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Post by ElLobo on Jun 24, 2023 16:45:23 GMT
ElLobo , Well you can always start a thread. Start it in Investing 101. Maybe some lurkers will chime in. At least they might be exposed to another method. Many like me are set in our ways. Lot’s of arguing if one likes that. It seems I lean towards greed with no complaints, 45% CEF’s all in the 10% and up range now, about 25% in VTI and 15% in VWAHX with some cash. At my stage of life, twud be investing 999, not 101! )
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Post by racqueteer on Jun 24, 2023 17:31:06 GMT
First, you are not investing in a TR manner, since TR assumes automatic reinvestment. Incorrect; TR 'assumes' nothing whatsoever. It is the sum of dividends and any change in price. What you elect to DO with that money is up to you. The problem is that TR is lumpy. While dividends are PROBABLY predictable, that is not a certainty. Meanwhile, ANYTHING can be happening to the price, and depending on the effect of that on TR, the predictability of the dividend may become less certain. If TR is not AT LEAST 0, you cannot retain the dividend. If you CAN retain the dividend, then the TR is 0 or greater; in which case, you would be EXCEEDINGLY unlikely to have to "sell that last share". All your arguments involve the dividend being secure, but the SELLING reflecting a negative TR (reducing shares). That combination of assumptions is unlikely to occur (functionally impossible?) in reality.
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Post by steelpony10 on Jun 24, 2023 18:08:40 GMT
ElLobo , Well I’m all set. It’s a pretty simple problem to solve, 101 to me. Anyway you’ll have many to argue with on here. Most are into the minutiae and claim to be loaded so no one probably will ever come to any conclusions or move the needle. Chang the administrator will probably toss you, lol. I myself especially enjoy all the income and lack of oversight income investing provides. So will a survivor. I just saw Putin’s in trouble so happy days may be here soon like maybe 2026. 🤫 While it lasts though thanks for the entertainment.
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Post by ElLobo on Jun 24, 2023 18:19:17 GMT
First, you are not investing in a TR manner, since TR assumes automatic reinvestment. Incorrect; TR 'assumes' nothing whatsoever. It is the sum of dividends and any change in price. What you elect to DO with that money is up to you. The problem is that TR is lumpy. While dividends are PROBABLY predictable, that is not a certainty. Meanwhile, ANYTHING can be happening to the price, and depending on the effect of that on TR, the predictability of the dividend may become less certain. If TR is not AT LEAST 0, you cannot retain the dividend. If you CAN retain the dividend, then the TR is 0 or greater; in which case, you would be EXCEEDINGLY unlikely to have to "sell that last share". All your arguments involve the dividend being secure, but the SELLING reflecting a negative TR (reducing shares). That combination of assumptions is unlikely to occur (functionally impossible?) in reality. Incorrect. The TR of a fund that you hold depends upon the number of shares of the fund that you hold. TRs quoted for funds are per share. It makes a difference in an annual return whether you reinvest monthly distributions, or not. Given that I know the historical performance of two funds, say VFINX and VWEHX, the current distribution yield (1.47% for VFINX and 5.5% for VWEHX) is a lot more important to yield/income focused investors than their TRs (VFINX @ 11.34% for 5 years, VWEHX @3.0%). Can you explain why TR focused investors consider past returns more important?
Whenever doing retirement withdrawal calculations, you basically have to count shares, making assumptions as to future share price and future per share distributions, remembering that the eventual failure mechanism (portfolio depletion, aka spendown) results from selling off the last share you hold in your portfolio, regardless of the share price or distribution paid by that fund, to others who continue to hold it. And you will always sell shares whenever your portfolio yield is less than your withdrawal requirement. Whenever the yield is greater than the withdrawal, you are always buying shares.
