Living on Your Investments? What Happens When a Bear Market Hits?

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alex123711
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Living on Your Investments? What Happens When a Bear Market Hits?

Post by alex123711 » Sat May 26, 2018 8:02 pm

Just came across this article and thought he does make a good point, especially considering we are well overdue for a recession.. stocks have been very overvalued for a while and I having really been sure what to do, what do you guys think of his advice? Is anyone doing something similiar?

https://www.kiplinger.com/article/inves ... -hits.html

In January of 2000, the S&P 500 was at 1441. In January 2018, the S&P 500 reached a new all-time high of 2872, almost doubling over that 18-year period. Using the rule of 72* to find your rate of return, you’d divide 72 by 18 years and find that your investments averaged a 4% return. Had you drawn 4% each year from your investment, as many people say you should to cover your retirement cost-of-living, you might think you’d would still have your original $1 million today.

Unfortunately, you’d be wrong.

To begin with, you have to consider inflation. A million today does not have the same purchasing power as $1 million 18 years ago. Taking that into account, the $1 million you started with would actually be worth about $600,000.

There’s an old expression: It's not how much you make that matters, it's how much you keep. If you want to keep more of your money, I believe that buy, hold and sell is a much better strategy than buy-hold. Using our buy, hold and sell strategy, we counseled our clients to sell in November of 2007 and stay out until June of 2009. I believe that buy, hold and sell can help you avoid losses during bear markets and protect the investments you need to live on during your retirement.

livesoft
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by livesoft » Sat May 26, 2018 8:07 pm

I think this article is a piece of S. The guy cites his past ability to tell clients to sell in November 2007 which gives him instant credibility. BS.

No way no how would I have stop loss orders in place. That's totally stupid. One can have alerts sent to their smart phone nowadays which would tell one what a stop loss order tells them without having an automatic decision to sell.

It's the Fear, Uncertainty, Doubt BS that is often used to get people to "Call me."
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by S&L1940 » Sat May 26, 2018 8:19 pm

Kind of confused here.
As a retiree (the author refers to retirees) I no longer buy
I hold, perhaps fine tune a bit, especially as I move the required minimum distribution.
And, for living expenses, sell - Hopefully the winners that some day may lose value because of inflation and a bear market - just as the author recommends.
So, what is the point? What am I missing?
Don't it always seem to go * That you don't know what you've got * Till it's gone

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by goblue100 » Sat May 26, 2018 8:26 pm

livesoft wrote:
Sat May 26, 2018 8:07 pm
I think this article is a piece of S.
+1

No one know what the future holds. One point his argument ignores is the ~2% dividend that was paid in addition to the his calculated return of 4%. The actual CAGR from 2000 to Dec 2017 of a 100% S&P 500 portfolio was 5.33. A 60/40 portfolio had a 5.86 CAGR.

https://www.portfoliovisualizer.com/bac ... tion2_1=40
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by 2b2 » Sat May 26, 2018 8:50 pm

OP,

Welcome to the forum.
Do yourself an enormous favor: don't use the article's author or his investment firm for financial advice.
Read posts by people here who have absolutely nothing to gain by selling you something or convincing you of something.

2b2

TravelforFun
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by TravelforFun » Sat May 26, 2018 8:57 pm

The author, Ken Moraif, praises himself for advising his clients to get out of the market in 2007 before the 2008 crash, but conveniently forgets he advised his clients to get out of the market in 2016 and the market kept going up afterwards.

TravelforFun

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by aristotelian » Sat May 26, 2018 8:59 pm

alex123711 wrote:
Sat May 26, 2018 8:02 pm

In January of 2000, the S&P 500 was at 1441. In January 2018, the S&P 500 reached a new all-time high of 2872, almost doubling over that 18-year period. Using the rule of 72* to find your rate of return, you’d divide 72 by 18 years and find that your investments averaged a 4% return. Had you drawn 4% each year from your investment, as many people say you should to cover your retirement cost-of-living, you might think you’d would still have your original $1 million today.
Your math is leaving out dividends. The price of the S&P has "only" doubled in that period, but it has been putting out another 2% annually. So you would in fact have your original investment plus about 2% compounded annually, which would come close to keeping up with inflation. Even if you retired in 2000 (which you obviously cherry picked as a worst case scenario), you would still have money left.

If you had retired in '98 or '99, you would have only lost your gains from the dot com boom in the 2000 bust, and you would have close to double what you started with.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by AlohaJoe » Sat May 26, 2018 10:32 pm

alex123711 wrote:
Sat May 26, 2018 8:02 pm
especially considering we are well overdue for a recession.. stocks have been very overvalued for a while
In addition to all the cromulent points the very intelligent other posters have already made, I'll add:

Stocks have been overvalued since 1990. That hasn't stopped them from making lots of money.

