Author Topic: Concerned about FIRE at current CAPE ratio  (Read 2062 times)

myfirenow

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Concerned about FIRE at current CAPE ratio
« on: July 17, 2019, 02:08:20 PM »
Not looking to market time, but the research shows lower future returns for equities based on current CAPE levels.

I'm 37 and getting ready to FIRE now, but concerned about equity exposure.

Anyone else in the same boat?

Considering a bucket strategy where I draw from fixed income first, and have equity portion DCA in very slowly over the next 5+ years.

terran

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Montecarlo

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Re: Concerned about FIRE at current CAPE ratio
« Reply #2 on: July 17, 2019, 04:28:31 PM »
I would say at any point in retirement you need to be able to survive a 50% correction and a decade of zero returns.  Hell, the market top in 2000 wasnít really broken until 2013.  1929 was even worse.

If you got a solid, but not bulletproof, nest egg, I would consider waiting a year or two. 

1 - you get to pad the stash a little more.
2 - Either the market will correct and youíll be getting out at lower valuations; or the market will trend sideways, likely lowering valuations; or the market will rise, which will give you a bigger safety net.

As long as you donít use that extra time to inflate your lifestyle, you win in all scenarios.

myfirenow

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Re: Concerned about FIRE at current CAPE ratio
« Reply #3 on: July 17, 2019, 04:47:29 PM »
Thanks for the tip!

myfirenow

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Re: Concerned about FIRE at current CAPE ratio
« Reply #4 on: July 17, 2019, 04:47:59 PM »
Thanks for the link.

FIREstache

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Re: Concerned about FIRE at current CAPE ratio
« Reply #5 on: July 17, 2019, 04:50:19 PM »
Not looking to market time, but the research shows lower future returns for equities based on current CAPE levels.

I'm 37 and getting ready to FIRE now, but concerned about equity exposure.

Anyone else in the same boat?

Considering a bucket strategy where I draw from fixed income first, and have equity portion DCA in very slowly over the next 5+ years.

I'm in my 50s and plan to FIRE within a year.  Over the last year, I've gone from 80% to 43% equities and made those moves when the market was near highs, not panic selling when it was dropping.  I've only got 10 years to SS age, otherwise, I would probably want a higher equity allocation, which I may progress to anyway using a rising equity glide path over several years, which means I'll drawdown on non-equity assets in early retirement.

G-dog

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Re: Concerned about FIRE at current CAPE ratio
« Reply #6 on: July 17, 2019, 05:29:11 PM »
I FIREd in July 2015. IIRC people have been concerned about the CAPE ratio through this whole period. But my portfolio has gone up about 50% since then.  So.....  CAPE ratio is not worrying me.

Montecarlo

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Re: Concerned about FIRE at current CAPE ratio
« Reply #7 on: July 18, 2019, 05:31:17 AM »
I FIREd in July 2015. IIRC people have been concerned about the CAPE ratio through this whole period. But my portfolio has gone up about 50% since then.  So.....  CAPE ratio is not worrying me.

And returns over the past four years means what exactly about returns over the next four years?

G-dog

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Re: Concerned about FIRE at current CAPE ratio
« Reply #8 on: July 18, 2019, 05:47:43 AM »
I FIREd in July 2015. IIRC people have been concerned about the CAPE ratio through this whole period. But my portfolio has gone up about 50% since then.  So.....  CAPE ratio is not worrying me.

And returns over the past four years means what exactly about returns over the next four years?

Nothing.  But the CAPE ratio ďcrisisĒ has been going on this whole time - so it doesnít seem any more predictive. 

Disclaimer: I havenít been tracking the CAPE ratio - so if you can pull the data tracking it the last 4 years I could be wrong - Iíve only been seeing the lamentations about the CAPE ratio through this time.

DadJokes

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Re: Concerned about FIRE at current CAPE ratio
« Reply #9 on: July 18, 2019, 06:04:45 AM »
I like that article from ERN. Flexibility is key, but if you are truly fearful (I would be right now too), then maybe save a little extra to get a smaller SWR. Instead of the traditional 4%, maybe shoot for 3.5%.

