# Portfolio check



## robfordlives (Sep 18, 2014)

Hoping to get a sanity check on my portfolio



I am 43 hoping for retirement at 50. Currently have about 23X expenses in what I would consider a FAT fire and at age 50 would like to be around a 2.5% SWR (live on dividends concept). I have another thread somewhere here about increasing fixed income portfolio since I possibly have “won the game”. Where I am at now is:





Cash, bond ETF’s and GIC – 32%

Pref shares – 4%



XAW – 32% (this is ex Canada ishares market weight ETF)



CDN bank stocks – 8%

CDN telco stocks – 6%

XIU – (tracks TSX 60) – 6%

CDN pipeline stocks – 5%

CDN Utility stocks – 4%

CDN REIT’s – 3%



Some of my concerns in addition to previous comment about increasing fixed income (likely to 40%):



1. Too heavily weighted to Canada. I was 100% Canadian equities just a few years ago so progress has been made, but I think I could ditch XIU as not interested in the energy component whatsoever

2. Exposed to interest rate risk with telco, utility, pipe and reits (although strangely REIT’s have been on abit of a tear lately). 

3. Zero direct exposure to growth plays – FANG, Weed, etc. I would argue these are severally overbought but the market clearly thinks otherwise. Even if I had 5% of my portfolio allocated to such in the last 2-3 years it would have been a couple hundred thousand $’s in pure profit. Not chump change to anyone.


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## james4beach (Nov 15, 2012)

In the following calculations I've looked at just the equity portion. I'm assuming your preferred shares (which are equities) are Canadian.

By country: 54% Canada, 26% USA, 20% world
By sector: 36% financial, 13% consumer, 11% technology, 6% energy, others are minor

You said zero exposure to growth plays like FANG, but this is not true. You hold a lot of XAW which is about 50% in the S&P 500, of which the heaviest weights are aggressive growth/tech companies. The S&P 500 has performed amazingly well, and that drives XAW.

The only potential problem I see is that you're pretty heavy in financials due to both XIU + additional bank + REIT stocks (if you classify REIT as financial). This leaves you overly exposed to, say, a Canadian real estate slowdown since all of those would get hit simultaneously in that situation. *I think Canadian RE is the biggest threat to your portfolio*.

At 54% Canada, I don't think you're too overweight Canada. My own target is 50%.

One thing I'd suggest, though, is to do an honest assessment of the performance of your various stocks. Have your individual stocks + preferreds done as well as XIC over many years, in total return? If the answer is "no", then I'd be more inclined to simplify in the other direction, and collapse all your Canadian stocks and preferreds down to a single XIC holding.

If you held just XAW & XIC, your financial weight would be down to 31%. You'll also have a much easier time with rebalancing and adjusting your equity/fixed income ratio in the future.

If you decide to keep your individual stocks, start tracking them and benchmarking to see how they perform versus the TSX Composite. While some people can do as well as the benchmark, most individual stock pickers will underperform in the long term.


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## milhouse (Nov 16, 2016)

I've made adjustments over the last decade that kind of reflect your portfolio situation. 
My overall portfolio is about 50% Canadian with banks/financials, telcos, pipelines, utilities, and a few other categories. This is due to wanting to build a dividend growth component to my portfolio but also due to moving away from TSX index funds due to under performance from the broader perspective. Perhaps I may change my perspective down the road if commodities and energy show a lot more life but I'm currently kind of satisfied with the dividend growth composition doing what I'm hoping for it to do support part of my retirement, specifically the yield while TR has been disappointing this past year. 

I had a higher allocation to Canada but made adjustments to increase the US allocation about 7 years ago after seeing US returns outperform. I guess this was chasing returns but it's worked out... so far. You can also point to the aughts when the US markets had its ups and downs and essentially ended flat. I'm just trying not to over-expose myself to the US which I think will continue to be held in check because of the dividend growth part.

I also want more "focused" exposure to technology/automation/AI because I think technology is becoming a staple of our everyday life. The valuations in tech have me concerned but I am considering adding something like QQC.F as part of my US equity allocation. 
Weed stocks are currently a bit too volatile for me.


