Any single point of failure does not make your idea ineffective... but what if there is a serial chain of catastrophic events. Consider the US constitution has lasted about 400 years. How many other governments have lasted that long? Does that mean the US is immune to government change, or is it an impending disaster? My point is we can use history to make conclusions on the future- you and I both do this everyday... I would not bank retirement on such a finite list of assumptions or risks.

If you are yielding 90k initially and need only 40k to live on, have you looked at using buckets?

Try this
Bucket 1- this is cash, the money you will spend this year and next, possibly 160k-200k when you start out.

Bucket 2- this is enough invested in bonds to generate the 40k of expenses you need (put enough here to cover expenses, including taxes). If the bonds yield $.04/share. You want 1 million shares if I just did that math right ($1 M being put in bonds)

Bucket 3- purpose of this bucket is to grow faster than you remove from bucket 2. It will be volatile, but it will also combat inflation much more than buckets 1 or 2.

If you put even $200k here when you start, mostly in dividend paying stocks, as you increase the 40k per year (to deal with inflation) you can use the dividends of stocks to buy more shares of Bucket 2 as you need them. When you do not need them, let bucket 3 ride (and grow). Most importantly, if the value of bucket 3 goes down, do not sell until it recovers (buckets 1 and 2 have more than enough to live on for 5-10 years, so the risk is low you would need to sell bucket 3 in a hurry).

Search this forum for buckets... you will find more threads than you might think on this idea.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 02-06-2010, 02:39 PM   #34
Dryer sheet aficionado
 
Join Date: May 2007
Posts: 31
How about putting it all in PRPFX and withdrawing a certain percentage of your account value at the end of the year for next years spending money? More when the fund gains and less when it doesn't. At least then you would be broadly diversified across asset classes. Have you considered something like this?
__________________
DoubleDown is offline   Reply With Quote
Old 02-06-2010, 03:23 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by floatingdoc View Post
I have analyzed this extensively. The monthly expenses (detailed) are 3900.

This portfolio yields 8103 monthly pretax if spent entirely starting in 7 years.(about 6888 after taxes)
The portfolio lasts 65 years assuming constant 3% inflation, 6% cash yield, no credit losses and no other contributions. How long it will last in the real world is anyone's guess.
__________________
Gone4Good is offline   Reply With Quote
Old 02-06-2010, 05:01 PM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by floatingdoc View Post


5. That the fund will continue to pay at least 4 cents per share per month in dividends (history on my side here)
Early in the thread I pointed that the monthly per share distribution of the Vanguard GNMA fund between Aug 2008, and Jan 2010 dropped steadily from $.04467 to $.02535 a 43% decrease. Intermediate Treasury dropped from $.04153 to $.02828, Short-Term investment grade dropped from $.04184 to $.03199
Can you tell me why this couldn't happen with long corporate bonds?

Many corporate long-term bonds are callable typically after 5 years, if we see persistent low interest rate corporations that issued bonds at 6, 7 or 8% back in the 2008,2009 will be calling them over the next few years and replacing them with 4 or 5% coupon bonds. This is especially true of banks like BofA and Citigroup which have a whole lot of long-term bonds that can be called between 2010 and 2012.
__________________
clifp is offline   Reply With Quote
Old 02-06-2010, 06:44 PM   #37
Full time employment: Posting here.
Ronnieboy's Avatar
 
Join Date: Feb 2008
Posts: 646
I can see the appeal by floatingdoc to have everything tidied up in one fund and just get monthly payments, but I couldn't go straight bonds myself. I would however look into one fund of Wellesley or Wellington with 40/60 stock/bond or 60/40 (approx) respectively.
The actual funds themselves would be well diversified, the problem might be the concern of having the majority of cash/assets tied up with one fund company.
Would that be enough to deter anyone?
__________________
I don't want to spend my entire life at work. I deserve more. - Want2retire aka W2R
Ronnieboy is offline   Reply With Quote
Old 02-06-2010, 07:21 PM   #38
Recycles dryer sheets
 
Join Date: Oct 2009
Posts: 58
The dividend can drop to 2 cents per share and I still have enough to pay expenses (this has never occurred in the last 23 years but you never know)
__________________
floatingdoc is offline   Reply With Quote
Old 02-06-2010, 07:50 PM   #39
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
Originally Posted by Ronnieboy View Post
I can see the appeal by floatingdoc to have everything tidied up in one fund and just get monthly payments, but I couldn't go straight bonds myself. I would however look into one fund of Wellesley or Wellington with 40/60 stock/bond or 60/40 (approx) respectively.
The actual funds themselves would be well diversified, the problem might be the concern of having the majority of cash/assets tied up with one fund company.
Would that be enough to deter anyone?
I could do a buckets approach and put about 80% into a fund like Wellesley. living off 4% and then adding shares from other buckets as inflation kicked in.

but I would be very hesitant to bet my whole life savings on it.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 02-06-2010, 07:52 PM   #40
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
Originally Posted by floatingdoc View Post
The dividend can drop to 2 cents per share and I still have enough to pay expenses (this has never occurred in the last 23 years but you never know)
Your retirement will be 40 years (give or take).
You would have enough to pay "current expenses" without inflation...

a "worst case scenario"- try this- reduce dividend to $.03 and add in 4% inflation- where are you in 24 years...

then do catastrophic case... reduce it to $.02.

Are you taxing dividends at normal income rates or current (Bush tax cut) reduced rates? Another thing to factor in.
__________________

__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Short term vs Long term Bonds bank5 Stock Picking and Market Strategy 17 03-24-2009 04:40 PM
Long Term Treasuries lawman FIRE and Money 9 01-02-2009 01:21 PM
Long-Term Storage -- Ever Used It? chinaco Other topics 22 07-07-2007 10:24 PM
long-term exercising WM Health and Early Retirement 24 02-21-2007 07:46 PM
5 Long-term Stocks? kz FIRE and Money 19 03-03-2006 08:46 AM

 

 
All times are GMT -6. The time now is 11:05 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.