Author Topic: Accredited Investors - Why A 4% SWR?  (Read 44473 times)

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #100 on: June 14, 2015, 07:11:10 PM »

The real question is whether or not they'd have done BETTER if they were able to invest in private investments at the time.  The on-topic question for this thread is whether or not investing in these private investments would have delivered better yields over a "long run" time frame.

I don't see that as being the real question at all. An underlying premise of this forum centers on individuals who want to be FI and/or RE for a very long time: 40+ years for most of us, assuming we live out our natural lifespans.  So the question about whether the broader market (7% real-adjusted returns since 2008) did better or worse than private investments during the last decade is moot.  For somebody seeking to retire and live off their investments for multiple decades, an 8 year time frame simply isn't long enough. A 40 year time frame is much more applicable.  50 years would be better, especially if we can compare 50 year periods that include various economic conditions (e.g. various combinations of high/low inflation, high/low growth, high/low interest rates, etc)

All of which gets us back to your original question that you posted at the start of this thread.  You asked:
Quote
It seems to me that many folks on this forum would be better-served trying to figure out ways to increase their yields passively than slicing cents out of their budgets.
To paraphrase and simplify, this can be subdivided into two parts
1) why do we spend so much time reducing our expenses?
2) could we achieve a better return (and have a subsequent WR) than we can investing in an index fund?

Let's start with the first part.  As many of us have learned, we exist in an 'exploding volcano of waste' and we find that we can optimize our expenses and actually be happier for it, and that it increases our quality of life.  Less time spent watching 400 channels of reality television, more time exploring nature.  Less unhealthy commuting, more time spent exercising.  Etc Etc.
Now, this budget optimization has a huge effect on our financial situation that I think you simply are overlooking.  If I went from spending $100k/year to $50k/year, that means I need only 1/2 the portfolio I would living off $100k.  In essence, it's the same as increasing my returns by 4% per year, nad using an 8% WR.  It's powerful stuff, it's easy to do, and it provides vast benefits in our quality of life.

To get at your second question (could we achieve a better return) - I'm certain that it is possible, but I've seen many who try fail.  I am quite comfortable with index funds for two reasons: i) there is over 120 years of 'good data' out there.  You can compare returns over all decades in a wide variety of economic conditions.  FireCalc and FireSim are just two examples of models which utilize this data.  Frankly, I'm not comfortable planning ~40+ years of FI living based on data that goes back just a decade or two. The kinds of investments you are talking about have a much less available data-set, and as many, many people have pointed out already in this thread, different areas seen their values collapse. 

Your response seems to be "i would never invest in such areas," and perhaps you have superior skills to identify exactly which areas you should avoid.  I'm not confident in my ability to do the same, and given boom-bust cycles it seems that others aren't very good either.  Which leads mes to ii) this takes far more work than simply buying an index fund (total annual time, maybe 5 minutes).  You keep saying that it takes "skill" and that the risks are easy to mitigate "if you know what you are doing".  Well all of this takes a level of experience that I frankly don't have and don't want to spend my time learning.  If it's your passion and you enjoy it, great!  But skill takes work - otherwise it's just dumb luck.
"Do not confuse complexity with superiority"

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #101 on: June 14, 2015, 07:11:33 PM »
About the only nice thing I can say about the current crop of wastrels and thieves in Washington is HARP. 

Okay...I'll admit it...I had to look that word up.  Nicely-played ;-)  I'll have to drop that into a casual conversation at some point and see if I can avoid screwing it up ;-)

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In my view, we do not need crowd funding.  What we need is a level-headed approach to the federal government's role in and regulation of real estate lending.  On the residential side, get Fannie and Freddie back into the game as conduits and streamline the lending process, not gum it up.  Fish or cut bait on FHA - either subsidize entry level buyers without bleeding them to death or give it up.  And on the commercial and development sides, let banks do their business - which is lending money.
Crowdfunding isn't just for real estate.  Really "crowdfunding" is just a technique (marketing) to find investors for private offerings.  It is hard to really call them private now so the term crowdfunding has been used.  It is often confused with rewards-based crowdfunding or donations-based crowdfunding, which are completely different. 

There are other industries that stand to gain from reducing friction to capital formation.  This has to be traded off against "investor protection" and there are countless examples of the SEC and other securities regulators already not protecting us.  Really the current beef between the states and the SEC is about protecting bureaucrat's jobs and turf and has little to do with investor protection IMO. 

To me the GSEs gum up the whole process by distorting the true cost of money for the risk in these loans.  It would be better, in my humble opinion, to let folks scrape and save for a 20% down payment.  They'd then value the property a lot more and their buying behavior would change considerably.  I can't tell you how many tire kickers there are in Austin running around with $100 option money trying to tie up property and trying to limp into houses.  A lot of this nonsense would go away if people were forced to save and value home ownership. 

The small regional banks are getting decimated by Dodd/Frank and more regulation.  I'm not sure how any of this addresses the excesses that led to the mortgage crisis.  There are probably other parts of the regulation that make sense, but much of the new stuff is nonsensical.  Neither Dodd nor Frank are having to live with the implementation now though.  Nice for them. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #102 on: June 14, 2015, 07:20:49 PM »
It's powerful stuff, it's easy to do, and it provides vast benefits in our quality of life.

It's hard for me to see how spending less does this.  Perhaps it is because I haven't had the religious experience many on here have had.  To me it would always be better to be able to spend more if I so-choose, if for no other reason than to provide a higher safety margin and hence less stress about my portfolio failing during the withdrawal period.  However, I also believe that many would be happier spending more and don't share the same values about riding their bike to work or doing other similar activities like growing their own food. 

Quote
I frankly don't have and don't want to spend my time learning.  If it's your passion and you enjoy it, great!  But skill takes work - otherwise it's just dumb luck.
Fair enough....others do.  Claiming your situation is common with the hundreds of other folks reading this is rather myopic though....don't ya think? 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

waltworks

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Re: Accredited Investors - Why A 4% SWR?
« Reply #103 on: June 14, 2015, 07:23:43 PM »
You are new around here but still - if you do a little reading, you will find that in fact Nereo's POV is quite typical. This is quite literally an anti-consumerist/anti-spending blog/forum and hence attracts that type of person.

