Is the successful salaried retail investor a myth?

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Is the successful salaried retail investor a myth?

Post by Pointedstick » Tue Jul 09, 2013 2:59 pm

This is going to be pretty heavily in the "devil's advocacy" department, and somewhat stream-of-consciousness, so take it with a grain of salt.

I've been wondering lately if the entire field of retail investing by small net worth individuals working hard at their jobs and saving in their 401(k)s and Roth IRAs is just a big scam.

Let's look at the common case of retirement. You need 25x your annual expenses for a 4% withdrawal rate, or 33x for 3% and so on. If you need $40k/yr to live, at 4% SWR, you need $1m in a portfolio that reliably produces at least 4% after inflation with as little yearly volatility as possible, for example.

Now around these parts we all think the portfolio to do this with is the PP, and the PP is very stable, but unfortunately the PP has had quite a few years in the past two decades where it did not produce even a 3% after-inflation return:

1994: -5.2%
1996: 1.8%
1999: 2.2%
2000: -0.6%
2001: -2.4%
2008: -4.5%

(results compiled by taking historical PP performance data from https://web.archive.org/web/20160324133 ... l-returns/ and subtracting yearly inflation data provided by http://www.bls.gov/cpi/home.htm)

And every year it doesn't produce a 3% or greater real return, that's a bigger real return you need next year to make up the lost principal you had to sell.

If even the PP can't be counted on to produce even a 3% real return every single year, you're sunk. What's the alternative?

Well, if you need reliable, stable year-after-year income, what you really need is bonds. But right now bond yields are in the toilet. And bonds don't adjust their yields with inflation. Unless you reinvest a portion of your bond income (read: reduce its effective yield), the purchasing power of your bonds is just going to get creamed over time. Of course TIPS adjust with inflation, but they yield even less. You would need to be able to live on 2% or even 1% of your portfolio. Which sort of brings me to my point:

If you want to live off your investments, you just need a shitload of money. That's it. You can't count on interest rates being high enough for bonds or cash alone to work, you can't count on any individual market such as gold or stocks doing well over any consistent timeframe, and you can't even count on a diversified portfolio like the PP to produce a minimum level of real returns on a consistent basis. The financial markets are just inherently too volatile, and any volatility reduction--no matter how clever--will increasingly cause you to bump up against inflation as you dial down the volatility.

My tentative conclusion: You simply need enough money that it doesn't matter. If the paper value of your portfolio declines 8%, then screw it; you're still rich and your crapton of bonds continues to throw off enough to live on regardless of the paper value. If your PP goes down 6% this year, then screw it; you have 100x your annual expenses so you can wait it out and hope for a better-than-average return next year.

But then… if you have 100x your yearly expenses, you don't really need to be choosy about your portfolio. Who cares if stocks fall 50% and now you only have 50x your yearly expenses; it's probably going to shoot up again at some point and then eventually you'll have 200x your yearly expenses. Even if that takes, say, 15 years for stocks to stop treading water and after that decade and a half you wind up with "only" 35x your yearly expenses, that's still super safe compared to everyone else. If you're more conservative, you can just put everything into Munis, TIPS, and never worry about your asset allocation. Those bonds are going to produce you a real return of 1 or 2% with their eyes closed. And with 100x your annual expenses, heck, you don't even need to participate in the markets at all! Put it all in cash and spend it down, because you're probably not going to live for another 100 years.

So what you really need is 100x your annual expenses. For sommeone/some family who spends 40k/yr, that's 4 million dollars. Over the course of a 35-year career, accumulating 4 million dollars requires saving $114,000 every year. That's ridiculous. No salaried employee is going to do that. Maybe a few bankers and debt-free doctors might be able to do that, or some workaholic childless couples in high-paying fields. And they can't use tax-sheltered vehicles due to income caps and contribution limits.

So you need to own a business. A very prosperous business. And you need to sell it, or take a truly humongous amount of income from it.

Basically, what I'm trying to say here is when I really look into it, the investment market looks like it's for rich people and the rest of us have no real hope of providing for our retirement securely using investment products; the only surefire method is to simply accumulate more money, which means investing in yourself and probably owning a business or some sort.

Am I wrong?
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Re: Is the successful salaried retail investor a myth?

Post by Libertarian666 » Tue Jul 09, 2013 3:27 pm

My plan is to save 33 times my yearly expenses that aren't covered by Social Security, and assume a 0% real return.
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Re: Is the successful salaried retail investor a myth?

