Author Topic: Why not do 100% allocation, draw 4% at retirement, and yolo it?  (Read 28242 times)

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #100 on: May 30, 2018, 04:30:01 PM »
I'll check it out!


boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #102 on: May 30, 2018, 05:09:53 PM »
So just going back to basics.

Do we all agree that the 100% in equities isn't a bad idea? Outside of behaviour. From a returns standpoint only?

For you I think it's a terrible idea.

ysette9

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #103 on: May 30, 2018, 05:11:31 PM »
You should clarify why you think that is a terrible idea for the OP

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #104 on: May 30, 2018, 05:29:58 PM »
You should clarify why you think that is a terrible idea for the OP

The op appears to have self control issues in general with their assumptions of what they will do with cc debt and a mortgage and due to this lack of self control in a market down turn I believe similar lack of control problems will present themselves and op will make devastating decisions around no longer holding 100% stocks.

Op is already using betterment and paying them a gross .25% to try to stop some of this but still has miles to learn about how that doesn't change the level of control they have over there money. 

There is a large lack of understanding of the market and how it works from the op Imo.

For all these reasons 100% stocks is a terrible idea for the OP.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #105 on: May 30, 2018, 08:29:24 PM »
You should clarify why you think that is a terrible idea for the OP

The op appears to have self control issues in general with their assumptions of what they will do with cc debt and a mortgage and due to this lack of self control in a market down turn I believe similar lack of control problems will present themselves and op will make devastating decisions around no longer holding 100% stocks.

Op is already using betterment and paying them a gross .25% to try to stop some of this but still has miles to learn about how that doesn't change the level of control they have over there money. 

There is a large lack of understanding of the market and how it works from the op Imo.

For all these reasons 100% stocks is a terrible idea for the OP.

Can we not make the conversation about this again. I was just starting to get some more interesting information. If you don't have anything to add outside of judging me based on your values (which I don't agree with) than you aren't contributing.

Dicey

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #106 on: May 31, 2018, 01:39:55 AM »
You should clarify why you think that is a terrible idea for the OP

The op appears to have self control issues in general with their assumptions of what they will do with cc debt and a mortgage and due to this lack of self control in a market down turn I believe similar lack of control problems will present themselves and op will make devastating decisions around no longer holding 100% stocks.

Op is already using betterment and paying them a gross .25% to try to stop some of this but still has miles to learn about how that doesn't change the level of control they have over there money. 

There is a large lack of understanding of the market and how it works from the op Imo.

For all these reasons 100% stocks is a terrible idea for the OP.

Can we not make the conversation about this again. I was just starting to get some more interesting information. If you don't have anything to add outside of judging me based on your values (which I don't agree with) than you aren't contributing.
Maybe you're being judged advised based on your actual input, not anyone else's values.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #107 on: May 31, 2018, 05:55:06 AM »
You should clarify why you think that is a terrible idea for the OP

The op appears to have self control issues in general with their assumptions of what they will do with cc debt and a mortgage and due to this lack of self control in a market down turn I believe similar lack of control problems will present themselves and op will make devastating decisions around no longer holding 100% stocks.

Op is already using betterment and paying them a gross .25% to try to stop some of this but still has miles to learn about how that doesn't change the level of control they have over there money. 

There is a large lack of understanding of the market and how it works from the op Imo.

For all these reasons 100% stocks is a terrible idea for the OP.

Can we not make the conversation about this again. I was just starting to get some more interesting information. If you don't have anything to add outside of judging me based on your values (which I don't agree with) than you aren't contributing.
Maybe you're being judged advised based on your actual input, not anyone else's values.


correct this has nothing to do with values how do credit cards and mortgages fit into a "values" category - and if they do what makes your currently poor knowledge of investing and use of betterment different from them.  You've yet to present any data that would lead me to believe you'd personally be successful at your original question.  Odds are it will work out regardless b/c it worked historically over 91% of the time but that assumes you have the ability to not change your path when the market takes a 30% dump which you have routinely tried to present "data" about how humans typically would react to this and keep making the assumption it applies to everyone and we arent able to control ourselves.  unless you're assuming you can control yourself in this instance which would be quite a hilarious assumption you'd be making based on your opinions of your analysis of the data around mortgages and credit cards.   

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #108 on: May 31, 2018, 06:49:39 AM »

I thinking carving out a base and then moving up there, buying everything in cash, means I'll have enough freedom to be riskier with investments.

buying everything in cash increases your risk profile - having a mortgage or using credit cards decreases it.

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I think I am a bit more ok with risk since I already have low expenses. Also, being a Dave Ramseyer is making me a lot more conservative in other aspects of my life. E.G. building an emergency fund, getting rid of all debts, seeking to not have a mortage etc. etc. I think this sort of hedge is, in effect, my "bond".

incorrect having a mortgage acts more like a bond than not having one.

