NEW YORK: The Dow jumped back above 17,000 on Tuesday
(Oct 28) following a strong report on US consumer confidence and another
round of mostly solid corporate earnings.
The Dow Jones
Industrial Average rose 187.81 points (1.12 per cent) to 17,005.75, its
first close above 17,000 since Oct 3. The broad-based S&P 500 gained
23.42 points (1.19 per cent) to 1,985.05, while the tech-rich Nasdaq
Composite Index soared 78.36 points (1.75 per cent) to 4,564.29.
Conference Board said the consumer confidence index leaped to 94.5 in
October from 89.0 in September, a cheery sign for the upcoming holiday
Note: This article is part of
Morningstar's October 2014 5 Keys to Retirement Investing special report
(http://www.morningstar.com/goto/5Keys). An earlier version of this
article appeared Jan. 26, 2012.
4% rule has been in vogue for almost 20 years now, taking off in
popularity since financial planner William Bengen introduced his
research in 1994. This rule back-tested data to demonstrate that
retirees withdrawing 4% of their portfolios per year for 30 years had a
low probability of running out of money during their lifetimes. Several
years later, the Trinity study, so named because it was authored by
three professors at Trinity University in 1998, looked back at market
data and generally corroborated Bengen's findings. The study concluded
that retirees using a 3% to 4% withdrawal rate, combined with annual
inflation adjustments, had a good chance of not running out of money
during a 30-year period.
critics, notably William Sharpe and a team of researchers from
Stanford, have since assailed the 4% rule as being too simplistic;
others have asserted that Bengen's assumptions about asset allocation
were too aggressive for many retirees. Financial planner Michael Kitces
has argued in favor of a withdrawal rate that's sensitive to market
valuations, an approach that he discusses in this video. More recently,
critics have called the 4% rule too ambitious given the feeble return
expectations for the bond market as foretold by today's tiny yields.
the debate about safe withdrawal rates is alive and well, I'd argue
that the 4% rule isn't an unreasonable starting point for retirees and
soon-to-be retirees attempting to gauge whether their spending is
sustainable. Importantly, the rule is intuitive--you don't have to be a
pocket-protector-wearing owner of a financial calculator to see if your
nest egg and spending rate are close to where they need to be. And, to
the extent that 4% is a fairly conservative withdrawal rate, it helps
shield against the biggest of all risks that retirees face: running out
of money during their lifetimes.
That said, successfully employing the 4% rule requires that you understand the assumptions behind it, including the following.
Where Is the Money Coming From?
it comes to the 4% rule, "withdrawal rate" is something of a misnomer,
because you're not necessarily invading your principal to generate the
entire 4%. Instead, the 4% can come from bond and dividend income,
capital gains distributed by your mutual funds, or selling securities.
for example, you're about to retire with a $1.5 million portfolio, 40%
of which is in bonds and the rest in stocks. Using the 4% rule, your
initial withdrawal in year one of retirement would be $60,000. Assuming a
3% income distribution from your $600,000 bond portfolio ($18,000) and a
1.5% dividend yield from your $900,000 in stocks ($13,500), that's
$31,500 in bond and dividend income that you could tap before touching
your principal. The flexibility to draw your money from a variety of
sources--and to not take sides in the income versus total return
debate--is one reason that a "bucket" approach to retirement income can
make sense for so many retirees.
The Role of Asset Allocation
addition to understanding that the 4% rule doesn't always necessitate
selling off assets, investors should also be aware that a 4% withdrawal
rate won't automatically be sustainable for each and every asset
allocation, particularly ultraconservative stock/bond mixes that
generate low real returns. Both Bengen's research and the Trinity study
found that portfolios with a mix of both stocks and bonds had the
highest probability of long-term sustainability. The reason? Even though
retirees may have to tap capital to arrive at their 4% payout,
appreciation from the stock component could help offset inflation and
periodic invasions of principal, while bonds provide ballast for the
original research asserted that an optimal starting allocation when
applying a 4% withdrawal rate was 50% to 75% equity, whereas the Trinity
study authors, in an update to their original study, corroborated that a
starting asset allocation of 50% or more in large-cap stocks helped
retiree portfolios achieve the best probability of not running of money.
