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Work Less Live More update
Old 12-10-2008, 07:18 PM   #1
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Work Less Live More update

Some readers were asking me to post something here on how things have been faring with the Work Less Live More portfolio and whether I'd changed anything or had second thoughts about the long term buy and hold slicer dicer approach I follow and advocate in the books.

Like everyone else I have had days of feeling overwhelmed and having serious doubts. Especially when friends tell me they got out last year or in September etc. But I feel that even if I were smart enough to get out when AIG failed, I would no way be smart enough to know when to get back in now. I've screwed up market timing enough times to just say "No". Look at Bill Miller at Legg Mason -- today's paper tells us he's wiped out 10 years of gains in the last few months.

So I've definitely been staying the course, but also making tweaks. For example, I've been looking at some of the fixed income holdings and making sure I really had the credit exposure I expected when I originally bought stuff. For instance, many of the corporate bonds, municipals, overseas bonds, even short term investment grade bonds, which had always held up fine with little or no credit risk, all took 10% hits. I had to make some painful choices about selling them and buying better quality bonds -- not treasuries which look crazy expensive, but some things which were a step up on the credit scale and thus not as subject to any future deterioration in price. (Vanguard's BSV, for instance, which has some agencies blended in, CDs, shorter-term bond funds (foreign and domestic) and even holding more in money markets)

I am also feeling that while the dollar's rise and low interest rates have really smacked around the international holdings, I am confident these trends will eventually reverse and dollar weakness will go along with inflation here as a result of all our govt borrowing.

So the short answer is that the Work Less Live More portfolio is getting beaten up, and me with it -- but I'm hanging in there. After rebalancing earlier this year, my stock allocation is down from its target 40% to about 25% of portfolio not because I sold anything but because it has depreciated.

Overall portfolio is down about 30% from the peak and since I have been taking 4.3% withdrawals, the portfolio performance alone is down 26% or 27% from the peak last October.

Finally I am doing tax loss harvesting -- selling things which have losses and buying something similar (but not identical) to ensure I have roughly the same exposure to the markets. Where possible I am buying ETFs since I think they are more tax efficient and despite the fact that they are relatively new, I think they are safe. They seem to have come through all this market chaos functioning smoothly, and by holding them I shouldn't have to deal with taxable capital gains distributions. Surprisingly I don't have too many actual capital losses to claim compared to the amount my portfolio value has dropped since last year: most all the gains had been built up during the past 4 or 5 years so many of my positions are still worth more than I bought them for, even now. Bonus: if you're quick, you can sell some of your mutual funds (and buy a suitable ETF replacement) and dodge any taxable year-end distributions for this year.

Our family have also cut back on spending, for sure. In fact our monthly spending is down about 30% in the past two months, and our overall family budget (because of some pretty hard-to-cut fixed costs like taxes and insurance etc.) is going to be down about 22% next year if present trends continue. We all have a sort of siege mentality which I am sure is not helping the economy get better but it's helped us keep our budget in balance to live within our SWR even at these new lower portfolio levels with no need to resort to the 95% Rule.

Hope this helps anyone else who's wondered what became of the Work Less Live More approach. I haven't been posting much here because I've been 100% locked in the studio most of the year creating sculpture -- my ER dream job. I see no easy answers right now except that at some point things are going to get cheap and we'll have the foundation for a long string of up years (I hope!)
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Old 12-10-2008, 07:28 PM   #2
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Thank you for the update !
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Old 12-10-2008, 07:42 PM   #3
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Thanks for the frank and thoughtful update, Bob.

Any thoughts on SPIAs?
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Old 12-10-2008, 07:43 PM   #4
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Thanks Bob I really enjoyed your book (recommended reading by many here).
Good to hear that despite the fact you're turning the lights off when you walk out of the room and i.e. making sensible choices to control your spending your program is intact/working and you are staying the course.
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Old 12-10-2008, 07:45 PM   #5
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Nice artwork - I don't have any ability in that area so I appreciate someone that does.
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Old 12-10-2008, 08:08 PM   #6
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Work Less Live More update
Whew-- for a moment there I thought Nolo was after you for a third edition, this time with a special free 95% budget-cutting tool on DVD!
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Old 12-10-2008, 08:22 PM   #7
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Yes...thanks for the update.