Post by MediumTex » Tue Jul 09, 2013 3:44 pm

I always like to think of easy post-retirement work as a way of "simulating" more savings.

For example, if I can make $8,000 a year driving a school bus or bagging groceries part-time, in today's world that would be the income stream thrown off by more than $200,000. 

Thus, if I needed to save $400,000, but only managed to save $200,000, all that might mean would be that I would need to be a greeter at Walmart for 15-20 hours each week to still have the kind of retirement I wanted to have.

It's not perfect, but it's not terrible either.  In fact, I would say that for an old person part time work is probably better for them than not working at all from an overall mental and physical health perspective.

To me, the idea of living 20-30 years after retirement with the goal of carefully avoiding any paid work seems sort of silly.  I worked various dumb jobs when I was a teenager because I wanted a little extra money; why wouldn't I be willing to do the same thing in retirement?

In my own case, I plan to clean carpet in retirement, which will give me the flexibility, extra income and exercise that I will likely need at that point.  That doesn't bother me at all.  It actually sounds kind of fun.

What about when a person gets too old to do any kind of work at all?  I would say that this point is likely to be delayed if a person works as long as they can doing something.
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Re: Is the successful salaried retail investor a myth?

Post by Pointedstick » Tue Jul 09, 2013 4:10 pm

TennPaGa wrote: One nitpick...

I think it is fair to assume that you'll get some sort of return during the 35 years of saving, so you won't need to save $114,000/yr to end up with $4M.  For example, assuming a 4% return, you'd need to save $52,200 teach year.  So not quite as much.  But still unattainable for 99%+ of the population.
True, but that's a 4% nominal return, not real. 4% nominal won't be enough to do much more than barely clear inflation, which has been an average of 3.22% from 1913-2013. So if instead we imagine a 0.78% return, that requires $104k when you factor in compounding. Less than $114k, but a lot more than $52k.

A 4% average yearly real return would be awesome and has happened with the PP over long periods of time, but is not guaranteed in any given year or even couple of years. So yes, I guess we can also say that highly financially savvy types who can live on $40k/yr and have the patience to invest for decades can reduce their yearly savings to "only" $52k. :)
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Re: Is the successful salaried retail investor a myth?

Post by MediumTex » Tue Jul 09, 2013 4:19 pm

Pointedstick wrote:
TennPaGa wrote: One nitpick...

I think it is fair to assume that you'll get some sort of return during the 35 years of saving, so you won't need to save $114,000/yr to end up with $4M.  For example, assuming a 4% return, you'd need to save $52,200 teach year.  So not quite as much.  But still unattainable for 99%+ of the population.
True, but that's a 4% nominal return, not real. 4% nominal won't be enough to do much more than barely clear inflation, which has been an average of 3.22% from 1913-2013. So if instead we imagine a 0.78% return, that requires $104k when you factor in compounding. Less than $114k, but a lot more than $52k.

A 4% average yearly real return would be awesome and has happened with the PP over long periods of time, but is not guaranteed in any given year or even couple of years. So yes, I guess we can also say that highly financially savvy types who can live on $40k/yr and have the patience to invest for decades can reduce their yearly savings to "only" $52k. :)
My part-time work idea is also a very nice inflation hedge, since wages tend to more or less track inflation.
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Re: Is the successful salaried retail investor a myth?

Post by Pointedstick » Tue Jul 09, 2013 4:31 pm

Really the big thing that has become obvious to me is that one can almost never avoid being of value to others for very long. As MT pointed out, this idea of being entirely work-free for 30 years is kind of silly, and implies consuming society's resources for 3 decades without offering anything of tangible value during that time. Even non-economic work such as being a stay-at-home parent who provides childcare and household upkeep still produces value--large amounts of it, I'd say.

The hurdles and barriers to being able to avoid offering value to others make it really really hard to do this, barring incredibly enormous value creation early in life. If you can't do that, you're pretty much stuck having to work in some capacity for the duration of your existence.

Which if you think about it, is actually the norm throughout human history. We're a social species. We do work for others to gain access to some of their resources that we can't provide for ourselves. The only way to opt out of this arrangement is to provide everything for yourself, but that usually involves even more work, and there's never a "retirement."
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Re: Is the successful salaried retail investor a myth?

Post by ns2 » Tue Jul 09, 2013 5:08 pm

Pointedstick wrote: As MT pointed out, this idea of being entirely work-free for 30 years is kind of silly, and implies consuming society's resources for 3 decades without offering anything of tangible value during that time.
That perfectly describes my dad. He worked as a milkman and went on SS disability due to arthritis in his knees at age 59, transitioning to normal SS at age 62. He's still alive at 94 so we're talking 35 years of retirement, more than 1/3 of his life. Most of it has been spent watching television, playing cards with friends, and eating out at gourmet restaurants like Denny's.

