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Post by Deleted on Apr 20, 2024 7:58:08 GMT
I found this website interesting. www.officialdata.org/us/inflation/2000?amount=100I retired in 2000. Inflation has been been relatively low, yet my dollars can only buy 55.133% of what they could buy 24 years ago. It really brings home the point that one of the greatest financial risks retirees face is from inflation.
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Post by Deleted on Apr 20, 2024 20:03:05 GMT
And I assume investing in stocks is the best way for our savings to beat the inflation.
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Post by steelpony10 on Apr 21, 2024 10:16:38 GMT
@django ,
Of course you’re correct but the average retirement is 15-20 years. A short period in my opinion.
@waffle2 ,
It depends on your risk tolerance, investment experience including your knowledge of money management. Personal inflation varies. With the right tools, experience and some luck a quality retirement is still possible. I saw it first hand during Stagflation, 1968-82, when inflation averaged 7%+.
You are also correct long term about equities which to me is over 20 years. My opinion is there are products that produce similar results and are more predictable, income instead of or in additional to cap gains. We invest in both areas with a safe haven which acts as backup to both and additionally covers bad luck.
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Post by mnfish on Apr 21, 2024 12:48:48 GMT
And I assume investing in stocks is the best way for our savings to beat the inflation. PV shows that taking $20k yr from a $500k portfolio, inflation adjusted, beginning in 2000 a balanced portfolio (VBINX $542k today) outperformed 100% stocks (SPY $180k today ) by far. steelpony10 - 100% in PCM, a CEF, would have a balance of $2.1m today.
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Post by keppelbay on Apr 21, 2024 13:00:35 GMT
And I assume investing in stocks is the best way for our savings to beat the inflation. @waffle2, using stocks to keep pace with inflation is certainly the conventional wisdom. There are other solutions, as steelpony10 points out.
I prefer to have a steady income stream in excess of my spending needs to fund retirement. I don't want to have to depend on gains from equity price growth.
Here's an illustration of how an 'income-only' model could work. To keep up with inflation, you need to set aside a portion of your annual income to reinvest in more income generating securities.
For simplicity assume 5% inflation and 10% income from the investments. To get a 5% increase in your income you would need to reinvest 50% of the years income at 10% (10%*50%=5%). The table shows this over several years: for a 100K investment (10% yield is doable using FI CEFs)
10.00% reinvest annual income spending money inflation 50% 100,000 10,000 5,000 5,000 inflation 105,000 10,500 5,250 5,250 5.00% 110,250 11,025 5,513 5,513 115,763 11,576 5,788 5,788 121,551 12,155 6,078 6,078 127,628 12,763 6,381 6,381 134,010 13,401 6,700 6,700 140,710 14,071 7,036 7,036
It works the same for reinvesting 30% if inflation is 3% etc. So you can keep pace indefinitely if you make an annual adjustment to how much you need to reinvest based on current inflation.
Nothing beats getting ahead of the game by reinvesting more than you need to keep pace.
Using this approach for the 'income producing' part of your portfolio would reduce dependence on equity market performance. An income-only model is perhaps a bit extreme. It is probably a good idea to use a mix of the two strategies.
___________
Below I've rephrased a couple of earlier posts from other threads on how I use FI CEFs as part of an income based approach to managing retirement funding: The key is underspending, and investing the excess to grow future income.
I decided to trial-run this while I was still working. Starting early, I felt free to experiment. If I didn't like the resuls, I could (a) try something else, (b) stay employed to 'fix' it. I didn't need plan B and was able to retire early.
My income from invested capital has grown by more than 40% since I retired in 2017 and started living off the cash flow.
As of now my portfolio is ~80% fixed income, of which 45% is in FI OEF and 35% in FI CEF ... I view the FI CEFs as bearing equity-like risk, so my risk allocation is close to 50:50. I don't view this as a fixed target... I can dial the allocation to FI CEF up or down to adjust cash flow in response to my sense of market risk / opportunity.
pros: - Steadily growing income stream, in excess of spending needs. - Portfolio continues to grow. No net drawdown so far. - income growth exceeds inflation (so far). - deciding where to invest excess cash suits my temperment better than deciding what to sell and when, in order to generate the cash I need to spend.
cons: - not tax efficient. - Portfolio growth was keeping pace with the growth of the S&P500, but has lagged recently, mostly due to FI CEFs in 2022. While this has impacted total portfolio value, it has provided an opportunity to buy more of the same cash flow stream at lower prices This has markedly grown income. Meanwhile, CEF NAVs and mkt prices seem to be starting to recover. (none of my PIMCO CEFs had to cut distributions due to rising leverage costs during this rate hike cycle, and a few other CEFs have raised distributions).
conclusion: - this approach survived the recent stress test of rapidly rising US rates - bruised but not broken.
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Post by richardsok on Apr 21, 2024 13:24:03 GMT
kep --
I agree almost entirely with your theory and simplified example. Like you and many others, I also have an income component to my portfolio (in my case, which somewhat swells or decreases in size with the vagaries of the market & interest rates).
