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Old 09-10-2008, 02:55 PM   #21
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Holding 10 or more years in cash and short term bonds is a nice cushion to avoid some of these.
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Or...... holding 10/30 = 33% cash allocation makes things worse, depending on the nature of the portfolio performance problem, current economic conditions and you're ability to find good yields for all that cash.
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Old 09-10-2008, 02:55 PM   #22
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1) The 4% rule has proven successful over 30 year periods that included a few years of high inflation and low returns. That in itself is not a deal breaker. but...

2) If you believe that we will have high inflation/low returns for a very extended period of time (10+ years), then yes the 4% rule might be severely tested (after all the 4% rule is based on historical data, who knows what the future will bring!). But I think that retiring early is a RISK, especially when retiring "on a budget" as you put it. It requires a willingness to adapt to new situations. You might have to cut your spending, or if that's not an option, go back to work. You might want to postpone your retirement until you can live on 2% SWR for more peace of mind. But there is absolutely NO guarantee that your plan will work in the end. Divorce, health care costs going through the roof, hyperinflation, low equity returns, choose your poison, there are plenty of ways for even the best plan to fail. You have to take your chances, hope for the best, and prepare for the worst.

So, Canadian Grunt, if you believe we are entering a phase of high inflation/low returns, how do you prepare for your own early retirement? How are you modifying your portfolio to boost your returns? Do you consider postponing your own retirement?
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Old 09-10-2008, 02:55 PM   #23
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Well, against my good judgement I am going to keep the thread going.


Funny how people can be so narrow minded. My point is that moving forward ER may not be possible for some as the long term rate of return will be diminished to the point that a viable ER may not be achievable. Of course now I am going to hear about the how I did it crowd but I am not talking about now just looking forward.

There is a lot of acceptance to this theory from high profile pers, such as Buffet, William Bernstein, Scot Burns, and a plethora of financial data supporting lower returns moving forward.
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Old 09-10-2008, 03:01 PM   #24
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My point is that moving forward ER may not be possible for some .
I think you state the obvious. Most of us recently RE'd types lived through a generally prosperious period. Therefore many of us had the opportunity to enjoy income excess to our current needs and were able to save. When we'd saved enough, we RE'd.

This may be more difficult going forward for any number of reasons and the percentage of folks able to save adequately to RE may diminish.

Don't be put off by the anecdotal stories that always crop up. This is an ego-driven crowd and we all like to let the world know how we did it.

I'm not really sure what your point is Canadian Grunt. But as far as the concept of the future economy and the population's ability to save enough to RE, I agree it might become more difficult going forward.
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Old 09-10-2008, 03:02 PM   #25
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Well, against my good judgement I am going to keep the thread going.


Funny how people can be so narrow minded. My point is that moving forward ER may not be possible for some as the long term rate of return will be diminished to the point that a viable ER may not be achievable. Of course now I am going to hear about the how I did it crowd but I am not talking about now just looking forward.

There is a lot of acceptance to this theory from high profile pers, such as Buffet, William Bernstein, Scot Burns, and a plethora of financial data supporting lower returns moving forward.
I disagree. There are many smart people that agree with me. I also have data.
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Old 09-10-2008, 03:11 PM   #26
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Because of the way this thread is squirming around, I re-read the OP and can't quite define what the question is, if there is one.

It seems the OP's proposition is that we are looking ahead at a prolonged anemic market and that if that occurs some may have to work longer or save more, well, I agree with that. Hard not to.

I think the gist of much of the push-back is that many are not as confident that the market will stay bad for a long time. Where's the beef?
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Old 09-10-2008, 03:14 PM   #27
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My belief is the US and various regions throughout the world are going to move through a protracted recession.
How long? Are you making a prediction about GDP growth, or some other amorphous standard? Do you not believe in the 2nd quarter growth numbers?
Quote:

Let me qualify my reasons:

There is a worldwide liquidity crises and this will effect housing over the long term as risk management kicks in at lending institutions, thereby limiting mortgages and loans to worthy clients and good investments. Means testing will limit the purchase price of houses moving forward. This will hurt those individuals who overpaid for housing as house prices are not going to rebound to previous heights. The long term effect will be poorer citizens.
I don't understand how an unwinding of the last 2 years housing runup leaves us worse off than we were 2 years ago. It makes some indivuduals worse off, those who bought at the top, but I'm just not seeing the aggregate long-term deterioration of wealth.

