Kaderli's 90% S&P Portfolio

[Running_Man]

So if the a 90% S&P 500 portfolio has worked for the Kaderli's why does everyone here continue to hyper-analyze various S&D and SWR strategies? Obviously simple works.

HA! it worked in thsi case because the '90's was a great bull market. Had they adopted their retirement in 1966 they would have been in grave difficulty by 1974. Their original portfolio of $500,000 supported a 5% withdrawl rate. I assume they would have gone back to work for a while to rebuild thier funds and you never would have heard of them, yet they still would be happy I suspect

 

[Billy]

Bikerdude:

Yeah, lucky enough to lose around 45% of their investments from 2000 thru 2002. S&P500 1/2000 = 1550, S&P500 3/2007 = 1430. So -8% plus inflation for 7 years. Like I said if you can live off the dividends your OK.

None of us know what the future will bring, retired or not. Here's our piece called Surviving a Bear Scare: http://www.retireearlylifestyle.com/motley_fool_article_11.htm

Chinaco:

They follow the LBYM philosophy and manage expenses aggressively, yet have a comfortable lifestyle that is more tuned into experiences and people rather than acquiring objects and stuff.

Exactly. However, for those interested, here is our actual net spending in Priceless Retirement:
http://www.retireearlylifestyle.com/motley_fool_article_6.htm

We have updated our figures for 2006, and we are still at 24K net annual spending -- categories have shifted, but the total is the same.

Masterblaster:

And it is simple to understand and simple to implement.

Again, exactly. And here is our piece Retirement is Not Rocket Science: http://www.retireearlylifestyle.com/motley_fool_article_10.htm

Drigooch:

I am not too surprised about the Kaderli story. Maybe some of their income is book royalties. They do have a real message to tell. Too bad more are not listening.

Thanks, Drigooch. Our book has been very successful, and for this we are most greatful. We have now sold in 23 countries ( !!) However, let it be known that we were retired a full 15 years before we wrote the book, and we wrote it to answer the continuous questions being asked of us, and for the creative challenge. The rest is gravy.

Mwsinron:

I think you are supposed to buy the book

Nords:

If you have a Hawaii state library card then you can borrow the copy that I donated.

Thanks Nords!! (Generous forward-thinking man that you are... 8) ) Also, for those who can't afford the book or don't want to buy, here is our Retirement Issues Page: http://www.retireearlylifestyle.com/retirement.htm

Financial Information and Forums: http://www.retireearlylifestyle.com/links_financial_info_forums.htm

Preferred Links Page: http://retireearlylifestyle.com/favorite_er_links.htm

Lots of FREE info there.

Wildcat:

It seems their philosophy & RE approach is: simple living includes simple investing. Besides, how could I critique a couple's RE approach who retired WAY earlier than I ever will?

Investors Not Traders: http://www.retireearlylifestyle.com/investors_not_traders.htm

Alex:

IMHO, Billy and Akaisha are two incredible people that really and truly love each other. (You really can't put a price on true love, can you? ) I visit their website frequently and am constantly inspired by their (ongoing) story. Sure, the value of their portfolio fluctuates, but the 'value' of their lives is constant; as in - constantly increasing and improving! If you ask me, they are very 'wealthy' people, regardless of the $$$ in their portfolio or their investment strategy. I owe them a debt of gratitude for what they freely share on their website. They are a real inspiration. Thanks Billy and Akaisha!

We had to thank you for your most kind support - and Shiny, Deserat, Nords et al. Thank you!

Deserat:

Their book also focuses on one's attitude toward retirement. They try to alleviate the fears one may have retiring early: what will you do, can you afford it, what about catastrophic events, etc. Yes, they have no children so part of their journey may have been simpler, however, I believe they did do end of life care for several parents and provide other types of family support (not necessarily monetary) that one might have to 'buy' instead

Exactly. We did End of Life Care for 3 out of 4 parents while our siblings held full time jobs. See http://www.retireearlylifestyle.com/betty.htm

Deserat:

As they do advocate simplicity in general, again, their choice of the S&P 500 as the majority of their portfolio makes sense - in fact, Billy did a stint as a financial advisor before they retired and after learning about indexes had a twinge of guilt recommending loaded funds to his customers.....so, I'd wager he's got a good sense of the risks involved for them.

What I Learned on Wall Street: http://www.retireearlylifestyle.com/motley_fool_article_5.htm

That ought to explain just about everything.. but just in case, here's The Emotional Component of Retirement: http://www.retireearlylifestyle.com/motley_fool_article4.htm

Be well, and happy reading!
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[OKLibrarian]

What a great set of links! looks like I'm going to be spending the evening digging through your website (and getting your book from the library)

 

[Hydroman]

Investors Not Traders: [/i] http://www.retireearlylifestyle.com/investors_not_traders.htm

Billy,
You mention the need to diversify investments by using index funds, yet you only invest in the S&P 500 index fund. While I guess 500 stocks is diversity, why have you elected not to S&D into Small, Value and International? Lets say something as simple as the Coffee House Portfolio? Why have you elected to keep 90% of your portfolio in equities? Must calculators like FireCalc indicate that 50-60% equities is the sweet spot for risk/return to support withdrawals in retirement.