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Do I really have to explain why I need an emergency fund? In case I need money so I don't have to pull from my investments and prematurely drain them. I won't use debt for this since I don't want credit cards. I'm self-aware enough to know that if I kept CCs for the sake of "emergencies", I'd overuse them.

doesnt have self control to use credit cards but thinks they will have self control to be 100% stocks in a down market.

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I, in general, just assume there is nothing free in finance. You pay for something somewhere. Be it paying with the increased risk of making a mistake or being more cavalier if using a rewards card. Or increased risk over all of your assets when leveraging a house. If you can't see exactly how you are paying something, then you probably just aren't modeling things properly.

if nothing is free in finance then there are two sides to a risk equation you continual bring up risk when leveraging a house but i dont think you actually understand what the risks are on both sides of the equation please elaborate on what risks effect both owning a house outright vs investing and holding a mortgage

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I see moresoe that, if you use a credit card, you have a 7% probability of making money off of it.

please show data to back up this statement b/c its ridiculous

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Also I trust the data. I'm a Data Scientist. Why wouldn't I.

much data has been presented here and you've laughed in the face of it - yet another reason i dont believe you personally could stick to a 100% equity play withdrawing 4% in a down market

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The idea is to get your base expenses as minimal as possible giving you the freedom to make sensible but risky investments.

If I can at any point only need to pull out 500$ a month, what will I care if the market falls 30% on 2 million dollars.

please elaborate on this b/c this isnt a 4% SWR its a 0.3% SWR - you're all over the place here dude.
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And I see it this way. The math is great. But day in and day out I do question how much of it actually applies. Spending money is easy and sticking to a budget is hard.

if you dont think the math applies to using a credit card or a mortgage how does it apply to a 100% stock allocation and a 4% SWR.

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Here is my thinking. I'm not confident many people can even know when they are spending properly. In my experience, human beings are unreliable narrators. We intend to take a certain course of action and then actually take another. This tends to be oberservable from the outside but isn't apparent to us. I think this is especially true in finance. This is why rewards programs exist, and make a ton of money. No one intends on going into debt or even holding a balance. But several people eventually do, including those that are good with money. Everyone thinks they are the select few that is better than the population.

so your logic that we're irrational when it comes to spending with credit cards and observations made by outside observers only applies to debt and spending and doesnt apply to your idea that you could maintain a 100% stock allocation at a 4% SWR.

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"Not let emotions get in the way of finance." I think that is a fools errand.

so if you truly believe this then its hard to imagine how you could hold 100% stocks with a 4% SWR.  then a few posts later you said this again

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So if it helps, after read Early Retirement Now's paper, I will probably go 100% Equities.


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One of the issues with ETFs is they are too liquid, despite being a long term investment. You can enter and exit them with the click of a button. OR you can just change allocations. It is too easy to time the market, and therefore the likelihood of doing so increases. I see a lot of people scoff at this, but I honestly wonder how many actually will adhere to perfect behaviour in the future.
ETFs, especially broad market etfs, might not properly price their underlying securities. Eventually, as they grow in popularity, they could cause ineffeciencies in the market that others could take advantage of. This is interest since means, in order for them to work, not everyone can use them. But I also worry of what would happen in the future if another type of investment becomes popular and it becomes compelling to leave them, at which point we are at the first problem.
I think some of the assumptions people make about active traders not beating the market doesn't factor in if the are actually trying. It could be the case that many are focusing on more conservative or dividend portfolios for clients that are investing later in life. So really they are not trying to beat the market. Then again, I just believe this because a certain youtuber said, I don't know if it is true or not.


now we have an entire post about ETFs when you should be saying index funds. - again more education needed if you plan to stick to a 100% stocks with 4% SWR.

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I see it a bit differently. Rather, if you want to invest and attempt to beat the market, you need to accept a higher amount of risk. This risk can come from several factors, be it more volatile stocks, use of advisors with higher fees, or the inevitable amount of errors you would make in the learning stage of investing.

use of advisors with higher fees - this has been proven with data over years to be a fools errand.  again more education needed

« Last Edit: May 31, 2018, 07:06:00 AM by boarder42 »

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #109 on: May 31, 2018, 07:50:18 AM »
There is something I am curious about. Can you explain to me why you believe using a CC is safer than using debit/cash. I understand the argument that you can use debt of any kind to pay for a purchase while investing the difference. But I want to be clear we are not talking about that. We are talking about funneling purchases, otherwise made with cash/debit, through a credit card for the sake of rewards.

The only benefit I see to this is you get exposure to potential rewards at the increased risk of paying credit card fees. Given that this has a higher potential payoff but also higher potential cost, this is certainly a more risky way of doing things. Unless I am missing something.

Do you have the assumptions that the protections given to you by a credit card are somehow greater than a debit card? To which I would aregue debit cards have the same protections, are linked to accounts that are FDIC insured, and such a thing isn't that big of an issue since the cash portion of your portfolio isn't the greatest anyway. Also consider that most banks spend a ton of resources on anti-fraud measures to stop fraud before it happens. Really the only thing you have to worry about with a debit card is a couple of days inconvenience.

