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BEHOLD: MY CAPE posted:Well the reason for that is most companies are accountable to shareholders or private investors for the money they spend on wages It's still shortsighted if you have a Level 3 position that you need to fill, and you have a Level 2 person who you try to get to do it but with Level 2 pay. You lose them to another company that will pay them Level 3 pay, and now you need to hire a Level 3 person at market value who has none of your institutional knowledge. Ultimately this scenario costs a lot more than just giving a market raise to the person receiving the promotion, but it plays out all the loving time.
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Sep 22, 2017 17:15
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That's next quarters problem though. Those savings are realised this quarter. Short termism.
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Sep 22, 2017 17:48
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Jeffrey of YOSPOS posted:Yeah I think "will losing this senior guy and hiring two junior guys for the less money be more or less profitable" is a pretty hard question to answer a lot of the time. Agreed. We had two semi-experienced people leave my office over the summer, and right now we have the option of hiring a single person at my level or two at entry level. It's a pretty tough choice. Naturally I want one of each but I don't think management will go for it.
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Sep 22, 2017 19:09
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For people who are considering early retirement based largely on net worth in equities, what kind of investment asset allocation makes sense? I'm currently 32 and should be in a position where I could comfortably retire in a few years on a ~4% withdrawal rate. I'm thinking I will stick to an allocation of about 80/20 stocks/bonds because while I will need to start accessing this money relatively soon, I will continue to access it for a very long time, so the volatility should smooth out similarly to if I was going to retire at 65 or whatever. Another factor to this is that I probably won't even draw from my investments anyway, and will instead focus on generating the (meager) income I need from doing odd-jobs, freelancing, or something similar. But I'd like to put myself in the position for if I just didn't want to generate any income for a few years, I would have the AA that would make sense for that.
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Oct 13, 2017 23:24
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The theory is based on a 100% equity index fund allocation. If you get to the 4% Or whatever level matches your risk of ruin tolerance. Go hog wild. If you are planning on hitting the point and withdrawing less because of odd jobs that's even safer. Your most risk is in the early years. Ie. The literal worst case is you retire, a crash like 1929 happens the day before you withdraw your 4% for the year. If you have a way around that, it gets less risky quickly.
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Oct 14, 2017 09:30
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Cast_No_Shadow posted:The theory is based on a 100% equity index fund allocation.
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Oct 15, 2017 20:09
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Ralith posted:No, the Trinity 4% SWR is based on a mixed allocation of US bonds and stocks. Yup. In fact, they found remarkably little variance in success rate between 50-50 stocks-bonds and 100% stocks, at least at low withdrawal rates. Of greater concern for people planning on basing their early retirement plans on the Trinity study: 1. The study looked at the US market from 1929 - 1995, also known as the greatest economic success story in human history. Will the US market experience similar success for the next 70 years? Maybe... but I think it's pretty unlikely. 2. The first few years of retirement will make or break you, depending on how the market performs. If your portfolio value is still 25 times your estimated annual expenses a couple years into a recession, then you're much more likely to be able to retire successfully than if, say, you're trying to retire nearly a decade into a bull market (i.e. right now) 3. The study only looked at a maximum retirement length of 30 years. If you're retiring in your 30s or 40s, you're looking at a draw-down period potentially twice that long, or even longer, depending on how optimistic you are about breakthroughs in medical science. In my opinion, more important than worrying about exact asset allocation or the exact % that's safe to withdraw at, is your ability to be flexible and honestly evaluate your individual situation. Depending on the early sequence of returns, you may have to return to the workforce, freelance, reduce your spending, move someplace with a lower cost of living, etc.
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Oct 15, 2017 21:39
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While I've continued to ponder my question from a few posts back, I found a guy who seems to have thought and written quite a lot about the topic of the trinity study, asset allocation, and safe withdraw rates for people considering early retirement, with very long time horizons for needing to access retirement savings. He has an interesting sequence of posts that start with this one if anybody wants to check that out. I definitely don't agree with 100% of it, but it is a perspective that I haven't seen written about before, possibly because I haven't looked very hard.
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Oct 16, 2017 01:49
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I spent a lot of time using wolfram alpha to run random walks on retirement at 4% and they mostly turned out alright at 40% bonds and 60% shares but those numbers don't relate to the awful returns in the bond market of today. The link to early retirement now is good. I only skim read the first part but the mortgage section has some gems, including this one. quote:If you want to use the mortgage as leverage to juice up your equity returns, that’s fine. It’s a matter of risk tolerance. But make sure you don’t use the mortgage to buy low-yielding bonds; leverage only works when your asset returns more than what you pay for your liabilities! What his simulations show is that it's a bad idea. Yet New Zealand is full of people leveraging rental houses to run at a loss for a tax write off or to simply make capital gains (tax free) while making 2% return on capital or less. Of course people believe that this is a good investment because houses only go up in price (except house prices are falling here right now). Many are oblivious to the risks of basing retirement savings only on rental properties with interest only mortgages.
