How Much Is Enough for Game Over Won!!

[nun]

My parents retired on a company pension, UK social security, a small amount of personal savings invested in the UK equivalent of CDs and a paid off home. Of course interest rates were a lot higher in the 1980s, still my approach is similar to that of my parents except that some of my savings are in equities.

Back in 1987 I started to save for retirement and put everything into TIAA-Traditional deferred annuity. I also decided to contribute to both US and UK social security schemes as I reasoned that two inflation linked social security checks would be better than one. When I changed jobs I lost access to TIAA-CREF for retirement savings and so went with low cost index funds, but my plan was always to retire on TIAA-Traditional and SS payments. I also started to make extra mortgage principal payments when I bought a home and also bought a rental property to diversify my income. My last job came with a pension so now I can retire on the pension and the rental income. TIAA-Traditional gives a nice 4% annual return for unexpected expenditures and when UK and US SS start they will provide around $40k of surplus annual income which will be reinvested. I do not plan on spending any of my equity investments and will leave my estate to my nieces and several charities.

 

[pb4uski]

One example. Go to https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf

Leave the default of 30 years, $1 million and change withdrawals to $40k a year (4% WR).

50/45/5 ~ 93% success rate
0/95/5 ~ 74% success rate
0/50/50 ~ 58% success rate

So if you want a 95% success rate you need $1.05 million for the 50/45/5 portfolio and $1.25 million for the two more conservative portfolios... almost 20% more and many more years of work to save that additional $200k.

 

[eta2020]

If you worked until you had enough money to not need the stock market, then most likely you have lost, not won.

Last time I checked, extra years of life were more than even Buffett can afford.

It is funny that Buffett had about 1% net worth at 50 as compared to what he has now at 85. And he did not get there by buying Bonds and CD Ladders.

Many people here retire at 50.

 

[GrayHare]

"There's no 20-year period where you've lost money in stocks, even after inflation."

http://www.fool.com/investing/general/2015/12/10/the-history-of-the-stock-market.aspx

 

[cyber888]

There is no definite amount, because the sustainability of wealth is always tied to your expenses. Look at Nicolas Cage, he probably had $300 million in assets and he almost went bankrupt because he spent so much money on buying castles and stuff. How about the billionaire who lost almost everything during the recession. How about the multi-millionaire who committed suicide because Bernie Maddoff took it all.

 

[eta2020]

There is no definite amount, because the sustainability of wealth is always tied to your expenses. Look at Nicolas Cage, he probably had $300 million in assets and he almost went bankrupt because he spent so much money on buying castles and stuff. How about the billionaire who lost almost everything during the recession. How about the multi-millionaire who committed suicide because Bernie Maddoff took it all.

But you also know if for example you are spending 75k a year then 1.5 million in VTI and 1.5 million in VXUS is all you need no matter what happens without any rebalancing, selling or "thinking" and you can live for 1000 years without running out of money......

Increasing withdrawals above inflation rate...hence having more and more money every year.

 

[scrinch]

Most of us invest in the market, we don't play in the market or gamble with it. I don't know why you refer to it that way. Maybe you're investing in a lot riskier stocks than I am.

I give my money to a guy, and give him instructions about what I want done with it. He and I agree that the amount he gives me back later will be related to some results that happen between now and then. I have studied the process that my return will be related to...I understand the mechanism of how it works, and I understand the statistics of people who have done similar things with their money in the past. I know that I can take the high-risk, high-reward option or a low-risk, low-reward option when I give the instructions to this guy, and am comfortable with the level of risk I am taking now. This understanding notwithstanding, I have absolutely no control over the outcome and how much I will get back, only a historical record of what has happened previously in similar situations.

So did I give my money to my Vanguard rep and ask him to invest it all in Wellesley with dividends reinvested? Or did I give my money to the croupier and tell him to put it on red, and let it ride two times if I win? Could you look at investing as informed and well considered gambling? The process is pretty similar.

I watched my brother's portfolio get completely wiped out during the dotcom bust, while mine took a 20% hit. I realized then that while I had taken a more conservative (lower risk, lower reward) approach to investing, I had absolutely no more control over the results than my brother did. The mechanism of what he did and what I did were identical. We both could have been completely wiped out. We were playing the same game...I just took less risk than he did. Was he gambling, while I was investing, just because the results turned out the way they did?

