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The 4% article that started it all?
Old 03-09-2004, 09:03 AM   #1
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The 4% article that started it all?

With thanks to Ted and his bookmarks over at FundAlarm, FPA is reprinting their "Best of the last 25 Years" articles.

This article is from 1994 (remember when 486 computers ruled?) by a CFP named William Bengen. It used a withdrawal sequence similar to what FireCalc uses now and it's particularly noteworthy for the amount of brute-force data-slogging that it must have required to produce just 10 years ago.

It's particularly interesting to read about the "stars" who retire into a bull market and decide to spend more money. In this example, the "S"WR goes from 2.3% to 4% and almost leads to disaster.

Again, Bernstein puts a lot of excellent info in his books, but Bengen's 100% stock portfolios still outperform if the owner can stomach the volatility.

http://www.fpanet.org/journal/articl...nderforprint=1
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Re: The 4% article that started it all?
Old 03-09-2004, 01:55 PM   #2
 
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Re: The 4% article that started it all?

Well, having ERed with no stocks and with no plans to have any, I am a test case. So far it's worked out great.
Truly, I can not imagine why anyone would make stocks
a big part of their ER portfolio. Only time will tell if my
methods will produce the desired results, long term.

John Galt
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Re: The 4% article that started it all?
Old 03-09-2004, 03:51 PM   #3
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Re: The 4% article that started it all?


? Wasn't Joe Domingez, YMOYL book, a bonds only guy - Treasuries AND no real estate for an inflation fighter. Inflation was addressed via the spending side adjustments? I'd have to find where I put the book to refresh my memory what they said about inflation worries.

Bottom line: cash income>spending = successfull FI.
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Re: The 4% article that started it all?
Old 03-09-2004, 04:24 PM   #4
 
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Re: The 4% article that started it all?

Quote:
I put the book to refresh my memory what they said about inflation worries
Basically, Joe did not buy much stuff so he wasn't worried about inflation. He claimed that inflation was not as big a problem as most make it out to be. He used electronics (TV's as an example).

I differ with him on this though. I say it's worse! - The stuff that we have to buy seems to go up the most. Fuel for Cars to heat homes, Healthcare, food. I don't buy color TV's every month!

Joe is really saving money now though - He's dead!
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Re: The 4% article that started it all?
Old 03-09-2004, 04:53 PM   #5
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Re: The 4% article that started it all?

I believe Domingez recommended 100% 30 year treasury bonds. I read that years ago, so my memory is a little foggy, but that recommendation jolted me at the time, so I think it's right. I can remember thinking, "you had me going, but now you lost me."

The very first book I ever read about personal finance was Cashing In... by Terhorst. That book changed my life. I did not know until I read that book that it was possible for an average person to pay the bills for a lifetime on (at the time) $500,000. I should have known, but I didn't. There was nobody in my world who didn't expect to work full time until at least 65. I thought that was required for guys like me - until I read Terhorst.
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Re: The 4% article that started it all?
Old 03-09-2004, 07:08 PM   #6
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Re: The 4% article that started it all?

Quote:

Basically, Joe did not buy much stuff so he wasn't worried about inflation. He claimed that inflation was not as big a problem as most make it out to be. He used electronics (TV's as an example).

I differ with him on this though. I say it's worse! - The stuff that we have to buy seems to go up the most. Fuel for Cars to heat homes, Healthcare, food. I don't buy color TV's every month!

Joe is really saving money now though - He's dead!
Your Money Or Your Life author Joe Dominguez invested in only US Treasury securities when he retired in 1969 at age 31 and continued to champion that approach up until his death in 1997. Dominguez retired in 1969 with a $100,000 portfolio and $7,000 per year in living expenses. An August 1996 Kiplinger's Personal Finance Magazine article revealed that Dominguez was then living on about $13,000 per year. To keep pace with inflation, $7,000 in 1969 would need to grow to $30,360 by 1996 to maintain the same purchasing power. Dominguez managed this loss of spending power with unusual living arrangements (he lived in a group home with about 30 other people) and a lot of composting and the washing and reusing of tin foil and wax paper -- a strategy that few early retirees would tolerate.

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Re: The 4% article that started it all?
Old 03-09-2004, 07:25 PM   #7
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Re: The 4% article that started it all?

Quote:

Basically, Joe did not buy much stuff so he wasn't worried about inflation. He claimed that inflation was not as big a problem as most make it out to be. He used electronics (TV's as an example).