I have no intention of following in his footsteps but the amazing thing about it is that my parents were able to do this on a milkman's salary with just a modest inheritance from my grandparents. Until a couple of years ago they had a home in both Florida where I live now and Ohio where I grew up. Their nest egg peaked at about $380k when they sold the condo in Florida a couple of years ago.
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Re: Is the successful salaried retail investor a myth?

Post by Libertarian666 » Tue Jul 09, 2013 5:21 pm

Pointedstick wrote: Really the big thing that has become obvious to me is that one can almost never avoid being of value to others for very long. As MT pointed out, this idea of being entirely work-free for 30 years is kind of silly, and implies consuming society's resources for 3 decades without offering anything of tangible value during that time. Even non-economic work such as being a stay-at-home parent who provides childcare and household upkeep still produces value--large amounts of it, I'd say.

The hurdles and barriers to being able to avoid offering value to others make it really really hard to do this, barring incredibly enormous value creation early in life. If you can't do that, you're pretty much stuck having to work in some capacity for the duration of your existence.

Which if you think about it, is actually the norm throughout human history. We're a social species. We do work for others to gain access to some of their resources that we can't provide for ourselves. The only way to opt out of this arrangement is to provide everything for yourself, but that usually involves even more work, and there's never a "retirement."
I must be missing something. If I have assets to sell to fund my retirement, why is that not of "tangible value" to society? I would have those assets because of consuming less than my production for many years, adding the return (if any) due to successful investing.
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Re: Is the successful salaried retail investor a myth?

Post by Pointedstick » Tue Jul 09, 2013 5:27 pm

Libertarian666 wrote: I must be missing something. If I have assets to sell to fund my retirement, why is that not of "tangible value" to society? I would have those assets because of consuming less than my production for many years, adding the return (if any) due to successful investing.
Money is just a record of past work. Having a lot of money implies having previously done a lot of work in the past and consumed more of other people's things with that money than you produced--production here referring to real production of things or services that are valuable.
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Re: Is the successful salaried retail investor a myth?

Post by MediumTex » Tue Jul 09, 2013 5:43 pm

Libertarian666 wrote: I must be missing something. If I have assets to sell to fund my retirement, why is that not of "tangible value" to society? I would have those assets because of consuming less than my production for many years, adding the return (if any) due to successful investing.
Sure, but to me there will always be at least two rats nibbling on your assets from past work in the form of inflation and taxes, while a marketable skill can be traded for money whenever you wish.  The marketable skill is still subject to the nibbling rat of taxation, but the other rat of inflation is mostly neutralized.

A good plan, of course, is to have both assets and skills, which is a pretty good nibbling rat control plan.
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Re: Is the successful salaried retail investor a myth?

Post by Tortoise » Tue Jul 09, 2013 6:38 pm

I see what you're saying, PS, and it is indeed a sobering analysis. But to summarize a couple of the points made in this thread, and add a couple of my own, the analysis becomes less sobering when you consider:
  • People are adaptable and don't need to withdraw exactly the same fraction of money (SWR) every single year. In lean years with low or negative returns, one can forgo certain luxuries and discretionary expenses to soften the blow and better preserve one's principal.
  • One can do various part-time jobs to provide supplemental income if needed.
  • One can have children and raise them well, with plenty of love and support. If one's nest egg eventually disappears in spite of the previous two considerations, one's children can provide various forms of support. (This doesn't work if your children hate you or were raised to be selfish ingrates ;))
Using a combination of all three of these approaches--adaptive withdrawal rate, part-time work, and support from children--provides a type of diversification that makes the retirement savings analysis less sobering than it might first appear.
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Re: Is the successful salaried retail investor a myth?

Post by Coffee » Tue Jul 09, 2013 8:20 pm

The problem with the "work until you're dead" hypothesis is that: There is a higher likelihood that MT will have a bad hernia condition as he gets older, and won't be able to clean carpets.  Or go blind.  Or develop early onset dementia.  Or be unable to go 20 minutes without having to take a piss.  (Hit a nerve on that last one, didn't I?)

So, you may not be able to depend on being able to work. 

"What about being a Walmart greeter?" you ask.

