Bogleheads.org

tesuzuki2002 wrote: ↑Fri Mar 24, 2023 10:54 pm

Supergrover wrote: ↑Fri Mar 24, 2023 7:01 am What would his return be on a 5% Tbill at 600K.

Not even close to the $80k he’s getting from rentals…

Yeah, 80K on 600K is a really good deal. He paid 100K per house and collecting $1100/mo on average.

Ocean77 wrote: ↑Fri Mar 24, 2023 7:12 pm No need to assume. The article says:

Jordan Modell
Savings and Investments: $158,000, plus about $600,000 in rental properties

Annual Spending: $80,000

...

Mr. Modell lives off the $80,000 in rental income

Thanks, I didn't see that as I got paywalled.

Seems like a very decent plan to me. 80K/year of rental income on 600K of properties = 13.3% cap rate, which is excellent. Of course, he comes out way ahead of others because he's not 100% retired. He essentially has a part-time job in rental management.

Being a landlord isn't all THAT risky, but it isn't passive either. It just may be unfamiliar to you. What is risky is that he gets $80,000 a year in rent after taxes, and spends $80,000 a year. He is holding nothing back for maintenance, repairs, replacement, vacancies, or skipped rent. Water heaters need to be replaced every 10 years or so. Roofs need to be replaced every 30 years or so. AC/Heater units need maintenance. If one of those expenses comes up, they'll be unexpected for him, and he'll have to pay for it out of his $158,000 brokerage account. Section 8 housing is not usually built to the highest standards nor for durability. It's built to be cheap. Rents can generally be raised to roughly track inflation, but I'm not sure if th...

Supergrover wrote: ↑Fri Mar 24, 2023 6:25 am One of the retirees took 600K out of his retirement funds to buy 6 low income, section 8 type housing that generates $80K a year in income. He left his savings pretty thin.

What’s your thoughts on that strategy?

It's actually a great strategy because your rental income is essentially paid by the government.

The only problems are:
a) You have to manage 6 properties; it's not a full-time gig but certainly consumes your time.
b) The quality of tenants isn't the highest, i.e. you'd face unthinkable issues they cause. Yes, I know someone who manages a property like this and the headaches his tenants cause.

Basically, I want to maintain enough assets with cash and short term bonds , not to have to sell in a down market, to mitigate sequence of return risk. But if I keep assets such as these for the most part in a IRA/Roth to minimize current taxes, Then I have to potentially sell stocks in a down market for living expenses. If I need money at that point, do I sell say 50k of VTI in taxable and then just rebuy it in Roth?IRA to maintain current balances. Or in planning for retirement reallocate the amount of cash / short term to the taxable account ( build up a cash buffer prior to retirement)? Not recommended. What you're describing is a flavor of the bucket approach. It is not an awful idea but unlikely to make a material difference either w...

Asset allocation in pre-retirement years to mitigate sequence of returns. I would like to keep close to 5 years spending in short term funds, bonds , money markets leading up to retirement to limit withdraws from stock funds during down markets. If I keep bond funds and other interest bearing account in IRA and Roth to limit taxes, and stock funds in taxable accounts. How to I withdraw from the bond funds and other money funds during a down year since I will be less than 59 for the next few years with out creating penalties? AA isn't terribly relevant because SORR means your withdrawals cause a lasting damage to your portfolio due to poor returns early on. We often talk about equities side of business but it could happen to a 50/50 portfol...

bberris wrote: ↑Fri Mar 24, 2023 6:28 am Being made whole was not OP's goal, at least that's how I read it.

OP wants to "lock" the interest rate. So if interest rates have fallen from the time you buy a T bond, you would be reinvesting the coupon payments at a lower rate. To maintain today's interest rate on the entire investment and it's return, the best vehicle is a zero coupon bond, where the payments were stripped out and you are only buying the principal part, at a discount.

When I said being made whole, I mean principal + interest. That's what it means to hold bonds till maturity. And if this isn't locking in the rate, I am not sure what is.

erishera wrote: ↑Thu Mar 23, 2023 10:05 pm you were not foolish... and there indeed was a way for bonds to increase in value. Here is an excellent article about bond convexity on portfolio chart that describes how. I think some banks were following this cookbook.

https://portfoliocharts.com/2019/05/27/ ... convexity/

There was a way, but what's missing is the *likelihood* of happening.

It's kind of like betting on the bottom team in the Premier League to win the title. The payout can be 5000 to 1, but is it likely? Obviously not.

