Author Topic: New Saver, worried about future Stockmarket  (Read 4716 times)

Pomegranate12

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New Saver, worried about future Stockmarket
« on: December 20, 2020, 10:18:08 AM »
Hello all,
I'm 38 and I have a vanguard account where I invest in index funds
I also have a 401k etc....    which I cannot access until retirement.
My fear is FIRE is based on good stock market returns for the next 50 years.
However with the current state of the world the market is not expected to give nice returns in the future.
Is FIRE still a legitamate thing with the 3 to 4 percent withdrawl rate. 
I don't believe the trinity study is valid anymore for the next 40 to 50 years
Is the new norm going to be a 2 percent withdraw rate which would basically indicate you need twice the stash

BuildingFrugalHabits

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Re: New Saver, worried about future Stockmarket
« Reply #1 on: December 20, 2020, 10:44:15 AM »
Here's a couple of thoughts for you on this. 

1. You should start by reading Jim Collins stock series on investing to get some perspective on long term investing.  https://jlcollinsnh.com/stock-series/
2.  I think the first priority is to save as much as possible and figure out your risk tolerance to determine whatever asset allocation will allow you to stay the course. 
3.  As a long term investor, I rely on equities to provide returns that outpace inflation.  If you aren't comfortable in equities, you could look into other business investments such as real estate rentals etc.  Opportunities will depend on your local market. 
4. Figure out what your goals are, if it's FIRE, come up with a plan and some contingencies that you can implement if necessary.  I think a good plan balances your risk vs opportunity and accounts for your personal situation.  For example, are you willing able to go back to work if market returns are suboptimal in the first few years of FIRE?  Are you willing to be flexible on your budget to reduce spending if needed?   Is there a side hustle you can develop to bring in some extra cash as needed?  A paid off house can add piece of mind for some.
5.  There's no perfect solution, working X more years to get to a 2% withdrawal means you sacrifice years of your life for additional peace of mind.  This tradeoff may or may not be worth it depending on your personal situation. It's a choice that everyone needs to make for themselves.   
« Last Edit: December 20, 2020, 10:59:50 AM by BuildingFrugalHabits »

Steeze

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Re: New Saver, worried about future Stockmarket
« Reply #2 on: December 20, 2020, 10:53:35 AM »
Short answer, yes, the principles of the FI/RE movement hold true regardless of expected returns and valuations. Will the 4% rule hold up over the next 50 years? No way to be sure, but there is a 100+ years of data that suggest that it should do just fine. If you adhere to the mustachian principles of learning to do things for yourself, acquiring skills, living below your means, and frugality then you will be well suited to weather any temporary market conditions.

For what itís worth, the trinity study was recently update to increase the safe withdrawal rate. Using a higher or lower withdrawal rate is a matter of personal choice. One might consider their ease of re-entering the workforce, age, health, life expectancy, etc. in making the decision. Also, how flexible is your spending? Is 4% covering only your basic expenses, or is there a lot of discretionary spending built in?

Your fears are not unique, Iíll let @RWD explain.

Also, check the sticky in investor alley - your 401k is not locked until retirement if you use some common strategies for penalty free withdrawal.

ixtap

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Re: New Saver, worried about future Stockmarket
« Reply #3 on: December 20, 2020, 10:58:59 AM »
Saving as much as you can while still living a fulfilled life will give you options, regardless of stock market returns. In the worst case scenario, you are used to less than those who earned the same salary and spent it all.

FINate

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Re: New Saver, worried about future Stockmarket
« Reply #4 on: December 20, 2020, 11:30:40 AM »
Not convinced that 2% WR will be the norm going forward. Though not wedded to 4% either, could be persuaded otherwise, just haven't seen a compelling case for it.

But, for the sake of argument, let's assume it is 2%. That means you need to save twice as aggressively. Even if you don't hit the magic FIRE number, you'll still end up way better off than if you saved very little. And the real question then becomes, where/how do you invest this bigger than expected 'stach other than equities? Cash and cash equivalents are even riskier with all the money sloshing around right now. Real estate? Maybe, but owning buildings involves a lot of specific risk, performance is hyper localized, and this really depends on finding the dwindling number of good deals to be had. REITs? Maybe, though volatility (i.e. risk) is more similar to equities and certain sectors may be in for a very long recovery (retail, office). Gold? Crypto? You get the point. It seems the total stock market is the least bad option for the foreseeable future.

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #5 on: December 20, 2020, 11:37:51 AM »
Not convinced that 2% WR will be the norm going forward. Though not wedded to 4% either, could be persuaded otherwise, just haven't seen a compelling case for it.