Yes-- you and 99% of every other retiree in your age bracket, especially the one's doing a lot worse than you, are going to have that same idea.  God forbid we go into a Great Depression 2.0 when you hit retirement age.

I think the answer is to invest our efforts into some type of evergreen royalty producing activity.  Like writing the next, "Happy Birthday" song, or penning the novel that becomes a perennial cult hit.  Or producing a TV show like Star Trek.

Long shots?  Yes.  But still probably better than depending on getting a job as a greeter at Walmart.
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Re: Is the successful salaried retail investor a myth?

Post by MediumTex » Tue Jul 09, 2013 8:37 pm

Coffee wrote: The problem with the "work until you're dead" hypothesis is that: There is a higher likelihood that MT will have a bad hernia condition as he gets older, and won't be able to clean carpets.  Or go blind.  Or develop early onset dementia.  Or be unable to go 20 minutes without having to take a piss.  (Hit a nerve on that last one, didn't I?)

So, you may not be able to depend on being able to work. 

"What about being a Walmart greeter?" you ask.

Yes-- you and 99% of every other retiree in your age bracket, especially the one's doing a lot worse than you, are going to have that same idea.  God forbid we go into a Great Depression 2.0 when you hit retirement age.

I think the answer is to invest our efforts into some type of evergreen royalty producing activity.  Like writing the next, "Happy Birthday" song, or penning the novel that becomes a perennial cult hit.  Or producing a TV show like Star Trek.

Long shots?  Yes.  But still probably better than depending on getting a job as a greeter at Walmart.
I understand that the body starts to fall apart at some point, but it seems to me that working helps delay that process, allowing you to work longer if that's what you want to do.

I don't have to just clean carpet.  I can write books and get rich, practice law part time, do my mobile notary service and a lot other things if I thought about it.

The basic idea I am getting at, though, is that continuing to work in retirement shouldn't be viewed as something awful and to be avoided at all costs.  It can help strengthen almost any retirement strategy.

To hear people talk sometimes, you might think that there was a rule that people weren't permitted to work after age 65.
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Re: Is the successful salaried retail investor a myth?

Post by GT » Tue Jul 09, 2013 8:59 pm

If you want to live off your investments, you just need a shitload of money. That's it. You can't count on interest rates being high enough for bonds or cash alone to work, you can't count on any individual market such as gold or stocks doing well over any consistent timeframe, and you can't even count on a diversified portfolio like the PP to produce a minimum level of real returns on a consistent basis. The financial markets are just inherently too volatile, and any volatility reduction--no matter how clever--will increasingly cause you to bump up against inflation as you dial down the volatility.
Funny how Harry had it figured out a while back....
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Re: Is the successful salaried retail investor a myth?

Post by Coffee » Tue Jul 09, 2013 9:14 pm

MediumTex wrote:
Coffee wrote: The problem with the "work until you're dead" hypothesis is that: There is a higher likelihood that MT will have a bad hernia condition as he gets older, and won't be able to clean carpets.  Or go blind.  Or develop early onset dementia.  Or be unable to go 20 minutes without having to take a piss.  (Hit a nerve on that last one, didn't I?)

So, you may not be able to depend on being able to work. 

"What about being a Walmart greeter?" you ask.

Yes-- you and 99% of every other retiree in your age bracket, especially the one's doing a lot worse than you, are going to have that same idea.  God forbid we go into a Great Depression 2.0 when you hit retirement age.

I think the answer is to invest our efforts into some type of evergreen royalty producing activity.  Like writing the next, "Happy Birthday" song, or penning the novel that becomes a perennial cult hit.  Or producing a TV show like Star Trek.

Long shots?  Yes.  But still probably better than depending on getting a job as a greeter at Walmart.
I understand that the body starts to fall apart at some point, but it seems to me that working helps delay that process, allowing you to work longer if that's what you want to do.

I don't have to just clean carpet.  I can write books and get rich, practice law part time, do my mobile notary service and a lot other things if I thought about it.

The basic idea I am getting at, though, is that continuing to work in retirement shouldn't be viewed as something awful and to be avoided at all costs.  It can help strengthen almost any retirement strategy.

To hear people talk sometimes, you might think that there was a rule that people weren't permitted to work after age 65.
I agree, that you need to do something to exercise the mind and body in your old age.  If you can find work that you love doing, all the better.

By the way-- the mobile notary business can be a very good full time money-maker, too.  I have a couple of family members who are (each) making $60k+ doing the mobile notary gig.
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Re: Is the successful salaried retail investor a myth?