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Post by ElLobo on Jun 24, 2023 18:29:46 GMT
ElLobo , Well I’m all set. It’s a pretty simple problem to solve, 101 to me. Anyway you’ll have many to argue with on here. Most are into the minutiae and claim to be loaded so no one probably will ever come to any conclusions or move the needle. Chang the administrator will probably toss you, lol. I myself especially enjoy all the income and lack of oversight income investing provides. So will a survivor. I just saw Putin’s in trouble so happy days may be here soon like maybe 2026. 🤫 While it lasts though thanks for the entertainment. I didn't really come here to argue. Most of the arguments being made have been hashed around back on M*, over the last 2 decades. I remember them all, especially the long threads. My only complaint, here, is that topics seem to jump around from one thread to another, and I find it hard to keep track of things. I just set a flag for a notification anytime someone mentions me in a thread. If no notification, I don't plan on posting any more. I agree wrt happy days, although I believe they will start this year whenever quid pro quo joe is removed from office. (Now back to Facebook!)
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Post by yogibearbull on Jun 24, 2023 19:42:06 GMT
According to the test suggested elsewhere, here are the results of 5% initial withdrawals that are COLA-adjusted. Start 1/1/85 (as far back as PV goes, so 37.5 years) Initial Lump-Sum $100K Initial monthly amount $417/mo, COLA adjusted. Monthly withdrawals were spent and weren't available for reinvestments. All distributions were reinvested and then the monthly withdrawals were taken. Failure would mean Final Value of $0 or less. Fund Final Value VWEHX 339.97K VWINX 1,009.18K VWELX 1,838.77K VFINX 2,951.51K So, VWEHX didn't fail, but there were better options. PV RunThe final balances are net of the assumed monthly expenditures. Annual withdrawals were $5,112 in 1985; $13,907 in 2022; $5,977 in 2023YTD. The straight TRs (no withdrawals & all distributions reinvested) are shown in the TWRR column: 7.18%, 8.75%, 10.86%, 11.06%, respectively.
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Post by ElLobo on Jun 24, 2023 21:21:55 GMT
According to the test suggested elsewhere, here are the results of 5% initial withdrawals that are COLA-adjusted. Start 1/1/85 (as far back as PV goes, so 37.5 years) Initial Lump-Sum $100K Initial monthly amount $417/mo, COLA adjusted. Monthly withdrawals were spent and weren't available for reinvestments. All distributions were reinvested and then the monthly withdrawals were taken. Failure would mean Final Value of $0 or less. Fund Final Value VWEHX 339.97K VWINX 1,009.18K VWELX 1,838.77K VFINX 2,951.51K So, VWEHX didn't fail, but there were better options. PV RunThe final balances are net of the assumed monthly expenditures. Annual withdrawals were $5,112 in 1985; $13,907 in 2022; $5,977 in 2023YTD. The straight TRs (no withdrawals & all distributions reinvested) are shown in the TWRR column: 7.18%, 8.75%, 10.86%, 11.06%, respectively. Hindsight is always 20/20, nevertheless, were I starting out retirement way back then (in 1985), I, too, would probably choose a balanced fund, like VWINX and VWELX, over the 100% stock (VFINX) or 100% bond (VWEHX) fund. Back then, before tools such as PV, the recommended safe rate of retirement withdrawal was a real 4%, not 5%, and the POS (Probability Of Success) was dependent on the asset allocation chosen. I remember touting VWEHX on the original Diehard forum, where guys like Taylor considered me crazy for touting high yield over the bond index fund! Things sure have advanced since then, witness PV.
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Post by kathiel on Jun 24, 2023 23:15:08 GMT
ElLobo, steelpony10, Hey, ElLobo, good to see you here. Steelpony and I have been holding the income investing perspective pretty much by ourselves here. You have simplified your portfolio with only mutual funds, while I own no funds, and am 100% invested in individual stocks. My stocks produce enough income to cover my RMDs, which is more than enough to cover my living expenses. I hope you are well and enjoying your retirement.