But, for the sake of argument, let's assume it is 2%. That means you need to save twice as aggressively. Even if you don't hit the magic FIRE number, you'll still end up way better off than if you saved very little. And the real question then becomes, where/how do you invest this bigger than expected 'stach other than equities? Cash and cash equivalents are even riskier with all the money sloshing around right now. Real estate? Maybe, but owning buildings involves a lot of specific risk, performance is hyper localized, and this really depends on finding the dwindling number of good deals to be had. REITs? Maybe, though volatility (i.e. risk) is more similar to equities and certain sectors may be in for a very long recovery (retail, office). Gold? Crypto? You get the point. It seems the total stock market is the least bad option for the foreseeable future.

Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

the_gastropod

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Re: New Saver, worried about future Stockmarket
« Reply #6 on: December 20, 2020, 11:46:15 AM »
Not convinced that 2% WR will be the norm going forward. Though not wedded to 4% either, could be persuaded otherwise, just haven't seen a compelling case for it.

But, for the sake of argument, let's assume it is 2%. That means you need to save twice as aggressively. Even if you don't hit the magic FIRE number, you'll still end up way better off than if you saved very little. And the real question then becomes, where/how do you invest this bigger than expected 'stach other than equities? Cash and cash equivalents are even riskier with all the money sloshing around right now. Real estate? Maybe, but owning buildings involves a lot of specific risk, performance is hyper localized, and this really depends on finding the dwindling number of good deals to be had. REITs? Maybe, though volatility (i.e. risk) is more similar to equities and certain sectors may be in for a very long recovery (retail, office). Gold? Crypto? You get the point. It seems the total stock market is the least bad option for the foreseeable future.

Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

Maybe youíll wind up being right. But your certainty about this probably needs a reality checkóno one has any idea what the next 40-50 years hold. Technological progress will likely continue, human ingenuity will continue. Betting that ďthings are different this time!Ē has historically been a bad bet. The 4% rule has worked throughout some truly remarkable times. I see no reason to believe it wonít work today.

FINate

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Re: New Saver, worried about future Stockmarket
« Reply #7 on: December 20, 2020, 11:49:45 AM »
Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

How can you possibly claim to know what will happen in the next 2-3 years, let alone 12-13?! Sure, it can happen. But bonafide investing professionals, with billions invested and with the help of armies of very smart dedicated analysts disagree on what 2021 holds.

If you're sure we're headed for a big correction in 2-3 years then don't let me dissuade you from being true to your convictions. Short the market down, then buy at the bottom and ride the recovery up.

Please keep us updated on your results!

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #8 on: December 20, 2020, 11:57:47 AM »
Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

How can you possibly claim to know what will happen in the next 2-3 years, let alone 12-13?! Sure, it can happen. But bonafide investing professionals, with billions invested and with the help of armies of very smart dedicated analysts disagree on what 2021 holds.

If you're sure we're headed for a big correction in 2-3 years then don't let me dissuade you from being true to your convictions. Short the market down, then buy at the bottom and ride the recovery up.

Please keep us updated on your results!

The printing of money and stimulus checks are what's going to cause it.  No Free lunch.   We propped up the market during covid but it basically pushed out the pain.   
Refer to the "lost decades" Japan faced.  We are facing a similar situation soon.  I think the stock markets are going to protect devaluation due to inflation but barely exceeding it.  Hence I believe the 4 Percent rule needs to be revised but not sure what is should be


FINate

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Re: New Saver, worried about future Stockmarket
« Reply #9 on: December 20, 2020, 12:02:07 PM »
Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

How can you possibly claim to know what will happen in the next 2-3 years, let alone 12-13?! Sure, it can happen. But bonafide investing professionals, with billions invested and with the help of armies of very smart dedicated analysts disagree on what 2021 holds.

If you're sure we're headed for a big correction in 2-3 years then don't let me dissuade you from being true to your convictions. Short the market down, then buy at the bottom and ride the recovery up.

Please keep us updated on your results!

The printing of money and stimulus checks are what's going to cause it.  No Free lunch.   We propped up the market during covid but it basically pushed out the pain.   
Refer to the "lost decades" Japan faced.  We are facing a similar situation soon.  I think the stock markets are going to protect devaluation due to inflation but barely exceeding it.  Hence I believe the 4 Percent rule needs to be revised but not sure what is should be

So, what are you going to do about it, and what's your purpose for posting here among a bunch of long term buy and hold passive investors?

BuildingFrugalHabits

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Re: New Saver, worried about future Stockmarket
« Reply #10 on: December 20, 2020, 12:03:31 PM »
But as a new saver, your primary concern is accumulating assets for now.  You have time to plan out what your safe withdrawal rate will be so why even worry about until you are getting closer to retiring?

