Kaderli's 90% S&P Portfolio

[Billy]

JJac

Quote:

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/t...=1547&tstart=0

[Hydroman]

Quote:

Originally Posted by Sam 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]

Quote:

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

Quote:

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

Quote:

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

Quote:

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.

Quote:

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:

Quote:

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:

Quote:

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!

Quote:

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....

Quote:

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]

Quote:

Originally Posted by Billy 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.

[youbet]

Quote:

Originally Posted by kramer 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.

It sometimes benefits working couples, sometimes not. At our house, I estimate aggregate expenses to be approximately 1.9 X what they would be if we were living as singles. Our combined SS will be significantly less a percentage of double than that. And that's just looking at living expenses, without any consideration of what it cost to raise the family and to have ongoing involvement with them and the grandkids today.

No complaints here........ just pointing out that living as a couple isn't necessarily a cost savings. And it's likely that one half of a married couple won't receive the same SS as if they had been single and focused their life on a career.

[haha]

Quote:

Originally Posted by youbet At our house, I estimate aggregate expenses to be approximately 1.9 X what they would be if we were living as singles.

This is interesting, and quite different from what I found to be true when la esposa y yo set up separately.

Things that should cost about the same for a single or couple: rent or mortgage; heat; AC; landline telephone; cable; internet; investment in and maintenance of ranges, dryers, washing machines, dishwashers, and cooking utensils; home maintenance and many others. So for these expenses, 1/2 of the couples cost should be considerably less than what the single would pay.

Food would likely fall for the woman and go up for the man. Entertainment would also go up for the man, and perhaps fall for the woman if she can attract men to pay her way. If you took the two people who formerly made a couple, I would expect that most frequently their separate expenses in these two categories if added together would exceed their expenses as a couple.

Couple might be double a single for medical and dental, cars- though one would think that at least some trips might be shared- I guess there are many more like hobbies, cosmetics, toothpaste etc. Still, I world think that in most areas housing and energy costs are so significant that a couple should ordinarily expect to live for 1.5 to1.6 the cost of a single.

I would be interested if you care to share what has made your estimate different?

Ha

[Billy]

Hydroman:

Quote:

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.

Hind sight is 20/20

"If we had only invested in this...or why didn't we do that?"

Back in the late 80's when we started planning our escape, the S&P 500 was the investment of choice. It is the performance yard stick used by money managers, therefore good enough for us. If we moved our funds around everytime someone comes out with a new way to beat the market with no volatility, we would be broke and Uncle Sam would be rich.

At this point we have large Cap Gains in our funds and do not want to make a larger than necessay donation to the Feds. We possibly could mess around with our IRA's but then again, I would have to spend time messing with it.

I used to do this for a living, moving money daily, and I know what's involved. Now, I would prefer to spend my time on the beach and working on my tennis game. 8)

Billy
RetireEarlyLifestyle.com

[Hydroman]

Quote:

Originally Posted by Billy Hydroman: Hind sight is 20/20 "If we had only invested in this...or why didn't we do that?"

I understand that. I was not asking why you originally picked the SP500. I was asking why you are sticking with it now with all the receent research data indicating that certain S&D approaches have similar returns as the S&P without the volatility. I guessed you answered that too. No one knows what the future holds. Past performance is not a guarantee of future performance. It is like throwing darts. You threw your dart and it landed on the SP500. And your "sticking" with it. Nuf said. Thanks.

[youbet]

Quote:

Originally Posted by HaHa I world think that in most areas housing and energy costs are so significant that a couple should ordinarily expect to live for 1.5 to1.6 the cost of a single. I would be interested if you care to share what has made your estimate different? Ha

Well Ha, we came up with this estimate during a discussion, some time ago, concerning how much life insurance to carry, if any. No spreadsheets or formulas, just talked it through with a few notes.

