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Old 05-29-2012, 10:28 PM   #41
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Originally Posted by frugalinvestor View Post
Besides inflation and healthcare costs as huge wildcards for those of us seeking FIRE in about 20 years, realistic annual stock returns are the great unknown in the next 20 years.

When I attempt to get to the "number" I need, I figure the overall market will return as follows. I would like to hear what others see as realistic after inflation returns:

total us stock index 4%
Total intl index 3%
Total bond index 1.5%

Am I too pessimistic?
Why not just look at FIRECalc over 20 year periods. That is history and it's the best set of period outcomes I can think of. Try to use non-overlapping periods. Look at the spreadsheet results for this.

Nobody knows the future so why ask everybody to guess? But I know this is fun stuff. So here is my wild guess at 20 year future CAGR's:
stocks US & foreign = 5.5% real return
intermediate bonds = 2.0% real return
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Old 05-30-2012, 12:18 AM   #42
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I don't know what kind of real returns to expect over the next 20 years, but if I can achieve 2.5-3% (right in line with my planned WR), I'll be happy.
No no no, you should start with $100 (like Buffett did) and then pray for 20 bad years.

That'll give you 100% APY for two decades, which my calculator claims is... apparently it exceeds the total of all the world's currencies.
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Old 05-30-2012, 01:43 AM   #43
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No no no, you should start with $100 (like Buffett did) and then pray for 20 bad years.
Not if you are in the withdrawl phase.

<sarcasm detector reactivated>
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Old 05-30-2012, 04:40 AM   #44
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For what it's worth, I don't think you are being too pessimistic. I am planning for 3% overall return per year up to age 62 (I am 47), then 4% as I factor annuities in. My SWR is about 3.5%.

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Originally Posted by frugalinvestor View Post
total us stock index 4%
Total intl index 3%
Total bond index 1.5%

Am I too pessimistic?
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Old 06-01-2012, 12:48 AM   #45
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Michael, you are correct. Day Trading is at regular rates and long term is 15%. If you live overseas it is all considered overseas earned income credit under (I forget this years number but something like $90k). Of course, there are other ways to declare this which is complicated but you can cut your tax liability.

Perhaps, I didn't make it clear though. We have 6 accounts at the moment. Two are brokerage which are for Day Trading (hers and mine). The rest are either Roth or traditional (roll-over's) IRA's and these we can trade fast (less than 1 year) or slow. Most of our money is in the latter accounts and most of these stay solid and don't need too much adjustment. In the brokerage accounts we earn the highest rate of returns. In the IRA's it is a lot less but still runs typically above 25%, better some years like this one where we loaded up with Apple, or worse on other years but we are still doing well on them. Sometimes it is better to be actively managing them and make trades to adjust the portfolio to avoid losses. In this case it is better to pay the taxes which for us are low.

I believe from my stories I have related that I have made it clear that Day Trading is risky. As I said there are 2 forces which ruin Day Traders, Greed and Fear. And, I know no one who doesn't screw up in the second year. If you can get past that and find a level emotional playing field then you can do well. The market is a very hostile and volatile place. Equity managers do this same work for you but are more conservative. However, if you are able to manage your own portfolio rather than a fund does, you will enjoy the benefits of your own decisions, not pay any fees to the fund managers and if you are any good at forecasting you can out-perform any mutual fund. If I was young this is what I would do and not mess with Day Trading. If I was in my late 50's and had little cash (perhaps after a divorce) I would learn as much as I could and try to earn enough for retirement.
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Old 06-01-2012, 05:18 AM   #46
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Michael, you are correct. Day Trading is at regular rates and long term is 15%. If you live overseas it is all considered overseas earned income credit under (I forget this years number but something like $90k). Of course, there are other ways to declare this which is complicated but you can cut your tax liability.
The foreign earned income exclusion only applies to earned income. Capital gains are unearned income and cannot be excluded.
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Old 06-01-2012, 06:13 AM   #47
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Michael, you are correct. Day Trading is at regular rates and long term is 15%. If you live overseas it is all considered overseas earned income credit under (I forget this years number but something like $90k). Of course, there are other ways to declare this which is complicated but you can cut your tax liability.
If you are an NRA the US does not tax capital gains from the sale of stocks. Also the foreign earned income exclusion only applies to earned income.....not capital gains. As a US citizen resident abroad the IRS will tax your worldwide capital gains. You will also have to comply with local tax law and apply the relevant tax treaty.
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Old 06-01-2012, 08:22 AM   #48
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back on topic...