Go check out the ERE forums if you really want to blow your mind.

-W

It's powerful stuff, it's easy to do, and it provides vast benefits in our quality of life.

It's hard for me to see how spending less does this.  Perhaps it is because I haven't had the religious experience many on here have had.  To me it would always be better to be able to spend more if I so-choose, if for no other reason than to provide a higher safety margin and hence less stress about my portfolio failing during the withdrawal period.  However, I also believe that many would be happier spending more and don't share the same values about riding their bike to work or doing other similar activities like growing their own food. 

Quote
I frankly don't have and don't want to spend my time learning.  If it's your passion and you enjoy it, great!  But skill takes work - otherwise it's just dumb luck.
Fair enough....others do.  Claiming your situation is common with the hundreds of other folks reading this is rather myopic though....don't ya think?

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #104 on: June 14, 2015, 07:42:03 PM »
It's powerful stuff, it's easy to do, and it provides vast benefits in our quality of life.

It's hard for me to see how spending less does this.  Perhaps it is because I haven't had the religious experience many on here have had.  To me it would always be better to be able to spend more if I so-choose, if for no other reason than to provide a higher safety margin and hence less stress about my portfolio failing during the withdrawal period.  However, I also believe that many would be happier spending more and don't share the same values about riding their bike to work or doing other similar activities like growing their own food. 

As Walt said, this forum tends to attract people who don't like rampant consumerism.  But allow me to phrase it slightly differently.  In the end, I find that I am much happier having money in my investment accounts than owning an expensive car, the newest gadget, or some fancy trinket.  Ultimately the less I buy, the less I have to work.  Spending money means I have less of it, and it means I have to work more to get money back, which means I can't spend as much time doing all of the other things I'd rather be doing.
The benefits I've already outlined a bit above - more time doing what we want instead of working longer, being active, eating healthier, spending more time with family and friends, and presumably living longer. 

Quote from: nereo
I frankly don't have and don't want to spend my time learning.  If it's your passion and you enjoy it, great!  But skill takes work - otherwise it's just dumb luck.
Quote from: mr_orange
Fair enough....others do.  Claiming your situation is common with the hundreds of other folks reading this is rather myopic though....don't ya think?
You asked in your OP why so many people concentrate on reducing spending when you correctly pointed out that they could spend time on increasing their yields.  I was giving my own opinion - I don't want to spend yet more time trying to increase my returns by a few percentage points. I have found that it is far easier to eliminate the wastefulness in my already affluent life than to chase yields around.  This directly answers your opening question.

Finally, if you are going to clip quotes from previous texts, it's helpful to extract at least complete sentences so that you aren't misleading others skimming through the thread.  I don't mind learning in general, but what I said was: Well all of this [skill] takes a level of experience that I frankly don't have and don't want to spend my time learning.
« Last Edit: June 14, 2015, 08:15:46 PM by nereo »
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mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #105 on: June 14, 2015, 07:50:54 PM »
Yes....and I am sure there are plenty of other folks that will disagree with the tradeoff you selected.  Saying that someone spends too much without even seeing what they're spending money on as others have done in my posts is pretty ridiculous.  Fully 71% of my spending is from taxes, mortgage, childcare, and food.  A lot of this will decrease in the coming years as the kids age. 

One could, of course, argue the counterpoint as well.  NOT sending your children to school early in life to get them ahead is a pretty easy point to argue is non-optimal if your sole measurement of value is not SELFISHLY getting to retirement sooner.  If you sacrifice your own time to enrich the lives of your children how could one possibly argue that this is non-optimal somehow?  Many people do not have kids and have different lifestyles.  Some have children with special needs.  Everyone's situation is different and thus they'll come up with different optimal decisions.  Claiming that THE BEST solution for everyone is to reduce spending is rather ridiculous to me.  Especially when one can make more income through honest means or simply learn to invest better and make their money work harder. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

waltworks

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Re: Accredited Investors - Why A 4% SWR?
« Reply #106 on: June 14, 2015, 07:57:47 PM »
I find it sort of humorous that it's "selfish" to spend time with your kids yourself instead of spending a fortune on private preschool (which, the literature says, doesn't do squat unless you've got a kid with real problems/from a deprived background), but it's ok to spend your entire work week doing 3 jobs, then spend your weekends watching televised sports...

Your kids are golden at this point. They have good genes and plenty of resources for any conceivable need. What they want is your attention.

-W

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #107 on: June 14, 2015, 08:02:18 PM »
I have spent much of the weekend with my kids.  They get plenty of attention.  Last night and early today they stayed with their grandparents so mom and dad could get a break from the lunacy. 

The school teaches them things I can't.  I'm not self-centered enough to think that I can teach them better than a bunch of trained professionals can.  We teach them things the school doesn't, but we certainly can't train them the same way the school does. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

waltworks

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Re: Accredited Investors - Why A 4% SWR?
« Reply #108 on: June 14, 2015, 08:09:31 PM »
You can teach a 5 year old anything they need to know. Even if you're illiterate, probably.

I think I'm probably just making you angry now, though, so I'll shut up.

-W

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #109 on: June 14, 2015, 08:10:57 PM »
Nope....You overestimate how much I value your opinion. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

Another Reader

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Re: Accredited Investors - Why A 4% SWR?
« Reply #110 on: June 14, 2015, 08:25:05 PM »
Please stop the sniping and personal attacks, both of you.  This is not an elementary school playground and they are not conducive to a rational discussion of the topic.

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #111 on: June 14, 2015, 08:27:22 PM »
Yes....and I am sure there are plenty of other folks that will disagree with the tradeoff you selected.  Saying that someone spends too much without even seeing what they're spending money on as others have done in my posts is pretty ridiculous.  Fully 71% of my spending is from taxes, mortgage, childcare, and food.  A lot of this will decrease in the coming years as the kids age. 

One could, of course, argue the counterpoint as well.  NOT sending your children to school early in life to get them ahead is a pretty easy point to argue is non-optimal if your sole measurement of value is not SELFISHLY getting to retirement sooner.  If you sacrifice your own time to enrich the lives of your children how could one possibly argue that this is non-optimal somehow?  Many people do not have kids and have different lifestyles.  Some have children with special needs.  Everyone's situation is different and thus they'll come up with different optimal decisions.  Claiming that THE BEST solution for everyone is to reduce spending is rather ridiculous to me.  Especially when one can make more income through honest means or simply learn to invest better and make their money work harder.