Our conclusion was that everything except housing would stay about the same. For housing, we assumed either would downsize to a one bedroom apartment. Since a one bedroom apartment in a decent neighborhood/building costs about 50% of what it costs us to own this house (opportunity cost + taxes + maintenance/updates), it was really looking like either of us would/could live on about 50% of our current combined budget. That would translate to a couple's budget being 2X a single's. But we just couldn't believe we weren't saving something, so we called it 1.9X

As you indicated, housing is the big determiner in this....... If one wanted to stay in the house, keeping all the costs, then I'd go with the 1.4X to 1.6X.

BTW, we decided we didn't need any life insurance and allowed our term policies to expire last year.........

[sgeeeee]

An estimate of how family size and type affects budget has been developed by the US Bureau of Labor Statistics. You can use the table to consider cost of living changes along a typical family life cycle. The normalization basis for this table is a family of four (two adults and two children). All other budget entries represent the normalized funding required for the specified family to maintain an equivalent lifestyle to the base family. For a single young person prior to marriage the cost of living is 36% that of our normalized family of four. The cost of living for a married couple increases to 60% of the normalization base. When one child is added, the family budget is at 82% of the base. A second child puts the family at base budget level. A third child places the couple at 111.6% the cost of a family of four. For cases not shown in the table, the equivalence family budget can be roughly approximated using the expression

E = [(A+pK)^F]/2.751

where A is the number of adults in the family, K is the number of children, p=0.92 and F=0.75.

Equivalence Scale used by US Bureau of Labor Statistics. The equivalence scale is used to adjust financial thresholds for differences in household size and composition.

FAMILY TYPE............................BLS NORMALIZED FAMILY BUDGET
Single Adult..............................0.360
Two Adults...............................0.600
Two Adults, One Child..............0.820
Two Adults, Two Children........1.000
Two Adults, Three Children......1.116
One Adult, One Child................0.570
One Adult, Two Children...........0.760

[haha]

Youbet, I see your thinking. A big lifestyle change- which was probably partly determined by the question you were trying to solve.

Also the BLS stats provided by sgeeeee show the BLS estimate is that the couple can live for roughly 1 2/3 the price of a single .

Ha

[youbet]

I couldn't find the BLS stats that sgeeeee summarized. I'm interested in seeing where our government thinks the source of economy of scale for a couple compared to a single is........although I'm assuming primarily housing.

Their 1.67 vs my off the cuff 1.9 estimate? Close enough and I believe their figure could be true for many. I know our assumption that either of us could find acceptable housing for 50% of what it costs the two of us to be in this house would be radical for many.

It would also be interesting to see what the SD is for their 1.67 average. Is the distribution grouped closely around 1.67? Or would we find a broad distribution with significant tails extending up to over 2.0 and down to 1?

E = [(A+pK)^F]/2.751 I like this formula and I've already thought of some ways to use it to my advantage. For example, when English major DW wants to discuss a large, new purchase, I'll pull this formula out, plug in some numbers, and dazzle her that we can't make the purchase and stay within the government mandated boundaries of a couple vs a single vs family of four guidelines!

[sgeeeee]

I first ran across the BLS equivalency scale in a Scott Burns column:

Burns, Scott, “There’s a High Cost of Living as A Family”, The Dallas Morning News, August 21, 2005.

You can still find this column on the internet if you google appropriately.

I was interested in using the equivalency scale in discussions about family planning and divorce in Engineering Your Retirement so I looked it up on the BLS web site. I was able to find a couple of papers on their site that discussed or used the scale and a number of other sites that used and referenced the scale. If you google equivalency scale you will find some references. The BLS developed the general form of the equation, but I modified the values to obtain a better least squares fit to their table.

[youbet]

Thanks sgeeeee!

Ha - I briefly looked at a few web sites and most were worth a quick scan.

The most interesting comment was: In general, there is no accepted method for determining equivalence scales, and no equivalence scale is recommended by the OECD for general use.

OECD Social Policy Division http://www.oecd.org/els/social


So I guess for DW and myself, our 1.9 guesstimate is likely to be as accurate as any. But for many folks, especially near the poverity line where much of this equivalence scale work seems to have been done, a lower number, such as 1.67, is probable.

This might make an interesting poll for this board. "How many times larger is your household budget as a couple as it was, or would be, as a single?" But, I'm no pollster........