Your reaction to rising assets

[ejman]

Gotta love it. 30 years ago we had boomers bragging about doing $600 of blow in 2 days. Now, we have boomers bragging about doing $600 of seafood.



Now, we have boomers worrying about what this will do to your blood vessels. 30 years ago, $600 of blow wasn't as much of a concern.

Personally, I'm sure $600 of blow would kill me. But, since I'm allergic to seafood, I'll take my odds on the nose candy.

I don't really know what "blow" means but your last sentence hints that it might be related to inhaling mind altering drugs. I have to tell you that sort of thing does not get along with LBYM and Early Retirement too well... Perhaps wrong forum?

 

[eta2020]

My statement said I made 90 grand in one month. That's more than I made working a full year. I celebrated by eating two thirds of one percent of my monthly gain.

Pocket jingle -

Yea but you have to be ready for months when you will loose 90 grand.

 

[marko]

Yea but you have to be ready for months when you will loose 90 grand.

+1 If your assets are allocated such for a large increase, a similar decrease is likely on the horizon. Then another increase.

 

[CaliforniaMan]

+1 If your assets are allocated such for a large increase, a similar decrease is likely on the horizon. Then another increase.

I guess I get a little worried when I see a thread like this with so many comments about feeling rich, spending more money, especially on a forum like this. I don't know why, but gives me a slightly discouraged feeling about the future.

I have had some big gains this year too, and a personal new high last Friday, but I don't look at it as real money, I have basically the same number of shares of stock, and the same bonds as before, just that some people are willing to bid a bit more from them this month than last. Just a temporary monthly blip.

On my spreadsheet I prefer to look at any changes in my total asset value as how it would change my monthly income, based on my withdrawal rate.

This seems more realistic to me, rather than saying I made xx grand this month. Looking at how the change affects my withdrawal rate, I might see a nice, or not so nice dollars a month change. But much smaller than the total change. For me this helps keep things in perspective.

 

[RobbieB]

Yeah, it goes up and down, this year it's way up. I got a notice from the broker that my allocations should be checked, I'll call the advisor and have a chat. I kinda like the stocks he picked, maybe I'll just collect the cash it's been generating and buy more muni's. He doesn't handle my bonds, only equities.

All in all, I'm not worried. I like equities, always have.

 

[eta2020]

I had seen lot of months with 100k or 100k down. I pay little attention to them. for me this is happens on portfolio with 0 trading. If you trade you may end up negative by the end of the year courtesy of taxes.


I rather look at dividend yield of portfolio and that changes very gradually.


Monthly changes are pretty useless for disciplined investors, because you know you will see 100k up and 100k down and you should care less.

 

[mpeirce]

On my spreadsheet I prefer to look at any changes in my total asset value as how it would change my monthly income, based on my withdrawal rate.

I do both.

My yearly budget is based on a percentage of our last three years EOY financial assets and I have a pro forma table for next year's budget already setup to see how it might change given current conditions.

But I still enjoy watching the weekly soap opera that is the market and how it affects our assets.

 

[marko]

I guess I get a little worried when I see a thread like this with so many comments about feeling rich, spending more money, especially on a forum like this.

On my spreadsheet I prefer to look at any changes in my total asset value as how it would change my monthly income, based on my withdrawal rate.

This seems more realistic to me, rather than saying I made xx grand this month. Looking at how the change affects my withdrawal rate, I might see a nice, or not so nice dollars a month change. But much smaller than the total change. For me this helps keep things in perspective.

+1 My thoughts exactly and as you note "especially on a forum like this"; I'm a little disoriented and wondering if I hit the wrong URL.

One of the things I learned on this forum is the value of steady, repeatable income vs NW changes.

I'm not sure everyone realizes the dangers of spending a short term NW gain vs a studied WR, even if it's a small percentage thereof.

Drilled into me since childhood: "Never touch the principal".

 

[RobbieB]

I don't have a budget and I never will. I just don't worry that much. I've been through the ups and downs. I haven't sold any investments (traded a few) and am just living off cash.

I'm not like a lot of you guys that came here early and planned your retirements carefully, I signed up after the fact. And I waited too long, should have done it earlier. My fixed living expenses are very low and I have a lot of dough to play with on "variable expenses"

I'm not worried -

 

[GravitySucks]

My reaction to this years rise has been to purchase target date bond funds to support two more years worth of floor expenses.

 

[eta2020]

I don't have a budget and I never will. I just don't worry that much.

In that case you are likely to severely overspend or underspend your assets.

Planning may not be sexy word but FIRE requires it. But once you get to 80 who cares

 

[marko]

I'm not worried -

But your signature says "...but I worried too much"
What made the change for you?