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Oct 16, 2017 02:26
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Lunchabully posted:3. The study only looked at a maximum retirement length of 30 years. If you're retiring in your 30s or 40s, you're looking at a draw-down period potentially twice that long, or even longer, depending on how optimistic you are about breakthroughs in medical science. Lunchabully posted:In my opinion, more important than worrying about exact asset allocation or the exact % that's safe to withdraw at, is your ability to be flexible and honestly evaluate your individual situation. Depending on the early sequence of returns, you may have to return to the workforce, freelance, reduce your spending, move someplace with a lower cost of living, etc.
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Oct 16, 2017 07:28
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Ralith posted:However, the additional safety margin needed for longer periods diminishes very rapidly. Past a certain point your assets need to be self-sustaining, and once you have that it doesn't matter how much time passes. Assuming the conditions that make 4% safe for 30 years hold, 3.5% or so will almost certainly be safe indefinitely. For the most part you're correct, but I think it's worth pointing out that there's a statistically significant difference between 30 and 60 year retirement horizons when looking at historical data, as the blog post linked above shows (which is excellent btw, thanks for sharing that Zyme). It's minor at 3.5% withdrawal but gets pretty scary at higher rates / equity allocations below 75%:
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Oct 16, 2017 17:52
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Why is that chart capped at 100%. It works without it, but... why Example, you do a 3% withdrawl plan on 100k. You take out $3000. It grows 7% in a the first year. Your investment GREW by ~$3800 net to $103800. Your next 3% withdrawl is $3113. This is also known as 104% of original withdrawl.
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Oct 16, 2017 18:37
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Those figures are the probability of completing the term at the specified parameters with a non-negative amount, not the amount remaining of the original portfolio.
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Oct 16, 2017 18:44
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Oh, so you’re taking a fixed amount ($3000 in my example) for the entirety of the duration. That’s useful. Still, that discounts the value of changing your withdraw rate based on real-world factors. If the market dropped by 30% and you were able to live off of $1000... I guess I’d use that chart to run the numbers for some basic level of subsistence and plan to have a large safety margin on top of that.
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Oct 16, 2017 18:50
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Yeah, high equity allocations are absolutely necessary for longer terms DNK posted:Why is that chart capped at 100%. It works without it, but... why
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Oct 16, 2017 18:53
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OK I read the series from Early Retirement Now and holy poo poo that is some super good information that I'll be incorporating into my decision making. The charts and tables took a bit of effort to figure out and some of the math goes over my head, but it is a valuable read and anybody interested in early retirement should read it IMO. I don't think I would have appreciated or even realized the difference between 30 and 60 year draw downs without it. Thanks for that link.
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Oct 18, 2017 20:15
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Guest2553 posted:OK I read the series from Early Retirement Now and holy poo poo that is some super good information that I'll be incorporating into my decision making. The charts and tables took a bit of effort to figure out and some of the math goes over my head, but it is a valuable read and anybody interested in early retirement should read it IMO. I don't think I would have appreciated or even realized the difference between 30 and 60 year draw downs without it. The biggest mindfuck for me was the benefits of having an inverted asset allocation glidepath, where you start retirement with a mix of stocks and bonds and go to 100% stocks as you get older, to mitigate early sequence of return risk while preserving as many long-term returns as possible. Like I just didn't believe it at first since it's so counter to the prevailing wisdom.
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Oct 18, 2017 21:06
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Ditto. That chart you posted touches another huge issue - in a million dollar portfolio, the difference between never depleting the principal (outside of volatility, anyways) and running out of money halfway through is very little, measured in tenths of a percentage point in withdrawal rate. 3.25-3.5% is generally very safe across most portfolios (of 60%+ equities, anyways), but a quarter point increase can bring failure rate up an order of magnitude or more. The kind of people who are into FIRE are pretty disciplined and numerate to begin with, so I don't think it'll be that hard not to spend 2500 bucks a year for the first few years to mitigate some of the sequencing risk.
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Oct 18, 2017 22:21
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I'm also digesting the mortgage post. Now that I'm post FIRE and not able to take the interest as a deduction, it might make sense to pay our mortgage off quickly over the next few years. It's such a low rate though that I think it might be better to switch to 100% equities sooner and just use the mortgage as a bond replacement, especially since the glidepath analyses seem to favor getting to 100% equities within 5-8 years after retirement. Great series of posts, I hope everyone in here reads them.