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #11 on: December 20, 2020, 12:05:57 PM »
Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

How can you possibly claim to know what will happen in the next 2-3 years, let alone 12-13?! Sure, it can happen. But bonafide investing professionals, with billions invested and with the help of armies of very smart dedicated analysts disagree on what 2021 holds.

If you're sure we're headed for a big correction in 2-3 years then don't let me dissuade you from being true to your convictions. Short the market down, then buy at the bottom and ride the recovery up.

Please keep us updated on your results!

The printing of money and stimulus checks are what's going to cause it.  No Free lunch.   We propped up the market during covid but it basically pushed out the pain.   
Refer to the "lost decades" Japan faced.  We are facing a similar situation soon.  I think the stock markets are going to protect devaluation due to inflation but barely exceeding it.  Hence I believe the 4 Percent rule needs to be revised but not sure what is should be

So, what are you going to do about it, and what's your purpose for posting here among a bunch of long term buy and hold passive investors?

I am also a buy and hold investor.  I wanted to get other peoples opinions if they are counting on lower than 4 percent or not and their rationality.   The statements I am making are just my ideas I may be wrong.  I hope I am wrong.

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #12 on: December 20, 2020, 12:07:21 PM »
But as a new saver, your primary concern is accumulating assets for now.  You have time to plan out what your safe withdrawal rate will be so why even worry about until you are getting closer to retiring?

I think I'm pretty close about 3 years out I think with the 4 percent rule.  I am trying to decide if I need to push it back

EvenSteven

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Re: New Saver, worried about future Stockmarket
« Reply #13 on: December 20, 2020, 12:22:02 PM »
Lots to respond to here.

Quote
My fear is FIRE is based on good stock market returns for the next 50 years.

I disagree. FIRE itself isn't based on the 4% rule, and the 4% rule isn't based on good stock market returns.

Quote
However with the current state of the world the market is not expected to give nice returns in the future.

Stock market prognosticators are notoriously bad. Nobody knows what the next 10 years will bring in the market, much less the next 50.

Quote
Is FIRE still a legitamate thing with the 3 to 4 percent withdrawl rate.

Probably, but it is unknowable. Your best defense is probably to remain flexible in your ability to cut expenses or get a little extra income once retired.

Quote
I don't believe the trinity study is valid anymore for the next 40 to 50 years.

The Trinity study was never a forward looking study, so we won't know if 4% works for the next 30 years until it happens. But what you are saying is that you are sure that the next 30 years will be the worst performing stock market in the last 100 years. Maybe, but probably not.

Quote
the true returns are defiantly going to be lower due to higher inflations that is coming up.

You don't know what future inflation is going to be, and neither do I.

Quote
The US has not really experienced such a thing and its definitely coming.

This is historically inaccurate. We have experienced periods of high inflation.

Quote
The market drop at the early part of the year was not a real market correction.

Yes it was. Making up your own definitions for words doesn't make your argument better.

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #14 on: December 20, 2020, 12:26:22 PM »


Quote
The market drop at the early part of the year was not a real market correction.

Yes it was. Making up your own definitions for words doesn't make your argument better.
[/quote]

It was not an organic market correction it was due to external short term stimuli

nirodha

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Re: New Saver, worried about future Stockmarket
« Reply #15 on: December 20, 2020, 12:28:54 PM »
For the OP:


Have you played with the tools on: https://portfoliocharts.com/

I found them helpful in getting my head around expectations. Since cash is just another asset, we are always invested. It's just a question of how the portfolio is allocated. That is how I remain comfortable holding stocks when we might be at or approaching a peak. Albeit, I am not 100% VTI like some here.


Figuring out what a drawn down plan looks like helped alleviate some of my concerns as well. Given the statement that you cannot touch the 401k until retirement, I wonder if this would offer you some benefit. The 401k money can be accessed via either a roth conversion ladder or a 72(t).


During accumulation, FIRE feels like a discrete point in time event. It's really not though. Even if your projections are wrong, it plays out as a series of small decisions over a period of 10+ years. You can see it happening, as you flow assets from your long term investments to short and medium term buckets. You can adjust. Maybe you spend time on financial efficiency, pick up some side work during a down year, temporarily give up a luxury, etc.

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #16 on: December 20, 2020, 12:30:58 PM »
For the OP:


Have you played with the tools on: https://portfoliocharts.com/

I found them helpful in getting my head around expectations. Since cash is just another asset, we are always invested. It's just a question of how the portfolio is allocated. That is how I remain comfortable holding stocks when we might be at or approaching a peak. Albeit, I am not 100% VTI like some here.


Figuring out what a drawn down plan looks like helped alleviate some of my concerns as well. Given the statement that you cannot touch the 401k until retirement, I wonder if this would offer you some benefit. The 401k money can be accessed via either a roth conversion ladder or a 72(t).