Quote
Nope....You overestimate how much I value your opinion. 

As I said, you asked a question about whether our time would be better spent focusing on increasing yields instead of reducing expenses.  I replied that it isn't for me.  I never implied that it was THE BEST solution for everyone.
Other than simply to start arguments, I don't understand why you ask for a discussion and then tell people you don't value their opinions.

As for your expenses, I'd encourage you to post a full case study of your expenses. There are some genuinely helpful people on this blog that might have some good suggestions for optimization.  Yes, I skimmed over your journal that you've referenced heavily, but you won't garner the feedback that you could with a case-study.  71% of your income in taxes, child-care, food and mortgage is substantial. 
"Do not confuse complexity with superiority"

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #112 on: June 14, 2015, 08:35:51 PM »
As I said, you asked a question about whether our time would be better spent focusing on increasing yields instead of reducing expenses.  I replied that it isn't for me.  I never implied that it was THE BEST solution for everyone.
Other than simply to start arguments, I don't understand why you ask for a discussion and then tell people you don't value their opinions.
Yes...and there are other posters on the forum that could comment.  I have already addressed all of your posts. 

Quote
As for your expenses, I'd encourage you to post a full case study of your expenses. There are some genuinely helpful people on this blog that might have some good suggestions for optimization.  Yes, I skimmed over your journal that you've referenced heavily, but you won't garner the feedback that you could with a case-study.  71% of your income in taxes, child-care, food and mortgage is substantial.
There is another thread for this.  Please keep this thread on topic.  We have already strayed  pretty far from topic as-is.   
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

Dawg Fan

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Re: Accredited Investors - Why A 4% SWR?
« Reply #113 on: June 15, 2015, 04:58:12 AM »
Boys, boys ... All is good.

Interesting sparring match to read between Sol & Mr Orange. I can't say I have read every MMM article and while I truly enjoy reading about how frugal people can/will go to reach FIRE and Post FIRE, many times as almost a badge of honor to one up the next MMM truest, I think we can all apply certain MMM principles "relative" to what we value. In other words, I think you both qualify in the spirit of MMM if you practice analyzing your pre/post FIRE income/expense models thru a personal value matrix. In other words, if Mr O wants to have season tickets to the Dallas Cowboys in box seating because it creates memorable experiences for him and his family/friends and can do it, then I say great! If Sol has the same experience going on a family bike ride... I say great! Yes, most of the MMM participants seem to be focused on more simple, low overhead living, however, I do think there is room for all of us at different income and asset levels to learn something from each other. Sol - you would want to rip me too if I told you what I was projecting my "desired" living expenses to be when I FIRE in 4 yrs as they surpass Mr O. Do I have to have that high of a load? No, but I choose to if I can make it work. Can't we all just get along!!!

Dawg Fan

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Re: Accredited Investors - Why A 4% SWR?
« Reply #114 on: June 15, 2015, 05:01:29 AM »
In my haste, I just noticed there were pages 2 & 3. I thought it ended on page 1 therefore my comments were directed based on not reading the other pages.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #115 on: June 15, 2015, 05:42:06 AM »
I think we can all apply certain MMM principles "relative" to what we value.

The passage above is a good one, but it doesn't seem to be common practice on the site.  Who is to say that one person's optimization curve is "sub-optimal" as many have put it if it is something they value?  Sure, we could pull our kids out of the "outrageous private school" and reduce the tuition.  Or, we could simply work 3 more years and they'll roll out of this school anyway.  Sure, we'd have more time with them if they were out of school.  However, we have made the conscious CHOICE that they'll get a better education and be set up more for the challenges of life by attending school.  How anyone can label this CHOICE as sub-optimal is crazy to me, especially when this trades off around $24k over the next 2 years.  Relative to our income this is like selling one development project; or a no-brainer to me. 

Drastically minimizing expenses is not the only ticket to financial independence.  The dogmatic passages won't change this fact either.  I'm all for being frugal and eliminating pure waste.  What I'm not for is trading off my children's education for an earlier FI date.  Others may have other (what I consider warped) values and that is okay.  I certainly wouldn't be bold enough to tell them they're wrong though.  How you spend money and your values are inextricably linked, and thus it is hard to argue that one person's optimization is somehow better than another's. 
« Last Edit: June 15, 2015, 06:30:31 AM by mr_orange »
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

Dawg Fan

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Re: Accredited Investors - Why A 4% SWR?
« Reply #116 on: June 15, 2015, 06:14:10 AM »
There seems to be 2 topics trending on this thread...

1) Mr O's ideas of getting higher yields relative to SWR. I have personally had success in some hard money lending and RE investing and have also had some failures. No question there is a risk/reward equation that is attached to certain investment types over others. Knowledge/education/experience in some of these alternative investments can help reduce the risks, but none the less, they should be evaluated by the individual. At the same time, some of the lower return options perhaps in comparison may offer a more passive approach to those post FIRE. To me, these are all good ideas and all deserve the proper respect on a forum like this as I think we are all after harvesting the "good ideas" and determining how/if we want to apply them to our own lives. There are no wrong/bad answers, just information/experiences to share.

2) There seems to be a level of MMM pride and judgment trending here that if you don't practice at least  xyz and have your overhead at $24K/yr, you are some kind of consumer Nazi. I think some (not all before everyone wants to jump my shit) should step back and check your MMM pride before casting too many stones. We live in a world where $24K/yr in living quality would be considered "rich" by many other countries and the fact that you have running water, a house, 1 car, and Bud Lite in the fridge, you may have a Mustachian from South Africa calling you a consumer pig.

I say live and let live, share your ideas/experiences, apply what works for you and respect everyone's own right to pursue their form of FIRE. I think there is room for all of us in the MMM site.

Rezdent

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Re: Accredited Investors - Why A 4% SWR?
« Reply #117 on: June 15, 2015, 06:42:21 AM »
In my haste, I just noticed there were pages 2 & 3. I thought it ended on page 1 therefore my comments were directed based on not reading the other pages.

