Author Topic: Why not do 100% allocation, draw 4% at retirement, and yolo it?  (Read 12360 times)

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #200 on: June 02, 2018, 01:20:10 AM »
BTW @Radagast I do appreciate that opinion.

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 669
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #201 on: June 02, 2018, 07:53:31 AM »
Also I'm curious. Are people really taking 4% SWRs and having that match closely with their expected costs.

"Some" people, yes.  Others have a big buffer or will start pulling down a pension after some years or might be closer to SS wage.  I could pay my regular living expenses on less than 2% SWR of my current stash, so over half of a 4% SWR is discretionary - travel, entertainment, etc.

Quote
I actually think that is a bit pushing it. I could understand if your fixed costs were like 15k and 4% gave you 20,30, or 40k per year. But if you absolutely NEED that 4% to the extent that you'll be hosed if you don't get it, then I can understand glide paths and such. Ionno, people seem to really like the 4%, when I say it is important to give yourself some wiggle room.

Glide paths can provide a little extra protection during times of high stock valuations, even if you have a buffer.  The 4% rule already has protections built-in.  There's a whole thread dedicated to that topic:

https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/
« Last Edit: June 02, 2018, 07:55:44 AM by DreamFIRE »

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1077
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #202 on: June 02, 2018, 09:20:53 AM »
I'm not saying this path is for everyone, but those are the assumptions I'm dealing with. But they are the reason I think mortgaging a 30 year place is kind of insane relative to the alternative.


I think your Dave Ramsey emotions are coming out regarding a 30 year mortgage.  If you are Mustachian, you buy a house that meets your needs. You don't look at monthly payments, interest rates, etc.  You find the house that meets your needs.  The next step is figuring out financing.  If the US is still offering 4% 30 year mortgages, then you snag that as this is a once in a life time opportunity.  It actually, is probably over as rates are increasing.  If you happen to have a 30 year fixed mortgage at 4% or less, then you keep it until term.  All the math, knowledge and logic show that you will be significantly better off over 30 years keeping your mortgage if you are disciplined enough to invest.  Dave Ramsey and others are dealing with 95% of the population that lives paycheck to paycheck and emotionally have to spend money on crap if they have money in their checking account.  You and I are not like the herd.  We see money in our checking account and we transfer it to our investments.  We pay ourselves first.  We transfer money into our 401k, Roth IRA, taxable investments, etc. before it hits our checking accounts. We make sure that we are investing everything over what it takes to live well so that way we are not tempted to blow it on a jet ski, car, airplane, big screen TV, and other consumeristic junk.  Those that are prepaying their mortgage are hurting their financial future to lock up their money from themselves.  If you are logical, and disciplined then you don't need to hurt yourself to protect yourself from spending.  You just invest and you get the emotional high from your 7 figure investment accounts.

Also I'm curious. Are people really taking 4% SWRs and having that match closely with their expected costs. I actually think that is a bit pushing it. I could understand if your fixed costs were like 15k and 4% gave you 20,30, or 40k per year. But if you absolutely NEED that 4% to the extent that you'll be hosed if you don't get it, then I can understand glide paths and such. Ionno, people seem to really like the 4%, when I say it is important to give yourself some wiggle room.

The heading of your post seemed like that is what you were asking.  "draw 4% at retirement, and yolo it?".  Some people are drawing down 5%.  With the belief that if the markets tank, they would go back to work, leave the country, or change their spending in a significant manner.





Radagast

  • Handlebar Stache
  • *****
  • Posts: 1022
  • Location: West of the Mountains, East of the Sea
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #203 on: June 02, 2018, 09:52:54 AM »
Also we are not a buy a house because you can crowd. There are strong arguments that renting is better for many or most situations, and many even say all situations. I am a home owner and my house is a duplex that brings in $750-700 on an $805 mortgage while I live in the other half. Even I would struggle to say it has been worth the time and opportunity cost. I would have probably been better off in an apartment spending the weekends at home depot as an employes rather than a customer. But if you must buy then the argument is that mortgage is better than cash, and paying it off as a lump later is certainly better than "making payments", and keeping a 30 year mortgage to term might be best of all (but possibly only similar to a lump as you are about to retire). If your rent vs. buy calculator says to buy even including maintenance and opportunnity costs, then get the mortgage product that matches your duration. Get a 5/1, 10/1, or 30 year mortgage depending on when you will leave. The lower monthly payments will give you more money to shovel into the FIRE.

Dicey

  • Walrus Stache
  • *******
  • Posts: 7748
  • Age: 60
  • Location: NorCal
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #204 on: June 02, 2018, 10:41:35 AM »
I'm not saying this path is for everyone, but those are the assumptions I'm dealing with. But they are the reason I think mortgaging a 30 year place is kind of insane relative to the alternative.


I think your Dave Ramsey emotions are coming out regarding a 30 year mortgage.  If you are Mustachian, you buy a house that meets your needs and those of your possible future spouse and possible future family. You don't look at monthly payments, interest rates, etc.  You find the house that meets your needs.  The next step is figuring out financing.  If the US is still offering 4% 30 year mortgages, then you snag that as this is a once in a life time opportunity.  It actually, is probably over as rates are increasing.  If you happen to have a 30 year fixed mortgage at 4% or less, then you keep it until term.  All the math, knowledge and logic show that you will be significantly better off over 30 years keeping your mortgage if you are disciplined enough to invest.  Dave Ramsey and others are dealing with 95% of the population that lives paycheck to paycheck and emotionally have to spend money on crap if they have money in their checking account.  You and I are not like the herd.  We see money in our checking account and we transfer it to our investments.  We pay ourselves first.  We transfer money into our 401k, Roth IRA, taxable investments, etc. before it hits our checking accounts. We make sure that we are investing everything over what it takes to live well so that way we are not tempted to blow it on a jet ski, car, airplane, big screen TV, and other consumeristic junk.  Those that are prepaying their mortgage are hurting their financial future to lock up their money from themselves.  If you are logical, and disciplined then you don't need to hurt yourself to protect yourself from spending.  You just invest and you get the emotional high from your 7 figure investment accounts.