SwordGuy

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Re: Concerned about FIRE at current CAPE ratio
« Reply #10 on: July 18, 2019, 07:54:18 AM »
In general, people are more likely to reach their FIRE number well into a long bull market in stocks.   If markets have been going up for longer, there are more gains in a short period of time.   Just common sense.

So, if you're just reaching your FIRE number now, and your FIRE number doesn't have any padding in it, you're more at risk for a sequence of returns risk than someone who reached their number nearer the start of a bull market.   

Plan accordingly.   

We have multiple income streams that aren't particularly correlated.   

We have fat in our FIRE budget.

We could cut back to be much leaner if we had to.

We could get some part time income.

Improvise!  Adapt!  Overcome!

myfirenow

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Re: Concerned about FIRE at current CAPE ratio
« Reply #11 on: July 18, 2019, 09:48:28 AM »
Thanks for the tips. Here's what my AA looks like. I don't have a lot of room at all in budget, which means saving more probably.

https://forum.mrmoneymustache.com/investor-alley/questions-about-withdrawals/
« Last Edit: July 18, 2019, 09:50:45 AM by myfirenow »

FIRE 20/20

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Re: Concerned about FIRE at current CAPE ratio
« Reply #12 on: July 18, 2019, 02:09:42 PM »
In general, people are more likely to reach their FIRE number well into a long bull market in stocks.   If markets have been going up for longer, there are more gains in a short period of time.   Just common sense.

Someone posted an analysis on this here - probably a year ago.  I wish I could find it but a quick search didn't turn anything up.  It turned out that the decrease in success rates didn't vary as much as I had assumed it would and savings rate was an important factor.  Very high savings rate of a a few years meant CAPE didn't matter as much, but lower savings rate over more years (i.e. 'stache was driven by returns) mattered more.  I think. 

OP - I think the big thing is to know what your back-up plan is if you find yourself in one of the failure scenarios.  Those generally are pretty obvious within the first 5-10 years after reaching FIRE.  If you have a lot of skills, expect to earn more from a side hustle, or have flexibility in your spending then you should be totally fine when you hit 25x expenses.  If you're in a field that will be difficult to re-enter after being out of it for a while, you have no flexibility in your budget, and don't have any means to generate income other than your soon-to-be former career, well then you probably should shoot for something higher than 25x (or lower than 4% wdr). 
Ask the question - if 5 years into FIRE my 'stache is down significantly, what would I do? 

myfirenow

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Re: Concerned about FIRE at current CAPE ratio
« Reply #13 on: July 18, 2019, 02:31:42 PM »
Thanks Fire 20/20. This makes sense. I'm also considering just living off the dividends from the portfolio (average 2.3% yield for 550k portfolio 70/30 stocks/bonds) and not selling any shares. This would allow me to work part-time, which would make sense for me. Has anyone heard any plans like this? Haven't seen this discussed.

FIRE 20/20

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Re: Concerned about FIRE at current CAPE ratio
« Reply #14 on: July 18, 2019, 03:50:26 PM »
Thanks Fire 20/20. This makes sense. I'm also considering just living off the dividends from the portfolio (average 2.3% yield for 550k portfolio 70/30 stocks/bonds) and not selling any shares. This would allow me to work part-time, which would make sense for me. Has anyone heard any plans like this? Haven't seen this discussed.

Yes, this is frequently discussed.  Here's a recent thread: https://forum.mrmoneymustache.com/post-fire/coast-fire-a-possibility/
You can also search "barista FIRE". 

Both my girlfriend and I went to part time for the last 1-2 years before we FIREd.  Fortunately our company was open to it.  That was one of the best decisions we made before FIRE. 
« Last Edit: July 18, 2019, 03:53:38 PM by FIRE 20/20 »

Montecarlo

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Re: Concerned about FIRE at current CAPE ratio
« Reply #15 on: July 18, 2019, 04:31:57 PM »
I FIREd in July 2015. IIRC people have been concerned about the CAPE ratio through this whole period. But my portfolio has gone up about 50% since then.  So.....  CAPE ratio is not worrying me.