We aren't "overdue for a recession". The link you provided doesn't even talk about recessions, it talks about bear markets. Bear markets and recessions aren't the same thing. When talking about recessions, there is no "average" between them. Anywhere from 10 months between recessions to 120 months between recessions have all happened. Since 1945 the average time between recessions has been 58 months. But the standard deviation is 34 months. That means 1/3 of the time we expect it to be one standard deviation from the mean -- 92 months -- between recessions. It's not even worth considering until you reach two standard deviations from the mean -- 126 months. We're currently at 107 months. So that's another 2 years before we even reach two standard deviations.

And all of that is assuming that recessions follow a normal distribution, which they don't.

Image

Which means our intuition about when recessions "should" happen or being "overdue" is meaningless.

As for being "overdue" for a bear market. There was a bear market just 2 years ago in 2016. And another one before that in 2011. Even if you believe in the regularity of bear markets....we've had 2 of them in 7 years.
  • Stocks have been "overvalued" for a quarter-century, calling into question what "overvalued" means anymore.
  • Recessions and bear markets aren't the same thing
  • We aren't "overdue" for a recession
  • There have been several bear markets in recent memory

TravelforFun
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by TravelforFun » Sat May 26, 2018 10:37 pm

I just wanted to test Ken Moraif's assertion and he's right. A person who retired in 2000 with $1 million, used the 4% SWR method (adjusted for inflation), and had an AA of 100% equity, he'd be broke this year. However, even though staying the course has its dangers, I still think it's less dangerous than timing the market.

Image

TravelforFun

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by AlohaJoe » Sat May 26, 2018 10:52 pm

TravelforFun wrote:
Sat May 26, 2018 10:37 pm
I just wanted to test Ken Moraif's assertion and he's right. A person who retired in 2000 with $1 million, used the 4% SWR method (adjusted for inflation), and had an AA of 100% equity, he'd be broke this year.
Someone who retired in 2000 with $1 million and used the 4% SWR method with 100% equity isn't broke.

All of your return numbers are wrong; I'm not sure where you got them from. In 2004 you list the return as 4.3%. Vanguard's S&P 500 fund returned 10.74% that year. In 2007 you list the return as -3.2%. Vanguard's S&P 500 returned 5.39% that year. In 2013 you list the return as 23.1%. Vanguard's S&P 500 returned 32.18% that year. In 2015 you list the return as -5.4%. Vanguard's S&P 500 fund returned 1.25% that year.

If you use the correct S&P 500 returns you'll see that they actually have over $300,000 left at the end of 2017, despite 18 years of spending in retirement.

edit: your inflation numbers also appear to be wrong. You list inflation in 2001 as 2.8%. It was actually just over 1% according to the BLS.
Last edited by AlohaJoe on Sat May 26, 2018 11:35 pm, edited 1 time in total.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Grt2bOutdoors » Sat May 26, 2018 11:34 pm

deleted.
Last edited by Grt2bOutdoors on Sat May 26, 2018 11:41 pm, edited 1 time in total.
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Grt2bOutdoors » Sat May 26, 2018 11:40 pm

alex123711 wrote:
Sat May 26, 2018 8:02 pm
Just came across this article and thought he does make a good point, especially considering we are well overdue for a recession.. stocks have been very overvalued for a while and I having really been sure what to do, what do you guys think of his advice? Is anyone doing something similiar?

https://www.kiplinger.com/article/inves ... -hits.html

In January of 2000, the S&P 500 was at 1441. In January 2018, the S&P 500 reached a new all-time high of 2872, almost doubling over that 18-year period. Using the rule of 72* to find your rate of return, you’d divide 72 by 18 years and find that your investments averaged a 4% return. Had you drawn 4% each year from your investment, as many people say you should to cover your retirement cost-of-living, you might think you’d would still have your original $1 million today.

Unfortunately, you’d be wrong.

To begin with, you have to consider inflation. A million today does not have the same purchasing power as $1 million 18 years ago. Taking that into account, the $1 million you started with would actually be worth about $600,000.

There’s an old expression: It's not how much you make that matters, it's how much you keep. If you want to keep more of your money, I believe that buy, hold and sell is a much better strategy than buy-hold. Using our buy, hold and sell strategy, we counseled our clients to sell in November of 2007 and stay out until June of 2009. I believe that buy, hold and sell can help you avoid losses during bear markets and protect the investments you need to live on during your retirement.
Stick around, the next recession will be here in 2020. Listen to this schlubs advice and be poorer for it. The schlub writes, typical retiree holds a 60/40 portfolio, since stocks return 2.4%(0.6 * 4%), withdrawing 4% during this time compounds “losses”? Umm, the author fails at basic math, he conveniently forgets about the 40% holding in fixed income as if there was zero returns during this period. Yeah, just like Livesoft said.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by 22twain » Sun May 27, 2018 12:11 am

TravelforFun wrote:
Sat May 26, 2018 10:37 pm
Image
Where are the dividends? Try using instead of the S&P index values, a Morningstar growth chart, which includes reinvesting dividends, for e.g. VFINX, Vanguard's S&P 500 index fund.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Always passive » Sun May 27, 2018 12:29 am