Your art is incredible...you capture the soul!
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Old 12-10-2008, 09:19 PM   #8
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Bob,
I too loved the book and merely adjusted your portfolio to have less REIT's because I have a large home giving me plenty of real estate exposure. One thing I keep thinking about and I must say, I was one of the "lucky" ones to sell off his entire portfolio and buy bond funds right before the fall. My gut says I should go all back in now that everyone has been brought down 30%-50% because I am about 30% away from having a nest egg that would allow me to FIRE. My thought is perhaps this isn't the bottom, but it sure is a lng way down for most and surely things will get better eventually and as everyone works on coming back to even, I will get my 30% I need to FIRE.

This is kind of an evil market timer question, but just wanted to throw it out there anyway. So, I guess nobody knows the answer, but if you were me....would you jump into your suggested portflio now or wait for some other sort of sign things are improving? And if so what is that sign?
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Old 12-10-2008, 09:23 PM   #9
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I think Bob would tell you to day trade to get the 30%. (heh)
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Old 12-10-2008, 09:27 PM   #10
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Originally Posted by Shabber2 View Post
So, I guess nobody knows the answer, but if you were me....would you jump into your suggested portflio now or wait for some other sort of sign things are improving? And if so what is that sign?
The barmaid will look meaningfully toward the backroom and gently take your hand...

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Old 12-10-2008, 10:04 PM   #11
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Thanks for the update. My portfolio was build using the "rational investing portfolio" described in your book as a template. I had skipped a few asset classes that looked very expensive when I set up my porfolio, such as commodities and TIPS. But I took advantage of the latest slump to add those asset classes to my portfolio. Overall I am still satisfied with the results. I have no intention to make any drastic changes anytime soon.

Interestingly I had the same concern as you did about the bond portion so I slighly reduced the duration of my fixed income portfolio. All the bonds I owned already were top quality within their categories, so I didn't have to "trade up".
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Old 12-10-2008, 10:38 PM   #12
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Bonus: if you're quick, you can sell some of your mutual funds (and buy a suitable ETF replacement) and dodge any taxable year-end distributions for this year.
Is this a wash sale unless you buy it back 30 days later?
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Old 12-10-2008, 11:17 PM   #13
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I had skipped a few asset classes that looked very expensive when I set up my porfolio, such as commodities and TIPS. But I took advantage of the latest slump to add those asset classes to my portfolio. Overall I am still satisfied with the results. I have no intention to make any drastic changes anytime soon.
Not to put my hand on the hot stove or anything, but I sometimes get the idea that the best response to hearing someone say "asset class" is to immediately short or at least get rid of whatever marvelous new "asset class" he is telling you about.

Remember commodities as an asset class a few years ago? PCRIX and various passive contract roll strategies? Total hooey, purely an artifact of an unusual condition then present in many markets, notably crude oil, somewhat misleadingly called "normal backwardation". The normal thing is what we have now, contango. And since contango showed up these passive roll commodity funds have been absolutely killed.

Another "asset class" was timber. Very, very popular, unique asset class because your inventory never gets obsolete and just sits there and grows no matter what the timber markets are like. Timber REITs and forest products companies like Weyerhaeuser were must-own securities for the poor unfortunates among us who could not just go out and buy our own tree farm like Yale and Harvard. It was great until the housing bubble popped, and suddenly all those trees were not worth much. Unfortunately the debt still has to be paid. Even though trees continue adding to their biological growth year in and year out, you just can't pay interest with wood.

Then of course let's not forget oil and gas production. This was wonderful because it divorced the cash flows of the commodity business from the whimsies of the stock market, so the lucky owners would just get richer and richer without pause. Until the markets for these commodities fell apart and many of the drilling programs couldn't pay their debt. Oh darn! Never happened before, did it?