Post by Tyler » Tue Jul 09, 2013 9:33 pm

I know you're a fellow ERE hopeful, Pointedstick.  What has you so stressed?

A bit of background on Safe Withdrawal Rates:

The 4% SWR is based on research called the Trinity Study which looked a wide variety of traditional stock/bond blends to see what level of withdrawals could have been historically sustained for 30 years no matter what year you happened to retire in.  As we all know, no matter how you invest some years are great while some are terrible.  The 4% rate was what they found worked even in the worst possible historical scenario where one retired immediately before the Great Depression, their portfolio completely tanked in year 1 of retirement, they withdrew the same (inflation adjusted) expenses every year, and they never earned another dollar for the next 30 years. 

So I see a few flaws in your fears that should give you hope:

1) The idea that your investments must return 3-4% real every single year to support you in retirement is a false (and impossible) assumption.  As we know, big downturns are often followed by big upturns where you make far more than 3-4%.  As long as you do not increase your spending rate with your portfolio value in the up years, that extra money will pad you for the next time you have a negative year (or help you recover from selling assets in a losing year).

2) SWRs have a ton of additional assumptions built in (as discussed above) and thus are more academic arguments rather than real-life safety numbers.  Noone in their right mind would continue to automatically increase spending by the CPI even in years when their investments struggle.  And if you toss in just a few thousand dollars from an enjoyable part time job, you make your portfolio pretty bulletproof even in bad years. 

3) It's true that a 4% SWR may be a little optimistic for a very early retiree, as the studies considered having only $1 after 30 years a "success".  However, everything I've read about both retirement and investing indicates that 3% is quite reasonable, especially if you're flexible like in point #2 above.

4) Finally, the Trinity study was based on various stock/bond blends and thus was far more sensitive to start dates because of market volatility.  All things being equal, reduced volatility with similar mean returns over time makes any withdrawal rate safer because you'll have fewer and less severe down years where your drawdowns hurt more.  That's why I invest in the PP -- it has similar returns to Boglehead-style portfolios with less volatility.  It's both good for my retirement plans and also great for helping me sleep at night. 
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Re: Is the successful salaried retail investor a myth?

Post by WiseOne » Wed Jul 10, 2013 8:33 am

Pointedstick wrote: Now around these parts we all think the portfolio to do this with is the PP, and the PP is very stable, but unfortunately the PP has had quite a few years in the past two decades where it did not produce even a 3% after-inflation return:

1994: -5.2%
1996: 1.8%
1999: 2.2%
2000: -0.6%
2001: -2.4%
2008: -4.5%
Don't lose hope yet, Pointed!  You're forgetting something:  the cash allocation.  If you have a $1M portfolio, $250,000 of it (minimum $150,000) will be in cash.  That's more than 3 years of living expenses even when you're approaching a 15% cash allocation..  Let's assume that when you're in withdrawal mode, you only have to sell volatile assets during a rebalance triggered by spending cash down to 15%.  The only time you could conceivably be forced to sell volatile assets during a losing year would be when the loss is slight and you are already close to 15% cash.  Otherwise, the reduction in volatile assets will cause the cash % to rise, making it less likely that you'll hit a rebalance band.  When the volatile assets go up a lot, as they have historically often done after a losing year, the cash % will decrease and you'll be more likely to hit a rebalance band.

We touched on this in another thread, but I really think Harry's 25% cash allocation is a VERY key piece of the portfolio for this phase, and it increases the safety tremendously over a traditional stock/bond portfolio.  I'd like to try testing my hypothesis on the historical data...although I'm going through quite a busy time right now myself (helping take care of my father at home).
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Re: Is the successful salaried retail investor a myth?

Post by Tyler » Wed Jul 10, 2013 9:02 am

WiseOne wrote: Don't lose hope yet, Pointed!  You're forgetting something:  the cash allocation. 
Great point!  SWR calculations also assume you always sell stocks/bonds even in down years to pay the bills.  With the heavy cash allocation in the PP, there will be many years where you don't need to sell a thing and can wait for the volatile assets to recover.
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Re: Is the successful salaried retail investor a myth?

Post by Pointedstick » Wed Jul 10, 2013 9:48 am

That's a great point, guys. I was forgetting about the role of cash, probably the most complicated and under-appreciated asset in the portfolio! ;D
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Re: Is the successful salaried retail investor a myth?

Post by smurff » Wed Jul 10, 2013 12:30 pm

Pointedstick wrote: That's a great point, guys. I was forgetting about the role of cash, probably the most complicated and under-appreciated asset in the portfolio! ;D
Now we know why cash is king. 8)
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Re: Is the successful salaried retail investor a myth?