Am I missing something?

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #110 on: May 31, 2018, 08:05:53 AM »
Also, since I'd rather get some knowledge out of all the salt you guys are sprinkling in the thread.

I really want to know some better arguments against Betterment,
given all of the benefents you get from paying for them. The real kicker for me is that their fee covers all trading expenses, which I would have paid anyway. I do understand that the .25% adds up over time (super naive calc of (.9975)^30 = .927), and could potentially cut into my SWR. But if they can cause me to earn more, I think it should cancel out.

My biggest concern really is their portfolio allocation. But I won't be satisfied with that until I pick apart the Black-Litterman Model.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #111 on: May 31, 2018, 08:09:08 AM »
There is something I am curious about. Can you explain to me why you believe using a CC is safer than using debit/cash. I understand the argument that you can use debt of any kind to pay for a purchase while investing the difference. But I want to be clear we are not talking about that. We are talking about funneling purchases, otherwise made with cash/debit, through a credit card for the sake of rewards.

The only benefit I see to this is you get exposure to potential rewards at the increased risk of paying credit card fees. Given that this has a higher potential payoff but also higher potential cost, this is certainly a more risky way of doing things. Unless I am missing something.

Do you have the assumptions that the protections given to you by a credit card are somehow greater than a debit card? To which I would aregue debit cards have the same protections, are linked to accounts that are FDIC insured, and such a thing isn't that big of an issue since the cash portion of your portfolio isn't the greatest anyway. Also consider that most banks spend a ton of resources on anti-fraud measures to stop fraud before it happens. Really the only thing you have to worry about with a debit card is a couple of days inconvenience.

Am I missing something?

1. the rewards benefit is large and has the same risk as overdrawaing a checking account that would come with fees associated if you over spend.  The risk you speak of here is non existent.  spending money with credit or debit both have risks of spending more money than you have.  This is the dumbest strawman argument i ever hear on these forums.  you spend what you spend how you pay for what you spend should not matter a whole lot - if you have over spending problems and self control issues with a credit card s a debit then you likely have many other issues as i pointed out with financial control.   YOU HAVE A SPENDING PROBLEM the risk does not lie in the damn form of paying for shit.

2. your debit account is highly unprotected compared to a credit card.   Have someone steal your debit card and use it and see how long that takes for you to get money back on the flip side have the same thing occur with a credit card - typically fraud alert stops it and you get alerted before you even see it on your bill and the credit card company puts it on the person who accepted the card for proof that you made the purchase - debit cards work the other way all the burden of proving you didnt make the purchase is on you and this can tie up money for months to years in some cases. its not days it can be months or years.

MDM

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #112 on: May 31, 2018, 08:13:33 AM »
...benefit...is you get...[guaranteed cash back] rewards at the increased risk of paying credit card fees.
...
Am I missing something?
Perhaps that, for many, the "increased" risk is negligible.  Paying the CC balance in full each month means no interest charges and no late fees.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #113 on: May 31, 2018, 08:18:39 AM »
Also, since I'd rather get some knowledge out of all the salt you guys are sprinkling in the thread.

I really want to know some better arguments against Betterment,
given all of the benefents you get from paying for them. The real kicker for me is that their fee covers all trading expenses, which I would have paid anyway. I do understand that the .25% adds up over time (super naive calc of (.9975)^30 = .927), and could potentially cut into my SWR. But if they can cause me to earn more, I think it should cancel out.

My biggest concern really is their portfolio allocation. But I won't be satisfied with that until I pick apart the Black-Litterman Model.

the .25% cuts the SWR by .25% so if you were going with 4% you either need to increase the spending side of your equation to include what you're paying them annually - 5k or you decrease your withdrawal to 3.75%

the .25% are their fees this does not cover the underlying expense ratios of the funds you're investing in. 

They wont likely cause you to earn more - what makes you think they have some magic powder to help  you earn more.  their standard funds have underperformed the total US stock market since inception plus you're paying extra. the only value they add is to a taxable account for loss harvesting but this doesnt account for the cost of .25% of your portfolio.

https://begintoinvest.com/expense-ratio-calculator/

i posted this in another thread you were in and if you had 2MM and withdrew 80k per year your cost over 50 years of the .25% would be over 2MM which is more money than you even started your retirement with

if 2MM is nothing to you go right ahead and keep using them.  There is no statistical or historical evidence of any service such as this outperforming the market consistently to account for their high fees. which as stated above are above and beyond the expense ratios of whatever investments they put you in.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #114 on: May 31, 2018, 08:26:14 AM »
...benefit...is you get...[guaranteed cash back] rewards at the increased risk of paying credit card fees.
...
Am I missing something?
Perhaps that, for many, the "increased" risk is negligible.  Paying the CC balance in full each month means no interest charges and no late fees.
Yeah man. I think we are taking this whole rewards idea way to far out of proportion. I don't think it is a big deal either way you go, and really not something I want to spend much time debating, but hey here we are. I was more curious if there is a good argument for it being "safer".