Also I'm curious. Are people really taking 4% SWRs and having that match closely with their expected costs. I actually think that is a bit pushing it. I could understand if your fixed costs were like 15k and 4% gave you 20,30, or 40k per year. But if you absolutely NEED that 4% to the extent that you'll be hosed if you don't get it, then I can understand glide paths and such. Ionno, people seem to really like the 4%, when I say it is important to give yourself some wiggle room.

The heading of your post seemed like that is what you were asking.  "draw 4% at retirement, and yolo it?".  Some people are drawing down 5%.  With the belief that if the markets tank, they would go back to work, leave the country, or change their spending in a significant manner.
All if this, with a slight modification added in bold to specifically for the OP. And who says we don't look at monthly payments and interest rates, especially on a first house? That's crazy talk! Besides, even paid-for houses have monthly (or at least recurring) payments: utilities, taxes, insurance, maintenance, etc.

Also we are not a buy a house because you can crowd. There are strong arguments that renting is better for many or most situations, and many even say all situations. I am a home owner and my house is a duplex that brings in $750-700 on an $805 mortgage while I live in the other half. Even I would struggle to say it has been worth the time and opportunity cost. I would have probably been better off in an apartment spending the weekends at home depot as an employes rather than a customer. But if you must buy then the argument is that mortgage is better than cash, and paying it off as a lump later is certainly better than "making payments", and keeping a 30 year mortgage to term might be best of all (but possibly only similar to a lump as you are about to retire). If your rent vs. buy calculator says to buy even including maintenance and opportunnity costs, then get the mortgage product that matches your duration. Get a 5/1, 10/1, or 30 year mortgage depending on when you will leave. The lower monthly payments will give you more money to shovel into the FIRE.
Yes to this! And some of us are FI/RE and rich beyond our wildest dreams because we bought affordable(-ish) houses, carried long, deductible (US) mortgages, did reasonable DIY renos, then sold them years later for astronomical tax-free gains. Plus we invested in equities while we weren't prepaying those mortgages, just as @ Radagast suggests. This is not theoretical math, it's actual life experence. Your mileage, obviously, will vary.
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #205 on: June 02, 2018, 08:42:39 PM »
Here is a thought.

Does anyone of use really need a house? I've lived in apartment complexes and rented rooms where people had entire families in a smallish space and it was fine. In fact the very apartment complex I am in is full of people doing this very thing. Maybe I'm just a dumb naive millenial but I can't think of a reason why anyone would need anything more. The rent for such setups would pretty much almost always be less than a single family house. Unless you lived in one of those cheap towns.

So, when I hear people taking out 30-year mortgages. I'm just really skeptical that they are really doing it because it is the best idea. There is no free lunch in economics. Each mortgage has their own level of risk. And the level of risk decreases when you take out less interest. Even if you invest the difference, mathematically it is the same as making a leveraging. With that in mind, there are two reasons to go 30 year. You want a house and the house you want requires you to do so. Which, if you think about it, is the very kind of consumerism and entitlement that a lot of people seem to scoff at. OR, you are being really modest with a house (that you still want and not need) and are taking more risk for higher return. Which hey. Honestly that is fine with me. But I do wish people would accept that this is a risk play for greater return and not something that is universally better.

I think that is the big thing that I am learning and would highly respect anyone for realizing. All of this is more about our own persoanl preferences and risk tolerances. And different solutions match different people. The idea that some of us are daft or unreasonable just comes off as very close minded and ultimately not productive.

Dicey

  • Walrus Stache
  • *******
  • Posts: 7748
  • Age: 60
  • Location: NorCal
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #206 on: June 02, 2018, 09:25:00 PM »
Here is a thought.

Does anyone of use really need a house? I've lived in apartment complexes and rented rooms where people had entire families in a smallish space and it was fine. In fact the very apartment complex I am in is full of people doing this very thing. Maybe I'm just a dumb naive millenial but I can't think of a reason why anyone would need anything more. The rent for such setups would pretty much almost always be less than a single family house. Unless you lived in one of those cheap towns.

So, when I hear people taking out 30-year mortgages. I'm just really skeptical that they are really doing it because it is the best idea. There is no free lunch in economics. Each mortgage has their own level of risk. And the level of risk decreases when you take out less interest. Even if you invest the difference, mathematically it is the same as making a leveraging. With that in mind, there are two reasons to go 30 year. You want a house and the house you want requires you to do so. Which, if you think about it, is the very kind of consumerism and entitlement that a lot of people seem to scoff at. OR, you are being really modest with a house (that you still want and not need) and are taking more risk for higher return. Which hey. Honestly that is fine with me. But I do wish people would accept that this is a risk play for greater return and not something that is universally better.

I think that is the big thing that I am learning and would highly respect anyone for realizing. All of this is more about our own persoanl preferences and risk tolerances. And different solutions match different people. The idea that some of us are daft or unreasonable just comes off as very close minded and ultimately not productive.
Yes, at this point in my life, I do need a house. You do you and I'll happily do me.

There are so many crazy-making statements in the above post that I don't know where to begin. I will limit it to one.

"And the level of risk decreases when you take out less interest" principle. Fingernails on the chalkboard, right there.
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1022
  • Location: West of the Mountains, East of the Sea
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #207 on: June 02, 2018, 10:57:22 PM »
Here is a thought.

Does anyone of use really need a house? I've lived in apartment complexes and rented rooms where people had entire families in a smallish space and it was fine. In fact the very apartment complex I am in is full of people doing this very thing. Maybe I'm just a dumb naive millenial but I can't think of a reason why anyone would need anything more. The rent for such setups would pretty much almost always be less than a single family house. Unless you lived in one of those cheap towns.

