Author Topic: Has the market slowdown impacted anyone's FIRE date  (Read 7184 times)

rob in cal

  • Bristles
  • ***
  • Posts: 328
Has the market slowdown impacted anyone's FIRE date
« on: October 18, 2016, 09:08:10 AM »
  With last years low market return (S&P return of 1.8%) and this year's so far return of about 6%, I'm wondering if some investment targets, and hence FIRE targets, have been significantly thrown off.  Personally, I'd rather see some mellow low return years, instead of a couple of  double digit negative years.  Can't say my target date has been impacted because I don't really have one, but a several year timeframe of market sidewise performance would certainly play a factor for me.

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #1 on: October 18, 2016, 09:24:28 AM »
Too far out to tell, we have about 8 years left. Will have plenty to retire on either way. However, with starting investments last year and front loading this year, and market not really doing much until July, we have ~7% return on our portfolio and nothing to invest until January... We're satisfied.

nereo

  • Senior Mustachian
  • ********
  • Posts: 13058
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #2 on: October 18, 2016, 09:27:19 AM »
A slowdown?  Really?  By what measure?

It's a bit hard to look at a single year and cry "market slowdown" with any credibility, particularly when your timeline is decades.  2015 wasn't great, but it's been great if you average out the last 3, 4, 5, 6, or 7 years. 2015 certainly wasn't a bear year either.  Certainly it wasn't as good as '12, '13 or '14, but those were all banner years.

Likewise, YTD we're at or slightly above the long-term average.  2016 (so far) has been a pretty decent year for returns.

Those of us in the accumulation phase would gladly take a market correction (dropping 10% of so).

Financial Ascensionist

  • Stubble
  • **
  • Posts: 117
  • Location: San Francisco Bay Area
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #3 on: October 18, 2016, 09:35:58 AM »
The market is moving exactly within the expected range so staying the course and no change of plans.  My FIRE date is now less than a year away.  :-)

Zikoris

  • Magnum Stache
  • ******
  • Posts: 3752
  • Age: 33
  • Location: Vancouver, BC
  • Vancouverstachian
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #4 on: October 18, 2016, 09:39:16 AM »
We're still at the stage where our 60% savings rate accounts for the majority of our net worth increases, so no - but we're also still quite a few years away.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #5 on: October 18, 2016, 09:40:01 AM »
my only concern would be the shiller PE ratio is currently high.  if i was looking at a 4% SWR with absolutely no plans to work and no buffer or safety net i would be considering working another year or so to get more money for a cushion or hope for a correction.

BlueMR2

  • Handlebar Stache
  • *****
  • Posts: 2041
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #6 on: October 18, 2016, 09:56:03 AM »
my only concern would be the shiller PE ratio is currently high.  if i was looking at a 4% SWR with absolutely no plans to work and no buffer or safety net i would be considering working another year or so to get more money for a cushion or hope for a correction.

This.  I'm borderline.  My highest expected potential needs are right at the 4% WR mark now and I'm a little concerned with where things stand now, so plan on staying on for awhile yet.  Another year or 2 would do a world of good for my confidence!  :-)

John Doe

  • 5 O'Clock Shadow
  • *
  • Posts: 77
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #7 on: October 18, 2016, 10:45:49 AM »
No.  The value of the market should be irrelevant if you invest in income producing stocks and bonds.  Now if the income from those investments starts going down like it did for some in 2008 or via the recent oil crash, that could affect a FIRE date. 

Metric Mouse

  • Walrus Stache
  • *******
  • Posts: 5280
  • FU @ 22. F.I.R.E before 23
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #8 on: October 19, 2016, 12:01:27 AM »
The market is moving exactly within the expected range so staying the course and no change of plans.