And returns over the past four years means what exactly about returns over the next four years?

Nothing.  But the CAPE ratio ďcrisisĒ has been going on this whole time - so it doesnít seem any more predictive. 

Disclaimer: I havenít been tracking the CAPE ratio - so if you can pull the data tracking it the last 4 years I could be wrong - Iíve only been seeing the lamentations about the CAPE ratio through this time.

Iíve read other peopleís research, and in general CAPE is pretty poorly correlated with future stock returns.  There are other better correlations like price/sales (which is also obscenely high).

People have been bearish about this market for 10 years, I agree with you.  But today, next year, next ten years... thereíll be a big correction and if anyone lean FIREing just before will get caught with their pants down...

Montecarlo

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Re: Concerned about FIRE at current CAPE ratio
« Reply #16 on: July 18, 2019, 04:33:22 PM »
I like that article from ERN. Flexibility is key, but if you are truly fearful (I would be right now too), then maybe save a little extra to get a smaller SWR. Instead of the traditional 4%, maybe shoot for 3.5%.

Iíve started reading the whole series.  Not finished, but the first few articles make a compelling case that at time horizons longer than 30 years, 4% is too high and 3-3.5% is the real SWR.

G-dog

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Re: Concerned about FIRE at current CAPE ratio
« Reply #17 on: July 18, 2019, 04:49:33 PM »
I FIREd in July 2015. IIRC people have been concerned about the CAPE ratio through this whole period. But my portfolio has gone up about 50% since then.  So.....  CAPE ratio is not worrying me.

And returns over the past four years means what exactly about returns over the next four years?

Nothing.  But the CAPE ratio ďcrisisĒ has been going on this whole time - so it doesnít seem any more predictive. 

Disclaimer: I havenít been tracking the CAPE ratio - so if you can pull the data tracking it the last 4 years I could be wrong - Iíve only been seeing the lamentations about the CAPE ratio through this time.

Iíve read other peopleís research, and in general CAPE is pretty poorly correlated with future stock returns.  There are other better correlations like price/sales (which is also obscenely high).

People have been bearish about this market for 10 years, I agree with you.  But today, next year, next ten years... thereíll be a big correction and if anyone lean FIREing just before will get caught with their pants down...

Itís hard not to expect the market drop to be imminent during a long run up.  From my brief reading, CAPE appears to be useful for picking individual stocks, or at least as a metric for what stocks are likely over/under priced.

I wonder how many people really lean FIRE - lots of us have hedged our estimate on various ways

shuffler

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Re: Concerned about FIRE at current CAPE ratio
« Reply #18 on: July 18, 2019, 11:00:30 PM »
In general, people are more likely to reach their FIRE number well into a long bull market in stocks.   If markets have been going up for longer, there are more gains in a short period of time.   Just common sense.
Someone posted an analysis on this here - probably a year ago.  I wish I could find it but a quick search didn't turn anything up.
I think you mean GerardC's thread?
https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/msg1625045/#msg1625045

FIRE 20/20

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Re: Concerned about FIRE at current CAPE ratio
« Reply #19 on: July 20, 2019, 10:26:50 AM »
In general, people are more likely to reach their FIRE number well into a long bull market in stocks.   If markets have been going up for longer, there are more gains in a short period of time.   Just common sense.
Someone posted an analysis on this here - probably a year ago.  I wish I could find it but a quick search didn't turn anything up.
I think you mean GerardC's thread?
https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/msg1625045/#msg1625045

Yes!  Thank you, @shuffler !

FIRE 20/20

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Re: Concerned about FIRE at current CAPE ratio
« Reply #20 on: July 20, 2019, 10:56:27 AM »
I like that article from ERN. Flexibility is key, but if you are truly fearful (I would be right now too), then maybe save a little extra to get a smaller SWR. Instead of the traditional 4%, maybe shoot for 3.5%.