For my deterministic plan I use 3% inflation and 5.5% nominal returns from a 60/40 equity mix.

Prior to the crash based on input from a planner I would have assumed 7.5% returns.
Backing off the pre-crash return assumptions by over 25% (5.5 versus 7.5) seems like a good balance between reflecting current realities/uncertainties and being overcome with overly pessimistic recency bias.

Is there risk to this assumption - Yes.
Is there upside opportunity - Yes.
That indicates a balanced assumption IMHO.

A very low risk assumption is something different.
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Old 06-01-2012, 12:02 PM   #49
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back on topic...

For my deterministic plan I use 3% inflation and 5.5% nominal returns from a 60/40 equity mix.

Prior to the crash based on input from a planner I would have assumed 7.5% returns.
Backing off the pre-crash return assumptions by over 25% (5.5 versus 7.5) seems like a good balance between reflecting current realities/uncertainties and being overcome with overly pessimistic recency bias.

Is there risk to this assumption - Yes.
Is there upside opportunity - Yes.
That indicates a balanced assumption IMHO.

A very low risk assumption is something different.
+1 Ken, did you somehow access my deterministic plan? My assumptions are exactly the same. I like the way you think.
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Old 06-01-2012, 12:05 PM   #50
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back on topic...

For my deterministic plan I use 3% inflation and 5.5% nominal returns from a 60/40 equity mix.

Prior to the crash based on input from a planner I would have assumed 7.5% returns.
Backing off the pre-crash return assumptions by over 25% (5.5 versus 7.5) seems like a good balance between reflecting current realities/uncertainties and being overcome with overly pessimistic recency bias.

Is there risk to this assumption - Yes.
Is there upside opportunity - Yes.
That indicates a balanced assumption IMHO.

A very low risk assumption is something different.
I use a return of 4%. I have $15k in rental income which is a big help in my planning. It is as close to guaranteed as you can get as I live in Boston and the rental market is strong with real estate being so expensive and the number of young professionals and college students around.
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Old 06-01-2012, 12:18 PM   #51
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The foreign earned income exclusion only applies to earned income. Capital gains are unearned income and cannot be excluded.
I find it amazing that a foreign investor (along with the tax implications) would post on this forum.

It makes no sense, for the majority of those looking for some guidance on what they should/may do, who live in the U.S. and must adhere to local investment/tax rules.

Just my simple opinion on the thread...
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Old 06-01-2012, 12:50 PM   #52
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You can diss it all you want but we make 100% a year in bad years.
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Old 06-01-2012, 01:08 PM   #53
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Originally Posted by frugalinvestor View Post
Besides inflation and healthcare costs as huge wildcards for those of us seeking FIRE in about 20 years, realistic annual stock returns are the great unknown in the next 20 years.

When I attempt to get to the "number" I need, I figure the overall market will return as follows. I would like to hear what others see as realistic after inflation returns:

total us stock index 4%
Total intl index 3%
Total bond index 1.5%

Am I too pessimistic?
It does not appear to pessimistic to me and I am decidedly more pessimistic! I am more comfortable with foreign CD's and Rental Real Estate. For planning purposes I ignore (paper Cap Gains 200%) and use my 10 year historical performance, which for me yields about 12.75% after 4% inflation and 2% currency gains.
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Old 06-01-2012, 01:16 PM   #54
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First, I sense some pretty strong antagonism which I don't particularly appreciate. I am trying to offer some serious ways that people can build wealth for early retirement. Earning 4-6% a year won't even beat inflation soon. However, if you want a serious analysis regarding Day Trading don't take my word for it and read this article I linked below as it very clearly explains in a serious scientific article the realities of Day Trading. http://www.psychologieenbeleggen.nl/...daytraders.pdf