This is as good as my plan.  No issues with my FIRE - still going strong. If we have another 50 or 60 years like the last few, I'll probably be ok.

beltim

  • Magnum Stache
  • ******
  • Posts: 2966
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #9 on: October 19, 2016, 12:10:05 AM »
my only concern would be the shiller PE ratio is currently high.  if i was looking at a 4% SWR with absolutely no plans to work and no buffer or safety net i would be considering working another year or so to get more money for a cushion or hope for a correction.

Why do people keep quoting some statistic and claiming markets are over valued?  In my opinion, using a single metric like this is a simplistic view that will likely lead to wrong behaviors. 

Because the Shiller PE is predictive of returns over medium-long timeframes (10+ years).

Quote

A second example is a company that is buying market share toward achievement of monopoly powers, by underpricing.  Earnings may look bad (amazon), but your market power and brand are huge.  Shareholders may have confidence in your strategy to dominate a market, deliver services cheaper than anyone else and expect a great future. If enough companies in the total market cap are in investment mode vs cash flow mode, PE ratios shift.  For example, a lot of tech companies that used to be in growth mode without earnings are huge cash cows now.  The stability of their earnings has caused higher PE ratios vs when techs were mostly no earning, mostly future growth bets.  The maturation of high tech is a big factor. Many are sitting on huge cash piles on their balance sheets, but don't see as many investment opportunities.  So they look more like a bond and PEs rise.

You have it backwards.  Since these companies now have profits, their PE ratios have declined significantly.

Quote
Anyway, if you buy into the vanguard model of investment, you assume at all times the market is fairly valued and that these 'indicators' are not meaningless, but also not predictive.

Again, the Shiller PE is predictive.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #10 on: October 19, 2016, 06:05:18 AM »
my only concern would be the shiller PE ratio is currently high.  if i was looking at a 4% SWR with absolutely no plans to work and no buffer or safety net i would be considering working another year or so to get more money for a cushion or hope for a correction.

Why do people keep quoting some statistic and claiming markets are over valued?  In my opinion, using a single metric like this is a simplistic view that will likely lead to wrong behaviors.  I worry that it is a slippery slope towards attempting a market timing strategy, which is usually a bad idea.  It also fails to consider exactly how markets obtain values.

A PE like this is a simple ratio of total price to total reported earnings.  One should realize that each company reports earnings via armies of accountants with specific intents in mind.  Sometimes they try to impress Wall Street (exaggerated earnings) and other times they are trying to avoid the tax man (hidden profits and asset growth).   The total market PE is dramatically impacted by various short term accounting decisions and trends in this area.  Localized factors can lead to very different statistical results that are not very meaningful as to what the total net present value of all future earnings is.  Our best guess is.....the price of Vanguard Total Stock Market.  I use that over PE, as it is vetted by people, putting their money where their mouth is.  PE is accountants trying to impress each other.

Another quick example.   The value of a company incorporates asset values.  So, for example, if you  own a huge oil reserve, a large tract of land, or a productive gold mine and are not selling due to low commodity prices, you still have an asset, right?  So then, even if your earnings are zero, and Your PE bad, you would expect that the market is going to pay a fair price for your shares.  Asset heavy companies are not worthless? In fact, management may be maximizing their value by NOT selling a scarce non renewable asset at bargain basement prices. 

A second example is a company that is buying market share toward achievement of monopoly powers, by underpricing.  Earnings may look bad (amazon), but your market power and brand are huge.  Shareholders may have confidence in your strategy to dominate a market, deliver services cheaper than anyone else and expect a great future. If enough companies in the total market cap are in investment mode vs cash flow mode, PE ratios shift.  For example, a lot of tech companies that used to be in growth mode without earnings are huge cash cows now.  The stability of their earnings has caused higher PE ratios vs when techs were mostly no earning, mostly future growth bets.  The maturation of high tech is a big factor. Many are sitting on huge cash piles on their balance sheets, but don't see as many investment opportunities.  So they look more like a bond and PEs rise.

