Some readers were asking me to post something here on how things have been faring with the Work Less Live More portfolio and whether I'd changed anything or had second thoughts about the long term buy and hold slicer dicer approach I follow and advocate in the books.
Like everyone else I have had days of feeling overwhelmed and having serious doubts. Especially when friends tell me they got out last year or in September etc. But I feel that even if I were smart enough to get out when AIG failed, I would no way be smart enough to know when to get back in now. I've screwed up market timing enough times to just say "No". Look at Bill Miller at Legg Mason -- today's paper tells us he's wiped out 10 years of gains in the last few months.
So I've definitely been staying the course, but also making tweaks. For example, I've been looking at some of the fixed income holdings and making sure I really had the credit exposure I expected when I originally bought stuff. For instance, many of the corporate bonds, municipals, overseas bonds, even short term investment grade bonds, which had always held up fine with little or no credit risk, all took 10% hits. I had to make some painful choices about selling them and buying better quality bonds -- not treasuries which look crazy expensive, but some things which were a step up on the credit scale and thus not as subject to any future deterioration in price. (Vanguard's BSV, for instance, which has some agencies blended in, CDs, shorter-term bond funds (foreign and domestic) and even holding more in money markets)
I am also feeling that while the dollar's rise and low interest rates have really smacked around the international holdings, I am confident these trends will eventually reverse and dollar weakness will go along with inflation here as a result of all our govt borrowing.
So the short answer is that the Work Less Live More portfolio is getting beaten up, and me with it -- but I'm hanging in there. After rebalancing earlier this year, my stock allocation is down from its target 40% to about 25% of portfolio not because I sold anything but because it has depreciated.
Overall portfolio is down about 30% from the peak and since I have been taking 4.3% withdrawals, the portfolio performance alone is down 26% or 27% from the peak last October.
Finally I am doing tax loss harvesting -- selling things which have losses and buying something similar (but not identical) to ensure I have roughly the same exposure to the markets. Where possible I am buying ETFs since I think they are more tax efficient and despite the fact that they are relatively new, I think they are safe. They seem to have come through all this market chaos functioning smoothly, and by holding them I shouldn't have to deal with taxable capital gains distributions. Surprisingly I don't have too many actual capital losses to claim compared to the amount my portfolio value has dropped since last year: most all the gains had been built up during the past 4 or 5 years so many of my positions are still worth more than I bought them for, even now. Bonus: if you're quick, you can sell some of your mutual funds (and buy a suitable ETF replacement) and dodge any taxable year-end distributions for this year.
Our family have also cut back on spending, for sure. In fact our monthly spending is down about 30% in the past two months, and our overall family budget (because of some pretty hard-to-cut fixed costs like taxes and insurance etc.) is going to be down about 22% next year if present trends continue. We all have a sort of siege mentality which I am sure is not helping the economy get better but it's helped us keep our budget in balance to live within our SWR even at these new lower portfolio levels with no need to resort to the 95% Rule.
Hope this helps anyone else who's wondered what became of the Work Less Live More approach. I haven't been posting much here because I've been 100% locked in the studio most of the year creating sculpture -- my ER dream job. I see no easy answers right now except that at some point things are going to get cheap and we'll have the foundation for a long string of up years (I hope!)
Like everyone else I have had days of feeling overwhelmed and having serious doubts. Especially when friends tell me they got out last year or in September etc. But I feel that even if I were smart enough to get out when AIG failed, I would no way be smart enough to know when to get back in now. I've screwed up market timing enough times to just say "No". Look at Bill Miller at Legg Mason -- today's paper tells us he's wiped out 10 years of gains in the last few months.
So I've definitely been staying the course, but also making tweaks. For example, I've been looking at some of the fixed income holdings and making sure I really had the credit exposure I expected when I originally bought stuff. For instance, many of the corporate bonds, municipals, overseas bonds, even short term investment grade bonds, which had always held up fine with little or no credit risk, all took 10% hits. I had to make some painful choices about selling them and buying better quality bonds -- not treasuries which look crazy expensive, but some things which were a step up on the credit scale and thus not as subject to any future deterioration in price. (Vanguard's BSV, for instance, which has some agencies blended in, CDs, shorter-term bond funds (foreign and domestic) and even holding more in money markets)
I am also feeling that while the dollar's rise and low interest rates have really smacked around the international holdings, I am confident these trends will eventually reverse and dollar weakness will go along with inflation here as a result of all our govt borrowing.
So the short answer is that the Work Less Live More portfolio is getting beaten up, and me with it -- but I'm hanging in there. After rebalancing earlier this year, my stock allocation is down from its target 40% to about 25% of portfolio not because I sold anything but because it has depreciated.
Overall portfolio is down about 30% from the peak and since I have been taking 4.3% withdrawals, the portfolio performance alone is down 26% or 27% from the peak last October.
Finally I am doing tax loss harvesting -- selling things which have losses and buying something similar (but not identical) to ensure I have roughly the same exposure to the markets. Where possible I am buying ETFs since I think they are more tax efficient and despite the fact that they are relatively new, I think they are safe. They seem to have come through all this market chaos functioning smoothly, and by holding them I shouldn't have to deal with taxable capital gains distributions. Surprisingly I don't have too many actual capital losses to claim compared to the amount my portfolio value has dropped since last year: most all the gains had been built up during the past 4 or 5 years so many of my positions are still worth more than I bought them for, even now. Bonus: if you're quick, you can sell some of your mutual funds (and buy a suitable ETF replacement) and dodge any taxable year-end distributions for this year.
Our family have also cut back on spending, for sure. In fact our monthly spending is down about 30% in the past two months, and our overall family budget (because of some pretty hard-to-cut fixed costs like taxes and insurance etc.) is going to be down about 22% next year if present trends continue. We all have a sort of siege mentality which I am sure is not helping the economy get better but it's helped us keep our budget in balance to live within our SWR even at these new lower portfolio levels with no need to resort to the 95% Rule.
Hope this helps anyone else who's wondered what became of the Work Less Live More approach. I haven't been posting much here because I've been 100% locked in the studio most of the year creating sculpture -- my ER dream job. I see no easy answers right now except that at some point things are going to get cheap and we'll have the foundation for a long string of up years (I hope!)