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Post by Chahta on Jun 24, 2023 23:44:57 GMT
ElLobo: "But you really had two questions, the second regarding how taking a real inflation adjusted 4% from a portfolio, VWEHX in my case, that distributes 5.5% covers inflation? The simple answer is that, if so, your portfolio distribution cash flow (yield) DOES go up each year by 1.5%, the 'seed corn'. You buy more shares for your portfolio, growing the number of shares you own, each one of them now paying that same 5.5%!" There you go. That is the answer. You need to start taking less than the yield to have room for inflation increases. But when you end up needing the full 5.5% you are done with adjusting for inflation. You will need to add shares to the income generating fund.TR income starts at 4%, then goes up each year to adjust for inflation. As long as TR is above the withdrawal rate everything is good.
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Post by ElLobo on Jun 25, 2023 1:08:25 GMT
ElLobo : "But you really had two questions, the second regarding how taking a real inflation adjusted 4% from a portfolio, VWEHX in my case, that distributes 5.5% covers inflation? The simple answer is that, if so, your portfolio distribution cash flow (yield) DOES go up each year by 1.5%, the 'seed corn'. You buy more shares for your portfolio, growing the number of shares you own, each one of them now paying that same 5.5%!" There you go. That is the answer. You need to start taking less than the yield to have room for inflation increases. But when you end up needing the full 5.5% you are done with adjusting for inflation. You will need to add shares to the income generating fund.TR income starts at 4%, then goes up each year to adjust for inflation. As long as TR is above the withdrawal rate everything is good. Almost. Ending up needing the full 5.5% doesn't make sense since you are limited, by definition, to a real inflation adjusted 4%, not 5.5%.
Again, think dollars, not percentages. $100 initial investment, at a VWEHX fund NAV of $5.18, means that you initially own 19.3 shares of the fund, say at the beginning of the year. Assuming no change in fund NAV, your reinvested $1.50 buys an additional 0.29 shares, so you now own 19.59 shares at the end of the year. If the NAV went up a bit (positive TR), you buy slightly less shares with your reinvestment. If NAVs go down (negative TR), you buy slightly more.
Your 'growth' comes from the fact that, each year, you buy more shares of the fund with the excess distribution cash that you didn't withdraw and spend. Each of those new shares pays the same per share distribution as your original shares, so the total distribution cash you receive goes up (grows) with time. OTOH, whenever you sell shares each year, to cover the withdrawal, your distribution cash continues to drop as you sell off shares.
Now, none of this accounting looks at TR. You only look at fund NAV over time and the amount of the distribution. You can, obviously, calculate the TR ifn you want. It just happens to not matter in the overall scheme of things. How would you complete this statement: I am taking a real, inflation adjusted 4% from my portfolio that has a TR of ? I would complete it by saying that my portfolio has a real, inflation adjusted yield of 5.5%, regardless of its TR! You might notice, now, that this way of looking at things is the simplistic Gordon Equation/Model, aka the Dividend Discount Model. I assume you guys talk about this on the Income and Dividend Investing forum. If not, and if interested, maybehaps Yogi can start a thread.
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Post by steelpony10 on Jun 25, 2023 1:35:52 GMT
Chahta , Spending down shares during market lulls makes things worse. What do you think retirees are thinking right now if they retired in 2019? Sorta scary to me. Apparently a few of us can spend everything that comes in each month and have it replaced month after month. As mentioned only kathiel , Camille and I choose to live as simply as this. Like those two I can’t spend it all so I reinvest it. At a personal inflation rate of 3%, which mine isn’t, that takes 24 years to double or around age 90. I don’t really think about stuff like that. I will say anything at that age and beyond is accounted for already with years of compounding and auto investments leading up to that. Some won’t spend as much in retirement because “they might need it some day”. They may have cut back spending presently, fled to cash etc. You know who that group is? Anyone prefer to live like that in retirement?
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Post by kathiel on Jun 25, 2023 2:21:28 GMT
lol, I like your post, steelpony10,, and so does Camille.