Making room for a healthy component of equities looks especially
important right now, given increased longevity as well as the ultralow
yields available from fixed-income securities.
asset allocation, a retiree's time horizon also plays a critical role
in the sustainability of a withdrawal rate. Bengen's research looked at
the viability of various withdrawal rates and asset allocations over
drawdown periods of 30 years, whereas the Trinity study evaluated
withdrawal rates over periods of 15, 20, 25, and 30 years. In general,
the Trinity study showed that investors with shorter holding periods
could employ a higher withdrawal rate than those with longer holding
periods. That finding has implications for those who have longevity on
their side (they'd want to be more conservative about their withdrawal
rates), as well as for those who have reason to believe they have
shorter time horizons. (Such individuals could reasonably employ more
SINGAPORE: Singapore's largest condominium project d'Leedon, near
Farrer Road, marked its completion on Saturday (Oct 25). But the
1,715-unit development, which was launched for sale two years ago, still
has 254 unsold units - comprising mostly four-bedroom units - as of
And to move sales, its developer CapitaLand Singapore
said it will be refurbishing 30 units with additional designer
furnishings. Those units will be re-launched next month.
Heang Fine, CEO of CapitaLand Singapore Residential, said: "The focus is
really on buyers who do not want to have the hassle of doing the
interior decoration after they buy the units, they just want to move in.
So literally, all the 30 units are such that you can just bring your
suitcase and move in tomorrow after you purchased the units."
month, the developer gave 30 units at its The Interlace condominium a
makeover to attract buyers. CapitaLand said it is marketing the units
and none have been sold yet. The 1,040-unit development was completed in
September 2013 but still has about 170 unsold units as of August 2014.
Less analyzing. More investing - CW8888 Less thinking; more doing - SMOL Add one more ... Less Talking; More Doing - CW8888
Why Uncle8888 has stopped visiting forums for so many years and still doesn't miss them anymore? Most of the time, there are just too many "good" and convincing talking; but very hard to determine how well they are doing from these "good" talking. Don't just listen to their talks but watch very close what they are actually doing.
CW8888: Probably the reason why Uncle8888 can win at personal finance. LOL!
By David Ning | U.S.News & World Report LP
One well known, but seldom practiced, strategy in chess is to think a
few moves ahead. Chess players are able to increase their odds of
success by simply planning for a variety of possible outcomes in the
The ability to anticipate future problems and
opportunities, a skill that chess players often develop, can also help
your personal finances tremendously if you apply those abilities to your
Your financial situation can be improved if you keep an eye toward
the future. When you think a bit further down the road you are more
likely to make the decision that has the maximum benefit over the long term. Here's how a chess master would approach some common financial situations.
A chess master buys when demand is low. Are you
looking at Halloween costumes? You could have saved a good chunk of
money if you bought the outfit last year at the beginning of November.
And speaking of clothing, winter clothes like jackets and coats are
always on sale in the spring and short sleeves in the fall. Those who
think ahead know that they will eventually wear the clothes when the
correct season rolls around again and buy them now at a huge discount.
The same strategy works for traveling. Everyone likes to go at peak
season, but shoulder season trips are typically cheaper and are often a
better trip because there are fewer crowds.
A chess master carefully picks the best college and major.
With college costs skyrocketing, it's becoming more and more important
to go to a sensible college that doesn't leave you in a massive amount
of debt just as you are starting your career. There are certainly cases
where a high cost private college is worth the money, but smart chess
players weigh the options and pick the path that gives them the most
bang for their buck. They consider the type of job they are going to be
able to get by getting a degree at a specific school and how long it
will take to pay off the loan if they need to take on debt to finish
school. It's certainly worth considering if the fame that accompanies
going to a more prestigious school is worth the extra financial
hardship. Some high schoolers might even ponder whether they need a four-year degree
for their chosen career field. Every high school graduate should
contemplate all of their higher education options so they don't graduate
from college with so much debt that it will crush their financial life for decades.
A chess master stays the course because he is able to invest rationally.
One of the most damaging moves inexperienced investors make is bailing
out when stocks significantly decline in value. Staying the course is
difficult when everyone is panicking and making you fear that you'll
lose everything if you don't sell your investments. Yet, investing
should be based on expected returns. When volatile investments go down,
the expected return generally goes up. If anything, there's now a higher
chance the investments you own will generate a higher return. A smart
chess player might even buy more when the market is low so they can reap
the rewards of the recovery.