I know someone that sells is 15% below max in the past 12 months, and then buys when it reaches the point that he sold. For those that contemplate such thing, I thing that using the 200 day moving average may be more effective. I just rebalance within my set band +/-5%, and buy instead of sell as equities drop. In the long run, it seems to me more effective.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by HomerJ » Sun May 27, 2018 12:45 am

Always passive wrote:
Sun May 27, 2018 12:29 am
I know someone that sells is 15% below max in the past 12 months, and then buys when it reaches the point that he sold.
I guarantee that there have been times when the stock market has dropped just about 15%, and then went back up. What does he do then?
The J stands for Jay

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Post by Sheepdog » Sun May 27, 2018 1:00 am

Doomsday talk. The title here says "Living on Your Investments". Theory and real life meets here where I live on my investments. Lets get to a real life illustration....one which includes stocks, bonds and cash. I retired on 10/2/1998 at age 65, not with the S&P 500 as my investment, but 56% stock, and soon after went to an even more conservative asset allocation of my "age in bonds"and slowly went all of the way down to 23% stock in 2007. This went through the 2000-02 and the 2008-09 debacles, although the latter was still scary. I took out an average of 4.56% a year over these almost 20 years, actually more than I needed, but all that I wanted. On 12/31/1998 I had $682,848. I have had withdrawals of $646,011 since then. I have today $951,719.
Just a real life, low stock allocation history. What happens when the next bear market hits? When it comes it will not be a bare market, I will be fine. Just another point of view for thought.
People should not say everything they think. They should think about everything they say.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by alex123711 » Sun May 27, 2018 3:01 am

Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by balbrec2 » Sun May 27, 2018 6:39 am

TravelforFun wrote:
Sat May 26, 2018 10:37 pm
I just wanted to test Ken Moraif's assertion and he's right. A person who retired in 2000 with $1 million, used the 4% SWR method (adjusted for inflation), and had an AA of 100% equity, he'd be broke this year. However, even though staying the course has its dangers, I still think it's less dangerous than timing the market.

Image

TravelforFun
Isn't this article premised on the fact that one holds their portfolio 100
% in stocks? That in and of itself in not generally a recommended strategy.
A constant 4% WR would leave you with money. Adjusting for inflation this way
isn't necessary. Let the market do that for you.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Call_Me_Op » Sun May 27, 2018 6:42 am

alex123711 wrote:
Sat May 26, 2018 8:02 pm
Just came across this article and thought he does make a good point, especially considering we are well overdue for a recession.. stocks have been very overvalued for a while and I having really been sure what to do, what do you guys think of his advice? Is anyone doing something similiar?

https://www.kiplinger.com/article/inves ... -hits.html

In January of 2000, the S&P 500 was at 1441. In January 2018, the S&P 500 reached a new all-time high of 2872, almost doubling over that 18-year period. Using the rule of 72* to find your rate of return, you’d divide 72 by 18 years and find that your investments averaged a 4% return. Had you drawn 4% each year from your investment, as many people say you should to cover your retirement cost-of-living, you might think you’d would still have your original $1 million today.

Unfortunately, you’d be wrong.

To begin with, you have to consider inflation. A million today does not have the same purchasing power as $1 million 18 years ago. Taking that into account, the $1 million you started with would actually be worth about $600,000.

There’s an old expression: It's not how much you make that matters, it's how much you keep. If you want to keep more of your money, I believe that buy, hold and sell is a much better strategy than buy-hold. Using our buy, hold and sell strategy, we counseled our clients to sell in November of 2007 and stay out until June of 2009. I believe that buy, hold and sell can help you avoid losses during bear markets and protect the investments you need to live on during your retirement.
Seems to me that you have missed a huge factor. You have ignored dividends.
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by tennisplyr » Sun May 27, 2018 7:34 am

TravelforFun wrote:
Sat May 26, 2018 10:37 pm
I just wanted to test Ken Moraif's assertion and he's right. A person who retired in 2000 with $1 million, used the 4% SWR method (adjusted for inflation), and had an AA of 100% equity, he'd be broke this year. However, even though staying the course has its dangers, I still think it's less dangerous than timing the market.

Image

TravelforFun

Let's face it, if someone is crazy enough to continue to withdraw these sums at a rising rate gets what they deserve. How about some common sense, moot point, who would do this?
Those who move forward with a happy spirit will find that things always work out.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by knpstr » Sun May 27, 2018 8:00 am

TravelforFun wrote:
Sat May 26, 2018 10:37 pm
I just wanted to test Ken Moraif's assertion and he's right. A person who retired in 2000 with $1 million, used the 4% SWR method (adjusted for inflation), and had an AA of 100% equity, he'd be broke this year. However, even though staying the course has its dangers, I still think it's less dangerous than timing the market.