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Post by shridog on Jun 25, 2023 13:19:58 GMT
Well, time to add another income investor to the group. I am 81 years old, wife is 72. Retired in 2004. Changed from a mix of income/TR to Income investing in 2015 or so. Buy individual stocks, high yield, such as BDCs, CEFs, Mreits, etc. Currently have 36% in BDCs, 34% in high yield preferred, 8% in individual bonds, 8% in CEFs (Bond funds) 9% MM and some PRWCX. Current dividend is 4X to 5X what is needed for yearly expenses. No pension. Yes on SS. Portfolio is 13% taxable 42% Trad Ira and 45% Roth IRA. No doubt I am a bit overboard on the high yield stuff, but I am addicted. I know that I need to Come up with a plan for excess dividends. Running our of "quality" high yield stuff. I have lurked steelpony10 from old M* and paid careful attention since Covid and understand where he is coming from. I know we will never run out of money, but need to start a simplification process that the wife can handle when I leave the earth. Anyway, there may be more income type here than we realize. I really pay little if any attention to the market, but do examine my 10 BDC quarterly at least.
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Post by ElLobo on Jun 25, 2023 13:56:05 GMT
Well, time to add another income investor to the group. I am 81 years old, wife is 72. Retired in 2004. Changed from a mix of income/TR to Income investing in 2015 or so. Buy individual stocks, high yield, such as BDCs, CEFs, Mreits, etc. Currently have 36% in BDCs, 34% in high yield preferred, 8% in individual bonds, 8% in CEFs (Bond funds) 9% MM and some PRWCX. Current dividend is 4X to 5X what is needed for yearly expenses. No pension. Yes on SS. Portfolio is 13% taxable 42% Trad Ira and 45% Roth IRA. No doubt I am a bit overboard on the high yield stuff, but I am addicted. I know that I need to Come up with a plan for excess dividends. Running our of "quality" high yield stuff. I have lurked steelpony10 from old M* and paid careful attention since Covid and understand where he is coming from. I know we will never run out of money, but need to start a simplification process that the wife can handle when I leave the earth. Anyway, there may be more income type here than we realize. I really pay little if any attention to the market, but do examine my 10 BDC quarterly at least. Good thinking. First, unless your sweetheart is an above average knowledgeable investor herself, I would suggest getting rid of all your individual holdings and going to funds instead. Just more simple. I would then go with 2-4 funds max, again for simplicity. I would suggest 50/50 stock/bond for your allocation. For bonds, rather than a bond market index fund, go out in term with half, down in quality for the other half, say 25% VWEHX, 25% VBLTX for your bond allocation. For stocks, I would suggest 25% VFINX, 25% SDY.
So, you should know the overall distribution yield of your current portfolio (total yearly distributions divided by total value.) Compare that to the total distribution yield of VWEHX/VBLTX/VFINX/SDY, which comes out to 3.1%. If your current yield is X and it's 4X to 5X what you need, then as long as X/3.1% is less than 4 or 5, you should be fine and your sweetheart should also be fine, and have a much more simple portfolio after your bucket starts rolling down the hill.
Tax wise, it looks as if you might be in the minimum tax bracket. Do you convert some of your Trad IRA to your Roth each year? Whenever I retired 20 years ago, I converted roughly 10% per year to my Roth, rather than taxable, since I could then withdraw from Roth ifn I needed cash. If not needed, Roth growth was tax free.
Finally, I assume you know to put your growth assets (stocks) in your Roth and your income stuff in your taxable and Trad IRA, so your actual 4 fund allocation might be 45/55 stock/bond, 22/23/13/42 SDY/VFINX/VBLTX/VWEHX, Roth/Taxable/Trad IRA.
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Post by Chahta on Jun 25, 2023 14:31:22 GMT
I understand. If you get $100 in divs and spend .04/.055•$100 =$73. Then $23 goes back into seed corn. But $23•5.5% is $1.27 more the next year. OK, slightly more for compounding monthly. $1.27/$73 is an increase of 1.74%. Not even keeping up with 2% inflation. That is why I ask about inflation adjusted return.
Where is my math wrong? Just trying to understand inflation adjusted return.
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Post by bb2 on Jun 25, 2023 15:35:49 GMT
I like the simplification motive, as shridog mentioned. I've read a few times in these pages of the concern about family having to deal with a portfolio after we die. For me, I'll be using an advisor/wealth manager as that day approaches.