Iíve started reading the whole series.  Not finished, but the first few articles make a compelling case that at time horizons longer than 30 years, 4% is too high and 3-3.5% is the real SWR.

I think ERN has done a great service to the FIRE community, and I regularly re-read his posts.  However, I think his conclusions are incorrect for many of his readers, particularly mustachians.  He is highly biased towards an essentially zero chance of ever needing to return to work.  He heavily weights the chances that one might run into a failure mode while very lightly weighting the cost of working a year or more longer than necessary.  He also is very averse to earning some money or cutting expenses post-FIRE.  If I remember correctly, he seems to have found a career that isn't too painful for him and he earned a good income.  His willingness to drive down failure risk - or even the chance of needing to cut expenses - is reasonable for someone in that situation.  If your job is pretty good and you're paid a lot of money for it then working a little longer to eliminate any realistic chance of cutting expenses makes sense.  However, for someone in a terrible job with a willingness to pay attention and adjust if things start to look bad during their first 5-10 years into FIRE his recommendations don't seem reasonable to me.  4% is absolutely safe for time horizons longer than 30 years, *if* you're willing to pay attention to whether or not you're in a failure mode and then make adjustments.  He addresses flexibility in a few of his posts, but I find those posts to be among the weakest in the series for a bunch of reasons. 

ChpBstrd

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Re: Concerned about FIRE at current CAPE ratio
« Reply #21 on: July 20, 2019, 11:43:05 AM »
I have this concern as well, 5 years from FIRE. I'm willing to ride through the routine 10-20% drops, but I remain concerned about the 30-50% drops which sometimes occur and could set back my retirement by a decade (simply going from a 4% rule or similar approach). I am also concerned about public issues that could lead to the next 1973 or 2008, such as tariffs, rising corporate debt, political independence of the Federal Reserve, aging demographics, and a lack of R&D/education spending compared to timeframes before rapid economic growth.

My personal solution is to use options as an insurance policy to prevent losses beyond a particular point. Because options markets are highly efficient, you can insure your equities for right about the probabilistic expected value of the insurance, and perhaps better than that if you buy during periods of low volatility (VIX) when insurance is on sale.

CAPE is high, so I am willing to sell some of my upside risk to buy protection from downside risk. Therefore, I am employing a collar strategy:
https://www.optionseducation.org/strategies/all-strategies/collar-protective-collar

For example, I might buy a put that limits my losses to 10%, and then sell a call that limits my upside to 20%. This means I pay more for the put than I receive from the call, but the cost of insurance is minimized this way, while leaving lots of upside potential. Alternately, you could buy puts and sell calls for a net outlay of nothing - a "costless collar", but I personally find this approach either too limiting on the upside or exposing me to too much risk on the downside. Such a hide-and-wait approach would still allow one to collect dividends through whatever happens and is much safer than holding bonds.

Instead of doing this on an every-few-months basis, I am using LEAP options on SPY and QQQ to insure myself for years at a time. This approach has at least 3 benefits: (1) slower time decay of my put option, which is usually more valuable than the call, (2) not finding myself in a position where my insurance is expiring during a market fit when volatility is high and the price of re-establishing the position is high, and (3) lower transaction costs - which is just a few bucks so no biggie anyway. Thus I maintain a 90+% equities portfolio with confidence. This approach seems to me like it will yield higher and be less risky than a bond-heavy portfolio (returning what? 2.5% best case scenario if defaults and rates don't rise?).

With this approach, you need to have a written investment policy statement reminding yourself of when you will cash in your insurance. I suggest one of the following:

1) Never. Hold the options until around the time they expire. Then set up a new collar.
2) When the market is down X%. Then wait for the rebound before re-establishing insurance.