So, when I hear people taking out 30-year mortgages. I'm just really skeptical that they are really doing it because it is the best idea. There is no free lunch in economics. Each mortgage has their own level of risk. And the level of risk decreases when you take out less interest. Even if you invest the difference, mathematically it is the same as making a leveraging. With that in mind, there are two reasons to go 30 year. You want a house and the house you want requires you to do so. Which, if you think about it, is the very kind of consumerism and entitlement that a lot of people seem to scoff at. OR, you are being really modest with a house (that you still want and not need) and are taking more risk for higher return. Which hey. Honestly that is fine with me. But I do wish people would accept that this is a risk play for greater return and not something that is universally better.

I think that is the big thing that I am learning and would highly respect anyone for realizing. All of this is more about our own persoanl preferences and risk tolerances. And different solutions match different people. The idea that some of us are daft or unreasonable just comes off as very close minded and ultimately not productive.
You don't need to pontificate. There are dozens of online rent vs. buy calculators. You can use the actual numbers that apply to your individual situation. May the best math win! https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #208 on: June 02, 2018, 11:18:47 PM »
Here is a thought.

Does anyone of use really need a house? I've lived in apartment complexes and rented rooms where people had entire families in a smallish space and it was fine. In fact the very apartment complex I am in is full of people doing this very thing. Maybe I'm just a dumb naive millenial but I can't think of a reason why anyone would need anything more. The rent for such setups would pretty much almost always be less than a single family house. Unless you lived in one of those cheap towns.

So, when I hear people taking out 30-year mortgages. I'm just really skeptical that they are really doing it because it is the best idea. There is no free lunch in economics. Each mortgage has their own level of risk. And the level of risk decreases when you take out less interest. Even if you invest the difference, mathematically it is the same as making a leveraging. With that in mind, there are two reasons to go 30 year. You want a house and the house you want requires you to do so. Which, if you think about it, is the very kind of consumerism and entitlement that a lot of people seem to scoff at. OR, you are being really modest with a house (that you still want and not need) and are taking more risk for higher return. Which hey. Honestly that is fine with me. But I do wish people would accept that this is a risk play for greater return and not something that is universally better.

I think that is the big thing that I am learning and would highly respect anyone for realizing. All of this is more about our own persoanl preferences and risk tolerances. And different solutions match different people. The idea that some of us are daft or unreasonable just comes off as very close minded and ultimately not productive.
Yes, at this point in my life, I do need a house. You do you and I'll happily do me.

There are so many crazy-making statements in the above post that I don't know where to begin. I will limit it to one.

"And the level of risk decreases when you take out less interest" principle. Fingernails on the chalkboard, right there.

Its interest. If you pay more interest on a loan, in order for it to be worth it, you must make up the difference with more investing. And this means more risk, since any investment with a rate of return greater than a typical mortgage is going to be volatile. Why do you not see that?

And yeah we are different. With different values and needs. I've been saying this all along.

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #209 on: June 02, 2018, 11:27:05 PM »
Here is a thought.

Does anyone of use really need a house? I've lived in apartment complexes and rented rooms where people had entire families in a smallish space and it was fine. In fact the very apartment complex I am in is full of people doing this very thing. Maybe I'm just a dumb naive millenial but I can't think of a reason why anyone would need anything more. The rent for such setups would pretty much almost always be less than a single family house. Unless you lived in one of those cheap towns.

So, when I hear people taking out 30-year mortgages. I'm just really skeptical that they are really doing it because it is the best idea. There is no free lunch in economics. Each mortgage has their own level of risk. And the level of risk decreases when you take out less interest. Even if you invest the difference, mathematically it is the same as making a leveraging. With that in mind, there are two reasons to go 30 year. You want a house and the house you want requires you to do so. Which, if you think about it, is the very kind of consumerism and entitlement that a lot of people seem to scoff at. OR, you are being really modest with a house (that you still want and not need) and are taking more risk for higher return. Which hey. Honestly that is fine with me. But I do wish people would accept that this is a risk play for greater return and not something that is universally better.

I think that is the big thing that I am learning and would highly respect anyone for realizing. All of this is more about our own persoanl preferences and risk tolerances. And different solutions match different people. The idea that some of us are daft or unreasonable just comes off as very close minded and ultimately not productive.
You don't need to pontificate. There are dozens of online rent vs. buy calculators. You can use the actual numbers that apply to your individual situation. May the best math win! https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Bruh my rent is 700$, which is the most I have ever paid (and I used to live in SoCal). I actually could decrease it if I was willing to bike to work (instead of walk). To get a comparable house, it would need to be 193k and those are an hour away. Now that would probably cost more in commuting time and mental anguish. But, even if I wanted to do that, renting in that area is way cheaper. Which sort of supports my claim. There is just no way around the fact that renting allows you to go to a lower end that you'll never reach with buying. And the fact that you can do this makes buying an unnecessary excess. Which, hey I'm fine with people doing, but its true. You pay more for space you really don't need. There is no way around it.

Like I'm fine with people buying. And even taking out a really long loan on their house and using the market to pay for it. But thats a strategy that comes with drawbacks. It subjects you to market risk. It means you need to be in a house (which also means all the BS that comes with). It is a more expensive way of living (since you are buying more space). I'm not saying it is even a bad idea. But it isn't universally superior and not something that makes you more clever or insightful than anyone else.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1022
  • Location: West of the Mountains, East of the Sea
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #210 on: June 03, 2018, 12:27:19 AM »
Bruh, if what you are saying is true, it will show up in the numbers. If what you are saying is not true, it will not show up in the numbers and you will actually, genuinely, be provably wrong. That's why you run the numbers.

Dicey

  • Walrus Stache
  • *******
  • Posts: 7748
  • Age: 60
  • Location: NorCal
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #211 on: June 03, 2018, 12:28:10 AM »
Here is a thought.