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## AltaRed (Jun 8, 2009)

Unless you have the sophistication to be a sector 'rotator', I wouldn't try to second guess sector allocation. What is hot today won't be hot in 5 years as the business cycle changes. Energy could be on a tear in 3 years after pipeline space is available and oil prices increase globally....maybe. It is true your Canadian picks are treading water because of interest rate increases, but then a year ago, so many here thought they were all darlings on a tear. Just be diversified and stay the course.

If I was going to suggest anything, it would be to get rid of XIU and buy a few industrial stocks and consumer stocks to be a bit more diversified among sectors. Don't get over-influenced by dividend yield. CTC and CN Rail have been doing very well in the recent past. So has NFI and a few others. OR..... sell all your stocks and just have XIU or XIC or similar and accept you won't have a 3-4% yield.

Also, I would be tempted to increase the XAW weighting some to 40% and drop Cdn equity proportionately. I believe that anything more than 40% weighting in Canada is too much.

Added: I agree you get tech exposure by having XAW. Don't get over-mesmerized by current momentum in tech as the FAANGs cannot keep this degree of momentum up indefinitely. That is why one has XAW - to have some of everything ex-Canada.


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## james4beach (Nov 15, 2012)

But step back a second and look at what's going on here with rotation between Canada & US. Long term (going back to 1900) the stock markets have performed very similarly. Even the 15 year performance is about equal between S&P 500 and TSX.

But in just the last decade, the S&P 500 has outperformed. And currently it's fashionable to reduce Canadian weight and increase US weight, meaning sell (relatively) low and buy high.

Again we're talking about two markets that have shown very similar long term returns. Rotating more into the US at this time seems like a bad idea to me, just shooting oneself in the foot.


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## AltaRed (Jun 8, 2009)

I think Canada will continue to underperform for a while yet  so XAW will grow beyond 32% anyway if I am right. I don't get too fussed about 5% here or there.


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## james4beach (Nov 15, 2012)

Personally I think the TSX Composite will outperform the S&P 500 in the next 10 years, based on reversion-to-the-mean. But that's total speculation. Stocks are a volatile, irrational (and somewhat crooked) casino; who knows what will happen.


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## AltaRed (Jun 8, 2009)

james4beach said:


> Personally I think the TSX Composite will outperform the S&P 500 in the next 10 years, based on reversion-to-the-mean. But that's total speculation. Stocks are a volatile, irrational (and somewhat crooked) casino; who knows what will happen.


I think Canada's TSX fortunes are tied to GDP driven by housing and commodities. The former is about to decelerate (or go flat) due to the record indebtedness of Canadians, and the latter is still in a funk pending a global demand surge for commodities. While there are other headwinds too, such as crazy environmental processes holding back development and carbon taxes, I think the two I mention are the key reasons why Canada may continue to under perform for at least a few more years, perhaps more. I have no idea and decline to even speculate on the odds of reversion to the mean over the next 10 years. 

The main reason the TSX may do better, i.e increase disproportionately to anemic GDP growth, will be due to the ex-Canada operations of Cdn multi-nationals. The hyperbolic growth of WEED stocks could also be the Cdn equivalent of FAANG stocks that has disproportionately lifted the S& P500 as well.


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## james4beach (Nov 15, 2012)

Those arguments make sense, except I think you're attaching way too much fundamentals to the crazy old stock market. The stock market does not even track GDP until you get out to about 30 year time frames (see the Shiller study here). Anything shorter than 20 or 30 years, it's all about multiples and barely anything fundamental.


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## AltaRed (Jun 8, 2009)

Changes in GDP growth are a real factor in stock market prices, but one major disconnect would be the amount of ex-Canada operations the TSX companies have (that isn't reflected in Canada's GDP) as well as the portion of foreign ownership of stock. Obviously beyond that, there is the productivity factor (Canada is relatively poor in productivity = lower profitability margins) and then just plain investor emotion/sentiment.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> I think Canada will continue to underperform for a while yet...........





james4beach said:


> Personally I think the TSX Composite will outperform the S&P 500 in the next 10 years, based on reversion-to-the-mean.


I do so very much want to agree with James's prediction of reversion-to-the-mean coming true.