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Post by steadyeddy on Jun 25, 2023 16:46:32 GMT
I understand. If you get $100 in divs and spend .04/.055•$100 =$73. Then $23 goes back into seed corn. But $23•5.5% is $1.27 more the next year. OK, slightly more for compounding monthly. $1.27/$73 is an increase of 1.74%. Not even keeping up with 2% inflation. That is why I ask about inflation adjusted return. Where is my math wrong? Just trying to understand inflation adjusted return. I do not think inflation adjusting the income streams is an objective here.
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Post by Chahta on Jun 25, 2023 17:10:21 GMT
steadyeddy, I believe it is. El referred to “inflation adjusted” 4%. I am trying to understand is all. I have never thought this hard about inflation adjusting.
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Post by bb2 on Jun 25, 2023 17:32:54 GMT
VWEHX - dividend from .06 in 1992 steadily down to .03 now, current yield 5.5% price $8 to $5 VBTLX - .05 in 2002 to .03 now, current yield = 2.76% price $10 to 9.58 now VFINX - up 823% since 1994 yield = 1.4% SDY - up 125% since 2006 yield = 2.67%
This is all well and good but one could have done so much better, looking backwards. And yes, we've been through a secular decline in rates and some think that's turning around. Don't know. Either way, TR or I, it's all a crap shoot. TR/cap gain is more fun.
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Post by richardsok on Jun 25, 2023 17:37:02 GMT
I understand. If you get $100 in divs and spend .04/.055•$100 =$73. Then $23 goes back into seed corn. But $23•5.5% is $1.27 more the next year. OK, slightly more for compounding monthly. $1.27/$73 is an increase of 1.74%. Not even keeping up with 2% inflation. That is why I ask about inflation adjusted return. Where is my math wrong? Just trying to understand inflation adjusted return. I don't think your math is wrong at all. Inflation is a problem -- perhaps the biggest one of all. Some on these boards were astute enough to buy and hold Big Tech twenty or thirty years ago and are thus vastly ahead of the game. (I'm not one of them!) Ditto those who bought California real estate in the 80s and 90s. If you're saving for the kid's college costs, you're probably falling further behind. Now if you fully own your home, or are riding with a low-rate fixed mortgage, inflation has less of a sting. Much of your living costs are static. Nevertheless, I think the entire "earn 5%/withdraw & spend 4%" plan is flawed. A better goal is to out-earn your rate of inflation, either by dividends or gains. Taxes aside, it makes little difference if I collected $100 in dividends or $100 in gains last month. In either case, my assets have gained. If I withdraw $50 from my account for spending, either by selling shares or withdrawing cash, I am reducing my portfolio assets. Long term this works only if I withdraw a steady percentage of gains and/or earnings EQUALLING inflation AND if the remaining reinvested monthly increase in PV has ALSO out-run inflation.
That's why an economy with 6-8% inflation is so brutal. Not only do you have to out-run inflation in your investments, but you must also allow for your WITHDRAWALS to increase to maintain your lifestyle. Right now I have big positions in money market funds -- but I know every month I keep that allocation, I'm falling further behind. I already own a lot of individual preferreds, reliably averaging about 8% or better like ETpE, NLYpG, RITMpB, NSpA, PBRpB, also FTAIN ET, ARCC, HFRO, PDI etc -- and just dumped preferred CEFs on their technical charts (JCP, FLC etc) , but as soon as trajectories change, I expect to be right back into them for the 7-8% yields AND potential gains. If inflation will have topped out at 8%, then 8% TR should be a minimally acceptable goal.
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Post by yogibearbull on Jun 25, 2023 18:53:04 GMT
Perfect hindsight has been mentioned. But the funds I included in my previous post were mainstream 37.5 yrs ago EXCEPT HY. So, the out-of-box HY for income proved not so good in hindsight.