Anyway, if you buy into the vanguard model of investment, you assume at all times the market is fairly valued and that these 'indicators' are not meaningless, but also not predictive.

the markets have gone up the last year while the earnings have gone down.  hence the shiller PE being higher.  here are 2 articles written on this very topic.  Most here agree the first few years are critical to success in FIRE.  Personally at my job while i can go back as a contractor i have large numbers of annual gains tied to a privately held stock inside of my company that one must sell when they depart.  we're talking 200k+ in gains annually that cant be replicated in the market.  so if the Shiller PE is showing an SWR of 3.7% right now and i hit 4% SWR i'll likely work a bit longer b/c it just makes sense given the data.

http://www.madfientist.com/safe-withdrawal-rate/

https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

the shiller PE is a rolling 10 year PE avg and has been well documented to be great at prediciting an SWR in FIRE.  Just b/c 4% was safe 90% of the time doesnt mean you shouldnt use other data to try to be somewhat predictive in when that 10% could happen. 

formula to ensure money will last forever historically is 1/(shiller PE)*.995 the standard 1/(shiller PE) is meant for 30 years.


boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #11 on: October 19, 2016, 06:08:30 AM »
but in specific response to the OPs question the market hasnt "slowed down" if anything it has sped up and since most here reach fire due to how much they are saving more than the returns a market slow down prior to FIRE would decrease the shiller PE and bring it back in line with a 4% SWR or higher allowing for FIRE timeline to be somewhat accelerated assuming very high savings rates. 

thd7t

  • Handlebar Stache
  • *****
  • Posts: 1340
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #12 on: October 19, 2016, 06:22:55 AM »
With a decent savings rate, a slow (not falling) market would be the best of both worlds. People early in their process would mostly increase investments by deposit and people closer to FIRE would still have value. Both would still anticipate longer term market gains.

One or two slow years shouldn't matter early in your FIRE journey and shouldn't surprise you later in it.

ETA: S&P500 has returned pretty typically over the last year or two.
« Last Edit: October 19, 2016, 06:27:34 AM by thd7t »

Dances With Fire

  • Stubble
  • **
  • Posts: 220
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #13 on: October 19, 2016, 06:26:41 AM »
No, our target date is still our goal.

That said, it is still wise to keep in mind of a possible plan B. This is not a question of just market returns. It includes the possibility of illness in the family, loss of a job, etc. As much as we all would like to FIRE as soon as possible, OMY (one more year) maybe needed. Save (more) if possible, spend less, or make some small lifestyle changes.

2lazy2retire

  • Bristles
  • ***
  • Posts: 292
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #14 on: October 19, 2016, 06:36:31 AM »
my only concern would be the shiller PE ratio is currently high.  if i was looking at a 4% SWR with absolutely no plans to work and no buffer or safety net i would be considering working another year or so to get more money for a cushion or hope for a correction.

Why do people keep quoting some statistic and claiming markets are over valued?  In my opinion, using a single metric like this is a simplistic view that will likely lead to wrong behaviors.  I worry that it is a slippery slope towards attempting a market timing strategy, which is usually a bad idea.  It also fails to consider exactly how markets obtain values.

A PE like this is a simple ratio of total price to total reported earnings.  One should realize that each company reports earnings via armies of accountants with specific intents in mind.  Sometimes they try to impress Wall Street (exaggerated earnings) and other times they are trying to avoid the tax man (hidden profits and asset growth).   The total market PE is dramatically impacted by various short term accounting decisions and trends in this area.  Localized factors can lead to very different statistical results that are not very meaningful as to what the total net present value of all future earnings is.  Our best guess is.....the price of Vanguard Total Stock Market.  I use that over PE, as it is vetted by people, putting their money where their mouth is.  PE is accountants trying to impress each other.