However, as you correctly mention tax efficiency, one might clarify that taxes are a continual drag on the income-only investor, while the long term growth investor never need worry about the infernal revenue service until he cashes in. (Score one point for growth.)
OTOH "The market has always grown so it always will" is a perilous premise for today's investor pouring new 2024 money into his investments . The Japanese stock market peaked some thirty years ago and is only now re-approaching its former highs. The Japanese investor who started out young & poor 30 years ago has done OK dollar-cost averaging over the decades. But for the early retiree back then, that market was a disaster. (Score one point for income.)
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Post by steelpony10 on Apr 21, 2024 14:12:53 GMT
mnfish , Starting during the bank crisis say 2009-10 when we invested about 45% in CEF’s, and an equal amount in equities (as secondary income). Equities were great until 2020-21 and it’s 3-4 years later with no end to daily bad headlines. We’ve received close to 8-900k in CEF income over that time and the whole pile is currently down about 4%. Maybe that would be 1.5 mil in income from 2000. Anyone who expects value growth from a bond product compared to an equity product boggles my mind. Apples to oranges. I’ll stick with excess income compounding at 8-10% no matter the market conditions. Our portfolio continues to grow in value due to the fact I can’t spend 8-900k fast enough. I may be halfway through my retirement which on average is 15-20 years as mentioned. Some people want to live large in retirement others want to die richer, not me. I know as a fact all our estate will basically go to relatives or for elder care issues like LTC. I have no desire to shepherd a portfolio until I die for those two destinations. We auto transfer enough money into our cash account to replace what we just spent monthly with about half left over currently. Our equities, VTI and 2 stocks now, were on reinvestment from 1978 until this year. Along with those dividends and safe haven muni income we now receive we’re set probably into the afterlife. This was all by plan executed over 45 years+.* I hope no one judges me by how rich I was when I die.* *Pertaining to the original post, inflation is a fact going back to Roman times. No one knows their own future personal inflation rate. It seemed logical during 1978 to overshoot the worse case scenario I knew at the time. Really really glad I did.
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Post by Deleted on Apr 21, 2024 19:31:26 GMT
When you say CEFs, is it like PDI, PDO, PCN, PCM, PTY etc.?
I have seen a few threads on these here in this forum, but I was waiting to get closer to retirement before I buy them in my retirement account.
I still have 9-10 years to retirement, (Assuming I keep getting work.)
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Post by Deleted on Apr 21, 2024 20:24:12 GMT
When you say CEFs, is it like PDI, PDO, PCN, PCM, PTY etc.? I have seen a few threads on these here in this forum, but I was waiting to get closer to retirement before I buy them in my retirement account. I still have 9-10 years to retirement, (Assuming I keep getting work.) Those CEFs use leverage to goose yields. Please don't think that's a free lunch. It adds risk. I don't invest in them and 99% of all other investors don't either.
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Post by retiredat48 on Apr 21, 2024 20:34:26 GMT
I'll add briefly...now 30 years retired, have been slowly shifting past decade to a more income-based portfolio theme. Currently more than 95% of assets are in IRAs. Approx 60/40% portfolio AA. Due reinvestment of CEF income into add'l shares, this portion of portfolio is rising. The total portfolio income (coupled with social Security) approximates my spending needs. Comforting, yes. Any additional money I earn will likely go to kids, and charities.
R48
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Post by yogibearbull on Apr 21, 2024 22:02:13 GMT
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Post by Mustang on Apr 21, 2024 22:52:18 GMT
Using the 24 year period from 1966 to 1990 inflation was 303%. It took a withdrawal of over $80,000 to buy what $20,000 did in 1966. We know what worked and its reasonable to expect it to work again. That is a balanced portfolio having 50-75% in stocks. That asset allocation has been verified by others including academia and other highly published financial analysts. Stocks are the best way to keep up with inflation but a 100% allocation is not. The withdrawal phase is different from the accumulation phase. PV showed several balanced funds beating the SP500, funds like FBALX, VWENX and VWENX beat it. Vanguard Wellesley Income Fund beat it even though it was around 60% bonds. www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=V26A3SE0H6pojRevzlW99The Horse Race thread has a complete discussion including numerous PV links on this. big-bang-investors.proboards.com/thread/2894/horse-race?page=1
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Post by bb2 on Apr 22, 2024 19:55:32 GMT
I've still not figured out CEFs. When spoken of, it's seems it's bond CEF's though some invest in stocks. Leverage to various extents and fees seem to be common characteristics. You don't know what classification of returns you're getting, as it could be your own money or returns. And they're volatile, just like the assets they invest in. Bond CEFs were sure to drop in price when the fed began raising. One tech stock CEF, BSTZ, has been terrible all through time. I've played with a couple Pimco bond CEFs, played them with what I thought rates would do but I wouldn't buy and hold any CEF, at least at this point of my understanding. And I think I'm done playng with them. Kinda fun played TLT though.
