Market Philosophy

[MC2]

Budget deficits and public debt levels are not quite apples to apples. You would need deficit levels to fall for a long time (and then turn negative - i.e. balanced budgets) to have a shot at lowering debt.
.

Amazing that this was accomplished only 22 years ago and everyone whined about paying down the debt, so they voted for a bunch of politicians who cut rich people’s taxes.

 

[Harvey]

withdrawals for the following year based on stock market performance

translation live below your means, always good advice

 

[MC2]

Oh the final thing I will say on shorter time frames, folks talk about the 4% rule over 30 years….

Personally, I think the 4% rule is both conservative, and probably fine to use for time periods longer than 30 years. The 4% rule was conceived because it was the only one that came close to failing in the 65 year Trinity study:

(Did that come out blurry? Got it from here: https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/)

The reality is:
1. A 4.5%, 5%, or even 6% withdrawal every year is probably safe in a lot of years
2. Most people who actually think about this stuff are super conservative anyway, and deliberately leave usable assets out of the equation (social security, possible inheritance, home equity that can be tapped, etc.), so a higher withdraw rate wouldn’t kill them.

Anyway, I like using this tool because it basically runs your retirement scenario through 75+ years of market returns to show how your plan would shake out if the stock market acted like it did for a retiree in 1985, or a retiree in 2004, or whatever:

FIRECalc: A different kind of retirement calculator

firecalc.com

 

[Andy_ROC]

So if all of that comes to pass exactly as predicted where should one have their money?

Not not that I'll do anything differently but I'm curious as to what you do differently if doom is real.

I'm not doubting what you're saying I just don't know how you would respond to it. I'm not buying gold.

I would never recommend any strategy to anyone. I just would encourage people to question some of the market growth assumptions based on past performance. Why? Because they could be very disappointed and in financial peril if not prepared.

I would encourage people to gain more understanding of the economics like debt, how we got to the current market levels, current PE valuations compared to historical valuation (historically the SP500 PE was around 15 and we're still near 25). How dependent has the stock market growth become on the central banks injecting money into the economy? Our national debt was 36% of GDP in 1980, 59% in 2000 and 125% today, should that be of concern? Government spending is a large portion of our GDP, so if that got cut to reduce debt or even balance budgets then what happens to the broader economy? What are the ramifications if/when central banks stop injecting trillions? At what national debt and interest rate levels do government tax receipts not service the national debt? Then do we raise taxes, cut spending or just ignore it and keep printing money? If we keep printing money how is currency devalued? Have we just seen the start of inflation as a result of all this money being printed and injected into the economy?

I think it's important to understand all this and the associated financial risks. In summary does it seem logical that the broader stock market continues to grow at twice the rate of GDP growth on a regular basis? I don't believe in alchemy either.

What do I do personally Harv? Live modestly and be prepared for bad financial times. Despite my Financial Advisor saying we're in a great place for retirement especially with my wife's publicly funded pension, I'm not assuming it won't be cut at least some in our lifetime. Same for SSI. I also want to be prepared for a 50% market correction and a decade plus to recover. So to de-risk that I will continue to work and save well into my 60's so long as I'm healthy. This is very important--- I will keep working in my profession as an employee or consultant so long as it's flexible on where I work, provides a generally flexible work day and has ample PTO. My work is something I like, keeps me mentally sharp, relevant and I like money. Investment wise I have a the typical spectrum of investments plus precious metals, energy and commodities. I also own private real estate and private equity and since these are not traded on the stock market their valuation is based on solid financial fundamentals where valuation is far less likely to get crazy based on speculation and momentum. I guess overall I'm just defensive and I just don't assume things won't get downright ugly. I don't want to come up short on cash at 90 when I'm unlikely to be able to do anything about it. If it all works out better than planned then I leave my kids a great inheritance

 

[MC2]

I would never recommend any strategy to anyone…. If it all works out better than planned then I leave my kids a great inheritance

This was the most boomer post of all time (Not completely in a bad way, lots of it was quite good).

But it’s also why the Boomer->Millennial wealth transfer is going to be one of the most important financial stories of the next 30 years.

Let’s hope the millennials get some financial sense very quickly and don’t blow all the cash on cartoon apes.

 

[Warp daddy]

Great post Andy and we also teach our now adult children how and why to get into the game early in their careers and let the miracle of compounding happen , now they inturn coach their kids and that is how family wealth is built and sustained .

I have the joy of watching our " grands " now become that 3rd wave as they enter their respective professions , our youngest graduate University this spring , the oldest already GET this strategy .

 

[Andy_ROC]

This was the most boomer post of all time (Not completely in a bad way, lots of it was quite good).

But it’s also why the Boomer->Millennial wealth transfer is going to be one of the most important financial stories of the next 30 years.

Let’s hope the millennials get some financial sense very quickly and don’t blow all the cash on cartoon apes.

Good observation about wealth transfer. So for my parents generation they didn't see the transfer of wealth from their parents because their parents had pensions. When their parents died the children split the house and whatever assets, but generally it wasn't a giant retirement account. With the elimination of most pensions that model has largely been obsoleted. Now we have to live off our savings after retirement, potentially for decades. Since we don't know when we expire, we certainly don't want to run out of money. If done right there should be a pretty big check that gets passed down to children.

Great post Andy and we also teach our now adult children how and why to get into the game early in their careers and let the miracle of compounding happen , now they inturn coach their kids and that is how family wealth is built and sustained .

I have the joy of watching our " grands " now become that 3rd wave as they enter their respective professions , our youngest graduate University this spring , the oldest already GET this strategy .

Thanks and agree! Yeah I feel like my wife and I taught our kids well and to respect money. Our son is a rapidly ascending advisor at a big firm so he gets it. My daughter, despite having a really good job, squeezes a penny so hard she makes Lincoln cry

 

[Harvey]

I would never recommend any strategy to anyone.

I wasn't seriously asking for advice, just looking to learn.

 

[jasonwx]

I wasn't seriously asking for advice, just looking to learn.

My wife has done amazing job diversify us
She’s been a trader for 35 yrs
Let’s hope it all doesn’t go to hell in a hand basket

 

[MC2]

I’m calling the bottom. Back into 100% stocks for future retirement investments.

Let’s go.