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Post by Chahta on Jun 25, 2023 19:52:08 GMT
VWEHX - dividend from .06 in 1992 steadily down to .03 now, current yield 5.5% price $8 to $5 VBTLX - .05 in 2002 to .03 now, current yield = 2.76% price $10 to 9.58 now VFINX - up 823% since 1994 yield = 1.4% SDY - up 125% since 2006 yield = 2.67% This is all well and good but one could have done so much better, looking backwards. And yes, we've been through a secular decline in rates and some think that's turning around. Don't know. Either way, TR or I, it's all a crap shoot. TR/cap gain is more fun. I prefer to take income from equities and bonds.
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Post by steadyeddy on Jun 25, 2023 19:53:03 GMT
steadyeddy , I believe it is. El referred to “inflation adjusted” 4%. I am trying to understand is all. I have never thought this hard about inflation adjusting. I fail to see how a bond fund can provide steady cashflow beating inflation. I do not think there is a rational explanation for inflation-adjusted 4% withdrawal just from dividends.
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Post by Chahta on Jun 25, 2023 20:00:39 GMT
steadyeddy , I believe it is. El referred to “inflation adjusted” 4%. I am trying to understand is all. I have never thought this hard about inflation adjusting. I fail to see how a bond fund can provide steady cashflow beating inflation. I do not think there is a rational explanation for inflation-adjusted 4% withdrawal just from dividends. I think bond funds can up to a point but high inflation for the last 1 1/2 years it’s hard. If you use 70% of the yield and reinvest the 30% you are adding back into shares to give more income. You won’t come close with 3 or 4% yield funds. You need to buy funds cheap. I’ve explained to my girlfriend that the non-indexed for inflation $1700 retirement annuity collected since 2017 has lost almost $400 in buying power up to today. That is scary. To be honest I have never seriously thought about that until this thread. That is why fighting inflation is SO important. Further it kills the SS fund by paying bigger benefits out. Wages need to keep up to feed the fund. I will never fault the Fed for killing inflation.
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Post by ElLobo on Jun 25, 2023 21:45:29 GMT
I fail to see how a bond fund can provide steady cashflow beating inflation. I do not think there is a rational explanation for inflation-adjusted 4% withdrawal just from dividends. I think bond funds can up to a point but high inflation for the last 1 1/2 years it’s hard. If you use 70% of the yield and reinvest the 30% you are adding back into shares to give more income. You won’t come close with 3 or 4% yield funds. You need to buy funds cheap. I’ve explained to my girlfriend that the non-indexed for inflation $1700 retirement annuity collected since 2017 has lost almost $400 in buying power up to today. That is scary. To be honest I have never seriously thought about that until this thread. That is why fighting inflation is SO important. Further it kills the SS fund by paying bigger benefits out. Wages need to keep up to feed the fund. I will never fault the Fed for killing inflation. WOW. I come back to say hello and all hell breaks loose. Whenever approaching retirement, you are done 'accumulating' and you start planning for your 'decumulation' phase of life, where you try to figure out how much cash you can take out of your nestegg and still have it last as long as you, and your spouse, think you will live. That amount of cash is known, in investing and retirement circles, as a Safe Withdrawal Rate, stated as a percentage of your original nestegg at the time you start taking cash out. Then, once you determine that number, how do you structure your retirement portfolio to assure your portfolio outlasts you? THEN, what kind of retirement withdrawal strategy do you employ? So what is that number? How much money can you take out of your portfolio each month/year and have some expectation that you won't be eating Alpo 20 years out? Keep in mind that the overall long term average total return of the stock market has been about 7%.
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Post by steadyeddy on Jun 25, 2023 21:59:08 GMT
ElLobo, you bring up a very important perspective. That is "plan for funding your life time, not your heirs' inheritance."
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Post by ElLobo on Jun 25, 2023 22:11:50 GMT
ElLobo , you bring up a very important perspective. That is "plan for funding your life time, not your heirs' inheritance." Some people need to plan for heirs' inheritance. For example, my sister has a special needs son. At any rate, such planning is just another constraint on things. Instead of the assumption that your nestegg doesn't go to zero before, say, 30 years have gone by, the constraint becomes that it NEVER goes to zero! That is, you set up what is called a perpetual annuity.
