Assessing the Carnage

[NW-Bound]

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Originally Posted by ShokWaveRider How soon folks forget, carnage would be another 30 to 50% drop. It ain't gonna happen...

Money back guarantee?

[razztazz]

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Originally Posted by ShokWaveRider What Carnage? in ~2010 the DOW was ~10k it is triple that now. S&P was ~1200 and NASDAQ was ~2300. How soon folks forget, carnage would be another 30 to 50% drop. It ain't gonna happen. Enjoy the roller coaster.

I'll admit it's not exactly "carnage" but it's precisley because people DO NOT forget that these views are invoked. Yes. I remember 2010. Too long ago to be relevant. People start reaching far and wide for all sorts of things

[SALTedOut]

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Originally Posted by joesxm3 From my total on the day I FIRED in August 2016, down 2%.

Yikes! Dow for that period is up 76% and NASDAQ 121%. I'll continue to take my total stock market index investing any day and every day.

[joesxm3]

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Originally Posted by SALTedOut Yikes! Dow for that period is up 76% and NASDAQ 121%. I'll continue to take my total stock market index investing any day and every day.

Your comment got me wondering so I tried to crunch the numbers.

I took VTI and BND and computed the price in August 2016 and today and added in the dividends (roughly), then computed the percentage gain of each during that period with dividends.

I came up with roughly 44% for VTI and 4.2% for BND.

I took my starting number and divided it 60% and 40% then multiplied the 60% number by 1.44 and the 40% number by 1.042.

I compared that number to my current total plus my $70K per year spending during that period.

Based on that I seem to show that a 60/40 split of VTI/BND resulted in a current total that is 12% higher than what I have now. And the total I have now includes the impact of my recent potentially stupid risky moves.

I think if I were to remove the recent losses I probably would be underperforming by 6% or so over that period.

I admit that if I were a better investor and had not had such a low equity position I would have a bigger pile of money, but, assuming I am not making a math error, the difference is not as large as I would have expected.

[edit]

I don't want to publicly post my personal financial numbers, but here are the numbers I used for VTI and BND in case someone wants to correct me.

VTI

8/2016 $150.62
today $201

rough estimate average dividend $0.70 / quarter or $16.00 dividends

today with dividends $217

144.07% 8/2016 to now

BND

8/2016 $84.25
today $76.03

dividends assume %0.17/month or $11.73 total

today with dividends $87.76

4.16%

[SecondCor521]

^ Yes, but...

With 60 VTI / 40 BND, you'd have less work to do (investigating stocks).

You'd probably have a lower tax bill.

You might have less stress (agonizing over and second guessing purchase and sell decisions).

You might have also had a smoother ride (less volatility), but on this I'm less certain.

[joesxm3]

That's the way it was up to April 2021 with my "set it and forget it" plan. At most I would move 1% if I got itchy to do something.

[Freedom56]

Quote:

Originally Posted by joesxm3 Your comment got me wondering so I tried to crunch the numbers. I took VTI and BND and computed the price in August 2016 and today and added in the dividends (roughly), then computed the percentage gain of each during that period with dividends. I came up with roughly 44% for VTI and 4.2% for BND. I took my starting number and divided it 60% and 40% then multiplied the 60% number by 1.44 and the 40% number by 1.042. I compared that number to my current total plus my $70K per year spending during that period. Based on that I seem to show that a 60/40 split of VTI/BND resulted in a current total that is 12% higher than what I have now. And the total I have now includes the impact of my recent potentially stupid risky moves. I think if I were to remove the recent losses I probably would be underperforming by 6% or so over that period. I admit that if I were a better investor and had not had such a low equity position I would have a bigger pile of money, but, assuming I am not making a math error, the difference is not as large as I would have expected. [edit] I don't want to publicly post my personal financial numbers, but here are the numbers I used for VTI and BND in case someone wants to correct me. VTI 8/2016 $150.62 today $201 rough estimate average dividend $0.70 / quarter or $16.00 dividends today with dividends $217 144.07% 8/2016 to now BND 8/2016 $84.25 today $76.03 dividends assume %0.17/month or $11.73 total today with dividends $87.76 4.16%

The distributions from BND have been averaging about .14 per month over the past two years. Consider that if you had invested in CDs yielding 2% (and they were available at better yields) compounded annually, your net gain would have been 12.6% and you would have more capital to invest today. The yield on BND is still too low relative to treasuries with the same maturity so the thrashing is far from over. Bond funds are a bad idea. They don't protect your capital and returns are poor due to the fact that they buy high and sell low passing the losses to investors. The only winner is the fund manager who collects a fee based on the assets under management.

[SecondCor521]

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Originally Posted by joesxm3 That's the way it was up to April 2021 with my "set it and forget it" plan. At most I would move 1% if I got itchy to do something.