The thread has meandered a bit from OP's original question, which was:

It seems to me that many folks on this forum would be better-served trying to figure out ways to increase their yields passively than slicing cents out of their budgets.  Both are obviously helpful for a FI goal, but to me getting an extra 2.5 or more percentage points of yield would increase the SWR to 6% or more (dare I say even 7%...gasp!), decrease the required stache for FI, and decrease the duration to get there.  Wouldn't this activity be a good use of energy and dare I say BETTER than clipping coupons or hyper-focus on cutting every last expense?

Increasing income/returns can be very effective, and is the focus of much attention.    Most people find that there is a sharp slope of diminished returns and/or higher risk.
I also believe that the amount of money coming in is meaningless without context.  It doesn't matter how much you make - if you are spending it all you are not going to get ahead.  Income only matters in the context of how much you keep.
Income-expenses=capital.
The amount of capital needed for FI is determined by expenses.
Address both sides of the equation.

Optimize income up to the point of diminished returns and personal risk tolerance, sure.  But the average person will hit a wall on this side of the equation fairly quickly.

Spending is more under our control and there are a lot more places we can impact, but here again we will find a curve of diminished returns on effort.  Because expenses and capital (not income) determine FI, every single small win adds up.  And the weird thing is, most people find out they were spending a lot of money on things that weren't making them happy.  The "hyper-focus" on spending is every bit as valuable as chasing an extra 2% returns.

Mr Orange, it appears you have a higher tolerance for risk in chasing higher income.  Okay, it's not for me.
You also seem to have much less tolerance for decreasing spending than I do.
Okay.  But don't dismiss the importance of decreased spending to reach FI  because it doesn't matter how much you make.  What matters is how much you keep of what you made.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #118 on: June 15, 2015, 07:52:35 AM »

Optimize income up to the point of diminished returns and personal risk tolerance, sure.  But the average person will hit a wall on this side of the equation fairly quickly.

Spending is more under our control and there are a lot more places we can impact, but here again we will find a curve of diminished returns on effort.  Because expenses and capital (not income) determine FI, every single small win adds up.  And the weird thing is, most people find out they were spending a lot of money on things that weren't making them happy.  The "hyper-focus" on spending is every bit as valuable as chasing an extra 2% returns.
is how much you keep of what you made.

I think this part of your passage is where we disagree.  The passage overall is well-though-out. 

To me the average person can become above-average simply by investing their time learning to invest better and/or increasing their income.  People summarily dismiss their abilities and they're coached on the forums that the path to FI is by slashing expenses to very low levels.  To a point I think this is logical, but past some point it is excessive in my opinion. 

To me a more balanced approach is warranted just like anything in life.  Invest time in cutting expenses....check.  Invest time in learning to make your money work harder and increasing your income as well.  The combination of all three will grow your capital stack OPTIMALLY and not hyper-focus on any of the three in isolation. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

Another Reader

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Re: Accredited Investors - Why A 4% SWR?
« Reply #119 on: June 15, 2015, 08:34:00 AM »
To me the average person can become above-average simply by investing their time learning to invest better and/or increasing their income.

If you mean by investing blindly in crowd funded real estate positions, we will have to agree to disagree.  If you mean spending the time to learn about real estate investing, deciding they want to take on the added risk and illiquidity, and making a concerted effort to find properties or other investments that have a high probability of yields well above most paper assets, we can agree.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #120 on: June 15, 2015, 08:42:06 AM »
I'm not sure what about any of my posts suggest that blindly investing in anything is a good idea; including passive index funds.  Working out a good asset allocation and investing wisely are always prerequisites for an optimal path.  So I think we agree for the most part Another Reader.  There are probably some small areas of disagreement too, but overall I think we are pretty well-aligned. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

innerscorecard

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Re: Accredited Investors - Why A 4% SWR?
« Reply #121 on: June 15, 2015, 08:48:45 AM »
mr_orange, I don't agree with everything you say, but I certainly like that you're here and providing another perspective. A lot of posters here want everyone to espouse exactly the same dogma, and that makes the community weaker. It's nice that the crowd hasn't driven you away yet.

Some will have the inclination to do things like hard money lending and some won't. It's foolish for those who won't to deny the possibility that it is a tool in the wheelhouse that exists for those who want it. At the same time, it is riskier than things such as treasury bonds, no doubt.
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mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #122 on: June 15, 2015, 08:53:00 AM »
At the same time, it is riskier than things such as treasury bonds, no doubt.

I guess it depends on your definition of risk.  T-bonds are pretty susceptible to inflation risk and probably won't deliver much yield on a real basis.  Some would claim that this is a bigger risk than other risks implicit to other investments for their particular situation. 

This all gets back to the point that investing is a personal thing that involves tradeoffs and also needs to be managed according to one's personal situation. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

skyrefuge

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Re: Accredited Investors - Why A 4% SWR?
« Reply #123 on: June 15, 2015, 11:28:11 AM »
The reason for this site's existence is not the banal goal of getting people to financial independence as quickly as possible.

The reason for this site's existence is to save the world.

The former is just the tasty bait that will trick us into achieving the latter.

From MMM himself:

"remember the secret mission of this blog: to reduce rich-world consumption and create a more balanced society.. for it is not the poor people who have the financial might to either destroy or save the world."

"the higher quintiles [targeted by this blog]...is where the bulk of our societyís unnecessary consumption is happening.
(Remember the secret mission of this blog is to save the human race from destroying itself through overconsumption. Getting rich is just the start of it)."


So that's a big reason why there is a strong bias toward reducing expenses rather than increasing investment return. Yes, both will help to achieve that banal FI goal, but only one has a side-effect that will help to save the world.

Sure, you don't have to completely agree with MMM's philosophy to participate on his website, but at the least you shouldn't be surprised when you find that most people here do agree with his philosophy, and aren't particularly interested in adopting a contradictory one.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #124 on: June 15, 2015, 12:58:19 PM »
The reason for this site's existence is not the banal goal of getting people to financial independence as quickly as possible.

The reason for this site's existence is to save the world.

The former is just the tasty bait that will trick us into achieving the latter.