I mean I see it this way. PEople are so passionate about this. I don't want to convince them. But I might be able to learn something, even if I disagree.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #115 on: May 31, 2018, 08:30:35 AM »
...benefit...is you get...[guaranteed cash back] rewards at the increased risk of paying credit card fees.
...
Am I missing something?
Perhaps that, for many, the "increased" risk is negligible.  Paying the CC balance in full each month means no interest charges and no late fees.
Yeah man. I think we are taking this whole rewards idea way to far out of proportion. I don't think it is a big deal either way you go, and really not something I want to spend much time debating, but hey here we are. I was more curious if there is a good argument for it being "safer".

I mean I see it this way. PEople are so passionate about this. I don't want to convince them. But I might be able to learn something, even if I disagree.

i told you how it was safer above MMM even has a post about why you should use them and how much safer they are. 

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #116 on: May 31, 2018, 08:31:31 AM »
http://money.cnn.com/2013/12/20/pf/expert/debit-credit-cards/index.html

here is the law about how they are  different.

but you've already commented on another thread that paying a financial robot 2MM dollars really probalby close to 3MM over the course of your life isnt a big deal to you so maybe dealing with this hassle isnt a big deal to you either.  just gotta make it rain money.   
« Last Edit: May 31, 2018, 08:34:17 AM by boarder42 »

sherr

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #117 on: May 31, 2018, 08:45:53 AM »
...benefit...is you get...[guaranteed cash back] rewards at the increased risk of paying credit card fees.
I mean I see it this way. PEople are so passionate about this. I don't want to convince them. But I might be able to learn something, even if I disagree.

I would posit that people are not so much hyped up about the particulars of CC rewards than your weird and inconsistently applied notion of safety.

I don't see how it makes sense to be talking about going 100% stocks while simultaneously saying "CC rewards? Too risky for me!".
« Last Edit: May 31, 2018, 08:50:09 AM by sherr »

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #118 on: May 31, 2018, 08:47:09 AM »
2 MM - 3MM ???

Betterment's fees are capped at 5000k a year. This won't sum to anything close to 2mm or 3mm.

I mean if you are talking 60 years or something I could see that. but you also have to think that your net worth at the end would be in the decamillions.

Anywway all of this is moot if you believe their service to be worthwhile, which I do, but if you disagree I will gladly accept any dissenting opinions.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #119 on: May 31, 2018, 09:45:35 AM »
2 MM - 3MM ???

Betterment's fees are capped at 5000k a year. This won't sum to anything close to 2mm or 3mm.

I mean if you are talking 60 years or something I could see that. but you also have to think that your net worth at the end would be in the decamillions.

Anywway all of this is moot if you believe their service to be worthwhile, which I do, but if you disagree I will gladly accept any dissenting opinions.

yes it does use the calculator i showed you above and on another thread.  and no none of this is moot.  there is no DATA to show that they outperform the market above the .25% fee.  There is acutally DATA that shows they've underperformed just throwing your money in a simple index fund you continual post on here for people to make counter points and you blatantly ignore them and use strawman statements to negate it "i believe its better" is not a data driven answer to something. 

and i'll run the damn numbers again for you since you dont seem capable of using the calculator i attached.  and this assumes they are investing in the lowest cost index funds available ie vanguard funds i'm giving them the benefit of that doubt if they arent this gets worse.

ardrum

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #120 on: May 31, 2018, 09:59:19 AM »
I see no problem with 100% stocks.  If it unfortunately crashes right when you've accumulated "enough," just work a few more years.  No biggie.  Most people will have to work for most of their able-bodied adult lives, which is a nice reminder of just how big this "problem" is.

ysette9

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #121 on: May 31, 2018, 10:06:33 AM »
I’d be careful about being so glib about a few more years of work. The difference between working 15 years and 18 years may not seem that big of a deal, but where I am at right now, if things go well then I have maybe three more years left. If things go to hell and that becomes 6 more years, that changes my outlook and plans quite a bit. That is why personally I am looking into the bond tent idea to hedge against my near-term risk and aversion to working a few more years. Clearly people will have different personal situations and will be more or less willing to work extra in the case of a market downturn.

simonsez

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #122 on: May 31, 2018, 10:16:42 AM »
OP, first I want to say I like your thread title.  If you don't want to use credit cards, to each their own.  But if you can't see the benefits (or lower risk) compared to a debit card, then you are deliberately being obtuse and/or have ignored further reading.

Fraud protection, insurance, foreign transaction fees, rental cars, etc.  All of these things are generally (some debit cards have perks, sure) superior with a credit card and notice I didn't say anything about rewards.  I don't see the downside other than laziness to research.

