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I think that you are assuming that everyone who is retired is withdrawing from their investment account to pay their living expenses, and therefore, depending on how/when they withdraw, they may be at risk of running out of funds before they die.
Not "everyone" who is retired is withdrawing from their investment account to meet their living expenses. Some of us are living quite well on other income and don't need to touch our investments to pay the grocery bill or take a vacation.
I am not assuming anything .
A safe withdrawal rate would only apply to someone trying to pensionize their own income to create a pay check that is safe ,secure and consistent.
If one is not living off their portfolio as a paycheck then none of this applies to them nor would the term safe withdrawal rate.
So there is no assumption here ..it just flat out would not be a discussion or apply to them
I'm curious as to just how long you have employed that strategy? I know some people who had the same strategy back around 2006 or so and they claimed that it worked very well for them. Then, when the lengthy crash of 2008-09 hit, they slowly lost their confidence/nerve that the market would ever recover and ended up selling out near the bottom "while they still had some funds left". Most never got back in and are bitter still today.
Having a substantial chunk of cash in reserve tends to give equity holders a stiffer backbone to withstand the down markets until the market recovers. It also enables them to take advantage of the lower prices and purchase more stocks since the stocks are "on sale". Otherwise, they may have a very long wait for the market to recover for them to just "get back to even".
Im aware of what happened in 2008. I know that a lot of people are scarred from making the wrong choice to sell at that time and not buy back in time for the rebound. My investing history starts in 2004, but with a lot less money than I have now (logically). In 2008 I sold before taking the big loss and ended down about 10% that year. I then sat out of the markets for a few years. Upon my return, I spent a handful of years investing in Fidelity Mutual Funds. I have been pretty much fully committed to index funds for a little over 3 years now.
It is never about what happened forty years ago …it is only a question of I have this pile of money.
How much can I draw under even poor outcomes and count on going forward with a high degree of not taking a pay cut. No one likes pay cuts ,not when working and not in retirement
So Here is the cliff note version .
If you are drawing an income and counting on your portfolio to support you in good and bad times , then all you need to do is make sure you are seeing at least a 2% real return average over the first 15 years .
Every worst case date above that failed , failed the in the first 15 years when after inflation returns while you were spending down fell below 1% .
So if five years in to retirement if you are not seeing a 2 real return as an average a red flag should go up .
Certainly by 8 years in pay cuts are in order .
So you see it has nothing to do with what was …it is only about the math behind what caused the failures and applying that math going forward.
It doesn’t matter exactly what caused you to fall below a 2% real return , all that matters is you are .
It is based on markets , rates , inflation and your own spending.
All you care about is staying ahead of those 1965 numbers
Im aware of what happened in 2008. I know that a lot of people are scarred from making the wrong choice to sell at that time and not buy back in time for the rebound. My investing history starts in 2004, but with a lot less money than I have now (logically). In 2008 I sold before taking the big loss and ended down about 10% that year. I then sat out of the markets for a few years. Upon my return, I spent a handful of years investing in Fidelity Mutual Funds. I have been pretty much fully committed to index funds for a little over 3 years now.
Here is my return history as of 11/30/21:
Had you been fully invested in the S&P 500 index for a full 10 years from 01/01/2000 to 01/01/2010, then here is what your return would have been:
"Stock market returns between 2000 and 2010
If you invested $100 in the S&P 500 at the beginning of 2000, you would have about $109.78 at the beginning of 2010, assuming you reinvested all dividends. This is a return on investment of 9.78%, or 0.85% per year."
So your fully invested return of 0.85% per year in this index fund for 10 years would have returned less than if you had put your money in a money market account earning about 2% or better for the same time period.
I'm simply pointing out that investing ALL your investment funds in a stock index is no guarantee of superior performance. In fact, there are decades in which it doesn't even keep up with lowly money market rates.
Had you been fully invested in the S&P 500 index for a full 10 years from 01/01/2000 to 01/01/2010, then here is what your return would have been:
"Stock market returns between 2000 and 2010
If you invested $100 in the S&P 500 at the beginning of 2000, you would have about $109.78 at the beginning of 2010, assuming you reinvested all dividends. This is a return on investment of 9.78%, or 0.85% per year."
So your fully invested return of 0.85% per year in this index fund for 10 years would have returned less than if you had put your money in a money market account earning about 2% or better for the same time period.