Post by Reub » Wed Jul 10, 2013 12:42 pm

We touched on this in another thread, but I really think Harry's 25% cash allocation is a VERY key piece of the portfolio for this phase, and it increases the safety tremendously over a traditional stock/bond portfolio.  I'd like to try testing my hypothesis on the historical data...although I'm going through quite a busy time right now myself (helping take care of my father at home).
[/quote]

WiseOne, I wish you well with your father. I took care of my dad at home from age 96 to 100. It wasn't easy but it sure was rewarding!
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Re: Is the successful salaried retail investor a myth?

Post by WiseOne » Wed Jul 10, 2013 5:08 pm

Thanks Reub - it's definitely not going to be so great for career and social life, but it is indeed rewarding.

I managed to spend a bit of time with a spreadsheet.  Main conclusion:  nobody ever actually just invests money in a reasonable allocation and leaves it alone for 40 years, or there'd be a lot of exceedingly wealthy octogenarians out there.

Assumptions: I used the data sources that PointedStick referenced, and there was likely some rounding error involved, plus of course expenses were completely ignored.  4x25 PP with 15/35 rebalance bands, 25x savings and withdrawals that increase each year to keep pace with inflation (as opposed to withdrawing 4% of the total portfolio each year).

A rebalance was triggered 11 times.  Only 4 times was the rebalance triggered by cash dropping below the 15% band.  Three of the rebalances occurred during years with negative returns after inflation (1983, 1988, and 2008, with returns of -0.3, -0.2, and -0.8 respectively).  The end balance was almost whimsical:  over $34M.

Just for fun, I compared with a 50/50 Boglehead portfolio, using an average of the bond + cash numbers to get an intermediate bond return estimate.  That portfolio did even better, but not before the nominal value was cut in half during the 1970s.  A 100% stock portfolio survived, but fared very poorly compared to the PP (end value $4M).

So cash is the secret sauce.  PS you can quit worrying!
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Re: Is the successful salaried retail investor a myth?

Post by Tyler » Wed Jul 10, 2013 5:41 pm

Thanks WiseOne.  Awesome work!
Main conclusion:  nobody ever actually just invests money in a reasonable allocation and leaves it alone for 40 years, or there'd be a lot of exceedingly wealthy octogenarians out there.
Very true.  So much retirement theory discussion consists of hand-waving.  Very few people even try to fund their own retirement, much less stick to a simple investment strategy.
Last edited by Tyler on Wed Jul 10, 2013 5:56 pm, edited 1 time in total.
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Re: Is the successful salaried retail investor a myth?

Post by frugal » Wed Jul 10, 2013 6:27 pm

It is possible to spend the CASH portion or sell some of the other assets.

You don't need to have the same invested amount in the end, or you need?


You can end your life with 30-50% of the portfolio value...
Live healthy, live actively and live life!
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Re: Is the successful salaried retail investor a myth?

Post by Greg » Wed Jul 10, 2013 9:30 pm

WiseOne wrote: Thanks Reub - it's definitely not going to be so great for career and social life, but it is indeed rewarding.

I managed to spend a bit of time with a spreadsheet.  Main conclusion:  nobody ever actually just invests money in a reasonable allocation and leaves it alone for 40 years, or there'd be a lot of exceedingly wealthy octogenarians out there.

Assumptions: I used the data sources that PointedStick referenced, and there was likely some rounding error involved, plus of course expenses were completely ignored.  4x25 PP with 15/35 rebalance bands, 25x savings and withdrawals that increase each year to keep pace with inflation (as opposed to withdrawing 4% of the total portfolio each year).

A rebalance was triggered 11 times.  Only 4 times was the rebalance triggered by cash dropping below the 15% band.  Three of the rebalances occurred during years with negative returns after inflation (1983, 1988, and 2008, with returns of -0.3, -0.2, and -0.8 respectively).  The end balance was almost whimsical:  over $34M.

Just for fun, I compared with a 50/50 Boglehead portfolio, using an average of the bond + cash numbers to get an intermediate bond return estimate.  That portfolio did even better, but not before the nominal value was cut in half during the 1970s.  A 100% stock portfolio survived, but fared very poorly compared to the PP (end value $4M).

So cash is the secret sauce.  PS you can quit worrying!
Thanks for sharing. Just for clarity, your starting value was $4million in total assets? And the end value of $34M is on a nominal value correct (i.e. not corrected for inflation)?
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