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The "war on terror," (whether you believe in it or not) has strained the US treasury. Coupled with recent bailouts of Fannie and Freddy, and a potential for the bailout of the Fed Deposit Insurance Corp, the Treasury will become increasingly restricted on what it can do to help the economy.
Like give out money in cash stimulus payments?
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US household debt is out of control. The consumer will become increasingly strapped and unable to spend their way out of recession as it has in the past. (Default to the Fed argument above).

The result: This limits the next rally in equity markets moving forward. Markets will probably be choppy for years, reacting to news and limiting gains to the 6% range long term but near zero medium term (1-2 years).
Government spending is part of the GDP pie. The government, with its low borrowing costs, has been spending its way out of the recession, even if consumers are unwilling to do so.
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This will be an ER stress test. As I have a ways to go until I retire I look forward to studying the effects on the ER population as a study for whether long term ER is viable.

Granted, those with millions or secure pensions will do fine. But ER on a budget looks like a wash.
How do you intend to study it? Seriously. Every 5-10 years, people talk about the "new investment world," and the "paradigm shift" that takes place. And later, all the old rules of economics still apply; the cycles repeat themselves.

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I think oil still has another leg up, lets just see where that plays out.
If you truly think it has "another leg up," it seems obvious to me that you should profit from it.
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Old 09-10-2008, 03:21 PM   #28
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[quote=Rich_in_Tampa;712025]Because of the way this thread is squirming around, I re-read the OP and can't quite define what the question is, if there is one.




I am not really asking a question. I am slowly moving towards the following statement.

The 4% withdrawal rule that seems so sacred may not work moving forward. In other words, many ER's who do not have sufficient capital and are relying on growth will find that in the long run their capital is diminished and their standard of living lowered or they are forced back to work.

I believe this is the gist that has recently been made by Scott Burns and William Bernstein.

Now don't get me wrong, I am an early retirement proponent. However, I think we all need to reassess the viability of ER moving forward.

I can't really frame this thread as a question because the quality of the discussion is lost.
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Old 09-10-2008, 03:21 PM   #29
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1) there are plenty of ways for even the best plan to fail.
Oh sure...... You have to pipe up and remind me of that!
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Old 09-10-2008, 03:28 PM   #30
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I don't understand how an unwinding of the last 2 years housing runup leaves us worse off than we were 2 years ago. It makes some indivuduals worse off, those who bought at the top, but I'm just not seeing the aggregate long-term deterioration of wealth.


Are you kidding me?


If you are under water and bought high in a diminishing real estate market, or entered into a sub-prime mortgage do you think you are going to come out ahead? How can you save for retirement when all your free cash is going to service the mortgage?

Then there is the bail out of Freddie and Fanny by the US government. Who pays for that? Tax payers. You now owe more whether it's on your books or the treasury books.

You may not be, but many people are now poorer from the whole Financial and Sub-prime mess.
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Old 09-10-2008, 03:45 PM   #31
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Originally Posted by Rich_in_Tampa View Post
Because of the way this thread is squirming around, I re-read the OP and can't quite define what the question is, if there is one.


I am not really asking a question. I am slowly moving towards the following statement.

The 4% withdrawal rule that seems so sacred may not work moving forward. In other words, many ER's who do not have sufficient capital and are relying on growth will find that in the long run their capital is diminished and their standard of living lowered or they are forced back to work.

I believe this is the gist that has recently been made by Scott Burns and William Bernstein.

Now don't get me wrong, I am an early retirement proponent. However, I think we all need to reassess the viability of ER moving forward.

I can't really frame this thread as a question because the quality of the discussion is lost.
You seem to be questioning the validity of the 4% rule, not all of ER.
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Old 09-10-2008, 03:54 PM   #32
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I don't understand how an unwinding of the last 2 years housing runup leaves us worse off than we were 2 years ago. It makes some individuals worse off, those who bought at the top, but I'm just not seeing the aggregate long-term deterioration of wealth.
Are you kidding me?