My IPS says to sell my collars if the market drops 20% from its high. This worked wonderfully for me in December 2018, when the market dropped almost exactly 20%, I sold my collars for thousands in profits, and the market zoomed right back up. I then re-established my collars during the low volatility times of March-April 2019. The profits were applied to buying more shares of equity near the bottom. In this way my IPS forced me to helped me sell options high and buy equities low.

Caveats:

>Had the market dropped 40% or 50%, I would have dropped my insurance only halfway through the panic. This would be unfortunate, but down-20% events are far more frequent than down-40% events, so I chose to harvest gains more frequently so that I can plow those gains back into the market more frequently. This is akin to the decision about how high to set your auto insurance deductible. YMMV.

>Dropping your shields in the midst of a even a mild market panic is easier said than done. I found myself questioning my logic in Dec. 2018, but ultimately stuck with my IPS and the research behind it. Had I ignored my IPS, I'd have watched the inflated value of my options portfolio evaporate as the market recovered and would own fewer shares today. So the "never" approach might be better for you if you don't want to have to execute a game plan under pressure.

>The strategy I described will underperform the index 95% of the time and save your retirement 5% of the time. If you can't stand to watch a multi-thousand dollar options portfolio steadily sink in value - for years - as time goes by and stocks rise, you might not have the guts for this strategy. Think of it this way: Your auto and homeowners' policies drop in value every day you don't suffer a loss, eventually reaching zero.

>Your 401k at work probably cannot be hedged, but you could hedge your 401k with a collar position in another account. If that other account was a Roth, a stock crash would cause money to flow out of your 401k and into your Roth with no tax consequence. However, vice versa is also true as stocks go up.

>The long-term success of this strategy is very hard to model, so nobody I am aware of has done it.

terran

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Re: Concerned about FIRE at current CAPE ratio
« Reply #22 on: July 20, 2019, 08:31:09 PM »
I like that article from ERN. Flexibility is key, but if you are truly fearful (I would be right now too), then maybe save a little extra to get a smaller SWR. Instead of the traditional 4%, maybe shoot for 3.5%.

Iíve started reading the whole series.  Not finished, but the first few articles make a compelling case that at time horizons longer than 30 years, 4% is too high and 3-3.5% is the real SWR.

I think ERN has done a great service to the FIRE community, and I regularly re-read his posts.  However, I think his conclusions are incorrect for many of his readers, particularly mustachians.  He is highly biased towards an essentially zero chance of ever needing to return to work.  He heavily weights the chances that one might run into a failure mode while very lightly weighting the cost of working a year or more longer than necessary.  He also is very averse to earning some money or cutting expenses post-FIRE.  If I remember correctly, he seems to have found a career that isn't too painful for him and he earned a good income.  His willingness to drive down failure risk - or even the chance of needing to cut expenses - is reasonable for someone in that situation.  If your job is pretty good and you're paid a lot of money for it then working a little longer to eliminate any realistic chance of cutting expenses makes sense.  However, for someone in a terrible job with a willingness to pay attention and adjust if things start to look bad during their first 5-10 years into FIRE his recommendations don't seem reasonable to me.  4% is absolutely safe for time horizons longer than 30 years, *if* you're willing to pay attention to whether or not you're in a failure mode and then make adjustments.  He addresses flexibility in a few of his posts, but I find those posts to be among the weakest in the series for a bunch of reasons.

Not saying you're wrong, but he has looked at earning some money on the side or going back to work and reducing withdrawals in response to poor sequence of returns. In addition to those two, he also has a few more posts examining the flexibility idea.

Montecarlo

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Re: Concerned about FIRE at current CAPE ratio
« Reply #23 on: July 21, 2019, 05:23:15 AM »
4% is absolutely safe for time horizons longer than 30 years, *if* you're willing to pay attention to whether or not you're in a failure mode and then make adjustments.   

This is just another way to say ď4% isnít safe for time frames over 30 yearsĒ

FIRE 20/20

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Re: Concerned about FIRE at current CAPE ratio
« Reply #24 on: July 21, 2019, 11:39:36 AM »
I like that article from ERN. Flexibility is key, but if you are truly fearful (I would be right now too), then maybe save a little extra to get a smaller SWR. Instead of the traditional 4%, maybe shoot for 3.5%.

