As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

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Saturday, 11 November 2017

Should you follow the 3% or 4% retirement rule? (2)


Read? I Took All My Money Out of the Stock Market and It Feels Amazing

Thanks to Temperament for pointing out this article. One good example of not following the 3% or 4% retirement rule? 

CW8888: Once we have bulk of our net worth exposed to future market cycles; how many of us dare to claim that we are able to sleep well when market crashes and wipe off 40 to 60% of our net worth?


Do I think the stock market is about to crash? Am I afraid that with Donald Trump at the helm of our ship of state the economy is at risk of going down like the Titanic?

Sure, that could happen. But that’s not why I took my dough off the table.

Back in the early 1980s, I inherited $50,000. At the time, that was so much more money than I’d ever had before that I decided I’d better educate myself about financial matters.

After much research, I put that money — and a percentage of the money I’ve made since as a writer and part-time librarian — into a low-cost index fund. Specifically, I invested in a Vanguard balanced fund that invests 60% of its assets in the stock market and 40% in bonds.

And I left it there.

This turned out to be a good strategy. Back then, the S&P 500 index of U.S. stocks was at 208. Now it’s closing in on 2,600.

Nevertheless, I cashed it all in last week.

Now all my money is stashed in U.S. Treasuries, Treasury Inflation-Protected Securities (or TIPS bonds), and laddered CDs, which, in the years to come, I can count on to earn me essentially nada.

Why would I do this?

CW8888: How many of us have that level of confidence that we have enough of net worth to last our lifetime; and stop or drastic slow down to accumulate more?

I once figured out exactly how much money I would need to live on — not lavishly, but comfortably — for the rest of my life. I promised myself that once I had that amount, I would actually do just that — take my money out of the market and live on it for the rest of my life.

Last week, I reached that goal.

I’m 62. I’ve spent decades caring about the market. I counted on it to make me enough money so that I’d be able to cash in my chips and walk away when I hit retirement age.

And so it did.

And now? It’s time for this librarian to declare victory and get the hell out.

The day after I cashed out, the market soared, as if to say, “Ha ha Roz, the joke’s on you.”

Did I feel some regret?

Of course I did! Had I waited just a day, my bank account would be fatter than it is now. But that’s not the point. The point is no longer amassing as much money as I can. It’s peace of mind.

And that’s what I’ve got.

Timing is everything. But you can’t time the market. I have no idea whether it’s about to go up or down. But I no longer care.

I now have enough money to live on for the rest of my life with absolutely no concern about what the market is up to. The Dow Jones industrial average could zip up to 30,000 (and I hope for the sake of those of you who are still in the game that it does.) Or it could crash and burn tomorrow.

Not my problem. That part of my life is over. I’ll never again experience the elation of a market that is rocketing into the stratosphere. Or that sick feeling you get as the market is “correcting” and your net worth is circling the drain.

All done.

But if the market totally tanks tomorrow, you ask, and stocks become such a crazy bargain that I’d be a fool not to put at least some of my money back into that mutual fund that served me so well, wouldn’t I?

Of course I would! I’m no fool. Plus, the one thing I’ve learned about the market over the past three decades is “what goes down, eventually comes back up.” But until that happens, I’m staying put. And if it never happens? I’m still set.

So how much money have I got? I’m not exactly a millionaire. But I do have a nest egg in the high six figures, a modest home with no mortgage, and zero debt. That might not impress you, but it’s good enough for me.

Now that I’ve made my nut, I have no big plans to buy a yacht or travel around the world or even splurge on a few extra outfits from Eileen Fisher.

I plan to continue to work at my local public library and write essays. Which is to say that I’ll continue to do the work I love, which provides me with a small but steady income. (And, at age 70, I’ll start collecting Social Security, which, both because I’m an optimist because I believe in the lobbying power of the AARP, I fully expect to be, like me, alive and well.)

I’m not saying you should follow my lead. You could be more of a risk taker than I am. (Most people are.) Or more worried about inflation. (I’m betting on the TIPS to shelter me from that.) You might have more expenses, or more people who rely on you financially. Your own goal could be to leave a bucket of money to your heirs. (I’m leaving that task to my wealthy ex-husband.)