From MMM himself:

"remember the secret mission of this blog: to reduce rich-world consumption and create a more balanced society.. for it is not the poor people who have the financial might to either destroy or save the world."

"the higher quintiles [targeted by this blog]...is where the bulk of our societyís unnecessary consumption is happening.
(Remember the secret mission of this blog is to save the human race from destroying itself through overconsumption. Getting rich is just the start of it)."


So that's a big reason why there is a strong bias toward reducing expenses rather than increasing investment return. Yes, both will help to achieve that banal FI goal, but only one has a side-effect that will help to save the world.

Thanks....I was not aware of that. 

Quote
Sure, you don't have to completely agree with MMM's philosophy to participate on his website, but at the least you shouldn't be surprised when you find that most people here do agree with his philosophy, and aren't particularly interested in adopting a contradictory one.
Thanks for explaining. 

I will point out that fully 71% of my spending is on childcare, taxes, housing, and food.  I am sure we could argue a lot about whether or not all of this is really needed, but it certainly isn't buying gold-plated rims or other complete nonsense. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

nobodyspecial

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Re: Accredited Investors - Why A 4% SWR?
« Reply #125 on: June 15, 2015, 06:17:44 PM »
Quote
I will point out that fully 71% of my spending is on childcare, ...., and food.
I have a modest proposal about how you can save money.

sol

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Re: Accredited Investors - Why A 4% SWR?
« Reply #126 on: June 15, 2015, 06:41:37 PM »
I will point out that fully 71% of my spending is on childcare, taxes, housing, and food. 

You keep mentioning taxes as a major expense, but most of here don't plan to pay any taxes in retirement.  Just because you're paying a crazy high tax rate now while making half a million dollars per year doesn't mean that you will continue to pay that much in taxes once you are retired.

My projected retirement tax rate is zero.  I have three kids and a house to use as deductions.  Between the deductions and personal exemptions and child care tax credits (and in your case, child educational credits), most families of five people can earn between $80k and $100k before they incur any net tax liability at all, and in retirement a significant portion of their "income" is untaxed anyway, either because it is return of invested principal, or LTCG, or from a tax-sheltered account like a Roth IRA.

So rather than adding up your current expenses including taxes, add up what your expected retirement expenses will be and use THAT number to figure out how much of a nest egg you need to save up.  You may be pleasantly surprised.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #127 on: June 15, 2015, 06:57:40 PM »
Yes....I realized this when doing my detailed budgets.  I have been building that out in my journal on the other thread.  My budgeting skills aren't as honed as others on the forum so it will take me some time to get things more precise.  I have asked my wife to start saving receipts from the grocery shops to do a more detailed screening there too. 

Based on what I have seen my "lower rail" (baby steps) for FIRE is now $6k/month.  I am sure this will go down over time as I get better at analyzing things and cutting.  Right now my "upper rail" is $9k/month.  I am sure this will go down over time too. 

Based on these numbers I am tracking the bounds for FIRE in the spreadsheet I have tracked for the past 13 years solid.  My bounds based on my current net worth are between 39% and 59% FIRE-capable.  This is based on a 4% WR, which I still think is low given my situation.  It is better to be conservative though.  As my spending decreases the need for a larger WR will also go down. 

My pro forma rails will be 53% for my lower rail and 89% for my current upper rail based on what I expect to monetize and using some modeled growth rates in stocks, etc. from now until the end of the year. 

In 3 years I will get an automatic dip of roughly another $1300ish per month when the twins go to public school. 

Based on a lot of study I don't think there is much that can be done about my taxes without sacrificing cash that could be used more productively elsewhere.  My goal is maximal after-tax income, not minimal taxes.  Coupled with reduced spending this should yield more dough for more freedom points sooner.  If you couple all of this with reinvesting in my business the numbers will get pretty silly quickly. 

There are many other things going on right now that should also allow me to further decrease my dependence on my employer.  Chief among them is that our portal is getting pre-funding partners.  I have been working through the details for this for weeks now and the lawyers are started to get everything memorialized.  Thus my cost of capital will go down on equity raises, which should allow me to keep more of my profits and control my projects more.  A lot of this cost a lot of money last year, but we're reaping huge rewards from this investment now. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

My Own Advisor

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Re: Accredited Investors - Why A 4% SWR?
« Reply #128 on: June 15, 2015, 07:06:46 PM »
"It seems to me that many folks on this forum would be better-served trying to figure out ways to increase their yields passively than slicing cents out of their budgets."

Correct.

Which is why I tend to focus on building a war chest of dividend stocks and some indexed ETFs, and live off the dividends and distributions those investments yield.  If inflation goes up over time and bond yields stay as low as they have been for almost a decade now, 4% SWR on capital is not very safe. 
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clifp

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Re: Accredited Investors - Why A 4% SWR?
« Reply #129 on: June 15, 2015, 07:39:40 PM »

Optimize income up to the point of diminished returns and personal risk tolerance, sure.  But the average person will hit a wall on this side of the equation fairly quickly.

Spending is more under our control and there are a lot more places we can impact, but here again we will find a curve of diminished returns on effort.  Because expenses and capital (not income) determine FI, every single small win adds up.  And the weird thing is, most people find out they were spending a lot of money on things that weren't making them happy.  The "hyper-focus" on spending is every bit as valuable as chasing an extra 2% returns.
is how much you keep of what you made.


I think this part of your passage is where we disagree.  The passage overall is well-though-out. 

To me the average person can become above-average simply by investing their time learning to invest better and/or increasing their income.  People summarily dismiss their abilities and they're coached on the forums that the path to FI is by slashing expenses to very low levels.  To a point I think this is logical, but past some point it is excessive in my opinion. 

To me a more balanced approach is warranted just like anything in life.  Invest time in cutting expenses....check.  Invest time in learning to make your money work harder and increasing your income as well.  The combination of all three will grow your capital stack OPTIMALLY and not hyper-focus on any of the three in isolation.

I agree with you about this.  I'm  bit different because I've been an investor since I was 16. But a real eye opener for me was when I realized that my net worth was close to a million dollars and I realized that getting an extra 1% or 2% was going to be worth more than $10k.  That was a helluva a lot more than I was going to get by putting the extra hour a day and going form 9 to 10 hours a day in the hopes of getting an 8-10% instead 5-7% raise (this was back in the 90s when workers actually got raises.) Now part of this is eliminating investment expenses (they were much higher in the 90s.)  but most of it is looking to find place where you can get higher returns.