 

[eta2020]

We both could have been completely wiped out. We were playing the same game...I just took less risk than he did. Was he gambling, while I was investing, just because the results turned out the way they did?

Can you tell me please how can I be completely wiped out with for example 3 Million dollar portfolio split between VXUS and VTI? I mean short of US-Russia Nuclear War

BTW I don't give my money to any guy because that 0.5% or 1% fee is huge money that I want to keep in my pocket.

 

[daylatedollarshort]

None of us know the future. I guess our investing style depends on how much faith we have in tools like Firecalc and the 4% rule and what our plan B is if future results are less. I am not going to bet the farm that people like Bogle and Shiller are wrong about future returns.

We're starting out with plan B for our baseline living expenses in the event that past performance is not indicative of future results, and have in the market what we can afford to lose / gamble on for extra discretionary spending.

 

[Car-Guy]

Most of us invest in the market, we don't play in the market or gamble with it.

I'm an outlier (contrarian) on this board, no doubt about it.

 

[pb4uski]

...Was he gambling, while I was investing...

Yes. You were broadly diversified and he was not... you were investing and he was gambling.

 

[scrinch]

Can you tell me please how can I be completely wiped out with for example 3 Million dollar portfolio split between VXUS and VTI? I mean short of US-Russia Nuclear War

BTW I don't give my money to any guy because that 0.5% or 1% fee is huge money that I want to keep in my pocket.

No need. You answered your own question. My point isn't to say that your portfolio has any particular level of risk. It's to say that by investing in the stock market, we are handing our money to someone else and agreeing to accept a return based on a set of rules. No guarantees.

In a casino, both the customers and the house are gambling. We say the gaming company is making an investment because it has a better business model, not because it isn't gambling.

 

[eta2020]

No need. You answered your own question. My point isn't to say that your portfolio has any particular level of risk. It's to say that by investing in the stock market, we are handing our money to someone else and agreeing to accept a return based on a set of rules. No guarantees.

In a casino, both the customers and the house are gambling. We say the gaming company is making an investment because it has a better business model, not because it isn't gambling.

Yea...but with Index funds we are handing it to Mr. Market versus some individual money manager.

I have trust in Mr. Market.

 

[Fermion]

If you worked until you had enough money to not need the stock market, then most likely you have lost, not won.

Last time I checked, extra years of life were more than even Buffett can afford.

I wasn't trying to talk in riddles but rather be concise. Instead of being cryptic, here is what I was trying to say:

If you think winning the game is working at your job until you are at the point where you have so much money that you do not need to take any real risk (stock market or even bond market) to insure that you never come close to running out, then in most cases you have probably spent too much of your life preparing yourself for your final years. You can never gain back the younger years of your life where you were not able to do some of the things you wanted to do because of your job. Obviously there are some who love their job and find the most happiness there (maybe Buffett is one) and there are those who get lucky and manage to pick a hot career or hot company and make a fortune while they are young (many Microsoft multi-millionaires by age 30 back in the late 1990s).

For most of us, there is a point where we can retire earlier than "normal" and still have a few decades of active lifestyle but in order to achieve this we must fight inflation by having a portion of our money at risk.

(I think my earlier post was far better)

 

[Danmar]

When I got to that point I actually felt even more that staying 100% in equities is a way to go and had even less reasons to get out .
You don't need to get out once dividend yield covers your living expenses.

Totally agree. With a nice pension backstop, I figure I can easily handle more risk.

 

[daylatedollarshort]

If you think winning the game is working at your job until you are at the point where you have so much money that you do not need to take any real risk (stock market or even bond market) to insure that you never come close to running out, then in most cases you have probably spent too much of your life preparing yourself for your final years.

I get your point and there is no right answer for each household. Your focus is being able to retire early (I think in your forties?). Some people would give a higher priority to never possibly running out of money or being able to leave money to charity, especially if they have jobs they enjoy and can continue to work on part-time.

Bernstein uses Pascal's wager as an example of why he recommends a conservative approach for those clients who have "won the game":

"If you have already achieved sufficient wealth to support a quality lifestyle, you face a similar wager. You can focus on the preservation of capital by having a low allocation to risky assets, or you can try to accumulate even more wealth by having a large allocation to risky assets. While it is likely that a high allocation will result in greater wealth, you can be wrong. And the consequences of going from rich to poor are intolerable for most people.