Image

TravelforFun
According to portfolio visualizer a person retired in 2000 with $1M using 4%SWR method (adjusted for inflation) and 100% in VFINX would still have $427,641 in their portfolio.
:beer
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by goblue100 » Sun May 27, 2018 8:08 am

alex123711 wrote:
Sun May 27, 2018 3:01 am
Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now
People are never happy. :happy I suppose you would be over joyed if that index fund was down 30% over the last two years?
(Actually a young investor should be happy with a down market, but usually are not)

Also, I have funds that are up over 100% from where I bought them. 30% is nothing.

You should read a book on passive investing and why it works:
https://www.bogleheads.org/RecommendedReading.php

The The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life - by Bill Schultheis. was the one that got me started. I'm sure The Bogleheads' Guide to Investing - by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf is also a great place to start.
Some people are immune to good advice. - Saul Goodman

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by goblue100 » Sun May 27, 2018 8:13 am

knpstr wrote:
Sun May 27, 2018 8:00 am

According to portfolio visualizer a person retired in 2000 with $1M using 4%SWR method (adjusted for inflation) and 100% in VFINX would still have $427,641 in their portfolio.
:beer
What page are you using for that? I thought I should be able to test this in PV but I am not finding where I can set the start year and test a withdrawel strategy. If you can link it I would appreciate it.
Some people are immune to good advice. - Saul Goodman

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by ruralavalon » Sun May 27, 2018 8:21 am

Welcome to the forum :) .

alex123711 wrote:
Sat May 26, 2018 8:02 pm
Just came across this article and thought he does make a good point, especially considering we are well overdue for a recession.. stocks have been very overvalued for a while and I having really been sure what to do, what do you guys think of his advice? Is anyone doing something similiar?

https://www.kiplinger.com/article/inves ... -hits.html

In January of 2000, the S&P 500 was at 1441. In January 2018, the S&P 500 reached a new all-time high of 2872, almost doubling over that 18-year period. Using the rule of 72* to find your rate of return, you’d divide 72 by 18 years and find that your investments averaged a 4% return. Had you drawn 4% each year from your investment, as many people say you should to cover your retirement cost-of-living, you might think you’d would still have your original $1 million today.

Unfortunately, you’d be wrong.

To begin with, you have to consider inflation. A million today does not have the same purchasing power as $1 million 18 years ago. Taking that into account, the $1 million you started with would actually be worth about $600,000.

There’s an old expression: It's not how much you make that matters, it's how much you keep. If you want to keep more of your money, I believe that buy, hold and sell is a much better strategy than buy-hold. Using our buy, hold and sell strategy, we counseled our clients to sell in November of 2007 and stay out until June of 2009. I believe that buy, hold and sell can help you avoid losses during bear markets and protect the investments you need to live on during your retirement.
The as article does not make sense to me.

I am 72 and retired, asset allocation is 50% stock index funds and 50% bond index fund, with no pension or annuity. We plan to stay with that asset allocation. The linked article ignores dividends, and ignores the probable impossibility of a market timing strategy. Question: Did the author also counsel clients to sell just before the dotcom bubble burst? (Answer: Probably not, or he would have mentioned that too.)

Social Security and the Required Minimum Distributions from my rollover IRA cover our retirement living expenses and a bit more.

If the stock market drops, then the Required Minimum Distributions will be less, and we may want to reduce our living expenses to accommodate that.
Last edited by ruralavalon on Sun May 27, 2018 8:35 am, edited 2 times in total.
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by dbr » Sun May 27, 2018 8:32 am

There are already 117 examples of what happened to a 4% inflation adjusted withdrawal from a 100% stock portfolio along with year by year portfolio trajectories available in FireCalc. The years in which the portfolio did not last 30 years were retirements starting in 1965-1968 plus 1906, 1929, and 1973. It is an exercise for the reader to determine how these retirements fell short. If the portfolio had been 50/50 stocks bonds 1965-1969 would still have failed. If the portfolio had been 25% stocks, 17 cycles would have failed but the really bad years to retire would shift to 1936-1941.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by MnD » Sun May 27, 2018 8:37 am

If you are using your spending to maintain your AA, you will automatically spend from bonds when the stock market goes south and vice-versa.
A % of portfolio balance withdrawal plan will also alleviate pressure on the portfolio during downturns and prevent runaway portfolio balances during favorable sequences.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Always passive » Sun May 27, 2018 8:46 am

dbr wrote:
Sun May 27, 2018 8:32 am
There are already 117 examples of what happened to a 4% inflation adjusted withdrawal from a 100% stock portfolio along with year by year portfolio trajectories available in FireCalc. The years in which the portfolio did not last 30 years were retirements starting in 1965-1968 plus 1906, 1929, and 1973. It is an exercise for the reader to determine how these retirements fell short. If the portfolio had been 50/50 stocks bonds 1965-1969 would still have failed. If the portfolio had been 25% stocks, 17 cycles would have failed but the really bad years to retire would shift to 1936-1941.
Out of curiosity, how did you get this data? I want to test my case, I am 70 years old and my portfolio is 30-35% VT (global stock) but my average withdrawals since retirement, at age 55, are in the 3.5% nominal, mining not inflation adjusted.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by goblue100 » Sun May 27, 2018 8:52 am

goblue100 wrote:
Sun May 27, 2018 8:13 am
What page are you using for that?
Never mind, figured it out. I knew I had done it before...
https://www.portfoliovisualizer.com/bac ... tion2_2=40