So why did you switch to a more complex, active plan? (Sincere question.)

[ls99]

If I did not sell, and have no need to in the foreseeable future, does it matter that the market is down? My stuff has been on set and forget for the at least ten years. Did pull some profits late last year to buy a car for cash, and consider having gotten the car for free, otherwise letting it ride. At this rate my nieces will be filthy rich when I kisck the bucket.

[SecondCor521]

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Originally Posted by ls99 If I did not sell, and have no need to in the foreseeable future, does it matter that the market is down? My stuff has been on set and forget for the at least ten years. Did pull some profits late last year to buy a car for cash, and consider having gotten the car for free, otherwise letting it ride. At this rate my nieces will be filthy rich when I kisck the bucket.

Probably mostly not.

The only reasons I can think of that it might matter would be if any of the following creates something actionable:

1. The increase in your WR% (assuming constant spending and decreasing assets) might exceed some threshold.

2. Decreasing asset values may affect your income tax situation and you may elect to realize some additional income this year or in the next few years.

3. Your estate value relative to the exclusion amount may have crossed some threshold.

4. Your Social Security claiming strategy could be affected if you're not already on SS.

But if you like being on auto-pilot and things haven't changed that much for you, or you don't feel like or need to optimize every last nickel, then again...probably mostly not.

(I don't think I need to, but I think I still like to try to optimize every last nickel. Old habits die hard.)

[ls99]

^^^Thanks, for the assessment. The only extraction of funds annually are the RMD. In early Aug. That is way more than enough over SS and a small pension. My big expenses for the year are Real estate taxes. House and camp have been paid off over ten years ago.

[joesxm3]

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Originally Posted by SecondCor521 So why did you switch to a more complex, active plan? (Sincere question.)

A while ago I read a book called "The Fourth Turning", written by some historians. This book analyzed cycles that occur. It is too much to try to explain here, but the short version is that we are in the middle of the cycle that is characterized by chaos and a reset of the status quo. A simplified explanation might be generational shifting or major geopolitical changes. The previous cycle of this type was around WW2 and led to the setting up of the USA as the dominant world power and currency.

As the pandemic was starting, I learned about the exponential growth curve and how things go very slowly then hit the hockey stick curve and go up very rapidly. I think that this applies to certain technologies as well as to virus replication. There has been a lot of discussion on these forums revolving around bashing Ark and Cathie Wood.

The governments all around the world began to issue currency in response to the pandemic slowdown all around the world. I became concerned about the effect of such a huge expansion of the currency supply. This is another huge discussion all by itself: inflation, debt spiral, government ability to service huge debts.

Previously I had felt that assets like the stock market were irrationally overvalued and in bubble mode. Applying an analysis of the increase in currency supply led me to believe that the asset prices were not actually rising, but the unit that they were measured in (USD) was declining. When you combine this idea with the idea that certain companies are developing technologies that will follow an exponential growth curve, they may not seem as overvalued as people think.

I decided that my "good enough to get by" investment performance was not going to cut it if we end up in a chaotic environment where currency purchasing power was rapidly declining.

One approach might be to simply increase my equity allocation with index funds. However, it seemed that in indexes like the SP500 most of the companies were doing poorly and the index was only holding up because it was overweight massively profitable companies. Also, many of the companies that might eventually become important were not in the indexes.

In the meantime I was watching some videos expounding the idea that you could invest in fewer companies as long as you really understood and monitored those investments. Even Warren Buffet has said stuff along these lines. I also became aware of the possibility of using options. Not necessarily to become a highly leveraged maniac, but to generate some extra income by selling calls and maybe using options to hedge near market tops.

So, all of this, gave the the notion to begin to pay more attention to what I am doing with the investments and to begin to dip my toe into beginner options trading and to pick a few high conviction companies and see how things go with that.

I am not planning to be an active in and out trader. At this point I am in the process of buying stocks to establish new positions to bring me up to a higher equity allocation percentage. However, once I have these positions in the high-conviction companies and have increased my already existing position size in total market indexes I plan to be a buy and hold investor, even with the individual stocks. However, I may take a percentage of my shares in the single companies an try to swing trade or hedge at tops.

And lastly, along the idea of the Fourth Turning cycle destroying the existing and resetting into the system for then next few cycles, I started to investigate the potential for things like crypto assets and decentralized finance to cause changes to the way things work.

Well, I hope you really meant you were asking a sincere question. You certainly got a sincere answer.

[youbet]

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Originally Posted by ls99 ^^^Thanks, for the assessment. The only extraction of funds annually are the RMD. In early Aug. That is way more than enough over SS and a small pension. My big expenses for the year are Real estate taxes. House and camp have been paid off over ten years ago.

Did you mean to say that the only extraction of funds annually are the taxes you paid on the RMD?