The bottom line is that the consequences of decisions must always dominate the probabilities of outcomes. That is why the prudent strategy for investors that have reached the point where their marginal utility of incremental potential wealth is low is to have their portfolios be dominated by high-quality fixed income assets. There are some risks that are just not worth taking."

Are the Rewards Worth the Risks? - CBS News

 

[nun]

Bernstein uses Pascal's wager as an example of why he recommends a conservative approach for those clients who have "won the game":

I'm going on the theory that God will appreciate an honest atheist over a sycophantic believer.

 

[daylatedollarshort]

I'm going on the theory that God will appreciate an honest atheist over a sycophantic believer.

I think his focus is on the concepts of the analogy since it is a famous one, and not trying to make a religious statement.

If you prefer a more secular analogy, Berstein also uses one by Warren Buffett, concerning the Long Term Capital geniuses:

"To make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish."

http://blog.alphaarchitect.com/2015...lind-spots-leverage-taking-unnecessary-risks/

 

[unclemick]

Yea...but with Index funds we are handing it to Mr. Market versus some individual money manager.

I have trust in Mr. Market.

heh heh heh - all praise to 'Bogle's Folly!' My best pal since 1977.

Lead Sled Dog. The horse I rode in on. Big Dog on the porch. And any other positive cliches you can think of.

Forget that brief affair with pssst Wellesley I am back with my true love - broad index funds.

 

[nun]

I think his focus is on the concepts of the analogy since it is a famous one, and not trying to make a religious statement.

If you prefer a more secular analogy, Berstein also uses one by Warren Buffett, concerning the Long Term Capital geniuses:

"To make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish."

Warren Buffett On LTCM, Blind Spots, Leverage, and Unnecessary Risk - Alpha Architect

I'm not fond of Pascal's wager because it is intellectually dishonest. However, I am a believer in a liability matching portfolio and only risking money in the market that you can afford to lose.

 

[RetireAge50]

My question for daylatedollarshort is how are you going to get all these quotes from different sources out of your head?

 

[daylatedollarshort]

My question for daylatedollarshort is how are you going to get all these quotes from different sources out of your head?��

It took a long time to fit them all in there. Why would I want to go and take them out?

 

[RetireAge50]

I don't know. Sometimes some of these experts and studies can cloud our own thought process. I think it is ok to learn certain things from experts but ultimately use our own brain and creativity.

 

[ejman]

heh heh heh - all praise to 'Bogle's Folly!' My best pal since 1977.

Lead Sled Dog. The horse I rode in on. Big Dog on the porch. And any other positive cliches you can think of.

Forget that brief affair with pssst Wellesley I am back with my true love - broad index funds.

It's interesting though that when one compares pssst Wellesley with similar conservative allocation index funds such as Vanguard LifeStrategy Consrv Grwth which has a very similar split of stocks/bonds, Wellesley beats it soundly for 1,3,5 and 10 year periods, with a higher SEC yield to boot. The Welllesley conundrum.

 

[RunningBum]

I give my money to a guy, and give him instructions about what I want done with it. He and I agree that the amount he gives me back later will be related to some results that happen between now and then. I have studied the process that my return will be related to...I understand the mechanism of how it works, and I understand the statistics of people who have done similar things with their money in the past. I know that I can take the high-risk, high-reward option or a low-risk, low-reward option when I give the instructions to this guy, and am comfortable with the level of risk I am taking now. This understanding notwithstanding, I have absolutely no control over the outcome and how much I will get back, only a historical record of what has happened previously in similar situations.

So did I give my money to my Vanguard rep and ask him to invest it all in Wellesley with dividends reinvested? Or did I give my money to the croupier and tell him to put it on red, and let it ride two times if I win? Could you look at investing as informed and well considered gambling? The process is pretty similar.

I watched my brother's portfolio get completely wiped out during the dotcom bust, while mine took a 20% hit. I realized then that while I had taken a more conservative (lower risk, lower reward) approach to investing, I had absolutely no more control over the results than my brother did. The mechanism of what he did and what I did were identical. We both could have been completely wiped out. We were playing the same game...I just took less risk than he did. Was he gambling, while I was investing, just because the results turned out the way they did?

Having some similarities doesn't make gambling and investing the same thing.