 

[RobbieB]

It was a combination of things.

I ran a bunch of calculators (not fire calc) that said I was OK.

I stopped liking my job so much when we took on a new line of products that I had little desire to learn.

I found out that I could collect SS at 60 on my deceased wife's account.

The house is paid for and the SS covers everything except food and clothing and fun. Since I don't buy expensive clothes that leave a lot of dough for "food and fun"

I really had no plan to retire as soon as I could and I was thinking about working until 60. Got out a year early at 59. I would have been OK at 50-55, but I "worried too much"

 

[Markola]

My yearly budget is based on a percentage of our last three years EOY financial assets and I have a pro forma table for next year's budget already setup to see how it might change given current conditions.

I worked for a university with an endowment and each fiscal year's spending was based on the 3 Year Trailing Average of the endowment's value.

As an avid budgeter, when it's time in 5-6 years, I'll probably set a FIRE budget that 4% SWR covers and try to make lifestyle decisions that keep both the budget and the 4% withdrawals from inflating. In strong portfolio years when 4% gives more than needed, I'll park the extra in cash and maybe spend a tad more. In down years, supplement the 4% with some of the cash and try to avoid big expenses. If after about ten years I've avoided bad sequence of returns risk, and with SS on the horizon, I'll reassess. What can I say? I'm a planner.

I want to think about your 3 year average method, which seems smart, but also takes some discipline to stick to in sharp up or down years.

 

[NW-Bound]

I believe Robbie's indulgence in food and drink is fine, once I understand the big picture.

From other threads, I learn that he has not bought a fancy car yet (though he has threatened to ). He is happy with his existing home, and been doing some work on it himself. So, he does not look like a big spender.

My annual expenditure has been in the 6 figures the last few years, and each year I looked at Quicken and told myself I would not have this and that non-recurring expense next year. No, new ones keep popping up.

So, Robbie is fine with his caviar consumption (which I do not envy because I cannot eat caviar - the reason already expounded in another thread), but I am the one who is a bit leery.

Now, my expenses are still well below what FIRECalc says I can spend. What I do not like is that my portfolio underperformed the last couple of years. I can blame EM and energy stocks all I want, but when your portfolio does not generate the cash that you spend, you've got to be careful.

The portfolio return this year is fine and way more than I spend. However, it has not made up for 2014 and 2015.

 

[mpeirce]

I worked for a university with an endowment and each fiscal year's spending was based on the 3 Year Trailing Average of the endowment's value.

As an avid budgeter, when it's time in 5-6 years, I'll probably set a FIRE budget that 4% SWR covers and try to make lifestyle decisions that keep both the budget and the 4% withdrawals from inflating. In strong portfolio years when 4% gives more than needed, I'll park the extra in cash and maybe spend a tad more. In down years, supplement the 4% with some of the cash and try to avoid big expenses. If after about ten years I've avoided bad sequence of returns risk, and with SS on the horizon, I'll reassess. What can I say? I'm a planner.

I want to think about your 3 year average method, which seems smart, but also takes some discipline to stick to in sharp up or down years.

Actually, my method is roughly based on how many endowments are spent.

I FIREd at 49 and figured that my best/worse case scenario is about 50 years - I have a couple of ancestors who lived to around 100 - so for now I take the view that I need a sustainable system.

Smoothing policies are used when preservation of the endowment is still the primary objective but the stability of spending also becomes an issue. The most common form of a smoothing policy is the moving average method.

The moving average method is the most widely used spending policy. Approximately 75 percent of institutions use some form of the moving average. In a recent survey of foundations, over the past 10 years, the average spend rate has been between 4.0 percent and 5.5 percent, applied to a moving average of a defined period, typically three years or 12 quarters. One benefit of a moving average policy is that spending tends to be more stable than with traditional income-only or fixed-rate policies. At the same time, it favors the long-run preservation of the corpus, assuming an appropriate target spending level is chosen.

The main criticism of the moving average is that endowments tend to overspend in down markets and underspend in upward trending markets. However, a Vanguard study found moving average policies to be most successful in terms of preserving endowment value and sustaining future spending.

 

[NW-Bound]

I don't have a budget and I never will...

SS/pension or without, if one draws just a small amount from his stash, say 1 or 2% each year, then he's golden. It's hard to see how one runs out of money that way, unless some cataclysmic events happen, then it does not matter anyway.

Talk about budgeting, it may mean different things to different people. When I was still working, I always underspent what I made, so I had no budget. As long as I had money left over at the end of the month, I was fine. Instincly though, I knew that if I went out and bought a Jaguar for myself and an Audi for my wife, we would not have money left over, or might even be short. By living below our means, I did not have to count every penny.

