Moneyanatomy - personal finance blog
Showing posts with label returns. Show all posts
Showing posts with label returns. Show all posts
Tuesday, December 5, 2017
Update on how much do I need to stop worrying
While I was working on organizing my non-probatable assets, I read few personal finance blogs.
All say about the same:
Trinity study is obviously the best or the most popular study to determine your withdrawal rate to make sure the money will last trough the retirement time. And that is 4% withdrawal rate on $3,000,000 saved.
Some people, especially in the comments section, were concerned about market downturns which no one can ever predict.
That made me think about the market downturns.
I went to the stock charts and checked how deep did the market go while recent market "crushes".
The drawdown was about 50% for indexes. It was more variable for stocks.
Here are some of my thoughts on how to combat that:
Option 1: The downturns are temporary. I can sit them out.
Especially if I accumulated for many years and the average price will not be the top price. The 50% decrease will be from the top price (and not from the average price) and that will not be as critical after years of accumulating.
Option 2: I can increase my magic number from $3,000,000 to $5-6,000,000. That number appears to be difficult to reach, because I don't know if I even reach the $3,000,000. And I will have to call it the "super-magic number".
But if the downturn is about 50% only from the top price and it might be only about 30% from the average, I might need only approximately 30% increase in the magic number and that will be approximately $4,000,000. This is still very far out but looks more doable.
Option 3: I could create an additional source of income. Dividends would be one option. Dividends, in most cases, are paid during marked downturns and can help to bridge that time. I can't think of any other realistic options working full time.
Monday, October 9, 2017
Challenge "cash flow" - why?
Why do I want this challenge?
The most common advise is to do "indexing". That means to invest long term in an exchange traded fund or a mutual fund that tracks a major index like S&P500. I already do it in my 401k.
But I don't feel like I am in charge of what is happening. It is a very passive position. I feel like I am carried by the waves on a flotation devise.
Indexing is easy and the wave may take you up for a nice ride when the market goes up. Buth the wave can also take you down when the market goes down.
Instead of just floating up and down with the wave I want to learn to swim by myself. I plan to add individual stocks and not be restricted to the ETFs.
0. "Floating" = yearly expenses are not covered by investment income
1. "Swimming" = yearly expenses are covered ($50,000)
2. "Sailing" = double of yearly expenses is covered ($100,000)
3. "Motor boating" = anything over $500,000
4. "Cruise ship Capitan" = $1,000,000 and above (yes, as long I am dreaming why not?)
It might not be a very wise decision to do more then just indexing. So many people support it and warn against individual stocks.
I will carefully select stocks and keep them in a separate account where I will do no indexing. I will do that for a few years and compare the returns to the SPY. If I will not be able to beat the index within 5 years, I will just go back to indexing only.
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