If all of my credit cards had zero rewards and a debit had card somehow had ALL of the benefits listed above, I'd still use credit cards for the improved credit rating plus the month or so of float that I receive for FREE.  Set the auto payment to wipe out the balance each month, find cards with no annual fee, and you're golden.

As others have mentioned, a spending problem has nothing to do with credit vs. debit.  I mean, I guess you can argue it does if you went off the deep end and charged the max on credit cards and didn't have the money to repay. Yeah, your problem is bigger than if you had done the same with a debit card but that's a bit extreme.  Does having a Costco Citi card that I get 4% back on Costco gas make me drive around more so I can "save more" by purchasing more gasoline?  Uhh, no. 

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #123 on: May 31, 2018, 10:22:56 AM »
Iíd be careful about being so glib about a few more years of work. The difference between working 15 years and 18 years may not seem that big of a deal, but where I am at right now, if things go well then I have maybe three more years left. If things go to hell and that becomes 6 more years, that changes my outlook and plans quite a bit. That is why personally I am looking into the bond tent idea to hedge against my near-term risk and aversion to working a few more years. Clearly people will have different personal situations and will be more or less willing to work extra in the case of a market downturn.

starting a reverse equity glide path prior to FIRE if this is a risk you're looking to eliminate would make a lot of sense.  I've personally got a unique situation and a market drop a few years prior to FIRE likely wouldnt effect me but if your goal is to eliminate that risk of working an extra year or two starting the glide path a year or two before FIRE would definitely help ensure that.

Padonak

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #124 on: May 31, 2018, 10:29:08 AM »
Why do you have to implement the glide path two years before fire? Why not right before fire date (tax consequences permitting )?

If the market keeps going up before you RE, you just keep 100% or almost 100% equities, then rebalance to your desired bond RE allocation, then fire. If the market declines significantly before you rebalance, you still have your job, just keep it until you have replenished your portfolio, then fire.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #125 on: May 31, 2018, 10:31:54 AM »
Why do you have to implement the glide path two years before fire? Why not right before fire date (tax consequences permitting )?

If the market keeps going up before you RE, you just keep 100% or almost 100% equities, then rebalance to your desired bond RE allocation, then fire. If the market declines significantly before you rebalance, you still have your job, just keep it until you have replenished your portfolio, then fire.

ysette9 was talking about eliminating the risk of having to work longer.  so if you are trying to do that you're going to have to miss out on some gains to protect your FIRE date. different risk elimination.

ysette9

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #126 on: May 31, 2018, 10:41:28 AM »
Exactly. I don’t want to work an extra couple of years, so doing a bond tent is a way to hedge against that risk, giving up some upside of potential gains for those few years pre-FIRE in échange. The research hasn’t been done yet on how many years before retirement is optimal to begin that transition, so we are having to just make a guess. There is some good analysis on how to do the transition from more to fewer bonds after the retirement date. I posted a link already in this thread that gets into that in some detail.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #127 on: May 31, 2018, 11:17:05 AM »
Exactly. I donít want to work an extra couple of years, so doing a bond tent is a way to hedge against that risk, giving up some upside of potential gains for those few years pre-FIRE in ťchange. The research hasnít been done yet on how many years before retirement is optimal to begin that transition, so we are having to just make a guess. There is some good analysis on how to do the transition from more to fewer bonds after the retirement date. I posted a link already in this thread that gets into that in some detail.

i mean its really just a market timing play at that point.  wait too long and it doesnt help too early and you end up working longer thats why i just plan to stick with 100% stocks b/c i'd rather bet on the market going up like it normally does than the outside chance it goes down.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #128 on: May 31, 2018, 11:19:20 AM »
OP, first I want to say I like your thread title.  If you don't want to use credit cards, to each their own.  But if you can't see the benefits (or lower risk) compared to a debit card, then you are deliberately being obtuse and/or have ignored further reading.

Fraud protection, insurance, foreign transaction fees, rental cars, etc.  All of these things are generally (some debit cards have perks, sure) superior with a credit card and notice I didn't say anything about rewards.  I don't see the downside other than laziness to research.

If all of my credit cards had zero rewards and a debit had card somehow had ALL of the benefits listed above, I'd still use credit cards for the improved credit rating plus the month or so of float that I receive for FREE.  Set the auto payment to wipe out the balance each month, find cards with no annual fee, and you're golden.

As others have mentioned, a spending problem has nothing to do with credit vs. debit.  I mean, I guess you can argue it does if you went off the deep end and charged the max on credit cards and didn't have the money to repay. Yeah, your problem is bigger than if you had done the same with a debit card but that's a bit extreme.  Does having a Costco Citi card that I get 4% back on Costco gas make me drive around more so I can "save more" by purchasing more gasoline?  Uhh, no.