I guess I am just interested in getting a better understanding on how/why you decided that investing 90% into the S&P 500 was the best path for you.

Thanks

 

[unclemick]

Hmmm - apparently Billy didn't read/missed the post when Nords informed me that De Gaul may have stolen his famous quote/Dickum from a German:

'God looks after drunkards, fools and The United States of America.' Sort of a sour grapes version of Bogle's 'Stay the course.', 'Press on regardless(possibly Admiral Nelson against the French) OR 'Hurry up and DO something - just stand there.'

People have a tendency(especially us males) to think we must 'beat the market' or outperform something or 'be proactive.'

Sticking with a good plan THAT GETS THE JOB DONE - works just fine.

There has NEVER been a year since 1966 that I haven't run across a portfolio that beat the socks off what I owned at the time.

heh heh heh heh 8)

 

[Bikerdude]

Bikerdude:
None of us know what the future will bring, retired or not. Here's our piece called Surviving a Bear Scare: http://www.retireearlylifestyle.com/motley_fool_article_11.htm

Exactly the point! Contrary to what I was told, you did not ride out the 00/02 bear with a 90% S&P500 portfolio. Instead you were more like 60/40 or 70/30, a much better balance for survival. Also, you were relatively young, so if you faced failure, resuming work was a good option.

I know this forum is about early retirement and in your case and many others here, an aggressive portfolio is required to be successful for 40, 50 or more years.

However, the problem with high equity portfolios, IMHO, is human nature to panic in the face of 40 to 50% losses. People age 60 and above should take notice. Unless, of course, you can live on the dividends your portfolio kicks off.

OBTW, I admire your lifestyle.

 

[Billy]

Thanks.

Yes, I consider a portfolio of 500 of the largest corporations to be very diversified. I am sure others would disagree with me. That’s their prerogative. Equities out perform bonds over any reasonable period, and I would prefer be an owner than a lender. Also I would rather pay taxes at the capital gains rates than from the income produced from bonds. (More explanations in our book...)

Owning these multinational corps. covers my international exposure, and I learned a long time ago that I didn’t need to beat the market. Matching it is fine with us and few of you are able to do that. Will things be different in the next 30 years? I hope so, but I am not afraid of the future.

IMO, some of you guys spend way too much time dissecting and beating this stuff to death. My largest clients hardly moved a thing. They invested, trusted their faith and went ahead with their lives.

Regarding moving 30% to cash in 2000, that was a good move. Unfortunately I went back in way too early, but then again I am no longer a trader. Been there, done that.

About panic. I was a broker during the 87 crash as well as the mini one in 89. (I think that’s when it was) We survived both of those periods as well as the second worse bear market in our history. IMO, we have been tested, and passed.

Now, I am late for my two hour massage. 8)

Billy
Author, The Adventurer's Guide to Early Retirement
RetireEarlyLifestyle.com

 

[Bailing-Bob]

Billy,

Then I guess we should not ask you what you think of buckets...

 

[clifp]

IMO, some of you guys spend way too much time dissecting and beating this stuff to death. My largest clients hardly moved a thing. They invested, trusted their faith and went ahead with their lives.


Billy

Hey, I resemble that remark. Having spent countless hours, in my almost 8 years of being retired, debating on forums such as here and TMF, about proper asset allocations, SWR rates, rebalancing approaches etc., the reality is quite simple nobody know for sure what will be correct.

The best analogy I have come up with is figuring out the correct retirement investment strategy, is like trying to find the fastest route to a new restaurant in a unfamilar city, without an exact name or street address, while looking in the rear view mirror . (Needless you don't have google maps either!)

It is much easier to identify things not to do (like driving a 100 MPH, or stop the car and walk, or head to a residential area) than it is to figure out the right thing to do.

Personally, I find the discussion about retirement finances to be intellectually stimulating, so I am happy to debate the issue, but we should not delude ourself that we can be sure that a 90% S&P 500 is overly riskly.

I think any scheme that follows these guidelines is acceptable
o More than 1/2 in equities.
o Highly diversifed
o Low expenses (<1% )/year and preferable lower
o Withdraw no more than 5% for early retirees 6% for regular retirees (62+) (ignore inflation)

By these standards I think a 90% S&P 500 index fund is so much better than most peoples investment choices that wouldn't quibble with something that has worked for Billy and his DW.

 

[chinaco]

As long as one is willing to tighten the belt in bad times (i.e., down market)... 100% equity can work!