Another quick example.   The value of a company incorporates asset values.  So, for example, if you  own a huge oil reserve, a large tract of land, or a productive gold mine and are not selling due to low commodity prices, you still have an asset, right?  So then, even if your earnings are zero, and Your PE bad, you would expect that the market is going to pay a fair price for your shares.  Asset heavy companies are not worthless? In fact, management may be maximizing their value by NOT selling a scarce non renewable asset at bargain basement prices. 

A second example is a company that is buying market share toward achievement of monopoly powers, by underpricing.  Earnings may look bad (amazon), but your market power and brand are huge.  Shareholders may have confidence in your strategy to dominate a market, deliver services cheaper than anyone else and expect a great future. If enough companies in the total market cap are in investment mode vs cash flow mode, PE ratios shift.  For example, a lot of tech companies that used to be in growth mode without earnings are huge cash cows now.  The stability of their earnings has caused higher PE ratios vs when techs were mostly no earning, mostly future growth bets.  The maturation of high tech is a big factor. Many are sitting on huge cash piles on their balance sheets, but don't see as many investment opportunities.  So they look more like a bond and PEs rise.

Anyway, if you buy into the vanguard model of investment, you assume at all times the market is fairly valued and that these 'indicators' are not meaningless, but also not predictive.

the markets have gone up the last year while the earnings have gone down.  hence the shiller PE being higher.  here are 2 articles written on this very topic.  Most here agree the first few years are critical to success in FIRE.  Personally at my job while i can go back as a contractor i have large numbers of annual gains tied to a privately held stock inside of my company that one must sell when they depart.  we're talking 200k+ in gains annually that cant be replicated in the market.  so if the Shiller PE is showing an SWR of 3.7% right now and i hit 4% SWR i'll likely work a bit longer b/c it just makes sense given the data.

http://www.madfientist.com/safe-withdrawal-rate/

https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

the shiller PE is a rolling 10 year PE avg and has been well documented to be great at prediciting an SWR in FIRE.  Just b/c 4% was safe 90% of the time doesnt mean you shouldnt use other data to try to be somewhat predictive in when that 10% could happen. 

formula to ensure money will last forever historically is 1/(shiller PE)*.995 the standard 1/(shiller PE) is meant for 30 years.

I like that formula - so at today's posted shiller ratio of 26.55 my SWR would be 3.7%, would the plan be to adjust spending each year to match the ratio as posted on say Jan 1 for that year or use this as the base year and continue with initial withdrawal plus inflation?

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #15 on: October 19, 2016, 06:41:51 AM »
With a decent savings rate, a slow (not falling) market would be the best of both worlds. People early in their process would mostly increase investments by deposit and people closer to FIRE would still have value. Both would still anticipate longer term market gains.

One or two slow years shouldn't matter early in your FIRE journey and shouldn't surprise you later in it.

ETA: S&P500 has returned pretty typically over the last year or two.

yep this exactly the markets could be flat/slow for the next 7 years and i'd likely still be ready to FIRE. (mostly because my ESOP will still be making me money)  but this will drive the shiller thru the roof and make 5-6% SWRs possible assuming earnings maintain/ grow slightly

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #16 on: October 19, 2016, 06:43:25 AM »
my only concern would be the shiller PE ratio is currently high.  if i was looking at a 4% SWR with absolutely no plans to work and no buffer or safety net i would be considering working another year or so to get more money for a cushion or hope for a correction.

Why do people keep quoting some statistic and claiming markets are over valued?  In my opinion, using a single metric like this is a simplistic view that will likely lead to wrong behaviors.  I worry that it is a slippery slope towards attempting a market timing strategy, which is usually a bad idea.  It also fails to consider exactly how markets obtain values.

A PE like this is a simple ratio of total price to total reported earnings.  One should realize that each company reports earnings via armies of accountants with specific intents in mind.  Sometimes they try to impress Wall Street (exaggerated earnings) and other times they are trying to avoid the tax man (hidden profits and asset growth).   The total market PE is dramatically impacted by various short term accounting decisions and trends in this area.  Localized factors can lead to very different statistical results that are not very meaningful as to what the total net present value of all future earnings is.  Our best guess is.....the price of Vanguard Total Stock Market.  I use that over PE, as it is vetted by people, putting their money where their mouth is.  PE is accountants trying to impress each other.