During accumulation, FIRE feels like a discrete point in time event. It's really not though. Even if your projections are wrong, it plays out as a series of small decisions over a period of 10+ years. You can see it happening, as you flow assets from your long term investments to short and medium term buckets. You can adjust. Maybe you spend time on financial efficiency, pick up some side work during a down year, temporarily give up a luxury, etc.

Thanks

FINate

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Re: New Saver, worried about future Stockmarket
« Reply #17 on: December 20, 2020, 12:41:21 PM »
Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

How can you possibly claim to know what will happen in the next 2-3 years, let alone 12-13?! Sure, it can happen. But bonafide investing professionals, with billions invested and with the help of armies of very smart dedicated analysts disagree on what 2021 holds.

If you're sure we're headed for a big correction in 2-3 years then don't let me dissuade you from being true to your convictions. Short the market down, then buy at the bottom and ride the recovery up.

Please keep us updated on your results!

The printing of money and stimulus checks are what's going to cause it.  No Free lunch.   We propped up the market during covid but it basically pushed out the pain.   
Refer to the "lost decades" Japan faced.  We are facing a similar situation soon.  I think the stock markets are going to protect devaluation due to inflation but barely exceeding it.  Hence I believe the 4 Percent rule needs to be revised but not sure what is should be

So, what are you going to do about it, and what's your purpose for posting here among a bunch of long term buy and hold passive investors?

I am also a buy and hold investor.  I wanted to get other peoples opinions if they are counting on lower than 4 percent or not and their rationality.   The statements I am making are just my ideas I may be wrong.  I hope I am wrong.

Thanks for the clarification.

You're worried about a hypothetical future for which you provided almost zero justification other than a few general high-level thoughts. Sorry, I'm not going to discard the 4% rule, backed by tons of research and history, in favor of things like a weak comparison to Japan (apples-to-oranges, lots of other things going on there, including a massive demographic change).

And the bolded quote above, about an impending crash in 2-3 years... I'm salty because this is a thing on these forums -- new user posts some kind of investment prediction from who knows where (top is in, this time it's different, impending crash, etc.), argues their case with a few superficial ideas (It's so simple, it's a wonder no one else thought of it!), then moves on when it inevitably doesn't pan out.

The future is unknowable. Yes, there will be a market crash at some point in the future. But again, what are you going to do about it? I've been fully invested through 3 recessions and can confidently say it's not worth worrying about. But it pains me to see friends and family attempting to time the market, selling at the bottom and/or waiting too long to get back in again.

So save for a 2% WR if that's what you're comfortable with, which you should take as an indication that you're more risk-averse than average. Nothing wrong with that, but spare us the wild predictions about the future.

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #18 on: December 20, 2020, 12:43:47 PM »
Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

How can you possibly claim to know what will happen in the next 2-3 years, let alone 12-13?! Sure, it can happen. But bonafide investing professionals, with billions invested and with the help of armies of very smart dedicated analysts disagree on what 2021 holds.

If you're sure we're headed for a big correction in 2-3 years then don't let me dissuade you from being true to your convictions. Short the market down, then buy at the bottom and ride the recovery up.

Please keep us updated on your results!

The printing of money and stimulus checks are what's going to cause it.  No Free lunch.   We propped up the market during covid but it basically pushed out the pain.   
Refer to the "lost decades" Japan faced.  We are facing a similar situation soon.  I think the stock markets are going to protect devaluation due to inflation but barely exceeding it.  Hence I believe the 4 Percent rule needs to be revised but not sure what is should be

So, what are you going to do about it, and what's your purpose for posting here among a bunch of long term buy and hold passive investors?

I am also a buy and hold investor.  I wanted to get other peoples opinions if they are counting on lower than 4 percent or not and their rationality.   The statements I am making are just my ideas I may be wrong.  I hope I am wrong.

Thanks for the clarification.

You're worried about a hypothetical future for which you provided almost zero justification other than a few general high-level thoughts. Sorry, I'm not going to discard the 4% rule, backed by tons of research and history, in favor of things like a weak comparison to Japan (apples-to-oranges, lots of other things going on there, including a massive demographic change).

And the bolded quote above, about an impending crash in 2-3 years... I'm salty because this is a thing on these forums -- new user posts some kind of investment prediction from who knows where (top is in, this time it's different, impending crash, etc.), argues their case with a few superficial ideas (It's so simple, it's a wonder no one else thought of it!), then moves on when it inevitably doesn't pan out.

The future is unknowable. Yes, there will be a market crash at some point in the future. But again, what are you going to do about it? I've been fully invested through 3 recessions and can confidently say it's not worth worrying about. But it pains me to see friends and family attempting to time the market, selling at the bottom and/or waiting too long to get back in again.