At the end of the day, a reasonable expectation is earning the initial yield over the course of duration. Expecting more than that is a fool's errand.

stocknoob4111 wrote: ↑Thu Mar 23, 2023 2:55 pm 7% cash... Age 49, retiring next year

Yeah, something like that is definitely reasonable. I personally recommend 1~2 years in cash, no questions asked.

Questions for you: Be honest: Is there ever a point when you would stop investing in equities? Are you committed pretty much no matter what? Some people can’t stomach the market, that’s why they aren’t in it, and that’s a pretty reasonable and understandable position. Some don’t need to take the risk. But unless you are a business owner, or have other means of income, the alternatives to equities don’t look that great either (cash, bonds, PMs). Diversification becomes key, but what do you diversify to? What would you invest in if you could not invest in VTSAX or the like? For me probably real estate and some gold (95/5?) if I couldn’t invest in equities, or starting a business, but those options aren’t really passive. Here’s to many more y...

bberris wrote: ↑Thu Mar 23, 2023 1:36 pm Even buying a conventional bond risks lower interest rates on the periodic interest payments. What OP wants is a zero-coupon bond.

I don't follow. When you buy bonds directly, your coupon payments are fixed (hence "fixed income"). The relative size of coupon payments against the principal could vary, but you will be made whole when you hold till maturity.

jmk wrote: ↑Thu Mar 23, 2023 9:57 am The ishare "ibond" funds have fixed maturity dates, so they do "lock in the rate".
But buying individual bonds is the only way to "lock in" rates beyond that type of fund.
But are you sure you want to lock in a rate for more than 10y when interests rates can change?

I'd look for a much higher rate than 5.5% personally speaking. I was just answering a question posted by the OP.

Bond funds don't lock in rates, as the fund manager keeps shuffling bonds.

If locking in is your goal, you need to buy bonds directly.

coolasadog wrote: ↑Wed Mar 22, 2023 10:38 pm Hard to argue with this

Nothing wrong with 80K/year on 5M actually. Just because you can spend more doesn't mean you must. In fact some folks (myself included) can actually feel guilty forcibly spending out of line with who they are.

student wrote: ↑Wed Mar 22, 2023 9:48 pm I think tipped workers also make at least federal minimum wage in the sense that the employers need to pay the difference if the tips income is not high enough. https://www.dol.gov/agencies/whd/state/ ... age/tipped

Well that's good news at least, assuming this is enforced at most places. In which case the above poster saying a tipped bartender making $2.13 without tips was incorrect.

climber2020 wrote: ↑Wed Mar 22, 2023 5:40 pm The bartender makes $2.13 an hour before tips.

Tbh this needs to change. If we have a minimum wage, it should apply to all workers not just the non-tipped workers. Now I get that the tipped workers may be overcompensated if they also collect minimum wage, but that actually drives tipping down as everyone learns that they are at least making the minimum wage.

TitaniumCranium wrote: ↑Wed Mar 22, 2023 8:51 pm 3.2% from a portfolio with what kind of asset allocation?

This article covers a bunch: https://portfoliocharts.com/2016/12/09/ ... etirement/

This is what I was paraphrasing from, although I like to go lower than the PWR personally.

I use a spreadsheet as well, updated monthly. I use a different sheet for NW though, which basically tracks snapshots of NW over time whereas the AA sheet tracks my current state.

if anything i think the question should be why *isn't* everything your emergency fund? the logical conclusion is that a sufficiently catastrophic emergency will wipe you out no matter what plan you have, so much so that the only way to solve that is to buy insurance (health & life being the two obvious ones). a large cash-allocation is an opportunity cost, plain and simple. in practice, there's no difference writing a check from a checkings account vs writing a check against a brokerage account and drawing margin at the same time. both are equally fast. the only difference here is the opportunity cost vs the interest cost of repaying back the margin loan. I don't agree with you at all. First, calling everything an emergency fund is wor...

Always tip 18%+ for their excellent service.

watchnerd wrote: ↑Wed Mar 22, 2023 3:21 am We keep 1-2 years of living expenses in cash.

Same. It's worthwhile to have some liquidity on hand, especially when cash equivalents earn 4%+.

kchico wrote: ↑Tue Mar 21, 2023 7:27 pm

rob wrote: ↑Tue Mar 21, 2023 7:16 pm I don't see any way this works to be honest....

So Bogleheads don't use the 4% SWR?

Not at 38 & 39. 4% SWR just says it didn't crash for a 30-year retirement horizon. Yours is likely longer than that.

Instead of retiring, you should look for a different job.

JDave wrote: ↑Tue Mar 21, 2023 5:30 pm Emergency fund = cash you can access within 24 hours that you KNOW will be there, no matter what.

