Q1 .The PP as a « base » portfolio could be complemented (or even replaced) by a stock portfolio. There are dividend share diehards on seekingalpha.com for example who seem to live exclusively off dividends and never sell a share unless forced to by a merger or similar event. I have a core PP (75%) and a satellite dividend share portfolio (25%), but I can think of other candidates for the satellite (see PS below).
2. and 3. How much is enough ? How do you calculate projected future expenses ?
I did the calculations when I retired a few years ago, but have found that a certain amount of trial and error was required. I set up a standing order from my investment account to my current account, but ended up with too much in the current account (a good problem) so had to put it back into the PP. Now I try to withdraw a smaller amount each month, and review the situation every few months.
4.How do you take Social Security income into account ?
In Europe I have a small state pension which I think is reliable, or as reliable as anything else!
5. Is a 4 % withdrawal rate safe ?
I think Tyler has satisfactorily shown that the answer is yes – in the USA. In Europe or at least Germany it is more like 3.5 % according to portfoliocharts.com. I am in Europe and withdraw 3 % from the PP. The yield on my share portfolio is about 3.5 %.
PS It seems to me that there are relatively few sane investing strategies that can be considered by a retired or retiring person - a non-gambler. The following come to mind:
The PP and variants - unbeatable in its historic low drawdown, and as good as many other portfolios in terms of return
Stocks and bonds 60/40 or similarly simple as championed by the Bogleheads
Stocks and bonds with other additions such as REITs (but little or no gold), such as Ivy, Larry and so on
Multiasset portfolios such as Merriman and 7-Twelve
Dividend stocks such as the Dividend Aristocrats, living off income from dividends, ignoring capital value, popular on Seeking Alpha.
The above could be managed actively or simply rebalanced.
I am considering multiassets for a complementary portfolio along with my dividend stocks. The other strategies in my view do not provide enough return or variation to make the increased drawdown risk worthwhile: they are not different enough from a PP. With dividend stocks, the drawdown is less important: dividend payouts hold up pretty well even during stock price crashes, and dividend-paying large-cap prices do recover eventually, as shown by the recovery since 2008-9.
Good post!
Hi
for someone living in Europe, the EUPP is still the best option?
Never a USPP?
I am very courious about the alternatives you wrote.
Frugal
I already have exposure to US shares in my VP so I have none in the PP. Otherwise I would probably have about 50% US in the PP, or a global share ETF. There is currency risk though: the dollar has lost about 11% against the Euro this calendar year, so my mostly US VP is only breaking even for 2017 in spite of a good year for US shares.
For the alternatives, see portfoliocharts.com, where their performance is described in detail. For the dividend stocks, seekingalpha.com.
I (we) have Enough x 2 or 3. It’s a great feeling. I recall reading maybe Bill Bernstein saying that Bill Gates could afford to be 100% stocks. It was probably in his booklet “Deep Risk”. I tend to agree with Tyler.
OTOH when you get to a big number, you start thinking about kids, grandkids, charity. Like, gee, if we can really grow this, it can be very useful for a long time. On the other, other hand, it might just as likely ruin the kids or grandkids. “Shirtsleeves to shirtsleeves in three generations.” I really believe that. The whole thing of what to do going forward is the 900 pound gorilla in the room that we have been trying to ignore.
Some people would go crazy spending, but that’s not us. So back to the question, I’ve stuck with the PP for the whole thing. It’s very comforting. I want very conservative growth.
tarentola wrote:Frugal
I already have exposure to US shares in my VP so I have none in the PP. Otherwise I would probably have about 50% US in the PP, or a global share ETF. There is currency risk though: the dollar has lost about 11% against the Euro this calendar year, so my mostly US VP is only breaking even for 2017 in spite of a good year for US shares.
For the alternatives, see portfoliocharts.com, where their performance is described in detail. For the dividend stocks, seekingalpha.com.
hi
I couldn't find the explanation and a model of that DIVIDEND portfolio .
I Shrugged wrote:I (we) have Enough x 2 or 3. It’s a great feeling. I recall reading maybe Bill Bernstein saying that Bill Gates could afford to be 100% stocks. It was probably in his booklet “Deep Risk”. I tend to agree with Tyler.
OTOH when you get to a big number, you start thinking about kids, grandkids, charity. Like, gee, if we can really grow this, it can be very useful for a long time. On the other, other hand, it might just as likely ruin the kids or grandkids. “Shirtsleeves to shirtsleeves in three generations.” I really believe that. The whole thing of what to do going forward is the 900 pound gorilla in the room that we have been trying to ignore.
Some people would go crazy spending, but that’s not us. So back to the question, I’ve stuck with the PP for the whole thing. It’s very comforting. I want very conservative growth.
I would NOT leave a large sum of money outright to heirs who haven't already demonstrated sensible behavior, as I believe it tends to be destructive.
A trust with a good trustee who has a lot of discretion is best in such cases, if you can find someone you can trust.
Dividend portfolios have been way too popular for the past almost 10 years, because dividend rates have been greater than intermediate-term interest rates. I'd be really hesitant to bet the farm on one of these. Just wait until 5 year bond yields hit 2%, and watch the stampede away from these stocks.
EDIT: they're at 2%! Well, we'll soon see if my theory is correct. BTW...holy flattening yield curve on bonds...only a 0.05% difference in yield between 5 year and 30 year treasuries???
It seems to me that there are relatively few sane investing strategies that can be considered by a retired or retiring person - a non-gambler. The following come to mind:
The PP and variants - unbeatable in its historic low drawdown, and as good as many other portfolios in terms of return
Stocks and bonds 60/40 or similarly simple as championed by the Bogleheads
Stocks and bonds with other additions such as REITs (but little or no gold), such as Ivy, Larry and so on
Multiasset portfolios such as Merriman and 7-Twelve
Dividend stocks such as the Dividend Aristocrats, living off income from dividends, ignoring capital value, popular on Seeking Alpha.
The above could be managed actively or simply rebalanced.
I am considering multiassets for a complementary portfolio along with my dividend stocks. The other strategies in my view do not provide enough return or variation to make the increased drawdown risk worthwhile: they are not different enough from a PP. With dividend stocks, the drawdown is less important: dividend payouts hold up pretty well even during stock price crashes, and dividend-paying large-cap prices do recover eventually, as shown by the recovery since 2008-9.