So save for a 2% WR if that's what you're comfortable with, which you should take as an indication that you're more risk-averse than average. Nothing wrong with that, but spare us the wild predictions about the future.

Taylor Swift will become vice president 2032

BuildingFrugalHabits

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Re: New Saver, worried about future Stockmarket
« Reply #19 on: December 20, 2020, 12:47:53 PM »
But as a new saver, your primary concern is accumulating assets for now.  You have time to plan out what your safe withdrawal rate will be so why even worry about until you are getting closer to retiring?

I think I'm pretty close about 3 years out I think with the 4 percent rule.  I am trying to decide if I need to push it back

If you are just starting and can get to 4% in 3 years, do it!  You can always re-evaluate the market at that point before you FIRE and see if the big drop you are forecasting has come to fruition.  If you are at 4% even with the big drop, that's good right? But you could work and save for another 2-3 years to get to 2% if you aren't feeling confident at that point. 

Pomegranate12

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Re: New Saver, worried about future Stockmarket
« Reply #20 on: December 20, 2020, 12:52:54 PM »
But as a new saver, your primary concern is accumulating assets for now.  You have time to plan out what your safe withdrawal rate will be so why even worry about until you are getting closer to retiring?

I think I'm pretty close about 3 years out I think with the 4 percent rule.  I am trying to decide if I need to push it back

If you are just starting and can get to 4% in 3 years, do it!  You can always re-evaluate the market at that point before you FIRE and see if the big drop you are forecasting has come to fruition.  If you are at 4% even with the big drop, that's good right? But you could work and save for another 2-3 years to get to 2% if you aren't feeling confident at that point.

It took me long to get to this point because I was not very intentional with my savings just recently becoming a true saver before I was just doing 401k etc, so i am guessing it will take me around additional 10 years to get to 2 percent.  But feeling burned out so not sure if I can go for the 2 percent.  Why can't you guys just give me a magic 8 ball

FINate

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Re: New Saver, worried about future Stockmarket
« Reply #21 on: December 20, 2020, 12:55:42 PM »
Taylor Swift will become vice president 2032

Haha

jpdx

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Re: New Saver, worried about future Stockmarket
« Reply #22 on: December 20, 2020, 02:54:49 PM »
One should never say "This is what is going to happen" and instead should say "This is what I think is going to happen."

LoanShark

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Re: New Saver, worried about future Stockmarket
« Reply #23 on: December 20, 2020, 05:53:02 PM »
Canít look at the monetary expansion in a vacuum; rather, itís important to consider what other countries did as well. I donít know the answer to the question, but Iíd imagine that our balance sheet expansion was commiserate with our GDP compared to other countries. Just a hunch...

That being said, fed balance sheet expansion always finds its way to financial assets, so Iím bullish on growing equity valuations for many years to come.

brooklynmoney

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Re: New Saver, worried about future Stockmarket
« Reply #24 on: December 20, 2020, 08:39:40 PM »
When I read these threads from nervous investors all I can think is so what you are saying is the top is in haha. It makes me laugh every time. But Iím an old ó invested since the 90s been through dot bomb, GR. Whatever comes next I will handle the same way ie sell nothing buy more.

reeshau

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Re: New Saver, worried about future Stockmarket
« Reply #25 on: December 20, 2020, 10:58:43 PM »
Lots to respond to here.

Quote
My fear is FIRE is based on good stock market returns for the next 50 years.

I disagree. FIRE itself isn't based on the 4% rule, and the 4% rule isn't based on good stock market returns.

This is an important point.  The 4% rule wasn't defined by the Great Depression, or World War II.  It was defined by some wild times (OK, check) followed by a decade of double-digit inflation.  It's the combination of the two, bad market and inflation eating principle value, that defined it.  If you started your retirement in "good times," it would be the 7% rule.  But you will only ever know in retrospect.

So, learn more about what these things really mean, and most importantly what you can and can't control, and do your best.  You will be ahead of most people, and they will actually manage to do OK without thinking about any of this, anyway.

Metta

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Re: New Saver, worried about future Stockmarket
« Reply #26 on: December 21, 2020, 01:04:37 AM »
But as a new saver, your primary concern is accumulating assets for now.  You have time to plan out what your safe withdrawal rate will be so why even worry about until you are getting closer to retiring?

I think I'm pretty close about 3 years out I think with the 4 percent rule.  I am trying to decide if I need to push it back

If you are just starting and can get to 4% in 3 years, do it!  You can always re-evaluate the market at that point before you FIRE and see if the big drop you are forecasting has come to fruition.  If you are at 4% even with the big drop, that's good right? But you could work and save for another 2-3 years to get to 2% if you aren't feeling confident at that point.