It is very true that roughly 80% fail but 5%, and I count us among them, make substantial profits. I do not put this out there to ruin people or to suggest any get rich quick schemes. I am relating what my wife and I have experienced and if done sensibly can be better than actually working for a living. This site is after all, about retiring early, which if you haven't figured it out yet, isn't free. Take it or leave it and do your home work if you are interested. Greed and Fear are powerful forces and you have to have sufficient experience to get past that. Once you do you can earn money just like the big boys do. We were faced with being in our 50's and both of us after bad divorces pooled our efforts and invested wisely. We took up Day Trading as a method to increase our wealth and overall it has been more successful than we had dreamed. However, there were bumps in the road and the second year was very bad which is typical. It takes time to learn to avoid the pitfalls of emotion. Day Trading is a lot of psychology and an ability to shrug off losses and to not try to wring out that last few pennies of profit. It is more a statistical game of making a lot of trades with relatively small profits. Sometime (roughly 40% of the time) you lose. If you look at the algorithmic traders (totally robotic) they only profit on 1% of trades or less. But, if you can do 10 trades at 0.1% profit it is 1%, if you do that 10 times it is 10% (100 trades) and they do millions of trades a day often microseconds apart. That is what is driving the market today and you have to compete with that. However, if you have a level 1 accountyou can see what is happening real time and by who and jump in. But you have to win more than half of the time and that isn't easy. We also have our IRA accounts which for the most part are buy and hold and also do far better than the mutual funds typically do. But, again, this is a choice we made. Someone is making a lot of profit on people's money so why can't it be you instead of fund managers? Even for buy and hold long term investing this makes better sense to me.

As for being a foreign poster, perhaps those of you who are mired into the thinking that the US is the best place on Earth might actually consider looking elsewhere. I served my country for 40 years with 28 in the Army and another 12 as a civil servant. For many reasons we left the US and haven't regretted it once. If you are serious about early retirement then I suggest that you consider living outside the US as one way to cut down your expenses, while significantly improving your standard of living (just food alone is enough of a reason). We chose Hungary as it is a Westernized country, a member of the EU and NATO, and has a very low cost of living compared to most of Europe and about 1/2 of that in the US. The food is entirely organic (pesticides are very limited and no GMO crops are permitted in the EU) and there is little to no pollution. People's words are binding and friendships are forever.

Interestingly, even though we prepared heavily for retirement (based on the 50 times calculations) and have made a lot investing in both real estate and on the market we don't actually need it. Our respective pensions (my Army of $3200 a month, my civil service of $1100 a month, and her Russian retirement of $600 a month) are more than we can spend. So, using all the standard planning methods for retirement we prepared to have a lot of money for our retirement only to find it was actually unnecessary. We can actually afford to Day Trade and to lose it all. Same with our remaining 2 houses in the US. We haven't even gotten close to using our Social Security (3 more years) which will add another $3k a month. So, for us living overseas made the reality of living in paradise possible. We have a paid off home with a huge garden and swimming pool in a destination resort on the largest lake in Europe. I have a sail boat and we live near a 40 mile wide expanse of National Park land which I go mountain biking in every day. We are 2 hours from the best skiing in the world. We have no property or death taxes and everything (except utilities and gasoline) is less expensive than in the US. We could't possibly live this well in the US on the same income. Plus we are living in Europe and in the exact center of Europe as well. Everything is in driving distance. If not there are many cheap flights for example Vienna (or Budapest) to Barcelona (or London, or Copenhagen, or Athens, etc.) is $40 Euros. So, for Americans this is a once in a lifetime vacation and for us it is a day to day reality. If we want to go to one of the top 5 symphonies or operas in the world it is 3 hours away and a hotel room for the night is only 90 euros. So, please don't diss why a foreign poster might be posting. I am an American and believe my 40 years of service should buy me some credibility.

As for taxes, I'll just say the IRS has a lot of very complicated rules and the interpretation is very subject to who is reading them and then who is reviewing them. We meet all the criteria for overseas earned income so it hasn't been a problem and yes, we have been audited by the IRS (actually every year). We have over 400 pages of stock trades each year so it is always interesting to the IRS. Not to mention business deductions, rental incomes, etc. So far, we have broken no laws even though those are a morass and we have a professional accounting firm in Baltimore managing the tax situation. I do not claim to be an expert on taxes nor do I want to be. Suffice it to say the US has the most complicated taxes in the world and we are probably among the most complicated returns they ever see. Top that out with all the new requirements such as the HIRE Act and it really is complicated. I wish it weren't so but that is the way it is.