I differ with him on this though. I say it's worse! - The stuff that we have to buy seems to go up the most. Fuel for Cars to heat homes, Healthcare, food. I don't buy color TV's every month!

Joe is really saving money now though - He's dead!
Heh Yeah, the investing section always rubbed me the wrong way. He gave a list of prices to demonstrate that certain core items hadn't changed in value - basic foodstuffs, electronics as you say - kind of like how the government claims inflation is low because they're not counting anything that goes up in price.

Also, Dominguez lived in a time of higher interest rates than we do now. I remember having a 1-year CD that paid 10% or so in the late 80s!
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Re: The 4% article that started it all?
Old 03-10-2004, 02:27 AM   #8
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Re: The 4% article that started it all?

Dominguez managed this loss of spending power with unusual living arrangements (he lived in a group home with about 30 other people) and a lot of composting and the washing and reusing of tin foil and wax paper -- a strategy that few early retirees would tolerate.

I don't think that it is quite right to say that few would tolerate the Dominguez lifestyle in order to be free of the need to earn a paycheck in their late 30s or early 40s. Your Money or Your Life sold millions of copies, and the book titled Getting a Life sets forth the stories of a number of middle-class workers who followed the Dominguez path to realization of their most important life goals.

That said, I think it is also true that there are a good number who would rather continue working for money than go with the Dominguez lifestyle. I fall into that camp, and my sense is that most who participate on these boards do too. My sense is that greater numbers will be attracted to the idea of achieving financial independence early in life if the idea is put forward not as a scrimp-and-save idea but as a self-liberation idea.

In fairness to Dominguez, however, I think it is also necessary to note that Dominguez never recommended that others adopt his lifestyle. When using his nine-step plan for financial independence, you are asked to decide for yourself whether you obtain more happiness from spending a specified sum on a particular budget category or whether you obtain more happiness from obtaining the financial freedom that comes from not doing so. I am not aware of any case in which Dominguez tried to impose his personal preferences on others.

Dominguez is a hero of mine. His book did more to influence my views on early retirement than any other book or article. That book is pure gold.

Dominguez was wrong in some of what he said about inflation, however. He dropped the ball on that one.

And I personally do not endorse his investment approach. I understand where he is coming from, though. He invested in stocks in his early days, suffered big losses, and that experience caused a delay in his early retirement. He wanted to get on to other things and his decision to go with stocks held him back from realizing that dream. My sense is that he allowed that personal experience to color his viewpoint from that point forward.
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Re: The 4% article that started it all?
Old 03-10-2004, 03:21 AM   #9
 
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Re: The 4% article that started it all?

Domenguez is not on my list of heroes. I've read his
stuff, but way too "deprived" for my taste. The Terhorsts are my gurus. I like their style, except for the
perpetual traveling part. But, doing what you want is a major part of the ER decision and obviously they like it.

Now, if my only choices were Domenguez style deprivation vs. going back to work, what would I choose? I suspect I would choose the deprivation
but I hope I never have to make that decision.

John Galt
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Re: The 4% article that started it all?
Old 03-10-2004, 04:27 AM   #10
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Re: The 4% article that started it all?

I would lean toward going going back to work. That Domingez style stuff was a common thread in the Pacific NW when I grew up(a lot of strange people out there). After WW11 my father was into the '5 acres and independance' for a while until light came on and we joined the post war consumerism. I've been known to go way overboard on 'frugal' in the past.

Not confined to the NW - I have a book about doing it in Maine - published 1954 - Living The Good Lifr by Helen and Scott Nearing that makes Domingez look wildly etravagent. My sense is this stuff has a 'romantic aspect' that can be traced back thru history to Europe and the enlightenment days.
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Re: The 4% article that started it all?
Old 03-10-2004, 07:32 AM   #11
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Re: The 4% article that started it all?

Quote:
That said, I think it is also true that there are a good number who would rather continue working for money than go with the Dominguez lifestyle. I fall into that camp, and my sense is that most who participate on these boards do too. My sense is that greater numbers will be attracted to the idea of achieving financial independence early in life if the idea is put forward not as a scrimp-and-save idea but as a self-liberation idea.
This I agree with.

I had a very liberating sense when I realized I had enough money to survive a few years (rent, food, etc.) if I lost my job. Barebones lifestyle, yes, but I could survive.

In my mind, FI is when you have enough to do that forever.