Like most things learning to become a better investor takes times and also the ability to learn from mistakes. 

It also was a lot more valuable than doing mustachian things like saving $100 every two weeks but getting rid of the cleaning lady or cooking meals from scratch. For me personally it was lot more fun pouring over value line than cleaning the house and somewhat more fun than cooking.


arebelspy

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Re: Accredited Investors - Why A 4% SWR?
« Reply #130 on: June 15, 2015, 07:47:27 PM »
If you have the ability to do that, okay.

I'm skeptical that most can, without getting themselves into even bigger trouble.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
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mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #131 on: June 15, 2015, 07:48:53 PM »
If you have the ability to do that, okay.

I'm skeptical that most can, without getting themselves into even bigger trouble.

To do what?  Not following. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

arebelspy

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Re: Accredited Investors - Why A 4% SWR?
« Reply #132 on: June 15, 2015, 08:22:57 PM »
If you have the ability to do that, okay.

I'm skeptical that most can, without getting themselves into even bigger trouble.

To do what?  Not following.

Beat the market, essentially.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #133 on: June 15, 2015, 08:32:34 PM »
Beat the market, essentially.

If "the market" consists solely of a 75/25 blend of securities traded on Wall Street I disagree with you.  The idea that "the market" only consists of things traded in passive index funds is also pretty narrow-viewed. 

Pretty much any enterprising individual can start a small business of some sort, even if it has to be a small side business.  Getting in excess of 7.5% real yield on their money should be pretty easy to do if they're willing to supplement completely passive yields with close-to-passive or even active participation.  Carving out a time slice for this instead of only focusing on shaving the last femto cent out of their budget is likely a better use of energy. 

More income and greater yield through SOME other active participation (varies depending on their circumstances and abilities) will probably be more optimal for many folks. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

arebelspy

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Re: Accredited Investors - Why A 4% SWR?
« Reply #134 on: June 15, 2015, 08:42:47 PM »
Pretty much any enterprising individual can start a small business of some sort, even if it has to be a small side business.

We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #135 on: June 15, 2015, 08:56:25 PM »
Nice imagery.

I don't agree that they're apples and oranges though.  People have a fixed supply of capital to devote to obtaining an optimal path to independence.  Coupling investing with material participation and using this "sweat equity" approach to growing your money is probably better for many people on this forum. 

7.5% blended yields are probably better for many people looking to preserve wealth during the withdrawal period.  Those looking to grow their capital stack should be looking for the best risk-adjusted high yields in their grasp.  Making their portfolio work hard should be a top priority, even if it means coupling the "investing" with some of their labor, skills, or expertise. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

deborah

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Re: Accredited Investors - Why A 4% SWR?
« Reply #136 on: June 15, 2015, 09:13:18 PM »
Yet again we appear to have a person who changes his arguments as they are shown to be untenable!

Firstly a 4% SWR is just that - a safe withdrawal rate over quite a number of years. It doesn't mean that you expect to get 4% RETURNS every year! In a lot of scenarios this is very safe, and you end up with a mint. in the odd few scenarios (none of which have probably occurred in Mr O's lifetime), you end up with not very much, but you aren't begging on the street in your old age. It also accounts for inflation (which means that you are expecting a greater than 4% return on investment).

If you expect to do better than that, you are with the rest of us - we all EXPECT to do better than that because a SWR is SAFE. We want to retire for a long time and to stay that way!

Secondly, this is about RETIREMENT. The 4% SWR assumes you are not going to work again - not in side gigs, not in active investment... If that's what you want to do, then (obviously) you may be safe with a higher withdrawal rate. I am one who didn't want to retire before I could live on what I had and be SAFE. Many years ago my very small car was plowed into by a double-decker express-between-major-cities bus. I am lucky I am alive, and I was very lucky only to have complications for three years afterwards. This severely reduced my earning power. There are a number of curved balls that life can throw at you. I was NEVER going to rely upon being able to earn income after I retired. Some people on the forum do expect to have income during retirement and adjust accordingly. I think that most people here expect that they can make some money during retirement, but wisely don't include that in their calculations.

Thirdly, most small businesses fail.  I planned to set up a small business in retirement, but haven't so far. I calculated how much it would cost and added that to my retirement savings. Again we are talking about a SAFE retirement.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #137 on: June 15, 2015, 09:15:59 PM »
Yet again we appear to have a person who changes his arguments as they are shown to be untenable!

Kindly point to any argument I have changed.  Best of luck finding one. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

clifp

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Re: Accredited Investors - Why A 4% SWR?
« Reply #138 on: June 15, 2015, 10:11:03 PM »
If you have the ability to do that, okay.

I'm skeptical that most can, without getting themselves into even bigger trouble.

To do what?  Not following.


Beat the market, essentially.

I think that is only because people define the "market" as stock or bond index fund.   There is a world of financial product out beyond those two options.   I discussed Master Limited Partnership in another thread as being something that indexer miss out on.  But there are many other preferred stocks.  exchange traded note, closed end funds, options, muni bonds etc. which are available to the average investor if he/she spends some time learning about them.  Many at times offer superior risk adjust return to either stock or bonds and they may fit better with your needs.  You add to that things like hard money loans, and various real estate investments, Angel investing. plus new opportunities like peer to peer lending and there is a world of ways of making your money work harder for you than just setting an AA and sticking into index funds..

Now clearly if you have $25K in students loans, $10K in 401K, and $2K in emergency fund, your best use of time to make money is to figure out how to cut $50 off your internet/cable bill and $100/month of your food bill.   However at some point, I argue when your stash is in 100-500K level, your time is better spent learning about other opportunities that trying to save an additional $20 /month by clipping coupons.  Now many people eyes may glaze over trying to learns these products and everyone will mistakes. I'd argue that's better to learn your limitations in your 30s than wait until your retired.