The problem is now, without income and SS still not online, my means are not so well defined. Hence, I need to look at something like FIRECalc to see what my "means" really are. Some say 4%/yr based on historical returns, but many here say 3.5%/yr or lower to be safe and I agree with that.

I still do not budget in the sense of counting money and allotting money in every category. Rather, I look at the big picture, the total annual expense, and see if I should pile on some discretionary spending, such as a Europe trip late this year or not.

Earlier jokes notwithstanding, I would hate to be to the point where I want a bottle of booze and cannot afford it. That is highly unlikely also because I am not an alcoholic.

Doing it tonight, at his home for dinner, but not with XO.

He is going to open the Idahoan Bourbon whisky bottle I gave him from my RV trip earlier this year. Then, we are going to open the inexpensive brandy that he likes, and that I just bought for him as a refill.

Anyway, my daughter and son-in-law were also invited. So, my son opened that bottle of Idaho bourbon that I gave him from my spring RV trip. I am not a whisky connoisseur, but thought it was good. Both my son and son-in-law drink more whisky, and they said it was excellent.

I was too busy sampling the inexpensive American brandy, and still thought that it was good. However, I remembered the exchange with another poster regarding added caramel, and wondered if that was in.

I am going to get another bottle of this brandy for myself to further analyze it. Is there such a thing as over-analysis and forgetting to enjoy something for what it is?

By the way, as a plug for this small Idaho distiller, the bourbon we had was "7 Devils" by Koenig Distillery in Caldwell, not too far from Boise. If someone stops by, be sure to try their Huckleberry vodka. They also have eaux de vie made from pear, plum, apricot, and cherry. I bought them all. Don't recall if they have grappa or not.

 

[RobbieB]

I've always lived below my means, but I really never had a budget and never tracked expenses. My "feedback control" was to simply look at my bank statement each month to see it was up or down. If up, fine, if down and we didn't have a new washer or dryer or some other "big expense" I knew I was living too large.

The topic of this thread is "reaction to rising assets" and yup, we ate $600 of fish and booze at home in 2 days to celebrate. I now have more "assets" than I ever had before. I'm not spending anything down, I'm making more dough. I'm making dough faster than I'm spending it.

I'm not worried -

 

[NW-Bound]

Yes.

But what others pointed out is when the market takes a downturn, and it WILL, and you do not make more dough, what do you do? In the past, there were repeated times when the market went down, and did not recover for many years, as long as 10 or more.

Same as others, I try to temper my enthusiasm when the market is up, and to repress my anxiety when the market is down. Steady, steady...

 

[RobbieB]

I'll keep ordering paddlefish, but knock off the Ossetra and buy the $50/bottle cognac and not the $150/bottle stuff.

In 4 years I get Medicare and in 5 years my SS income will double when I claim on my own account.

The market could lose 50% and I'll still be fine.

Not worried -

 

[NW-Bound]

But if you know that you are only drawing 1 or 2% off your stash, then even if the market drops 50%, you can still do Ossetra and XO Cognac.

See, it's not about budgeting, but knowing what your "means" are. If you do not exceed your means even when the market drops, then party on.

One needs to know his means, and how one's expenses are relative to that. That's all we are sayin'.

 

[rodi]

Like others - I get nervous seeing the frothy happy exuberance in this thread.... Next thing you know W2R will get giddy and utter the word that should not be said....

I'm not increasing my spending based on market gains.

My WR is about 2.8%. I'm too nervous about sequence of returns and a long ER to think about taking out extra because the market is up. I'm only in my 2nd year of retirement, and turn 55 years in a month or so.... so it's going to be a while before SS comes online. My <$500/month pension comes online later this year - but that's not enough to live on... Doesn't even cover groceries now that the boys are voracious teenagers.

I'll start thinking about spending extra when the boys are out of college and out of the house.

 

[RobbieB]

Another thing I don't have to worry about, children. Don't have any.

Don't have any family either. No siblings, parents dead. Aunts and uncles dead. Cousins mostly dead or close. I was a late born only child. Wife dead.

Very happy to have a girlfriend -

So, not only did I not retire as early as possible (and stacked more cash as a result) I do not have dependents. Just Lucy the dog.

I've cried a lot of tears, had a lot of grief and felt a lot of pain. Now I'm gonna make myself smile as much as possible!

 

[NW-Bound]

...Now I'm gonna make myself smile as much as possible!

I'll drink to that. Cheers.

 

[Moemg]

.... Next thing you know W2R will get giddy and utter the word that should not be said....

.

I am not usually a market timer but I discovered a few years ago if W2R uttered the W word I should take some profits . This has been more successful than any market news letter .Thanks W2R .