I'm simply pointing out that investing ALL your investment funds in a stock index is no guarantee of superior performance. In fact, there are decades in which it doesn't even keep up with lowly money market rates.
This is exactly why time is so important . Time is your friend .
From 2000 to 2015 the s&p was up to a 4% return and from 2000 to today it’s up almost 8% .
Those that want to advance their mortgage payments so they can invest more down the road can be shooting themselves in the foot because they are taking away their one friend , time .
Now once they start ramping up investing they have more pressure on a shorter time frame to be a good one.
But the truth be told we have very very few starting dates like 2000 or 1964 or any of these major downturns that were extended so you really got to cherry pick to find poor example
This is exactly why time is so important . Time is your friend .
From 2000 to 2015 the s&p was up to a 4% return and from 2000 to today it’s up almost 8% .
Those that want to advance their mortgage payments so they can invest more down the road can be shooting themselves in the foot because they are taking away their one friend , time .
Now once they start ramping up investing they have more pressure on a shorter time frame to be a good one.
But the truth be told we have very very few starting dates like 2000 or 1964 or any of these major downturns that were extended so you really got to cherry pick to find poor example
I'm that "advance the mortgage payment" guy..... it worked for me but only because I have a small house and not living in CA, NY, NJ or some of the ridiculously priced states. Maybe if I lived elsewhere I would have done things differently. But I can tell you - it's nice not having a mortgage to pay. No matter what else happens, the bank can never take my house away. The government can, in theory, but that's a different story.
I'm that "advance the mortgage payment" guy..... it worked for me but only because I have a small house and not living in CA, NY, NJ or some of the ridiculously priced states. Maybe if I lived elsewhere I would have done things differently. But I can tell you - it's nice not having a mortgage to pay. No matter what else happens, the bank can never take my house away. The government can, in theory, but that's a different story.
Feelings don’t grow money ..efficient use of that money and allowing markets to act on as much money as you can feed in for the longest time frame grows money and makes things less risky . Shorter time frames increase risk on that added money as that shorter time frame may not perform as well or at all.
Most of us need to make efficient use of the bits and pieces we do manage to save and make use of good compounding over time to turn it in to meaningful amounts.
Feelings can get in the way of that, then we hit some rough patches and those first ramping up their investing amounts blame markets because the shorter time frames were not so hot
Last edited by mathjak107; 12-23-2021 at 03:55 PM..
I like to keep 15 to 20% cash available in my portfolio. Most of it comes from accumulated dividends and harvested long-term gains in good times that get redeployed for pullbacks in specific stocks I targeted an entry point on a pullback or during a deep general market pullback or market correction.
I'm that "advance the mortgage payment" guy..... it worked for me but only because I have a small house and not living in CA, NY, NJ or some of the ridiculously priced states. Maybe if I lived elsewhere I would have done things differently. But I can tell you - it's nice not having a mortgage to pay. No matter what else happens, the bank can never take my house away. The government can, in theory, but that's a different story.
My mortgage payment is so low it I never felt the need to pay it off. I bought it in 1998 - nothing big or fancy - just a good house in a good neighborhood that I could afford with no worries, and still allow me to sock money away into retirement savings. The payment doesn't bother me at all. My monthly credit card bill is usually larger and often twice as much LOL. I always put savings first, and that has worked out for me thankfully.
Feelings don’t grow money ..efficient use of that money and allowing markets to act on as much money as you can feed in for the longest time frame grows money and makes things less risky . Shorter time frames increase risk on that added money as that shorter time frame may not perform as well or at all.
Most of us need to make efficient use of the bits and pieces we do manage to save and make use of good compounding over time to turn it in to meaningful amounts.
Feelings can get in the way of that, then we hit some rough patches and those first ramping up their investing amounts blame markets because the shorter time frames were not so hot
But the fact of the matter is that most people don't get to select their potential "time frame" in the market. They invest in the market when they have the money to do so. And if they're investing in index funds, then their results depend pretty much on luck of what the market does.
It's not like they have the choice of going back in time and saying "that's the time period I choose to invest in". Nor is there any guarantee of what the future holds. Sure, those with a very long time period of investing have the odds in their favor, but not everyone has several decades for their investing.
So, it seems that we are in agreement that investing in index funds is no guarantee of great results. Nor is the practice of putting ALL your available money in equities a guarantee of great results. Cash can definitely play a useful role in a person's investment strategy, and at times can even produce better results than investing 100% in equities.
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