Last but not least, let's not forget REITs. REITs brought the marvels of property investment to us mortals, and unfortunately the hazards too. A lot of formerly "high quality" REITs are on the precipice of bankruptcy. Look at what happened to the Bucksbaums' General growth Properties, thought to be the highest quality mall owner in America a very short while ago. About 18 months ago it traded just south of $70. Closed today at $1.62, after bottoming out (for the time being at least) at $0.24.

Many securities in these bombed out groups will be very profitable from here. Some will go broke and disappear. But is certainly looks as if the main value of "asset classes" was as sales tools.

I had really never heard of asset classes until I came to this board, yet I survived quite well. My plan is to purge this whole idea from my head, so that if I ever find myself listening or reading about it I will run and take a cold shower.

Good investments are where you find them and when you find them; and they don't neatly arrange themselves in classes.

Ha
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Old 12-10-2008, 11:48 PM   #14
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Not to put my hand on the hot stove or anything, but I sometimes get the idea that the best response to hearing someone say "asset class" is to immediately short or at least get rid of whatever marvelous new "asset class" he is telling you about.

Remember commodities as an asset class a few years ago? PCRIX and various passive contract roll strategies? Total hooey, purely an artifact of an unusual condition then present in many markets, notably crude oil, somewhat misleadingly called "normal backwardation". The normal thing is what we have now, contango. And since contango showed up these passive roll commodity funds have been absolutely killed.

Another "asset class" was timber. Very, very popular, unique asset class because your inventory never gets obsolete and just sits there and grows no matter what the timber markets are like. Timber REITs and forest products companies like Weyerhaeuser were must-own securities for the poor unfortunates among us who could not just go out and buy our own tree farm like Yale and Harvard. It was great until the housing bubble popped, and suddenly all those trees were not worth much. Unfortunately the debt still has to be paid. Even though trees continue adding to their biological growth year in and year out, you just can't pay interest with wood.

Then of course let's not forget oil and gas production. This was wonderful because it divorced the cash flows of the commodity business from the whimsies of the stock market, so the lucky owners would just get richer and richer without pause. Until the markets for these commodities fell apart and many of the drilling programs couldn't pay their debt. Oh darn! Never happened before, did it?

Last but not least, let's not forget REITs. REITs brought the marvels of property investment to us mortals, and unfortunately the hazards too. A lot of formerly "high quality" REITs are on the precipice of bankruptcy. Look at what happened to the Bucksbaums' General growth Properties, thought to be the highest quality mall owner in America a very short while ago. About 18 months ago it traded just south of $70. Closed today at $1.62, after bottoming out (for the time being at least) at $0.24.

Many securities in these bombed out groups will be very profitable from here. Some will go broke and disappear. But is certainly looks as if the main value of "asset classes" was as sales tools.

I had really never heard of asset classes until I came to this board, yet I survived quite well. My plan is to purge this whole idea from my head, so that if I ever find myself listening or reading about it I will run and take a cold shower.

Good investments are where you find them and when you find them; and they don't neatly arrange themselves in classes.

Ha
How was your cold shower?

Well I am glad you are doing so well for yourself. Perhaps I got conned into this marketing ploy called asset classes. I am certainly not as sophisticated or experienced an investor as many of you here. The idea of asset classes does make sense to me. The fact that different assets react differently to different events seems logical and intuitive. Own a variety of assets and take advantage of sector opportunities when they arise while protecting yourself from a variety of market risks. Perhaps you are a great market timer and you don't need that. You can just jump from investment to investment at the most opportune time to maximize your returns and reduce your risks. Unfortunately, I have not been gifted with that talent.