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Oct 18, 2017 23:01
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moana posted:I'm also digesting the mortgage post. Now that I'm post FIRE and not able to take the interest as a deduction, it might make sense to pay our mortgage off quickly over the next few years. It's such a low rate though that I think it might be better to switch to 100% equities sooner and just use the mortgage as a bond replacement, especially since the glidepath analyses seem to favor getting to 100% equities within 5-8 years after retirement. When I refinanced my mortgage this year I reduced the repayment time by 12 years along with restructuring the mortgage. Given that I'm almost 100% shares the mortgage is effectively the bond allocation for me (with a bit of P2P lending too).
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Oct 19, 2017 00:28
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Man that blog is really fantastic. I've started from its beginning in March 2016. It finally convinced me to get off my rear end and calculate my retirement savings to annual expenditure ratio. Subtract the mortgage that has 3 years left and I'm in the 30s!
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Oct 19, 2017 00:50
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Anyone planning on taking any action based on the current CAPE of 31? I'm at least feeling better to be spending on semi-optional home improvement projects right now instead of boosting my savings rate, but otherwise continuing to invest as normal. I'm early on post-FI and would be very subject to sequence of returns risk except I'm still working.
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Oct 20, 2017 00:41
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My personal horizon is long enough that I'll probably keep doing buy and hold because of a combination of  and I don't know what else to do. A decade of sideways markets in the US (which is maybe a third of my global cap weighted 75/25 portfolio, albeit with a 2x home country bias) would place my earliest opportunity for early retirement near the start of a market cycle, at which point the sequencing of (probably) outsized returns works in my favor. My SWR can be pretty low as my portfolio's prime purpose is to augment my federal DB pension from a defense related industry. This also means I can meet financial objectives without needing to subject myself to unnecessary risk. The war business tends to be good during times of bad, so job security during the next meltdown is extraordinarily high. This is following the traditional wisdom of 'lower prices = better' when accumulating though, and I admittedly haven't encountered much to challenge that viewpoint.
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Oct 20, 2017 03:50
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baquerd posted:Anyone planning on taking any action based on the current CAPE of 31? I'm at least feeling better to be spending on semi-optional home improvement projects right now instead of boosting my savings rate, but otherwise continuing to invest as normal. I'm early on post-FI and would be very subject to sequence of returns risk except I'm still working. I'm trying really hard not to take action. I recently got a decent pay increase due to switching careers. For now I'm continuing to put the surplus into my standard allocation plan that I've had for the last 15 years, comforting myself with all the classic phrases (7% average return for the past century, time in the market > timing the market, you don't know better than billion dollar trading algorithms, etc) but a tiny voice in the back of my head keeps whispering "there's got to be a better way". Like you, I'm also "investing" in some things I know will survive any market : education and a decent violin.
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Oct 20, 2017 15:04
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Can someone explain the CAPE based withdrawal formula to me? quote:CAPE 1.00/0.5: a=1% and b=0.5. This is the traditional CAPE-based rule that’s set as the default at cFIREsim. With the current CAPE at 30, this implies a pretty measly SWR of just under 2.7%! If CAPE is 30, a is 1, and b is 0.5, wouldn't that be 1.16? Where is he getting 2.7 from? Do I not understand this formula?
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Oct 20, 2017 19:01
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Super Dan posted:Can someone explain the CAPE based withdrawal formula to me? CAEY = 1 /30 = 0.033 a + b * CAEY = .01 + 0.5 * 0.033 = .01 + 0.0165 = 0.0265 = ~2.7%
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Oct 20, 2017 22:19
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Super Dan posted:If CAPE is 30, a is 1, and b is 0.5, wouldn't that be 1.16? Where is he getting 2.7 from? Do I not understand this formula? 1% is .01, not 1.
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Oct 20, 2017 22:20
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Ralith posted:1% is .01, not 1. Setting your withdrawal rate above 100% may have negative consequences.