Another quick example.   The value of a company incorporates asset values.  So, for example, if you  own a huge oil reserve, a large tract of land, or a productive gold mine and are not selling due to low commodity prices, you still have an asset, right?  So then, even if your earnings are zero, and Your PE bad, you would expect that the market is going to pay a fair price for your shares.  Asset heavy companies are not worthless? In fact, management may be maximizing their value by NOT selling a scarce non renewable asset at bargain basement prices. 

A second example is a company that is buying market share toward achievement of monopoly powers, by underpricing.  Earnings may look bad (amazon), but your market power and brand are huge.  Shareholders may have confidence in your strategy to dominate a market, deliver services cheaper than anyone else and expect a great future. If enough companies in the total market cap are in investment mode vs cash flow mode, PE ratios shift.  For example, a lot of tech companies that used to be in growth mode without earnings are huge cash cows now.  The stability of their earnings has caused higher PE ratios vs when techs were mostly no earning, mostly future growth bets.  The maturation of high tech is a big factor. Many are sitting on huge cash piles on their balance sheets, but don't see as many investment opportunities.  So they look more like a bond and PEs rise.

Anyway, if you buy into the vanguard model of investment, you assume at all times the market is fairly valued and that these 'indicators' are not meaningless, but also not predictive.

the markets have gone up the last year while the earnings have gone down.  hence the shiller PE being higher.  here are 2 articles written on this very topic.  Most here agree the first few years are critical to success in FIRE.  Personally at my job while i can go back as a contractor i have large numbers of annual gains tied to a privately held stock inside of my company that one must sell when they depart.  we're talking 200k+ in gains annually that cant be replicated in the market.  so if the Shiller PE is showing an SWR of 3.7% right now and i hit 4% SWR i'll likely work a bit longer b/c it just makes sense given the data.

http://www.madfientist.com/safe-withdrawal-rate/

https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/

the shiller PE is a rolling 10 year PE avg and has been well documented to be great at prediciting an SWR in FIRE.  Just b/c 4% was safe 90% of the time doesnt mean you shouldnt use other data to try to be somewhat predictive in when that 10% could happen. 

formula to ensure money will last forever historically is 1/(shiller PE)*.995 the standard 1/(shiller PE) is meant for 30 years.

I like that formula - so at today's posted shiller ratio of 26.55 my SWR would be 3.7%, would the plan be to adjust spending each year to match the ratio as posted on say Jan 1 for that year or use this as the base year and continue with initial withdrawal plus inflation?

nope it is not adjusted annually it is the SWR that will maintain you throughout FIRE.  there is not an annual adjustment to this. maybe an every 10 year adjustment.  could look at it from that perpective historically and see but definitely not annually. 
« Last Edit: October 19, 2016, 06:54:59 AM by boarder42 »

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #17 on: October 19, 2016, 06:47:06 AM »
i also need to look into why you couldnt do it annually.  b/c in theory if it does work then why couldnt you just say ok i retired this year whats my SWR and do that every year.

my guess is though that it would be pretty close to the same amount of inflation adjusted money though.  meaning if the market had an outperforming year your accounts would be higher but so would the shiller so if you were at 37k on 1MM stash in 2017 ... and 2018 the market outperformed the shlller would go up and your money would go up so your 37k*(2017 inflation) would be close to the same in both instances.  obviously the inverse would be true as well if the market goes down irregularly.
« Last Edit: October 19, 2016, 06:55:42 AM by boarder42 »

2lazy2retire

  • Bristles
  • ***
  • Posts: 292
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #18 on: October 19, 2016, 08:33:11 AM »
So if we assume that the the PE ratio is a good indicator of future stock market returns, would that not suggest that a low PE ( ie a down market) means the WR can be increased as opposed to decreased for example a PE of 25 support 4% so a PE of 15 might be 5%, so you would be increasing WR ( at least as a % ) in down markets, seem like an easy calc to use for a variable withdrawal strategy and help flatten spending in volatile markets?
Is it possible for anyone to run a simulation on the success rate of a variable withdrawal strategy using PE25 and 4%WR and adjusting by .1% in either direction each year. So a PE of 21 would support 4.4% while PE27 would only support 3.8%.