Which scenario do you have in mind that might test your 24-hour time limit? Even if I have to fly to Europe tonight, I don't think I need cash access as I simply charge my CC.

While I have some liquidity within 24 hours, I also have other safe assets that could be made available within 5~7 days.

What I am hearing you say is you don't classify or have a specific purpose for any specific investment rather you have an asset allocation which to me is a very valid top down way of doing things (Totally BH). I on the other hand think of myself as working bottoms up, classifying investments by purpose and allocating to those classifications and letting my asset allocation be the result of that classification process. This has evolved as my asset level relative to need has increased, I doubt I could have used this approach prior to 2018 or 2019. Today while I could probably use a straight top down asset allocation model, I don't think it would be the most efficient approach for accomplish my objectives. Interesting. Your description sounds...

TheTimeLord wrote: ↑Tue Mar 21, 2023 4:26 pm That is not what I am saying, I am talking about how I am mentally classifying assets.

What do you mean by that? My portfolio is a collection of real accounts; an account either belongs to equities or fixed income (except one account where I hold both).

I do not have mentally classifying component to any of this, maybe I'm missing some of what you're doing.

TheTimeLord wrote: ↑Tue Mar 21, 2023 4:16 pm Nothing wrong with it, I was just noting my own mental inconsistency. I think it is very useful to recognize these type of mental errors in ourselves. I might posit doing this might cause me to have a too conservative withdrawal rate or overly conservative asset allocation because of not recognizing what these assets actually were.

I don't think EF is a mental error. Personal finance is personal, and as I mentioned, it's not necessarily a drag (especially these days when HYSA APY is 4%).

Calling it a mental error is overly critical, kind of like criticizing $50 in your wallet because it's not collecting interest.

TheTimeLord wrote: ↑Tue Mar 21, 2023 3:57 pm Not disagreeing, but what I was pointing to in my case was even though I had in my mind officially stopped maintaining what I would call an emergency fund, the assets I am holding tell a different tale. A rose by any other name.

What's wrong with that? EF isn't a bad idea in and of itself. It's not necessarily a drag either, since their portfolio might be 100K EF & everything else in equities, which might be much more aggressive than someone holding 60/40 + $0 EF for example.

I absolutely agree -- the expenses, the entire expenses, and nothing but the expenses. In your example, the roof replacement would be a planned/budgeted event that wouldn't normally be an emergency. To be honest though, I always thought more in terms of income replacement. Salary/$10K = months to get an equivalent income (pick your best estimate for the $10K part). I figured that expenses could/would/should be cut at that point anyway. But, I'm lazy and salary/$x is easier and faster than expense evaluation up-front. I think it depends on your perspective. My expenses are less than my take-home, thus it makes more sense to cover actual expenses. Also, I already know my ballpark expenses and my monthly budget today; I don't need to scramble...

That's basically another way of saying that people should account for all of their expenses. My concern is with the people that dip into their emergency fund for deductibles while they are employed. If they need the emergency fund in that situation, the deductible is too high. If they can't afford a lower deductible, then they can't afford the item that they are insuring, or they are spending money elsewhere that they can't afford to spend. An insurance deductible is an implicit acknowledgement of self-insurance -- which only works if you have the money to self-insure. Oh I meant to discuss the insurance premiums being counted toward your living expense calculations. My rule of thumb is to include in living expenses anything recurring with...

I tend to view it as liquidity. Maybe 9 months expenses in bank cash and another couple of years worth in ibonds. I don’t view it as irrational to have a fixed stack of cash or cash equivalents. Some will say “mental accounting”, but that presumes an individuals risk aversion curve will always dictate the same asset allocation whether one has $100,000 or $1 million. By setting a hard minimum, via a fixed emergency/liquidity fund when the value of your portfolio goes down, your stock allocation will decrease if looking at entire net worth. That isn’t optimal for long term growth but it does provide a safety cushion. It is very plausible for a 60 year old to have a risk aversion based optimal asset allocation of 0/100 at $100k, 50/50 at 1 mi...

Leesbro63 wrote: ↑Tue Mar 21, 2023 6:24 am This thread brings up a good point. Some of us would like to have our cake and eat it too...withdraw from the portfolio but still see it grow over time. 2% seems like the perpetual withdrawal rate, which is what's really being asked.

The historical PWR is something like 3.2%. Of course, this isn't a guarantee since markets might not perform as well as in the past.

The real trick is to use a fixed WR so cutting back during the downturn is built into the method. As mentioned, the math is really simple - the less you withdraw, the better for the portfolio. This might sound obvious, but some withdrawal methods don't have a notion of cutting back spending.