A chess master will maximize tax-advantaged accounts. Many
people have taxable investments earmarked for the long term even while
not contributing the maximum possible amount to retirement accounts,
which means they are paying more tax than they need to. If you know you
don't need the money in the short term, you can get tax perks
by contributing to traditional and Roth 401(k)s and IRAs. Long-term
investors will come out ahead by stashing as much as they can in
tax-preferred retirement accounts.
With a bit of practice, chess
players develop the discipline to think ahead. Start planning a few
moves ahead and your finances will benefit too.
BTW, Uncle8888 is fisherman too. Patience. Chess and Fishing!
think you must be smiling like me when you see straight line
extrapolation excel files with X% constant compound returns year after
year - unrealistic goal setting and/or delusional planning?
Did SMOL smile again today?
Uncle8888 is not planning to depend on the volatile market to fight against future inflation and to provide bulk of the cash flow for living and lifestyle expenses from his passive income investing strategy. No! Do you know why SMOL and Uncle8888 smile when we see straight line
extrapolation excel files with X% constant compound returns year after
year - unrealistic goal setting and/or delusional planning?
Uncle8888 is planning to do this for his Retirement Income For Life strategy.
Can we really depend on volatility of the stock market for our survival without having many sleepless nights?
Some may have encounter their first fear and others are seeing more nightmares coming soon after the past week of "horrors". A) Know yourself B) Know your wallet In investing, which comes first? You tend to agree with A or B? But, don't tell me it is Chicken and Egg debate.
Since 65% of Kep Corp's Net Profit is from O & M, we will need to look closely at its net order book, operating and net margin to have an idea whether it can survive the gloomy years ahead of falling orders.
Warren Buffett does not like to lose money in general, so
losing $1 billion before lunch on a Monday morning can not be going down
The plunge in IBM shares
Monday after its weak earnings results cost the Oracle of Omaha dearly.
The stock fell $15.05 at the open, and Buffett held about 70.2 million
shares as of June 30, according to the most recent SEC filings.
That means the sharp decline cost him $1.06 billion—a drop in the Berkshire Hathaway bucket, to be sure, but still noteworthy.
In April, after a prior weak earnings report, Buffett told CNBC he had not "soured" on IBM, that he had bought more stock this year and that he had not sold a share.
The stock was recently the third-largest holding in Buffett's portfolio, trailing only Wells Fargo and Coca-Cola.
The funniest thing about markets is that all past crashes are viewed
as an opportunity, but all current and future crashes are viewed as a
For months, investors have been saying a pullback is
inevitable, healthy, and should be welcomed. Now, it's here, with the
Standard & Poor's 500 down about 10% from last month's highs.
Enter the maniacs.
Those are words I read in finance blogs this morning.
my count, this is the 90th 10% correction the market has experienced
since 1928. That's about once every 11 months, on average. It's been
three years since the last 10% correction, but you would think something
so normal wouldn't be so shocking.
But losing money hurts more than it should, and more than you think it will. In his book Where Are the Customers' Yachts?, Fred Schwed wrote:
are certain things that cannot be adequately explained to a virgin
either by words or pictures. Not can any description I might offer here
ever approximate what it feels like to lose a chunk of money that you
used to own.
That's fair. One lesson I learned after 2008 is that
it's much easier to say you'll be greedy when others are fearful than it
is to actually do it.
Regardless, this is a critical time to pay
attention as an investor. One of my favorite quotes is Napoleon's
definition of a military genius: "The man who can do the average thing
when all those around him are going crazy." It's the same in investing.
You don't have to be a genius to do well in investing. You just have to
not go crazy when everyone else is, like they are now.
Here are a few things to keep in mind to help you along.
Unless you're impatient, innumerate or an idiot, lower prices are your friend
supposed to like market plunges because you can buy good companies at
lower prices. Before long, those prices rise and you'll be rewarded.
But you've heard that a thousand times.
There's a more compelling reason to like market plunges even if stocks never recover.
psuedoanonymous blogger Jesse Livermore asked a smart question this
year: Would you rather stocks soared 200%, or fell 66% and stayed there
forever? Literally, never recovering.