Does anyone of use really need a house? I've lived in apartment complexes and rented rooms where people had entire families in a smallish space and it was fine. In fact the very apartment complex I am in is full of people doing this very thing. Maybe I'm just a dumb naive millenial but I can't think of a reason why anyone would need anything more. The rent for such setups would pretty much almost always be less than a single family house. Unless you lived in one of those cheap towns.

So, when I hear people taking out 30-year mortgages. I'm just really skeptical that they are really doing it because it is the best idea. There is no free lunch in economics. Each mortgage has their own level of risk. And the level of risk decreases when you take out less interest. Even if you invest the difference, mathematically it is the same as making a leveraging. With that in mind, there are two reasons to go 30 year. You want a house and the house you want requires you to do so. Which, if you think about it, is the very kind of consumerism and entitlement that a lot of people seem to scoff at. OR, you are being really modest with a house (that you still want and not need) and are taking more risk for higher return. Which hey. Honestly that is fine with me. But I do wish people would accept that this is a risk play for greater return and not something that is universally better.

I think that is the big thing that I am learning and would highly respect anyone for realizing. All of this is more about our own persoanl preferences and risk tolerances. And different solutions match different people. The idea that some of us are daft or unreasonable just comes off as very close minded and ultimately not productive.
Yes, at this point in my life, I do need a house. You do you and I'll happily do me.

There are so many crazy-making statements in the above post that I don't know where to begin. I will limit it to one.

"And the level of risk decreases when you take out less interest" principle. Fingernails on the chalkboard, right there.

Its interest. If you pay more interest on a loan, in order for it to be worth it, you must make up the difference with more investing. And this means more risk, since any investment with a rate of return greater than a typical mortgage is going to be volatile. Why do you not see that?

And yeah we are different. With different values and needs. I've been saying this all along.
Nope, no hope. See you later, alligator. I think I'll go get myself some orange juice or something. Buh-bye. Best of luck to you.
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

ysette9

  • Magnum Stache
  • ******
  • Posts: 2831
  • Location: Bay Area, CA
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #212 on: June 03, 2018, 09:47:40 AM »
Two thoughts:

Riskier investments are more volatile, but if you are investing for the long-term, then volatility doesn’t matter as much. I don’t care if my 401(k) balance goes up or down by 30% this week because I don’t plan on tapping those funds for another 25 years.

Second thought: you seem to be mixing up the idea of laying your mortgage off early versus keeping it for the full-term and investing with the tendency to upgrade one’s lifestyle when purchasing a house. These are two separate concepts. Many people do buy more house than they had when renting, but we are less prone to that on these forums because we believe in spending consciously. There is no doubt that the masses fall prey to this.

As for the paying-your-mortgage-early debate, this has been discussed ad naseum on these forums already. You are welcome to assign a $ value to your personal feeling of comfort that comes from paying off a mortgage early for your own risk tolerance. That is a legit technique per my own classes in risk analysis and decision making. However, looking at the cold, raw numbers, keeping the mortgage and investing the difference is the right answer, period.
"It'll be great!"

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #213 on: June 03, 2018, 01:00:51 PM »
As for the paying-your-mortgage-early debate, this has been discussed ad naseum on these forums already. You are welcome to assign a $ value to your personal feeling of comfort that comes from paying off a mortgage early for your own risk tolerance. That is a legit technique per my own classes in risk analysis and decision making. However, looking at the cold, raw numbers, keeping the mortgage and investing the difference is the right answer, period.

This has to be a simple calculation. Take two mortgages, same principle, different interest rates, or different terms (which means different amounts of interest paid over the life of the loan). No matter how you slice it, if you pay more interest, you need to have that covered by investing. While avoiding interest is guaranteed to earn you less returns, investing is not (but we believe will with some probability).

Take some assumptions, apply it to different situations, add in some real-world considerations, but that first fact is something pretty hard to dispute. The disparity and debate come with the assumptions. Especially since people conveniently leave in or out the assumptions that fit their own use case, sometimes without realizing it. That is why I don't buy the whole "we are so advanced and clever" idea. The minute your success relies on you thinking you are better than 95% of the population, without actually having accomplished anything yet,  I become highly suspicious.

MDM

  • Walrus Stache
  • *******
  • Posts: 8049
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #214 on: June 03, 2018, 01:14:07 PM »
No matter how you slice it, if you pay more interest, you need to have that covered by investing.
Not in general.  Plenty of people pay mortgages without investing, e.g., with cash flow from work wages.

ysette9

  • Magnum Stache
  • ******
  • Posts: 2831
  • Location: Bay Area, CA
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #215 on: June 03, 2018, 01:14:16 PM »
"It'll be great!"

PizzaSteve

  • Pencil Stache
  • ****
  • Posts: 823
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #216 on: June 03, 2018, 02:34:19 PM »
Two thoughts:

Riskier investments are more volatile, but if you are investing for the long-term, then volatility doesnít matter as much. I donít care if my 401(k) balance goes up or down by 30% this week because I donít plan on tapping those funds for another 25 years.

Second thought: you seem to be mixing up the idea of laying your mortgage off early versus keeping it for the full-term and investing with the tendency to upgrade oneís lifestyle when purchasing a house. These are two separate concepts. Many people do buy more house than they had when renting, but we are less prone to that on these forums because we believe in spending consciously. There is no doubt that the masses fall prey to this.

As for the paying-your-mortgage-early debate, this has been discussed ad naseum on these forums already. You are welcome to assign a $ value to your personal feeling of comfort that comes from paying off a mortgage early for your own risk tolerance. That is a legit technique per my own classes in risk analysis and decision making. However, looking at the cold, raw numbers, keeping the mortgage and investing the difference is the right answer, period.

A good post, but there is an implicit assumption in the red text.  That assumption is that the past history of positive market gains over a long period will percist. 

One is free to assume that if they wish, and a lot of data supports it.  However, it is not fact, it is an assumption. 

Hence the "only one right answer, period" is over stating the evidence supporting that conclusion.  If you assume long term market returns will continue inserted in front of that sentence is a better representation for decision makers.

