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Let's say say I have $2mm. And thats ALL the money I had.
Could someone talk about the cons of putting every last penny of it in a REIT and just collecting the income and retiring?
I realize putting all of it, in one asset is risky, but I did a historical return analysis, and had I done this strategy before the crash in 08, the year with the lowest in annual income would have been in 2009, 2010, and 2011, which would have been about $50k, which would have still been enough to live off of at the time. (ive lived off of much less in the past!). Since Jan 1, 2013, annual income has been about 70k, and the two years before the crash annual income was 80k a year.
There's no such thing, period. Millions of people are asking this question! If there were a reliable pat answer, then the financial-services industry would fold. Instead it's vibrant and healthy.
"Portfolio theory" is all about maximizing return subject to minimizing risk. But there's ample reason for why it's called "portfolio theory" and not "portfolio practice".
What about diversification into a basket of low-cost index funds? This is probably the closest practical approximation to "set and forget". But even this requires discipline to not chase returns or to avoid other costly rashness.
If your aim is to grow your portfolio decade over decade, without touching it, then the aforementioned diversification scheme is probably best. If however you aim to generate income from the portfolio, while preserving principle (and presumably managing taxes), the challenge becomes prodigious.
IMHO if you truly want to "set and forget",Vanguard Target Retirement is best if you're accumulating and Vanguard Managed Payout is best if you want one all-inclusive fund that you want to last for a long time. Are there better strategies out there? Absolutely, but these are good if "set and forget" is a must.
I will say that mortgage reit's are paying a dividend of apprx 15%, that is as good an income as anyone could hope for with a reit. (until QE stops and interest rates rise)
depends what you mean by set and forget. do you want to bet the ranch on only low rates and prosperity or do you really want a set and forget portfolio that makes money in both good and bad times ?
since everything listed above is only geared on one outcome which is low rates low inflation and prosperity with stocks and bonds ?
another set and forget idea is one that would never be devasted in any outcome. it won't be a barn burner in a bull market but it never has to fight its way back from steep losses either. 2008 saw it up while stocks plunged and corporate bonds were down.
25% cash
25% vti and an extended market fund seasoned to taste
25% gold - I USED GLD
25% long term treasuries - I USED TLT
rebalance once a year.
by themselves some are the most volatile and out of favor assets yet taken as a team they have done well for 40 years. in fact right up until gold fell it actually beat a 100% investment in the s&p over the last 30 years.
but it isn't designed to beat indexes , it is designed to protect your money and never let a severe economic scenario devastate you while keeping you well ahead of inflation..
each part can be very responsive to any of the 4 major scenarios.
recession
prosperity
depression
inflation.
usually one part may fall by 50% in a bad reaction but anything that bad usually has other components rising more than that .
Last edited by mathjak107; 12-30-2014 at 03:56 AM..
25% cash
25% vti and an extended market fund seasoned to taste
25% gold - I USED GLD
25% long term treasuries - I USED TLT
This aptly illustrates how a portfolio's objectives impact its contents.
Does "set and forget" mean the generation of a steady income, where the integrity of the principal matters only in terms of its reliability in producing an income?
Does "set and forget" mean the careful shepherding of a "stash" of money through inflation and various economic times, so that it survives inflation, does not fluctuate much and retains its integrity, but foregoes growth-potential?
Does "set and forget" mean investing for growth, so that n-number of years from now an untouched portfolio will have become substantially larger than its present state (adjusted for inflation)?
The hardest scenario is for a young person who wants to generate a lifetime of income, but also avoid nauseating fluctuations in the principal, AND wants to see burgeoning growth in the principal over a lifetime. Those three objectives are to some extent in mutual contradiction.
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