Author Topic: No Where To Go for Growth it seems...  (Read 4771 times)

h2ogal

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No Where To Go for Growth it seems...
« on: August 14, 2015, 09:04:23 AM »
Hello All.

Not sure if I should post this here or in Investing sub...

As some of you may know, last year I set out on a 1000 day journey to FIRE.    I laid out a plan for saving, investing, and reducing spending, that would allow me to achieve my FI number by June 2017.   I'm about 1/3 of the way into the trip (316 days).

On the saving front, I've been doing fairly well.    I maxed my tax-advantaged accounts (401k, etc) by the end of April and have been saving and investing in Taxable accounts with a mix of Treasury Inflation Protected bonds and low cost index funds since then.   My savings rate for the year is 58% of Net Income.

My plan for achieving FIRE also depends on getting some dang GROWTH!!!  This past quarter has been very frustrating as nothing seems to be moving ANYWHERE.  If we had some lows, I would have at least a chance to buy on the cheap....(I know, I know...market timing is a nono...)

My allocations are:
                Current Value   2015 End of Year Goal for Allocation

US Stock            75.1%             60.0%
FX Stock              9.6%             10.0%
Bond                      7.0%             20.0%
Cash                      8.3%             10.0%

I plan to increase the Bond and FX Stock % by continuing to buy each month, as opposed to selling any stock.  (I currently save about $2-3k per month after taxes).

Anyways, despite my fairly good savings %, Im starting to slip and fall behind plan (in terms of total net worth) because the investment growth % assumption I used when planning is much less than the actual growth of the market this year.   I'm starting to feel a little worried, and I'm wondering whether I need to take some drastic action or if I should just take a chill pill... 

Are any of you feeling the same way, and what are your thoughts on this market situation??

forummm

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Re: No Where To Go for Growth it seems...
« Reply #1 on: August 14, 2015, 09:14:39 AM »
You can't predict where the market will grow the fastest in the short term. You only know that in the long term it will go up. If you buy a diversified low cost index fund you will get the market return. Wanting really badly to beat the market won't make it so. Anyone promising they can do that is lying to you. The real key is just saving a lot and investing it all right away (in diversified low cost index funds). And then doing this over the long term.

h2ogal

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Re: No Where To Go for Growth it seems...
« Reply #2 on: August 14, 2015, 09:23:54 AM »
Quote
You only know that in the long term it will go up.

Let me ask you this....when you do your FIRE modeling/simulation, what % growth rate do you assume?    Do you change this as you start to near the deadline? 

I used 8% which was apparently overly optimistic given that my low cost index funds are returning closer to 3% for the year.

Also, as Im older and nearing FIRE I've been shifting my allocations to include more bonds....also a very low return.

partgypsy

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Re: No Where To Go for Growth it seems...
« Reply #3 on: August 14, 2015, 09:28:04 AM »
Quote
You only know that in the long term it will go up.

Let me ask you this....when you do your FIRE modeling/simulation, what % growth rate do you assume?    Do you change this as you start to near the deadline? 

I used 8% which was apparently overly optimistic given that my low cost index funds are returning closer to 3% for the year.

Also, as Im older and nearing FIRE I've been shifting my allocations to include more bonds....also a very low return.

Ps I am more a visitor of get rich slowly and not a true MMM so make it what you will. I had my spreadsheet, and when I should hit 100K, and then the recession happened. So instead of meeting goal even though I was contributing money my balance decreased! So at the time I was philosophical and thought, well I don't have control over what the market will do, I only have control in the amount and where I contribute, and this is my goal (for me 10K a year including company contributions). So for me, as long as I can do that, and everything evens out (I had 6.5% as my projected return, and for almost all the years of contributing the average was closer to 2.5%!). So yeah I say take a chill pill. You know what you are doing is the right course, keep on course.

aschmidt2930

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Re: No Where To Go for Growth it seems...
« Reply #4 on: August 14, 2015, 10:42:13 AM »
The market averages 8% growth, it doesn't return that every year. It's rarely even close to 8 actually, typically is much lower or higher, with a long-term average of 8. In short, be patient.