It took me long to get to this point because I was not very intentional with my savings just recently becoming a true saver before I was just doing 401k etc, so i am guessing it will take me around additional 10 years to get to 2 percent.  But feeling burned out so not sure if I can go for the 2 percent.  Why can't you guys just give me a magic 8 ball

The burn out is a real thing and needs to be dealt with.

It takes so very, very long to make the first million dollars. And then the second million is faster. And the third million is faster yet. It took us somewhere between 7 and 10 years (depending on when you count as our start date) to get to the 4 percent rule. Then it took 3 years to get to the 2 percent rule. I wonder now how long it will take to get to the 1 percent rule.

Compounding is surprising in its power. That's the magic 8 ball you are looking for.

Could something terrible happen? Of course. But the most terrible thing, dying, is certainly going to happen so plans have to reckon with that as well. Financial catastrophes, when they happen, feel better if you start with a lot of money.

Spend some time with any of the wonderful calculators out there. My three favorites are CFireSim, FireCalc, and an iPad app called RetirePlan which allows you to add all sorts of crazy expenses and real world catastrophes to check your plans against and test every crazy scenario you can think of.

DeniseNJ

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Re: New Saver, worried about future Stockmarket
« Reply #27 on: December 21, 2020, 07:17:26 AM »
Um, the 4% "Rule" is more of a suggestion, or a description of the study. It's not the law. You don't have to take 4% every single year no matter what. If the market is good you can dip into it a bit more. If it tanks, you don't have to keep taking 4%--you can, and should, cut back a bit during that time.

A study has a set of static rules and conditions. Your real life is not like that. You don't have to decide on a withdrawel rate on day one of FIRE and stick with it. You adjust as you go along.

Use 4% to plan. But adjust as needed as you go along.

Fishindude

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Re: New Saver, worried about future Stockmarket
« Reply #28 on: December 21, 2020, 07:28:11 AM »
Sounds like OP has reservations banking their entire future on the success of the stock market.   
If this is the case the smart move would be to invest in other things outside of the stock market such as real estate or a business.

RWD

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Re: New Saver, worried about future Stockmarket
« Reply #29 on: December 21, 2020, 08:02:55 AM »
Your fears are not unique, Iíll let @RWD explain.

I'm a little late here but this thread is slightly different than the usual "I'm afraid to invest because the market is probably going to crash imminently" types. Steeze is referring to my ongoing list of such threads, the latest of which can currently be found here (or in my signature).

The concern here is that 50 year returns from where we are now may not be good enough to sustain a 3-4% WR FIRE. It is certainly possible that starting from today long term returns will not be good. But what does not good mean? We should keep in mind that the worst 50-year period ever still had a real (adjusting for inflation) return of ~4.3% per year. So at least in conjunction with a 50-year timeframe you can stop worrying about the 4% rule.


trygeek

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Re: New Saver, worried about future Stockmarket
« Reply #30 on: December 25, 2020, 03:56:55 PM »
The best thing that can happen to you is the market goes down greater than 50% for a year or more. Simply because you are Dollar cost averaging into the market so you will buy more shares cheaper and the market will inevitably go up again. But the truth of what will probably happen is the market will go up and down and up and down over your investing lifetime. Don't worry about it now it truly gets important at the end when you are thinking about retiring, but you will plan for it then.

Retire-Canada

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Re: New Saver, worried about future Stockmarket
« Reply #31 on: December 26, 2020, 04:29:53 PM »
My fear is FIRE is based on good stock market returns for the next 50 years.

The solution to fear is knowledge. Save your way until you have 25x your planned FIRE spending invested, which you say is 3-4 years away and keep reading/learning the whole time. If you are comfortable with a 4%WR at that time pull the trigger. If not save more.

Personally I am fine with a 4%WR + a variety of levels of flexibility.

John Galt incarnate!

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Re: New Saver, worried about future Stockmarket
« Reply #32 on: December 27, 2020, 09:36:13 AM »
Quote from: Pomegranate12 link=topic=119733.msg2756332#msg2756332

It took me long to get to this point because I was not very intentional with my savings just recently becoming a true saver before I was just doing 401k etc, so i am guessing it will take me around additional 10 years to get to 2 percent.  But feeling burned out so not sure if I can go for the 2 percent.  Why can't you guys just give me a magic 8 ball

If I were already burned out working 10 more years would not be an acceptable trade-off to compensate for my anxiety of the mere possibility  of  lower stock-market returns in the future.

Could lower returns eventuate?

 Yes, but they could also equal the historical average or even exceed it.

If burned out, to accept the trade-off, I would need a more substantive basis than mere possibility of lower returns.