There's a strong parallel to the old canard of buying high and selling low with respect to the USA right now. The last 10 years has certainly seen the USA depart from the index chart comparisons of the two counties and so as James says, "rotating more into the USA at this time seems like a bad idea to me, just shooting oneself in the foot". 

Yeah, agreed if you follow the charts, and consider what contributed to the USA index taking off like a rocket, away from the Canadian index, it seems nuts to invest in the USA versus Canada at this time. Certainly everyone seems to agree that a Trump effect along with FAANG stocks have disproportionately lifted the S&P500 compared to the anemic Canadian index.

But unfortunately, I tend to side with Alta, as the evidence would seem to favour his prognosis. Canada's low GDP, carbon taxes, crazy environmental processes, low oil prices, ongoing pipeline delays, NAFTA, Canadian oil trading at an even larger discount than usual, international investors not seeing opportunity in Canada right now, Canadian households severely indebted such that the consumption growth that has long powered the economy is unlikely to be sustained. It all points to many, many years of under achievement. A real shame mostly brought on by the Liberal government.

Canada’s market is not only bad, it’s the absolute worst performing market in the world, save for Venezuela. Among the 106 global markets tracked by Bloomberg, we are number 105. Hey, I guess that's a textbook, "buy low, sell high" in the making. 

I'm rooting for you James, since I invest 100% of my equities in Canada.

ltr


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## AltaRed (Jun 8, 2009)

The magic may be in purposely selecting Cdn domiciled investments that are growing their businesses disproportionately ex-Canada. We have many good companies with good returns doing exactly that. Those are the companies who are likely to be the long term suspenders to the TSX.


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## milhouse (Nov 16, 2016)

I have pretty similar thoughts / concerns as described above: mean reversion to the longer term alignment of the 2 markets but also the challenges impacting the Canadian investment environment. I wouldn't suggest betting the farm one way or another due to concepts such as markets can stay irrational longer than you can stay solvent but I think I'm more inclined to make some tweaks due to trends.


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## james4beach (Nov 15, 2012)

like_to_retire said:


> Canada’s market is not only bad, it’s the absolute worst performing market in the world, save for Venezuela. Among the 106 global markets tracked by Bloomberg, we are number 105. Hey, I guess that's a textbook, "buy low, sell high" in the making.


On what time frame? Here are a few USD-based ETFs we can use to measure it.

EWC (Canada) is 3 years 8.79% CAGR, 10 years 2.10%, 15 years 7.57%
EFA (MSCI EAFE) is 3 years 8.36%, 10 years 4.12%, 15 years 6.49%
VXUS (everything ex US) is 3 years 9.32%

Obviously Canada has done poorly on the 10 year time scale, but it's still not that much worse than MSCI EAFE (2% versus 4% CAGR). For the last 3 years, Canada's performance is on par with global markets. It's also beating global markets at 15 years.

The obscene US performance could be warping these comparisons. I just don't see how you can look at this data and conclude that Canada is chronically underperforming. Here's an overlay (USD based) of Canada in red versus MSCI EAFE in black, both total returns. We're really just tracking the world. I don't see any problem here.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> On what time frame?


The Macleans article published earlier this year where I read about the Bloomberg placement of Canada used a fairly standard 10 years. This was reported in Global News and Moneysense, etc., and so that's why I remembered it. These sort of things usually come from one source and then are replicated, but I have no reason to doubt their data since I know when I lay the S&P500 against the TSX for that period it's pretty bad.

Like you say, going back 15 or 20 years, then USA and Canada start to average out. It's just that I'll probably be dead in twenty years - so there's that. 


View attachment 18998


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## kcowan (Jul 1, 2010)

like_to_retire said:


> ...Certainly everyone seems to agree that a Trump effect along with FAANG stocks have disproportionately lifted the S&P500 compared to the anemic Canadian index.
> 
> But unfortunately, I tend to side with Alta, as the evidence would seem to favour his prognosis. Canada's low GDP, carbon taxes, crazy environmental processes, low oil prices, ongoing pipeline delays, NAFTA, Canadian oil trading at an even larger discount than usual, international investors not seeing opportunity in Canada right now, Canadian households severely indebted such that the consumption growth that has long powered the economy is unlikely to be sustained. It all points to many, many years of under achievement. A real shame mostly brought on by the Liberal government.