I think you are probably the perfect example the time you spent learning about Real Estate translated into far more money than if you have devoted the same energy to new money saving techniques. 

arebelspy

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Accredited Investors - Why A 4% SWR?
« Reply #139 on: June 15, 2015, 10:30:06 PM »
My point is everyone doesn't have the proclivity to learn about and understand those things and then make informed decisions. Even if they did, then you have the psychological risk factors they'd have to overcome, adding a whole other layer I'm skeptical they can do.

So yes, I don't think most can beat the market as defined by 50/50 low cost index funds on a risk-adjusted basis, even allowing them to use any investment options they'd like.

I'm not just saying they can't beat equities with equities, I'm saying they can't beat equities period, with real estate, MLPs, options, Forex, whatever you want to.  Is it possible?  Sure. For he average person?  I don't believe so, personally. They just aren't capable.

They CAN become FI though, through the combination of LBYM and Bogle's great invention. The simplicity allows them to, if they can stick with it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #140 on: June 16, 2015, 03:47:43 AM »
Again...I think that is the soft bigotry of low expectations.  If reasonably intelligent people devote time to learning anything they can master skills eventually.  What I am claiming is that this activity is superior to clipping coupons past some level of frugality.  There are only so many hours in the day to devote to activities. 

This thread is directed at accredited investors if you read the original title.  There are plenty of dumb as rocks accredited investors.  There are also plenty of really smart and sophisticated non-accredited investors.  As a general rule though those with high self-made income and/or net worth are generally somewhat intelligent.  They needed to be to get to their level of income or net worth.  Since this thread is directed at those individuals it is really the audience I am writing to the most. 

Growing income and learning to invest better are more optimal paths to FI for some people IMO.  I'm arguing the some becomes many when you narrow your focus to accredited investors. 

Someone explained above that part of the philosophy of this site is to back-door get folks to consume less for planet-saving reasons or some such.  That is fine, but folks should be clear about their motives when they're giving other posters feedback.  Summarily telling people to cut spending because it is optimal is NOT accurate for some folks.  I would go so far as to say it is probably not optimal for many folks when you speak about happiness either, but that is another topic for another day.   

What I am mostly interested in discussing in this thread is why there is so much focus on cutting expenses and not on growing income or one's ability to invest at above 7.5% through blended index funds. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #141 on: June 16, 2015, 03:53:23 AM »
I'd argue that's better to learn your limitations in your 30s than wait until your retired.

I agree with pretty much your whole post.  The passage, above, however assumes that many intelligent folks can't learn to do this on their own.  I understand that not all folks are intelligent or capable, but if you narrow your focus to accredited investors the likelihood of finding a population with the intelligence to learn these principles is far greater than it is with the general population. 

With securities laws changes going into effect THIS FRIDAY non-accredited investors will be allowed to invest in these same opportunities.  We could argue about whether or not this is a good thing, but it will certainly level the playing field more for access to private investments. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

deborah

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Re: Accredited Investors - Why A 4% SWR?
« Reply #142 on: June 16, 2015, 04:16:22 AM »
Yet again we appear to have a person who changes his arguments as they are shown to be untenable!

Kindly point to any argument I have changed.  Best of luck finding one. 
Sorry that you misinterpreted me. Your arguments have been moving around all over the place - you have changed what you are arguing about as soon as each is challenged. I notice that you actually haven't commented on my post itself.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #143 on: June 16, 2015, 04:19:33 AM »
Yet again we appear to have a person who changes his arguments as they are shown to be untenable!

Kindly point to any argument I have changed.  Best of luck finding one. 
Sorry that you misinterpreted me. Your arguments have been moving around all over the place - you have changed what you are arguing about as soon as each is challenged. I notice that you actually haven't commented on my post itself.

Again, please point to an argument that has changed.  Claiming that arguments have changed doesn't make is so. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #144 on: June 16, 2015, 04:27:26 AM »
Yet again we appear to have a person who changes his arguments as they are shown to be untenable!
I am still waiting on you to point out that is untenable or what arguments I have changed. 

Quote
Secondly, this is about RETIREMENT. The 4% SWR assumes you are not going to work again - not in side gigs, not in active investment... If that's what you want to do, then (obviously) you may be safe with a higher withdrawal rate. I am one who didn't want to retire before I could live on what I had and be SAFE. Many years ago my very small car was plowed into by a double-decker express-between-major-cities bus. I am lucky I am alive, and I was very lucky only to have complications for three years afterwards. This severely reduced my earning power. There are a number of curved balls that life can throw at you. I was NEVER going to rely upon being able to earn income after I retired. Some people on the forum do expect to have income during retirement and adjust accordingly. I think that most people here expect that they can make some money during retirement, but wisely don't include that in their calculations.
Fine.
Quote
Thirdly, most small businesses fail.  I planned to set up a small business in retirement, but haven't so far. I calculated how much it would cost and added that to my retirement savings. Again we are talking about a SAFE retirement.
Most small businesses may fail, but most small real estate businesses don't fail.  This is true in other types of industries as well. Nobody said you have to pick a high risk and high reward small business.  Nobody said you need to quit your job to run a small business on the side either.  If you plan things properly you can greatly reduce risk of failure. 

YOU are talking about SAFE retirement.  The whole world doesn't have the same goals and objectives that you do.  Some people prefer to optimize other things that are important to them.  To some sit-on-the-hammock SWRs are less important than getting to FI sooner while needing to invest quasi-actively.   Again, this discussion carries with it a personal component and thus the dogmatic posts about cutting expenses always being the optimal path are inaccurate to me. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

clifp

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Re: Accredited Investors - Why A 4% SWR?
« Reply #145 on: June 16, 2015, 04:59:53 AM »
My point is everyone doesn't have the proclivity to learn about and understand those things and then make informed decisions. Even if they did, then you have the psychological risk factors they'd have to overcome, adding a whole other layer I'm skeptical they can do.

So yes, I don't think most can beat the market as defined by 50/50 low cost index funds on a risk-adjusted basis, even allowing them to use any investment options they'd like.

I'm not just saying they can't beat equities with equities, I'm saying they can't beat equities period, with real estate, MLPs, options, Forex, whatever you want to.  Is it possible?  Sure. For he average person?  I don't believe so, personally. They just aren't capable.

They CAN become FI though, through the combination of LBYM and Bogle's great invention. The simplicity allows them to, if they can stick with it.