I am really tired of people without training in finance and market theory stating that long term market returns are a guaranteed fact over a long enough time period.  No scholars would assert this.  is it a a good bet? Yes.  A fact? No.

Students of financial history look back hundreds of years over multiple societies.  Only looking at US market data for 80 years is a narrow data set.  Personally, I think the OP should hold the morgage and invest in retirement accounts, but it is their family's decision to make after understanding and deciding their view of the data and global future business prospects.
« Last Edit: June 03, 2018, 02:38:13 PM by PizzaSteve »
All posts are opinions of the author subject to independent verification by the reader.  No representations of fact are asserted regarding commercial products or services.

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #217 on: June 03, 2018, 02:59:10 PM »
Two thoughts:

Riskier investments are more volatile, but if you are investing for the long-term, then volatility doesnít matter as much. I donít care if my 401(k) balance goes up or down by 30% this week because I donít plan on tapping those funds for another 25 years.

Second thought: you seem to be mixing up the idea of laying your mortgage off early versus keeping it for the full-term and investing with the tendency to upgrade oneís lifestyle when purchasing a house. These are two separate concepts. Many people do buy more house than they had when renting, but we are less prone to that on these forums because we believe in spending consciously. There is no doubt that the masses fall prey to this.

As for the paying-your-mortgage-early debate, this has been discussed ad naseum on these forums already. You are welcome to assign a $ value to your personal feeling of comfort that comes from paying off a mortgage early for your own risk tolerance. That is a legit technique per my own classes in risk analysis and decision making. However, looking at the cold, raw numbers, keeping the mortgage and investing the difference is the right answer, period.

A good post, but there is an implicit assumption in the red text.  That assumption is that the past history of positive market gains over a long period will percist. 

One is free to assume that if they wish, and a lot of data supports it.  However, it is not fact, it is an assumption. 

Hence the "only one right answer, period" is over stating the evidence supporting that conclusion.  If you assume long term market returns will continue inserted in front of that sentence is a better representation for decision makers.

I am really tired of people without training in finance and market theory stating that long term market returns are a guaranteed fact over a long enough time period.  No scholars would assert this.  is it a a good bet? Yes.  A fact? No.

Students of financial history look back hundreds of years over multiple societies.  Only looking at US market data for 80 years is a narrow data set.  Personally, I think the OP should hold the morgage and invest in retirement accounts, but it is their family's decision to make after understanding and deciding their view of the data and global future business prospects.

I'm single and make all of my own financial decisions. I also don't currently have a mortgage. I stated earlier that I don't particularly want one either, if I did it, it would be small and very short term.

Do you have financial training? What would you assert are the reasons for market gains over the long term? I haven't finished it, but I think a great read is Ray Dalio's "The Economic machine." In it he says that things such as deleveragings have been sort of understood and anticipated since ancient times. However, that knowledge was expressed more in allegory than the more direct academic way it is now.

My current understanding of why markets increase over time is based off the idea that society just gets more efficient as it progresses. However, that increase in productivity isn't always expressed in the market. On it are layered things such as credit cycles and peoples' emotions. And this is where the uncertainty comes from. Also we simply don't know how well we will progress in the future. When will the next big discovery happen, like the transistor or penicillin. Or are we in a local minima that requires some large paradigm to escape from. Hard to know really .

And yes all of this is a degree of belief and nothing guaranteed.

No matter how you slice it, if you pay more interest, you need to have that covered by investing.
Not in general.  Plenty of people pay mortgages without investing, e.g., with cash flow from work wages.

Well of course.  But this further supports the idea that mortgages that require you to pay more interest are more expensive. The cost comes through as added capital or increased risk. Again, there is no free lunch.

ysette9

  • Magnum Stache
  • ******
  • Posts: 2831
  • Location: Bay Area, CA
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #218 on: June 03, 2018, 03:03:30 PM »
I didn't mean to make my post read like I was making the assumption that we know what the future market gains will bring. Of course we don't know the future. No one does, so you are right that we can't be guaranteed that it is the best path forward regardless. However, given the data that we have, that is the best bet you can make. Absent a crystal ball, looking at past performance is the best tool we have for making future decisions.

I don't want this to devolve into a Bogleheads forums-style race to the bottom to see who can psych themselves into the lowest withdrawal rate. Everything having to do with investing and certainly FIRE is a game of chance. You can hope (and I argue, reasonably assume) that the future market performance will not be any worse than the past over long periods of time such as 30-year mortgage terms. You can hope that nuclear war won't devastate developed nations. You can hope that the zombie apocalypse won't happen in our lifetimes. You can hope that your particular life is long enough that you can ponder whether the 4% SWR will be safe enough (https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/700/ reply #712), though statistics say you are more likely to be dead than run out of money for a given age. Those things could all happen and you could be left holding the bag, wishing you'd paid off your mortgage early and chosen a 2% withdrawal rate. It is just more likely that the zombie apocalypse won't happen and you will have lost extra years of your life to work.
"It'll be great!"

MDM

  • Walrus Stache
  • *******
  • Posts: 8049
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #219 on: June 03, 2018, 03:32:59 PM »
No matter how you slice it, if you pay more interest, you need to have that covered by investing.
Not in general.  Plenty of people pay mortgages without investing, e.g., with cash flow from work wages.
Well of course.  But this further supports the idea that mortgages that require you to pay more interest are more expensive.
Compared with...?

If "compared with mortgages that require you to pay less interest" then, as someone once said, "well of course".  Did you have another comparison in mind?

Quote
The cost comes through as added capital or increased risk. Again, there is no free lunch.
Capital added to what?

Risk increased compared with what?  Again, I'm guessing it must be something other than "compared with mortgages that require you to pay less interest", but what...?

Just trying to understand....

