Author Topic: YMOYL Step 9  (Read 2921 times)

NCoffey

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YMOYL Step 9
« on: July 06, 2013, 10:17:20 PM »
So I just finished the book and step 9 seems to not really be all that relevant currently. The book keeps talking about 8-9% returns on treasury bonds and says throughout that if you get to 25x your expenses you can withdrawal 4% a year and be FI. If your only in treasury bonds though and they are only yielding 3.9% or less aren't you not really FI?

I have heard others around the forum talk about how step 9 was really the only part they disagreed with, but what is the optimal thing to invest in now? I see a lot of talk about Vanguard and such, but what else and what with Vanguard?

Khan

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Re: YMOYL Step 9
« Reply #1 on: July 06, 2013, 11:43:01 PM »
YMOYL was written in a better time, when interest rates were much higher. Not only that, but the book put an undue amount of emphasis on treasury bonds.

I'd recommend you do some further reading on investing. I recommend
-Stocks for the Long Run
-a book by William Bernstein. I read The Investor's Manifesto and it's a solid choice, but maybe someone else would recommend another of his books.
-The Bogleheads Guide to investing is half the people here's bible.

The short of it is this: the riskier an asset class, the higher the payout should be nominally. Stocks have a possible 100% loss rate, so nominally they perform better over the long term. By using indexes you avoid single point failures. Bonds are less risky, and have a cap on the amount of reward. Treasury bonds(especially US for the past 200 years) have almost no risk(the US government failing to pay up? Never -has- happened), so treasury bonds set a pretty effective floor as one of the least -risky- asset classes. However in the current environment it's being manipulated to goose the economy.

NCoffey

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Re: YMOYL Step 9
« Reply #2 on: July 06, 2013, 11:52:34 PM »
Actually, I just started The Four Pillars of Investing today. I am hoping that gives a little more. The only part I am worried about now is the liquidity of whatever I invest in. A large part of being FI is having that flow of money from your investments early in life. Most retirement plans won't even let you take things out before 59.5 years of age except for certain "hardship" scenarios.

Khan

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Re: YMOYL Step 9
« Reply #3 on: July 07, 2013, 12:01:11 AM »
NCoffey, the 72t roth pipeline and SEPP has been covered at this and other FI websites many times. I recommend you look into those.

Along with that, if you haven't seen the following link, it's 100% recommended.
http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

fiveoclockshadow

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Re: YMOYL Step 9
« Reply #4 on: July 07, 2013, 04:48:31 AM »
+1 on retirement accounts not being "locked in" until 59.5 by any means.  At current interest rates the Roth pipeline is more flexible than the 72t SEPP approach, but both have the effect of getting money out of retirement accounts early at no penalty.

Continue reading Four Pillars and you'll have your answer as to what to invest in (i.e. everything).  Keep in mind, something like the S&P500 will still have a couple of percent dividends in the worst of times and medium term treasuries as well.  So in an extremely bad market with a SWR of only 4% you actually won't be selling that much of your portfolio (perhaps only 2%) at the low.  Of course the issue is that markets are very noisy and so you can be at lower return for very long periods, and how long is worse for a single asset class rather than many asset classes - hence the point of asset class diversification recommended in Bernstien's book and many others.

But yes, don't follow any advice telling you to own almost all treasuries.