Iíve started reading the whole series.  Not finished, but the first few articles make a compelling case that at time horizons longer than 30 years, 4% is too high and 3-3.5% is the real SWR.

I think ERN has done a great service to the FIRE community, and I regularly re-read his posts.  However, I think his conclusions are incorrect for many of his readers, particularly mustachians.  He is highly biased towards an essentially zero chance of ever needing to return to work.  He heavily weights the chances that one might run into a failure mode while very lightly weighting the cost of working a year or more longer than necessary.  He also is very averse to earning some money or cutting expenses post-FIRE.  If I remember correctly, he seems to have found a career that isn't too painful for him and he earned a good income.  His willingness to drive down failure risk - or even the chance of needing to cut expenses - is reasonable for someone in that situation.  If your job is pretty good and you're paid a lot of money for it then working a little longer to eliminate any realistic chance of cutting expenses makes sense.  However, for someone in a terrible job with a willingness to pay attention and adjust if things start to look bad during their first 5-10 years into FIRE his recommendations don't seem reasonable to me.  4% is absolutely safe for time horizons longer than 30 years, *if* you're willing to pay attention to whether or not you're in a failure mode and then make adjustments.  He addresses flexibility in a few of his posts, but I find those posts to be among the weakest in the series for a bunch of reasons.

Not saying you're wrong, but he has looked at earning some money on the side or going back to work and reducing withdrawals in response to poor sequence of returns. In addition to those two, he also has a few more posts examining the flexibility idea.

Yes, thank you for linking to those posts.  They are exactly what I was referring to when I wrote, "He addresses flexibility in a few of his posts, but I find those posts to be among the weakest in the series for a bunch of reasons. "

FIRE 20/20

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Re: Concerned about FIRE at current CAPE ratio
« Reply #25 on: July 21, 2019, 11:54:17 AM »
4% is absolutely safe for time horizons longer than 30 years, *if* you're willing to pay attention to whether or not you're in a failure mode and then make adjustments.   

This is just another way to say ď4% isnít safe for time frames over 30 yearsĒ

It depends on what you mean by "safe".  If you mean 100% guarantee without any adjustments, then you are correct.  But I think that's a bit like Michael Phelps wearing arm floaties to the pool.  He could decrease his risk of drowning by doing so, but he's developed skills over a lifetime so he can make minor adjustments - tread water, take a break - if he finds he's on his way to getting too tired to keep his head above water.  That's how I see mustachians.  Basically anyone who can earn and save 25x expenses for FIRE is going to be far too smart and capable to miss seeing the *very unlikely* failure modes and will make adjustments if they need to.  Once the odds are that in 95% of cases you won't need to adjust, and you have the proven skills to deal with the problem in the other 5% of the cases, I call that safe.  But arm floaties are an option too. 

DadJokes

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Re: Concerned about FIRE at current CAPE ratio
« Reply #26 on: July 22, 2019, 06:33:57 AM »
An updated version of the Trinity study explored time frames greater than 30 years. Whereas a 50/50 portfolio had a 96% success rate at 30 years adhering to the 4% withdrawal rate, the same portfolio has 86%, 74%, and 65% success rates at 40, 50, and 60 years.

If we change the allocation to 75/25, the success rate is, at worst, an 85% success rate over 60 years. I do not know how thorough the research is - it is far too early for me to read that much, but it appears to have been done by Early Retirement Now, so I'll trust it.

Source: https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
« Last Edit: July 22, 2019, 07:10:31 AM by DadJokes »

baw88

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Re: Concerned about FIRE at current CAPE ratio
« Reply #27 on: July 22, 2019, 06:55:26 AM »
It's important to put those 60 year numbers in context. If you look at an actuarial table, the probability that you will be dead before the end of a 60 year retirement is far far greater than the probability of portfolio failure. This is age dependent but is a near guarantee for anyone old enough to be close to FI.

ysette9

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Re: Concerned about FIRE at current CAPE ratio
« Reply #28 on: July 22, 2019, 07:40:54 AM »
2020 is our year so I have been thinking a lot about withdrawal strategies and risk and all of that stuff also. I am 37 now so there are similarities in our situations.