If you're a long-term investor, the second option is actually more lucrative.
because so much of the market's long-term returns come from reinvesting
dividends. When share prices fall, dividend yields rise, and the
compounding effect of reinvesting dividends becomes more powerful. After
30 years, the plunge-and-no-recovery scenario beats out
boom-and-normal-growth market by a quarter of a percentage point per
On that note, the S&P 500's dividend yield rose from 1.71% in September to 1.82% this week.
Plunges are why stocks return more than other assets
Imagine if stocks weren't volatile. Imagine they went up 8% a year, every year, with no volatility.
Nice and stable.
What would happen in this world?
would own bonds or cash, which return about zero percent. Why would you
if you could earn a steady, stable 8% return in stocks?
world, stock prices would surge until they offered a return closer to
bonds and cash. If stocks really had no volatility, prices would rise
until they yielded the same amount as FDIC-insured savings accounts.
then -- priced for perfection with no room for error -- the first whiff
of real-world realities like disappointing earnings, rising interest
rates, recessions, terrorism, ebola, and political theater sends them
So, if stocks never crashed, prices would rise so high
that a new crash was pretty much guaranteed. That's why the whole
history of the stock market is boom to bust, rinse, repeat. Volatility
is the price you have to be willing to pay to earn higher returns than
They're not indicative of the crowd
to watch the market fall 500 points and think, "Wow, everyone is
panicking. Everyone is selling. They know something I don't."
That's not true at all.
prices reflect the last trade made. It shows the views of marginal
buyers and marginal sellers -- whoever was willing to buy at highest
price and sell at the lowest price. The most recent price can represent
one share traded, or 100,000 shares traded. Whatever it is, it doesn't
reflect the views of the vast majority of shareholders, who just sit
there doing nothing.
Consider: The S&P fell almost 20% in the
summer of 2011. That's a big fall. But at Vanguard -- one of the largest
money managers, with more than $3 trillion -- 98% of investors didn't
make a single change to their portfolios. "Ninety-eight percent took the
long-term view," wrote Vanguard's Steve Utkus. "Those trading are a
very small subset of investors."
A lot of what moves day-to-day prices are computers playing pat-a-cake with themselves. You shouldn't read into it for meaning.
They don't tell you anything about the economy
It's easy to look at plunging markets and think it's foretelling something bad in the economy, like a recession.
But that's not always the case.
my friend Ben Carlson showed yesterday, there have been 13 corrections
of 10% or more since World War II that were not followed by a recession.
Stocks fell 35% in 1987 with no subsequent recession.
There is a
huge disconnect between stocks and the economy. The correlation between
GDP growth and subsequent five-year market returns is -0.06 -- as in no
correlation whatsoever, basically.
Vanguard once showed that
rainfall -- yes, rainfall -- is a better predictor of future market
returns than trend GDP growth, earnings growth, interest rates, or
analyst forecasts. They all tell you effectively nothing about what
stocks might do next.
So, breathe. Go to the beach. Hang out with your friends. Stop checking your portfolio. Life will go on.
SINGAPORE: The majority of Singaporeans are concerned
about not saving enough for retirement, according to a survey of the
middle class commissioned by insurer AIA. About 55 per cent of
Singaporeans said they are concerned, compared with the overall figure
of 44 per cent across Southeast Asia, the AIA survey, released on Friday
(Oct 20), revealed. The survey also found that Singaporeans think they
need about US$900,000 (S$1.15 million) on average in savings for
retirement - the highest in the region. Additionally, 67 per
cent of Singaporeans indicated that healthcare was the top cost concern,
and the top goal among Singaporeans is to be healthy. About 76 per cent
of Singaporeans also said they believe children should be responsible
for financially supporting their parents, which is above the regional
figure of 70 per cent. Also revealed in the survey was 74 per
cent of Singaporeans indicating they are satisfied with their lives,
with older respondents - those 55 years old and above – more likely to
About 500 Singaporeans were involved in the survey, which spanned six countries in Southeast Asia.
1. You may be sitting on paper losses; but collecting your dividends as Panadol to ease your heartache or headache. No other overhead charges! 2. You may be sitting on paper gains and happily collecting cash flow and laughing to bank with no overhead charges.