Whatever your financial goal is, I hope you reach it.

CW8888: Invest well! We will be on our way  to build sustainable retirement income for life (with draw down strategy; it will be easier)

The stock market has been very good to me. Without money in the market, there’s no way that this part-time library worker and freelance writer would now have enough money to live on into her 90s.

But, as the song goes, you’ve got to know when to hold them and know when to fold them.

And for me, the time to fold them has come.

I’m out of here. Best wishes. Enjoy the ride.


25 comments:

  1. CW,

    LOL!

    She obviously don't practice buy and hold ;)

    I like her savvy gambling instincts!

    "But, as the song goes, you’ve got to know when to hold them and know when to fold them."


    Some retail "investors" really believed being 100% vested in the stock market is "not gambling"...


    ReplyDelete
    Replies
    1. Investing is still Game of strategies. Like it or not.

      Delete
    2. Hello SMOL,

      In fact i think she believes in B & H.

      Only now she thinks she has enough to last to age 90 she sings Glen Cambell's song - "The Gambler".

      Actually i am almost like her only i don't know how much is enough yet for me because i have a family.

      i am not single, U know.

      Nevertheless, i hope i can be like her soon as i am already going to be 70.

      Delete
    3. But i don't really B & H.

      i B & H & S & B & H & S......

      Delete
    4. temperament,

      You are what Hokkiens call "iron teeth" - "ai gong wei"!

      If you read the post properly, this ang moh librarian practice the same as you and me lah!


      "But if the market totally tanks tomorrow, you ask, and stocks become such a crazy bargain that I’d be a fool not to put at least some of my money back into that mutual fund that served me so well, wouldn’t I?

      Of course I would! I’m no fool. Plus, the one thing I’ve learned about the market over the past three decades is “what goes down, eventually comes back up.” But until that happens, I’m staying put. And if it never happens? I’m still set."


      She more gungho than you and me! She is now 100% out of equities! Power!

      She'll be back when the next crashes ;)


      She has gone through what you've gone through during the past 3 decades. Buy and hold my foot!




      Delete
    5. And note her honesty!

      She relied on mutual funds that served her so very well.

      I can't imagine her interested in the craft of DIY investing. She smarter. She hired a shepherd to do the investing for her ;)

      But she knows a shepherd will not voluntarily return cash or advocate market timing (how to earn fees like that?)...

      So like a land owner, she knows when to dismiss the services of the shepherd ;)

      Delete
  2. And of course, nobody needs to follow any retire rules - 3 or 4 or 5 % if U think U have more than enough till 90 years old.

    ReplyDelete
  3. Quote:-
    "If you read the post properly, this ang moh librarian practice ...."

    Unquote:-
    From the Ang Moh's article above:-

    {Back in the early 1980s, I inherited $50,000. At the time, that was so much more money than I’d ever had before that I decided I’d better educate myself about financial matters.

    After much research, I put that money — and a percentage of the money I’ve made since as a writer and part-time librarian — into a low-cost index fund. Specifically, I invested in a Vanguard balanced fund that invests 60% of its assets in the stock market and 40% in bonds."

    (And she emphasized here with this sentence):-

    "AND I LEFT IT THERE"

    Unquote:-

    So after i read all the above it tells me that this Ang Moh from early 1980s she left her money with Vanguard's Index till now she decided she has enough, and she withdraws all her money is not "B & H" investing? - Some 3 decades and a little more.

    Then it must be "H & B" loh?


    Of course, a man without resolution/passion or iron teeth how can he succeeds as a Snake-oil sale-man or maybe even a rubbish bin collector?

    Of course, with natural Gift of the GAB, ceremic teeth will do .

    Hey, even free lunch at some charity temples need U to have iron teeth(or thick skin) first.

    Sorry if my England is so lousy that i have misinterpreted this Ang Moh's writing.

    U know i boh tak chat if not fitted myself with "iron teeth" i can not bite hard to survive in this world.

    HA! HA!

    Please remember U are entitled to your own thinking or opinions(iron teeth or not?) but not the facts of this article.