I find myself nodding in agreement to the above prognosis. AR has held out the multinational effect as a positive for Canadian companies that I hope is true. I also wonder if the 10-year analysis has any anomalies? For example, the ten year period is the worst for Canadian preferred shares according to James Hymas (6.4% CGR). And 10 years ago, the US was at the start of their recovery from the 2008 drop that was worse than ours. And aside from cannabis, we have not participated in the FAANG-fueled market surge.


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## james4beach (Nov 15, 2012)

like_to_retire said:


> The Macleans article published earlier this year where I read about the Bloomberg placement of Canada used a fairly standard 10 years.


Fair enough, but they probably just (by timing accident) picked the absolute peak, and worst spot, to start a 10 year comparison. Before the last crash Canadian stock index peaked at a funny time, slightly different than US & world. Drawing comparison charts starting at volatile start/end points can be problematic. The one I posted starting in 2006, mid-bull-market, probably paints a more realistic picture of Canada vs world.

From mid-bull-market to mid-bull-market, Canada is performing the same as the world.











> Like you say, going back 15 or 20 years, then USA and Canada start to average out. It's just that I'll probably be dead in twenty years - so there's that.


How about 3 years? Canada is beating the world. XIU has 8.86% CAGR whereas XEF has 7.89% (that's MSCI EAFE).

I really think what happened here is that a bunch of journalists grabbed a list of 10 year performances, then ran some eyeball-catching stories about how Canada's performance sucks. Some people who have political agendas might have also jumped on the story as an excuse to complain about the government and energy policies.

One might even say that based on the 3 year performance of Canada outperforming, that this is a sign that Trudeau and energy policy have really helped the Canadian corporate performance. I don't believe that, but I'm showing how you can craft a politics/business story around stock market performance... it's bullshit though. I always dismiss any news story that ties stock market performance to politics of the day.

My equity target is 50% Canada + 50% S&P 500 (which is mostly US but quite a few multinationals). Call it home bias if you want but I prefer investing in what I know, in my own legal and tax jurisdiction, and I think it's justified based on the long term. Argonaut does the same equal weight Canada & US.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> Call it home bias if you want but I prefer investing in what I know, in my own legal and tax jurisdiction, and I think it's justified based on the long term.


Dude, so do I, and maybe you didn't read that my equities are 100% Canadian and have been that way for the last seven years. I intend to keep it that way forever. Personally I feel that forex and the lack of dividend tax advantages create a headwind that is hard to overcome, so I stick with Canada only assuming that in the long run I will be better off.



james4beach said:


> ....they probably just (by timing accident) picked the absolute peak, and worst spot, to start a 10 year comparison.


Well, OK, but using a ten year comparison is really standard fare, so everyone looks at that. It's also a standard pull-down in charts such as the one below. You can claim bias all you want, but Canada compared to USA for the last 10 years sucks. You can cherry pick any other time frames you like, but 10 years is pretty standard stuff - it's not a timing accident.

View attachment 19000


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## james4beach (Nov 15, 2012)

like_to_retire said:


> Dude, so do I, and maybe you didn't read that my equities are 100% Canadian and have been that way for the last seven years.


OK, maybe I missed that earlier. Seems we're in similar boats. I'm actually higher than my 50% Canada target.



> Well, OK, but using a ten year comparison is really standard fare, so everyone looks at that. It's also a standard pull-down in charts such as the one below. You can claim bias all you want, but Canada compared to USA for the last 10 years sucks.


Fair enough. But compared to the USA, _everything_ else has sucked for the last 10 years.

Something tells me that once the high from this euphoric US bull run wears off (i.e. central banks tighten money or stop buying US stocks directly), people will be asking themselves how on earth they got sucked into buying into US stocks at all time highs, 10 years into a bull market.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> Something tells me that once the high from this euphoric US bull run wears off (i.e. central banks tighten money or stop buying US stocks directly), people will be asking themselves how on earth they got sucked into buying into US stocks at all time highs, 10 years into a bull market.


Totally agree. A lesson in buy high, sell low is about to unfold.

ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> Totally agree. A lesson in buy high, sell low is about to unfold.


Interestingly, if you read around here, Canadian stocks aren't the only thing people are trying to sell in favour of buying US stocks at the highs. People are also trying to sell fixed income -- again, while it's already out of favour.

Investing is a fascinating thing. The instruments are easy, readily available, and now ultra cheap. The difficulties are all in psychology & execution.


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## AltaRed (Jun 8, 2009)

james4beach said:


> Interestingly, if you read around here, Canadian stocks aren't the only thing people are trying to sell in favour of buying US stocks at the highs. People are also trying to sell fixed income -- again, while it's already out of favour.
> 
> Investing is a fascinating thing. The instruments are easy, readily available, and now ultra cheap. The difficulties are all in psychology & execution.


That is pretty standard fare for DIY investors, even sometimes those with advisors. Buy what is hot and abandon that which is not. Staying the course seems to be too boring for most.


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## james4beach (Nov 15, 2012)

AltaRed said:


> That is pretty standard fare for DIY investors, even sometimes those with advisors. Buy what is hot and abandon that which is not. Staying the course seems to be too boring for most.


Professional fund managers suffer from this as well, often due to pressure from customers to not underperform.

This is also the secret behind why the couch potato technique, aka strict (_not_ dynamic/tactical) asset allocation, works. It's good portfolio design + a technique to overcome human tendencies to chase past winners.


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## canew90 (Jul 13, 2016)

robfordlives said:


> Hoping to get a sanity check on my portfolio
> 
> 
> 
> ...


Retiring at 50 means you won't qualify for cpp till 60 and oas till 65 (67 ?). So you need 10 to 15 years of income from your investments before the pensions kick in. Then you might live another 20 year or more so lets say you need to live off your investments for 35 to 45 years. With the plan you've outlined, and especially if you increase your fixed income portion to 40% than that income won't grow or even match the inflation or other cost increases. Neither will your ETF's (what another 40%) as most have a dismal record of increasing their distribution. So your only hope is that the market continues to rise and the value of your holding grow to meet your rising cost over the next 35 or 45 years. Hopefully you've max'd out your TFSA and have a good size RRSP to draw from. Good Luck!


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## robfordlives (Sep 18, 2014)

canew90 said:


> Retiring at 50 means you won't qualify for cpp till 60 and oas till 65 (67 ?). So you need 10 to 15 years of income from your investments before the pensions kick in. Then you might live another 20 year or more so lets say you need to live off your investments for 35 to 45 years. With the plan you've outlined, and especially if you increase your fixed income portion to 40% than that income won't grow or even match the inflation or other cost increases. Neither will your ETF's (what another 40%) as most have a dismal record of increasing their distribution. So your only hope is that the market continues to rise and the value of your holding grow to meet your rising cost over the next 35 or 45 years. Hopefully you've max'd out your TFSA and have a good size RRSP to draw from. Good Luck!


I am the OP....I personally feel that the 4% SWR espoused as bullet proof will not work for a 40+ year retirement. I am aiming to live off my dividends and for the portfolio I posted I am yielding about 2.87% now. Interestingly enough, XAW yields a hair under 2% now which is approaching the yield on my PH&N Bond fund. Now I know nothing is guaranteed but from 50 - 65 live on dividends and then 65 -100? live on dividends + oas/cpp. I believe I need north of $2Million to feel comfortable.


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## AltaRed (Jun 8, 2009)

robfordlives said:


> I am the OP....I personally feel that the 4% SWR espoused as bullet proof will not work for a 40+ year retirement. I am aiming to live off my dividends and for the portfolio I posted I am yielding about 2.87% now. Interestingly enough, XAW yields a hair under 2% now which is approaching the yield on my PH&N Bond fund. Now I know nothing is guaranteed but from 50 - 65 live on dividends and then 65 -100? live on dividends + oas/cpp. I believe I need north of $2Million to feel comfortable.


You ultimately don't need that amount of coin because there is all that unrealized capital gain from price appreciation of your equities that you should also be tapping into, especially after a certain age, e.g. 65. Otherwise, you could end up being the wealthiest man in a casket. You do have to thread the needle between retirement* and a more average retirement wage. Yes, you could simply live off the dividends but how could you be satisfied doing that when you are still young and adventurous and full of energy?