I like ERNís posts and we were planning on doing the reverse equity glidepath. I modeled that as well as a bit of flexibility in our spending (+\-10%) using cFIREsim and found that my success rate pretty much went up to 100%. I highly recommend modeling a bit of flexibility to see how that changes things.

I just recently got the book Living Off Your Money by this guy McClung. Iím only halfway through and I canít recommend it highly enough. It is like an ERN post 100x on steroids in terms of the depth of analysis and the actionable advice. My new plan is to use his recommendations for dynamic asset allocation as well as withdrawal strategy. He uses an engineerís mindset to wring as much income optimization out of a portfolio as possible and has a bunch of testing to support his claims. We all talk about 4% withdrawal rate and most of his book he defaults to a 5% for analysis.

Good luck. Iíll be curious to see what you find and decide to do.

Candace

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Re: Concerned about FIRE at current CAPE ratio
« Reply #29 on: July 22, 2019, 07:51:56 AM »
+1 on the Michael McClung book https://www.amazon.com/Living-Off-Your-Money-Retirement/dp/0997403403 . I'll be using his advice. I am so happy to find a data-driven book that's not also fear-based (Pfau), and also gives good treatment to long retirements. Also, he starts each chapter by saying whether the casual reader needs to understand every bit of what's in there, and ends each chapter with a short summary of the main point. I am almost to the point of the step-by-step directions he supplies, and look forward to the nitty gritty of that. There's supposed to be a spreadsheet available online to help people as well.

2Birds1Stone

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Re: Concerned about FIRE at current CAPE ratio
« Reply #30 on: July 22, 2019, 08:12:51 AM »
I'm with @Candace as well. The book was well worth the read, and the strategy (coupled with using your brain if things drastically change in the future) should provide one with peace of mind.

Padonak

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Re: Concerned about FIRE at current CAPE ratio
« Reply #31 on: July 22, 2019, 10:31:47 AM »
No kindle version though...

2Birds1Stone

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Re: Concerned about FIRE at current CAPE ratio
« Reply #32 on: July 22, 2019, 11:06:31 AM »
No kindle version though...

The charts would be an eye sore on a Kindle =D

ChpBstrd

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Re: Concerned about FIRE at current CAPE ratio
« Reply #33 on: July 22, 2019, 11:08:06 AM »
The caveat for these backward-looking models of calculating the survival probabilities of various WRs is that the future of the stock market is assumed to look like the past. That is, the models are based on the market performance of US stocks during the 20th century. The actuarial work is relatively straightforward, but the leap involved with saying this predicts the future is the risky part. I do not know if that assumption is valid, because I cannot know the future any better than the people who retired in 1989 on the assumption the Nikkei stock market would continue its past performance and trajectory.

Would 3 decades of no growth be an unlikely outcome for the US indices? I donít know of any reason to say it would (and nobody else does either, unless they are extrapolating the future from the past).

ysette9

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Re: Concerned about FIRE at current CAPE ratio
« Reply #34 on: July 22, 2019, 12:30:03 PM »
The nice thing about the book is he tested all the data sets he could get his hands on: two different US data set, UK, and Japan, and compiled recommendations based on which models performed the best over the lot of them. He also built a new data set based on existing data and extending it based on a set of assumptions he describes (I havenít got to that part so donít have details for you). So no crystal ball, but I feel McClung tried to do the best with the data we have, noting the limitations you bring up.

At the end of the day it will always be a risk one way or the other. Either you take some risk that the future will be so wildly different from anything we have ever seen that everything breaks down, or you take a risk of having to course correct a bit along the way, or you take the risk of working longer than needed and having fewer years of your life to play. It is up to you which risk is scarier.