    ReplyDelete
  4. On the other hand, i think she a little like me loh - B & H & S, B & H & S.

    Only my holding period usually about 2 to 5 years.

    Hers is 3 decade or more.

    i wonder this time if she ever buys again, how long she going to hold?

    Another 3 decades?

    Not possible already lah.

    ReplyDelete
    Replies
    1. This is classic example of B & H. Holding it for three decades and quit the Game when she has enough.

      Buy & Hold is alive!

      Delete
    2. Thank U for stating the facts that my Englang is not so lousy after-all.

      U know i have been checking my teeth actually what they are made of.

      Delete
    3. Traders love to poke failed B & H investors. But; those successful B & H investors will point to their bank account and laugh back. Right?

      Delete
    4. CW and temperament,

      LOL!

      This is classic example of we see what we want to see ;)


      Traders see and take into account entries and exits.

      You guys see and count her entry, her holding period of 30 years, and "convenietly" ignore her final EXIT?

      100% exit from equities is still counted as Buy and Hold?

      And I thought the meaning of "Hold" meant still vested...


      Let's say I am very impressed with this 62 years young librarian. She knows she has "enough".

      She is more guungho than the 3 of us. She dares to go 100% all out!

      C'mon, all 3 of us are not 100% vested in equities right now... That's not Buy and Hold too ;)

      If you believe Buy and Hold is still alive, what take partial profit? (People listen to what we do; not what we say)

      We are just 50 steps laughing at 100 steps :)







      Delete
  5. LOL

    Right.

    If only i hold KEP CORP, SEMB CORP or even SEMB MARINE a little longer when i first started investing,(like U do till now), my bank account would have a hundred or more of thousands, i estimate.

    But no regret, i am still doing O. K. lah.

    ReplyDelete
    Replies
    1. temperament,

      I'll leave it you and CW to work it out between you two... You both have quite different definition of Buy-and-Hold ;)


      temperament version:

      "On the other hand, i think she a little like me loh - B & H & S, B & H & S."


      CW version:

      "This is classic example of B & H. Holding it for three decades and quit the Game when she has enough."


      What the hell is "S" and "quit" when it comes to Buy-and-Hold?


      Just having fun lah! Its quite clear my mental bias is on the end game :)


      I think all 3 of us know very well how we can tell whether an investor is competent or not. Its never the noun or label of "trader" or "investor"...

      COMPETENT investors/traders know when to sell ;)

      Hand to heart right?


      Had you held all the 3 Temasek stocks you mentioned, you would love to sell nearer to their 2013 highs right?

      Definitely not at current prices...


      Can agree selling is much harder?





      Delete
  6. i see.

    Your B & H means never sell, right?

    So for U it makes no difference whether a person holds for 2 to 5 years or 30 years the momemt he sells, he is a "Trader", right?

    ReplyDelete
    Replies
    1. temperament,

      Exactly!

      I don't care about labels. Don't sell how to take profits?

      Although I am teasing and debating with you - we both are closer to the same definition - we both see and acknowledge the "S" ;)


      CW sides with you in "words"; but his multiple rounds in "actions" speak louder! LOL!


      We both know WHY CW will NEVER sell his multi-baggers out COMPLETELY like the US librarian above even if STI zooms up to 10,000. It has nothing to do with fundamentals or technicals. Or lack of guts or conviction.

      Shhh... Don't say it out loud ;)



      Young people too respectful and courteous to you and CW. So I play the "rude" idiot role here to have a bit of fun playing out the Socratic method.

      Maybe some bei kambings reading our debates can benefit and figure out for themselves what does Buy-and-Hold really means - especially the "Hold" part :)


      We make a good 相声 pair!

      LOL!

      Delete
    2. Any young ones see the difference from the above comments?

      Delete
    3. Paiseh... me not young 1... but still dont understand... bcos i blur blur 1... hehehe

      Delete
  7. Have a Great Retirement! U have work hard for it!

    ReplyDelete
  8. The $800,000 question (I'm assuming that's the rough size of her portfolio) is how much capital she put in? I'd bet it wasn't more than $100K. Vanguard's balanced funds are about 8+% to 9+% CAGR from mid-1980s till now.