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #220 on: June 03, 2018, 04:31:57 PM »
We are running in circles here, twisting each others' words, and playing with assumptions,  to disprove each other in our minds.


gwhunter

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #221 on: June 03, 2018, 07:21:17 PM »
This has got to be either, 1. The best troll I've ever seen. or 2. The biggest case of someone not picking up what everyone else is throwing down. 

Carry on...

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1519
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #222 on: June 03, 2018, 07:59:02 PM »
This has got to be either, 1. The best troll I've ever seen. or 2. The biggest case of someone not picking up what everyone else is throwing down. 

Carry on...

Or both. ;-)
Like Overwatch?  Check out this YouTube channel:  http://bit.ly/AgeOfEon

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 669
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #223 on: June 03, 2018, 08:46:22 PM »
This has got to be either, 1. The best troll I've ever seen. or 2. The biggest case of someone not picking up what everyone else is throwing down. 

Carry on...

I was thinking the same thing, and he doesn't make much sense in his own comments, either.  A lot of nonsense.

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #224 on: June 03, 2018, 09:20:13 PM »
I'm completely serious. But also beleive nothing of what I say.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1022
  • Location: West of the Mountains, East of the Sea
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #225 on: June 03, 2018, 09:52:02 PM »
We are running in circles here, twisting each others' words, and playing with assumptions,  to disprove each other in our minds.
I think the bigger issue is you lumping unrelated considerations together and assuming your own limited experience is all the experience possible.

Rent vs Buy
House vs Condo
950 vs 3576 square feet
Mortgage vs cash
5/1 vs 30 vs 15
Pay off early vs hold to term
Single vs. living with kids and in-laws
These are all unrelated, but you seem to assume a 1 bed / 1 bath apartment or a 3576 SF corner house with a 30yr mortgage carried to term for the "pride" of having a mortgage and too much house are the only options. In fact there are countless others, and in any case most posters here lean more strongly towards the 1 bed/1 bath optimization crowd so you aren't even arguing against people on the opposite side from you. We just can't stand to see your poor understanding of numbers and poor reasoning.

And that is before we even look at numbers. Two weeks ago I was looking at a condo for $110,000, while rents for comparables were $1250/mo, and other parts of town more expensive than that. What is your philosophy there? But I am actually more like you and decided (along with DW) that renting would be better (in this case we probably made a bad decision by the numbers, trading a poor but fairly low crime area for a more expensive area just to avoid DW's perceived stigma and some paperwork hassle).

There are risks on all sides. A mortgage is tied to the dollar. If the dollar loses 90% of its value, your monthly mortgage payment will cost the same as a cheeseburger while rental prices will go up 90%. Many people think inflation is the biggest risk. But you have to get on with life, so you use the numbers that apply to your situation to the best of your knowledge and do what you can with what you have.


shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #226 on: June 03, 2018, 10:42:32 PM »
If I were you. I'd just buy the condo in cash. 110k is like nothing.

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1519
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #227 on: June 03, 2018, 10:47:42 PM »
I'm completely serious. But also beleive nothing of what I say.

Oh, no doubt, and complete doubt, respectively.

OTOH and FWIW, you can believe everything I say.
Like Overwatch?  Check out this YouTube channel:  http://bit.ly/AgeOfEon

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #228 on: June 03, 2018, 10:50:15 PM »
I'm completely serious. But also beleive nothing of what I say.

Oh, no doubt, and complete doubt, respectively.

OTOH and FWIW, you can believe everything I say.

Bruh LPT you might actually be speaking my literally language almost alwaysô TBH

Prairie Stash

  • Handlebar Stache
  • *****
  • Posts: 1424
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #229 on: June 04, 2018, 01:00:41 PM »
Lets back up. You don't have a mortgage because your rent is dirt cheap.

Why not get a mortgage, rent out the house and maintain your current place? There is absolutely no reason to use your current place as a reason for or against a mortgage. Before bashing mortgages, just consider the possibility of buying a house that you can rent out. Once you approach house ownership from the perspective of numbers, it removes all the fluff about your current rent and distance to work.

A lot of people assume that you need to live in the first house you buy. In simple terms, a house is just another tool to diversify your NW. Stocks, bonds, houses, art, land, gold etc. are all just tools to accumulate NW that have different levels of returns and risk.

bacchi

  • Magnum Stache
  • ******
  • Posts: 2678
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #230 on: June 04, 2018, 01:13:13 PM »
Lets back up. You don't have a mortgage because your rent is dirt cheap.

Why not get a mortgage, rent out the house and maintain your current place?

Bruh, all debt is Bad. Evil. You can't trust yourself not to abuse the debt. Never done that? BS. You're a fallible human. You've definitely used those credit cards on hookers and blow.

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #231 on: June 04, 2018, 01:20:58 PM »
Lets back up. You don't have a mortgage because your rent is dirt cheap.

Why not get a mortgage, rent out the house and maintain your current place? There is absolutely no reason to use your current place as a reason for or against a mortgage. Before bashing mortgages, just consider the possibility of buying a house that you can rent out. Once you approach house ownership from the perspective of numbers, it removes all the fluff about your current rent and distance to work.

A lot of people assume that you need to live in the first house you buy. In simple terms, a house is just another tool to diversify your NW. Stocks, bonds, houses, art, land, gold etc. are all just tools to accumulate NW that have different levels of returns and risk.

There are a couple of reasons I don't this:

   - I'm currently don't have enough capital to do this, and my credit score is shit. I'd have to take out a subprime loan, and the interest rate would be garbage. To get a good interest rate, I'd have to either wait awhile OR deal with credit bullshit to get a credit score. And I don't want a good credit score.
   - It is a buyers market right now. To get a decent house, I'd have to do a ton of research, work with buyers, get a real estate agent, negotiate a deal, etc. etc. THEN I'd have to either vette a housing manager or deal with the renters myself. None of this I want to do.
   - I have no idea how long I'm going to be in my area. I'll be here as long as I'm working for my current employer, but, if I leave my job for some reasons, I'm most likely going to move. I definitely don't want something like a rental property holding me back, as I don't think managing a rental from long distance is a good idea.
   - After all is said and done. I'd just end up with an investment. An illiquid investment that is tied to a very specific area of the country. This investment would take time to acquire. Time to be profitable, and a lot of BS I'd rather not deal with. By comparison, I could just invest more online, and not have nay of that.

