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No, in fact most people I know are self-employed, do not have 401k, and invest their savings in index funds. Except during bonanza times such as recently, all I seem to ever hear is lamenting that they are losing money even though the index is supposed to be predominantly up. The only two people I know that have made a lot in the stock market actually trade individual stocks by themselves, and are constantly trying to outguess the market (I certainly wouldn't do that because I wouldn't have I clue what I am doing :-). Again, I know nobody, absolutely nobody whose money increased 30-fold in 30 years in an index-tracking fund. When we compare their method of how-long-can-I-withdraw-without-portfolio-failing with my annuities, we often tend to arrive to about the same numbers (ie, what they can safely withdraw and what I will get from the annuities is about the same, with their investment in the portfolio being about the same as the sum of my annuity premiums. Don't forget that annuity withdrawals do not diminish the value of the annuity - the withdrawals are fixed for as long as you live. You may leave a massive portfolio to your beneficiaries - that is obviously a definite advantage of a stock portfolio, but if you need retirement income for yourself only, you don't need to maintain $1M for every $40k that you need per year - you just need to pay around $220k premium when you are 45 in order to get a $40k annuity payout every year starting at 70, and feel free to live however long you want).
Anyone who bought and held an S&P 500 index fund for 30 years would have seen their initial investment grow between 10X (corresponding to 8% annualized) and 50X (corresponding to 14% annualized), with a median growth of 23X (corresponding to 11% annualized).
His scheme was fundamentally phony. Its collapse was inevitable, whether the economy did well or poorly. What he did was the very definition of Ponzi Scheme. It shocks me that worldly, intelligent people fail to understand what a Ponzi Scheme really is, and how it differs from merely unrealistic or unjustifiably rosy promises.
By historical standards, stocks have underperformed for 20 years, especially abroad. The real question is, why is productivity-growth rate attenuating? We need more productivity growth to drive profits upward, and ultimately stock-prices.
It wasn't an algorithm, in the sense of reasoning from existing market-conditions to a guess of the future. It was sheer fraud. It was the medical equivalent of snake-oil, as opposed to say flawed (but beguiling) statistics on efficacy of combining two chemo-drugs (whereas actual results are no better than using the one or the other alone).
The 1980s and 1990s were a wonderful and probably inimitable time for both stocks and bonds. Those who already had substantial assets by 1980 would have done very well for themselves, had they bought-and-held. Those who started just a bit later, say in 1990, would have done worse. The "magic" isn't in some witches' brew of market-analytics and stock-picking but in having had the good fortune to have been born at the right time, and to have had the patience to have fully participated in the opportunities that were accorded to one. Good gains weren't charlatanism or manipulation. But they would be hard to repeat going forward.
I started in the early 90s, wiped out in the mid 90s when I didn't know what I was doing, got crushed by the dotcom bust and 9/11 in the early 2000s, got crushed by the financial crisis in 2008-2009, so even by not being born "at the right time" yet by simply having the patience to buy and hold index funds (the simplest fund strategy possible) through dollar cost averaging (the simplest mechancial non-discretionary buying approach known to mankind), I've fully benefited from the stock markets. I have personally discovered that witches brew of market timing and stock picking are toxic beverages that don't work, and simply time in the market regardless of what happens, does work.
And I would add Hawaii to that. Hawaii is considered a high COL place, but for us it is cheaper than when we lived in Seattle. Our total tax burden is less here, our total energy bill is a pittance (we have solar), our monthly utilities/services (water, trash, etc) is less than $100. We grow a lot of our own food. No monthly condo fees. Bottom line is never trust those articles that list the top and bottom most expensive places to retire. Do your research.
It seems A/C is a necessity in Hawaii, and that was a high utility cost because electric rates are among the highest in the US (more than 30 cents/kwhour). Can you run A/C entirely off solar?