    For the 9.57% CAGR Vanguard Star Fund, it'll just take about $43K to hit $800K over last 32 years. With starting capital of $50K, it'll be $930,000 today.

    No definite definition of B&H --- generally just means no or very little emphasis on selling assets within weeks or even months to cash in on a higher price. Emphasis is on compounding interest & re-invested dividends to grow capital.

    For how long? Up to societal norms lah. 30 years ago people in US generally held stocks for 10 years before selling. Now it's like 1-2 years.

    The US tax dept is quite helpful in deciding whether to be a trader or B&H (at least on a mini scale). If you realise profits after 365 days of buying an asset, you pay "long term" income tax of 15%. If you realise profits within 365 days, you pay "short term" income tax at your marginal tax rate (usually much higher than 15%).

    That lady is also very lucky ... for compounding to work, not only it requires TIME, but also the RIGHT ASSET. She invested into the US market at the beginning of the longest secular bull market in US history from 1982 till Mar 2000. The crash of 1987 & the mild bear in 1991 were just small blips in that 18-yr bull run.

    The double-dips in 2000-2002 and 2008/2009 basically resulted in 10 years of flat portfolio growth. But the last few years of QE gave her the final Oomph to cross the finish line.

    Just imagine if she practiced market timing ... no need expert level, just follow brain-dead 200-day MA --- she would easily be millionaire now instead of "not exactly a millionaire .... a nest egg in the high six figures". :)

    But if she did use long-term market timing, she'd probably have avoided the draw-down in 2000-2002 and cashed out in 2008 & declare victory then. LOL!

    Btw she was only vested in 60% equities; the other 40% in bonds. To me that's still B&H lah.

    Btw2 she's still vested in bonds, Treasuries & TIPS --- should be mostly in Vanguard mutual funds. Does this still count as being B&H?? Does B&H only mean risky assets? Heheheh!!

    ReplyDelete
    Replies
    1. Spur,

      LOL!

      Something so "simple" as Buy-and-Hold has become not so crystal now...

      Why get out of bonds when the 37 year old bull market in US Treasuries is still on going? I envy her capital gains in bonds!

      She has beaten many hedge fund managers who shorted Treasuries as they refused to accept how interest rates can still stay so low for so long... That's power of QE for you!

      Painful widow maker trade to short US or Japan Treasuries :(

      But then, as with all cycles, mean revision will exert its pull.

      It will be interesting to see if this US librarian will exit her bond holdings BEFORE or AFTER the bond crash?

      That's how we tell competence ;)






      Delete

  9. Uncle CW,

    Thumbs up. I also wondered how many fold the cards. I call that 瀟灑。

    Have a great golden period:

    曾经沧海,终究抖了抖衣袖,
    潇潇洒洒,带不走的都留下。
    因为拥有了一片蓝天,
    够了。

    回头看看风风雨雨,
    此程也不枉了。

    Sillyinvestor 谨启

    ReplyDelete
  10. Who should poke this Grand Investor from selling?


    Buffett began rolling back this decision earlier this year, dumping about one-third of his position prior to Berkshire's annual meeting. He cited tough competition, saying he had revalued the stock "somewhat downward" as a result. With revenue slumping for more than five years, those competitive advantages had clearly eroded.

    Berkshire's latest regulatory filing shows that Buffett has trimmed this multi-billion-dollar stake even further. Berkshire owned 37 million shares of IBM as of Sept. 30, worth about $5.5 billion today. That's down from around 50 million shares earlier this year. IBM's turnaround effort has dragged on, and even Buffett's legendary patience has run thin.

    ReplyDelete
  11. CW,

    No need to poke Warren Buffett. Great investors have the ability to poke themselves:

    https://www.forbes.com/sites/thestreet/2012/02/28/warren-buffett-owns-up-to-mistakes/#3060ccdc6ac6


    Well, at least Warren Buffett never Buy-and-Hope that crude will go back to above USD100 again... Maybe one day it will. He rather take his one billion loss and make it back not the same way he took the losses ;)


    ReplyDelete

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