Now that is me and my situation specifically. In general, I don't think real estate investing is a bad idea. Personally, I'd only do it if I knew I was going to be in an area for a long time (10+ years), it wasn't my entire portfolio (preferably less than 30 - 40%), and I could buy any investments in cash. Even then I still might never since I don't really put houses on a pedestal and arguments could be made for other types of investments. 

ysette9

  • Magnum Stache
  • ******
  • Posts: 2831
  • Location: Bay Area, CA
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #232 on: June 04, 2018, 01:40:12 PM »

- I'm currently don't have enough capital to do this, and my credit score is shit. I'd have to take out a subprime loan, and the interest rate would be garbage. To get a good interest rate, I'd have to either wait awhile OR deal with credit bullshit to get a credit score. And I don't want a good credit score.

I now understand why this thread has gone on for so long and why you continue to not see eye-to-eye with the regulars on this forum.
"It'll be great!"

ysette9

  • Magnum Stache
  • ******
  • Posts: 2831
  • Location: Bay Area, CA
Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #233 on: June 04, 2018, 01:41:23 PM »
That quote got mis-attributed and was the OP talking, not Prairie Stash. Damn Tapatalk on my phone.
"It'll be great!"

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1519
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #234 on: June 04, 2018, 01:53:27 PM »
Lets back up. You don't have a mortgage because your rent is dirt cheap.

Why not get a mortgage, rent out the house and maintain your current place?

Bruh, all debt is Bad. Evil. You can't trust yourself not to abuse the debt. Never done that? BS. You're a fallible human. You've definitely used those credit cards on hookers and blow.

Well played, sir.
Like Overwatch?  Check out this YouTube channel:  http://bit.ly/AgeOfEon

Brother Esau

  • Bristles
  • ***
  • Posts: 252
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #235 on: June 04, 2018, 01:56:55 PM »
Lets back up. You don't have a mortgage because your rent is dirt cheap.

Why not get a mortgage, rent out the house and maintain your current place?

Bruh, all debt is Bad. Evil. You can't trust yourself not to abuse the debt. Never done that? BS. You're a fallible human. You've definitely used those credit cards on hookers and blow.

And....American Express won't give me rewards points for hookers and blow.

ysette9

  • Magnum Stache
  • ******
  • Posts: 2831
  • Location: Bay Area, CA
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #236 on: June 04, 2018, 01:58:11 PM »
There has got to be a rewards card that taps into that particular niche market.
"It'll be great!"

Brother Esau

  • Bristles
  • ***
  • Posts: 252
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #237 on: June 04, 2018, 02:18:17 PM »
There has got to be a rewards card that taps into that particular niche market.

I should be able to figure out a way to have the blow show up on my statements as a "grocery" purchase for the 6% rebate.

MacGyverIt

  • Stubble
  • **
  • Posts: 232
  • Location: Not in a tropical, underpopulated location. And that's just wrong.
  • What Would MacGyver Do?
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #238 on: June 12, 2018, 06:37:07 PM »
I'm 49 and was 100 percent stock funds until a few months ago.  Now I'm 80 percent stock funds and 20 percent bond fund.  JL Collins approach for me from here to FIRE.

He's most recently espoused the all-in on Stocks (VTSAX), has he not?

http://jlcollinsnh.com/2018/06/07/stocks-part-xxxiii-optimism/

"But taking the very long view, at some point VTSAX might no longer be enough. If/when that time comes, I tell her (and tell her to tell her children) to continue to keep things as simple as possible. Iíd look at VTWSX:  Total World Stock Index Fund (current expense ratio .19).  This fund invests all over the world, including ~50% in the USA.  With it you no longer even need to hold VTSAX."
------------------------------------------------------------
"I never really celebrated success by spending money. I store up that money for allowing me time to wait to get the money to do the things I really want to do." - Terry Gilliam, member & director of, Monty Python & the Holy Grail

Padonak

  • Stubble
  • **
  • Posts: 223
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #239 on: June 12, 2018, 08:20:04 PM »
I'm 49 and was 100 percent stock funds until a few months ago.  Now I'm 80 percent stock funds and 20 percent bond fund.  JL Collins approach for me from here to FIRE.

He's most recently espoused the all-in on Stocks (VTSAX), has he not?

http://jlcollinsnh.com/2018/06/07/stocks-part-xxxiii-optimism/

"But taking the very long view, at some point VTSAX might no longer be enough. If/when that time comes, I tell her (and tell her to tell her children) to continue to keep things as simple as possible. Iíd look at VTWSX:  Total World Stock Index Fund (current expense ratio .19).  This fund invests all over the world, including ~50% in the USA.  With it you no longer even need to hold VTSAX."

Why VTWSX at .19%, not the ETF version (VT) with .1% expense ratio?

sherr

  • Bristles
  • ***
  • Posts: 498
  • Age: 32
  • Location: North Carolina
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #240 on: June 13, 2018, 11:58:12 AM »
I'm 49 and was 100 percent stock funds until a few months ago.  Now I'm 80 percent stock funds and 20 percent bond fund.  JL Collins approach for me from here to FIRE.

He's most recently espoused the all-in on Stocks (VTSAX), has he not?

While accumulating his advice has always been 100% stocks, yes.

He used to say that "near or during" retirement you should switch to 50/25/20/5 stocks/REIT/bonds/cash, but then he decided to eliminate the REITs and go 75/25 stocks/bonds and only as much cash as you need.
« Last Edit: June 13, 2018, 12:03:18 PM by sherr »

sherr

  • Bristles
  • ***
  • Posts: 498
  • Age: 32
  • Location: North Carolina
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #241 on: June 13, 2018, 12:08:59 PM »
Why VTWSX at .19%, not the ETF version (VT) with .1% expense ratio?