If you are under water and bought high in a diminishing real estate market, or entered into a sub-prime mortgage do you think you are going to come out ahead? How can you save for retirement when all your free cash is going to service the mortgage?

Then there is the bail out of Freddie and Fanny by the US government. Who pays for that? Tax payers. You now owe more whether it's on your books or the treasury books.
I am not kidding. Please re-read my post. I specifically point out that the people that bought at the top are not better off. In the same way that people that bought at the top of the tech-stock bubble did poorly, in every bubble there will be winners and losers, depending on the timing of the purchase/sell decision. Housing prices are still higher than they were only 5 years ago. Do you disagree?

Also, sub-prime borrowers do not automatically default, and are not universally worse off. I don't know why you think borrowers are worse off being offered a mortgage than not being offered a mortgage.

I do not like government involvement in private enterprise, but it would be unwise to allow Fannie and Freddie to fail. The ensuing chaos, I believe, would have worse financial ramifications than paying for their excesses through our taxes. Hopefully, this will be a lesson in creating government entities where there is no compelling need. Do you think Fannie and Freddie should be allowed to fail? What do you think would be the resulting effects?
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You may not be, but many people are now poorer from the whole Financial and Sub-prime mess.
You may have been, but many people did not get killed in real estate. Many people who have made long-term purchases in real estate have done well for themselves, and mortgages have enabled many to leverage these returns. What were your opinions about the stock market in 2000-2001?
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Old 09-10-2008, 03:59 PM   #33
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Government spending is part of the GDP pie. The government, with its low borrowing costs, has been spending its way out of the recession, even if consumers are unwilling to do so.[/quote]


The US government is spending away the wealth of the country. Issuing debt that is gobbled up by third world countries (Saudi Arabia, China, Dubai...need I go on?) Eventually the piper will have to be paid in the form of higher taxes.

If you truly think it has "another leg up," it seems obvious to me that you should profit from it.[/quote]

I have a substantial investment in Trusts and Canadian Oil stocks that pay dividends. This is my hedge for higher oil related costs in the future. I will bring your attention to the price of oil after Dec.
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Old 09-10-2008, 04:07 PM   #34
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Canadian Grunt, you need to leave the [quote] at the beginning of the information you are quoting in order for it to display correctly. If you need some assistance learning how to use the quote function on the forum I'm sure one of the mods will be happy to assist you.
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Old 09-10-2008, 04:07 PM   #35
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Also, sub-prime borrowers do not automatically default, and are not universally worse off. I don't know why you think borrowers are worse off being offered a mortgage than not being offered a mortgage. [/quote]


I think you are miss informed on sub-prime mortgages. When they reset there is a substantial increase in the cost of funds. This often creates the default because many borrowers maxed out their mortgage in the belief that house prices would go up and they could qualify for a prime mortgage based on equity.




I do not like government involvement in private enterprise, but it would be unwise to allow Fannie and Freddie to fail. The ensuing chaos, I believe, would have worse financial ramifications than paying for their excesses through our taxes. Hopefully, this will be a lesson in creating government entities where there is no compelling need.
You may have been, but many people did not get killed in real estate. Many people who have made long-term purchases in real estate have done well for themselves, and mortgages have enabled many to leverage these returns. What were your opinions about the stock market in 2000-2001?[/quote]

2000-2001 was a tech melt down. This is broad based and there is the added component of weakened banks and a housing melt down. In 2001 the housing market was moving up based on the cocooning effect started by 9/11 and increased by the opinion that housing was a safe haven for investment.
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Old 09-10-2008, 04:09 PM   #36
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Government spending is part of the GDP pie. The government, with its low borrowing costs, has been spending its way out of the recession, even if consumers are unwilling to do so.
The US government is spending away the wealth of the country. Issuing debt that is gobbled up by third world countries (Saudi Arabia, China, Dubai...need I go on?) Eventually the piper will have to be paid in the form of higher taxes.
So we are borrowing money, as a nation, to invest in our future. And this will need to be paid for in the future. It sounds like capital markets are working efficiently, assuming that the US has better investment options than third world countries. Having the US as a borrower, with its low cost of capital, seems like a cheap way for the country (citizens and businesses) to invest. We'll pay the money back when the investments abroad become better than investments at home. What am I missing?