The biggest emergency when employed is loss of employment and the related income stream. That clearly needs some form of financial backstop. Most of the stuff people put in the "emergency" category aren't emergencies. Any normal form of insurance deductible is not an emergency -- you know in advance that you might have to pay it. The same can be said for normal wear-and-tear on vehicles, homes, appliances, etc. In retirement, those apply even less. However, I do set aside money for: Financial Reserves provide funding for unexpected large expenses that generally don’t occur, yet have the potential for significant financial impact. Examples include major home repairs, large medical expenses, earthquake insurance deductible. The key...

alluringreality wrote: ↑Tue Mar 21, 2023 11:35 am Essentially using long-term assets for near-term goals is generally inconsistent with the central concept around emergency funds, regardless if someone prefers stocks or EDV.

It might be inconsistent but there's little to no damage selling 0K/month during normal times, 3K~4K/month during unemployment is what I'm saying.

The prior suggestion seems fairly common justification for strategies that I tend to double-check for personal prudence. For example it's essentially included as part of my favorite rear-view-mirror investment strategy below. Generally it's difficult to debate historical success, else be labeled " naysayers ", at least until such ideas go through a 50% drawdown for an unlucky follower. Ultimately I explain these sorts of incongruent approaches as largely revolving around alternate considerations or risk preferences. https://www.bogleheads.org/forum/viewtopic.php?t=305547 I think VTSAX-only works reasonably well when one's willing and committed to sell during emergencies, no matter how depressed. Even preparing for unemployment, i...

Most people who have more than a few years of living expenses invested dont really need an emergency fund. Or put another way, my entire portfolio is my emergency fund and backstop. I don’t have a specific allocation for my EF, I have a specific allocation for my entire portfolio. So, technically, my emergency fund is in VTSAX. Emergency funds are still useless: https://earlyretirementnow.com/2021/05/26/the-emergency-fund-is-still-useless/ I think this is fine so long as you don't have lumpy expenses. Problems can arise when you have to finance house downpayment out of depressed VTSAX shares. EDIT to add: although in the context of emergency fund covering emergencies such as unemployment, then VTSAX-only probably works OK. House DP example...

johnpau wrote: ↑Mon Mar 20, 2023 8:05 pm 2nd one - keeping over 250K at a single bank

I would stay below 250K at any institution right now, Ally or otherwise. Now your deposits might be protected like those at SVB, but that's no guarantee.

You can do Vanguard or open other HYSAs.

I tend to view it as liquidity. Maybe 9 months expenses in bank cash and another couple of years worth in ibonds. I don’t view it as irrational to have a fixed stack of cash or cash equivalents. Some will say “mental accounting”, but that presumes an individuals risk aversion curve will always dictate the same asset allocation whether one has $100,000 or $1 million. By setting a hard minimum, via a fixed emergency/liquidity fund when the value of your portfolio goes down, your stock allocation will decrease if looking at entire net worth. That isn’t optimal for long term growth but it does provide a safety cushion. It is very plausible for a 60 year old to have a risk aversion based optimal asset allocation of 0/100 at $100k, 50/50 at 1 mi...

km91 wrote: ↑Mon Mar 20, 2023 4:41 pm My point is exactly this. You are framing your argument in terms of past performance. If you did not have access to the historical data, what would be the reason for not investing in Royal Bank of Canada, or Nestle, or Novartis, or BASF

We all do. Don't kid yourself you don't do that.

If we don't look at historical data, how can we even decide to hold equities / bonds, let alone a ratio such as 60/40?

TheTimeLord wrote: ↑Mon Mar 20, 2023 9:57 am I often hear having an Emergency Fund discussed here and I maintained one my entire working career but now that I am "retired" I didn't think I had one anymore. Then I started thinking about some of the assets I was holding and it seems like a distinction without a difference. So is an emergency fund just an acceptable mental accounting device to allow you to group or allocate short term accessible liquid assets or is it something else? So please tell me what counts as an emergency fund and is a rose by any other name just as sweet?

I don't know about others but my EF definitely isn't mental accounting. I count Cash & Cash Equivalents as EF and everything else goes into equities.

Nathan Drake wrote: ↑Mon Mar 20, 2023 3:20 pm I’d rather protect against the idea that I could be wrong than actually be wrong and suffer the consequences

The “it may not matter” argument holds no weight. Heads you win. Tails you win. Or… heads you win more. Tails you lose a lot.

Can you define what you mean by wrong?

If the US stalls, you realize VT suffers quite a bit too, right?

