Author Topic: Accredited Investors - Why A 4% SWR?  (Read 63930 times)

foobar

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Re: Accredited Investors - Why A 4% SWR?
« Reply #50 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.

theoverlook

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Re: Accredited Investors - Why A 4% SWR?
« Reply #51 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.

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #52 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")

Clean Shaven

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Re: Accredited Investors - Why A 4% SWR?
« Reply #53 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?

matchewed

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Re: Accredited Investors - Why A 4% SWR?
« Reply #54 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

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #55 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. 

Clean Shaven

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Re: Accredited Investors - Why A 4% SWR?
« Reply #56 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.

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #57 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.

theoverlook

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Re: Accredited Investors - Why A 4% SWR?
« Reply #58 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.

brooklynguy

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Re: Accredited Investors - Why A 4% SWR?
« Reply #59 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.

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #60 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. 

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #61 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. 

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #62 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. 

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #63 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.
« Last Edit: June 08, 2015, 06:10:32 PM by nereo »

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #64 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. 

waltworks

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Re: Accredited Investors - Why A 4% SWR?
« Reply #65 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

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #66 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. 

theoverlook

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Re: Accredited Investors - Why A 4% SWR?
« Reply #67 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.

Retire-Canada

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Re: Accredited Investors - Why A 4% SWR?
« Reply #68 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.

Wolf359

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Re: Accredited Investors - Why A 4% SWR?
« Reply #69 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. 

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #70 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. 

arebelspy

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Re: Accredited Investors - Why A 4% SWR?
« Reply #71 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.  :)

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Re: Accredited Investors - Why A 4% SWR?
« Reply #72 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.
« Last Edit: June 13, 2015, 08:37:04 PM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #73 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. 

clifp

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Re: Accredited Investors - Why A 4% SWR?
« Reply #74 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%.

libertarian4321

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Re: Accredited Investors - Why A 4% SWR?
« Reply #75 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?

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Re: Accredited Investors - Why A 4% SWR?
« Reply #76 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. 

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #77 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. 

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Re: Accredited Investors - Why A 4% SWR?
« Reply #78 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.

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Re: Accredited Investors - Why A 4% SWR?
« Reply #79 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. 

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Re: Accredited Investors - Why A 4% SWR?
« Reply #80 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/



mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #81 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. 

waltworks

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Re: Accredited Investors - Why A 4% SWR?
« Reply #82 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

nereo

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Re: Accredited Investors - Why A 4% SWR?
« Reply #83 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?

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #84 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. 

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Re: Accredited Investors - Why A 4% SWR?
« Reply #85 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

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Re: Accredited Investors - Why A 4% SWR?
« Reply #86 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).
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mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #87 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. 

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Re: Accredited Investors - Why A 4% SWR?
« Reply #88 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. 

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Re: Accredited Investors - Why A 4% SWR?
« Reply #89 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.
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mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #90 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. 

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Re: Accredited Investors - Why A 4% SWR?
« Reply #91 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.

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Re: Accredited Investors - Why A 4% SWR?
« Reply #92 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.
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Re: Accredited Investors - Why A 4% SWR?
« Reply #93 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. 

waltworks

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Re: Accredited Investors - Why A 4% SWR?
« Reply #94 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. 

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #95 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. 

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #96 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. 

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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. 
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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. 

waltworks

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Re: Accredited Investors - Why A 4% SWR?
« Reply #97 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

mr_orange

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Re: Accredited Investors - Why A 4% SWR?
« Reply #98 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. 

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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. 

Another Reader

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Re: Accredited Investors - Why A 4% SWR?
« Reply #99 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.