I agree 4% SWR is fraught with all sorts of problems, especially with a very long retirement phase starting at 50. I strongly suggest you take a serious look at VPW (Variable Percentage Withdrawal) methodology at some point in your withdrawal phase for a more rewarding but yet robust withdrawal plan. https://www.finiki.org/wiki/Variable_percentage_withdrawal

* I see more and more folk in their 40's looking for an early retirement. I think maybe they (including you) should perhaps look at financial independence by age 50 rather than permanent retirement. You will know when you get there, but few people I know will be satisfied dis-engaging from the arteries of life by then. For one thing, few will be anywhere close to your age to enjoy it with. Maybe think about 50 as an opportunity to change careers and/or pace of life, etc. with something you have a passion about with less stress and pressure, and even less financial reward. That could bring all sorts of reward of various types for several years.


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## james4beach (Nov 15, 2012)

The studies that came up with 4% SWR are based on making capital last for 30 years. It never was claimed to last for 40 or 50 years.

"4% SWR" specifically means this: starting with some amount of capital, *initially* withdrawing 4% of its value, plus inflation adjustment each year, the capital will probably last for 30 years at which point it may deplete to zero. It's based on probability, given as a high % likehood that the capital will last. These studies do not speak to what happens after 30 years. In 4% SWR, having $0.99 left at 30 years + one day is still considered a successful outcome.

Quick calculations using a 60/40 US stock & bond portfolio with 4% withdrawal:
*30 years: 97% chance of success*
40 years: 92% chance of success
50 years: 88% chance of success

(Meaning that in 88% of simulated retirements, the capital lasted for at least 50 years, but in 12% of cases the money ran out)

One should keep in mind that an intrinsic assumption for all of this is that your stock portfolio performs as well as the US stock market, historically. In other words it assumes excellent stock returns going forward on par with how the US did in the past.


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## milhouse (Nov 16, 2016)

A couple of interesting points in Bill Bengen's Reddit AMA:
He modified the 4% rule to the 4.5% rule after additional research. 
The average SWR is 7% but sequence of returns brings it down to 5.25% and a high inflation period brings it down further to 4.5%. 
He also accounts for longer retirements by reducing the 4.5% rate to 4.3%, 4.2%, and 4.1% for a 35, 40, and 45 year retirement and suggest 4% for a forever retirement. 

I'm not suggesting to use the 4% rule blindly because of different parameters like asset allocation, geographic allocation, local conditions, historical returns, etc. I only use it as a baseline guide for rough estimates. 
But from a practical perspective, I'd hope most retirees would have flexibility to adjusting their spend year to year to based on market returns and other conditions.


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## hboy54 (Sep 16, 2016)

I would think even an 88% chance of having the money last 50 years is massively conservative given you don't have an 88% chance of surviving 50 years (retire at 45), and all the other world events that can torpedo things.


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## james4beach (Nov 15, 2012)

hboy54 said:


> I would think even an 88% chance of having the money last 50 years is massively conservative given you don't have an 88% chance of surviving 50 years (retire at 45), and all the other world events that can torpedo things.


I only ran a crude monte carlo simulation to get that number so don't take my numbers too seriously... probably should check 'Trinity study update' and the SWR resource at bogleheads.

The problem is that success/fail is highly asymmetric, for quality of life. Having a little extra money when you're 85 is nice. Running out of money and going to the poor house when you're 85 is disastrous beyond belief. So (assuming my numbers are about right) if you have 12% chance of a disastrous thing happening, that may not be a good thing.

Put 10 people in a room. 9 of those people can lead comfortable lives until they die, but 1 person will run out of money and live their final years in poverty. You can be any one of those people as there is no control in games of chance. Personally I don't like those odds... 1/10 chance of disaster.

Remember, this also assumes fantastic stock market performance going forward. You're also intrinsically gambling on US-like performance forever, which is not guaranteed. If you get stock performance such as UK, France, Italy, Spain, Japan, Latin America, then it's not going to work out.