I started in the early 90s, wiped out in the mid 90s when I didn't know what I was doing, got crushed by the dotcom bust and 9/11 in the early 2000s, got crushed by the financial crisis in 2008-2009, so even by not being born "at the right time" yet by simply having the patience to buy and hold index funds (the simplest fund strategy possible) through dollar cost averaging (the simplest mechancial non-discretionary buying approach known to mankind), I've fully benefited from the stock markets. I have personally discovered that witches brew of market timing and stock picking are toxic beverages that don't work, and simply time in the market regardless of what happens, does work.
Assuredly, you HAVE benefited, and have been rewarded for your patience. That is not in dispute. But were you to have had the good fortune to have had already accumulated a tidy sum 10 or 15 years earlier, and to have followed the very same habits of steadfastness and indifference all along, you'd have done considerably better.
My point is that the halcyon time of the 80s and 90s happens rarely. If we continue with the good habits that you've recited in your posts, we'll continue to do "relatively" well. Every generation does. But we're unlikely to repeat the staggering success of those who were already "prepared" for the 80s and 90s.
Yes, there's a school of thought, that asserts that all >30 year periods are the same, if we ignore sequence of returns. I am currently researching this, and will report whether I agree or not. Tentatively, I disagree. But rigor requires fetching historical dividend data... not an easy thing.
It seems A/C is a necessity in Hawaii, and that was a high utility cost because electric rates are among the highest in the US (more than 30 cents/kwhour). Can you run A/C entirely off solar?
You can, and people do, but we don't have AC (or heat). We live on the windward side of the island and the trade winds keep the heat and humidity down. Our average day time temp is about 78.
When cabound1 referred to cheaper purchasing an annuity at 45, I assumed they meant an immediate annuity, not deferred to age 70! I know no one, except the posters here, that would ever consider purchasing an annuity 25 years before you can use it. The risks of that are staggering, IMHO.
When cabound1 referred to cheaper purchasing an annuity at 45, I assumed they meant an immediate annuity, not deferred to age 70! I know no one, except the posters here, that would ever consider purchasing an annuity 25 years before you can use it. The risks of that are staggering, IMHO.
Again, that was not carbound1 but me :-). I'm the only annuity lover here, carbound has investments. I DID say that a deferred annuity is cheaper than immediate. If you want to receive $1k per month starting at 70, and you buy it as an immediate annuity at 70, it costs about $185k. If you buy it as a deferred annuity at 45 (yes, deferred for 25 years) it costs $70k. Comparatively, if you need to generate $1,000 per month by withdrawing 4% from portfolio, you need a $300k portfolio. What figure is the lowest, 70k, 185k, or 300k?
What are the staggering risks of a deferred fixed annuity? There is only a risk of massive inflation (which can be covered by other assets that regularly appreciate - in my case, three condos bought for cash in three major cities, which are appreciating even while I am using them), which we have not been seeing, ie, $1,000 that I used to buy basics when I was 45 largely buys me the same basics 14 years later. Non-essential things, like eating out, have indeed increased in price far beyond the reported inflation rate, but a banana at Trader Joe's is still 19 cents, same as it was in the year 1900 :-). I do think (and have mentioned it elsewhere) that there has been much more inflation in certain consumer sectors than what is generally reported, but not in those that healthy retirees like to use (most importantly for me personally, travel and transportation). Healthcare costs have had a galloping inflation, but being what I am by training, I know what medical services I could really need, and where I can find them (for much lower cost/equal or better quality) outside the US.
Nobody knows what will happen, but it strikes me that a crash of massively overvalued stocks could be somewhat more of a possibility than a massive inflation, where lack of inflation has been more of an experience of aging nations.
Sorry for the bad math above - I corrected it. I eyeballed what is 100% if (1,000 x12) is 4%, but then I calculated it, and it is actually even more than I eyeballed.
your math is so flawed ... i already showed you why
you need to compare results at time of drawing that 1k ... not buying an annuity today for 70k and first drawing 1k out 25 years from now , vs drawing 1k from the portfolio today by putting 250k in .... .that is not a comparison.
putting 70k in each and looking a head in 25 years at what you have is the comparison you need to look at .
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.... .that is not a comparison.