Eric

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Re: No Where To Go for Growth it seems...
« Reply #5 on: August 14, 2015, 10:47:23 AM »
Quote
You only know that in the long term it will go up.

Let me ask you this....when you do your FIRE modeling/simulation, what % growth rate do you assume?    Do you change this as you start to near the deadline? 

I used 8% which was apparently overly optimistic given that my low cost index funds are returning closer to 3% for the year.

Also, as Im older and nearing FIRE I've been shifting my allocations to include more bonds....also a very low return.

I'm not forummm, but I personally assume nothing.  I don't model, precisely because you can't predict the future.  And the closer you get, the less it would make sense to use a static number.  I just stay the course.  Save and invest.  The only number I need to know is 25x my annual spending.  Once I get close (like within months), I'll plan for how to get out.

h2ogal

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Re: No Where To Go for Growth it seems...
« Reply #6 on: August 14, 2015, 12:41:06 PM »
Thanks All! 

So far the consensus is "Wait it out" and maybe pay less attention to market vagaries - and focus on what I can control instead.

So there are 3 things that factor into this that I can control. 
1. Spending/saving rate - Currently at 58% YTD, but possible to increase with some spending cuts.

2. Income - Currently Im working Full Time, but I could add a part time gig.  Or alternately rent out one-two of our empty bedrooms.   

3. Prepare to work longer. 

I'm open to any other ideas!

 

 

BarkyardBQ

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Re: No Where To Go for Growth it seems...
« Reply #7 on: August 14, 2015, 12:44:46 PM »
Will you have a mortgage in retirement? Maybe renting the rooms for a while to make extra payments or invest.

Have you considered what expenses you won't have in 3 years or what new expenses you will encumber in FIRE?

Bolshevik Artizan

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Re: No Where To Go for Growth it seems...
« Reply #8 on: August 14, 2015, 01:02:46 PM »
If you are Canadian, or of a sensitive disposition, or both, look away now. Yesterday I met with a leading investment strategist. We bemoaned the sideways movements in markets and the continued Zero-Interest Rate Policy despite the US Fed constantly saying it was going to raise rates. We agreed that so many people north of the 49th are, in common parlance, so deep up the shitter in debt that the CDN government will have to continue with very low interest rates and that this, coupled with Canada's historic habit of looking the other way when people bring funny money in and the poor performance in public markets, will mean that Canadian housing will continue to rocket until no-one has any money left to give anyone else. It sucks, but sadly housing will continue to be where it's at for another year or more. I would love it if someone could shoot me down on this - I want to be wrong, but it doesn't look like it. My portfolio has actually lost around 1% this quarter, even though I'm diversified and conservative.

h2ogal

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Re: No Where To Go for Growth it seems...
« Reply #9 on: August 14, 2015, 01:12:15 PM »
Quote
Will you have a mortgage in retirement? Maybe renting the rooms for a while to make extra payments or invest.

Have you considered what expenses you won't have in 3 years or what new expenses you will encumber in FIRE?

So the house is already paid for - WOOO!  (We paid that off last year.)    The extra $ would be strictly used to invest/save more.

Once I FIRE then I will cut the things we currently outsource:  Hubbies business bookeeper, housekeeper, lawn service, dry cleaning.  (And my FIRE number is based  on that assumption.)  We will spend more in travel however.   Of course all these costs are controllable now, and could be eliminated today if I decide I'm falling too far behind in my Net Worth due to low market growth.  This is certainly one of the options. 

h2ogal

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Re: No Where To Go for Growth it seems...
« Reply #10 on: August 14, 2015, 01:15:39 PM »
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Canadian housing will continue to rocket until no-one has any money left to give anyone else

Im live in NY, but have a lot of Canadian family.  Real estate prices in Toronto seem to be where the US was is 2007-8.  Better watch out!!  Bubble burst coming??!! 

backyardfeast

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Re: No Where To Go for Growth it seems...
« Reply #11 on: August 14, 2015, 01:19:01 PM »
Bolshevik, I'm in Canada and I totally agree with you.  We're not going to see any growth for a long time yet.  IMHO as long as Europe and China are slow, commodities including oil will stay low, which means a low dollar and a flat economy, which means low interest rates.  Which means to the average joe, the house looks like the only logical place to put their money--apart from car loans, of course! (eyeroll).  Oh well.  It's a good time to try and keep those expenses low; we're looking at downsizing our mortgage considerably so that we have cash available when things turn around.  To be honest, I'm not sure how long the US can keep growing giving the global realities, but the US economy is such a different scale than Canada's it's hard to get my head around. :)