I have long been well aware of the arguments for debit cards. I guess I just interprit their weight differently. In fact, the thing I find most curious about this discussion is how passionate and emotional people seem to be. I think this underscores why I am so curious about behavioural economics. We are all looking at the same information, yet we have widly different interpretations and assumptions. We often argue and exchange ideas without properly being aware of this.

Case in point. Earlier we talked about Betterment's fees. My argument is that, even over 30 years, you wouldn't have 2M lost in opportunity cost. @boarder42 then showed me a graph that supported his claim. However, his term was over the drawdown phase. All this time I've been thinking about the accumulation phase. He then insulrted me, which you know is super effective at convincing people of your opinion.

So here is what gets me. I have pretty much learned what I want to learn, I mean some of the links in the first couple of responses were very helpful. I was not so confident of the 100% withdraw rate and now I am. However, this discussion has continued for 2 pages because of a couple things about my MO that are unrelated to the topic at hand. I think this underscores something about finance. Its personal. Its irrational. We all overlay our own experiences and hopes and tell ourselves we are being objective and we are not. Not only this, but some feel it necessary to convince others that they must join their own method. And, if they don't, they are stupid/minformed/lazy etc. etc. . I find that fascinating. Especially, when we are making real decisions with real money.

I think that money has the multiplier effect on peoples' emotions, and that is something I am very curious about. Since I suspect it could possibly be one of the keys to using it to your advantage.

Then again what do I know. I'm just a stupud physicist that doesn't  credit cards and thinks actually owning the things you buy is a good idea.   


boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #129 on: May 31, 2018, 11:26:24 AM »
clearly you're not open to listening to anyone that counters your ideas

so

dont ever have debt
dont use credit cards
blindly follow 100% stocks at a 4% SWR with betterment.   

chances are you'll be fine.

on the outside chance you're not it could be devastatingly bad.

ardrum

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #130 on: May 31, 2018, 11:27:52 AM »
I also sometimes don't feel too impressed with how much a 75/25 or 80/20 stock/bond mix mitigates a market drop vs. simply going 100/0.  I think psychologically the hit would probably lead to feeling a need to work/save longer either way with such a stock-heavy AA.  I remember running some scenarios on Portfolio Visualizer that seemed to illustrate the difference being pretty small.  Now if you were to go really heavy into bonds, it might feel differently, but then there is the risk of avoiding market gains because only 25% of your investment was in equities.

ysette9

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #131 on: May 31, 2018, 11:34:49 AM »
Exactly. I don’t want to work an extra couple of years, so doing a bond tent is a way to hedge against that risk, giving up some upside of potential gains for those few years pre-FIRE in échange. The research hasn’t been done yet on how many years before retirement is optimal to begin that transition, so we are having to just make a guess. There is some good analysis on how to do the transition from more to fewer bonds after the retirement date. I posted a link already in this thread that gets into that in some detail.

i mean its really just a market timing play at that point.  wait too long and it doesnt help too early and you end up working longer thats why i just plan to stick with 100% stocks b/c i'd rather bet on the market going up like it normally does than the outside chance it goes down.

In the long term, yes, the market goes up. I’m sure I’ve read all over the place that there isn’t a ten-year period where the US market wasn’t up once you factor in dividends. That said, I am not talking about long-term but short term. I wouldn’t describe this as a “market timing play” because it isn’t a decision based on how the market is performing, but based on my personal FIRE timeline. It is buying insurance: if I don’t need it then I have lost out on some $. If I do need it then it reduces my negative impact, in this case in avoiding extra years of work.

Again, the links I provided above do a much better job of discussing the details, including probabilities based on past market performance data and what risks are being mitigated.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #132 on: May 31, 2018, 11:41:11 AM »
I also sometimes don't feel too impressed with how much a 75/25 or 80/20 stock/bond mix mitigates a market drop vs. simply going 100/0.  I think psychologically the hit would probably lead to feeling a need to work/save longer either way with such a stock-heavy AA.  I remember running some scenarios on Portfolio Visualizer that seemed to illustrate the difference being pretty small.  Now if you were to go really heavy into bonds, it might feel differently, but then there is the risk of avoiding market gains because only 25% of your investment was in equities.

there is actually no really noticeable gain in 90/10 vs 100/0 at least compared to the jump from 80/20 and everything lower to 90/10 the curve really flattens out from 90/10 to 100/0,  10% of your stache is also 2.5 years worth of withdrawals that could give you time for a market bounce back by drawing down only bonds over that time you get 5 years out of 80/20 give or take obviously

ysette9

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #133 on: May 31, 2018, 11:41:24 AM »
To the OP: it sounds like you plan on exiting Betterment once you reach FI to, presumably, save on the fees. Can you walk me through why their service and fees are the right move in accumulation and not in retirement?

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #134 on: May 31, 2018, 12:00:24 PM »
I plan on staying with them indefinitely.  In retirement I will probably draw down 3 - 4% each year.