Nathan Drake wrote: ↑Mon Mar 20, 2023 3:08 pm My point was, it made perfect sense to be a diversified VT holder and not a 100% Japanese holder simply because it “might” not matter.

It did

Sure, and I wouldn't be a 100% Japanese holder either. To some extent, US-only folks believe in American exceptionalism. Whether they're right or not remains to be seen.

Nathan Drake wrote: ↑Mon Mar 20, 2023 3:02 pm

I don't follow what point you're trying to make, then. Japan came and went...a hypothetical VT holder rode the wave up and down.

Nathan Drake wrote: ↑Mon Mar 20, 2023 2:59 pm Japanese investor in the 80s could have shrugged and said 1-3 out of 6 is good enough and would have been wrong

What was the composition of VT then, had it existed?

OldSport wrote: ↑Mon Mar 20, 2023 1:53 pm Isn't somewhere between 70/30 and 65/35 statistically the best AA for long term portfolio success?

"Best" for 30-year periods studied using historical data + Safe WR, yes. Not necessarily the best in terms of your final portfolio balance & using other withdrawal methods.

muffins14 wrote: ↑Mon Mar 20, 2023 1:52 pm To be fair to others, people have been trying to use increasingly simple examples in an effort to explain risks to you, not because they truly believe it’s identical to only choosing stocks with the letter A.

To refine your last example, rather than 1-4 out of 6, let’s agree it’s like betting on 1-6 out of 10.

It was 1~4 out of 6 because we were talking about dice rolls. If the scale was 1~10 instead, then yes it is 1~6 out of 10.

Apathizer wrote: ↑Mon Mar 20, 2023 1:15 pm OK, that seems like a reasonable analogy to me, and yes, many of us do think ex-US is worthwhile, though I also understand the difference might not be significant.
I think I'm ready to call truce now.

I've been reasonable all along; it's actually the international camp who made unreasonable claims. Such examples include counting US as one country out of 200 (given VT is 60% US, that's understating the size of US) or suggesting that US-only is like buying stocks starting with letter "A."

Betting on numbers 1~4 out of 6 numbers *is* a good approximation of the size of being US-only as you finally acknowledged.

Apathizer wrote: ↑Mon Mar 20, 2023 12:54 pm Yes it has. Betting on multiple hands is less risky than betting on 1. While AA might be the best starting hand, for any given hand the likelihood of it winning is lower than the combined likelihood of say KK, J10, 88, 1010, 89, 66, QJ, and A2 winning.

The less diversified a portfolio is the wider the dispersion of possible outcomes. A globally diverse portfolio has a narrower range of possible outcomes, both good and bad, than a US-only portfolio.

But the reality is that VT is 60% US anyway. IOW we're talking about betting on numbers 1~4 vs 1~6 of dice rolls. If you think the extra numbers (5 and 6) make a huge difference, go ahead and bet on all. No one's telling you not to, just that some people don't think it's worthwhile.

muffins14 wrote: ↑Mon Mar 20, 2023 12:46 pm Say there is a 1% chance in any given year that a country’s stock market is entirely wiped out, and when that happens, you flip a coin to pick which country.

If you are unlucky and the US comes up, your entire portfolio is eradicated. That may be worse for your 100% US portfolio than if my diversified portfolio lost Australia and Mexico and the UK and Japan

I reject the premise of your thesis. Stock markets do not have 1% chance of getting wiped every year per country.

I could try to counter your absurd premise but my response will also be absurd because of that.

If the US is hit harder than the rest of the world, then the US is likely to be more adversely affected. Just like if India is hit harder than the rest of the world it will probably be suffer more than the rest. At any particular time or time period the likelihood of all investable markets being hit equally hard is lower than an single market being hit disproportionately hard. I agree if I could only invest in one market it would be the US, but the US is still only one market, so riskier than investing in all of them. :oops: You still don't get it. This has little to do with equally hard or disproportionately hard. It is about your risk exposure on aggregate . Suppose you invest US / India / Europe 33% each. Sure, you reduced US risk; but ...

Apathizer wrote: ↑Mon Mar 20, 2023 12:11 pm You're mis-framing the issue. Ex-US isn't one monolithic entity but the rest of the world, so we don't know how potential crises will affect all the world, including the US. Again, you seem to misunderstand basic probability. Betting on one country to consistently out-perform all others is riskier than spreading that risk over all investable countries. That's just how mathematical probability works.

No, it's actually you who don't understand probability.

Ex-US isn't monolithic doesn't mean its risk exposure is somehow lower. If you argue US is hit harder than ex-US, that's what you're claiming.