PerpetualWanderlust

  • 5 O'Clock Shadow
  • *
  • Posts: 56
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #19 on: October 19, 2016, 09:08:24 AM »
Yes, but not because of investments. I was laid off and without work for a few months. Now I have a nice job, but it pays about half of what I used to make. So I'm more frugal now, but I still save 30% less of my disposable income. Big hit, but at least I have mustachinaism to help me still be in great financial standing.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #20 on: October 19, 2016, 09:34:54 AM »
So if we assume that the the PE ratio is a good indicator of future stock market returns, would that not suggest that a low PE ( ie a down market) means the WR can be increased as opposed to decreased for example a PE of 25 support 4% so a PE of 15 might be 5%, so you would be increasing WR ( at least as a % ) in down markets, seem like an easy calc to use for a variable withdrawal strategy and help flatten spending in volatile markets?
Is it possible for anyone to run a simulation on the success rate of a variable withdrawal strategy using PE25 and 4%WR and adjusting by .1% in either direction each year. So a PE of 21 would support 4.4% while PE27 would only support 3.8%.

15 supports over 6.6% SWR its just the inverse

but do you get what i said above.  if the Shiller PE goes up meaning a lower withdrawl rate then your money likely went up, resulting in the same WR.  it likely works pretty close to harmony.  but the back tested studies base the Shiller PE theory on the fact that your WR does not change after you FIRE.

and its just an indicator.  its not a lock fast thing being flexible is best.  but if the PE is showing a 2% SWR i'm likely not chancing retirement on a 4% ... if its 3.9 its likely a wash .. maybe i use the 3.9 for a while but 4% is highly likely to be fine too.
« Last Edit: October 19, 2016, 09:37:14 AM by boarder42 »

2lazy2retire

  • Bristles
  • ***
  • Posts: 292
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #21 on: October 19, 2016, 11:31:01 AM »
So if we assume that the the PE ratio is a good indicator of future stock market returns, would that not suggest that a low PE ( ie a down market) means the WR can be increased as opposed to decreased for example a PE of 25 support 4% so a PE of 15 might be 5%, so you would be increasing WR ( at least as a % ) in down markets, seem like an easy calc to use for a variable withdrawal strategy and help flatten spending in volatile markets?
Is it possible for anyone to run a simulation on the success rate of a variable withdrawal strategy using PE25 and 4%WR and adjusting by .1% in either direction each year. So a PE of 21 would support 4.4% while PE27 would only support 3.8%.

15 supports over 6.6% SWR its just the inverse

but do you get what i said above.  if the Shiller PE goes up meaning a lower withdrawl rate then your money likely went up, resulting in the same WR.  it likely works pretty close to harmony.  but the back tested studies base the Shiller PE theory on the fact that your WR does not change after you FIRE.

and its just an indicator.  its not a lock fast thing being flexible is best.  but if the PE is showing a 2% SWR i'm likely not chancing retirement on a 4% ... if its 3.9 its likely a wash .. maybe i use the 3.9 for a while but 4% is highly likely to be fine too.

I get that technically you could pull 6.6% at 15PE but I think that is unlikely say after a sizable correction, the formula I was proposing was a type of variable SWR linked to something tangible like the PE Ratio while maintaining a fairly even level off spend across all markets.