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Oct 21, 2017 01:25
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BRB, going to go buy a luxury yacht with this year's withdrawals 
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Oct 21, 2017 23:15
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This is a huge thread to digest in a week, and boy what a change in mindset from start to finish. I'm not sure I belong here, but this is probably the closest to a place I can find that mirrors my situation. I'm medically retired from the army, and I've been unintentionally living FI(ish) for years now. incoming:When I got out of the army for anxiety, they gave me a high disability rating, worth about $1850 a month, but with it came a bunch of uncertainties. They made it sound like it was able to be pulled at any time, a situation which made my anxiety high enough that I became more of a candidate for it the longer I had it. I went back to school, but wasn't really ready for that kind of responsibility, so I dropped out (I already had a bachelor's, and was getting a second in a more competitive field). I was sharing a one bedroom rats nest apartment with an old army buddy, living in Denver, and we were holding each other back. So, I left. I sold my car, and bought a plane ticket to Guatemala, mostly because I had a teacher from there who I really admired. I backpacked through Guatemala and Honduras, living and working at hostels and supplementing my army money with my credit cards as I saw fit, then continued on to Hawaii, where I went to a tech school to become a scuba instructor. Then I hopped on a plane to Asia, I was applying for dive jobs in the Philippines when a motorcycle accident kept me out of the water for a few months, so I headed to Thailand, bar tended in Cambodia, and ended up in Vietnam teaching English. My life here has been pretty great, and I've been using the (relative) stability to try to turn the rest of my situation around. I've paid off about 8.5k in CC debt this year, finally finishing that, and now I just need to pay back my old university for back tuition (the GI bill goes away when you drop out, I learned). I grew up pretty poor, and budgeting was something done out of necessity, rather than a choice. So once I got this money, I felt very guilty about it, and also spent it indiscriminately because it just keeps coming. Several years later, and a mentally healthy human being, I realize that's not how I want to do this thing anymore. So I guess I'm looking for some input, but also have had about 5 years of FI(ish) life, and would be happy to share my experiences, especially about the highs and lows of the lifestyle. My first question is, how can I best invest my money that I would be able to get at it in a much shorter time than usual (say, 5 years from now) and it still make me some returns? Then, is it really linear enough that if I saved my disability money for ~5 years @ $22500 a year, I'd be able to pull out an extra $500 a month without ever running out? Third, and I know this is probably best asked elsewhere, Will I have to pay off all of my old tuition debt before I can go back to university? I want to get my masters in Education. Thanks for your help Goons, and boy am I glad I found this thread. Sorry to get a little E/N, but I haven't found a good place to tell people this without it sounding like bragging or as an invitation for skepticism/ pity.
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Nov 10, 2017 10:01
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Beast Pussy posted:My first question is, how can I best invest my money that I would be able to get at it in a much shorter time than usual (say, 5 years from now) and it still make me some returns? Then, is it really linear enough that if I saved my disability money for ~5 years @ $22500 a year, I'd be able to pull out an extra $500 a month without ever running out? For now just assume you're not able to get any preferred tax treatment, so that leaves you with standard brokerage accounts. You're not in the business of picking stocks (nor should be) so you're going to want to invest in low cost index funds with extra money you're able to save above and beyond your emergency fund, living expenses, and debt payments. Regarding your last question, the market is going to go up and down. The idea is that on average you should be able to pull out 4% of your total every year indefinitely (probably better to be conservative and don't plan on more than 3-3.5% rather than 4%). Some years your investment might grow more than that 4% and some years it'll be less (or even drop in value!). I'd personally recommend not focusing on the withdrawal part but first pay off your debts, then work on saving a portion of your income every month so you get used to not living paycheck to paycheck. Once saving $X/mo becomes a habit let it keep accumulating for a while and in the meantime read up on tax treatment and index investigating. After a few years, you'll have a chunk saved up and hopefully invested. You can then let your $500/mo (or whatever 4% ends up being) keep compounding or you can withdraw some every month to supplement your income. Alternatively you can just stop contributing every month and let your investments keep working.
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Nov 10, 2017 16:41
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Also: Your goal of $500/month works out to you needing ~$150,000 if you went for a 4% withdrawal rate. If you dumped your $22,500 into a savings account and earned no interest for 5 years, you'd be at $112,500. To hit your goal within 5 years, contributing $1875 per month, you'd need to secure 12% interest (play with http://www.bankrate.com/calculators/retirement/investment-goal-calculator.aspx) 12% is sufficiently aggressive that to get that kind of return you're likely exposed to total loss. If you can chip in another $200/month on top of your disability checks, you only need 8% return over 5 years. FI is a marathon, and 5 years means you have to keep an aggressive pace to get to the finish.
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Nov 10, 2017 19:51
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Beast Pussy posted:My first question is, how can I best invest my money that I would be able to get at it in a much shorter time than usual (say, 5 years from now) and it still make me some returns? Then, is it really linear enough that if I saved my disability money for ~5 years @ $22500 a year, I'd be able to pull out an extra $500 a month without ever running out?