Bolshevik Artizan

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Re: No Where To Go for Growth it seems...
« Reply #12 on: August 14, 2015, 05:37:12 PM »
Quote
Canadian housing will continue to rocket until no-one has any money left to give anyone else

Im live in NY, but have a lot of Canadian family.  Real estate prices in Toronto seem to be where the US was is 2007-8.  Better watch out!!  Bubble burst coming??!!

Yes, but... the difference is people have been calling a top on Canadian housing since 2009 and nothing's happened yet. One dynamic which does make it different from the US is that Canadian AML (Anti-Money Laundering) legislation is far weaker than the US and the anti-terrorism stuff always was also, meaning that funny money as I call it has an easier ride. That and the fact that the Canadian economy is around the size of Cali, so if weird money gets in, as it does, then it has a bigger effect. Garth Turner trumpets the official position well, which is basically one of denial of what's going on. Where there is a parallel with the US is in the lax mortgage criteria right now. That might blow up, especially if the threatened liquidity crisis in capital markets (no-one provides any more money for anyone to borrow) comes to pass in the next six months, as well it might... watch this space...

Bolshevik Artizan.

PS Backyardstabber, thanks and I'm glad a fellow Canuck agrees. In fact, these days I find it hard to find someone smart who disagrees....

Rosy

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Re: No Where To Go for Growth it seems...
« Reply #13 on: August 14, 2015, 06:18:38 PM »
Quote
That might blow up, especially if the threatened liquidity crisis in capital markets (no-one provides any more money for anyone to borrow) comes to pass in the next six months, as well it might... watch this space...   

That is a really scary thought, in a roundabout way those are the whispers I've started to pick up on - the writing on the wall?
Maybe this would be a good time to stash some cash.

Eric

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Re: No Where To Go for Growth it seems...
« Reply #14 on: August 14, 2015, 06:22:54 PM »
Quote
That might blow up, especially if the threatened liquidity crisis in capital markets (no-one provides any more money for anyone to borrow) comes to pass in the next six months, as well it might... watch this space...   

That is a really scary thought, in a roundabout way those are the whispers I've started to pick up on - the writing on the wall?
Maybe this would be a good time to stash some cash.

Why not just short the market?  I mean, if you're going to attempt to time the market, why not just go all out?

FIRE me

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Re: No Where To Go for Growth it seems...
« Reply #15 on: August 14, 2015, 08:28:58 PM »
Once I FIRE then I will cut the things we currently outsource:  Hubbies business bookeeper, housekeeper, lawn service, dry cleaning.  (And my FIRE number is based  on that assumption.)

Instead of a part time job, why not just do your own lawn care and house work? That seems like low hanging fruit, to me.

aceyou

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Re: No Where To Go for Growth it seems...
« Reply #16 on: August 14, 2015, 09:43:54 PM »
Quote
You only know that in the long term it will go up.

Let me ask you this....when you do your FIRE modeling/simulation, what % growth rate do you assume?    Do you change this as you start to near the deadline? 

I used 8% which was apparently overly optimistic given that my low cost index funds are returning closer to 3% for the year.

Also, as Im older and nearing FIRE I've been shifting my allocations to include more bonds....also a very low return.

I'm not forummm, but I personally assume nothing.  I don't model, precisely because you can't predict the future.  And the closer you get, the less it would make sense to use a static number.  I just stay the course.  Save and invest.  The only number I need to know is 25x my annual spending.  Once I get close (like within months), I'll plan for how to get out.

If you KNOW that you need 25X spending, then aren't you assuming a growth rate?  You are assuming that you can live off 4% of your stash for the year, with enough left over to cover inflation (approximately 3%).  So, by saying that you need 25x spending, you are basing it off an approximately 7% growth rate.  The whole 25x idea, and I think it's a very sound one, begins with that assumption.