« Last Edit: December 27, 2020, 12:34:32 PM by John Galt incarnate! »

LennStar

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Re: New Saver, worried about future Stockmarket
« Reply #33 on: December 27, 2020, 10:31:04 AM »
Yes I think the stock market is still a legitimate place to grow your stash but with the printing of money and hype driven markets, the true returns are defiantly going to be lower due to higher inflations that is coming up.  The US has not really experienced such a thing and its definitely coming.  Also I'm talking about the next 40 to 50 years or so.  The market drop at the early part of the year was not a real market correction.  The real one in the next 2 to 3 years may take a decade to recover

How can you possibly claim to know what will happen in the next 2-3 years, let alone 12-13?! Sure, it can happen. But bonafide investing professionals, with billions invested and with the help of armies of very smart dedicated analysts disagree on what 2021 holds.

If you're sure we're headed for a big correction in 2-3 years then don't let me dissuade you from being true to your convictions. Short the market down, then buy at the bottom and ride the recovery up.

Please keep us updated on your results!

The printing of money and stimulus checks are what's going to cause it.  No Free lunch.   We propped up the market during covid but it basically pushed out the pain.   
Refer to the "lost decades" Japan faced.  We are facing a similar situation soon.  I think the stock markets are going to protect devaluation due to inflation but barely exceeding it.  Hence I believe the 4 Percent rule needs to be revised but not sure what is should be

The money printing and stimulus checks have been going on since 2008 (well, before that too, but there is really started). We should have crashed really hard 2010, as every neolib "expert" said.
Instead the stock prices have risen fast then and NOT come down. Why?
Because the money printed is still there, in the stocks, and people are not going to burn it.
Every dollar debt is also a dollar wealth. That printed wealth is somewhere. Mostly in the financial sector.

Will some bubble pop? Yeah, of course. That is normal and a great time to buy. But when will it be? Nobody knows. If you thought in 2008 all that money printing must lead to a popping bubble in 2-3 years, you missed 50% appreciation.

There is a funny ad I been seing for ages, only the year changes. It reads: "These stocks will drop hard in 20XX. Click here to find out which."
Well, I don't know which, because I don't click, but talking about the whole market that ad has been right 2 or 3 of the last 10 years. A bad rate to bet your money on.

Also from the old classic of the "Random walk down wall street", a little lesson:
1) 3/4 of investment managers - highly paid and professional people, with vast arrays of data and science - are unable to predict the stock market for the next decade.
What makes you think the person you have your opinion one is one of the last 1/4?
Because that person was right in the last decade?
Lesson 2 from the random walk: The people who are best in a deacde are very often the worst in the following decade.

Because they didn't actually predict. They just were lucky.
Case in point: A fond name something Patrimonae A was the best of the 2000s decade in the all-stockmarket categorie. That one predicted a big crash with all that money printed following 2008.
In the 201X decade it was one of the worst performing fonds. I am quite sure it was liquidated in some form a few years ago. At least the link no longer worked and the name gave no hit.

The 4% FIRE rule will work as long as not A) something like an UBI happens (and that is an maybe), and then you don't need it anyway, or B) something really bad (like a war) happens and your saved money is not your biggest concern by far anyway.

G-String

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Re: New Saver, worried about future Stockmarket
« Reply #34 on: December 30, 2020, 01:33:53 PM »
Short answer, yes, the principles of the FI/RE movement hold true regardless of expected returns and valuations. Will the 4% rule hold up over the next 50 years? No way to be sure, but there is a 100+ years of data that suggest that it should do just fine. If you adhere to the mustachian principles of learning to do things for yourself, acquiring skills, living below your means, and frugality then you will be well suited to weather any temporary market conditions.

For what itís worth, the trinity study was recently update to increase the safe withdrawal rate. Using a higher or lower withdrawal rate is a matter of personal choice. One might consider their ease of re-entering the workforce, age, health, life expectancy, etc. in making the decision. Also, how flexible is your spending? Is 4% covering only your basic expenses, or is there a lot of discretionary spending built in?

Your fears are not unique, Iíll let @RWD explain.

Also, check the sticky in investor alley - your 401k is not locked until retirement if you use some common strategies for penalty free withdrawal.
What was the rate increased to?  Do you have the updated study? 

Steeze

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Re: New Saver, worried about future Stockmarket
« Reply #35 on: December 30, 2020, 06:43:14 PM »
Short answer, yes, the principles of the FI/RE movement hold true regardless of expected returns and valuations. Will the 4% rule hold up over the next 50 years? No way to be sure, but there is a 100+ years of data that suggest that it should do just fine. If you adhere to the mustachian principles of learning to do things for yourself, acquiring skills, living below your means, and frugality then you will be well suited to weather any temporary market conditions.