BTW, concerning stocks, I tend to discount the example of the Japanese stock market due to structural differences between Japan and the US. I'm long US only stocks but have gotten into short term bonds and short term MM a bit. That said, also watching India and will likely start with an ETF very soon. INDA is up about 30% so hoping for a drop.
Retired 20 yrs, maybe 20 to go. If I'm demented, as some think, I'll blow my brains out earlier, what's left of them.
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Post by Chahta on Apr 23, 2024 1:46:08 GMT
When you say CEFs, is it like PDI, PDO, PCN, PCM, PTY etc.? I have seen a few threads on these here in this forum, but I was waiting to get closer to retirement before I buy them in my retirement account. I still have 9-10 years to retirement, (Assuming I keep getting work.) Personally I would not wait to buy them in 9 years. Now presents a decent buying opportunity. PTY is a good opportunity; reinvest your divs for the next 9-10 years and you will have quite an income producing machine at a low cost.
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Post by Deleted on Apr 28, 2024 18:28:17 GMT
Thanks I will add some PTY to my retirement account. I googled CEF's and got these recommendations from kiplinger's www.kiplinger.com/investing/cefs/best-closed-end-fundsI assume it is best to buy CEFs in retirement accounts as they are very high yield (and very high expense!!!) @django - Are you referring to kind of CEFs Kiplinger is recommending. None of them are Pimco
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Post by steelpony10 on Apr 28, 2024 20:37:23 GMT
@waffle2 , In my opinion it’s better to match any investment to a plan of purpose. I think there’s a lot of articles like Kiplinger’s that will throw out a whole new bunch each year.
Maybe make CEF’s a part of an income section for diversification. If PTY gives you the screaming willies concentrate on the 1k yearly income per 10k invested available at this time. PIMCO management is royalty in the CEF space and PTY “has” been their best past performer.
I know what others think. It’s such easy money there must be a catch. Not being too stupid I have equities, a muni fund and a cash stash as backup. All 3 have flaws also. The main one is the hidden loss of purchasing power in the present market.
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Post by Deleted on Apr 28, 2024 21:20:08 GMT
I think personality has a lot to do with what is an appropriate investment. I remember folks during the Covid Panic on the old M* forums absolutely devastated by how their leveraged CEFs were performing, and of course they sold at the very worse time. Now that I'm old, I don't ever want to be in a position where I might never be able to recover from a big financial setback. That means no leverage for me. No CEFs.
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Post by steelpony10 on Apr 29, 2024 10:41:16 GMT
@django ,
Correct again. One has to recognize an investing or selling opportunity. Those types should stay with an index fund cash and spend down probably.
I learned a lot managing my parents portfolio for 35 + years. I dedicated over 50% of our portfolio as backup for possible independent and assisted living expenses as well as LTC while we live off of easy to manage and in my opinion more dependable monthly CEF income.
I guess I regard that as the biggest possible financial setback since I don’t spend down yet. I can ignore most everything else including values which is out of my control and just increase cash flow as needed.
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Post by mnfish on May 7, 2024 11:38:16 GMT
www.frbsf.org/research-and-insights/blog/sf-fed-blog/2024/05/03/pandemic-savings-are-gone-whats-next-for-us-consumers/"The latest estimates of overall pandemic excess savings remaining in the U.S. economy have turned negative, suggesting that American households fully spent their pandemic-era savings as of March 2024." "With our estimate of excess savings dropping below zero, what does this mean for the future of U.S. households and consumer spending?" "A continuing strong labor market could help consumers maintain spending patterns similar to those observed recently, even without pandemic-era savings." spend your wage gains - wages increases finally caught up to inflation in Feb 2023 - and currently exceeds inflation by 1.2% "Consumers could use their non-pandemic-related savings as another source of funding for their household consumption. Many households saw notable gains in their equity and other asset holdings over the past year" spend your stock gains - hope you realized some gains and have it in a MM "households across the income distribution now own notably more nonfinancial assets, such as real estate holdings and vehicles, To the extent that households are able to access funding from these less liquid assets, consumer spending could continue at a robust pace going forward." spend your refinanced property gains (and pay more interest!?) has anyone ever refinanced a vehicle to get cash? "Finally, consumers could use debt—such as credit cards and personal loans—to further support their current spending habits, although the current elevated interest rate environment means that the cost of using credit is higher than in the decade preceding the pandemic recession spend more with debt and pay higher interest "The path of consumer spending in the United States is difficult to forecast with any degree of accuracy."
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Post by Mustang on May 7, 2024 15:21:52 GMT
"households across the income distribution now own notably more nonfinancial assets, such as real estate holdings and vehicles, To the extent that households are able to access funding from these less liquid assets, consumer spending could continue at a robust pace going forward." spend your refinanced property gains (and pay more interest!?) has anyone ever refinanced a vehicle to get cash? Yes. It was a long time ago. I blew a head gasket on my car. No outward symptoms but anti-freeze got into the oil. That caused the main rod bearings to fail. I had to re-finance the car to buy a used motor. When someone is just starting out with absolutely no savings and the only asset they have is a car, they have to do what they have to do to keep going.
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