Ok, another basic question - but maybe it'll generate some interesting discussion.
I'm starting to think building a retirement nest egg is the easy part of "investing"
(not counting the having to go to work part) - you just put everything into some
nice mix of stock index funds, save a year or so of expenses in cash equivalenets,
and check your balances on the computer when you oughta be working !
Spending it down, in retirement, is the complicated part. What I can't quite get
my head around (and I always see it mentioned tangentially, and not directly
addressed) is to what extent do you generate your 4% (or whatever) WR by
selling off shares of investments, and to what extent do you generate it by
moving into higher-yielding investments and harvesting the dividends and
interest ?
In terms of portfolio survivability versus a certain WR, all that really matters is
what the *total return* of your portfolio is versus your WR and the rate of
inflation (and of course the timing of the total return, when the up and down
years occur). So to that extent it doesn't matter whether the total return is
from appreciated share values or from dividends. Is one somehow superior to
the other, nonwithstanding 2nd-order effects like low cap-gains rates in taxable
accounts ?
In the bucket framework, I suppose the answer is that the question is moot for
bucket 1 - it's just M'Mkt, CDs, short-term Treasuries and such. And bucket 3
should simply be for the best long-term total ROR. But what about bucket 2 ?
Looks like most people want a mix of longish-term Treasuries, other bonds, and
balanced income funds. I guess the idea would be to sweep the dividends and
interest into bucket 1, but also sell shares when 1 drops too low (presumably
the income from 2 would not be enough to keep 1 full).
As some have said, the balanced funds seem problematic, because you can't
tease out the stock and bond components to be sold separately. But their mix
of high income and stable but appreciating share price is appealing. I wonder if
it's possible to duplicate VWINX with one stock fund plus one bond fund ?
I'm starting to think building a retirement nest egg is the easy part of "investing"
(not counting the having to go to work part) - you just put everything into some
nice mix of stock index funds, save a year or so of expenses in cash equivalenets,
and check your balances on the computer when you oughta be working !
Spending it down, in retirement, is the complicated part. What I can't quite get
my head around (and I always see it mentioned tangentially, and not directly
addressed) is to what extent do you generate your 4% (or whatever) WR by
selling off shares of investments, and to what extent do you generate it by
moving into higher-yielding investments and harvesting the dividends and
interest ?
In terms of portfolio survivability versus a certain WR, all that really matters is
what the *total return* of your portfolio is versus your WR and the rate of
inflation (and of course the timing of the total return, when the up and down
years occur). So to that extent it doesn't matter whether the total return is
from appreciated share values or from dividends. Is one somehow superior to
the other, nonwithstanding 2nd-order effects like low cap-gains rates in taxable
accounts ?
In the bucket framework, I suppose the answer is that the question is moot for
bucket 1 - it's just M'Mkt, CDs, short-term Treasuries and such. And bucket 3
should simply be for the best long-term total ROR. But what about bucket 2 ?
Looks like most people want a mix of longish-term Treasuries, other bonds, and
balanced income funds. I guess the idea would be to sweep the dividends and
interest into bucket 1, but also sell shares when 1 drops too low (presumably
the income from 2 would not be enough to keep 1 full).
As some have said, the balanced funds seem problematic, because you can't
tease out the stock and bond components to be sold separately. But their mix
of high income and stable but appreciating share price is appealing. I wonder if
it's possible to duplicate VWINX with one stock fund plus one bond fund ?