Anyway, I will not post any more on this website as clearly it isn't appreciated. Go your own way and make your own decisions which is the best any of us can do. I am only presenting what worked for us. I will be blogging now as the Expat with an Attitude. I won't link to it as I doubt that is allowed. I sincerely wish the best of luck to all of you and that you enjoy your retirement as well as we do.
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Old 06-01-2012, 01:52 PM   #55
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First, I sense some pretty strong antagonism which I don't particularly appreciate.
...
<snip>
...
I am only presenting what worked for us.
The comment that you make 100% returns on bad years is what got people responding the way they did. The assumption when we read that is that if you make 100% in bad years, you must be making more in good years.

Lets say you average out to 125% a year... If this were true then investing just $10,000 at the age of 40 would make you the richest man in the world by the time you're 57.

If you'd like to retract (or clarify) that statement to mean something other than you make 100% returns every year... no one here means to antagonize you, we are just responding to your exaggeration. I'm sure what you meant is that you still make a decent return (or beat the market) in bad years, and not that you actually make 100% returns in bad years.

Also you appear to be genuine in your advice to others to become day traders... and I'm sure its working great for you... but for 99.9% of people this is very bad advice because they won't be able to make it work like you have. The advice to day trade is just steering them towards a financial cliff (the opposite of what they need when asking for help).

If you'd like to start a thread describing how day trading has worked for you and how you've accomplished the kinds of returns you do... I'd actually love to read it. I'm not a day trader, but I mechanically invest so I have about the same turnover as day traders (700+ trades a year, but my hold times for stocks are 20-30 days usually) they are just supplied by a computer program I wrote so there is no selection/analysis involved on my part. It's A LOT of work and takes a lot of faith to stay the course, but I'm averaging beating the market by 3% a year and I'm happy with that. If it continues long term I'll be very well off... I'm nowhere near 100% returns a year though.

This form of investing is extreme as well and not suited for most investors... so I'd never recommend anyone else try it, even though its working great for me.

btw, thank you for your service to this country.
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Old 06-01-2012, 02:10 PM   #56
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Originally Posted by EvrClrx311

The comment that you make 100% returns on bad years is what got people responding the way they did. The assumption when we read that is that if you make 100% in bad years, you must be making more in good years.

Lets say you average out to 125% a year... If this were true then investing just $10,000 at the age of 40 would make you the richest man in the world by the time you're 57.

If you'd like to retract (or clarify) that statement to mean something other than you make 100% returns every year... no one here means to antagonize you, we are just responding to your exaggeration. I'm sure what you meant is that you still make a decent return (or beat the market) in bad years, and not that you actually make 100% returns in bad years.

Also you appear to be genuine in your advice to others to become day traders... and I'm sure its working great for you... but for 99.9% of people this is very bad advice because they won't be able to make it work like you have. The advice to day trade is just steering them towards a financial cliff (the opposite of what they need when asking for help). If you'd like to start a thread describing how day trading has worked for you and how you've accomplished the kinds of returns you do... I'd actually love to read it. I'm not a day trader, but I mechanically invest so I have about the same turnover as day traders (700+ trades a year, bu my holds are 20-30 days usually) they are just supplied by a computer program I wrote so there is no selection/analysis involved on my part. It's A LOT of work and takes a lot of faith to stay the course, but I'm averaging beating the market by 3% a year the last 6 years and I'm happy with that. If it continues long term I'm be very well off... I'm nowhere near 100% returns a year though.