And while I'd rather avoid political discussions, I think Dominguez had the unique ability to encourage financial planning and saving among the more liberal crowd, because of his emphasis on lifestyle rather than the pure mechanics of saving and investing money.
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Re: The 4% article that started it all?
Old 03-10-2004, 09:11 AM   #12
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Re: The 4% article that started it all?

Quote:
That Domingez style stuff was a common thread in the Pacific NW when I grew up(a lot of strange people out there). After WW11 my father was into the '5 acres and independance' for a while until light came on and we joined the post war consumerism.
This reminds me of a magazine I used to read when I was in my twenties - Mother Earth News. Anybody recall that? Build a house in the woods with stuff others throw away (or pay you to take off their hands), garden, raise chickens and rabbits, and live happily ever after. They made it sound like paradise.
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Re: The 4% article that started it all?
Old 03-10-2004, 09:29 AM   #13
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Re: The 4% article that started it all?

Mother Earth News and Rodale Press books were one of 'my overboard on frugal' phases. Still live in a 'fish camp' but no longer get 'free wood' out of the swamp or shut off the electric. The swamp critters defeated my attempts at organic gardening. We acually use A/C in summer now. The nice thing about FI - you can diplomatically back off extreme frugal when she puts her foot down and says that's a bit Tooo - much!
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Re: The 4% article that started it all?
Old 03-10-2004, 09:39 AM   #14
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Re: The 4% article that started it all?

Hmmm...I wonder if you can compost dryer sheets. Or for that matter what they taste like...
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Re: The 4% article that started it all?
Old 03-10-2004, 01:31 PM   #15
 
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Re: The 4% article that started it all?

I would agree with Unclemick here, I probably go back to work.

The best things in Life are free, but it takes money to enjoy them - I think Yoggi may have said this.

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Re: The 4% article that started it all?
Old 03-11-2004, 03:57 AM   #16
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Re: The 4% article that started it all?

Quote:
This reminds me of a magazine I used to read when I was in my twenties - Mother Earth News. Anybody recall that? Build a house in the woods with stuff others throw away (or pay you to take off their hands), garden, raise chickens and rabbits, and live happily ever after. They made it sound like paradise.
The property tax is what makes subsistence farming of this type impractical in most areas. The Amish have been doing something similar for years, but they tend to band together and vote down the property tax in areas where they predominate. They then teach their own children. This life style allows the Amish to turn the family farm over to the eldest son when they turn 50, and retire. I still have a copy of Mother Earth's Catalog on my shelf. Since you reminded me of it, I may look it over to see what I think of the articles in it from the view point of a middle aged man.
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Re: The 4% article that started it all?
Old 06-15-2004, 10:10 PM   #17
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Re: The 4% article that started it all?

Kudos for a link to an article that explains SWR for the novice in a way that even I can understand it! :)
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Re: The 4% article that started it all?
Old 06-16-2004, 04:52 AM   #18
 
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Re: The 4% article that started it all?

I went back and reread all of these posts which I seldom do. I should I suppose as there is gold
everywhere on this site. Anyway, I have decided
that (a) I would go "back to work" rather than
be reduced to dumpster diving, but only part time,
and only at something I enjoy (yes, I know what that
is). and (b) Re. Joe Dominquez avoidance of stocks,
I never got hurt by stocks, but never really made any
money there either. That might be why I have -0-
stock investment, but it isn't. The main reason is that
I want as much rock solid predictability as I can get
(in investing and elsewhere). I can plan around
getting 5% annually on my money for 20 years, but not about
MAYBE getting 20% some time before I die. It's that
simple.

John Galt
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Re: The 4% article that started it all?
Old 06-16-2004, 10:09 AM   #19
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Re: The 4% article that started it all?

Quote:
I would go "back to work" rather than be reduced to dumpster diving, but only part time, and only at something I enjoy... I never got hurt by stocks...I want as much rock solid predictability as I can get (in investing and elsewhere). *I can plan around getting 5% annually on my money for 20 years, but not about MAYBE getting 20% some time before I die. *It's that simple.

John Galt
And that's why I have 87%+ in a general account earning 5.5% per yr. Comfort zone
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Re: The 4% article that started it all?
Old 07-07-2004, 12:16 PM   #20
 
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Re: The 4% article that started it all?

Opinions, opinions. If you think adding stocks to your portfolio will improve your annual withdrawl read the articles at fpanet.org, the journal for professional financial planners. If you don't have the math, get help. Then realize why Dominguez, et al invest as they do! The hard truth.
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