I agree not everybody can, but I think more can than people on this forum assume.  Especially if we focus on those who are smart, lucky, old, or whatever enough to have hit the $1 million level to become an accredited investor.  When I look at the folks in my and Nords Angel investing group it is not made up of people who made their millions of sticking 1/2 their money in total stock market and 1/2 in total bond market.  There are lots of real estate folks, a fair number who owned their own business, good number of doctors and lawyers, CEOs etc, a modest number who did well in the technology world (but nothing like Angel groups in California) and more than few folks who've made money as bankers/money managers.  Precious few of them have anything close to the Mustachian life style.

I guess where I disagree with MMM and the common  philosophy of the forum is that everybody can save 25%+ of their income which is necessary to retire in your 40s and or ealy 50s. I truly believe everybody can save 10% in tax deferred saving which will allow them to enjoy a comfortable retirement in their 60s. However, asking somebody making an average salary of say $50K a year to save $10K, much less $15-20K is not something the average person can or more importantly will do.   While I certainly agree that toys, big houses, 1st class travel and are over rated in the pleasure they give.  I also think that many forum people underestimate they value people place on small luxuries like the daily Starbucks.

Long before this blog existed on my 2nd trip to Hawaii I bought this T-Shirt which inspired to seriously retire early.


Now this pretty much Mustachian values.  One rule I typical quote a lot "There are 2 ways to be Rich-- Make more or desire less" Mr Mustache is all about the desire less and that is terrific. But making your money earn more works just as well to become rich.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #146 on: June 16, 2015, 05:05:51 AM »
Solid post.  I run a local meetup on capital formation topics and there are a lot of the same types of people that visit frequently: small business owners, real estate investors, angel investors, etc. 

A minimalist approach is fine for those so-inclined.  Some people derive more enjoyment out of a higher standard of living and are willing to work harder to acquire the financial assets to achieve a higher living standard.  That doesn't make one right or the other wrong.  It just makes their goals different. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

FI40

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Re: Accredited Investors - Why A 4% SWR?
« Reply #147 on: June 16, 2015, 05:45:29 AM »
Mr_orange - I kind of agree with you in the sense that at some asset and expense levels, your time is better spent working on the income side than the expenses side.

But we're interested in Financial Independence here. The problem is, the level of assets at which it makes sense to start worrying about investment returns past the market averages (with all the risk that entails) is high enough that with a reasonable level of expenses, one would be FI already in that situation. So discussing it in the context of SWRs makes no sense to me.

If you have the interest and inclination, investing as you describe might be a fun hobby with some good profit potential, but the reason most people reject the idea is that their time is better spent either figuring out how to minimize their expenses or simply enjoying life with more fun hobbies. Hopefully I'm being clear, I think there's a lot of misunderstanding in this thread.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #148 on: June 16, 2015, 05:57:24 AM »
But we're interested in Financial Independence here. The problem is, the level of assets at which it makes sense to start worrying about investment returns past the market averages (with all the risk that entails) is high enough that with a reasonable level of expenses, one would be FI already in that situation. So discussing it in the context of SWRs makes no sense to me.

What level would you say this is?

I don't agree that investing in methods other than a 50/50 or 75/25 portfolio has to carry higher risk either.  This is a fantasy that the financial industry wants you to believe, but that doesn't make it so. 

I'm also interested to know what a reasonable level of expenses is as well. 
12/30/16                                       06/30/17
Fire Totals:                                   Fire Projections:
-$7k/month - 68.1% Funded             86.1% Funded
-$8k/month - 59.6% Funded             75.4% Funded
-$9k/month - 53.0% Funded             67.0% Funded
-$10k/month - 47.7% Funded           60.3% Funded

-Calculus gives speculation the deceptive guise of investment ~Benjamin Graham
-The future ainít what it used to be ~Yogi Berra

Another Reader

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Re: Accredited Investors - Why A 4% SWR?
« Reply #149 on: June 16, 2015, 06:47:02 AM »
Is this the sort of investment that you would recommend to novice investors?  My concern is the proliferation of these organizations and the inability of marginally knowledgeable folks to determine the viability and profitability of what they are buying.  It's not much different than the guy at church that sells you high commission life insurance.  The potential for abuse is high.


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Re: Need Advice on best RE investment of 225K

ę Reply #8 on: Today at 06:18:30 AM Ľ


Quote

 

I joined a group (at a cost) that creates multi-family syndicates of sophisticated and accredited investors to invest in class C (for the most part) apartment complexes in Texas. (They also support SF investors too.) Basically, the SEC defines three groups of investors, Accredited, Sophisticated, and the rest of the masses. In Texas, an accredited investor is defined as someone with >$1M net worth excluding own home or >$250k annual income. An accredited investor is considered to be smart enough to invest what they want where they want. A sophisticated investor is someone who is considered to have been educated how to evaluate investments but doesn't have the accredited level of assets/income. There are limits to how many sophisticated investors can join an investment syndicate.

I have invested $110k in two MF deals as a "passive partner". Returns start at 8-10% ROI and through operation improvements and rent bumps the ROI increases to 15-18% over 3 to 5 years.  The group I joined provides extensive education to learn how to evaluate MF offerings and the "lead partners" that actually find and run the properties using the group's investment model. The group, "Lifestyles Unlimited" (yes, it's a cheesy name) has been around for 20+ years and in each of the last 9 years one of its "Lead Partner" members has won the National Apartment Association's Independent Apartment Owner of the Year award. If you have the balls, becoming a lead investor is highly lucrative with many millionaires who own multiple apartment complexes in Houston, Dallas, San Antonio, and Austin (and expanding.) For those with lead aspirations, LU provides extensive education and operations support to get you up to speed in buying and operating your first (and subsequent) apartment complex.

That said, your investment is pretty illiquid once committed to a MF deal. So I don't expect to see the invested money back in my pocket unless the property sells or can be refinanced. But I LOVE the quarterly distribution checks (direct deposits actually) from said investments. Also, I would say this group really is for those who have a nice nest egg to work with. I will be generating my FIRE income with about 60/40 RE/dividend stocks asset allocation.




« Last Edit: June 16, 2015, 06:55:12 AM by Another Reader »