This shows a 60/40 portfolio of SPY/ VFITX would still be worth 1 million after 18 years of inflation adjusted 4% withdrawals using 2000 to 2017 historical returns. Always passive, this link may work for what you are trying to test as well. Just change the ticker symbols, percentages and withdrawal strategy as needed.
Some people are immune to good advice. - Saul Goodman

dbr
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by dbr » Sun May 27, 2018 8:57 am

Always passive wrote:
Sun May 27, 2018 8:46 am
dbr wrote:
Sun May 27, 2018 8:32 am
There are already 117 examples of what happened to a 4% inflation adjusted withdrawal from a 100% stock portfolio along with year by year portfolio trajectories available in FireCalc. The years in which the portfolio did not last 30 years were retirements starting in 1965-1968 plus 1906, 1929, and 1973. It is an exercise for the reader to determine how these retirements fell short. If the portfolio had been 50/50 stocks bonds 1965-1969 would still have failed. If the portfolio had been 25% stocks, 17 cycles would have failed but the really bad years to retire would shift to 1936-1941.
Out of curiosity, how did you get this data? I want to test my case, I am 70 years old and my portfolio is 30-35% VT (global stock) but my average withdrawals since retirement, at age 55, are in the 3.5% nominal, mining not inflation adjusted.
Go into Firecalc and set a spending rate, portfolio value, and years for 4% withdrawal. Go to the portfolio tab to select a portfolio. Go to the investigate tab and check the box to save an Excel spreadsheet. Hit submit. On the results page click the link to the spreadsheet. You can then sort the data by worst final portfolio value to get the worst years to retire, negative final portfolio values being failures. You can plot the trajectories by year to see where things go wrong. It looks like stock market decline in early seventies followed by horrible inflation 1974-1984 is what did those retirements in. I think it would be hard to show that an acute bear market (market crash) is a problem, but secular bear markets are and inflation is.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by alex123711 » Mon May 28, 2018 6:13 am

goblue100 wrote:
Sun May 27, 2018 8:08 am
alex123711 wrote:
Sun May 27, 2018 3:01 am
Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now
People are never happy. :happy I suppose you would be over joyed if that index fund was down 30% over the last two years?
(Actually a young investor should be happy with a down market, but usually are not)

Also, I have funds that are up over 100% from where I bought them. 30% is nothing.

You should read a book on passive investing and why it works:
https://www.bogleheads.org/RecommendedReading.php

The The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life - by Bill Schultheis. was the one that got me started. I'm sure The Bogleheads' Guide to Investing - by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf is also a great place to start.

I am happy its gone up haha but haven't really bought any more index funds for over a year as it seems overpriced to me, so haven't bought for a while, so not sure what I should be doing with my savings in this situation apart from putting in the bank. I have been investing in shares for a long time and made the switch to index funds/ passive investing 2-3 years ago and have been on firecalc etc. At this point I would be happier with a down market as I am no where near retirement age.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by goblue100 » Mon May 28, 2018 7:06 am

alex123711 wrote:
Mon May 28, 2018 6:13 am
I am happy its gone up haha but haven't really bought any more index funds for over a year as it seems overpriced to me, so haven't bought for a while, so not sure what I should be doing with my savings in this situation apart from putting in the bank. I have been investing in shares for a long time and made the switch to index funds/ passive investing 2-3 years ago and have been on firecalc etc. At this point I would be happier with a down market as I am no where near retirement age.
Remember, stock markets routinely set new highs.
https://en.wikipedia.org/wiki/Closing_m ... 80%932000)
https://en.wikipedia.org/wiki/Closing_m ... 3-Present)

You should set up an auto investment and invest a set amount every month. That way you will buy more when the market drops and a little less when it is pricey. It may not actually add anything to your total return, but may make you feel like you got a bargain. :happy
Do you have a diversified portfolio? You could look at adding some international stock, if you haven't already.
Some people are immune to good advice. - Saul Goodman

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by ruralavalon » Mon May 28, 2018 10:05 am

goblue100 wrote:
Mon May 28, 2018 7:06 am
alex123711 wrote:
Mon May 28, 2018 6:13 am
I am happy its gone up haha but haven't really bought any more index funds for over a year as it seems overpriced to me, so haven't bought for a while, so not sure what I should be doing with my savings in this situation apart from putting in the bank. I have been investing in shares for a long time and made the switch to index funds/ passive investing 2-3 years ago and have been on firecalc etc. At this point I would be happier with a down market as I am no where near retirement age.
Remember, stock markets routinely set new highs.
https://en.wikipedia.org/wiki/Closing_m ... 80%932000)
https://en.wikipedia.org/wiki/Closing_m ... 3-Present)

You should set up an auto investment and invest a set amount every month. That way you will buy more when the market drops and a little less when it is pricey. It may not actually add anything to your total return, but may make you feel like you got a bargain. :happy
Do you have a diversified portfolio? You could look at adding some international stock, if you haven't already.
I suggest contributing a set amount every pay period, buying very diversified index funds, ignoring the current state of the stock market.