I million at PE25 supports - 4% - 40K spend

A market correction  -20%

800k at PE20 supports  - 4.5% ( if I move my SWR one basis pt in response to each PE drop of 1)  - 36k Spend

A Market rise  +20%

1200k at PE30 supports - 3.5% = 42K spend

So we cut a little in the down market and rise spend a little in the upmarket and adjust annually - If I was to use your formula then my spend would remain fairly close to original 40K, which is nice but I think there is a comfort factor in dropping spend in a down market which kinda fits with the other variable SWR strategies out there.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #22 on: October 19, 2016, 11:51:27 AM »
The shillerPE ratio is a 10 year rolling avg one 20% correction either way in one year won't move it 20%

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #23 on: October 19, 2016, 11:53:43 AM »
I personally would be Leary of using it to increase spending early but if it recommended a decrease that may make sense. But the study around the behavior says if it fits that formula it's never failed. 


rocketpj

  • Pencil Stache
  • ****
  • Posts: 788
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #24 on: October 19, 2016, 11:32:25 PM »
Not paying attention at all.  Still just saving as much as possible and adding to the investment stash every couple of weeks.  I am more affected by upswings in my living costs than downswings in the market.

FI is still a long way off though.  Still convincing DW that it might actually be a thing that can be real.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1457
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #25 on: October 21, 2016, 05:25:47 AM »
my only concern would be the shiller PE ratio is currently high.  if i was looking at a 4% SWR with absolutely no plans to work and no buffer or safety net i would be considering working another year or so to get more money for a cushion or hope for a correction.

Why do people keep quoting some statistic and claiming markets are over valued?  In my opinion, using a single metric like this is a simplistic view that will likely lead to wrong behaviors.  I worry that it is a slippery slope towards attempting a market timing strategy, which is usually a bad idea.  It also fails to consider exactly how markets obtain values.

Just to piggyback off what Beltim said...

Shiller PE does have predictive qualities. Shiller got a nobel prize after all, and his models correctly predicted the tech bubble bursting and the housing crash. He couldn't tell you 'when' they would crash but he could identify the markets were overvalued. In addition, these weren't off the cuff predictions like we see on a daily basis. He wrote a book called Irrational Exuberance about tech stocks, and it published right before the bubble burst. He wrote the second volume with added content around housing prices just before the housing bubble burst. I think markets are impossible to time in the short term, but I do consider shiller PE when I'm trying to estimate what stock returns might average over the next 10 years.

Quote
A PE like this is a simple ratio of total price to total reported earnings.  One should realize that each company reports earnings via armies of accountants with specific intents in mind.  Sometimes they try to impress Wall Street (exaggerated earnings) and other times they are trying to avoid the tax man (hidden profits and asset growth).   The total market PE is dramatically impacted by various short term accounting decisions and trends in this area.  Localized factors can lead to very different statistical results that are not very meaningful as to what the total net present value of all future earnings is.  Our best guess is.....the price of Vanguard Total Stock Market.  I use that over PE, as it is vetted by people, putting their money where their mouth is.  PE is accountants trying to impress each other.

Shiller PE looks at the US stock market on a 10 year time frame instead of one day. Its very design fixes the problems you are pointing out .

Quote
Anyway, if you buy into the vanguard model of investment, you assume at all times the market is fairly valued and that these 'indicators' are not meaningless, but also not predictive.

Have you ever heard of VCMM?  The Vanguard Capital Markets Model? VCMM is their monte carlo simulator they use for projecting what future markets could look like. It uses a modified version of Shiller PE for determining if markets are higher or lower than their historical values, and thus whether future returns could be lower or higher than historical returns. They talk about it in the 2016 economic outlook. https://personal.vanguard.com/pdf/ISGVEMO_122015.pdf

Vanguard even has a paper out that shows all the different predictive tools and how accurate they have been over the long term. Shiller PE comes in first for predictive power, PE ratio second.... and then everything else is basically garbage. https://personal.vanguard.com/pdf/s338.pdf

Vanguard says it is basically impossible to outsmart markets after you adjust for costs. That means you don't know what will perform better in the short term so stop trying to trade in and out. However if markets as a whole are valued well above their historical mean it is prudent for your own planning to consider that future returns might be lower than historical returns.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #26 on: October 21, 2016, 06:09:14 AM »
Great post Indexer.