PS: by the way owning commodities or investment real estate as part of your estate is not a new idea created by evil investment bankers in the past few years. My grand parents used to hide gold and silver coins behind their wardrobe and invest their money in hard assets such as land, timber or cows. Their ancestors did the same. Perhaps REITs and commodity funds are not the right vehicles to get exposure to the underlying asset, I don't know. But I have no doubt in my mind that each one of those assets (well except perhaps the cows!) have a place in MY portfolio.
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Old 12-11-2008, 01:30 AM   #15
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PS: by the way owning commodities or investment real estate as part of your estate is not a new idea created by evil investment bankers in the past few years. My grand parents used to hide gold and silver coins behind their wardrobe and invest their money in hard assets such as land, timber or cows. Their ancestors did the same.
Thank you for making it simple enough for me to understand the concepts involved.

BTW, I am not trying to talk you out of asset class investing. Buy a cow for all I care. I am just pointing out that it hasn't been overwhelmingly successful lately. I think my catalog of disasters might suggest, at least to some observers if not to you, that one might do well to be careful when he starts hearing about an "asset class". People practiced diversificaion long before Jeremy Grantham popularized "asset class" investing.

You even admitted that your asset allocation is a dirty type- you decide what is overvalued, and don't invest or invest modestly in that "class".

Ha
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Old 12-11-2008, 01:31 AM   #16
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Thanks for the update, Bob. Your art is amazing!
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Old 12-11-2008, 02:31 AM   #17
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Thanks for the update, Bob. Your art is amazing!

Ditto.

Now - my question is (no not pssst Wellesley) - should you care to answer - how does your 4.3% in general compare with your portfolio's SEC yield given your variations in spending what with the er current unpleasantness market wise?

Man to man or zone defense speaking (tongue in cheek).

heh heh heh - chickenheartedness may have me doing my SEC yield (3.9%) next year for me unless I buck up and get more optimistic.

P.S. Down about 26/27% market wise here too.
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Old 12-11-2008, 11:30 PM   #18
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Is this a wash sale unless you buy it back 30 days later?
You have to buy something similar but not identical. For now, even though it is technically a gray area and enforcement seems uncertain, that means I wont sell an index mutual fund and buy an ETF that follows the same index. Especially if you only plan to hold the new ETF for 30 days, I see no issue selling an sp500 index fund, for instance, and buying a total stock market ETF. Or selling a small cap index fund and buying a small cap value or small cap growth ETF. That sort of thing.

And to answer UncleMick's question, I did a calc on this about 3 weeks ago and my own portfolio is now yielding about 3.5%. This is up from about 2.5% normally. I think it is driven by the fact that lower-yielding stock funds now constitute 25% (down from 40% targets re-set this summer) and that the bonds I owned got hammered in price driving their yields up.

As an example, the Vanguard Short Term Investment Grade Bond Fund (VFSTX) is off about 6% in the past year and is now yielding over 6% -- this in a year when 'interest rates', at least as measured by Fed actions and other customary measures are down. A fund with a duration of 1.7 years. I think it is driven by credit worries (downgrades in bonds held), and I don't believe the fund has had any defaults yet.
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Old 12-12-2008, 06:13 AM   #19
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Thanks for the update Bob.

For others, I have read every retirement book I can get my hands on and I have only bought three. One of them is Bob's book - Work Less, Live More. I think it's outstanding (and I don't know Bob or his publisher).
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Old 12-12-2008, 09:19 AM   #20
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Beautiful post - bravo! I call it 'Bernstein on the Brain' syndrome. I know one of his friends, and as far as I can tell even the Great Bernstein doesn't follow his advice 100%

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Not to put my hand on the hot stove or anything, but I sometimes get the idea that the best response to hearing someone say "asset class" is to immediately short or at least get rid of whatever marvelous new "asset class" he is telling you about.

Remember commodities as an asset class a few years ago? PCRIX and various passive contract roll strategies? Total hooey, purely an artifact of an unusual condition then present in many markets, notably crude oil, somewhat misleadingly called "normal backwardation". The normal thing is what we have now, contango. And since contango showed up these passive roll commodity funds have been absolutely killed.

Another "asset class" was timber. ... Good investments are where you find them and when you find them; and they don't neatly arrange themselves in classes.

Ha
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