btw, thank you for your service to this country.
Im sure he meant no harm, and his responses were long and detailed, but to suggest something that works for 5% of the people and leaves the other 95% in financial ruin, doesn't seem to be prudent advise. If Madoff couldn't bring in the 10-15% he promised, I wouldn't like my chances day trading for even better returns. Besides it does seem to be contradictory to espouse the benefits of living in a low cost of living area while returning triple digit returns on investments. It seems like a person would have enough to live anywhere they wanted on that rate of return.
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Old 06-01-2012, 03:11 PM   #57
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...(snip)...
It is very true that roughly 80% fail but 5%, and I count us among them, make substantial profits. I do not put this out there to ruin people or to suggest any get rich quick schemes.
Many here cannot take that risk. It's not a reflection on you or your enthusiasm or your skill set.
Quote:
Interestingly, even though we prepared heavily for retirement (based on the 50 times calculations) and have made a lot investing in both real estate and on the market we don't actually need it. Our respective pensions (my Army of $3200 a month, my civil service of $1100 a month, and her Russian retirement of $600 a month) are more than we can spend. So, using all the standard planning methods for retirement we prepared to have a lot of money for our retirement only to find it was actually unnecessary. We can actually afford to Day Trade and to lose it all.
I am sure you can appreciate that this is not the standard profile. Many people who are ER'd have some capital and eventually Social Security. Some have pensions.

Few here want to take high stakes bets with poor odds of success. The poor odds that you have acknowledged. Some venturesome people might want to take "business man's risk", i.e. a higher AA allocation to broad based stock indexes.

I myself have an element of market timing baked into my strategy-- though only a few moves at most per year. Whenever I've mention it there are no curious queries. That's fine as I'd not want to publicize the algorithms anyway. And those algorithms just might not work for others, let alone for me. Any timing strategy carries "timing" risks. Of course, buy-hold and any other investment approach also have risks.
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As for being a foreign poster, perhaps those of you who are mired into the thinking that the US is the best place on Earth might actually consider looking elsewhere.
Well my part of the US is the best place on Earth. So why would I want to look elsewhere? But we are planning on visiting lots of "elsewhere's".
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Old 06-01-2012, 03:17 PM   #58
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Well my part of the US is the best place on Earth. So why would I want to look elsewhere? But we are planning on visiting lots of "elsewhere's".
How can that be when MY part is the best!

Also, to your other points, those of us without guaranteed pensions of one sort or another (not to say those of us on the board with such monthly income don't deserve same) are understandably more leery of day trading and other more aggressive investing programs.
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Old 06-01-2012, 10:45 PM   #59
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Interestingly, even though we prepared heavily for retirement (based on the 50 times calculations) and have made a lot investing in both real estate and on the market we don't actually need it. Our respective pensions (my Army of $3200 a month, my civil service of $1100 a month, and her Russian retirement of $600 a month) are more than we can spend. So, using all the standard planning methods for retirement we prepared to have a lot of money for our retirement only to find it was actually unnecessary. We can actually afford to Day Trade and to lose it all. Same with our remaining 2 houses in the US. We haven't even gotten close to using our Social Security (3 more years) which will add another $3k a month. So, for us living overseas made the reality of living in paradise possible. We have a paid off home with a huge garden and swimming pool in a destination resort on the largest lake in Europe. I have a sail boat and we live near a 40 mile wide expanse of National Park land which I go mountain biking in every day. We are 2 hours from the best skiing in the world. We have no property or death taxes and everything (except utilities and gasoline) is less expensive than in the US. We could't possibly live this well in the US on the same income. Plus we are living in Europe and in the exact center of Europe as well. Everything is in driving distance. If not there are many cheap flights for example Vienna (or Budapest) to Barcelona (or London, or Copenhagen, or Athens, etc.) is $40 Euros. So, for Americans this is a once in a lifetime vacation and for us it is a day to day reality. If we want to go to one of the top 5 symphonies or operas in the world it is 3 hours away and a hotel room for the night is only 90 euros. So, please don't diss why a foreign poster might be posting. I am an American and believe my 40 years of service should buy me some credibility.
Wow, you are doing quite well - a nice, friendly, clean and inexpensive place to live and a healthy stream of incomes. It's of no surprise that you can afford day-trading.
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Old 06-01-2012, 11:04 PM   #60
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I find it amazing that a foreign investor (along with the tax implications) would post on this forum.

It makes no sense, for the majority of those looking for some guidance on what they should/may do, who live in the U.S. and must adhere to local investment/tax rules.

Just my simple opinion on the thread...
The internet is very democratizing and there are some people who look at this site who are not American, and many who might retire outside the US. The retirement and tax implications of retiring in countries other than the US are of interest to some on this site and I enjoy the perspective that non-US contributors provide.
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