[ls99]

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Originally Posted by youbet Did you mean to say that the only extraction of funds annually are the taxes you paid on the RMD?

I get RMD transferred into money market account. Ok, add the RMD taxes to the real estate taxes as major yearly expenses. Still have way too much left over. I do live way below modest means. I usually owe the feds some $$ at tax time. It is intentional, don't like to give feds interest free loans during the year. Have yet to pay PA income taxes. Always fall below the "forgiveness amount".

[joesxm3]

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Originally Posted by ls99 If I did not sell, and have no need to in the foreseeable future, does it matter that the market is down? My stuff has been on set and forget for the at least ten years. Did pull some profits late last year to buy a car for cash, and consider having gotten the car for free, otherwise letting it ride. At this rate my nieces will be filthy rich when I kisck the bucket.

I tend to think like that.

One buys some assets that are more or less permanent and just sit there for a very long time, sort of like ballast in the boat.

The plan would work great for passing along generational wealth, except for the problem that I have no children. Like you, I may have one very happy niece and a couple happy friends with I kick the bucket.

[ERD50]

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Originally Posted by joesxm3 Your comment got me wondering so I tried to crunch the numbers. I took VTI and BND and computed the price in August 2016 and today and added in the dividends (roughly), then computed the percentage gain of each during that period with dividends. I came up with roughly 44% for VTI and 4.2% for BND. I came up with roughly 44% for VTI and 4.2% for BND. I took my starting number and divided it 60% and 40% then multiplied the 60% number by 1.44 and the 40% number by 1.042. .... I don't want to publicly post my personal financial numbers, but here are the numbers I used for VTI and BND in case someone wants to correct me. VTI 8/2016 $150.62 today $201 rough estimate average dividend $0.70 / quarter or $16.00 dividends today with dividends $217 144.07% 8/2016 to now ....

I don't think you did that right. For one thing, you aren't accounting for reinvesting dividends, which is part of a total return over time.

Go to portfolio analyzer (though EOM April is latest data there, they are month to month so May drop not included), similar #'s at yahoo fiance:

https://finance.yahoo.com/quote/VTI/...stedClose=true

Aug 01, 2016 111.40 111.67 111.00 111.27 100.56

VTI was ~ $111 per share AUG2016, where do you get $150.62?

So VTI is up more like 100%, a 60/40 is up 59%.

https://tinyurl.com/y4cyk8hx <<<< portfolio analyzer short link

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Based on that I seem to show that a 60/40 split of VTI/BND resulted in a current total that is 12% higher than what I have now.

So you figured a 28% gain for a 60/40 benchmark, but my sources say it was more like 59% (April 29).That puts you an additional 31% points behind, doesn't it?

-ERD50

[SecondCor521]

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Originally Posted by joesxm3 Well, I hope you really meant you were asking a sincere question. You certainly got a sincere answer.

I did. Thanks for the answer, it was interesting.

[joesxm3]

You are correct. I made a mistake on VTI price 8/8/2016.

I was using TradingView set to weekly and just moving the cross hair lines long the graph. I think I was rushing and got 2019 mixed up with 2016 when I was dragging the page to the left.

So according to my simple calculations, VTI is up 78%, without accounting for dividends or 94% with my rough calculations for dividends that did not include reinvesting.

Do most people here have VTI as a mutual fund so the dividends are automatically reinvested? I am buying VTI as and ETF and I just have dividends go into my my cash position.

I agree with what you are saying. That puts things more in line with what I was thinking going along about being behind by quite a bit.

In retrospect I really underestimated how long and far the market could go up without a severe correction.

Lucky I was a hard worker and good saver. If I had to depend on my investment skill I would never have been able to reach FIRE.

Thanks for taking the time to check my work.

I am learning from this and will try to apply more rigor to my analysis going forward.

[gcgang]

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Originally Posted by joesxm3 However, while I know you should evaluate the percentage of loss, I still take a look at the total dollars lost and think of how many hours of w*rk that took to earn them.

How many hours? I don’t want to look as I get depressed realizing how many YEARS of earnings have been lost. Lol.

[ERD50]

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Originally Posted by joesxm3 .... Do most people here have VTI as a mutual fund so the dividends are automatically reinvested? I am buying VTI as and ETF and I just have dividends go into my my cash position. ...

Well, if you are comparing performance, it makes sense to have them all reinvested, since different investments will kick off difference amounts, it isn't really apples-apples if you don't re-invest them. The one with lower divs retains them, and will see more growth (all else being equal, which it never really is, and assuming there is growth).

If you are in the draw-down phase, you can use that portfolio analyzer site. You can set a withdraw amount, adjust for inflation, and then you are similar to what FIRECalc/Trinity do.

In that case, divs will be spent, and any excess re-invested. Makes a good apples-apples for the draw-down phase.

-ERD50