I think that their features create enough added post tax benefit to cover their fees. And I rather enjoy using their service. Over the life, I project this will incentivize me to put more in to my accounts which will result in an effectively higher end amount and improved quality of life.
I see it this way. I could do nearly everything they have done. I've looked at their whitepapers and pretty much everything they have on their site. I've even talked to customer service to correct some of issues they have (mostly broken links). I just don't want to. At some point it has to be less about the money and more about enjoying life. And they help, not hinder, that end goal.

Would I recommend them? I would recommernd them to people that don't want to put effort into investing. But I wouldn't state that they are better than DIY, although I personally think this to be true. I would actually not recommend them to people going the FIRE route of drawing a small amount in retirement (like under 40k) since some of their tax strategies are counterintuitive and would probably not work very well. And I'd make it clear that you are paying a fee to use their service. So it isn't for free.


shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #135 on: May 31, 2018, 12:08:23 PM »
clearly you're not open to listening to anyone that counters your ideas

so

dont ever have debt
dont use credit cards
blindly follow 100% stocks at a 4% SWR with betterment.   

chances are you'll be fine.

on the outside chance you're not it could be devastatingly bad.

Mah dude. I am totally open to new idea. But, if you want to convince someone of something , you should consider empathizing with them more instead of insulting them.

ysette9

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #136 on: May 31, 2018, 12:12:22 PM »
Thanks for clarifying. In that case the analysis on fees shown upthread is applicable to you.

I pulled up a random investment fees calculator online and put in an initial investment of $2M, annual return of 6%, and a holding period of 50 years.

Total investment without fees is $32M, without fees is $36M. This is different than above since it is simple and doesn’t include withdrawals, but the overall point remains. Even low fees have a big impact over long time periods due to the magical powers of compounding.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #137 on: May 31, 2018, 12:17:08 PM »
Bear in mind. BEtterment's fees are capped at 5000,as it only puts a percentage on the first 2MM.

On a side note. If I ever have 32Million.

Yeah.

I would'nt give a fuk

ecchastang

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #138 on: May 31, 2018, 01:32:57 PM »
I see no problem with 100% stocks.  If it unfortunately crashes right when you've accumulated "enough," just work a few more years.  No biggie.  Most people will have to work for most of their able-bodied adult lives, which is a nice reminder of just how big this "problem" is.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #139 on: May 31, 2018, 01:55:07 PM »
Bear in mind. BEtterment's fees are capped at 5000,as it only puts a percentage on the first 2MM.

On a side note. If I ever have 32Million.

Yeah.

I would'nt give a fuk

Again you clearly don't understand here. You'd be withdrawing over time so you'd be at an inflation adjusted return of 2MM over that time. And I doubt that the 2MM is fixed forever it likely will move up with inflation. But what was demonstrated was the 4MM dollar difference. Which is apparently pennies to you.

ditkanate

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #140 on: May 31, 2018, 02:20:29 PM »
Bear in mind. BEtterment's fees are capped at 5000,as it only puts a percentage on the first 2MM.

$5,000 invested annually for 30 years comes to about $100,000 at 7% return per year.  And I think you are overblowing the difficulty level of "DIY".  Get a Vanguard account (or schwab or fidelity or whoever) with the allocations you want in a low-fee index fund (100% stock in your case), set up auto-transfers and forget about it.

If you're saying that Betterment's user interface is so much better and easier that you simply won't invest or invest as much if you use a different service... I find that a bit odd.  And unlikely.  If you're willing to spend time posting on this forum then you have time to set up a Vanguard account. 

Radagast

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #141 on: May 31, 2018, 02:37:35 PM »
Also, since I'd rather get some knowledge out of all the salt you guys are sprinkling in the thread.

I really want to know some better arguments against Betterment,
given all of the benefents you get from paying for them. The real kicker for me is that their fee covers all trading expenses, which I would have paid anyway. I do understand that the .25% adds up over time (super naive calc of (.9975)^30 = .927), and could potentially cut into my SWR. But if they can cause me to earn more, I think it should cancel out.

My biggest concern really is their portfolio allocation. But I won't be satisfied with that until I pick apart the Black-Litterman Model.
Here is a good thing to ctrlV into google: betterment site:bogleheads.org.
Way more in depth discussion in zillions of threads. Generally we are a DIY crowd, and paying betterment 0.25%-5k to do the same thing we would be doing for free isn't the style of regulars here. Even if fees are capped at "only" $5,000/yr that is not acceptable to a crowd with annual spending averaging $50,000/yr. I would absolutely manage my finances if being paid five grand a year to do it, especially as that is more than 10% of my annual spending.

Convenient way to play around with the black litterman model if desired (and a billion other things to play with):
https://www.portfoliovisualizer.com/black-litterman-model

I always have more money in my bank account than credit card spend, so penalties are not a risk. You could view it as a way to reduce the drag of cash without additional risk. I don't care if you choose otherwise. If you think I have a 93% chance of losing money you are 100% wrong (but I don't make as much as I would like to think). Perhaps we should make a new credit card thread?