 

[Billy]

Chinaco:

As long as one is willing to tighten the belt in bad times (i.e., down market)...

Hi Chinaco. We see it as a skill that just gets better. We really don't sense any hardship or feel any deprivation. But that is because we have had 17 years of experience, and we have had lots of time and occasion to hone our craft.

And at times, we see it as a challenge. "Can't be done? It sure can !!" and then we go about doing it with as much fun as we can conjure up.

'course sometimes ya gotta put your ego on the shelf, but we consider that to be a good thing! 8)

Be well!
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[Billy]

Our latest Motley Fool commentary regarding our investment approach:

http://www.retireearlylifestyle.com/simple_approach_long_term_results.htm

Hope this explains clearly - and perhaps gives an alternative...

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[ferco]

Billy,
I've read many of your posts/articles. I'm not sure if any mention how you and DW withdraw your funds. Do you just withdraw the dividends from S&P 500 acct each quart/month/year or do you "sell" x number of shares and live on that. Very few reviews/articles actually go into the mechanism of withdrawal. "Retire at the Pieshop" does a pretty good job however.

Ferco

 

[Billy]

Hi Ferco.

We explain this in our book in more detail. (See Table of Contents: http://www.retireearlylifestyle.com/table_of_contents.htm ) We sell x number of shares monthly as needed. Most of our bills are on automatic payment systems. We monitor everything via online services. Selling shares as needed, rather than depending on income producing vehicles allows us to manage our tax burden.

Regards,
Billy
RetireEarlyLifestyle.com

 

[JJac]

We sell x number of shares monthly as needed.

After so many years of S&P500 growth, and living on 24k a year, is it possible to live completely off of the dividends?

 

[Billy]

JJac

After so many years of S&P500 growth, and living on 24k a year, is it possible to live completely off of the dividends?

Hi JJac,

I suppose it's possible. But all of our dividends are reinvested, and we don't really look at it that way. Billy enjoys his financial abilities but didn't want to spend his retirement wheeling and dealing, slicing and dicing and generally making things complicated. We simply sell shares as needed, and we don't need much because we emphasize experience instead of things.

OTOH, Billy said he thought that the current dividend yield of the S&P is something like 1.8% and one would need 2M to generate $36K yearly. So sure, it's very possible.

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[ferco]

Billy,
I'm enjoying your book, however.....the width of your horizontal pictures(which are great !), cut off the print on the right hand margin. By the time you discover this you've printed a whole chapter. Has anyone else had this problem. Perhaps putting the pictures at the top or bottom of the page may have been better(just a suggestion). But, I've learned a lot. I'm only on chapter 11.

Ferco

 

[Sam]

Billy/Akaisha,

I really like a portion in chapter 15 where you consider your future SS entitlement the same as owning bonds. That's a very good excuse for not owning bonds. Well done!

As I read the book the second time, I got the feeling that it was written not by just Akaisha. Sounds like Billy wrote several chapters, including a few related to money management. Just curious.

 

[accountingsucks]

In Canada, there is a fellow named Derrick Foster who has retired at 36 with 4 young kids. His portfolio is approx $700K and is only in high dividend yielding companies as dividend income is taxed favorably in Canada. He has also written a book about early retirement which I plan on reading soon.

Link to a thread about him that you might find useful even though it is Canadian based....

http://forums.canadianbusiness.com/thread.jspa?threadID=1547&tstart=0

 

[Hydroman]

I really like a portion in chapter 15 where you consider your future SS entitlement the same as owning bonds. That's a very good excuse for not owning bonds. Well done!

Since the Kaderlis retired in their mid 30s, I doubt they can look forward to much of social security check. I think what the Kaderils have accomplished is great and obviously their 90-100% SP500 Index fund portfolio has worked for them. That said I am baffled on why, knowing what they do now they would not at least consider a simple S&D like the Coffee House Portfolio. It has achieved an annualized return of 11% since 1991 without all the volatility of the S&P 500. Having a portfolio you depend on for expenses slashed by 50% does not seem to be a reasonable trade just to keep portfolio management simple. It is definitely simpler then trying to time the market by going 30% cash in 2000 in an attempt to save the portfolio from a meltdown during the 2000-2002 bear. What am I missing? Please educate me.

 

[Sam]

Educate is such a big word. Here's my opinion:

They reported an annual expense of 24K in their book. Eventhough they retired early, I'm relatively sure they have accumulated enough credit for SS. Assume they are at the low end, collecting only $500/month/person, that's 12K/year, or 50% of their expenses. I think that's very significant.

 

[kramer]

Assume they are at the low end, collecting only $500/month/person, that's 12K/year, or 50% of their expenses. I think that's very significant.

My main career was a little under 12 years long. My lifetime earning according to SS is about 13 years of maxed wages. My SS at age 67 is predicted to be $1311/month ($15732/year). So I suspect their combined SS will amount to much more than $12000/year.