I personally would like to know why the expense rates are so different. They're essentially the same thing, so why the almost double expense ratio? Is the expense ratio for the actual mutual fund "hidden" inside the EFT in the form of lower performance, and the .1% an additional fee on top of that?

Edit: No, it appears the difference is primarily because ETFs are easier to administer. There was an interesting thread on bogleheads about it.
« Last Edit: June 13, 2018, 12:18:40 PM by sherr »

shinn497

  • Stubble
  • **
  • Posts: 146
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #242 on: June 13, 2018, 10:43:15 PM »
I'm 49 and was 100 percent stock funds until a few months ago.  Now I'm 80 percent stock funds and 20 percent bond fund.  JL Collins approach for me from here to FIRE.

He's most recently espoused the all-in on Stocks (VTSAX), has he not?

http://jlcollinsnh.com/2018/06/07/stocks-part-xxxiii-optimism/

"But taking the very long view, at some point VTSAX might no longer be enough. If/when that time comes, I tell her (and tell her to tell her children) to continue to keep things as simple as possible. Iíd look at VTWSX:  Total World Stock Index Fund (current expense ratio .19).  This fund invests all over the world, including ~50% in the USA.  With it you no longer even need to hold VTSAX."

I just read that and he mentioned that EM isn't going to be worthwhile in this life time. Personally I think one's own portfolio should match the world.

effigy98

  • Stubble
  • **
  • Posts: 180
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #243 on: June 19, 2018, 08:02:00 PM »
100% stock if you have 30 years out before draw-down and/or can basically never look at the balance when SHTF. Otherwise, you will want to diversify as most people that lost 70% of their portfolio in a matter of months in the dotcom crash, and almost the same in 2008/09 mostly sold into the carnage due to panicking. We are not talking about "some" people sold, MOST people sold. It's like this... you are at a movie theater and 1 person gets up and shouts (OMG FIRE GET OUT!). Most people will look around, see no fire and keep watching the movie. But what if the same thing happens but 10 people run out, then 20 people follow them, then pretty much everyone runs out. That is what happens and you should be prepared for that scenario.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7176
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #244 on: June 20, 2018, 04:37:19 AM »
The market didn't drop 70% either of those times.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

simonsez

  • Pencil Stache
  • ****
  • Posts: 614
  • Age: 32
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #245 on: June 20, 2018, 11:29:39 AM »
The market didn't drop 70% either of those times.
Right, PEOPLE, not the market.

Plenty of people have (too much) company stock or other funds in their 401k that don't reflect the overall market and performance will obviously not always match the bigger picture.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7176
Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #246 on: June 20, 2018, 01:35:55 PM »
The market didn't drop 70% either of those times.
Right, PEOPLE, not the market.

Plenty of people have (too much) company stock or other funds in their 401k that don't reflect the overall market and performance will obviously not always match the bigger picture.

MOST was the term used - and i think we have to assume MOST people cant lose more than the market lost half of the people lose more half the people lose less the avg person loses what the market does as a whole minus fees.

so unless someone can present statistical data showing MOST people losing 70% during those two time frames i think thats just a terrible comment with no data to back it.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

simonsez

  • Pencil Stache
  • ****
  • Posts: 614
  • Age: 32
The market didn't drop 70% either of those times.
Right, PEOPLE, not the market.

Plenty of people have (too much) company stock or other funds in their 401k that don't reflect the overall market and performance will obviously not always match the bigger picture.

MOST was the term used - and i think we have to assume MOST people cant lose more than the market lost half of the people lose more half the people lose less the avg person loses what the market does as a whole minus fees.

so unless someone can present statistical data showing MOST people losing 70% during those two time frames i think thats just a terrible comment with no data to back it.
Sure, the word most was used - but not in the way you describe it.

The quote was, of those that lost 70% (author doesn't say how much this is of overall investing population, could be a tiny fraction) that most of that sub-group then went and did some sub-optimal selling further locking in their losses.  That is different than saying most people lost 70% overall.

You're right, there aren't data being referenced.  The actual proportion locking in their 70% losses by selling is a giant question mark.  However, I am sure it happened to a non-zero number of people and they made two critical mistakes which is the takeaway for me, not debating whether it was "some" or "most" - (1) diversify and (2) invest in what you can stomach long-term.

My uncle is getting close to retirement so he's got more of an ear to the ground than in the past.  He went to a late-career retirement seminar at work and he said about 10 or so of the ~25 in his session had FIFTY PERCENT or more of their 401k in company stock!  Sure, it's tripled in the last five years but it also lost 70% in 2008.  He didn't know everyone but he knew a couple people and they are the ones that brag about their gains now as well as were as were the ones bellyaching the most a decade ago.  Doesn't mean they panicked and sold low or will necessarily do it again (if that is indeed what they did previously) but the behavior sends up some warning flags no doubt.

FIRE@50

  • 5 O'Clock Shadow
  • *
  • Posts: 79
  • Age: 40
  • Location: Maryland
50% in company stock? YIKES! If any youngsters don't know why that is bad, please do some research on a company called Enron.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7176
100% stock if you have 30 years out before draw-down and/or can basically never look at the balance when SHTF. Otherwise, you will want to diversify as most people that lost 70% of their portfolio in a matter of months in the dotcom crash, and almost the same in 2008/09 mostly sold into the carnage due to panicking. We are not talking about "some" people sold, MOST people sold. It's like this... you are at a movie theater and 1 person gets up and shouts (OMG FIRE GET OUT!). Most people will look around, see no fire and keep watching the movie. But what if the same thing happens but 10 people run out, then 20 people follow them, then pretty much everyone runs out. That is what happens and you should be prepared for that scenario.

no this quote here is what i was responding to @simonsez
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing