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Learning, Sharing, and Teaching => Investor Alley => Topic started by: mr_orange on June 06, 2015, 12:07:31 PM

Title: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 06, 2015, 12:07:31 PM
I have read some of the studies that form the basis for the 4% SWR.  The main one I read was the Trinity study and I have noticed others have cited several similar studies.  All of them seem to include some mix of stocks and bonds from Wall Street as the key investing vehicles and some blended rate combined with inflation assumptions yields something close to a 4% SWR to avoid the portfolio "failing" in the long run; or in a time period typical for retirees. 

Given that the securities laws have recently changed under The JOBS Act there are many equity-based crowdfunding portals offering fairly safe investments with yields of 10% or greater.  Hard money loans on real estate are common vehicles with double-digit yields and low risk if purchased correctly through reputable site. 

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?  I realize we have to pay taxes on income, but past some point expense cutting seems to cut into real quality of living. 

Any thoughts?  I realize this may be a controversial topic on the forums, but I figured I'd ask anyway.  Do your worst!
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: sol on June 06, 2015, 12:43:54 PM
Higher returns are certainly possible.  Even the stock market does better than 10% per year much of the time.

The problem is the sustainability of those returns.  If you read any of the SWR literature, you quickly figure out that the problem isn't your % investment return, it's broad spectrum economic collapse that delivers many consecutive years low returns coupled to high inflation. 

Getting 10% or more this year is easy. Getting it next year might also be easy.  Getting it in 30 years?  That's anyone's guess.

All of these calculations are based on many decades of historical return data.  If you're investing in new vehicles without that kind of track record, then maybe the current returns continue and maybe they don't.  Ten years ago I could get a 6% return on my bank's savings account.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 06, 2015, 01:03:08 PM
The investments aren't new.  The securities exemptions allowing for public solicitation are new.  People have been borrowing hard money for decades and at a low LTC they're pretty safe investments; especially in primary markets with growth. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: libertarian4321 on June 06, 2015, 03:55:13 PM
Hard money loans on real estate are common vehicles with double-digit yields and low risk if purchased correctly through reputable site. 

Maybe you know something we don't, but my understanding is that hard money real estate loans offer higher rates because THEY ARE HIGHER RISK loans, (not "low risk").

If they were really a low-risk and low-hassle way to make great returns, don't you think a lot more people (to say nothing of banks and lending institutions) would be doing this?

There are a lot of investments that have salesmen who claim "low risk, low hassle, high return."  I have yet to see one that actually delivered on those promises.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 06, 2015, 04:34:09 PM
Banks don't issue them because of how the regulations work.  Not all of them are high risk.  You need to know how to underwrite them and pick quality sponsors with good collateral.  It is a skill that can be learned like any other skill and it really isn't all that hard. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: kpd905 on June 06, 2015, 04:46:11 PM
Sounds a lot higher risk than an index fund invested across 1,000+ companies.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 06, 2015, 04:49:21 PM
Perhaps.  It depends on which project you pick.  There is also herd-like risk from the equities market and systemic risk in those assets you can't design out. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: kpd905 on June 06, 2015, 04:52:55 PM
How do you actually seek out and find these investments?  It does seem like something that wouldn't be bad to do with a small percentage of your portfolio to add a little high-risk, high potential reward.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 06, 2015, 05:02:49 PM
There are several new crowdfunding portals.  All you have to do is a Google search and you'll find many.  Some are much better than others.

From there you need to learn how to price risk of loans.  There is strong correlations between the LTC and the risk of the loan.  Finding quality sponsors with good liquidity and great track records is also a nice risk-hedging mechanism.  Of course, those borrowers also generally have lower pricing on their loans too.  Many developers are cash-starved in primary markets right now with the small regional lenders still tight on lending and the market booming. 

And agreed....the amount of your portfolio you devote to these projects should probably be low until you learn how to price them and make good decisions for investing project by project.  You also need to be an accredited investor for most projects right now, but there will probably be funds that non-accredited investors can invest in later this year with Regulation A+ becoming effective on June 19th of 2015.  Late in 2015 expect to see more of these projects available via funds to non-accredited investors.  It will be interesting to see what happens to the yields on the loans with more liquidity in the markets. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 06, 2015, 05:51:52 PM
Are you funding any projects using this conduit?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 06, 2015, 06:09:01 PM
@Another Reader....no, because I operate funds of my own.  With my SoloK I plan to start doing some passive investing like this later this year though because investing in my own stuff is a prohibited transaction. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 06, 2015, 06:47:33 PM
TANSTAAFL.

Everyone loves RE right now. I just sold all mine.

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nobodyspecial on June 06, 2015, 07:05:49 PM
You need to know how to underwrite them and pick quality sponsors with good collateral.  It is a skill that can be learned like any other skill and it really isn't all that hard.
It's very easy you just pick the mortgage backed securities that sombody rated as AAA - how can it go wrong?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 06, 2015, 07:12:10 PM
You need to know how to underwrite them and pick quality sponsors with good collateral.  It is a skill that can be learned like any other skill and it really isn't all that hard.
It's very easy you just pick the mortgage backed securities that sombody rated as AAA - how can it go wrong?

This time is different! Prices only go up!
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 06, 2015, 08:39:31 PM
I'm not sure what any of the latest comments have to do with LENDING money on solid property with 30%+ in equity to cushion downturns. 

Maybe I was wrong about this forum. 

Thanks for any rational comments.  Anyone lobbing ridiculous comments can feel free to post elsewhere.  I appreciate you leaving the garbage out of my thread.  Thanks. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 06, 2015, 09:15:45 PM
Since you directed this post at accredited investors, most of what crosses my screen is stuff I would not touch.  I have stuck to my rental knitting, not wanting to put a large portion of my assets into projects I can't control.  Seen a lot of pie in the sky numbers as well.   Also seen some fairly sophisticated folks chase the yield and get wiped out.

Banks don't issue them because of how the regulations work.  Not all of them are high risk.  You need to know how to underwrite them and pick quality sponsors with good collateral.  It is a skill that can be learned like any other skill and it really isn't all that hard.

I think I disagree that it's a skill that isn't that hard to acquire.  I have seen banks fund a lot of stupid projects over the years.  Of course, who knows what parameters their underwriters were directed to use.  If you know the developer, know their history, and know if/how they survived the bad times and you are in the same business, then you have the skill needed.

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: RWD on June 06, 2015, 11:08:05 PM
Hard money loans on real estate are common vehicles with double-digit yields and low risk if purchased correctly through reputable site.

I have done a couple hard money loans on real estate (first trust deed investments) and the interest rate was 11-12%. There were a few inherent problems in addition to the usual risks. One was that all the interest gained from the investment was taxed as regular income. So that takes a significant chunk out of your returns unless you're investing within an IRA. Two, most the loans available (at least through the company I was using) were for large sums which is an eggs-in-one-basket problem. Three, it is hard to keep all your money invested all the time. After a loan is complete there is naturally some delay (sometimes months) before you can reinvest the money again in another loan. In addition, there might not be one available for the amount you have available to invest, so some cash will have to sit idle.

I think REITs are a better way to go if you want real estate exposure because it's more diversified and you won't have cash sitting idle.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: SnackDog on June 07, 2015, 02:54:31 AM
Hard money loans are "harder" investment vehicles for most people.  They are hard because one has to understand both the current and future value and liquidity of the specific collateral real estate as well as the credentials of every borrower, a non-trivial vetting exercise which can require significant investment of time.  As others have pointed out, interest rates reflect higher risks (lots of banks lost their hard money loans in past real estate crashes).  There is a reason these people can not get a conventional loan from a bank at 4% interest and must turn to loan sharks.  Hard money lending is best left to the professionals who know best the local real estate market and the players seeking loans.

Lendingclub, which many of us have tried, is a lot less effort and risk for about the same return (10-11%).
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: WerKater on June 07, 2015, 03:14:24 AM
TANSTAAFL.
+1
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 03:45:15 AM
Hard money loans on real estate are common vehicles with double-digit yields and low risk if purchased correctly through reputable site.

I have done a couple hard money loans on real estate (first trust deed investments) and the interest rate was 11-12%. There were a few inherent problems in addition to the usual risks. One was that all the interest gained from the investment was taxed as regular income. So that takes a significant chunk out of your returns unless you're investing within an IRA. Two, most the loans available (at least through the company I was using) were for large sums which is an eggs-in-one-basket problem. Three, it is hard to keep all your money invested all the time. After a loan is complete there is naturally some delay (sometimes months) before you can reinvest the money again in another loan. In addition, there might not be one available for the amount you have available to invest, so some cash will have to sit idle.

I think REITs are a better way to go if you want real estate exposure because it's more diversified and you won't have cash sitting idle.

This is a reasonable post as are recent others. 

1.  Yes, invest via a SDIRA if needed.  Tax issues are gone.  My plan is to invest some SoloK dollars passively in other people's projects
2.  Spread your investments out over loans.  This eliminates concentration risk.  You can also simply invest in funds that spread things out if you find good managers too.  This gives you the diversification needed and minimizes concentration risk
3.  This is by far your best point and I agree wholeheartedly.  Most investors simply extrapolate returns and call this their annual yield.  With even a small period of close to 0 yield finding another investment your actual returns go down.  Hence the reason why you should find a fund if you're so-inclined that has a favorable pref and waterfall structure

For the posts above addressing the difficulty in pricing risk I will agree that it is not for novices.  However, my point is that seeking the extra yield and learning things like this seem to be worth the focus.  I'm new to the forums so perhaps stuff like this is already bantered about frequently. 

While I agree that some REITs are worth looking at too they suffer from many of the same market risk issues that equities suffer from.  If you develop the skills needed hard money loans can be good vehicles for heightening the yield of your portfolio.  And yeah....I agree it isn't a free lunch.  I do think the time invested in this activity is a better than time invested clipping coupons for many people though.  That was one of the main points I was trying to make in this post.  Instead of focusing so much energy on reducing expenses in one's life which will eventually lead to some tradeoff in standard of living why not focus some energy on learning to invest better and increase your yield and thus your SWR?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 03:54:02 AM
Lendingclub, which many of us have tried, is a lot less effort and risk for about the same return (10-11%).

Doesn't Lendingclub issue non-secured loans?  To me those may be easier, but they're also riskier if they're unsecured.  A nice FICO is great, but I trust the intrinsic value of a real asset with a low LTC and security more than I do a stellar borrower borrowing on an unsecured basis. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 07, 2015, 05:44:50 AM
How many real estate loans gone bad have you unwound?  There are good reasons banks prefer work-outs to foreclosure.  Especially when the cycle enters a downturn.  Take the loss, but manage the loan and the asset until you can minimize it.  Now imagine 100 or 1,000 investors in a fund with no control doing the same.

Agree with you about the unsecured lending portals, but a larger portfolio and some vetting of the borrowers is supposed to diversify the risk and minimize losses.  Liquidity is better because of the short term nature of the loans and by staggering pay off dates.  No different than a bank managing a credit card portfolio.  We will see how this works out when the SHTF next time.

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 06:05:01 AM
If we invest in loans locally we'd probably benefit if they go bad.  We have the crews to finish the projects and could take advantage of the upside in a default event and a seizure of collateral for product we control.  This, of course, assumes we control the projects. 

I do agree that non-payment is a risk.  I'd never invest in a loan in a place like California with ridiculous foreclosure laws.  Those loans should trade at rates FAR higher in price because of this risk IMO and thus given the market pricing of them I would pass. 

The pooled loans would still have a sponsor in control of them.  Buying into a structure where the site is trying to say they're not securities and "everyone is in control" is a bad idea for the reasons you cite.  You need to be able to pick loans well, price risk, and avoid states with buyer-friendly foreclosure statutes.  Bankruptcy is also a risk, but this still boils down to risk pricing and picking quality sponsors. 

Consumer debt scares me.  Perhaps the unsecured debt sites (LendingTree, Prosper, etc.) allow you to buy into pools or some such.  That would be a better way to invest IMO if it is offered.  I'm not very familiar with them.  I also think that if they're short-term this is really a negative for me.  You have reinvestment risk and may not be able to fetch the yield necessary on a risk-adjusted basis or you may simply be too busy to shop for loans every few months as they mature.  Real estate loans have longer durations and are subject to other risks, but I like the fact that they're secured loans.  If you offered me the same yields for secured and unsecured loans it would be hard to justify claiming that the unsecured loans dominate the secured loans; especially since the operators on the real estate sites generally have great FICO scores too.  Someone above made reference to the fact that they're using hard money because they "can't get bank debt" or some such.  This is true, but probably not for the reasons in the poster's head when they wrote the passage.  Fix and flip loans, development (interim construction) loans, land loans, etc. are all hard to get from local lenders.  Sometimes it is more of a function of that lender's concentration or inability to lend on certain product types based on how their regulators are governing them and not strictly on risk. 

Are there bad hard money loans?  Sure.  Are there bad consumer loans....you bet.  You just need to be able to price the risk appropriately.  It certainly isn't a free lunch, but the price of said lunch is worth the nutritional value if it decreases your FI date.  Simply getting a few extra points of yield out of your portfolio decreases your FI multiple from 25X to 20X or 17X.  That juice is worth the squeeze IMO. 

Further, insulating yourself from the behavior of the broader economy is a good diversification mechanism.  Yes, you also subject yourself to market risk in each locale you invest in, but this can be managed if you spread your bets among projects and markets. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 07, 2015, 06:37:39 AM
Further, insulating yourself from the behavior of the broader economy is a good diversification mechanism. 

You are in no way insulating yourself from the behavior of the economy by investing in real estate loans.  Real estate is cyclical and is connected to the broader economy.  You are too young to remember much about the last horrific crash in the early 1990's and the RTC clean up.  Been a lot of other dips and problems sending various sectors of the economy into recession and accompanying real estate loan workouts since then, such as the hotel industry post 9/11.  And let's not forget how much money was lost in real estate investments from 2009-2013.

Banks like their credit card portfolios.  My guess is their overall yields are significantly higher than what an individual can derive from a Lending Club.  No matter who is in it, that business is all about portfolio management.  The money is not pooled, you loan your money to individuals.  It's not for me, but the owner of this site plays in that space, maybe read his posts for a sophisticated amateur's experience.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 06:46:15 AM
Losing money in real estate is one thing.  Losing 30% of value in markets where they have only dipped 15% historically (as in...during the mortgage crisis) is another.  At 70% LTC or lower I think it is a pretty good bet if the project fetches north of 10% yields and the sponsors have good credit, liquidity, and a proven track record.  Worst case the asset can be rehabilitated, foreclosed on, and leased for rents until the market recovers. 

The biggest risk in life is not taking any.  Holes could be poked in pretty much any investing strategy.  Nothing is foolproof. 

Pools are not the only way to get diversity.  Investing small amounts across several syndicated assets is another.  The latter requires more effort and certainly isn't a free lunch.  It is worth it though IMO. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Min on June 07, 2015, 06:57:04 AM
mr_orange, my concern is what you want to do with this information. Given your returns, it seems like you are capable of getting substantial returns on your hard money real estate investments. Having said that, quitting your job with the expectation that you will be able to spend 7% of your portfolio's value every year, adjusting for inflation, leaves you with very little margin for error. After all, our beloved 4% SWR is better understood as a 4% real withdrawal rate; while getting a 4% nominal rate of return is one thing, a 4% real rate of return after volatility is another entirely. (You are spending down your principal in some cases, after all.)

Just as concerning is the lack of liquidity in hard money loans. Roofs have to be replaced. Out of pocket maximums are hit. In a genuine emergency, getting liquidity from hard money loans is difficult. You could compensate for this by having a really substantial cash buffer, but that's going to drag down your returns.

Moreover, you might even have a reasonable expectation that you could achieve substantial returns for the foreseeable future. That said, changes in the regulatory landscape could lead to a secular decline in real rates of return for hard money loans. There are always intelligent things to do, but basing your retirement strategy on the ability to achieve outsized returns for decades is really, really risky. Even if you are as good as you think you are, you aren't good enough to make a 7% withdrawal rate safe if new regulations make hard money loans substantially less profitable for individuals such as yourself.

That said, my biggest concern is that capital allocation is just really hard in general - and spending down your capital at an aggressive rate while you are allocating capital to illiquid projects scares the heck out of me. I have no idea how diversified you are, but are you in a position where any single default would wipe you out? You might be inclined to say no, but in a world with a 7% real withdrawal rate (which is really more like 10-11% nominal, after volatility), even losing 1/10 of your portfolio could be catastrophic. More money has been lost reaching for yield than at the point of a gun, and this strategy requires you to be good - consistently - for decades. I also used to live in the DFW area and I'm pretty familiar with real estate in the area. The area has had a decent run and for the most part avoided the worst of the real estate crunch. But a repeat of the S&L crisis would be tough to survive for a hard money investor if your risk is concentrated there.

If you genuinely believe that you can a 7% safe withdrawal going forward, then an additional year worked would result in a 5.6% safe withdrawal rate. One more year would give you a 4.48% safe withdrawal rate. One more year after that, just three additional years, would give you a 3.6% safe withdrawal rate. If you're as good as you think you are, then even a single additional year worked after when you think you would be ready would result in a substantially lower withdrawal rate. And here's the best part: a lower withdrawal rate means that you don't have to be as good.

Holding an index fund is eminently easy. I am really good at spending money that gets automatically deposited to my bank account. I'm good at some other stuff as well - some of which is supercharging my becoming FI. That said, I'm not going to count assets that require me to be good towards FI. I'm more than happy to reinvest capital from much more profitable assets over to index funds, but I will be FI once my dumb money is sufficient for financial independence. The same approach might make sense for you as well.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 07:17:04 AM
Fair enough.  Some valid points above.  I just find it hard to believe that folks with above average intelligence would have a hard time getting a few extra points from their portfolio even if they have to be quasi-active to do so.  I do get that market shocks are hard to predict and make fools of everyone from time to time though and that this is probably a great equalizer.  All of the discussion I see around this topic centers around equities markets which are super efficient and summarily discards less liquid assets. 

For the record....I don't really think I'm exceptional at picking these investments.  I just think it is pretty easy to do and many of the concerns highlighted are overblown if you invest in primary markets with good sponsors with good credit and liquidity. 

Another thing....one does NOT have to do this for 30+ years to increase their portfolio size.  They could invest for fewer years, increase their asset pool, and convert to a boring old 75/25 stock/bond portfolio that drives the 4% SWR.  Your SWR could then be 4% on a bigger portfolio that is achieved sooner. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 07, 2015, 07:53:08 AM
You are a part time real estate developer with the optimism and enthusiasm of every real estate developer I have ever known.  You likely have had some successes and you are waiting to monetize the ramped up projects you are now building.  You have the experience and connections to evaluate deals as they show up.  The world is your oyster right now.

The trick with this type of investing is to recognize there is a large element of musical chairs involved.  With your experience and a tempering of your enthusiasm (the area where most developers fail), you should be able to see the down turn coming and plan appropriately.  The average person on this forum will not be able to do that.  They can't recognize the projects with accurately projected demand and reasonable capital structures.  They won't see the storm brewing on the horizon because they aren't active in the real estate world every day as you are.

I'm all for taking reasonable risks.  You can make double digit returns if you know the business. Generally, I can "sniff the dirt" and make a decently reasoned calculation about the outcome of a project in an area with which I am familiar.  But I have over 30 years of experience.  Most folks here have no experience.  And in my opinion, lack of experience makes these investments very risky.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Roland of Gilead on June 07, 2015, 08:12:03 AM
I have bought 14% return bonds (12.5% par, bought below par) in a mining company I have tracked for a number of years.  I like the return but I cannot go "all in" on stuff like this and increase our SWR.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Min on June 07, 2015, 08:28:02 AM
Another thing....one does NOT have to do this for 30+ years to increase their portfolio size.  They could invest for fewer years, increase their asset pool, and convert to a boring old 75/25 stock/bond portfolio that drives the 4% SWR.  Your SWR could then be 4% on a bigger portfolio that is achieved sooner.

That's pretty much my point. At least when I'm out of the accumulation phase, I would strongly prefer relying on passive dumb money for my living expenses. I've been very aggressive up to this point and I will continue being aggressive until I am FI. But once I'm ready to downshift into a more relaxed lifestyle, I'll likely go with a ~3% withdrawal rate and just live off of dividends. I'm agnostic about whether or not the 4% rule will have the same rate of success going forward, but I intend to build up a wall of permanent capital that will never be touched. After that I can regroup and reconsider my options in post-FI life. We can have an interesting conversation about dividends, capital appreciation, and share buybacks, but I am allergic to selling good assets. I don't want to have my plan for FI rely on selling assets to fund my lifestyle; it's just not my jam.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 07, 2015, 08:38:49 AM
Another thing....one does NOT have to do this for 30+ years to increase their portfolio size.  They could invest for fewer years, increase their asset pool, and convert to a boring old 75/25 stock/bond portfolio that drives the 4% SWR.  Your SWR could then be 4% on a bigger portfolio that is achieved sooner.

That's pretty much my point. At least when I'm out of the accumulation phase, I would strongly prefer relying on passive dumb money for my living expenses. I've been very aggressive up to this point and I will continue being aggressive until I am FI. But once I'm ready to downshift into a more relaxed lifestyle, I'll likely go with a ~3% withdrawal rate and just live off of dividends. I'm agnostic about whether or not the 4% rule will have the same rate of success going forward, but I intend to build up a wall of permanent capital that will never be touched. After that I can regroup and reconsider my options in post-FI life. We can have an interesting conversation about dividends, capital appreciation, and share buybacks, but I am allergic to selling good assets. I don't want to have my plan for FI rely on selling assets to fund my lifestyle; it's just not my jam.

+1, especially to the "wall of permanent capital' and "allergic to selling good assets."  I'm getting a decent return deleveraging and optimizing the rentals right now.  Rents are funding a lot of my retirement, along with a nice kick from a couple of pensions.  I don't pay a lot in taxes, which helps significantly.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 07, 2015, 09:05:26 AM
I'm not one to claim that "beating the market", especially in RE, is impossible. I've done so handily for the last decade (to be fair, that last decade was the easiest possible time to make money in RE as long as you stayed away from it/shorted it for the first few years).

The thing is, higher returns are always going to require either higher risk, considerable work on the part of the investor, or both. Both of those things sound pretty sucky to me given that my goal is not to spend my time evaluating RE deals. OP has a million plus in the bank and plenty of ability to quit now, but spends WAY too much money - and seems to only be interested in making more. I don't like to pigeonhole people, but this is the kind of mindset that is NEVER going to lead to a life free from worrying about/thinking about money, which is the goal of most people here.

So, OP - what are you going for? I think if you look at the situation honestly, your higher returns are only going to persist through a some combination of effort, risk, and luck. Is that how you want to be "retired"? I'm no IRP zealot but it's hard to see how that situation is "financial independence".
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: rmendpara on June 07, 2015, 09:51:32 AM
Returns in RE (especially hard money loans secured by RE), must offer higher rates in order to compensate for additional risk.

Maybe you are able to get an overall higher return over time because you are a disciplined investor and always stick to your tried and true criteria. That's great! However, don't confuse active income with investment income. Investing in RE notes is active investing at best. I personally view it as a second part time job... though of course you don't work for anyone else.

With that, I DO think of it as a possible source of income during and throughout FI (or early retirement), but you need to segment it separately from the rest of your "traditional" portfolio. For example, 1mm @ 4% (traditional investments) will yield ~40k of income, plus your hard money loans of 150k @ 10% (RE notes) will get you an additional ~15k of income.

Note that even a blended return is ~4.7% in this case (55/1,150). It would not be prudent to allocate a large amount of capital to high yield notes, but that allocation is really up to you. This is the way I'd go about thinking about what a reasonable allocation to RE notes is for your situation.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 10:51:38 AM
So, OP - what are you going for? I think if you look at the situation honestly, your higher returns are only going to persist through a some combination of effort, risk, and luck. Is that how you want to be "retired"? I'm no IRP zealot but it's hard to see how that situation is "financial independence".

This is a solid post....and yeah, I do plan to "work" in real estate and don't really plan to halve my monthly expenses to become "independent" earlier than I could if I simply worked a few more years and made more money.  Telling people that they spend way too much money is also rather condescending if it's their prerogative to maintain a certain standard of living and they're capable of achieving it through honest hard work.  Based on my current run rate I figure I can work another 5 or so years, structure my assets in some fashion similar to the 75/25 in the Trinity studies and keep my spend rate level.  Why is this somehow less noble than growing crops in the back, downsizing my house to half the size, and riding a bicycle in the 100-degree Texas heat several miles if I want to gather groceries?  The latter scenario would probably allow me to be independent now.  Why is one somehow more noble than the other? 

Balance in one's life is almost always the most fruitful path.  I have no issue with people being frugal or eliminating "waste," but overhauling one's whole life because you hate your working situation and are striving to FIRE early seems extreme to me.  Why not just find another job if you don't like it that much?  Find something more flexible where you can do a side hustle.  Take some courses to get some in-demand skillsets and find another line of work.  For god's sake do something instead of festering in a situation you dislike that much.  Life's too short to be unhappy even if it gets you to be FI sooner. 

Anyway....to each his own. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 07, 2015, 11:18:50 AM
Some background reading on the forum could have saved you a lot of time. Most of us enjoy stuff that's free (ie, that bike ride). And if it's 100 degrees, we move somewhere we like better. Or suck it up!

If your goal is to maintain your lifestyle and you need more money to do that, by all means make more money. I'll toast your success when you get there.

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 11:45:54 AM
Hah...I could probably use the exercise.  I got down to 167 (~12% BF) on my weight last year, but have since ballooned back up to around 200.  On a 5'11" frame 200 is too much for sure.  I enjoy the gym a lot more than the Texas heat.  This year has been pretty mild thus far though so a good bike ride wouldn't hurt much.

Moving from Texas would probably carry a state income tax; hardly Mustachian.  It would also require moving away from some of the best real estate markets in the country which would probably cut my income significantly and increase FI duration. 

This year I plan to try to cut some spending.  Getting one of my three kids out of Montessori School will help.  The other two will be in public school in about 3 years.  Hopefully that will be a good FI point if I can cut spending some.  I can't see cutting it to some of the crazy levels discussed on the forums, but maybe if I hang around long enough I'll get enough peer pressure to do so ;-)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: sol on June 07, 2015, 11:57:22 AM
I do plan to "work" in real estate and don't really plan to halve my monthly expenses to become "independent" earlier than I could if I simply worked a few more years and made more money.  Telling people that they spend way too much money is also rather condescending if it's their prerogative to maintain a certain standard of living

Have you even read the blog?  You keep rephrasing the comment to tell us again how you have missed the point.

I'll reiterate for you in plain language.  The MMM blog isn't about making the finances of retirement work out, it's about optimizing your life experiences by reducing your mindless spending.  It's not condescending to tell you that you're spending a bunch of money on things that don't really contribute to your happiness level, it's a favor and you should say thank you every time someone does it for you again.

Your spending level is extravagant.  You spend money on some things that add absolutely zero value to your life.  You spend money on other things that you think will add value, but really only make you miserable.  In both of these cases you would be better served by reevaluating your real priorities in life, figuring out what really makes you happy, and focusing on spending your money on those things and reclaiming your free time that you are otherwise trading away for money to spend on the things that don't do anything for you.

Your "standard of living" line is a complete pile of bullshit.  Steaming, smelly, disgusting, repugnant, and you're smearing it all over yourself like it was some kind of armor.  You could spend HALF of what you currently do without really noticing any difference in your standard of living.  Your quality of life is determined by good food, good sleep, a stable and secure financial situation, a sense of purpose and accomplishment, and a rich and rewarding social environment.  Not your fancy cable package and imported sports car and wine cellar and art collecting hobby.

Quote
Why is this somehow less noble than growing crops in the back, downsizing my house to half the size, and riding a bicycle in the 100-degree Texas heat several miles if I want to gather groceries?  The latter scenario would probably allow me to be independent now.  Why is one somehow more noble than the other? 

Not less noble, less optimal.  The difference is that the more frugal scenario will actually make you HAPPIER in addition to giving you FIVE EXTRA YEARS OF LIFE to enjoy at your new optimized happiness level.  You can certainly work the extra five years and then retire to a life wanton idleness.  That's the easy path, the default direction for most people.  This site is trying to offer you an alternative, but I don't think you've read enough of it to really understand what's on offer here. 

Growing (some of) your own food is a rewarding experience shared by thousands of years of your ancestors, but lost to most people in the past three generations.  Riding a bike, even in the heat, reconnects you with the natural world in a way your air conditioned motorized throne room cannot, and improves your physical fitness as a bonus.  That smaller house might actually fit your lifestyle better, or be more conveniently located to the people and places you want to visit, and be easier to maintain and clean.  These things are not sacrifices, they're upgrades.  Consumer drones can't see this perspective because they've spent a lifetime being inundated by advertisements for prepackaged crap food, ever-fancier ways to get less exercise, and enormous soulless McMansions.  Capitalism has degraded your life experiences by convincing you to crave things that suck.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: sol on June 07, 2015, 12:00:03 PM
Why not just find another job if you don't like it that much?

For many of us, that's the ideal plan.  In detail, their plan is to reduce their mindless spending on things that only detract from their quality of life, then quit the rat race to pursue a job that they DO like.  A job that may not pay very well, but that they find personally rewarding, that confers a sense of meaning on their lives and motivates them to rise every morning and work cheerfully towards a goal they believe in.

For some people here (the more unimaginative ones) the "job" they aspire to is just wanton idleness.  I think these people can't envision a purpose they would actually find motivating, can't understand why a person would WANT to get up and work at something, to accomplish something, to leave a mark on the world.  For these people, their bad experiences in the workforce thus far have cursed them with this notion that a "job" necessarily entails miserable slavery, that responsibility is a burden rather than a privilege, that coworkers are adversaries rather than teammates, that bosses are overlords and not facilitators, that being part of a larger mission means forsaking your personal life goals.  I think that's a large portion of this community.  You can see why those folks don't want to "just fine another job" because to them, any job is death sentence.

Quote
Anyway....to each his own.

If you really believe that, you probably wouldn't have joined a board full of aspiring early retirees and then argued so vociferously against early retirement.  Do you also join Honda forums and then make a bunch of posts about Toyotas?  Gardening forums and say we should all buy our food from grocery stores?  Guitar forums and then try to convince everyone to play drums?

Your behavior here is deliberately inflammatory.  Personally, I kind of like people who are deliberately inflammatory so you're okay in my book, but maybe you can see why most folks here aren't very thrilled with your contributions?  You're pissing in their soup, then getting all defensive when they complain.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 12:12:36 PM

Have you even read the blog?  You keep rephrasing the comment to tell us again how you have missed the point.

Yup....I have.  And it seems if you don't agree with it you're somehow wrong.


Quote
Not your fancy cable package and imported sports car and wine cellar and art collecting hobby.

Not really sure how this applies to me.  I do have cable, but I don't have a sports car or art collecting hobbies.  I do collect real estate though. 

Quote
Not less noble, less optimal.  The difference is that the more frugal scenario will actually make you HAPPIER in addition to giving you FIVE EXTRA YEARS OF LIFE to enjoy at your new optimized happiness level.  You can certainly work the extra five years and then retire to a life wanton idleness.  That's the easy path, the default direction for most people.  This site is trying to offer you an alternative, but I don't think you've read enough of it to really understand what's on offer here. 

Perhaps.  Or perhaps I have read it and have made a conscious decision that the "optimal" path described is sub-optimal for me.  I am sure there are plenty of others that probably feel the same way.  Much of what is advocated I find hard to believe will make me happier somehow.  I'm watching college baseball on cable as I type this and this is one of the things I love.  My dad and I used to go to UT games when I was very young and this brings out all sorts of great memories.  I am sure those ticket to the ballgame were somehow sub-optimal though as was the trip to Mount Playmore I had with my three young daughters yesterday.  I'm sure we would have been happier growing food in the back :-?

Quote
Growing (some of) your own food is a rewarding experience shared by thousands of years of your ancestors, but lost to most people in the past three generations.  Riding a bike, even in the heat, reconnects you with the natural world in a way your air conditioned motorized throne room cannot, and improves your physical fitness as a bonus.  That smaller house might actually fit your lifestyle better, or be more conveniently located to the people and places you want to visit, and be easier to maintain and clean.  These things are not sacrifices, they're upgrades.  Consumer drones can't see this perspective because they've spent a lifetime being inundated by advertisements for prepackaged crap food, ever-fancier ways to get less exercise, and enormous soulless McMansions.  Capitalism has degraded your life experiences by convincing you to crave things that suck.
I for one have zero desire to grow my own food.  There are plenty of others that are far better at doing it than I am.  Bike riding is fine, but I prefer the gym.  Cardio + weight training is better than cardio alone. 

A smaller house would certainly be easier to maintain and clean, but would likely be more cluttered with 3 small kids.  Smaller houses closer to town would also be more expensive be a long stretch. 

For a lot of your other points I think we'll have to agree to disagree.  It is nice that people can live the life of their choosing though.  Kudos to those that enjoy growing their own food, biking to work, and slashing all frills.  It just isn't for me.  I'm sure there are pretty easy ways for me to cut out waste though. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 12:18:59 PM
Your behavior here is deliberately inflammatory.  Personally, I kind of like people who are deliberately inflammatory so you're okay in my book, but maybe you can see why most folks here aren't very thrilled with your contributions?  You're pissing in their soup, then getting all defensive when they complain.

If challenging the idea that growing your own crops somehow makes you more noble is inflammatory than I am guilty as charged brother.  When people start getting upset about things it may signal that their beliefs aren't as closely held as they think they are. 

Making more money or learning to invest better are easier paths to FI to me if you're willing to work for them.  The problem is that most people aren't willing to put in the effort to achieve either of these items and thus they're stuck with slashing their expenses and their lifestyle.  Many of these people are then pretending that this somehow makes them happier.  I am sure that this is the case for some, but painting everyone with these broad strokes is dubious at best to me. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Cpa Cat on June 07, 2015, 12:35:32 PM
Why not just find another job if you don't like it that much?  Find something more flexible where you can do a side hustle.  Take some courses to get some in-demand skillsets and find another line of work.  For god's sake do something instead of festering in a situation you dislike that much.  Life's too short to be unhappy even if it gets you to be FI sooner. 

This is a similar question the one addressed in the Lottery vs Dream Job Debate of 2015:
http://forum.mrmoneymustache.com/share-your-badassity/would-you-rather-win-the-lottery-or-have-the-perfect-job/ (http://forum.mrmoneymustache.com/share-your-badassity/would-you-rather-win-the-lottery-or-have-the-perfect-job/)

For many of us, all jobs suck. Some suck more and some suck less, but all suck compared to not working.

You say, "Life's too short to be unhappy even if it gets you to be FI sooner." I agree with your "Life's too short" premise - but the conclusion to that sentence is: "Life's too short to continue working just so I can have a few more luxuries."

I don't hate my job. I never hated it. But I did hate being on someone else's schedule. I hated that I didn't have time to do the other things I enjoyed. I disliked office politics, commuting, eating lunch at my desk, working 60 hours a week, etc.

None of the things I hated would have magically disappeared if I had just taken a few classes or switched workplaces. FI was the cure for those things.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 12:46:11 PM
Fair enough....FI is always dominant and I think we can agree on that.  The question is what is more optimal:

1.  Slashing one's spending and somehow assuming that this is the optimal choice for everyone to get to FI sooner.  I think this is fairly myopic

OR

2.  Growing income and assets quicker while also learning to invest better while maintaining current spending and thus standard of living

Claiming that number 1 above is ALWAYS the optimal choice in all situations is ridiculous to me.  Some people have posh jobs and work 20 hours a week from home making six figures.  I have some programmer buddies doing this.  Is it reasonable to assume that they should slash their spending by a factor of 2 to achieve FI a few years sooner?  I will try asking one of them tonight when they come over to eat bbq and they'll probably find it amusing. 

Look, I understand one of the major goals of the forum is to encourage people to spend less.  I have no issue with that at all.  What I take issue with are the threads where people immediately tell you you're spending too much knowing NOTHING about your life situation, personal circumstances, how much you enjoy what you're doing, AND WHAT MAKES YOU HAPPY.  I also take issue with the idea that the 7.5%ish portfolio yield that gets us to a 4% SWR is somehow universal if you can do better.  I also think that people should learn to increase their income and in many cases this would be far more optimal than decreasing spending past some logical threshold. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 07, 2015, 01:34:49 PM
I'll sum up:
Mr_Orange: 'Merica! TV! Big stuff! Lots of it! Need more money, gotta hustle.

That is a choice you're free to make. It will mostly inspire pity around here, though.

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: sol on June 07, 2015, 02:30:14 PM
What I take issue with are the threads where people immediately tell you you're spending too much knowing NOTHING about your life situation, personal circumstances, how much you enjoy what you're doing, AND WHAT MAKES YOU HAPPY.

I don't think we need to know anything else about your life situation, other than that you're spending $11,000 per month, to know that you're spending more than necessary to maintain your current level of happiness.

You seriously believe that there's no fat in your budget, nothing you could cut without adversely affecting your standard of living?  That's ridiculous.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 02:34:49 PM
Quote
You seriously believe that there's no fat in your budget, nothing you could cut without adversely affecting your standard of living?  That's ridiculous.

Please point to where I make this claim.  Thanks. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 07, 2015, 02:47:41 PM
I assume Sol is referring to this hilarious quote.

Quote from: mr_orange on June 06, 2015, 09:57:39 AM
"3.  I figure a $10k/month budget is definitely something achievable without sacrificing much on our standard of living.  This would put our stache requirements at between $2M and $3M.  The right number is really a function of the answer to Question 2 above.  If we could bump it up to 7% the stache requirements drop to more like $1.7M.  Not all of our net worth is tied up in income-producing assets so there may need to be some conversion here to make this math worth right....feel free to lecture me on this if needed"

-W

Quote
You seriously believe that there's no fat in your budget, nothing you could cut without adversely affecting your standard of living?  That's ridiculous.

Please point to where I make this claim.  Thanks.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 02:50:58 PM
Yup....and nowhere in that quote does it say that there is no fat in my budget.  As one of the critical thinking skill posters above points out I even asked for help with this.  Somehow we got off on this witch hunt, which has been quite entertaining. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 07, 2015, 02:59:14 PM
Well, I read that as "$10k is our goal number/minimum happy budget". Is that not what you meant?

-W

Yup....and nowhere in that quote does it say that there is no fat in my budget.  As one of the critical thinking skill posters above points out I even asked for help with this.  Somehow we got off on this witch hunt, which has been quite entertaining.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 07, 2015, 03:02:43 PM
Read the passage again.  It means what it says.  $10k/month won't sacrifice our standard of living any.  Below that I think it probably will.  My budget is right there in the other thread for anyone to review. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: sol on June 07, 2015, 04:59:50 PM
Please point to where I make this claim.  Thanks.

I was inferring that claim every time you said something like "reducing our expenses would cut into our standard of living".  Like in the post immediately preceding this one, where you just did it again.  If it wasn't intended, then it's been pretty misleading.

My budget is right there in the other thread for anyone to review. 

Challenge accepted. (http://forum.mrmoneymustache.com/ask-a-mustachian/swr-for-an-active-real-estate-investor/msg687861/#msg687861)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: foobar on June 07, 2015, 07:59:55 PM
I have bought 14% return bonds (12.5% par, bought below par) in a mining company I have tracked for a number of years.  I like the return but I cannot go "all in" on stuff like this and increase our SWR.

You bought bonds with 14% yield. You only get 14% return if they make all the payments. :) If you own a 100 of these bonds and 10 of them default, you will get a much lower return. The problem with a lot of bonds/opportunities is that they are highly linked to the general economy. Odds are in a normal world, 99 of them will payout and you make a killing. But in a bad situation you might see 20-30%+ of them default.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: theoverlook on June 08, 2015, 09:10:21 AM
My only comment to the main gist of this post is this: hard money loans are by definition higher risk investments.  That's the only reason they pay higher interest rates.  You might be able to pick winners but that doesn't mean the risk isn't there.  Hand waving won't get rid of the fact that if they were not higher risk investments then they would be paying 3-4% like all the other RE backed loans.

And yes you can get higher return by taking on more risk.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo on June 08, 2015, 09:44:06 AM
there's one thing I've noticed about investment opportunities; anytime something comes along that promises higher returns than the broader market it attracts money like moths to a flame.  This results in one of only two outcomes - either the higher-than-average returns vanish as big money moves in, or the investment turns out to have higher risk and volatility.*  Often it's both.
Forget the banks - there's too many hedge-fund managers and high-dollar traders out there looking for anything to give them an edge.

The OP's premise that a higher average return will automatically allow a higher WR is also overly simplistic.  Historical market real returns have averaged right about 8%.  The reason the 4% "rule" has been successful for most periods in the past is because it is low enough to handle the volatility fairly well.   Even if you averaged 10% real returns, your portfolio may be more likely to fail if the volatility is higher.

* (alternatively summed up as the "efficient market hypothesis")
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Clean Shaven on June 08, 2015, 10:34:24 AM
Maybe I missed it here, but did OP define "accredited" investor? 

As in, a CFP, or holder of some other sort of certification or degree?  Or does this term have some generally-accepted meaning?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: matchewed on June 08, 2015, 10:47:17 AM
Maybe I missed it here, but did OP define "accredited" investor? 

As in, a CFP, or holder of some other sort of certification or degree?  Or does this term have some generally-accepted meaning?
http://www.sec.gov/answers/accred.htm
http://edgar.sec.gov/answers/accred.htm
http://en.wikipedia.org/wiki/Accredited_investor
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 08, 2015, 10:50:50 AM
Google search accredited investor. 

The efficient market hypothesis doesn't work when the market is not efficient.  There are not hoards of supercomputers trading hard money loans and setting the price of each asset instantly. 

Regarding heightened risk this has been addressed several times in this post.  It does take some skill to do, but it isn't rocket surgery.  It is worth the extra time IMO if you can cut your stache from 25X to some lower multiple IMO.  YMMV. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Clean Shaven on June 08, 2015, 10:53:21 AM
Thanks.  I didn't know that was a defined term already.

Seems kind of loose, though, at least from the perspective of U.S. citizens:
http://www.investor.gov/news-alerts/investor-bulletins/investor-bulletin-accredited-investors

i.e. it's just a basement threshold of net worth or income; no actual "accreditation" in the sense of certification, degree, or test.

Anyway, back to the regularly-scheduled thread of the OP explaining why hard money loans are safe investments.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo on June 08, 2015, 11:21:21 AM
Google search accredited investor. 

The efficient market hypothesis doesn't work when the market is not efficient.  There are not hoards of supercomputers trading hard money loans and setting the price of each asset instantly. 

of course the market isn't completely efficient in the short term.  But it's the time frame of years that matters to individual investors hoping to FI/RE.  Over and over again, as any investment class has outperformed, money has poured in and it either turns out to be more risky or less lucrative than initially thought.

Quote
Regarding heightened risk this has been addressed several times in this post.  It does take some skill to do, but it isn't rocket surgery.  It is worth the extra time IMO if you can cut your stache from 25X to some lower multiple IMO.  YMMV.

I believe that both skill and luck can increase your gains. As I mentioned, if the resulting gains come with increase volatility it still might not allow a lower WR.  But cutting out ridiculous slop from your budget can have an even greater impact - particularly when you mention $10k/month expenditures.  ignoring wasteful spending at the sake of increasing returns can be a fool's errand - consider the nearly inexhaustible list of people who have gone bankrupt after reaching millionaire-status.  No matter how much money you have, you can still wind up with nothing.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: theoverlook on June 08, 2015, 12:32:47 PM

Regarding heightened risk this has been addressed several times in this post.  It does take some skill to do, but it isn't rocket surgery.  It is worth the extra time IMO if you can cut your stache from 25X to some lower multiple IMO.  YMMV.

You have dismissed it several times, but it hasn't been adequately "addressed."  These are not low risk investments, they are not on par with bond or equity index funds.  They are higher risk - and thus higher potential reward - investments.  That's on the tin.  Claiming otherwise doesn't change it.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: brooklynguy on June 08, 2015, 12:45:14 PM

Regarding heightened risk this has been addressed several times in this post.  It does take some skill to do, but it isn't rocket surgery.  It is worth the extra time IMO if you can cut your stache from 25X to some lower multiple IMO.  YMMV.

You have dismissed it several times, but it hasn't been adequately "addressed."  These are not low risk investments, they are not on par with bond or equity index funds.  They are higher risk - and thus higher potential reward - investments.  That's on the tin.  Claiming otherwise doesn't change it.

Yep.  This fact is encapsulated in the very concept of "accredited investors" (and therefore in the entire gist of this thread), which exists in the securities laws on the rationale that sophisticated investors need less paternalistic regulatory protection because they are "big boys" capable of understanding and protecting themselves against (or knowingly assuming) heightened risks.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 08, 2015, 01:33:51 PM
They don't necessarily have to be higher risk investments than a general purchase of a market basket of securities.  The risks are just less-well-known and and likely more concentrated.  Hence the reason why you need to spread your bets and diversify like any good investor would do with any investment. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo on June 08, 2015, 04:07:20 PM
They don't necessarily have to be higher risk investments than a general purchase of a market basket of securities.  The risks are just less-well-known and and likely more concentrated.  Hence the reason why you need to spread your bets and diversify like any good investor would do with any investment.

if the risks are "less well known" then you cannot also say that they are less risky.  That's a complete contradiction.  And if you are "spreading your bets around" that will reduce the increased yields that you are seeking with this strategy. 

You seem to think that you (and perhaps you alone) can somehow identify investments that are both lower risk and have a higher rate of return than thousands of hedge-fund managers working full-time with $Bs cannot identify, and that you could keep that edge over many years (if not decades).  I am skeptical. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 08, 2015, 04:42:45 PM
Quote
if the risks are "less well known" then you cannot also say that they are less risky.  That's a complete contradiction.  And if you are "spreading your bets around" that will reduce the increased yields that you are seeking with this strategy. 

I never said they are less risky.  The risk varies depending on the asset. 

Spreading bets around doesn't mean you have to decrease yields.  I have no idea why you think is has to so it is hard to comment.  You simply buy securities across multiple syndicated projects and spread out your risk.  This is no different than buying a portfolio of securities from Wall Street from this perspective. 

Quote
You seem to think that you (and perhaps you alone) can somehow identify investments that are both lower risk and have a higher rate of return than thousands of hedge-fund managers working full-time with $Bs cannot identify, and that you could keep that edge over many years (if not decades).  I am skeptical.
How did you arrive at this Stretch Armstrong level stretch ridiculous conclusion?  Multiple times in this thread I have said pretty much any educated person that takes a bit of time to learn things can make these investments.

The fact that you mention hedge funds with billions under management investing in these projects illustrates how little you know about them and how hedge funds work.  These projects are FAR too small for a large fund to goof around with.  This is analogous to Dr. Horton not competing on east Austin infill projects with smaller developers like us because it isn't worth their time to do so.  To put tens of millions of dollars to work efficiently it needs to be done on larger projects.  If they're going to take the time to underwrite an investment they want to invest more. 

Skeptical is fine.  Due your diligence.  Just have an open mind while you do it. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo on June 08, 2015, 06:08:17 PM
I never said they are less risky.  The risk varies depending on the asset. 

Spreading bets around doesn't mean you have to decrease yields.  I have no idea why you think is has to so it is hard to comment.  You simply buy securities across multiple syndicated projects and spread out your risk.  This is no different than buying a portfolio of securities from Wall Street from this perspective. 


You were the one who said that the risk was less well known. It stands to reason that if the risk is less-well-known, there is at least a decent chance it's higher. Here's your exact text (emphasis added):
Quote
The risks are just less-well-known and and likely more concentrated.  Hence the reason why you need to spread your bets and diversify like any good investor would do with any investment. 
and then...
How did you arrive at this Stretch Armstrong level stretch ridiculous conclusion?  Multiple times in this thread I have said pretty much any educated person that takes a bit of time to learn things can make these investments.

The fact that you mention hedge funds with billions under management investing in these projects illustrates how little you know about them and how hedge funds work.  These projects are FAR too small for a large fund to goof around with.  This is analogous to Dr. Horton not competing on east Austin infill projects with smaller developers like us because it isn't worth their time to do so.  To put tens of millions of dollars to work efficiently it needs to be done on larger projects.  If they're going to take the time to underwrite an investment they want to invest more. 

Skeptical is fine.  Due your diligence.  Just have an open mind while you do it.

Not all hedge funds are mega funds that can't operate in small investments.  There are thousands that operate on assets of a few $MM each.  Collectively, $Bs.  Again, I have no doubt that there is the possibility to achieve higher returns - but to do so for decades takes work and it will generally take more risk.  As you said, most of these investments have risk profiles that are 'less-well-known'.
Getting back to your OP - optimizing spending still has a far greater effect, particularly when one is considering spending on the $10k-month level that you earlier referenced.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 08, 2015, 06:26:11 PM
Thanks for the lecture on hedge funds.  For reference I am a minority partner in a small hedge fund so I think I know them pretty well.  I speak at conferences all over the country on crowdfunding and alternative asset topics.  I am also opening a semi blind pool hard money fund and have many syndicated projects via our crowdfunding platform. 

I am in the process of working through my expenses right now.  I just cleared through all of my AMEX trades over the last 2 months.  Some of what is charged on the AMEX is purely business and I will likely factor it out of monthly expenses.  Other items are "dual use" and probably need to be shared among the business and our personal expenses.  It looks like we've averaged about $1200/month on business stuff thus far. 

When I have a bit more time I'll look through our Compass expenses and those that cleared our checking account.  Most of our spending exists in those two spots so it will be interesting to see how things shake out.  I'll also need to use our tax return to estimate taxes for the year because our withholding is short every year.  Taxes will be tougher because our income is fairly variable.  FICA and FUTA taxes can probably be fairly well measured from my W2. 

The big expenses are going to be taxes, childcare, and our mortgage.  We do a pretty good job minimizing taxes and I have a lot of laser focus there because it is our largest expense.  Childcare is something we probably can't do much with for another 3 years.  Our oldest is going to public school later this year so that will eliminate about 1/3 of this expense.  In theory we could pay off the mortgage, but the money is quite cheap net of deductions (4.625% prior to deductions) so this seems sub-optimal.  It would be good from a cash flow standpoint though.  It would also help with bankruptcy risk in case the fit ever hits the shan. 

More to come soon....working through the expenses tonight and possibly tomorrow if I run out of energy today. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 08, 2015, 09:32:52 PM
You hold down 2 jobs and speak at conferences "all over the country" about crowdfunding? So, 3 jobs? Or 2 jobs plus unpaid talking to people about money, plus posting here a lot?

And you want more time with your kids and your wife to be able to quit her job?

Jeebus. Is this just a convoluted cry for help, or what? Do you really, really not get it here?

You. Are. Done.

F'ing quit and learn to love life and stop thinking about money. What are you going to tell your kids when they're adults and you don't know them? They won't be impressed that you made 11% a year. Are you really going to be glad you put in the extra years to earn the extra bucks on your deathbed? Move somewhere that doesn't suck, get back in shape, cut the childcare in half or less by just hanging out with your kids at the park yourself, travel...

Your call. The sweet sweet money is calling you. Might be time to lash yourself to the mast and ignore the siren song.

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 08, 2015, 10:49:33 PM
F'ing quit and learn to love life and stop thinking about money. What are you going to tell your kids when they're adults and you don't know them? They won't be impressed that you made 11% a year. Are you really going to be glad you put in the extra years to earn the extra bucks on your deathbed? Move somewhere that doesn't suck, get back in shape, cut the childcare in half or less by just hanging out with your kids at the park yourself, travel...

Your call. The sweet sweet money is calling you. Might be time to lash yourself to the mast and ignore the siren song.

-W

Austin certainly doesn't suck, but it is definitely hot in the summer.  This year has been pretty mild thus far. 

I spend plenty of time with my kids man.  It wouldn't hurt to spend more time with them; especially while they're young. 

The childcare will go away in 3 years.  1/3 of it will go away for the most part later this year. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: theoverlook on June 09, 2015, 07:05:06 AM
Quote
if the risks are "less well known" then you cannot also say that they are less risky.  That's a complete contradiction.  And if you are "spreading your bets around" that will reduce the increased yields that you are seeking with this strategy. 

I never said they are less risky.  The risk varies depending on the asset. 
 

Well...

Hard money loans on real estate are common vehicles with double-digit yields and low risk if purchased correctly through reputable site. 


Emphasis mine.

I'm not trying to pick on you, I just think you're not acknowledging the higher risk nature of these investments.  Yes, risk can be managed, but it doesn't eliminate it, it just makes you comfortable with the risks you are taking. I have plenty of money tied up in real estate - the vast majority of my net worth actually - and I am comfortable with the risk (poor liquidity, high exposure to local economic downturns, high carrying costs in the event of vacancy, etc) but I still acknowledge that it is much riskier than being equally invested in publicly traded equities and bonds. The returns are phenomenal, but the risk is still there.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Retire-Canada on June 09, 2015, 08:18:21 AM
I spend plenty of time with my kids man.  It wouldn't hurt to spend more time with them; especially while they're young. 

Based on what you have posted you have a lot of irons in the fire. I think you'd benefit from doing an analysis of how much time you spend in an average month on each major project/job/business venture as well as with your family. Essentially what you are doing for your expenses, but for time.

You might be surprised by the results. You've only got 24hrs in the day and if you are tackling a lot something has to give.

You've got lots of money and your money will make you more money. Time is one thing you can't make more of and you'll never get back once it's passed.

If you decide to do this one thing I would suggest is you only count family time where you aren't multi-tasking with your smartphone/computer/business documents/TV news/etc. I've spent time with people who think they are having a family evening, but you can watch them work the whole time and not really give the people around them their full attention.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Wolf359 on June 09, 2015, 12:47:46 PM
I've read this discussion with interest.  Going back to your original question, the reason the Trinity study focuses on traditional stocks and bonds is because that was the purpose of the study.  They were not studying real estate, or private loans, or other investment vehicles.  The premise of the study was to identify a safe withdrawal rate for stock and bond investments.  They also further specified a stock/bond ratio, and a 30 year time horizon.

The reason for the 4% SWR was due to a sequence of returns risk.  It is quite possible to use a higher withdrawal rate, and most of the time you'd be okay.  But if the market dropped right after retirement, and stayed down for a while, your traditional stock/bond portfolio would fail (you'd run out of money.)  Thus, they settled on 4% SWR.  Further testing since then has let other people to prefer an even lower SWR, such as 3% or 2.5%.  On the MMM forums, early retirees are looking at 40 or 50 year time horizons, so that's another reason to be conservative.

In other words, the 4% SWR isn't set in stone, and many people choose a different rate.

You're trying to go the other way.  Instead of a more conservative rate, you're trying to find a more aggressive level.  That can work -- just don't base your results on the Trinity study (which was limited to stocks/bonds). 

Someone once pointed out that you can use a much higher SWR using real estate.  It was noted that during the 2008 financial crisis, that rents stayed stable even as house values crashed.  In other words, if you owned real estate, it didn't matter as much what the market did.  You could still weather the crisis (especially if you had no debt).  The money you get out of rental property isn't coming out of your equity.  You were only in trouble if you had to sell.

I am not a real estate person, so I can't address how true that is.  I can believe that while stock markets are (mostly) efficient, real estate is less efficient.  There is room to make money actively investing there.

I also can't speak to crowdfunding.  I don't know that topic, or what the risk characteristics are.  Nobody actually cares what SWR any individual picks.  It's up to you as to what you're comfortable with, and it's up to you how you approach early retirement (or even if that's your goal.)

Lastly, if you only want to talk to accredited investors, you might want to ask the question on the bogleheads forum.  It seems like every other person there is a millionaire or will soon be.  Their philosophy is also more aligned with yours.  While they espouse living below your means, MMM is at a different level of frugality than a typical boglehead. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 09, 2015, 01:24:13 PM
Solid post Wolf359.  I don't know anything about Bogleheads.  I have done some Google searches and landed on some of the threads over there.  I'll check it out when I get more time. 

In these threads I have been doing my best to keep them on topic.  There is an occasional ridiculous comment thrown in and I am tempted to just punt.  Then those are generally followed up by much better comments.  The forum could probably stand to have more moderation IMO, but I understand that is a bit of an art and requires resources. 

Anyway....thanks for the latter comments. They're good food for thought.  Please keep them coming. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 13, 2015, 08:32:44 PM
The forum could probably stand to have more moderation IMO, but I understand that is a bit of an art and requires resources. 

More moderation would likely lead to you being unable to post anymore, so be happy that it doesn't.  :)

PM sent. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 13, 2015, 08:34:13 PM
On topic: why a 4% SWR?  Because that's what the safe withdrawal rate is, historically, to base your initial withdrawal amount off of, and increase by inflation each year, and have a 95% chance of not running out of money after 30 years, with a standard 50/50 portfolio.

If you want to add more risk, or more work, you may be able to get higher returns.

I am above a 4% SWR, which I'm comfortable with, but there's solid reasons for it (or lower) for most people.

Also: I wouldn't recommend ANYONE use the crowd funding real estate sites.  Ugh.  If you have the skills and knowledge to evaluate that risk, invest where you have some control.  Real hard money loans?  Sure!  Crowd funded mediocre returns with no control and extra risk (and systemic risk)?  Pass.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 13, 2015, 08:57:41 PM
Control also carries risk with it.  Some folks want to minimize risk and the need for control and make their money work for them instead of the other way around. 

EVERY investment carries systemic risk.  I'm not really sure why that is highlighted.  Systemic risk, by definition, is not controllable. 

Also....if by more work you mean being skillful in evaluating investments I agree with you.  If you mean that you have to control the investment to acquire said extra returns I don't agree with you.  I know plenty of folks that invest in private offerings that make in excess of 20% on their money.  We could argue all day long about which investments carry more risk, but successful investing doesn't mean you have to control the investments.  Most of the sophisticated investors I know actually don't want to control the investment.  They want to let someone else take those business risks and invest in a limited liability capacity. 

I plan to shift from investing actively to doing more passive investing in the coming 1-2 years.  This is for a variety of reasons:

1.  I can diversify more in investments with yields better than what I can get in the securities markets
2.  Minimizing GP risk is desirable as my net worth climbs
3.  Minimizing time spent on investments is desirable.  Evaluating investments on the front and picking quality sponsors is the main part of the job
4.  There are tax advantages of investing passively instead of actively

Claiming that people have to take more risk to get higher returns is good overall as a general statement.  Learning to invest well can minimize risk while maximizing upside.  When people are younger and have smaller staches to grow it is more important for their investments to work harder and general advice from advisers is to take more risk the younger you are.  As you amass more wealth it is more important to keep it safe.  You also care more about absolute dollars delivered from investments and less about yield.  There is generally a tradeoff between the two and people shift more toward wealth preservation and delivery of more dollars (as opposed to yield) as they get wealthier. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: clifp on June 13, 2015, 11:05:07 PM
On topic: why a 4% SWR?  Because that's what the safe withdrawal rate is, historically, to base your initial withdrawal amount off of, and increase by inflation each year, and have a 95% chance of not running out of money after 30 years, with a standard 50/50 portfolio.

If you want to add more risk, or more work, you may be able to get higher returns.

I am above a 4% SWR, which I'm comfortable with, but there's solid reasons for it (or lower) for most people.

Also: I wouldn't recommend ANYONE use the crowd funding real estate sites.  Ugh.  If you have the skills and knowledge to evaluate that risk, invest where you have some control.  Real hard money loans?  Sure!  Crowd funded mediocre returns with no control and extra risk (and systemic risk)?  Pass.

As an accredited investor I agree. The SEC has moved very slowly at opening up crowded funding investing for good reason IMO (something like Kickstarter just gets a you ticket, or product, or thank you gift.).   The risk are considerable higher in non regulated investments and while returns are also higher,understanding the risk is difficult.

Regarding hard money loans, I've made a few I have once outstanding and I'm considering an another. But this are people I know at least reasonably well. I'm open to a syndicate and make them to strangers but I haven't seen anything that was particularly tempting.  Crowdfunding much less so, I was early in as Prosper lender and lost money. (although probably less than I would have in the market during the same time period.)

There is a least one guy on the ER board who has enjoyed a very comfortable retirement as hard money lender.  But he was experienced real estate investor for decades did a lot of due diligence and basically as he sold properties he invested the proceeds in hard money loans rather than new properties.

I don't know how long you've been doing this Mr. Orange, but I'd be surprised if you were active back in 2004-2008 and still don't see the risk associated with these loans even if you restricted yourself to 70% LTV. Let's face a lot of higher interest rate are only available for projects where the actual value is hard to determine.  A classic is a home that is in such bad repair that it can't qualify for any type of loan.  The flipper puts in 50K borrows 50K from you buys a property that is worth "150K" for a $100K with 25K of work he can flip for $200K.  Well shit happens it is more like $60K worth of work and your left with the option to foreclose on the property that is unrentable. I think most folks understand those risks.

What I doubt people understood back in 2005 or 2006 is that in many market Vegas, Florida, Arizona, most of California and many other place real estate price could decline 50-75% over just a couple of years.  I don't understand how anybody making hard money loans in those market back in that time frame didn't end losing their shirt. I know I made plenty of offers on properties with 2nd mortgages on them and many case the 2nd weren't bank.  If I am buying a property for a $70K with 140K mortgage the 25K second mortgage would be lucky to get a $1,000.

It is also worth noting that 4% SWR is adjusting for inflation, right now at 2% nobody cares.   But I remember inflation from the 70s, and while your 12% sound great now, a 12% loan actually loses money after taxes when inflation hits 10%.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: libertarian4321 on June 14, 2015, 06:00:40 AM
Read the passage again.  It means what it says.  $10k/month won't sacrifice our standard of living any.  Below that I think it probably will.  My budget is right there in the other thread for anyone to review.

You live in South-Central Texas and spend $10-11k per month?

We are multimillionaires living just down the road in San Antonio, and we live very comfortably on significantly less than half that amount, without really putting much effort into it.

Texas is an extremely low cost of living state.  Low taxes, low cost of living, cheap energy.

What are you spending all that money on, hookers and blow?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 07:06:02 AM
Quote
As an accredited investor I agree. The SEC has moved very slowly at opening up crowded funding investing for good reason IMO (something like Kickstarter just gets a you ticket, or product, or thank you gift.).   The risk are considerable higher in non regulated investments and while returns are also higher,understanding the risk is difficult.

Kickstarter does rewards-based crowdfunding.  This has very little in common with equity offerings. 

Again, the risks don't have to be higher.  You just have to be skillful in evaluating the risks to get the proper risk-adjusted yields.  Saying the investments are not regulated is also inaccurate. 

Quote
Regarding hard money loans, I've made a few I have once outstanding and I'm considering an another. But this are people I know at least reasonably well. I'm open to a syndicate and make them to strangers but I haven't seen anything that was particularly tempting.  Crowdfunding much less so, I was early in as Prosper lender and lost money. (although probably less than I would have in the market during the same time period.)
Prosper offers unsecured loans.  These are an entirely different beast than loans offered with a first position trust deed. 

Quote
I don't know how long you've been doing this Mr. Orange, but I'd be surprised if you were active back in 2004-2008 and still don't see the risk associated with these loans even if you restricted yourself to 70% LTV. Let's face a lot of higher interest rate are only available for projects where the actual value is hard to determine. 

Not true....the values are pretty easy to determine.  The banks just don't loan on these projects because they can:

1.  Get a lower cost of capital through deposits, and
2.  Lend on safer projects where they can put more money to work

and thus there is not much incentive for them to issue these loans. 

With 70% LTC (not value...COST) loans in primary markets that have historically only dropped 15% during events like the mortgage crisis it is hard for me to imagine the security interest for the lender being impaired.  It is certainly possible, but the likelihood is very low.  More on this below.

Quote
What I doubt people understood back in 2005 or 2006 is that in many market Vegas, Florida, Arizona, most of California and many other place real estate price could decline 50-75% over just a couple of years.  I don't understand how anybody making hard money loans in those market back in that time frame didn't end losing their shirt. I know I made plenty of offers on properties with 2nd mortgages on them and many case the 2nd weren't bank.  If I am buying a property for a $70K with 140K mortgage the 25K second mortgage would be lucky to get a $1,000.
Don't invest in the casino markets.  Don't invest in ridiculous non-recourse markets like California.  I would never invest a penny in any real estate projects in California.  Again, you have to be able to study things and place good risk-adjusted bets. 

Quote
It is also worth noting that 4% SWR is adjusting for inflation, right now at 2% nobody cares.   But I remember inflation from the 70s, and while your 12% sound great now, a 12% loan actually loses money after taxes when inflation hits 10%.
These loans are short-term in duration.  If inflation rises appreciably hard money rates will also rise and thus yields to investors will rise as well.  There are statutory interest limits you can charge to investors so at some point things may not work.  At that point you simply monetize your short-term loans and invest elsewhere.  This is no different than adapting to the market with any other investment. 

This isn't the topic of this thread, but owning real estate with FNMA low interest loans would benefit greatly in this environment.  The gov-mint would be inflating away your debt in and you could pass on the real rent increases to your tenants.  Other hard assets would also benefit during periods of heightened inflation, but I can't think of any others that allow one to borrow as much at such low rates.  Double digit inflation with 5% FNMA financing (or lower) for any extended period of time would be something I am set up for and I am sure many real estate investors would benefit handsomely in this environment. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 07:12:48 AM
Quote
What are you spending all that money on, hookers and blow?

Nope....our top 5 expenses are:

1.  Federal taxes
2.  Childcare (3 kids in Montessori school....$2500/month....one is going to public school in August of this year)
3.  Mortgage - Including all PITI....so much of this is taxes as well....and insurance
4.  Groceries
5.  FICA + FUTA tax

I have a long thread about this in the journal section detailing expenses for my most two recent months.  Items 1, 3, and 5 all carry high tax components.  The 5 items above account for 71% of my monthly expenses. 

I am exploring ways to get rid of some of item 1, but there aren't many things left for me to do to reduce this that don't demand a lot of cash and would potentially reduce after-tax income.  My goal is maximizing after-tax income, not minimizing taxes.

Item 2 will go away by 1/3ish this August.   The other 2/3rds (we have twins) will go away in about 3 years. 

Item 3 we can pay off about $285k on a 4.625% loan and save $1600+ a month on PI payments, but the TI will not go away.  This is a poor use of cash at this point. 

Item 4 could stand to be optimized.  This is something I plan to work on in June. 

Item 5 there is really nothing I can do while I am still working.

There is plenty we can do with the other 29% though.  See the journal thread if you'd like to discuss it.  I'm trying to keep this thread on topic if possible. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 14, 2015, 07:45:13 AM
With 70% LTC (not value...COST) loans in primary markets that have historically only dropped 15% during events like the mortgage crisis it is hard for me to imagine the security interest for the lender being impaired.

When you were in junior high school, you could buy all the dirt you wanted in the Austin area for next to nothing.  Ask your folks what happened in the late 80's/early 90's when all the Silicon Valley companies decided to move manufacturing operations to Texas and paid some pretty high prices for developable land up in your area.  Manufacturing went overseas instead and the land bubble popped.  I knew the state and local tax director for a major computer company in those days, as he lived around the corner from me.  He took over the department from outside and immediately appealed the assessed values of the land out there as being several times fair market value.  When he called the appraisal district, the answer was "we were wondering when y'all were going to call."

Yep, LTC looks good in a rising market and helps you sell your projects to your investors.  In a declining market, cost often exceeds value, and then the metric returns to LTV in the lending world.   And it can shift quickly - the hotel business is a great example of that.

It's not "different this time."  Yes, you were insulated somewhat from the mortgage crisis because of the strength of your local economy at that time.  Real estate is still cyclical and things change.  Your cycle has not disappeared, it's just different.  You are doing a reasonably good job at protecting yourself today from the cycle as you know it.  As you ramp up, make sure you don't become overconfident and throw caution to the wind.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 09:15:28 AM
Quote
When you were in junior high school, you could buy all the dirt you wanted in the Austin area for next to nothing.  Ask your folks what happened in the late 80's/early 90's when all the Silicon Valley companies decided to move manufacturing operations to Texas and paid some pretty high prices for developable land up in your area.  Manufacturing went overseas instead and the land bubble popped.  I knew the state and local tax director for a major computer company in those days, as he lived around the corner from me.  He took over the department from outside and immediately appealed the assessed values of the land out there as being several times fair market value.  When he called the appraisal district, the answer was "we were wondering when y'all were going to call."

All the more reason to spread your bets out across multiple local economies.  Austin today is not the Austin of the late 80s or early 90s either.  The economy is far more diverse in all of the major Texas cities now than it was 25 years ago.  It is prudent to hedge your bets though and to spread out risk.  This is consistent with crowdfunding and spreading your investments across both sponsors and regions. 

Quote
Yep, LTC looks good in a rising market and helps you sell your projects to your investors.  In a declining market, cost often exceeds value, and then the metric returns to LTV in the lending world.   And it can shift quickly - the hotel business is a great example of that. 
Don't invest in hotels then. 

In order for cost to exceed value at 70% LTC the market would have to drop in excess of 30%.  That's a bet I am willing to take with 150 people a day moving to Austin right now.  There are other favorable markets like Charlotte that have similar growth patterns.  Yes, things can change.  Spread your bets....diversify.  That is now possible pretty easily with crowdfunding. 

Quote
It's not "different this time."  Yes, you were insulated somewhat from the mortgage crisis because of the strength of your local economy at that time.  Real estate is still cyclical and things change.  Your cycle has not disappeared, it's just different.  You are doing a reasonably good job at protecting yourself today from the cycle as you know it.  As you ramp up, make sure you don't become overconfident and throw caution to the wind.
We're actually ramping down right now; not up.  That is why I am monetizing stuff we bought several years ago and will be investing in crowdfunded projects.  It allows for diversification, albeit with lower yields than what I can get investing actively.  I'm looking to start making my money work harder for me and not the other way around. 

There are certainly risks with this investing and I never claimed "it is different this time."  That's a nice straw man that people on this thread keep bringing up for some reason.  What I am claiming is that if one does their diligence and spreads their bets they can do better than a 4% WR.  Is it prudent to be the farm on this?  No.  A margin of safety is always prudent and that is why we're not discarding jobs right now and "firing our boss" to get to freedom in the shortest possible time frame.  We're going to be conservative and work a bit longer for both a higher standard of living in FI and a larger margin of safety.  Are there things I would rather be doing with my time?....sure.  Would it be irresponsible of me to throw caution to the wind and put my kids at risk because I was too immature to slog it out and design in a safety factor....IMO, yes. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: clifp on June 14, 2015, 03:36:49 PM

Not true....the values are pretty easy to determine.  The banks just don't loan on these projects because they can:

1.  Get a lower cost of capital through deposits, and
2.  Lend on safer projects where they can put more money to work

and thus there is not much incentive for them to issue these loans. 

With 70% LTC (not value...COST) loans in primary markets that have historically only dropped 15% during events like the mortgage crisis it is hard for me to imagine the security interest for the lender being impaired.  It is certainly possible, but the likelihood is very low.  More on this below.

Quote
What I doubt people understood back in 2005 or 2006 is that in many market Vegas, Florida, Arizona, most of California and many other place real estate price could decline 50-75% over just a couple of years.  I don't understand how anybody making hard money loans in those market back in that time frame didn't end losing their shirt. I know I made plenty of offers on properties with 2nd mortgages on them and many case the 2nd weren't bank.  If I am buying a property for a $70K with 140K mortgage the 25K second mortgage would be lucky to get a $1,000.
Don't invest in the casino markets.  Don't invest in ridiculous non-recourse markets like California.  I would never invest a penny in any real estate projects in California.  Again, you have to be able to study things and place good risk-adjusted bets. 


A few things.  Banks won't lend on many fixer upper situation because Fannie, Freddie, FMA, VA etc won't buy loan on properties that aren't habitable; working bathrooms, stoves etc. It varies what they consider habitable.  This leaves hard money lenders as often the only option hence why they can get good rates.

Second I wouldn't over estimate the benefit of having recourse loans. AFAIK while 1st mortgage are non recourse in California all other real estate loans are recourse (2nd, Refi, and certainly any hard money loan would be.)  Nevada, Florida were both recourse state (and I assume Texas) but honestly it didn't do the banks much good.  Even when people strategically defaulted banks seldom went after them (pissed me off).  If some guy borrows 10,20,50 even 100K for house/commercial property and then walks away from a property that he has a stake in, odds are because he doesn't have the money.  Hiring a lawyer ain't going to change that fact. Not mention lawyers are expensive and the legal process is long.

Finally during the crisis the Case-Shiller housing index declined 34%.  So all you had to be was worse than average market to lose out, I highlighted the high flyers to point you lost everything as 2nd in those place, there were plenty of other places in the country where you took a haircut.

Now I know nothing about the Austin RE market, but this article would concern me. http://kxan.com/2015/04/21/austin-housing-market-least-affordable-it-has-ever-been/ (http://kxan.com/2015/04/21/austin-housing-market-least-affordable-it-has-ever-been/)


Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 03:49:28 PM
Banks can portfolio loans.   So FNMA guidelines don't matter for the projects.  Yes, these loans would then have less liquidity.  An interim construction loan with a 1-year term has pretty good liquidity implicitly though as do many of the other short-term loans on crowdfunding sites. 

Austin has been on a nice run.  I plan to sell most of what I have and buy other assets.  It just doesn't seem any more risky to bet on 30% security margins than it does to buy index funds subject to casino risk from Wall Street to me.  I don't really have much confidence in Wall Street after 2008.  I have a lot more confidence in picking quality sponsors in good markets and spreading my bets among them. 

For reference we still have about 40% or so of our portfolio in equities of some sort so I'm not a buy guns and bullets guy.  I just think I can do better investing actively on my own in illiquid assets in primary markets.  So far this has worked pretty well for me; even through the mortgage crisis.  Much of this stuff is common sense, but I do readily admit it requires more effort then point and grunt index investing.  The extra bit of effort is worth it to me to gather additional yield on my portfolio. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 14, 2015, 04:39:56 PM
Yeah, if you feel that way about the stock market you should probably stay far away from it and in things that you at least feel like you have some control over.

I mean, if you'd held on (or bought in) in 2008, you're smelling like roses right now. But if that sort of volatility won't let you sleep at night, by all means stick with what you're doing.

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo on June 14, 2015, 04:57:45 PM

Austin has been on a nice run.  I plan to sell most of what I have and buy other assets.  It just doesn't seem any more risky to bet on 30% security margins than it does to buy index funds subject to casino risk from Wall Street to me.  I don't really have much confidence in Wall Street after 2008.  I have a lot more confidence in picking quality sponsors in good markets and spreading my bets among them. 

Your previous statement (above) could be interpreted in two different ways.  Either a) you believe that literal, actual casinos are increasing the risk of the broader market (perhaps by owning large portions, although this is unclear), or b) you are using 'casinos' as a metaphor to suggest that the system is designed to be unfair to an individual investor (e.g. "the house always wins"). 

What is it, specifically, that has caused you to loose confidence after 2008?  Was it merely how deeply equities fell?  The volatility?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 05:18:38 PM
We continued buying during 2008 and didn't sell anything.  If you look at the performance of the stock market over my working career (since 2002ish) it doesn't exactly inspire confidence. 

Casino is a metaphor...probably hasn't been too far from the truth for the last 13 years.  For those interested John T. Reed has a thought-provoking article on the nature of investing here:

http://www.johntreed.com/investment.html

There are also better investments in the private world if you know how to underwrite risk and can pick small firms with quality managers in growing sectors.  It is prudent to spread your investments out, but concentrating in something you know very well should allow you to invest more in each project or company.  Take the time and study the industry.  We have done this with a few real estate related types of investing and it has paid very handsomely.  The same can be done investing in Subway franchises, car washes, technology startups, or hundreds of other small businesses.  All of the latter businesses I know almost nothing about, but I do know real estate very well because I have invested the time to learn the industry. 

My point in this thread is that you can do better than a 4% WR and don't have to work 40 hours a week to do so.  You also don't need to control the investment and in many cases it is probably better to NOT control things if your goal is to limit risk and have the capacity to diversify and get access to quality operators or managers across sectors.  With recent securities law changes investors have access to investments they previously haven't had in wide variety provided they're accredited investors. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 14, 2015, 05:37:30 PM
S&P 500 has returned roughly 7% annualized (reinvesting dividends) over the 2002-present time period. With zero effort on the part of the investor, assuming you're in some kind of cheap index fund.

Just FYI. If anything, the stock market is a casino where the investor gets to be the house, assuming you have a long time horizon.

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 14, 2015, 05:45:25 PM
Many treat the stock market like a casino, buying and selling what's "hot," trying to time the market, etc.

If you view it not as a casino, but as ownership in businesses, and buy and hold, the analogy to gambling becomes quite ridiculous.  It's all in how you invest (or don't, but gamble instead).
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 05:48:30 PM
And my development projects have delivered in excess of 20% unlevered.  With 60% LTC financing they have done much better.  Other small businessmen I know have done much better. 

Pretty much everyone I know that has purchased shares in hard money projects has made 10% or more too.  If you pick good investments 10% beats the pants off of 7%.  There are different risks in each investment.  I just like the risks in real estate loans better when investing behind a first position trust deed.  3 extra points compounded adds up to a lot over time.  YMMV. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 05:51:12 PM
If you view it not as a casino, but as ownership in businesses, and buy and hold, the analogy to gambling becomes quite ridiculous.  It's all in how you invest (or don't, but gamble instead).

I am sure there are plenty of folks that were ready to retire in 2008 that disagree with you.  The folks that retired just before 2008 probably would disagree with you as well. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 14, 2015, 05:58:13 PM
If you view it not as a casino, but as ownership in businesses, and buy and hold, the analogy to gambling becomes quite ridiculous.  It's all in how you invest (or don't, but gamble instead).

I am sure there are plenty of folks that were ready to retire in 2008 that disagree with you.  The folks that retired just before 2008 probably would disagree with you as well.

Huh?  All those folks did quite well if they had the mindset I was talking about, and they didn't sell in 2008/2009.. their portfolio is looking great today.  The ones who panic sold because of timing/gambling were the only ones who came out poorly (or those that weren't diversified at all, perhaps).

Go ahead and run some simulations on if you had 25x assets in 2007/2008 and retired, and come back and let us know what you find.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 06:06:57 PM
Except the ones that were expecting dividends that were not paid to cover their costs and were forced to sell their assets at fire-sale prices to cover their expenses.  If your assets are heavily allocated in equities the likelihood of this happening was probably quite high. 

Equities have their fair share of risk too.  In fact, there is a whole industry built around convincing people that this is pretty much the only way to invest because "in the long run" they do better than other investments.  That is, unless you consider small businesses or other private investments that do better in the same "long run" periods that are used. 

The rebuttal is generally that these other investments are somehow riskier though and that they're unsuitable for non-sophisticated investors.  Thus the nanny state has to protect us from those profits by making them only available to accredited investors.  Many of the most sophisticated investors I know are not accredited investors yet.  Fortunately these garbage rules are going away soon and it will make the playing field more level for everyone. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 14, 2015, 06:15:41 PM
Sequence of returns risk probably had an impact on people that were tied to the 4 percent withdrawal rate in 2009 forward.  That's why the Feds suspended RMD's for 2009.  If you could afford to be flexible and withdrew less than the 2008 4 percent plus inflation, you were better off.  Even better if you lived off portfolio income instead of liquidating assets.

I RE'd in early 2007.  My rents arrived pretty much on time throughout the downturn.  They went up after a lot of folks lost their houses, as there were more renters and fewer investors.  Most of the dividends still appeared, except, of course, the bank stocks. 

It's not the value of your assets, it's the income they produce.

I disagree that the "accredited investor" rules are garbage rules.  Unsophisticated people will pour all their money into these vehicles, hoping and believing they will outperform other asset classes.  From what I have seen, of all the product out there, there aren't a lot of good operators or good investments.  Most people that put their money in won't be able to distinguish between good and bad ones.  Then the market will tank, a lot of people will lose a lot of money, and the government will come up with an onerous and irrelevant set of regulations to protect the investor-consumer.  Lose-lose in my book.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 14, 2015, 06:21:46 PM
Except the ones that were expecting dividends that were not paid to cover their costs and were forced to sell their assets at fire-sale prices to cover their expenses.  If your assets are heavily allocated in equities the likelihood of this happening was probably quite high. 

They didn't have to sell all of them, just enough to cover their spending for that time period.

Seriously, go run the numbers, or look up one of the posts where someone has, rather than just speculating.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 06:24:00 PM
Time will tell Another Reader.  Similar doom and gloom prophecies were forecast by state regulators and other NASSA sympathizers post Title II of The JOBS Act and there has been little to no fraud and little to no Wall Street style crises or meltdowns.  In fact, The State of Massachusetts is suing the SEC right now over Title IV and Montana has joined in the suit.  Everyone I know close to the matter expects for the case to be tossed out soon though. 

Easier access to capital and a more robust capital formation process is good for small businesses.  Small businesses also create the bulk of the jobs in our country.  This spells more opportunity for those selling their talents on the labor market.  Hopefully all of this will lead to rising wages for those in the middle, which would be good for the economy overall. 

If you tried running a business after the crisis and wanted access to credit you'd probably have a different opinion about things.  Other countries have allowed crowdfunding for years now and the doom and gloom hasn't materialized. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 14, 2015, 06:28:46 PM
Wait, you read the Trinity study, right? The 4% SWR stuff still applies here (presumably). Those 2008 retirees are fine, assuming they didn't freak out and do anything stupid.

I guess this gets us back to the original thread title... you still haven't internalized how SWR works, apparently. Which is fine, but it's sort of bizarre, too. Sophisticated/accredited (note, I am aware these are not the same thing) investors would never call the stock market "a casino" except in jest.

I feel sort of like we're going in circles here, so:
1: SWR refers to stock/bond market investments that are spread across the entire market (ie, index style) and assume no fortuitous market timing/panic selling/etc. Dividends vs capital gains are basically irrelevant, only total return and volatility (and portfolio/withdrawal rate, of course) matter.
2: Higher returns are possible in many other investments. All of them that are *passive* will also require more risk. You have a lucrative second job, not passive investments. Hence SWR is not relevant to you here.
3: Your general backstory/statements about passive investing and equities make many of us question your actual sophistication with finance. You are also dirt poor/work too much (2-3 jobs? Won't let wife quit?!? Spend your Saturdays watching college basketball when the season has been over for months?) by the standards of many of us of similar age/circumstances, despite your amazing investment returns, presumably because you spend/spent too much money. That makes me sad. At least you are here and maybe can turn that around/figure out what you want out of life.

Good luck.

-W


Except the ones that were expecting dividends that were not paid to cover their costs and were forced to sell their assets at fire-sale prices to cover their expenses.  If your assets are heavily allocated in equities the likelihood of this happening was probably quite high. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 06:29:05 PM
Seriously, go run the numbers, or look up one of the posts where someone has, rather than just speculating.

I trust you. 

I also trust that many were significantly impaired if they had heavy spending years in that time frame.  For instance, those that had big medical bills during that period because of something that happened that was beyond their control that insurance wouldn't cover.  Again, holes can be poked in any argument.  ALL investing carries risk. 

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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 06:37:13 PM
I feel sort of like we're going in circles here, so:
1: SWR refers to stock/bond market investments that are spread across the entire market (ie, index style) and assume no fortuitous market timing/panic selling/etc. Dividends vs capital gains are basically irrelevant, only total return and volatility (and portfolio/withdrawal rate, of course) matter.
A withdrawal rate can apply to any basket of investments.  In the Trinity study they used stocks and bonds.  There is nothing sacred about using those vehicles. 

Quote
2: Higher returns are possible in many other investments. All of them that are *passive* will also require more risk. You have a lucrative second job, not passive investments. Hence SWR is not relevant to you here.
Your assertion that ALL of the investments that are passive require more risk is not correct. 
Quote
3: Your general backstory/statements about passive investing and equities make many of us question your actual sophistication with finance. You are also dirt poor/work too much (2-3 jobs? Won't let wife quit?!? Spend your Saturdays watching college basketball when the season has been over for months?) by the standards of many of us of similar age/circumstances, despite your amazing investment returns, presumably because you spend/spent too much money. That makes me sad. At least you are here and maybe can turn that around/figure out what you want out of life.

College BASEball; not basketball.  The TCU/LSU game was pretty entertaining today.   Thanks for calling my character into question. 

I'm not sure that I am dirt poor either.  Things certainly could be better, but they could also be far worse.  Maybe by the I spend $20k/year standards of this site I am somehow "poor," but I have also enjoyed spending some of that money and I don't despise my working situation like many on this site do. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 14, 2015, 06:41:48 PM
Presumably you would not be here at all if you weren't looking for *something*. We're not calling your character into question, we're saying the choices you are making are probably making you less happy, and chasing more money isn't going to help you there. You have enough money to do basically whatever you want. If your spending is truly making you happy, great. Then why are you here?

I disagree on the passive bit quite strongly, too. If you have to do research and pick/choose investments beyond a simple asset allocation, that's not "passive" anymore in my book. Perhaps we are just using the term differently.

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 06:49:51 PM
Presumably you would not be here at all if you weren't looking for *something*. We're not calling your character into question, we're saying the choices you are making are probably making you less happy, and chasing more money isn't going to help you there. You have enough money to do basically whatever you want. If your spending is truly making you happy, great. Then why are you here?

I am sure there are choices I can make better.  I never claimed to be without fault.  I even took the time to start a diary in the other forum and folks like Another Reader have been kind enough to comment and provide constructive feedback instead of lobbing insults at me. 

Quote
I disagree on the passive bit quite strongly, too. If you have to do research and pick/choose investments beyond a simple asset allocation, that's not "passive" anymore in my book. Perhaps we are just using the term differently.

I have said SEVERAL times that it is NOT completely passive.  There is a spectrum of passivity and not everyone wants to use the point and grunt approach of investing in index funds.  That doesn't mean they're wrong.  It just means they're making different choices than you do and have a different value for the time invested in picking investments. 

If you look back through this and the other similar threads I have acknowledged REPEATEDLY (for real....I'll leave it as an exercise for you to look through the threads and count how many times I have done this) that there is work involved in picking investments.  For 3% (or more) extra yield and a nice compounding period it is probably worth the extra time invested for MANY (dare I say most?) people and I would also argue it dominates nickel-and-dime things like optimizing your hypermiling skills. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 14, 2015, 06:53:12 PM
Easier access to capital and a more robust capital formation process is good for small businesses.  Small businesses also create the bulk of the jobs in our country. 

Can't disagree with that statement but it does not contradict mine.

Like most small investors, I would love to have easier access to mortgage loans, priced at GSE rates.  I contribute to the employment of property managers, their staff, plumbers, electricians, A/C repair people, and the occasional roofer, not to mention the folks at Home Depot and Lowes.  Like you, my ten bullets have been shot.  In fact, my last new loan was before the rules changed, and I have well over 10. About the only nice thing I can say about the current crop of wastrels and thieves in Washington is HARP.  Am I going to crowd fund refinances of the non-GSE mortgages to GSE rates?  Not likely.  So my small business is not helped by your capital sources, and neither is that of any other buy and hold investor. 

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.   

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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 ;-)

Quote
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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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? 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks 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?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks 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
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks 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
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 14, 2015, 08:10:57 PM
Nope....You overestimate how much I value your opinion. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nereo 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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.   
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Dawg Fan 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!!!
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Dawg Fan 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Dawg Fan 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Rezdent 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: innerscorecard 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: skyrefuge 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 (http://www.mrmoneymustache.com/2012/10/08/how-to-go-from-middle-class-to-kickass/) himself (http://www.mrmoneymustache.com/2013/07/10/if-i-woke-up-broke/):

"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 society’s 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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 (http://www.mrmoneymustache.com/2012/10/08/how-to-go-from-middle-class-to-kickass/) himself (http://www.mrmoneymustache.com/2013/07/10/if-i-woke-up-broke/):

"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 society’s 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: nobodyspecial 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: sol 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: My Own Advisor 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: clifp 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.

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy 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.

(https://thenewtag.files.wordpress.com/2010/10/apples-to-oranges.jpg)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: deborah 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: clifp 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. 
Title: Accredited Investors - Why A 4% SWR?
Post by: arebelspy 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: deborah 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: clifp 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.
(https://s-media-cache-ak0.pinimg.com/736x/42/c3/a0/42c3a06ce2af92f4705da6daa9e25a06.jpg)

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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: FI40 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.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange 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. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader 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

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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.




Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 07:08:41 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.

No...I would not recommend them to novice investors.  Novice investors could dip their toe in the water by investing as little as $5k though.  That is one of the great things about the new industry.  It has reduced the price to buy into projects considerably.  If one takes a rational approach to scaling their investments in this type of product as opposed to investing several hundred thousand dollars like the poster in your thread did they will have a greater chance for success IMO.  They can start small and invest more as they learn more about how to do so properly. 

There is certainly the opportunity for abuse.  There is always the opportunity for abuse when money is exchanged. 

Non-accredited investors under Title IV will be limited to investing the greater of 10% or their net worth or income in these types of projects.  Using intrastate exemptions like the ones you described below they can invest more.  Given the regulation around A+ you will see more funds most likely.  Very few syndicates will use this exemption because of timing and cost issues. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Retire-Canada on June 16, 2015, 07:15:24 AM
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.

Yup. An alternative way to look at it is:

1. examine budget
2. reduce aggressively
3. invest high savings rate into index funds
4. stop thinking about money
5. enjoy life

Spending your spare time devoted to money in the hopes that will result you being free at some point has some drawbacks. It may accelerate your ability to build wealth, but if that comes at a the cost of thinking about money all the time it's not freedom it's just a different job.

The one thing you'll never get back is time. You can make more money, but if you spend a bunch of your precious free time to earn more money you need to appreciate the real opportunity cost. Both in terms of time lost now and the impact of having a life that's heavily money/investment focused.

One of the benefits of the index fund approach is that you can automate the process and it takes a limited amount of time and effort to harvest decent results. That leaves you a lot of time to pursue things other than money.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 07:44:00 AM
Spending your spare time devoted to money in the hopes that will result you being free at some point has some drawbacks. It may accelerate your ability to build wealth, but if that comes at a the cost of thinking about money all the time it's not freedom it's just a different job.

This passage above pretty much sums it up to me.  People will all have different opinions about how passive they want to be and what value there is in devoting time to this activity. 

Quote
One of the benefits of the index fund approach is that you can automate the process and it takes a limited amount of time and effort to harvest decent results. That leaves you a lot of time to pursue things other than money.
Agree....just recognize there is a tradeoff here and not everyone chooses the same trade.  The bolded word above is also very accurate IMO. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 08:06:23 AM
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.

Those people are outliers, not the common person.

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.

Maybe not on 40-50k, but at double that, they should be able to.  If someone on 50k can save 10k, someone on 100k should be able to save 40k, as their expenses shouldn't go up that much more.

Without giving up the daily luxuries that are really important to them.

I think it's more likely the average person can cut back on expenses and be just as happy saving 30-50% of their income than that same person can learn enough about investments to manage their own investments (any asset class) and beat a low cost, 70/30 portfolio. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: theoverlook on June 16, 2015, 08:08:06 AM

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. 


The financial industry absolutely does not want you to believe that.  They make almost nothing off of people invested wholly in passive index funds.  They want you to participate in paid higher cost active investing schemes - including hard money crowdfunding sites - because they make way more money off you when you do.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 08:49:44 AM
The financial industry absolutely does not want you to believe that.  They make almost nothing off of people invested wholly in passive index funds.  They want you to participate in paid higher cost active investing schemes - including hard money crowdfunding sites - because they make way more money off you when you do.

You're mixing concepts here.  There are two things:

1.  Which carries more risk
2.  Which carries higher fees

People keep claiming that investing in alternatives carries more risk.  This does not have to be the case.  It could be and it could not be.  A private note to a well-heeled borrower is a heck of a lot less risky than the common market for securities in whatever asset mix you select that is in the Trinity range.

Yes, active investing will require either more time or force you to pay fees.  The question is whether or not the additional time and/or fees are worth the upside. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Scandium on June 16, 2015, 10:42:35 AM
wait, so there are kickstarter for apartment buildings, or whatever? Except you get a return?

So some developer (always a beacon of honesty in best of times..) who's project is so dubious that he can't get a loan from a single bank(!) will "kickstart" his lending, promising 10%+ yield? At a time when gov rates are near zero.. Ehh.. yeah I don't think you could have made up something more sketchy sounding if you tried!

edit; so presumably these sites have only been around a short while so the return numbers are likely meaningless. But how did hard money loans do in 2000/2009?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 10:49:09 AM
Hard money loans generally are not used for apartment buildings.  They're short-term loans for other project types generally. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 10:57:12 AM
I don't see how that refuted Scandium's point. In fact, your point makes it even worse--these projects are paying near hard money rates but for longer term projects, even less viable than a short term flip that can afford to pay those rates for a short time period.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Scandium on June 16, 2015, 11:05:56 AM
Hard money loans generally are not used for apartment buildings.  They're short-term loans for other project types generally.

What kind of projects? Roads? Casinos? Salmon fisheries? Public bathrooms? The crowdfund site I went to wouldn't show me unless I registered, which I can't be bothered with right now. Or what I'd really like to know: how can they afford to pay 10%+?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: theoverlook on June 16, 2015, 11:11:25 AM
The financial industry absolutely does not want you to believe that.  They make almost nothing off of people invested wholly in passive index funds.  They want you to participate in paid higher cost active investing schemes - including hard money crowdfunding sites - because they make way more money off you when you do.

You're mixing concepts here.  There are two things:

1.  Which carries more risk
2.  Which carries higher fees

People keep claiming that investing in alternatives carries more risk.  This does not have to be the case.  It could be and it could not be.  A private note to a well-heeled borrower is a heck of a lot less risky than the common market for securities in whatever asset mix you select that is in the Trinity range.

Yes, active investing will require either more time or force you to pay fees.  The question is whether or not the additional time and/or fees are worth the upside.

If you are convinced that index investing carries lower risk and use it then they can not collect their higher fees.  The two go hand in hand.  Your original statement is simply not true.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Psychstache on June 16, 2015, 11:17:06 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.

citation needed.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 01:32:52 PM
I don't see how that refuted Scandium's point. In fact, your point makes it even worse--these projects are paying near hard money rates but for longer term projects, even less viable than a short term flip that can afford to pay those rates for a short time period.

Is today backwards day or something?  I clearly wrote above that they're for short-term loans. 

I'm not sure what point he was making.  I try to avoid responding to posts that don't really make any tangible points. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 01:35:32 PM
Hard money loans generally are not used for apartment buildings.  They're short-term loans for other project types generally.

What kind of projects? Roads? Casinos? Salmon fisheries? Public bathrooms? The crowdfund site I went to wouldn't show me unless I registered, which I can't be bothered with right now. Or what I'd really like to know: how can they afford to pay 10%+?

Primarily small development projects, fix/flips, etc.   

The developers can afford to pay 10% plus because this money is very cheap relative to the amount of upside there is in the project.  There are many equity participation projects as well, but those offer less security interest and are harder to underwrite IMO. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 01:38:45 PM
If you are convinced that index investing carries lower risk and use it then they can not collect their higher fees.  The two go hand in hand.  Your original statement is simply not true.

Please point to the passage where I said index investing carries lower risk.  The risk of an "alternative" investment depends on a lot of factors and may be higher risk or lower risk than index investing.  Alternatives don't trade on exchanges for the most part and will carry fees of some sort.  That doesn't make them bad investments.

I have no idea what original statement you're referring to. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: theoverlook on June 16, 2015, 01:42:10 PM
If you are convinced that index investing carries lower risk and use it then they can not collect their higher fees.  The two go hand in hand.  Your original statement is simply not true.

Please point to the passage where I said index investing carries lower risk.  The risk of an "alternative" investment depends on a lot of factors and may be higher risk or lower risk than index investing.  Alternatives don't trade on exchanges for the most part and will carry fees of some sort.  That doesn't make them bad investments.

I have no idea what original statement you're referring to.

I think you have too many "balls in the air" - too many posts you can't keep track of and you delete relevant portions of the posts you're replying to then get confused when the replies no longer make sense.  I am referring to this:

http://forum.mrmoneymustache.com/investor-alley/accredited-investors-why-a-4-swr/msg698117/#msg698117

The financial industry is deeply invested in investors not believing that the 75/25 index fund investing method is lower risk.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: NoraLenderbee on June 16, 2015, 02:30:24 PM


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. 
 

The average person can become an above-average triathlete by training at swimming, biking, and running 20 hours a week. That's great if you enjoy doing those things. No one is saying you shouldn't. But what about people who don't like those activities, or who don't want to spend that much time or effort on them, and just want to be reasonably fit? For them, maybe 5 hours week provides enough exercise to keep them fit and healthy. They won't be great triathletes, but they can still be fit *enough*  .

The basic 75/25 portfolio is like the 5-hour exercise program. It provides *enough* to keep you from running out of money in retirement, if you maintain a 4% WR. It doesn't require a lot of effort. It won't make you richer than Croesus, nor is it the fastest way to wealth. But it's *enough* for a lot of us. It's easy, it's accessible, and it allows you to spend time on more interesting things

Yes, you can get higher returns if you develop expertise in alternative investments. That's another way to wealth, maybe a faster way. It requires more effort. It suits some people, not everyone.

It seems like mr orange is arguing (repeatedly) that you can be a better triathlete if you train 20 hours a week, but not hearing the responses that some people don't want to do that.   
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 03:43:39 PM



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. 
 

The average person can become an above-average triathlete by training at swimming, biking, and running 20 hours a week. That's great if you enjoy doing those things. No one is saying you shouldn't. But what about people who don't like those activities, or who don't want to spend that much time or effort on them, and just want to be reasonably fit? For them, maybe 5 hours week provides enough exercise to keep them fit and healthy. They won't be great triathletes, but they can still be fit *enough*  .

The basic 75/25 portfolio is like the 5-hour exercise program. It provides *enough* to keep you from running out of money in retirement, if you maintain a 4% WR. It doesn't require a lot of effort. It won't make you richer than Croesus, nor is it the fastest way to wealth. But it's *enough* for a lot of us. It's easy, it's accessible, and it allows you to spend time on more interesting things

Yes, you can get higher returns if you develop expertise in alternative investments. That's another way to wealth, maybe a faster way. It requires more effort. It suits some people, not everyone.

It seems like mr orange is arguing (repeatedly) that you can be a better triathlete if you train 20 hours a week, but not hearing the responses that some people don't want to do that.

Well said. And some have a lot more natural (genetic) proclivity towards being a triathlete, just like some make better investors due to their analytical skills, disposition, etc.

Maybe everyone can learn, but not only would many not want to, but for lots of them it would be EXTREMELY difficult if it was even possible.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 04:32:05 PM
The financial industry is deeply invested in investors not believing that the 75/25 index fund investing method is lower risk.

I agree with you then. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 04:33:33 PM
It seems like mr orange is arguing (repeatedly) that you can be a better triathlete if you train 20 hours a week, but not hearing the responses that some people don't want to do that.

I'm not sure why you think that.  Feel free to read about me agreeing with this earlier in the thread.  Some people wish to devote zero energy to investing and others wish to invest more energy in it. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: FI40 on June 16, 2015, 04:44:45 PM
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.

I don't know exactly where to draw the line, but I do think that for instance somebody who's got 1 million in assets and spends 50k a year would find it much easier to bring their spending down to 40k than to learn enough to perpetually guarantee an extra 1% long term market beating return on their investments. Maybe I'm wrong, but from what I've learned from experienced investors it takes a lot of work to be a successful (long term stock/bond market beating) active investor in any area. That's work I'm not interested in doing in this case, and many others aren't either. This should explain some of the pushback you're getting in this thread. Know your audience and all that.

For sure, but you are talking about stuff that does carry higher risk. That's why I brought it up.

A reasonable level of expenses might be, say, half the gross median income in high income areas, or equal to minimum wage income in lower income areas. I say this because obviously there are many people living on those amounts who aren't even trying to be that frugal. So clearly if you're trying to be frugal, you can live fairly well at those levels of expenses. I'm just pulling this out of the air, but you asked so I answered.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 04:47:48 PM
Well said. And some have a lot more natural (genetic) proclivity towards being a triathlete, just like some make better investors due to their analytical skills, disposition, etc.

I agree that people have different skills and abilities.  No argument there. 

Quote
Maybe everyone can learn, but not only would many not want to, but for lots of them it would be EXTREMELY difficult if it was even possible.
I don't agree that much of what was originally discussed in this thread is extremely difficult.  What the bigger problem is, IMO, that people are lazy and don't really devote any time to exercising their investing skills.  This is especially problematic when they're trying to make their limited amount of capital work hard.  A 7.5% yield compounded on a large portfolio will yield nice growth quickly.  A 7.5% yield on an already-small portfolio won't really do much in absolute terms without the benefit of a lot of time.  If people simply devoted more energy to learning to grow their yields by educating themselves instead of focusing all of that same energy on cutting expenses many would be better off.  At some point cutting expenses will start trading off your standard of living.  I think rational third parties would agree for the most part that riding your bike to work and limiting your mobility to places within driving range of their house would probably limit their standard of living.  This may work better in places other than Texas, but I can't imagine functioning very well in Texas without a car. 

Anyway....this seems to be more of a philosophical discussion now about how capable investors really are.  Again, I was targeting accredited investors that seemingly have some intelligence and thus are capable of learning to invest.  Maybe all of the folks on here that are accredited are also planning to live on $1M * .04 == $40k/year or less and spend zero time thinking about their investments.  I am sure there are plenty that would rather have $60k/year with the same capital stack though if it meant investing a bit of time to learn to invest better.  Those same folks would probably also enjoy having a larger portfolio because it compounded at a higher rate over time.  They could even convert it to a 4% WR point and grunt Trinity-style after it grew to the point where it met their FI lifestyle. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 04:50:48 PM
For sure, but you are talking about stuff that does carry higher risk. That's why I brought it up.

No...it doesn't.  I have addressed this point repeatedly in this post.  Please see my previous several responses to this point. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: NoraLenderbee on June 16, 2015, 05:09:51 PM
It seems like mr orange is arguing (repeatedly) that you can be a better triathlete if you train 20 hours a week, but not hearing the responses that some people don't want to do that.

I'm not sure why you think that.  Feel free to read about me agreeing with this earlier in the thread.  Some people wish to devote zero energy to investing and others wish to invest more energy in it.

Then what *are* you arguing for? Serious question.

There are plenty of forums and books and blogs about making more money. "Everyone" thinks more money will make them happier. This forum is one of fairly few that's devoted to the other side of the equation. Cutting expenses is a very powerful way to make your money go farther--and you can do it in a way that does not sacrifice everything that truly brings you happiness


I don't agree that much of what was originally discussed in this thread is extremely difficult.  What the bigger problem is, IMO, that people are lazy and don't really devote any time to exercising their investing skills. . . .

Again, I was targeting accredited investors that seemingly have some intelligence


And this is why posters are not being agreeable and engaging in the kind of discussion you want: You are calling them lazy and stupid.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: skyrefuge on June 16, 2015, 05:26:43 PM
What the bigger problem is, IMO, that people are lazy and don't really devote any time to exercising their investing skills.

For some subset of passive index investors, sure, it is probably laziness that primarily determined their preferred investment approach. But there are tons of passive index investors (including myself) who prefer that approach because they have read the research, are well-informed, and legitimately believe that "exercising their investment skills" would do nothing to improve their investment performance, and may in fact harm it.

It's pretty indisputable that training and practice improve athletic performance; the fact that there aren't any popular sports leagues filled with fatass amateurs who have never previously participated in the event in question is sufficient to prove that claim. However, it's much more difficult to prove the claim that investment training and practice improves investment performance, despite how obvious and analogous that claim seems on its face.

I think rational third parties would agree for the most part that riding your bike to work and limiting your mobility to places within driving range of their house would probably limit their standard of living.

Hmm. Again, you're posting on the site written by a guy who believes that riding your bike to work and limiting your mobility DOES in fact make you happier (yes, I'm equating "standard of living" with "happiness" here). That's not even a "secret" mission of the blog, MMM writes about it regularly. Is he a rational third party? Most of us posting here would say so, otherwise it's unlikely we'd be participants in this community.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 06:24:38 PM
This thread may interest you, mr_orange:
http://forum.mrmoneymustache.com/investor-alley/when-compounding-returns-isnt-that-important/

From the article:
Quote
[This example assumes you can earn, though your hard work, 4% more than the market.] Say you are holding a pretty decent job at $50/hour, and you spend 15 hours/week studying companies and analyzing stocks. That is a total of 780 hours per year, valued at $39,000! [Based on your hourly wage.] So in order to justify spending that time this year, you’ll need to have invested $975,000! You need almost a million dollars and a sure 4% increase [over the market] to breakeven on the amount of time you spent on it!
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 06:28:51 PM
Another discussion on the same thing:
I think you're missing the point of my question.  And I don't mean this as an attack, just genuinely curious why you think this isn't the case.

You say this:
Again, bullish over 1330, as SPX works its way to 1390 (maybe a touch higher).  Minor resistance at 1350 (downtrend line) and again at 1365.  These are the zones I'm focusing on.


If these are important zones, why can you pick up on that with only a few hours/week research, when those spending 20x that can't?  Or can they?  If so, why doesn't an efficient market quickly remove the opportunity?

Okay -- it's more than a few hours a week.  I was up til 2 AM last night studying my charts; I was up a 7 (before work) scanning headlines, preparing my game plan, attempting to locate opportunities; it's really a second job, truth be told. 

And yes, the greatest traders in the world know these zones/trends/patterns.  How quickly the opportunity is removed varies, but I've found the most glorious trade set ups allow you plenty of time to get on board.

This brings back up the question... is it worth it?  Which, of course, is primarily dependent upon three variables (as I see it).

Total amount you're trading with (using these methods):  P
Expected increase in yeild over more passive approaches:  r
Increase in time spent analyzing/trading over more passive approaches:  t

Your reward / time function then becomes   P*r/t

Using that and assuming 1,000 additional hours per year (part time job equivalent) for time here are the hourly rates recieved for every 1% increase in performance for different levels of P. 

$100,000 = $1/hour/1%
$250,000 = $2.5/hour/1%
$500,000 = $5/hour/1%
$1,000,000 = $10/hour/1%

Obviously if you spend less time these numbers change but even at 500 hours per year a 2% gain and a $500K portfolio, I'd be at $20/hr.
The opportunity cost will be different for everyone, but even that ( in my opinion top end) situation would probably not be worth it to me personally.  Especially given that the % gain is not guaranteed.  I can pick up part time consulting gigs for much better hourly rates than what I would gain spending a ton of time trying to gain a % or two on my current portfolio (for sure) and probably my FI portfolio as well.

I guess if you enjoy the analysis - maybe that should be factored in as a non monetary benefit too that would make it worth it.  I happen to very much not enjoy that side of things - even though (or maybe because?) I do statistics/modeling/forecasting for a living.
http://forum.mrmoneymustache.com/investor-alley/efficient-markets-rip/msg16174/#msg16174

In general, what you propose mr_orange, of someone learning to beat the market, generally just isn't worth it, even if it is possible for them.  And I maintain for most people, they just won't have the ability/capacity/desire/temperament to do so--a lot would have to go right for it to work, and even in a lot of the cases it did, it wouldn't even be "worth" it, per the above, unless they enjoy it quite a bit as a low-paid hobby.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 06:36:31 PM

Then what *are* you arguing for? Serious question.

There is seriously a 4-page thread on this.  Feel free to read back through it.  I'm not going to regurgitate the entire thread for you again. 
Quote
And this is why posters are not being agreeable and engaging in the kind of discussion you want: You are calling them lazy and stupid.

Nope...you made that up.  I never called anyone stupid. 

Lazy is different.  Some actually consider being lazy a virtue.  I don't exactly agree with this rationale, but I can see their point of view. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 06:40:51 PM
For some subset of passive index investors, sure, it is probably laziness that primarily determined their preferred investment approach. But there are tons of passive index investors (including myself) who prefer that approach because they have read the research, are well-informed, and legitimately believe that "exercising their investment skills" would do nothing to improve their investment performance, and may in fact harm it.

Which research?  The random walk research that confines itself to the publicly-traded securities markets?  I have never claimed that anyone should try to outsmart millions of others armed with supercomputers and insider knowledge if they're looking for extra yield.  These rules don't really apply in privately traded securities, partnerships, or small business though. 

Quote
It's pretty indisputable that training and practice improve athletic performance; the fact that there aren't any popular sports leagues filled with fatass amateurs who have never previously participated in the event in question is sufficient to prove that claim. However, it's much more difficult to prove the claim that investment training and practice improves investment performance, despite how obvious and analogous that claim seems on its face.
I agree with that.  And that is why this thread is now over 4 pages long. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 07:00:58 PM
This thread may interest you, mr_orange:
http://forum.mrmoneymustache.com/investor-alley/when-compounding-returns-isnt-that-important/

Thanks for sharing.  As you mentioned in your thread it is oversimplified. 

One could probably spend several week's worth of effort and learn to invest well in hard money loans.  This would yield more on whatever portion of their portfolio they chose to allocate to these projects based on their own personal circumstances and risk tolerance.  So it is hard to say in abstract what it would cost if you were to do an hourly rate comparison.  It is also hard to comment in the abstract about the impact to an unknown portfolio size, but accredited investors would presumably have a large portfolio that would benefit greatly from extra yield. 

If the compounding period is shorter because you start taking withdrawals sooner it does make sense that you'd worry less about trying to increase your portfolio's yield.  That point has been made several times in this thread and it makes sense.  The same is true if you're living on very little in expenses and thus your portfolio size doesn't have to be large.  However, if you're truly growing your portfolio because the WR isn't drawing down your stack of cash the compounding will matter more in each subsequent year.  The utility in growing the portfolio when by definition you already have enough will vary by person.  Some wish to leave an inheritance for their kids or have other rational reasons for wanting to increase the size of their portfolio past FI. 

For those that choose to invest in things they control the hourly bill rate for their services and the return their money makes are linked heavily.  This is the case with a syndicated real estate project, a partnership, or any number of small businesses.  In these scenarios it is hard to measure well how much the money is working and how much of the "yield" is from the entrepreneur pumping in sweat equity.  However, for many of these projects the money does work very hard and it certainly far outpaces (if executed properly...of course) yields from investing passively in any number of other securities transactions; be they public or private. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 07:05:05 PM
One could probably spend several week's worth of effort and learn to invest well in hard money loans.

A few weeks?

I think that answers that:
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.

I think that's also what leads to this:
http://www.gocurrycracker.com/rental-hell/

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 07:33:14 PM
In general, what you propose mr_orange, of someone learning to beat the market, generally just isn't worth it, even if it is possible for them.  And I maintain for most people, they just won't have the ability/capacity/desire/temperament to do so--a lot would have to go right for it to work, and even in a lot of the cases it did, it wouldn't even be "worth" it, per the above, unless they enjoy it quite a bit as a low-paid hobby.

An accredited investor by definition does not have the same issue that is described in the threads you cited.  That was the intended audience for this thread from the beginning.  I will readily concede that trying to grow a very small portfolio a few extra percent probably isn't worth the time invested. 

That does not, however, mean that people should forgo investing time in gathering business skills if they wish to make the partial transition to FI sooner.  Independence exists on a spectrum and I would argue many people can make money doing things they like sooner by investing time in growing their own business on the side while they're employed. 

"The market" that is discussed in the threads you cited also deals with PUBLICLY TRADED equities, which have very little in common with many private offerings.  There efficient market hypothesis simply doesn't apply well because often there is little to no efficiency. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: deborah on June 16, 2015, 07:36:58 PM
However, by your definition, many of the people who have answered you are accredited investors because they have followed the MMM "save most of your pay" philosophy. You are making assumptions that are not valid.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 07:38:46 PM
You are making assumptions that are not valid.

Which assumptions are those?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 07:47:18 PM
"The market" that is discussed in the threads you cited also deals with PUBLICLY TRADED equities, which have very little in common with many private offerings.  There efficient market hypothesis simply doesn't apply well because often there is little to no efficiency.

No, it has to do with earning extra percent on your money.  Doesn't matter where it comes from.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 07:55:31 PM
Earning a few extra percent trading in super efficient markets with millions of people exploiting any infinitesimal arbitrage opportunity is definitely NOT the same as investing in non-efficient private markets.  How anyone could claim they're the same is beyond me. 

In the former market things are pretty efficient and you get all sorts of idealistic academics claiming they're perfectly efficient to make their simplified math work.  In the latter markets there is plenty of opportunity to identify undervalued assets without every scrap of yield being perfectly priced by supercomputers quicker than your synapses can fire. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 08:07:00 PM
Earning a few extra percent trading in super efficient markets with millions of people exploiting any infinitesimal arbitrage opportunity is definitely NOT the same as investing in non-efficient private markets.  How anyone could claim they're the same is beyond me. 

(https://upload.wikimedia.org/wikipedia/commons/thumb/3/3b/Paris_Tuileries_Garden_Facepalm_statue.jpg/300px-Paris_Tuileries_Garden_Facepalm_statue.jpg)

There seem to be many things "beyond you" in this thread, as that's not the first time you've said that. 

Here's a hint: if something is so beyond your comprehension, rather than figuring the other person is an idiot, maybe think there's something you're missing.  It might help to try and understand what the other person is saying, rather than just setting up a silly straw man to something you don't understand.

Back on topic, response to your post:  No one said they're the same thing, but I did say that either way, you're earning extra percent on your money, and that may not be worth the time commitment it takes.  It's irrelevant where that extra percent comes from, what matters is how much you make relative to passive and how much time it takes you.

The funny part is, I'm usually on the side you're arguing.  I think the real estate market is extremely inefficient, and I think someone can educate themselves and exploit that.  I'm a big fan of hard money, too.

But where we disagree is that I think you vastly oversimplify it, make it sound way easier than it is, and advocate for things that have a poor risk adjusted return, like crowdfunded real estate, which is the opposite of educating yourself and taking advantage of inefficiencies.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: regulator on June 16, 2015, 08:07:34 PM
I spent far more of my life than I would ever wish on anyone pawing through the smoking wreckage of what everyone thought were "safe" commercial real estate loans after the last party ended abruptly.  There is no earthly way I would ever invest in a pool of loans in the private market underwritten by some schmuckatelli who is good at schmoozing the wealthy-but-not-too-bright.  30% "equity" in a development project is your margin of safety?  Haaaahahahaha!!!

Orange, if I were you I would invest my personal money in asset classes that have as little to do with sketchy real estate loans as possible.  That way when the CRE market goes tits up again you will have something to show for all the fees you raked in on the money you help manage.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 08:13:38 PM
Quote
There seem to be many things "beyond you" in this thread, as that's not the first time you've said that. 

Here's a hint: if something is so beyond your comprehension, rather than figuring the other person is an idiot, maybe think there's something you're missing.  It might help to try and understand what the other person is saying, rather than just setting up a silly straw man to something you don't understand.

You provided no you reasoning above.  You did below and it merits a response...which I have provided below. 

Kindly point out where I called anyone an idiot.  Talk about straw mans. 

Quote
Back on topic, response to your post:  No one said they're the same thing, but I did say that either way, you're earning extra percent on your money, and that may not be worth the time commitment it takes.  It's irrelevant where that extra percent comes from, what matters is how much you make relative to passive and how much time it takes you.
MAY being the operative word.  This is consistent with pretty much what has been written for 20+ responses now so I am not sure how much good there is in rehashing it. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: skyrefuge on June 16, 2015, 08:18:45 PM
Which research?  The random walk research that confines itself to the publicly-traded securities markets?

Yeah.

These rules don't really apply in privately traded securities, partnerships, or small business though.

This may reveal my ignorance/tunnel-vision, but my impression is that there has been far more research into the exploitability of inefficiencies in the publicly-traded securities markets than in the privately traded securities, partnerships, or small business markets, and thus, your confidence that anyone knows "the rules" of those markets may be unwarranted. Before a nice corpus of easily-analyzed data on publicly-traded security strategies was available, everyone similarly assumed that it was easy for anyone with a little bit of smarts to exploit market inefficiencies (heck, plenty of people still assume that, even at this forum). Since then, we've learned that it's actually really damn hard.

In the absence of easily-collectable data to explore whether inefficiencies are more-exploitable in private markets than they are in public markets, there are two ways to go:

1) Assume the unexpected results of research into public markets might be informative about surprises in those private markets as well.

2) Go on "common sense", which says that inefficiencies are easily exploitable in the private markets, even though that same common sense was proven wrong in the public markets.

I tend to go with #1, the conservative approach, though I'd certainly be happy to be informed that we do in fact have enough data and thus, neither assumption is actually necessary!
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 08:21:21 PM
Orange, if I were you I would invest my personal money in asset classes that have as little to do with sketchy real estate loans as possible.  That way when the CRE market goes tits up again you will have something to show for all the fees you raked in on the money you help manage.

Continuing to call something sketchy does not mean that it is.  I do concede that the debate is impossible to have in the abstract though. 

After reviewing the 7-page thread linked above it is pretty clear that the index fund enthusiasts have such an entrenched position that it will be pretty much impossible to modify their reasoning.  Part of this seems rational because their motivation is not really to grow their portfolio past some point because their minimalist lifestyle and desire to reduce time spent investing form conditions that make it rational to avoid actively managing their money in favor of time spent on other pursuits.  There's absolutely nothing wrong with that. 

All I was trying to figure out throughout this thread was why people weren't spending more effort on non-cutting pursuits.  I think I have a pretty good idea why now.  It doesn't fit my personal philosophy or goals, but everyone invests differently and for different purposes. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 08:32:59 PM
mr_orange, I am an accredited investor.  I own over a dozen rental properties.  I have done rehabs.  I have done HMLs.  I own multiple notes, some performing, some not performing at the moment.  I have stated--more than once--that real estate is the fastest way to FI. I get it, I do.

The problem is, not everyone is like you or me.  I think you underestimate the effort it takes.  I also think you do a disservice to everyone when you continually talk about people cost cutting for the sake of doing so.  Sol provided a good answer for that already.  We're optimizing, and shooting for maximum happiness.  You don't yet see how those are connected, but for most of us, they absolutely are.

Quote
Back on topic, response to your post:  No one said they're the same thing, but I did say that either way, you're earning extra percent on your money, and that may not be worth the time commitment it takes.  It's irrelevant where that extra percent comes from, what matters is how much you make relative to passive and how much time it takes you.
MAY being the operative word.  This is consistent with pretty much what has been written for 20+ responses now so I am not sure how much good there is in rehashing it.

I guess we're all in agreement then--it could be beneficial to try and increase your returns through extra knowledge and hard work, but for many here the chance that you can beat a passive portfolio is not worth the extra risk (not risk from the investments themselves, per se, but the risk of being wrong), especially on a time-adjusted basis.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 16, 2015, 08:41:28 PM
mr_orange, I am an accredited investor.  I own over a dozen rental properties.  I have done rehabs.  I have done HMLs.  I own multiple notes, some performing, some not performing at the moment.  I have stated--more than once--that real estate is the fastest way to FI. I get it, I do.

I know you do.  It certainly is fun to debate it though ;-)

Quote
The problem is, not everyone is like you or me.  I think you underestimate the effort it takes. 

Perhaps. 

Quote
I also think you do a disservice to everyone when you continually talk about people cost cutting for the sake of doing so.  Sol provided a good answer for that already.  We're optimizing, and shooting for maximum happiness.  You don't yet see how those are connected, but for most of us, they absolutely are.

Nope...I don't yet.  Perhaps as I study things more my opinion will change.  I already started a journal on the other forum and have started some small cutting.  Baby steps.  I know a lot more about making money and investing it than I do about cost cutting and being frugal; no doubt!
Quote
I guess we're all in agreement then--it could be beneficial to try and increase your returns through extra knowledge and hard work, but for many here the chance that you can beat a passive portfolio is not worth the extra risk (not risk from the investments themselves, per se, but the risk of being wrong), especially on a time-adjusted basis.

Probably....we would probably disagree what percentage constitutes "many" though.   This is really a small area of disagreement in the grand ball of wax. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 16, 2015, 08:43:53 PM
At this point I'm just waiting to see who will insist on having the last word...
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 16, 2015, 08:45:25 PM
I spent far more of my life than I would ever wish on anyone pawing through the smoking wreckage of what everyone thought were "safe" commercial real estate loans after the last party ended abruptly.  There is no earthly way I would ever invest in a pool of loans in the private market underwritten by some schmuckatelli who is good at schmoozing the wealthy-but-not-too-bright.  30% "equity" in a development project is your margin of safety?  Haaaahahahaha!!!

Yep.  In the early 1990's one could buy 50 percent vacant small retail centers in decent areas of Silicon Valley for 10-15 percent plus cap rates on CURRENT income, i.e. no value given to the vacant space.  Lots of see through R&D buildings available at $33-$50 a square foot in the lesser locations in San Jose.  I went one morning to look at a two unit light industrial/service commercial property in mid-1994.  The building was in foreclosure.  I peered in the window of the vacant unit, and saw movement under a pile of blankets.  Turns out the owner had lost the house he had put up to buy the building and was living in the vacant unit, with his possessions stored in an old bus out back.  That wasn't supposed to happen here.  No one is immune.

What was the apartment vacancy rate in Austin in the early 90's?  How much did industrial land decline from the height of the buying frenzy in the mid 80's to the early 90's?  Surely some of the older folks in the business out there can tell you the war stories.

Investing in real estate entails risk.  Real estate is cyclical.   It's not different this time.  Go write that on the nearest blackboard 100 times.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 08:51:41 PM
Quote
I also think you do a disservice to everyone when you continually talk about people cost cutting for the sake of doing so.  Sol provided a good answer for that already.  We're optimizing, and shooting for maximum happiness.  You don't yet see how those are connected, but for most of us, they absolutely are.

Nope...I don't yet.  Perhaps as I study things more my opinion will change.

To that end, here are some resources that might help you:
http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/
http://smile.amazon.com/Happy-Money-Science-Happier-Spending/dp/1451665075/
http://smile.amazon.com/Nudge-Improving-Decisions-Health-Happiness/dp/014311526X/
http://smile.amazon.com/Paradox-Choice-Why-More-Less/dp/0060005696/

Check your local library for them, and check the book section of the forums for more recommendations.
I know a lot more about making money and investing it than I do about cost cutting and being frugal; no doubt!

Yeah, I don't know anything about cost cutting or being frugal.  I buy everything I want.

Sometimes people ask me how to save money, or trim their budget, and I have nothing to say to them--I refer them to this forum and tell them to post a case study, because there are some people here who have some good tips.

To me, it's not about that.  It's about optimization and spending money on what truly makes you happy.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 09:01:20 PM
At this point I'm just waiting to see who will insist on having the last word...

(https://aznbadger.files.wordpress.com/2011/07/i-could-go-on-forever-baby.png)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: asiljoy on June 16, 2015, 09:35:45 PM
At this point I'm just waiting to see who will insist on having the last word...

(https://aznbadger.files.wordpress.com/2011/07/i-could-go-on-forever-baby.png)

Home Alone?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 16, 2015, 09:47:54 PM

Home Alone?

Actually my wife is here too.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: regulator on June 16, 2015, 09:50:29 PM
I spent far more of my life than I would ever wish on anyone pawing through the smoking wreckage of what everyone thought were "safe" commercial real estate loans after the last party ended abruptly.  There is no earthly way I would ever invest in a pool of loans in the private market underwritten by some schmuckatelli who is good at schmoozing the wealthy-but-not-too-bright.  30% "equity" in a development project is your margin of safety?  Haaaahahahaha!!!

Yep.  In the early 1990's one could buy 50 percent vacant small retail centers in decent areas of Silicon Valley for 10-15 percent plus cap rates on CURRENT income, i.e. no value given to the vacant space.  Lots of see through R&D buildings available at $33-$50 a square foot in the lesser locations in San Jose.  I went one morning to look at a two unit light industrial/service commercial property in mid-1994.  The building was in foreclosure.  I peered in the window of the vacant unit, and saw movement under a pile of blankets.  Turns out the owner had lost the house he had put up to buy the building and was living in the vacant unit, with his possessions stored in an old bus out back.  That wasn't supposed to happen here.  No one is immune.

What was the apartment vacancy rate in Austin in the early 90's?  How much did industrial land decline from the height of the buying frenzy in the mid 80's to the early 90's?  Surely some of the older folks in the business out there can tell you the war stories.

Investing in real estate entails risk.  Real estate is cyclical.   It's not different this time.  Go write that on the nearest blackboard 100 times.

I wasn't even looking at the properties.  I was looking at the supposedly well-secured loans that had blown up.  I vividly remember a banker telling me that a mortgage on some development land with a second and mezzanine financing under his loan (as well as supposed equity) was 100%, absolutely, positively certain to be money good.  6 months later the loan was defaulted and an independent appraisal suggested a very substantial loss.  One example of many, many stupid loans that blew up when the music stopped.  It will happen again, just a matter of time.

If you are not underwriting each loan yourself and you do not have the ability to protect your investment in the event of a default, stay far away from this stuff.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: innerscorecard on June 16, 2015, 09:55:07 PM
I think mr_orange should also read Fooled By Randomness. Consistent good income really often does mean you're taking on blow-up risk.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: regulator on June 16, 2015, 10:02:04 PM
I think mr_orange should also read Fooled By Randomness. Consistent good income really often does mean you're taking on blow-up risk.

That is the nature of writing puts.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: sol on June 16, 2015, 10:12:38 PM
I also think you do a disservice to everyone when you continually talk about people cost cutting for the sake of doing so.  Sol provided a good answer for that already.  We're optimizing, and shooting for maximum happiness. 

Rereading through this thread, I've about decided that orange is here to talk, not to listen.

Which is fine, I welcome all voices.  It's just always kind of a let down when you think might have reached someone and then have your illusion shattered. 

The point of this blog, and the forum that supports it, is to help people see the error of their consumerist ways.  The rest of society tries to tell you that spending money is the secret to happiness, and if you're not happy then it must be because you're not spending enough.  Orange has rephrased that viewpoint over and over again, here and in other threads, as if it were a given truth.  If he hasn't heard us yet, then I don't think he's ready to hear.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: clifp on June 16, 2015, 11:32:23 PM
This thread may interest you, mr_orange:
http://forum.mrmoneymustache.com/investor-alley/when-compounding-returns-isnt-that-important/

From the article:
Quote
[This example assumes you can earn, though your hard work, 4% more than the market.] Say you are holding a pretty decent job at $50/hour, and you spend 15 hours/week studying companies and analyzing stocks. That is a total of 780 hours per year, valued at $39,000! [Based on your hourly wage.] So in order to justify spending that time this year, you’ll need to have invested $975,000! You need almost a million dollars and a sure 4% increase [over the market] to breakeven on the amount of time you spent on it!

I found these arguments to be pretty silly really.  I am hard pressed to think of any investors who actually spend 15 hours a week studying stocks, perhaps Buffett when he was youngster. 
Analyst don't even spend that much time since most of their time is spent writing reports and giving presentations. Now traders certainly spend more time than that. Cramer recommends a couple hours for a portfolio of 10 stocks, I have 3 dozen stocks and probably spend 5.  You set targets, and leave most of  the stocks alone.  It is certainly much less time consuming easier to research and purchase a stock than a piece of real estate.    Even my most time consuming research which involved downloading the SEC filing for 5 years, and researching the prices of golf course in Ohio was something I spent dozens of hours and not hundreds.

Plus this isn't an on going process it is a one time thing. You don't need to read an option book every time you buy and sell and option. You should however read a couple, do some web search and start small.  Same thing is true for Master Limited Partnership, some Google search, perhaps a trial subscription to M* Dividend Newsletter.  Then buy one or two, and be prepared for confusing first year with Turbo Tax etc.   But it isn't necessary to learn this stuff each and every year.

The time you spend learning early is like compound interest.  I've probably averaged one investment book a year since I was 16, I don't remember all their titles much less all of their content, but most have added to my knowledge as investor. I've spent well under 10 hours reading them, plus while some like Graham the Intelligent investor, others like all of Lewis's book,and some of Berstein's books were a pleasure to read.  I can read an quarterly report now much quicker than did I was 20, cause I know what to look for.   

Same thing is true for hard money loans, to learned googled, talked to a forum members who had done lot, folks like yourself who were learning and a couple of realtors, and than I started small.  I can certainly spending a few weeks and  20 or even 40+ hours researching before you making your first loan. But even if you have 20 I doubt you'd spend more a couple hours a week managing them.  For an accredited investor lets say he takes $100,000 of his $400,000 in bonds and moves it to hard money loans. Lets say that after defaults etc he averages 7.5% that is $5,000 more than he gets investing in BND with 2.5% yield.  At our $50/hour figure will it really take him more than 100 hours of work to make say 1/2 dozen loans ranging from 1 to 5 years. How many hours would take to him save $5,000 by doing more cooking at home, firing the house cleaners,or changing his own oil?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: deborah on June 17, 2015, 12:10:21 AM
However, by your definition, many of the people who have answered you are accredited investors because they have followed the MMM "save most of your pay" philosophy. You are making assumptions that are not valid.

Which assumptions are those?
Let me see... That the people you are calling "lazy" are not accredited investors. That there is no way, following the "save most of your pay" philosophy that someone can become an accredited investor. That being an accredited investor matters, and somehow such people are "better" than others. That the "save most of your pay" philosophy is intrinsically going to end up with someone "scrounging". That the "save most of your pay" philosophy doesn't make people happy. That you are best off having as much money as you can (and this, of course, is the opposite of ER). That investing the way you prefer is the best and only way....
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 04:34:08 AM
However, by your definition, many of the people who have answered you are accredited investors because they have followed the MMM "save most of your pay" philosophy. You are making assumptions that are not valid.

Which assumptions are those?
Let me see... That the people you are calling "lazy" are not accredited investors. That there is no way, following the "save most of your pay" philosophy that someone can become an accredited investor. That being an accredited investor matters, and somehow such people are "better" than others. That the "save most of your pay" philosophy is intrinsically going to end up with someone "scrounging". That the "save most of your pay" philosophy doesn't make people happy. That you are best off having as much money as you can (and this, of course, is the opposite of ER). That investing the way you prefer is the best and only way....

You made this stuff up.  Look back through the thread:

-I never said that lazy people are not accredited investors - You made that up
-I never said that saving most of your pay will not make you an accredited investor - Again, you made that up
-I never said accredited investors are better than non-accrediteds - Again, you made that up
-I never said saving most of your pay will make you unhappy - Again, you made that up
-I never said that investing the way I prefer is the best and only way - Again, you made that up

I can't really address whatever random stuff you make up or read into things that weren't said.  Seriously, go back and read through the thread and see if any of what you claimed above is there.  You're reaching for stuff that doesn't exist. 

I do, however, think that cutting expenses past some point WILL lower your standard of living and WILL make some (many in fact) people less happy.  Perhaps those people are not prevalent on this forum....fine. 

I also believe that having more money gives you more options, allows you to continue growing more that can be passed down to heirs, and provides a better safety margin for independence and thus is better.  This doesn't seem like a controversial topic to me based on everything I have read on the forums and on the MMM blog.  If your portfolio's growth outpaces your WR in FI then by definition it will continue to grow over time. 

Regarding being here to talk and not to listen that is probably fair.  I have, however, learned a lot from posting on the site already and am certainly not bashful about sharing my thoughts.  Don't expect that to change.  I wouldn't expect any other posters to change their opinions over night either.  As long as these opinions are shared respectfully it is fine. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 17, 2015, 07:17:48 AM
I do, however, think that cutting expenses past some point WILL lower your standard of living and WILL make some (many in fact) people less happy.

But NO ONE'S argued that you should cut expenses to the point you're unhappy.

Again, you're setting up a straw man that none of us here argue for.

We do say you should cut out the waste, and optimize.  Cut out spending that doesn't affect your happiness, and you can be just as happy, or even happier, spending less.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: brooklynguy on June 17, 2015, 07:39:07 AM
I also believe that having more money gives you more options, allows you to continue growing more that can be passed down to heirs, and provides a better safety margin for independence and thus is better.  This doesn't seem like a controversial topic to me based on everything I have read on the forums and on the MMM blog.

You're right that it's not a controversial topic, but that's because there is a general consensus here that it is untrue (putting aside the issue of charitable giving, because balancing the tension that sometimes (but, thankfully, not always) exists between our own selfish pursuit of happiness and our moral imperative to improve the world complicates the equation and definitely is a controversial topic around here).  The quoted statement is simply another way of restating (yet again) the same point that everyone has been repeatedly objecting to -- your threads have attracted an all-star roster of some of the forum's MVPs, all tripping over themselves to show you the light, but you're still not hearing the message.  The optimal amount of money you can have is the amount that constitutes "enough" (http://www.mrmoneymustache.com/2011/09/04/book-review-enough-by-john-c-bogle/)--no less, and no more.  Yes, having more provides you with more options -- for example, without billions in the bank, you don't have the option of building yourself your own private luxury submarine (http://www.therichest.com/luxury/diving-deep-with-luxury-submarines/).  Yes, having a stash equal to 1000x your projected expenses provides more safety margin than a stash equal to only 25x (though I question on philosophical grounds (http://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-success-rate/msg652788/#msg652788) whether amassing more money necessarily provides more safety).  But once you have "enough" (whatever amount "enough" may be for any particular individual), what good does it do to have more?  And, as everyone has been saying, most people don't realize that "enough" is a much smaller amount than our consumerist society has led them to believe.  Of course, having more doesn't hurt, but accumulating more almost always comes at a cost, so if it doesn't help, why pay the cost?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Scandium on June 17, 2015, 07:51:01 AM
Hard money loans generally are not used for apartment buildings.  They're short-term loans for other project types generally.

What kind of projects? Roads? Casinos? Salmon fisheries? Public bathrooms? The crowdfund site I went to wouldn't show me unless I registered, which I can't be bothered with right now. Or what I'd really like to know: how can they afford to pay 10%+?

Primarily small development projects, fix/flips, etc.   

The developers can afford to pay 10% plus because this money is very cheap relative to the amount of upside there is in the project.  There are many equity participation projects as well, but those offer less security interest and are harder to underwrite IMO.

aha, so short term speculative flips, that are dependent on quickly selling the property again at a much higher price (or the developer can't afford to service the loan). This sounds better and better!

What happens if they can't sell in time? If there is a crash, what happens to these shoe-string developers who's finances are so iffy they can't get a loan from a bank for their business? And since these are so short term you then have to go out and find another again, what is the cash drag cost while you wait/research?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: forummm on June 17, 2015, 08:21:14 AM
This thread may interest you, mr_orange:
http://forum.mrmoneymustache.com/investor-alley/when-compounding-returns-isnt-that-important/

From the article:
Quote
[This example assumes you can earn, though your hard work, 4% more than the market.] Say you are holding a pretty decent job at $50/hour, and you spend 15 hours/week studying companies and analyzing stocks. That is a total of 780 hours per year, valued at $39,000! [Based on your hourly wage.] So in order to justify spending that time this year, you’ll need to have invested $975,000! You need almost a million dollars and a sure 4% increase [over the market] to breakeven on the amount of time you spent on it!

I found these arguments to be pretty silly really.  I am hard pressed to think of any investors who actually spend 15 hours a week studying stocks, perhaps Buffett when he was youngster. 
Analyst don't even spend that much time since most of their time is spent writing reports and giving presentations. Now traders certainly spend more time than that. Cramer recommends a couple hours for a portfolio of 10 stocks, I have 3 dozen stocks and probably spend 5.  You set targets, and leave most of  the stocks alone.  It is certainly much less time consuming easier to research and purchase a stock than a piece of real estate.    Even my most time consuming research which involved downloading the SEC filing for 5 years, and researching the prices of golf course in Ohio was something I spent dozens of hours and not hundreds.

Plus this isn't an on going process it is a one time thing. You don't need to read an option book every time you buy and sell and option. You should however read a couple, do some web search and start small.  Same thing is true for Master Limited Partnership, some Google search, perhaps a trial subscription to M* Dividend Newsletter.  Then buy one or two, and be prepared for confusing first year with Turbo Tax etc.   But it isn't necessary to learn this stuff each and every year.

The time you spend learning early is like compound interest.  I've probably averaged one investment book a year since I was 16, I don't remember all their titles much less all of their content, but most have added to my knowledge as investor. I've spent well under 10 hours reading them, plus while some like Graham the Intelligent investor, others like all of Lewis's book,and some of Berstein's books were a pleasure to read.  I can read an quarterly report now much quicker than did I was 20, cause I know what to look for.   

Same thing is true for hard money loans, to learned googled, talked to a forum members who had done lot, folks like yourself who were learning and a couple of realtors, and than I started small.  I can certainly spending a few weeks and  20 or even 40+ hours researching before you making your first loan. But even if you have 20 I doubt you'd spend more a couple hours a week managing them.  For an accredited investor lets say he takes $100,000 of his $400,000 in bonds and moves it to hard money loans. Lets say that after defaults etc he averages 7.5% that is $5,000 more than he gets investing in BND with 2.5% yield.  At our $50/hour figure will it really take him more than 100 hours of work to make say 1/2 dozen loans ranging from 1 to 5 years. How many hours would take to him save $5,000 by doing more cooking at home, firing the house cleaners,or changing his own oil?


Buffett basically spends all day every day reading stuff and gathering information. All kinds of data from a wide variety of sources, including business reports, inventories, discussions with CEOs, etc. He's done this for 60-70 years. He's talked about how even on weekends his wife and kids never saw him because he was just sitting in his office reading.

You can't read one mass market book per year and expect to have an edge on the huge financial services industry that do this full time with better information than you could possibly have. It takes more work than that to consistently identify the deeply undervalued stocks before everyone else does.

With all that reading he does, and the tens of billions of dollars he has at his disposal, Buffett says it's a good year if he has a half dozen good ideas.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 08:43:49 AM
I do, however, think that cutting expenses past some point WILL lower your standard of living and WILL make some (many in fact) people less happy.

But NO ONE'S argued that you should cut expenses to the point you're unhappy.

Again, you're setting up a straw man that none of us here argue for.

We do say you should cut out the waste, and optimize.  Cut out spending that doesn't affect your happiness, and you can be just as happy, or even happier, spending less.

Ha!

The first few posts I made on the forums were laced with derision about wastefulness without even knowing what I spend the money on.  Saying this is a straw man is ingenious.  Maybe it isn't what you're arguing, but it is prevalent throughout both the forums and the MMM blog. 

Further, I have posted on the journal and elsewhere about what I spend money on.  Some like Sol and Another Reader were kind enough to comment on the spending.  Pretty much everyone else has used the blanket "you spend too much" statement.  This may very well be true, but it isn't very actionable or helpful.  It doesn't in any way try to tie spending to happiness either.  It just claims that reducing spending will make me happier.  This may very well be true, but I'm not prepared to just wholesale cut my spending in half by taking my kids out of Montessori school, ride my bike to work over 20 miles each day, sell my house to move closer to town, etc.  There is surely other waste to eliminate without making these tradeoffs.  I'm not sure that making these sorts of tradeoffs would even make me happier either.  I value mobility and a larger house and am willing to work longer for these items.  Saying this is "non-optimal" is pretty silly to me. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 08:49:56 AM
The quoted statement is simply another way of restating (yet again) the same point that everyone has been repeatedly objecting to -- your threads have attracted an all-star roster of some of the forum's MVPs, all tripping over themselves to show you the light, but you're still not hearing the message. 

No...I see it typed in print just fine.  I do not, however, agree with it entirely.  Doing things like riding my bike to exercise or many of the other things that people advocate WOULD NOT make me happier.  Everyone has different values in life.  Some are willing to work more, harder, and longer to fund additional items in their life.  Those that select this path are not choosing something non-optimal.  They're simply making different decisions and there is nothing wrong with it. 

Quote
The optimal amount of money you can have is the amount that constitutes "enough" (http://www.mrmoneymustache.com/2011/09/04/book-review-enough-by-john-c-bogle/)--no less, and no more.  Yes, having more provides you with more options -- for example, without billions in the bank, you don't have the option of building yourself your own private luxury submarine (http://www.therichest.com/luxury/diving-deep-with-luxury-submarines/).  Yes, having a stash equal to 1000x your projected expenses provides more safety margin than a stash equal to only 25x (though I question on philosophical grounds (http://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-success-rate/msg652788/#msg652788) whether amassing more money necessarily provides more safety).  But once you have "enough" (whatever amount "enough" may be for any particular individual), what good does it do to have more?  And, as everyone has been saying, most people don't realize that "enough" is a much smaller amount than our consumerist society has led them to believe.  Of course, having more doesn't hurt, but accumulating more almost always comes at a cost, so if it doesn't help, why pay the cost?
Yes....and enough does vary by the individual in relation to their personal circumstances and values.  I have no beef with avoiding consumerism.  I also have no beef with others making different choices.  Live and let live; ya know?

I also agree that there is a tradeoff for accumulating more money. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 08:53:06 AM
What happens if they can't sell in time? If there is a crash, what happens to these shoe-string developers who's finances are so iffy they can't get a loan from a bank for their business? And since these are so short term you then have to go out and find another again, what is the cash drag cost while you wait/research?

If the developer is not liquid enough you don't invest.   Simple.

There are hoards of projects the bank won't finance that are good risk-adjusted loans for higher yields.  It does require time to find them though. 

The cash drag is non-zero, but shouldn't be too big.  It depends a lot on how much you invest in each project and how you spread your risk.  There are plenty of new projects being presented daily. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: regulator on June 17, 2015, 08:54:17 AM
Hard money loans generally are not used for apartment buildings.  They're short-term loans for other project types generally.

What kind of projects? Roads? Casinos? Salmon fisheries? Public bathrooms? The crowdfund site I went to wouldn't show me unless I registered, which I can't be bothered with right now. Or what I'd really like to know: how can they afford to pay 10%+?

Primarily small development projects, fix/flips, etc.   

The developers can afford to pay 10% plus because this money is very cheap relative to the amount of upside there is in the project.  There are many equity participation projects as well, but those offer less security interest and are harder to underwrite IMO.

aha, so short term speculative flips, that are dependent on quickly selling the property again at a much higher price (or the developer can't afford to service the loan). This sounds better and better!

What happens if they can't sell in time? If there is a crash, what happens to these shoe-string developers who's finances are so iffy they can't get a loan from a bank for their business? And since these are so short term you then have to go out and find another again, what is the cash drag cost while you wait/research?

In short, it is a shitshow.  It is even more disastrous when there are several creditors at the table, because then you have to get way more parties to agree to any kind of workout.  Since the hard money loan fund manager likely will have disappeared over the hills in a fair fraction of cases, this will be messy.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 08:57:51 AM
In short, it is a shitshow.  It is even more disastrous when there are several creditors at the table, because then you have to get way more parties to agree to any kind of workout.  Since the hard money loan fund manager likely will have disappeared over the hills in a fair fraction of cases, this will be messy.

How about we agree that you're speculating here?  Fair?

The deals are all structured differently as well.  Do your diligence. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 17, 2015, 08:58:12 AM
I do, however, think that cutting expenses past some point WILL lower your standard of living and WILL make some (many in fact) people less happy.

But NO ONE'S argued that you should cut expenses to the point you're unhappy.

Again, you're setting up a straw man that none of us here argue for.

We do say you should cut out the waste, and optimize.  Cut out spending that doesn't affect your happiness, and you can be just as happy, or even happier, spending less.

Ha!

The first few posts I made on the forums were laced with derision about wastefulness without even knowing what I spend the money on.  Saying this is a straw man is ingenious.  Maybe it isn't what you're arguing, but it is prevalent throughout both the forums and the MMM blog. 

Further, I have posted on the journal and elsewhere about what I spend money on.  Some like Sol and Another Reader were kind enough to comment on the spending.  Pretty much everyone else has used the blanket "you spend too much" statement.  This may very well be true, but it isn't very actionable or helpful.  It doesn't in any way try to tie spending to happiness either.  It just claims that reducing spending will make me happier.  This may very well be true, but I'm not prepared to just wholesale cut my spending in half by taking my kids out of Montessori school, ride my bike to work over 20 miles each day, sell my house to move closer to town, etc.  There is surely other waste to eliminate without making these tradeoffs.  I'm not sure that making these sorts of tradeoffs would even make me happier either.  I value mobility and a larger house and am willing to work longer for these items.  Saying this is "non-optimal" is pretty silly to me.

You don't have to know all the spending to be able to guess there's waste there.  And no one said you should cut spending to the point of being unhappy.  That's the straw man you're presenting.

We're questioning if your spending is optimized, and if it is making you happy.

We're not saying you should cut what does make you happy.

If you're unwilling to critically look at it, and just claim that the bulk of it is essentials that you refuse to look at alternatives because it's important to you, fine, but don't be surprised when you get push back.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 09:01:32 AM
If you're unwilling to critically look at it, and just claim that the bulk of it is essentials that you refuse to look at alternatives because it's important to you, fine, but don't be surprised when you get push back.

How could this possibly be the case?  I have posted a lot of detail about this in the journal forum.  Activities like this seem to be the opposite of refusal. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Retire-Canada on June 17, 2015, 09:03:37 AM
(https://c1.staticflickr.com/1/561/18866451806_0c5b253de9_b.jpg)

This thread hasn't gone anywhere for a while. Just my opinion, but it might be time to agree to disagree and move on.

I don't see any progress happening given the opinions being expressed.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 17, 2015, 09:17:37 AM
You're right Vik.

Like sol said earlier, there are times where it seems he almost gets it, so you don't want to give up, but then it flops back to this:
(http://cf.chucklesnetwork.com/items/5/4/6/9/original/not-sure-if-argument-or-talking-to-a-brick-wall.jpg)

It's just always kind of a let down when you think might have reached someone and then have your illusion shattered. 

:)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 09:18:55 AM
Ha....I agree it is going nowhere.  That is because my values and yours are different.  Nothing wrong with that. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 17, 2015, 09:19:45 AM
Ha....I agree it is going nowhere.  That is because my values and yours are different.  Nothing wrong with that.

Sure.

I am left wondering walt's question:
Presumably you would not be here at all if you weren't looking for *something*. We're not calling your character into question, we're saying the choices you are making are probably making you less happy, and chasing more money isn't going to help you there. You have enough money to do basically whatever you want. If your spending is truly making you happy, great. Then why are you here?

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 09:23:43 AM
I am here to try to cut spending in line with my values; not someone else's. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: regulator on June 17, 2015, 10:05:52 AM
In short, it is a shitshow.  It is even more disastrous when there are several creditors at the table, because then you have to get way more parties to agree to any kind of workout.  Since the hard money loan fund manager likely will have disappeared over the hills in a fair fraction of cases, this will be messy.

How about we agree that you're speculating here?  Fair?

The deals are all structured differently as well.  Do your diligence.

Nope, not speculating at all.  Been there, done that, got the scars and psychological damage that comes with shoveling a mountain of shit that other people spewed out during the last boom.  Just make sure that when the music stops next time you know where your chair is (and ideally it is one of those rocket-powered escape chairs the fighter pilots get).
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 10:17:33 AM
Nope, not speculating at all.  Been there, done that, got the scars and psychological damage that comes with shoveling a mountain of shit that other people spewed out during the last boom.  Just make sure that when the music stops next time you know where your chair is (and ideally it is one of those rocket-powered escape chairs the fighter pilots get).

Yup...you're speculating.  The risk management policies vary by company, project, etc.  How well-heeled the portals are varies as well as does the way the projects are constructed, what is offered, how they handle disclosures, etc. 

Again, we're painting with broad brushes like many do when they say cut, cut, cut spending without knowing the utility details to go with said recommendation. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: regulator on June 17, 2015, 10:31:00 AM
Nope, not speculating at all.  Been there, done that, got the scars and psychological damage that comes with shoveling a mountain of shit that other people spewed out during the last boom.  Just make sure that when the music stops next time you know where your chair is (and ideally it is one of those rocket-powered escape chairs the fighter pilots get).

Yup...you're speculating.  The risk management policies vary by company, project, etc.  How well-heeled the portals are varies as well as does the way the projects are constructed, what is offered, how they handle disclosures, etc. 

Again, we're painting with broad brushes like many do when they say cut, cut, cut spending without knowing the utility details to go with said recommendation.

Just curious: were you in this business in 2006?  2008?  2010?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Scandium on June 17, 2015, 10:53:33 AM
In short, it is a shitshow.  It is even more disastrous when there are several creditors at the table, because then you have to get way more parties to agree to any kind of workout.  Since the hard money loan fund manager likely will have disappeared over the hills in a fair fraction of cases, this will be messy.

How about we agree that you're speculating here?  Fair?

The deals are all structured differently as well.  Do your diligence.
We can only go of what you've told us: Loans for short term projects,  to people who clearly have been rejected by banks. high yields due to high profit projects and quick turnaround. Is any of this wrong? Then please tell us
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 12:55:09 PM
Nope, not speculating at all.  Been there, done that, got the scars and psychological damage that comes with shoveling a mountain of shit that other people spewed out during the last boom.  Just make sure that when the music stops next time you know where your chair is (and ideally it is one of those rocket-powered escape chairs the fighter pilots get).

Yup...you're speculating.  The risk management policies vary by company, project, etc.  How well-heeled the portals are varies as well as does the way the projects are constructed, what is offered, how they handle disclosures, etc. 

Again, we're painting with broad brushes like many do when they say cut, cut, cut spending without knowing the utility details to go with said recommendation.

Just curious: were you in this business in 2006?  2008?  2010?

Yes.  I have been investing since 2003.  We did just fine with our real estate investments through the crisis.  There was no bubble in Texas.  There was a decline, but not like there is in the other coastal states. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 01:02:06 PM
We can only go of what you've told us: Loans for short term projects,  to people who clearly have been rejected by banks. high yields due to high profit projects and quick turnaround. Is any of this wrong? Then please tell us

High yields due to short duration.  Thus the banks don't want to mess with them.  Try getting an interim construction loan from lenders in hot areas right now.  They are either:

1.  Not doing them because they're too much work relative to their effort given their overhead, or
2.  Are capped out on this type of loan by their regulators, or
3.  Are literally out of money

My partner brokers loans across central Texas and has written credit policy for small banks.  There are plenty of good borrowers that have situations that need bridge money, interim construction money, or fix/flip money to make projects work and the banks won't work because of timing or other issues.  I also know of many super-sophisticated lenders that issue hard money loans for a living. 

So yeah...what you have above is wrong.  The borrowers are not only people that have been rejected by banks.  I have a relationship with 10+ local banks and I would borrow hard money if my loan covenants would allow me to do so given the right project with unique timing issues.  So would a lot of other real estate investors for the right projects. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: frugalnacho on June 17, 2015, 01:09:47 PM
Yes.  I have been investing since 2003.  We did just fine with our real estate investments through the crisis.  There was no bubble in Texas.  There was a decline, but not like there is in the other coastal states.

How are you not retired yet?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 01:18:47 PM
Yes.  I have been investing since 2003.  We did just fine with our real estate investments through the crisis.  There was no bubble in Texas.  There was a decline, but not like there is in the other coastal states.

How are you not retired yet?

Apparently because I spend too much.  My goal wasn't ever to supercharge the path to retirement though.  Being wealthier would certainly be nice though.

Oh...and the tech bubble in the early 2000s and the mortgage crisis didn't help much.  Not complaining....just slowed things down a bit. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 17, 2015, 02:00:29 PM
Nope, not speculating at all.  Been there, done that, got the scars and psychological damage that comes with shoveling a mountain of shit that other people spewed out during the last boom.  Just make sure that when the music stops next time you know where your chair is (and ideally it is one of those rocket-powered escape chairs the fighter pilots get).

Yup...you're speculating.  The risk management policies vary by company, project, etc.  How well-heeled the portals are varies as well as does the way the projects are constructed, what is offered, how they handle disclosures, etc. 

Again, we're painting with broad brushes like many do when they say cut, cut, cut spending without knowing the utility details to go with said recommendation.

Just curious: were you in this business in 2006?  2008?  2010?

Yes.  I have been investing since 2003.  We did just fine with our real estate investments through the crisis.  There was no bubble in Texas.  There was a decline, but not like there is in the other coastal states.

Ah, so you didn't learn the lessons Another Reader and others were talking about (involving the cyclical nature of real estate).  Do you think Texas is immune to real estate problems like they discussed from various time periods (early-mid 90s, for example, certain times in the 80s, etc.)?

Yes.  I have been investing since 2003.  We did just fine with our real estate investments through the crisis.  There was no bubble in Texas.  There was a decline, but not like there is in the other coastal states.

How are you not retired yet?

Apparently because I spend too much.  My goal wasn't ever to supercharge the path to retirement though.  Being wealthier would certainly be nice though.

Oh...and the tech bubble in the early 2000s and the mortgage crisis didn't help much.  Not complaining....just slowed things down a bit. 


Even with high spending on can FIRE if they make enough.  Why would you cite spending as the problem and not your income?  ;)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on June 17, 2015, 02:28:51 PM
This is turning into another acrimonious thread, similar to the one on the $15 minimum wage.  Before I bow out and move on, I think Mr_Orange would do well to take some time off and come back to re-read this thread.  If you do, try to review this thread from the point of view of a potential investor. 

From one accredited investor's point of view, I see a fund manager/lead investor/general partner/whatever that is completely myopic.  His rose colored glasses are so thick, he sees no further than his own nose.  He refuses to acknowledge or discuss a future, possibly sudden downturn in the real estate market.  I would not invest in his ventures, no matter how profitable they could possibly be.  I have no confidence in his ability to deal with a setback or carry my investment through a prolonged downturn.

Regulator is right.  There is going to be blood in the streets once the commercial, industrial and multi-family markets turn.  All the small investors in these ventures will lose everything and not understand what happened.  Torches and pitchforks will make a virtual march on Washington, there will be another Financial Inquisition, and we will get yet another set of heavy handed government regulations that will accomplish nothing.

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 02:42:14 PM
Ah, so you didn't learn the lessons Another Reader and others were talking about (involving the cyclical nature of real estate).  Do you think Texas is immune to real estate problems like they discussed from various time periods (early-mid 90s, for example, certain times in the 80s, etc.)?

No...not immune.  We did have pretty much the worst financial crisis in around 80 years recently and Texas did pretty well.  Other markets did okay as well. 

Texas is also not the same economy in 2015 that it was in the mid 90s or the 80s.  With a precipitous fall in oil prices guess what happened to the Texas economy?  It is doing just fine.  That's called diversification.  Sure, some places fared worse than others, but that is why you diversify both in projects and in regions. 

Quote
Even with high spending on can FIRE if they make enough.  Why would you cite spending as the problem and not your income?  ;)

I am assuming there is a typo in your first sentence because it doesn't make sense as-is. 

It certainly would have been nice to have made more income in the last decade.  That would have definitely helped too. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: frugalnacho on June 17, 2015, 02:48:33 PM
Ah, so you didn't learn the lessons Another Reader and others were talking about (involving the cyclical nature of real estate).  Do you think Texas is immune to real estate problems like they discussed from various time periods (early-mid 90s, for example, certain times in the 80s, etc.)?

No...not immune.  We did have pretty much the worst financial crisis in around 80 years recently and Texas did pretty well.  Other markets did okay as well. 

Texas is also not the same economy in 2015 that it was in the mid 90s or the 80s.  With a precipitous fall in oil prices guess what happened to the Texas economy?  It is doing just fine.  That's called diversification.  Sure, some places fared worse than others, but that is why you diversify both in projects and in regions. 

Quote
Even with high spending on can FIRE if they make enough.  Why would you cite spending as the problem and not your income?  ;)

I am assuming there is a typo in your first sentence because it doesn't make sense as-is. 

It certainly would have been nice to have made more income in the last decade.  That would have definitely helped too.

Yes on=one.  He forgot the e.

He is saying your spending isn't the problem, it's your earning that's the problem.  Just depends on how you want to look at it.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 02:49:00 PM
Quote
From one accredited investor's point of view, I see a fund manager/lead investor/general partner/whatever that is completely myopic.  His rose colored glasses are so thick, he sees no further than his own nose.  He refuses to acknowledge or discuss a future, possibly sudden downturn in the real estate market.  I would not invest in his ventures, no matter how profitable they could possibly be.  I have no confidence in his ability to deal with a setback or carry my investment through a prolonged downturn.

Where have I refused to discuss this?  Kindly point to that passage. 

You have not seen our risk management policies, who underwrites risk, how workouts are handled, what special servicing we use, etc.  Saying that I don't plan for risk is completely inaccurate.  In fact, we go through EXCRUCIATING detail about risk in our offering circulars and have done a ton of work with underwriting processes.  I have partnered with a third generation banker with 30 years of experience to underwrite every project for our funding platform.  We take risk seriously.  I am purposefully not disclosing my identity on this forum, but if you could see my LinkedIn profile I am most endorsed for due diligence.  That, in fact, is an endorsement I have received from well over 100 people.

Quote
Regulator is right.  There is going to be blood in the streets once the commercial, industrial and multi-family markets turn.  All the small investors in these ventures will lose everything and not understand what happened.  Torches and pitchforks will make a virtual march on Washington, there will be another Financial Inquisition, and we will get yet another set of heavy handed government regulations that will accomplish nothing.
Perhaps.  It depends on how the project is structured.  This is impossible to discuss in the abstract. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 02:52:39 PM
He is saying your spending isn't the problem, it's your earning that's the problem.  Just depends on how you want to look at it.

Income won't be the problem in 2015 or 2016.  It certainly has been lean in other years; like during the mortgage crisis. 

We actually made more from our businesses last year than we did working.  Hopefully that trend will continue.  There is less setup and overhead for our new ventures this year so we should be able to apply almost all of what we make to capitalizing financial assets in some form (pay off debt, buy new projects, buy financial assets, etc.) from the earnings we have over the next 12-18 months. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: frugalnacho on June 17, 2015, 02:57:50 PM
He is saying your spending isn't the problem, it's your earning that's the problem.  Just depends on how you want to look at it.

Income won't be the problem in 2015 or 2016.  It certainly has been lean in other years; like during the mortgage crisis. 

We actually made more from our businesses last year than we did working.  Hopefully that trend will continue.  There is less setup and overhead for our new ventures this year so we should be able to apply almost all of what we make to capitalizing financial assets in some form (pay off debt, buy new projects, buy financial assets, etc.) from the earnings we have over the next 12-18 months.

No he is saying in the overall scheme of things, the entire premise of this blog and early retirement in general is that you accumulate a chunk of money (usually about 25X expenses) and live off of that indefinitely.  Your actual income and spending are irrelevant, except how they compare to each other.  You can live off $1 per year? Great you need $25 to retire.  You spend $10M per year? Also great, you just need $250M to retire. 

So if you aren't retired yet it's because you spend too much.  Or it's because you don't make enough money.  You can phrase it either way and it means the same thing.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: deborah on June 17, 2015, 02:58:17 PM
However, by your definition, many of the people who have answered you are accredited investors because they have followed the MMM "save most of your pay" philosophy. You are making assumptions that are not valid.

Which assumptions are those?
Let me see... That the people you are calling "lazy" are not accredited investors. That there is no way, following the "save most of your pay" philosophy that someone can become an accredited investor. That being an accredited investor matters, and somehow such people are "better" than others. That the "save most of your pay" philosophy is intrinsically going to end up with someone "scrounging". That the "save most of your pay" philosophy doesn't make people happy. That you are best off having as much money as you can (and this, of course, is the opposite of ER). That investing the way you prefer is the best and only way....

You made this stuff up.  Look back through the thread:

-I never said that lazy people are not accredited investors - You made that up
-I never said that saving most of your pay will not make you an accredited investor - Again, you made that up
-I never said accredited investors are better than non-accrediteds - Again, you made that up
-I never said saving most of your pay will make you unhappy - Again, you made that up
-I never said that investing the way I prefer is the best and only way - Again, you made that up

I can't really address whatever random stuff you make up or read into things that weren't said.  Seriously, go back and read through the thread and see if any of what you claimed above is there.  You're reaching for stuff that doesn't exist. 

I do, however, think that cutting expenses past some point WILL lower your standard of living and WILL make some (many in fact) people less happy.  Perhaps those people are not prevalent on this forum....fine. 

I also believe that having more money gives you more options, allows you to continue growing more that can be passed down to heirs, and provides a better safety margin for independence and thus is better.  This doesn't seem like a controversial topic to me based on everything I have read on the forums and on the MMM blog.  If your portfolio's growth outpaces your WR in FI then by definition it will continue to grow over time. 

Regarding being here to talk and not to listen that is probably fair.  I have, however, learned a lot from posting on the site already and am certainly not bashful about sharing my thoughts.  Don't expect that to change.  I wouldn't expect any other posters to change their opinions over night either.  As long as these opinions are shared respectfully it is fine. 
ASSUMPTIONS - things that you seem to be assuming in your posts - if you had SAID them, they wouldn't be assumptions.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 03:06:21 PM
So if you aren't retired yet it's because you spend too much.  Or it's because you don't make enough money.  You can phrase it either way and it means the same thing.

Yup...I understand this. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 03:09:06 PM
ASSUMPTIONS - things that you seem to be assuming in your posts - if you had SAID them, they wouldn't be assumptions.

https://en.wikipedia.org/wiki/Spin_(public_relations)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: regulator on June 17, 2015, 03:15:31 PM
There is going to be blood in the streets once the commercial, industrial and multi-family markets turn.  All the small investors in these ventures will lose everything and not understand what happened.  Torches and pitchforks will make a virtual march on Washington, there will be another Financial Inquisition, and we will get yet another set of heavy handed government regulations that will accomplish nothing.

Actually, when the next mess happens it will be quite interesting to see what happens.  As of now, the bank regulators are on a jihad to keep the stupidest garbage out of the banking system (and they are not entirely succeeding).  If the next crack up happens before the bank regulatory agencies get neutered/defunded/defanged (just a matter of time as memories fade), the worst crap will be outside the banking system.  People can piss and moan all they like in that scenario, but the regulatory agencies/gubmint will rightly be able to say "we did our job and we did it well."  Then what?  Ensuring we still have a banking system is clearly something that had to be done.  Saving the stupid/naïve from the consequences of their poor choices?  Not so clear.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on June 17, 2015, 05:35:15 PM
Ah, so you didn't learn the lessons Another Reader and others were talking about (involving the cyclical nature of real estate).  Do you think Texas is immune to real estate problems like they discussed from various time periods (early-mid 90s, for example, certain times in the 80s, etc.)?

No...not immune.  We did have pretty much the worst financial crisis in around 80 years recently and Texas did pretty well.  Other markets did okay as well. 

Texas is also not the same economy in 2015 that it was in the mid 90s or the 80s.  With a precipitous fall in oil prices guess what happened to the Texas economy?  It is doing just fine.  That's called diversification.  Sure, some places fared worse than others, but that is why you diversify both in projects and in regions. 

That sounds to me like you're arguing Texas is immune to any sort of negative downturn, because it did okay in the last one, and it's more diversified than before.

(I also second the recommendation for you to read Fooled By Randomness.)

Let me ask you: under what scenario would things go bad for the investments you are hawking?

Quote
Even with high spending on can FIRE if they make enough.  Why would you cite spending as the problem and not your income?  ;)

I am assuming there is a typo in your first sentence because it doesn't make sense as-is. 

It certainly would have been nice to have made more income in the last decade.  That would have definitely helped too.

FrugalNacho was right--I typo'd a single letter.  :)   Regardless of spend, if income is enough, you can hit 25x assets if you save a sufficient percent.  For example, if you made 250k and spent 100k over that timeframe, you'd be FIRE'd now.  Maybe the problem is you spent more than 100k, or maybe it is you didn't make 250k.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 17, 2015, 06:13:02 PM
That sounds to me like you're arguing Texas is immune to any sort of negative downturn, because it did okay in the last one, and it's more diversified than before.

(I also second the recommendation for you to read Fooled By Randomness.)

Let me ask you: under what scenario would things go bad for the investments you are hawking?

I'm not hawking anything.  I have nothing to sell here.  I really honestly couldn't care less if anyone changes their mind about anything.  I was just hoping to try to understand the focus on cutting spending and the lack of focus on earning money and improving investment performance. 

Nope...nothing is immune from a downturn.  How people are drawing these absolutes from what I write is a mystery to me. 

You have to place good risk-adjusted bets.  I simply think investing with quality sponsors in the senior debt part of the capital stack with 30% or more in margin in the middle of markets with strong fundamentals is a good bet when it delivers 10% yields or more.  This is especially true if you can spread your investments across projects and sponsors that fit with these parameters. 

Quote
FrugalNacho was right--I typo'd a single letter.  :)   Regardless of spend, if income is enough, you can hit 25x assets if you save a sufficient percent.  For example, if you made 250k and spent 100k over that timeframe, you'd be FIRE'd now.  Maybe the problem is you spent more than 100k, or maybe it is you didn't make 250k.

We haven't had level W2 salaries over that time period.  I also experienced an extended layoff during the crisis where I started some new ventures that were somewhat successful, but less lucrative than working.   We exited college each making about $50k/year and have roughly doubled our W2 salaries since then.  Our expenses are higher now than they have ever been because the family budgets have gone up with 3 kids in Montessori school of late.  When they go to public school later this year and 3 years from now this will eliminate our 2nd biggest expense; 2nd only to taxes. 

In the last several years we have made good money from real estate investments and we have done pretty well with rentals and small apartment complexes too.  A lot of profits have been reinvested into growing our business and infrastructure.  Those enterprise value numbers are not included in the net worth numbers I have been writing about.  I also don't include my carried interest in funds, etc. until they're realized.  Thus if things work out as planned there will be big spikes in my net worth in the future. 

Using napkin math our net worth is currently about half of what we earned over the course of our working careers thus far.  I haven't kept detailed enough records to know how much of that is savings and how much is from investment lift. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: innerscorecard on June 17, 2015, 09:13:25 PM
You may be making good risk-adjusted bets, but that does not mean that those who refrain from doing so due to personal preferences are simply ignorant or wrong. They may have different risk preferences.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: waltworks on June 17, 2015, 09:54:36 PM
50% isn't bad at all.

Fun thread on that subject: http://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-earnings-vs-net-worth/

-W
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on June 18, 2015, 02:49:52 AM
You may be making good risk-adjusted bets, but that does not mean that those who refrain from doing so due to personal preferences are simply ignorant or wrong. They may have different risk preferences.

Agree.  I never called anyone ignorant or wrong. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: milesdividendmd on June 18, 2015, 02:26:56 PM
Mr Orange. Are you or are you not Rick Santorum?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Wolf359 on September 09, 2015, 09:07:32 AM
I always enjoyed reading this thread, watching the clash of philosophies play back and forth.  Recently, I read a book that resonated with me and reminded me of this discussion.

"The Millionaire Next Door" is often quoted on this forum and is relevant to many Mustachians.  It describes a type of millionaire who achieved his/her millions through aggressive savings, living below their means, but not necessarily having a high income.  Although many MND-types have high incomes, many more achieved their wealth through frugality alone.

I recently read one of Dr. Stanley's later books, updated around 2009, "Stop Acting Rich ...And Start Living Like a Real Millionaire."  In it, he splits the millionaires he profiles into "glittering rich" and "frugal rich."  In the earlier book, he had lumped most of the glittering rich (those with assets who visible spend them on status badges) into inherited wealth or celebrities.  In the later book he more closely examined glittering rich who had accumulated their wealth on their own.  This was achieved by focusing on very high incomes, not frugality.

Both the self-made glittering rich and the frugal rich had one thing in common -- they lived within their means.  The self-made glittering rich person did not spend their money on the expensive toys and high status items until AFTER they became wealthy.  They had higher incomes and generally achieved their wealth at an earlier age.  They were frugal compared to the general population until they succeeded, then had no problems spending their wealth within their means.  (But their means are considerable compared to that general population.)  Glittering rich requires a higher realized income to support the higher spending level.  It also requires achieving a higher net worth to support that income.

Most aspirationals (almost everyone you know who has a luxury car or mini-mansion but is not wealthy) think that looking successful is the same as being successful.  Only the glittering rich type of rich are visible to the public.  Frugal rich (traditional MND-types) are indistinguishable from the general population.  That's why people equate status spending with rich people.

There are many paths to financial independence.  The OP's original question was why the focus on frugality on this site.  It's because it works, and is a legitimate path for many people.  It's also a key part of the philosophy MMM espouses.  While having a high savings rate is difficult or impossible for some people, it is easier to achieve for most people than a high income.  We don't live in Lake Woebegone, where everyone can be above average.  You can achieve frugal rich with fewer funds as well, because a lower net worth is required to support a frugal lifestyle.

As for the lack of focus on improving investment performance -- I disagree that there is a lack of focus there.  I have seen lots of discussion on using a passive approach to investments using indexing, there's a whole different subject forum for real estate investing, there have been people who are aggressively investing in individual stocks, and there is a very active thread on dual momentum strategies.  Having a high savings rate will offset the need for high returns, but having high returns will reduce the amount of money you need to accumulate to achieve FI.

In "Stop Acting Rich," Dr. Stanley points out that there are many more frugal rich than there are self-made glittering rich.  Of course, there are many, many more aspirational rich, who spend their money on status badges to "look rich" but never achieve much wealth. 

This thread is just an example of a clash between these two paths to financial independence.  Neither is wrong, and they both work.  But if you give a frugal rich person a super-high income, all they will do is achieve FIRE faster.  Example: Alfred Morris   http://gamedayr.com/lifestyle/athletes-2/alfred-morris-1991-mazda-626/

I'd love to acquire the skills that you have to generate income, but I'm also naturally a fairly frugal person.  Once my income goes over a certain amount, I don't feel the need to spend more.  It's just not important to me.  I also enjoy squeezing a buck.  Even if I don't have to.



Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on September 09, 2015, 06:08:15 PM
I read back through this thread again today as Another Reader suggested.  Since I was accused of "talking too much" and not "listening" by Sol I have not posted much in the last several months and have participated quite passively.  There were many good passages in this thread and the most recent one was very nice. 

I can't say that my positions have changed much in the several months since all of this was posted and I doubt they will much in the next several years. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on September 09, 2015, 06:58:39 PM
Two and a half months is not the time frame I had in mind.    The Silicon Valley market is slowing down and I'm betting that Austin has started to slow as well.  Let's see how many of these projects that are going on the market over the next few months do.  Some nail biting and price reductions should curb a little of your enthusiasm.  Do a year end review and let us know how you finished.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: SnackDog on September 12, 2015, 05:38:31 AM
If I was so motivated to invest in smart business propositions, I wouldn't just invest my own money, I would borrow as much as I could to invest.  In fact, I might ONLY invest money I had borrowed, via an LLC to protect my own assets in the case of a meltdown.  I would probably quit my day job to do this and try to get rich.  Many people work this way.   But most of such investments are cyclical and when the bottom falls out, as it inevitably does, the losses can be staggering.  I know many small business investors in Texas who have done well but most have been bankrupt at some point, despite all their hard work.  The only people I can think of who have weathered the storms of the past 30-odd years fairly well have had solid family income from land ownership with mineral rights.  YMMV.  Good luck!
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: arebelspy on October 23, 2015, 12:12:05 PM
Since I was accused of "talking too much" and not "listening" by Sol I have not posted much in the last several months and have participated quite passively.

Thank you.  I appreciate your willingness to show you're listening as well as sharing.  I, too, would be interested in your year-end summary (and the year after, and after).  Best of luck!  :)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on April 14, 2017, 07:36:00 PM
Two and a half months is not the time frame I had in mind.    The Silicon Valley market is slowing down and I'm betting that Austin has started to slow as well.  Let's see how many of these projects that are going on the market over the next few months do.  Some nail biting and price reductions should curb a little of your enthusiasm.  Do a year end review and let us know how you finished.

Okay....Is 1.5 years long enough?  We are finishing up our projects with roughly $600k in profits. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: NathanDrake on April 16, 2017, 03:47:59 PM
Good for you.

However, there's no free lunch.

Try keeping this up for 60 years and you can be the next Warren Buffett.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on April 16, 2017, 04:43:15 PM
Good for you.

However, there's no free lunch.

Try keeping this up for 60 years and you can be the next Warren Buffett.

I'm glad you told me there wasn't a free lunch since I was under the false impression there was one.  The last 14 years of developing my business had me spellbound. 

After analyzing my budget more closely over the last few years I can safely say that another $2k/month in savings could be obtained riding a bike 20 miles to and from work, planting food in a garden, etc.  Let's round up and make that $25k annually.  That means I'd need another 24 years to obtain the same quantity of money by cutting expenses instead of focusing on increasing income to increase money available for investment. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Another Reader on April 16, 2017, 05:19:43 PM
My timing was off and you were lucky.  The good news is you are running out of inventory just as your market is running out of steam.

In the next round. try to keep more of the profits.  You are working very hard for your investors.  Heck, I might even be tempted to point some cash your way if you keep this up.  ;-)
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on April 16, 2017, 05:25:04 PM
My timing was off and you were lucky.  The good news is you are running out of inventory just as your market is running out of steam.

In the next round. try to keep more of the profits.  You are working very hard for your investors.  Heck, I might even be tempted to point some cash your way if you keep this up.  ;-)

Hah....No argument on me not keeping enough of the profits.  I'm totally with you there.  The next cycle I'll have more funding, ample lines of credit, and a crowdfunding platform to help keep more.  I'll probably do straight equity for the next cycle too to avoid contingent liabilities. 

I really don't think I was lucky, but luck never hurts.  If we had better builders when I started we probably would have made 50% more than we did with less effort.  There will be another cycle to rinse/repeat at some point. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: East River Guide on April 16, 2017, 06:03:46 PM
What's the balance between diversification and control?   Seems like on the crowd funded options you have no control, too many participants.  For a hard money loan, how does control work, and how big a check do you have to write to get some?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on April 16, 2017, 06:08:03 PM
What's the balance between diversification and control?   Seems like on the crowd funded options you have no control, too many participants.  For a hard money loan, how does control work, and how big a check do you have to write to get some?

Well I own my own platform so my control is greater than what you'd get passively.  I also have a partner that is a 3rd generation banker than gets tens of millions of dollars of deal flow every month so we can be quite choosy. 

I think control really only matters a lot if you're making large investments.  When I invest passively I want to do smaller investments across more deals, but there is a tax here evaluating investments so that certainly needs to be balanced. 

Check sizes vary by sponsor, but $5k checks are pretty commonly the entry price.  Most opportunities are completely passive. 
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: frugledoc on April 17, 2017, 03:49:06 PM
I confess I'm pretty addicted to crowd funded asset backed lending.  I've been doing it for 2 years getting rates 10 - 16% and have a 200k portfolio with 1-3% in each loan.  No defaults to date but I'm happy that loan to values < 70% will get a good chunk of capital back.

Title: Re: Accredited Investors - Why A 4% SWR?
Post by: East River Guide on April 17, 2017, 04:43:59 PM
I confess I'm pretty addicted to crowd funded asset backed lending.  I've been doing it for 2 years getting rates 10 - 16% and have a 200k portfolio with 1-3% in each loan.  No defaults to date but I'm happy that loan to values < 70% will get a good chunk of capital back.

Anyone have any companies they recommend?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on April 17, 2017, 05:17:41 PM
I confess I'm pretty addicted to crowd funded asset backed lending.  I've been doing it for 2 years getting rates 10 - 16% and have a 200k portfolio with 1-3% in each loan.  No defaults to date but I'm happy that loan to values < 70% will get a good chunk of capital back.

Anyone have any companies they recommend?

I'll abstain given the conflict except to tell you to avoid Fundrise and RealtyMogul.  They're doing Title IV funds now, which really defeat the purpose of direct placements IMO.  You'd be better off just investing in an index fund.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: Undecided on April 17, 2017, 10:10:29 PM
Read the passage again.  It means what it says.  $10k/month won't sacrifice our standard of living any.  Below that I think it probably will.  My budget is right there in the other thread for anyone to review.

I am curious about the monthly-funding numbers in your signature---are they based on the 6% SWR you ponder near the start of this thread?
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: frugledoc on April 18, 2017, 12:25:23 AM
I confess I'm pretty addicted to crowd funded asset backed lending.  I've been doing it for 2 years getting rates 10 - 16% and have a 200k portfolio with 1-3% in each loan.  No defaults to date but I'm happy that loan to values < 70% will get a good chunk of capital back.

Anyone have any companies they recommend?

I'm in the UK, so don't know about US.
Title: Re: Accredited Investors - Why A 4% SWR?
Post by: mr_orange on April 18, 2017, 07:29:10 AM
Read the passage again.  It means what it says.  $10k/month won't sacrifice our standard of living any.  Below that I think it probably will.  My budget is right there in the other thread for anyone to review.

I am curious about the monthly-funding numbers in your signature---are they based on the 6% SWR you ponder near the start of this thread?

No....they're based on 4% to keep things conservative.  I do track 6% in my weekly spreadsheet though to see what the numbers look like.