FYI: In order to quote something, this tag "[quote]" needs to go in front of the quoted passage, followed by the same word preceded with "/".
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Old 09-10-2008, 04:10 PM   #37
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[quote=REWahoo;712050]Canadian Grunt, you need to leave the
Quote:
at the beginning of the information you are quoting in order for it to display correctly. If you need some assistance learning how to use the quote function on the forum I'm sure one of the mods will be happy to assist you.


Yea, I am struggling with the quotes when I parse a statement for simplicity.


Help!
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Old 09-10-2008, 04:17 PM   #38
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Also, sub-prime borrowers do not automatically default, and are not universally worse off. I don't know why you think borrowers are worse off being offered a mortgage than not being offered a mortgage.

I think you are miss informed on sub-prime mortgages. When they reset there is a substantial increase in the cost of funds. This often creates the default because many borrowers maxed out their mortgage in the belief that house prices would go up and they could qualify for a prime mortgage based on equity.
I think you are conflating sub-prime borrowers (those with low credit scores and higher expected rates of defaults) with adjustable rate mortgages. Many sub-prime borrowers did not get screwed over by rate increases, because they didn't choose the mortgage with the lowest initial payment and make faulty assumptions about the future.
Quote:
Quote:
I do not like government involvement in private enterprise, but it would be unwise to allow Fannie and Freddie to fail. The ensuing chaos, I believe, would have worse financial ramifications than paying for their excesses through our taxes. Hopefully, this will be a lesson in creating government entities where there is no compelling need.
You may have been, but many people did not get killed in real estate. Many people who have made long-term purchases in real estate have done well for themselves, and mortgages have enabled many to leverage these returns. What were your opinions about the stock market in 2000-2001?
2000-2001 was a tech melt down. This is broad based and there is the added component of weakened banks and a housing melt down. In 2001 the housing market was moving up based on the cocooning effect started by 9/11 and increased by the opinion that housing was a safe haven for investment.
Um, the tech meltdown took everything down with it. You think only tech stocks like Pets.com were affected?!? Do you consider BRK a tech stock? How about DIS? How about BAC? Every person invested in the equity market was affected, just like every person invested in real estate is affected by the change in asset prices. Those that bought at the top lost terribly, and those that bought at the ground floor did very well.
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Old 09-10-2008, 04:18 PM   #39
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[quote=Abreutime;712054]So we are borrowing money, as a nation, to invest in our future. And this will need to be paid for in the future. It sounds like capital markets are working efficiently, assuming that the US has better investment options than third world countries. Having the US as a borrower, with its low cost of capital, seems like a cheap way for the country (citizens and businesses) to invest. We'll pay the money back when the investments abroad become better than investments at home. What am I missing?

FYI: In order to quote something, this tag "
Quote:
" needs to go in front of the quoted passage.


Borrowing money for infrastructure works but you have to pay it back. The US government is borrowing for items that are used before the borrowed funds are paid back. This is what gets so many third world countries into trouble. Those stimulus checks were a total waste of funds. The 10 Billion a month spent on the War on Terror will not be returned to the economy. Debt servicing will soon become an issue in the US as they print off more money, creating a lower dollar and increasing inflation.
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Old 09-10-2008, 04:27 PM   #40
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Borrowing money for infrastructure works but you have to pay it back. The US government is borrowing for items that are used before the borrowed funds are paid back. This is what gets so many third world countries into trouble. Those stimulus checks were a total waste of funds. The 10 Billion a month spent on the War on Terror will not be returned to the economy. Debt servicing will soon become an issue in the US as they print off more money, creating a lower dollar and increasing inflation.
The national debt and loose Federal reserve policy are related, but not the same. We can run a federal deficit without heavy inflation. Check out the eighties.

The national debt as percent of GDP is lower than it was in the mid-nineties under Clinton.
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