Wide array of topics in this thread. I think the optimum reverse glide path is probably very similar to this graphic from Maizeman, possibly with a 5% higher stock allocation. My best guess for the accumulation stage is divide the horizontal access by two and taper to 100% stocks at some point. The problem is that only a handful of months give the worst case scenarios which define SWR's, so obviously your results will vary greatly.



simonsez

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #142 on: May 31, 2018, 02:48:35 PM »
$5,000 invested annually for 30 years comes to about $100,000 at 7% return per year.

If you contributed evenly throughout the year, I get $488,835.
If you threw 5k all in on Dec 31 of each year, I get $472,304.
If you threw 5k all in on Jan 1 of each year, I get $505,365.

shinn497

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #143 on: May 31, 2018, 02:52:37 PM »
$5,000 invested annually for 30 years comes to about $100,000 at 7% return per year.

If you contributed evenly throughout the year, I get $488,835.
If you threw 5k all in on Dec 31 of each year, I get $472,304.
If you threw 5k all in on Jan 1 of each year, I get $505,365.

I think you are closer to the truth.

Bear in mind though. The 5k a year is If you have more than 2 million.

I mean at that level of wealth, what is 500k after 30 years really? Ionno.

boarder42

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #144 on: May 31, 2018, 02:58:26 PM »
$5,000 invested annually for 30 years comes to about $100,000 at 7% return per year.

If you contributed evenly throughout the year, I get $488,835.
If you threw 5k all in on Dec 31 of each year, I get $472,304.
If you threw 5k all in on Jan 1 of each year, I get $505,365.

I think you are closer to the truth.

Bear in mind though. The 5k a year is If you have more than 2 million.

I mean at that level of wealth, what is 500k after 30 years really? Ionno.

its a quarter of your total wealth.  the .25% puts a drag on your investments and doesnt return the same.  smartest investor in history - warren buffett - routinely says put all your money in a low cost S&P500 index fund - you're incresing your cost knowledgeably and continue to down play the signficance. 

pshh who cares about 500k when you have 2MM i would think everyone does its 25% of your stash.  think of it this way you retire with 2MM and you use betterment 30 years later your inflation adjusted account is now 1.5MM

another person uses vanguard S&P500 index their acocunt is still worth 2MM but yeah who cares about 500k are you listening to yourself. 

ditkanate

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #145 on: May 31, 2018, 03:10:01 PM »
the .25% puts a drag on your investments and doesnt return the same. 

This is really the point at the end of the day.  You're adding an unnecessary drag on your returns.  Which when taken over long time periods makes a HUGE difference in your outcome. 

Radagast

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #146 on: May 31, 2018, 03:56:03 PM »
$5,000 invested annually for 30 years comes to about $100,000 at 7% return per year.

If you contributed evenly throughout the year, I get $488,835.
If you threw 5k all in on Dec 31 of each year, I get $472,304.
If you threw 5k all in on Jan 1 of each year, I get $505,365.

I think you are closer to the truth.

Bear in mind though. The 5k a year is If you have more than 2 million.

I mean at that level of wealth, what is 500k after 30 years really? Ionno.
Ummm no. You don't compare a net worth lump sum with ongoing annual spending and say "hey this one is like... way smaller!" Amazing quantification Sherlock. You compare the annual cash flow produced with annual cash flow required. It is $5k/yr of $80k/yr. 4% rule on 2 million is 80k. You will need to invest as if you planned to withdraw $80k, but then only be able to withdraw 75k. A 6.25% loss every year for life.

CoffeeR

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #147 on: May 31, 2018, 05:19:43 PM »
I plan on staying with them indefinitely.
I am reflecting on the number of times in my life I thought I was in for something "indefinitely" and I turned out to be wrong. You tell me you are data driven. I think you will find living will provide you with a lot of unanticipated data.

It is probably impossible to convince you this, but I see a lot of confirmation bias in your replies. The data you select, the priors you choose are designed to reenforce your existing conclusions. This is not to say that some of your conclusions or not correct, but I believe you are far less analytical and data driven than you think you are.

I wish you the best, I really do.

DreamFIRE

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #148 on: May 31, 2018, 05:34:14 PM »
In the long term, yes, the market goes up. Iím sure Iíve read all over the place that there isnít a ten-year period where the US market wasnít up once you factor in dividends.

I know this isn't the main point, but a recent 13 year period ended with the S&P 500 having a negative real return (includes dividend reinvestment and adjusted for inflation.)  This is an example of one particular window in recent history of just over 13 years:






ysette9

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Re: Why not do 100% allocation, draw 4% at retirement, and yolo it?
« Reply #149 on: May 31, 2018, 05:48:41 PM »
I stand corrected.

I learn so many insightful things on these forums and then can’t find where I read something, I feel like I should be keeping a notebook of references for the future or something. :)