See John/intercst's nice article on this topic just out this month:

http://www.retireearlyhomepage.com/soc_security.html

According to John's article, I would need to work about 26 more years (two times more than I have already earned) at max SS wages to increase my payout by about 55%. Since the system is so biased against folks who continue working, I think I'll opt out, thank you very much.

This is an area that benefits couples. A single person probably won't be able to replace as high of a percentage of his living expenses with SS as a working couple can.

BTW, I generally do not agree with the Kaderlis' 90-100% S&P approach. But different strokes for different folks . . .

Kramer

 

[Billy]

Ferco

Billy, Im enjoying your book, however.....the width of your horizontal pictures(which are great !), cut off the print on the right hand margin. By the time you discover this you've printed a whole chapter. Has anyone else had this problem. Perhaps putting the pictures at the top or bottom of the page may have been better(just a suggestion). But, I've learned a lot. I'm only on chapter 11.

Hi Ferco,

Thanks for your support of our project.

Our CD-Rom book is done in HTML format and is meant to be viewed on a computer. With over 200 color photos we thought it would be cost prohibitive both to us to print in paperback or hard cover, and also to those who might wish to purchase it. (See The Birthing of our Book: http://www.retireearlylifestyle.com/the_birthing.htm )

If you are choosing to print it (those photos must take a tremendous amount of ink, as they are done in high resolution...!) to print out the text without printing the photos. If you want to do this, simply open a page in the book, right click with your mouse, select all, copy, and then paste special into a word document. However, we considered the photos to be integral to the text.

Glad you are enjoying our book, and that it has been informative and useful.

Sam

As I read the book the second time, I got the feeling that it was written not by just Akaisha. Sounds like Billy wrote several chapters, including a few related to money management. Just curious.

Absolutely. This was a joint project. We both write and then we edit each other's product. It was a real eye opener for us to write this book together. as we have very different styles. However, I would never have been able to do this without Billy's financial knowledge or his stunning photos. Then again, I added verbs to his sentences...


Hydroman

Since the Kaderlis retired in their mid 30s, I doubt they can look forward to much of social security check.

We both have been working since we were kids. That being said, we didn't retire dependent on our SS Check. We never worked to get the promised Social Security or to get benefits from our employers, and we were self employed most of our adult lives. We both come from self motivated backgrounds and if we receive SS when we become age qualified, it will be a luscious gift.

I think what the Kaderils have accomplished is great and obviously their 90-100% SP500 Index fund portfolio has worked for them. That said I am baffled on why, knowing what they do now they would not at least consider a simple S&D like the Coffee House Portfolio. It has achieved an annualized return of 11% since 1991 without all the volatility of the S&P 500. Having a portfolio you depend on for expenses slashed by 50% does not seem to be a reasonable trade just to keep portfolio management simple. It is definitely simpler then trying to time the market by going 30% cash in 2000 in an attempt to save the portfolio from a meltdown during the 2000-2002 bear. What am I missing? Please educate me.

Billy does all the number crunching. I will ask him and then let you know. However, we have always said that we were invested for the long term, we are not traders, and if someone cannot 'afford' to be in the market, they shouldn't be. That being said, we have survived both the crash of 1987 as well as the 2nd worst bear in our nation's history, and we are still invested.

Sam:

They reported an annual expense of 24K in their book. Eventhough they retired early, I'm relatively sure they have accumulated enough credit for SS. Assume they are at the low end, collecting only $500/month/person, that's 12K/year, or 50% of their expenses. I think that's very significant.

Right. Again, we didn't work for the SS check, and we didn't retire dependent on it. I surely hope it's there when we are old enough to qualify - that would be simply delicious and we'd be thrilled.

Kramer:

See John/intercst's nice article on this topic just out this month:

http://www.retireearlyhomepage.com/soc_security.html

Thanks, Kramer, we'll take a look!

According to John's article, I would need to work about 26 more years (two times more than I have already earned) at max SS wages to increase my payout by about 55%. Since the system is so biased against folks who continue working, I think I'll opt out, thank you very much.

Same page here....

BTW, I generally do not agree with the Kaderlis' 90-100% S&P approach. But different strokes for different folks . . .

No problem. Everyone must find their risk/reward/hassle ratios. It's good we are all different, it adds dimension to the mix.

Be well,
Akaisha (one of the)
Author(s), The Adventurer's Guide to Early Retirement

 

[Sam]

Then again, I added verbs to his sentences...

Akaisha (one of the)
Author(s), The Adventurer's Guide to Early Retirement

Verbs, neccessary? Nouns, adjectives, punctuations: enough.

 

[youbet]

Ref the SS comments above:

SS is very biased towards low wage earners and folks who do not put in the full 35 years. Just go to the SS web site and run some examples.