Don't deliberately build up a large cash hoard, unless there is a specific purpose for it.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by FrugalInvestor » Mon May 28, 2018 10:13 am

alex123711 wrote:
Sun May 27, 2018 3:01 am
Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now
Once you have and are following a well thought out plan (which you can develop by reading here) you will invest in the same thing tomorrow that you do today. There will be no 'reacting' to the markets or to your emotions. Reading and putting together the plan will allow you to understand the reasoning which will help you 'stay the course.'

You're on the right track. Keep reading and asking questions.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by knpstr » Mon May 28, 2018 9:15 pm

goblue100 wrote:
Sun May 27, 2018 8:13 am
knpstr wrote:
Sun May 27, 2018 8:00 am

According to portfolio visualizer a person retired in 2000 with $1M using 4%SWR method (adjusted for inflation) and 100% in VFINX would still have $427,641 in their portfolio.
:beer
What page are you using for that? I thought I should be able to test this in PV but I am not finding where I can set the start year and test a withdrawel strategy. If you can link it I would appreciate it.
https://www.portfoliovisualizer.com/backtest-portfolio
can set portfolio start date, set withdrawl $40,000 out of $1M and set it to adjust that withdrawal amount with inflation in coming years.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by toomuchRE » Tue May 29, 2018 10:53 am

You just started hitting the bear market.. Tighten your seat belt folks.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by David Jay » Tue May 29, 2018 11:43 am

FrugalInvestor wrote:
Mon May 28, 2018 10:13 am
alex123711 wrote:
Sun May 27, 2018 3:01 am
Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now
Once you have and are following a well thought out plan (which you can develop by reading here) you will invest in the same thing tomorrow that you do today. There will be no 'reacting' to the markets or to your emotions. Reading and putting together the plan will allow you to understand the reasoning which will help you 'stay the course.'

You're on the right track. Keep reading and asking questions.
+1

Around here we call it an IPS - Investment Policy Statement. Wiki here: https://www.bogleheads.org/wiki/Investm ... _statement

First you create it. Then you follow it. When things go pear-shaped, you re-read your IPS and follow it, instead of doing what your emotions are screaming for you to do.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by LonScott » Thu Jun 14, 2018 7:22 am

There is a thread on Moraif: viewtopic.php?t=175348

It is sad Kiplinger would print this as Moraif is simply repeating his old articles from Marketwatch, who seems to have deleted him: https://www.marketwatch.com/story/why-b ... 2016-03-17

Moraif cherry picks facts - as shown above, he omits dividends to scare people to his firm. He has no real track record as shown on the other thread. HIs MO is to scare the uninformed to his high cost firm.

But the real issue is why do Financial Publication run articles that are clearly advertisements? And why can't do a internet search to see if they are repeating the same garbage?

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by pkcrafter » Thu Jun 14, 2018 9:53 am

alex123711 wrote:
Sun May 27, 2018 3:01 am
Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now
alex, you are new here, so your thinking is understandable, but many posters on the forum have been doing buy/hold for many years and they have been successful. "Feeling" is not in the buy and hold strategy. Feelings come from listening to news, but many times the news comes from professionals who want to take advantage of gullible investors. Emotions play a big part of market behavior, but it's a game we should not play.

If you start thinking too much about the market's recent performance you are going to make mistakes simply because most of the stuff you analyze will not lead to the conclusion you expect. That's just the way the market works. Emotions and guess work are prevalent in the market and that's the reason for volatility. Also think about if you sell, who is buying and why?

The best strategy for average investors is to buy low cost funds, maintain allocations, and stay with the long term plan. As you accumulate and can see retirement in the future you can begin to lower your risk level.
I am happy its gone up haha but haven't really bought any more index funds for over a year as it seems overpriced to me
Doesn't this tell you your timing skills are not good. You missed a 16% rise in total stock market.

What funds are you currently invested in? What fund went up 30%? Do you own any actively managed funds?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by ruralavalon » Thu Jun 14, 2018 10:10 am

alex123711 wrote:
Sun May 27, 2018 3:01 am
Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now
What funds are you using, in what type of account? Please give fund names, tickers and expense ratios.

Fund share price "at the moment" means little in the long-term. Invest for the long-term.

Market timing (waiting for a good time to buy) is a fool's errand. No one can successfully do that consistently. If you wait for a good day to buy, you will never know if the next day, or the next week, or the next month, or the next year might be an even better time to buy.