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Nov 10, 2017 20:11
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Ralith posted:You'll need to decide which is your priority: pulling all the money out again soon, or long-term sustainable bonus income? It'd be good if you could clarify this. Part of my portfolio is based on dividend revenue which is good for giving that bonus income without necessarily needing to sell off shares (although that takes a large sum to achieve and I have different goals).
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Nov 10, 2017 22:06
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Anyone ever try taking an indulgence year where you spend everything you earn? Post FI, I'm dicking around with real estate and vaguely trying to find something that doesn't require a commute, but I actually love my job. I'm wondering if I did limo service and other extravagances every day that would make things even more awesome.
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Nov 11, 2017 00:32
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Devian666 posted:It'd be good if you could clarify this. Part of my portfolio is based on dividend revenue which is good for giving that bonus income without necessarily needing to sell off shares (although that takes a large sum to achieve and I have different goals). Dividends and capital appreciation are functionally interchangable, and therefore not relevant to the above. If you're specifically investing a portion of your portfolio in high-dividend stocks, you are at best reducing your diversification for no benefit (drastically so, if done by hand), and most likely paying a premium in fees as well. Not selling shares doesn't give your portfolio any sort of magically increased robustness; if you need that, reduce your withdrawal rate. A dividend focus is also not efficient way to reduce volatility; capital depreciation is entirely capable of wiping out dividends gains, and if you just want "large, established, stable companies" then there are indexes for that independent of dividend yield. baquerd posted:Anyone ever try taking an indulgence year where you spend everything you earn? Post FI, I'm dicking around with real estate and vaguely trying to find something that doesn't require a commute, but I actually love my job. I'm wondering if I did limo service and other extravagances every day that would make things even more awesome. Ralith fucked around with this message at 01:26 on Nov 11, 2017 |
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Nov 11, 2017 01:17
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baquerd posted:Anyone ever try taking an indulgence year where you spend everything you earn? Post FI, I'm dicking around with real estate and vaguely trying to find something that doesn't require a commute, but I actually love my job. I'm wondering if I did limo service and other extravagances every day that would make things even more awesome. Jeffrey of YOSPOS fucked around with this message at 05:58 on Nov 11, 2017 |
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Nov 11, 2017 05:54
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Ralith posted:Under the usual assumptions, you're choosing between investments with high volatility/high expected return (e.g. equity market indexes), and low volatility/low expected return (traditionally, bonds). The former can sustain higher withdrawals as a proportion of total holdings over a long (e.g. indefinite) period than the latter can, but is at substantially higher risk of losing total value over a short period, making it a poor choice if you absolutely need to have the full present value available to spend as a lump in the near future, for example to buy a house or pay tuition at an expensive university in exactly five years. As always, flexibility puts you at a great advantage. I good comment. My position is somewhat different as I'm primarily in the New Zealand market. The majority of quality shares, in our small market, pay dividends and have reasonably good P/E ratios relative to the NYSE. The strategy is a protection against the full effects of the housing crash that is starting to get underway now. A large portion of our economy is tied up in property and the effects will be widely felt and the companies producing decent dividends won't take the same hit as the rest of the market. That said that capital appreciation in my portfolio has been 10% this year. With owning specific individual shares I'm also getting discounted offerings. However I'm switching to cash accumulation to have a decent emergency buffer for what's happening in the local economy. Once I exceed my cash buffer I'll most likely put the excess into indexes to apply DCA for whatever happens in the market here. With respect to housing I already own a house and have a 15 year mortgage that I'm paying off. The house was about 90-95% of my net worth at the start of the year and I've shifted that to 77% by diversifying into a much larger stock portfolio. I'm still too heavily invested in housing but that's a common problem in New Zealand. I'm also a long way from FI. e: I also own no bonds as I'm expecting interest rates to rise, and paying my mortgage has a better return that most bonds. Devian666 fucked around with this message at 22:37 on Nov 11, 2017 |
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Nov 11, 2017 22:32
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The only thing I would add is this is 2017. You are not forced to invest only in your own country anymore. Many might say that over balancing on domestic stuff is bad, you live there and work there so matter what you do your massively over exposed before you even start.
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Nov 11, 2017 22:59
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Cast_No_Shadow posted:The only thing I would add is this is 2017. You are not forced to invest only in your own country anymore. Many might say that over balancing on domestic stuff is bad, you live there and work there so matter what you do your massively over exposed before you even start. I've been spreading the investments around but this year I've just been rolling in. I have a proportion in Australia, UK, Asia and worldwide etfs. Still a small percentage right now but I've been changing that.
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Nov 12, 2017 02:48
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