Also, steve, I didnt advocate for leaving the market when it is sending over valued signals due to the shiller PE being high.  I am simply going to use it as a go by for my retire date (what the OP's post is about),  Everyone here can agree that the first few years after retirement are the critical ones to it succeeding of failing.  why not use the data we have to determine if it makes sense.

Livewell

  • Stubble
  • **
  • Posts: 179
  • Location: SF Bay Area
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #27 on: October 21, 2016, 01:54:03 PM »
Hi Rob
I think it's just best to focus on things you can control.  Can you trim expenses?  Have you called your phone/cable/internet company to rework contracts?  Are you looking for ways to increase your compensation?  Are you doing a bit of the credit card points game?  Those things will impact your FIRE date more than anything.

Btw totally understand how once you've set the course how it can be frustrating at times.  Our inner self just wants to know "are we there yet?"   Stay patient, focus on what you can control, let the market do its thing....

BTDretire

  • Magnum Stache
  • ******
  • Posts: 2999
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #28 on: October 22, 2016, 09:24:45 AM »
I'm older, so had a good size stache in 2010.
2011, 12, 13, 14, and 15 were very good to me.
 During 2015, I happened to invest about 25%
of my stock money in high yield REITs in 2015,
so collected 10% to 15% dividends, helping to
make up for the lower stock market returns of
late.
 I'm retiring Dec 31, 2016.

ender

  • Walrus Stache
  • *******
  • Posts: 5521
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #29 on: October 22, 2016, 09:59:18 AM »
I'm excited for a flat market the next few years as we have some of our higher accumulation years.

So it's potentially helping our FIRE date :-)


Though fairly annoying seeing net worth flat in spite of tons of retirement contributions. Emotionally that's hard.

ender

  • Walrus Stache
  • *******
  • Posts: 5521
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #30 on: October 22, 2016, 10:33:57 AM »
Slow2FIRE, I'm sort of hoping that the above is true but that it takes 5-10 years for it to become public knowledge. Hopefully before that time, stocks will stagnate and then once people have "proof" that they are not overpriced they will shoot up!

Nothing like market timing optimism based on when you are born...

Metric Mouse

  • Walrus Stache
  • *******
  • Posts: 5280
  • FU @ 22. F.I.R.E before 23
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #31 on: October 22, 2016, 09:48:15 PM »
Slow2FIRE, I'm sort of hoping that the above is true but that it takes 5-10 years for it to become public knowledge. Hopefully before that time, stocks will stagnate and then once people have "proof" that they are not overpriced they will shoot up!

Nothing like market timing optimism based on when you are born...

Your insinuation that the such knowledge is not already known and priced into the market angers the EMH gods..

Syonyk

  • Magnum Stache
  • ******
  • Posts: 3942
    • Syonyk's Project Blog
Re: Has the market slowdown impacted anyone's FIRE date
« Reply #32 on: October 22, 2016, 10:11:25 PM »
Heh.  I bought a house this year, cash, because "3 months of unemployment between one job and a signed contract for another" when buying a manufactured home is, apparently, cause to not give one a mortgage.  Fucking banks.  So I couldn't tell you what my investments were doing this year, because I cashed an awful lot of them out.

That said: I'm focusing on "retirement through productive property" partly to not worry about stuff like this.  The long term plan involves solar (so lower power bills), gardens, chickens, and aquaponics (for food production), and generally being able to supply our basic needs on a very minimal budget.  If we have more, great.  We have more options.  If not?  We still can eat/read/sleep comfortably.