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8 comments:
Thanks for making my point on why small investors should not own stocks. I do not think you understand the significant value you bring to managing a portfolio and how much easier this is for you.
On draw in retirement, you seem to be saying it is ok to draw 4%, but you better plan on 3% and not retire until you are sure that you could get by on that type of reduction. I do not think people plan on going back to work or reducing their spend and do not pay attention to anything except I can retire when I can live on some magic number based on 4%
I do not disagree with you so much as I have little faith in many peoples planning or ability to modify their spending. I think I will plan using 3% to 3.5%, but might spend at 4% if the sky does not fall.
You are very right about not wanting to be 81 and broke.
Good post BTW
A person with some discipline should not hesitate to use a small portion of their 'stash' to invest in individual stocks. I'm doing this in my Roth IRA, and even in this downturn, holding my own. Of course, the bulk of my assets are in an assortment of funds (currently down 5%, but I'm relatively content with that performance). I incrementally raised my cash levels last year, though not brave enough to do the 'short/double-short' stuff random talks about - maybe next downturn(:->). I think a lot of investing is staying in touch with your emotions, i.e. do you find yourself thinking/worrying a lot about your current portfolio makeup. Just my $.02.
My wife and I met a couple last week that expressed their belief in the "eat, drink, and be merry, for tomorrow we die" approach to life. Unfortunately I think this thinking is very widespread in the U.S.. Discipline and personal responsiblity towards personal finances is something most Americans have no inclination for.
I'm also very concerned the growing support for socialist policies is accelerating rapidly. Politicians like Barack Obama, willingly or not, are conditioning Americans to believe the government can and will take care of them if only the rich and corporations will start paying their "fair share". This of course is a fairy tale, but the majority of Americans are willing to believe it.
Btw, my models are posted: www.regimenia.com
Actuarial studies are useful for a first approximation but it is probably a fallacy to think that 4% or any other % represents a golden mean or, for that matter, that any given % needs to be taken out of the whole portfolio. I tend think in terms of limits above annualized annuity streams or targets based upon known cost-of-living factors adjusted annually; needs above target are drawn (with limits) from a core portfolio and highly discretionary goodies are derived primarily from my trading account at the other end.
Stated another way, future returns are not predictable and attempting to extrapolate forward 20-40 years probably produces as much anxiety as clarity. It's a start, sure, but given a couple really bad years or a significant, non-discretionary steady cost such as a chronic health breakdown (increasingly common past age 68) a 3% drawdown could easily turn out to be too much so IMO there needs to be a dynamic adjustment plan in place that's more sophisticated than a fixed % (most people will probably wind up doing this as a practical matter so all the more reason to structure it appropriately).
Frankly if you're the sort who doesn't believe that social security will be there when you need it to provide a base income stream or that efforts to expand medicare (or other 'socialized' system) will fail or, if successfully implemented, will prove unusable then you better have a plan, sufficient assets to deploy it ($500K min probably, net of course), and the good fortune to stay healthy so your insurance company doesn't drop you (they don't make a profit by covering sick people; bad business plan there).
IOW, if you're middle class in the USA you had better get richer, because the ground where you are standing is shrinking: If you've got about 50 minutes to spare, Elizabeth Warren, a Harvard professor of commercial law, actually explains what's happening better than any economist or financial expert I've heard and with enough data to convince at http://tinyurl.com/5f9jhv (hat tip Mark Thoma; Warren's talk begins about 4:45 min into the video; background on Dr. Warren at http://tinyurl.com/57mxdh).
You are absolutlely 100% correct on using limit orders for ETFs and the like. I have saved lots of cash by not going market on these entities.
I have mildly complained to the fund if my limit orders were not accepted (when there was a wide spread observed). There was some positive action on this issue taken by a couple of companies that I noticed on later transactions. So, there is hope.
T
As a former health planner, now forced retiree because of ill health (irony) -- RW's 2d paragraph, 2d sentence was for me why modeling, though helpful, is inadequate, unless you know beforehand that worst & best case includes 12+% annual increases in med.premium costs. Models that imbed inflation at 3 or 4% don't capture that reality. Luckily I knew this, and because of family history knew to plan for atypical medical costs & do my own spreadsheets. Even with this foreknowledge, aggressive savings, modest lifestyle with few discretionary expenses, my portfolio has to grow. It's why I like your blog Roger: for your topics & comments, as well as those of your readers. (As info my personal inflation rate was 6.5%, now closer to 7%.) B
Roger,
I don't really understand your suggestion that withdrawing "4% of what you've got" each year has a 95% success rate. Doesn't that strategy always "succeed" by definition? If the amount you're withdrawing is a constant proportion of your current portfolio value, then it's impossible to run out of money. But obviously the problem with that strategy is that a large portfolio drawdown may make it impossible to live off 4%. I think that's why they normally define "success" as being able to maintain a constant inflation-adjusted "salary" drawn from your portfolio, for the rest of your life.
- Adam
Hi Roger,
I am long time reader of your blog but dont tend to comment much. Have enjoyed reading you the last year or so.
I had a question regarding starting your own money management firm. Could you point me any resources? How do you decide to operate individual accounts versus having a single fund? Any process/security/audit related details regarding such corporation. Do you outsource the backoffice operations etc.
I know these are a lot of questions, so, I am looking for pointers to resources and understand that you cant answer them all here.
Thanks in advance!
Steve.
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