It was always my policy to invest whenever I had extra money available to invest.

Please read this: "What if you only invested at market peaks?"
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by MathWizard » Thu Jun 14, 2018 11:27 am

The article assumes the investor was 100% equities in retirement.

I have been 100% in equities, but have scaled back as I approach retirement,
and never planned to be 100% equities in retirement.

Not very many people would ever advise that.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by WhiteMaxima » Thu Jun 14, 2018 12:12 pm

Bear market. It is a very rear opportunity to load equities. If you capture one bear market, you will have enough. Two, you are doing well. Three, you are doing very well. If you can capture four bear markets, you will be super wealthy. I see bear market good buying opportunity. Live well below means during bear time and load with stocks that' I will do. Every person will experience 6 to 8 recession during lifetime. Capture or loose it. W Buffet capture almost all of them. I heard he always stash some cash on the side.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by knpstr » Thu Jun 14, 2018 1:56 pm

WhiteMaxima wrote:
Thu Jun 14, 2018 12:12 pm
Bear market. It is a very rear opportunity to load equities. If you capture one bear market, you will have enough. Two, you are doing well. Three, you are doing very well. If you can capture four bear markets, you will be super wealthy. I see bear market good buying opportunity. Live well below means during bear time and load with stocks that' I will do. Every person will experience 6 to 8 recession during lifetime. Capture or loose it. W Buffet capture almost all of them. I heard he always stash some cash on the side.
I agree with the general sentiment of your post though I don't think the bold line (or what is implied by it) is true. I'm quite sure Buffett advocates staying as fully invested as possible since one cannot predict bear markets, the opportunity cost of "waiting" for a down turn could be too large. He frequently says investors get a terrible result from "dancing in and out" of the market trying to time it.

He always has cash now days as he saves up to make monstrously investments (which may or may not happen in a bear market) and he wants enough cash so that in a bear market he doesn't have to rely on anyone's generosity to stay solvent. These reasons are quite different than just holding cash to wait for and capitalize on a crash.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by knpstr » Thu Jun 14, 2018 2:02 pm

alex123711 wrote:
Sun May 27, 2018 3:01 am
Thanks for replies guys and thanks for the real life example sheepdog. I actually don't have that much in index funds as i only started a few years ago, however am really feeling they are overpirced at the moment e.g one index fund I have is up around 30%+ in just 2 years, so i'm not really sure what to invest in now
Get a bigger perspective. Markets can't reliably be timed.
Dow is at $25,146 today, it can conservatively be at $1,000,000 by year 2100.

Stay in for the long run, don't worry about the volatility in the meantime.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by KlangFool » Thu Jun 14, 2018 2:06 pm

WhiteMaxima wrote:
Thu Jun 14, 2018 12:12 pm
Bear market. It is a very rear opportunity to load equities. If you capture one bear market, you will have enough. Two, you are doing well. Three, you are doing very well. If you can capture four bear markets, you will be super wealthy. I see bear market good buying opportunity. Live well below means during bear time and load with stocks that' I will do. Every person will experience 6 to 8 recession during lifetime. Capture or loose it. W Buffet capture almost all of them. I heard he always stash some cash on the side.
http://www.collaborativefund.com/blog/t ... -of-money/
<< 16. Optimism bias in risk-taking, or “Russian Roulette should statistically work” syndrome: An over attachment to favorable odds when the downside is unacceptable in any circumstance.

Again, you have to survive to succeed.>>

WhiteMaxima,

You have to survive to succeed.

KlangFool

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Accrual » Thu Jun 14, 2018 2:12 pm

How? Does it not seem ridiculous that demand for a given good increases in perpetuity?
Last edited by Accrual on Thu Jun 14, 2018 2:38 pm, edited 2 times in total.

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Sandtrap » Thu Jun 14, 2018 2:21 pm

ruralavalon wrote:
Sun May 27, 2018 8:21 am
Welcome to the forum :) .

alex123711 wrote:
Sat May 26, 2018 8:02 pm
Just came across this article and thought he does make a good point, especially considering we are well overdue for a recession.. stocks have been very overvalued for a while and I having really been sure what to do, what do you guys think of his advice? Is anyone doing something similiar?

https://www.kiplinger.com/article/inves ... -hits.html

In January of 2000, the S&P 500 was at 1441. In January 2018, the S&P 500 reached a new all-time high of 2872, almost doubling over that 18-year period. Using the rule of 72* to find your rate of return, you’d divide 72 by 18 years and find that your investments averaged a 4% return. Had you drawn 4% each year from your investment, as many people say you should to cover your retirement cost-of-living, you might think you’d would still have your original $1 million today.

Unfortunately, you’d be wrong.

To begin with, you have to consider inflation. A million today does not have the same purchasing power as $1 million 18 years ago. Taking that into account, the $1 million you started with would actually be worth about $600,000.