So, care to take a crack at defining what you would consider a 'Safe Rate of Retirement Withdrawal'? And what would you propose for a portfolio? Start with the fact that the average annualized TR of the stock market was 7% over the last several decades.
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Post by ElLobo on Jun 25, 2023 22:31:42 GMT
VWEHX - dividend from .06 in 1992 steadily down to .03 now, current yield 5.5% price $8 to $5 VBTLX - .05 in 2002 to .03 now, current yield = 2.76% price $10 to 9.58 now VFINX - up 823% since 1994 yield = 1.4% SDY - up 125% since 2006 yield = 2.67% This is all well and good but one could have done so much better, looking backwards. And yes, we've been through a secular decline in rates and some think that's turning around. Don't know. Either way, TR or I, it's all a crap shoot. TR/cap gain is more fun. I prefer to take income from equities and bonds. Yup, I agree, but he was looking forward, not backward!
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Post by retiredat48 on Jun 25, 2023 22:35:45 GMT
I understand. If you get $100 in divs and spend .04/.055•$100 =$73. Then $23 goes back into seed corn. But $23•5.5% is $1.27 more the next year. OK, slightly more for compounding monthly. $1.27/$73 is an increase of 1.74%. Not even keeping up with 2% inflation. That is why I ask about inflation adjusted return. Where is my math wrong? Just trying to understand inflation adjusted return. I don't think your math is wrong at all. Inflation is a problem -- perhaps the biggest one of all. Some on these boards were astute enough to buy and hold Big Tech twenty or thirty years ago and are thus vastly ahead of the game. (I'm not one of them!) Ditto those who bought California real estate in the 80s and 90s. If you're saving for the kid's college costs, you're probably falling further behind. Now if you fully own your home, or are riding with a low-rate fixed mortgage, inflation has less of a sting. Much of your living costs are static. Nevertheless, I think the entire "earn 5%/withdraw & spend 4%" plan is flawed. A better goal is to out-earn your rate of inflation, either by dividends or gains. Taxes aside, it makes little difference if I collected $100 in dividends or $100 in gains last month. In either case, my assets have gained. If I withdraw $50 from my account for spending, either by selling shares or withdrawing cash, I am reducing my portfolio assets. Long term this works only if I withdraw a steady percentage of gains and/or earnings EQUALLING inflation AND if the remaining reinvested monthly increase in PV has ALSO out-run inflation.
That's why an economy with 6-8% inflation is so brutal. Not only do you have to out-run inflation in your investments, but you must also allow for your WITHDRAWALS to increase to maintain your lifestyle. Right now I have big positions in money market funds -- but I know every month I keep that allocation, I'm falling further behind. I already own a lot of individual preferreds, reliably averaging about 8% or better like ETpE, NLYpG, RITMpB, NSpA, PBRpB, also FTAIN ET, ARCC, HFRO, PDI etc -- and just dumped preferred CEFs on their technical charts (JCP, FLC etc) , but as soon as trajectories change, I expect to be right back into them for the 7-8% yields AND potential gains. If inflation will have topped out at 8%, then 8% TR should be a minimally acceptable goal. Lot's of wisdom in this post.Guess that means I generally agree with it! R48
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Post by retiredat48 on Jun 25, 2023 22:40:07 GMT
steadyeddy , I believe it is. El referred to “inflation adjusted” 4%. I am trying to understand is all. I have never thought this hard about inflation adjusting. I fail to see how a bond fund can provide steady cashflow beating inflation. I do not think there is a rational explanation for inflation-adjusted 4% withdrawal just from dividends. There have been decade long periods where the yield from junk bond funds exceeded inflation. Up until ten years ago, I had the majority of my fixed income in fund bond funds. The most notable being Vanguard's offerings, which were conservative and had low annual default rates of underlying junk (lower rated) bond holdings. R48
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