For what itís worth, the trinity study was recently update to increase the safe withdrawal rate. Using a higher or lower withdrawal rate is a matter of personal choice. One might consider their ease of re-entering the workforce, age, health, life expectancy, etc. in making the decision. Also, how flexible is your spending? Is 4% covering only your basic expenses, or is there a lot of discretionary spending built in?

Your fears are not unique, Iíll let @RWD explain.

Also, check the sticky in investor alley - your 401k is not locked until retirement if you use some common strategies for penalty free withdrawal.
What was the rate increased to?  Do you have the updated study?

I do not have a link to any actual research paper that was published / updated, however you can check out this Q&A with the author of the Trinity Study Bill Bengen

https://www.reddit.com/r/financialindependence/comments/6vazih/im_bill_bengen_and_i_first_proposed_the_4_safe/

reeshau

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Re: New Saver, worried about future Stockmarket
« Reply #36 on: December 30, 2020, 07:52:53 PM »
Short answer, yes, the principles of the FI/RE movement hold true regardless of expected returns and valuations. Will the 4% rule hold up over the next 50 years? No way to be sure, but there is a 100+ years of data that suggest that it should do just fine. If you adhere to the mustachian principles of learning to do things for yourself, acquiring skills, living below your means, and frugality then you will be well suited to weather any temporary market conditions.

For what itís worth, the trinity study was recently update to increase the safe withdrawal rate. Using a higher or lower withdrawal rate is a matter of personal choice. One might consider their ease of re-entering the workforce, age, health, life expectancy, etc. in making the decision. Also, how flexible is your spending? Is 4% covering only your basic expenses, or is there a lot of discretionary spending built in?

Your fears are not unique, Iíll let @RWD explain.

Also, check the sticky in investor alley - your 401k is not locked until retirement if you use some common strategies for penalty free withdrawal.
What was the rate increased to?  Do you have the updated study?

I do not have a link to any actual research paper that was published / updated, however you can check out this Q&A with the author of the Trinity Study Bill Bengen

https://www.reddit.com/r/financialindependence/comments/6vazih/im_bill_bengen_and_i_first_proposed_the_4_safe/

Bill Bengen is the person who originated the 4% rule.  The Trinity Study was conducted by Philip Cooley, Carl Hubbard, and Daniel Walz, Daniel T, and confirmed his findings as well as expanded the dataset to include different investment mixes and lengths of retirement.  Wade Pfau has updated the Trinity Study with data from subsequent years.  Note that even if updated through this year, you only cover 30-year retirements beginning in 1990--while not the best year in itself, it was the start of the "Internet Age," and so I don't think will provide much new insight until we hit retirees from 2000's "dot bomb."  Check back in 2030.

Wikipedia--William Bengen:  https://en.wikipedia.org/wiki/William_Bengen

Bengen's original study, published in 1994 in the Journal of Financial Planning:  http://www.retailinvestor.org/pdf/Bengen1.pdf

Wikipedia--Trinity Study:  https://en.wikipedia.org/wiki/Trinity_study

Trinity Study paper, published in 1998 in the AAII Journal:  https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf

Wade Pfau's website:  https://retirementresearcher.com/

Pfau article, citing data through 2014:  https://retirementresearcher.com/safe-withdrawal-rates-for-retirement-and-the-trinity-study/


G-String

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Re: New Saver, worried about future Stockmarket
« Reply #37 on: December 31, 2020, 09:58:17 AM »
Short answer, yes, the principles of the FI/RE movement hold true regardless of expected returns and valuations. Will the 4% rule hold up over the next 50 years? No way to be sure, but there is a 100+ years of data that suggest that it should do just fine. If you adhere to the mustachian principles of learning to do things for yourself, acquiring skills, living below your means, and frugality then you will be well suited to weather any temporary market conditions.

For what itís worth, the trinity study was recently update to increase the safe withdrawal rate. Using a higher or lower withdrawal rate is a matter of personal choice. One might consider their ease of re-entering the workforce, age, health, life expectancy, etc. in making the decision. Also, how flexible is your spending? Is 4% covering only your basic expenses, or is there a lot of discretionary spending built in?

Your fears are not unique, Iíll let @RWD explain.

Also, check the sticky in investor alley - your 401k is not locked until retirement if you use some common strategies for penalty free withdrawal.
What was the rate increased to?  Do you have the updated study?

I do not have a link to any actual research paper that was published / updated, however you can check out this Q&A with the author of the Trinity Study Bill Bengen

https://www.reddit.com/r/financialindependence/comments/6vazih/im_bill_bengen_and_i_first_proposed_the_4_safe/
Thanks, just read that.  He says it's really the 4.5% rule.