There’s an old expression: It's not how much you make that matters, it's how much you keep. If you want to keep more of your money, I believe that buy, hold and sell is a much better strategy than buy-hold. Using our buy, hold and sell strategy, we counseled our clients to sell in November of 2007 and stay out until June of 2009. I believe that buy, hold and sell can help you avoid losses during bear markets and protect the investments you need to live on during your retirement.
The as article does not make sense to me.

I am 72 and retired, asset allocation is 50% stock index funds and 50% bond index fund, with no pension or annuity. We plan to stay with that asset allocation. The linked article ignores dividends, and ignores the probable impossibility of a market timing strategy. Question: Did the author also counsel clients to sell just before the dotcom bubble burst? (Answer: Probably not, or he would have mentioned that too.)

Social Security and the Required Minimum Distributions from my rollover IRA cover our retirement living expenses and a bit more.

If the stock market drops, then the Required Minimum Distributions will be less, and we may want to reduce our living expenses to accommodate that.
+1
Also 50/50 with no pension, plus rental properties.
Much simpler to adjust spending per yearly market fluctuations and leave the rest alone.
Keep it simple.
j

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by FOGU » Thu Jun 14, 2018 2:35 pm

Deleted - Inadvertent duplicate post.
Last edited by FOGU on Thu Jun 14, 2018 2:39 pm, edited 1 time in total.
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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by FOGU » Thu Jun 14, 2018 2:36 pm

I am happy its gone up haha but haven't really bought any more index funds for over a year as it seems overpriced to me, so haven't bought for a while, so not sure what I should be doing with my savings in this situation apart from putting in the bank. I have been investing in shares for a long time and made the switch to index funds/ passive investing 2-3 years ago and have been on firecalc etc. At this point I would be happier with a down market as I am no where near retirement age.
Why not buy bonds then? Bonds are down, and when the stock crash you are awaiting arrives your bond funds will benefit and you can reallocate to stocks.
Last edited by FOGU on Thu Jun 14, 2018 2:45 pm, edited 1 time in total.
~ Don't just do something. Sit there. ~

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by knpstr » Thu Jun 14, 2018 2:36 pm

Accrual wrote:
Thu Jun 14, 2018 2:12 pm
knpstr wrote:
Thu Jun 14, 2018 2:02 pm
Get a bigger perspective. Markets can't reliably be timed.
Dow is at $25,146 today, it can conservatively be at $1,000,000 by year 2100.

Stay in for the long run, don't worry about the volatility in the meantime.
How? Does it not seem ridiculous that demand for a given good increases in perpetuity?
The goods can change. Companies/products can go extinct, but new businesses fill the void and can surpass the financial value of the companies of old. Quite speculatively - we cannot even imagine what the future holds. No doubt those humans that have come and gone long before we ever arrived, could not even imagine how we live today with our technology. It is human nature to be cautious and pessimistic about the future (prepare for the worst), but things tend to get better as time passes, not worse.

Here in the U.S. we are high up on the income chart of the world. The financial condition of the world still has a LOT of potential to grow even by today's standards, let alone unpredictable future developments.

Of course these are all very general statements.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Living on Your Investments? What Happens When a Bear Market Hits?

Post by Accrual » Thu Jun 14, 2018 2:46 pm

knpstr wrote:
Thu Jun 14, 2018 2:36 pm
Accrual wrote:
Thu Jun 14, 2018 2:12 pm
knpstr wrote:
Thu Jun 14, 2018 2:02 pm
Get a bigger perspective. Markets can't reliably be timed.
Dow is at $25,146 today, it can conservatively be at $1,000,000 by year 2100.

Stay in for the long run, don't worry about the volatility in the meantime.
How? Does it not seem ridiculous that demand for a given good increases in perpetuity?
The goods can change. Companies/products can go extinct, but new businesses fill the void and can surpass the financial value of the companies of old. Quite speculatively - we cannot even imagine what the future holds. No doubt those humans that have come and gone long before we ever arrived, could not even imagine how we live today with our technology. It is human nature to be cautious and pessimistic about the future (prepare for the worst), but things tend to get better as time passes, not worse.

Here in the U.S. we are high up on the income chart of the world. The financial condition of the world still has a LOT of potential to grow even by today's standards, let alone unpredictable future developments.

Of course these are all very general statements.
Thanks for the response. I deleted my original reply as I didn't mean for the discussion to devolve into another topic (that I wasn't prepared to fully present). But I shall try -

I understand wealth is either generated by relative advances in efficiency or, to your point, new products that improve standard of living. I guess my thought was we have this (theoretically) infinite proxy for wealth (money), yet a finite number of places it can go (business -> shareholders ->other's pockets through equity markets). Sure, equities will increase in price as this pool of money grows (inflation), but any growth more than that implies wealth is being transferred from one hand to another. Since we know there is a maximum bound to where money can end up, is it not possible there is an upward bound on what stocks are actually worth? Completely talking out of my butt here (which is why I deleted my original post).

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