3. You can don't bother as there is no other external pressure upon you to do so. Time may be your friend. No?
You may be sitting on paper losses; but still paying out cash flow on daily interest charges and future dividends. 2. You may be sitting on paper gains; but in the meantime "happily" paying out cash flow on daily interest charges and future dividends.
3. You need to constantly watch out for your payback or cut back as there is an element of time pressure on you to reduce your overhead charges. Time is not your friend. Right?
What is the difference in Long and short of a trade?
Some cannot take pressure and don't like the idea of paying overhead charges while waiting. Don't try!
WASHINGTON: Federal Reserve chief Janet Yellen warned
on Friday (Oct 17) that the gap between the rich and poor in the United
States is widening and has reached a near 100-year high.
speech at a conference on inequality in Boston, the Fed chair did not
mention monetary policy nor the current turmoil in financial markets.
she focused on the widening wealth disparity and how that impacts
economic opportunity. "By some estimates, income and wealth inequality
are near their highest levels in the past hundred years," Yellen said,
noting the gap has grown steadily over recent decades, despite a brief
pause during the 2008 crisis.
During the recession, the worst
since the Great Depression of the 1930s, the richest Americans lost
money, and increased government spending helped offset losses for the
"But widening inequality resumed in the
recovery, as the stock market rebounded," Yellen said, noting that "wage
growth and the healing of the labour market have been slow, and the
increase in home prices has not fully restored the housing wealth lost
by the large majority of households for which it is their primary
asset." (CW8888: Residential home as primary asset doesn't produce any cash flow to build up wealth. Wealth formula is Wealth = Asset Value + Cash flow. Lacking of cash flow is the missing key in wealth building.)
The Fed chief said that wide wealth disparities can
make it harder for the poor to move up the income ladder, and also
warned of the burden of student loan debt, which quadrupled between 2004
and 2014. (CW8888: Poor got to borrow and firstly locked into negative growth instead creating wealth from cash flow)
"I think it is appropriate to ask whether this
trend is compatible with values rooted in our nation's history, among
them the high value Americans have traditionally placed on equality of
opportunity," she said.
FALLING LIVING STANDARDS
said "some degree of inequality" is natural and indeed "arguably
contributes to economic growth, because it creates incentives to work
hard, get an education, save, invest, and undertake risk."
that same inequality can limit access to economic resources for those
lower on the ladder, "thereby perpetuating a trend of increasing
inequality." Yellen offered no remedies for decreasing the rich-poor
gap, but welcomed discussion on ways to better promote "equality of
She said two "cornerstones of
opportunity" are resources available to children and access to higher
education, but added that ownership of a family business and inherited
wealth can also be important sources of economic opportunity.
families below the top, public funding plays an important role in
providing resources to children that influence future levels of income
and wealth," Yellen said, citing programs like unemployment, welfare,
and early childhood education.
She said college degrees also
offer a net benefit, despite escalating tuition costs that have
contributed to a dramatic increase in student loan debt - the
outstanding balance quadrupled from US$260 billion in 2004 to US$1.1
trillion this year. This debt is disproportionately, and increasingly,
affecting poorer families and may put college and graduate degrees out
of reach for some, she said.
Globally, the gap between the
haves and have-nots has reached levels not seen since the 1820s, the
OECD said earlier this month, in a report that looked at trends in
health, education, inequality, the environment and personal security.
report said, however, that overall well-being has improved over the
past 200 years, despite the enormous increase in income inequality, in
part because factors like life expectancy and literacy, which have risen
dramatically over the last 200 years.
Yellen said that the
trend in recent years in the United States has seen "stagnant or falling
living standards for many families."
I am 58 yrs old uncle living in HDB heartland doing long-term investing and short-term trading in Singapore stock market only.
I am still making my way to an early retirement by 2016 at 60 yrs old. Official retirement age in Singapore is 62; but can be re-employed up to 65.
I have two sons and one daughter. Two working adult children and the youngest son is in NS.
My wife is a home CEO without income. There are two mouths counting on me for financial support, so I have to do well in this investing journey. There is little room for failure!
Last updated: 22 May 2014
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