Stock markets may not perform anything like historical US performance going forward. This is why stocks are risky... there is absolutely no assurance of decent performance going forward. The past performance is all we can go on, but -- contrary to popular belief -- it does not predict the future.

It really bothers me that retirement planning is all done based on US stock performance. For example, a monte carlo (SWR) experiment using 60% Global ex-US stocks and 40% bonds, with 4% initial withdrawal, shows me only 75% chance of success for 30 years, and only 55% chance of success for 40 years. *This is a possible future to consider.*

As an engineer who makes conservative estimates, I'd say 3% withdrawal rate is the more sustainable strategy for > 30 years. This gives you a margin of safety in case you are that 1 unlucky guy in the room of 10 people, or if stocks perform worse than the US during the rise of its empire.


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## hboy54 (Sep 16, 2016)

No, of the people who survive 50 years have a12% chance of running out of money. For the whole population, the probability is much smaller because most of them are dead before the 50 years are up.


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## milhouse (Nov 16, 2016)

is buying an annuity a realistic option if your portfolio is trending poorly? Is it realistic to expect your inflation adjusted spending needs/wants to trend downward into your 80's+?


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## fireseeker (Jul 24, 2017)

milhouse said:


> is buying an annuity a realistic option if your portfolio is trending poorly? Is it realistic to expect your inflation adjusted spending needs/wants to trend downward into your 80's+?


Not sure how to answer your first question, Milhouse -- do you mean is it an option emotionally or mathematically?
As for the second, I think the answer is yes:



> People tend to spend more immediately after retiring as they check items off their bucket lists.
> 
> “We call it the ‘go-go years,’ the first 10 years (of retirement). As you get into your 70s, we call it the ‘slow-go years,’ you’re not [travelling] as much, you’ve been most places and the travel insurance is becoming a problem, maybe you have some health challenges,” Mr. Langford said.
> 
> “When you get into your 80s, those are the ‘no-go years.’ My dad is 86 and he doesn’t want to go anywhere, just stay close to home.”


https://www.theglobeandmail.com/investing/personal-finance/retirement/article-how-much-money-should-you-have-left-when-you-die-likely-less-than-you/


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## milhouse (Nov 16, 2016)

More mathematically I guess. Would it realistic to be able to identify that your portfolio is trending down to a point/range of high probability of failure so that you can make a decision to annuitize some or all of your remaining portfolio to support a reasonable rest of retirement? 

I pose the question because "we" talk about a 4%+ inflation withdrawal rate being able to theoretically last 30+ years and the possibilities of failure. But I wonder how practical it is to get detailed into the percentages if there are realistic options to be able to adjust your plan to avoid going to 0.


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## james4beach (Nov 15, 2012)

I have no idea how to reason about switching to an annuity. But when living off an investment portfolio, the best way to improve safety is to have flexibility to reduce spending. What makes 4%+inflation (constant withdrawals) somewhat dangerous is that the withdrawals continue, inflexibly, even when returns lag. This can be due to poor market performance and/or high inflation. But if you are able to to reduce your withdrawal, even a bit, you will make the capital last longer.

This is also why you shouldn't just take all dividends payments. Use only what you need, but reinvest anything that is truly excess, because dividends are also a form of withdrawal. Dividends don't come for free... the money comes directly out of capital, like any withdrawal.

Say that your balanced fund has yearly returns like +10%, +1%, -15% while inflation runs at 4%. You would do your normal constant withdrawal in the first year, but after the second year's performance you'd trim back withdrawals a bit since you've have a negative real return (+1 - 4). After the next year, you'd trim withdrawals back even more. That kind of flexibility will make the capital last longer than typical SWR.


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## kcowan (Jul 1, 2010)

I am unsure if I have made this point before. In the case of portfolio failure in Canada, long term residents will be left with OAS like our housekeeper. MIL had Alzheimer's at 80 and went into Guildwood Extendicare for the last 8 years. She had to forfeit 80% of her OAS to fund it. My former neighbour here in BC is in the Lynnwood Kiwanis Centre under the same terms. He is 88 and quite happy. Yes family might have to contribute for hair dressing and nail clipping but not exactly a large burden.


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## robfordlives (Sep 18, 2014)

Thanks for the input

One of the things I struggle with is when to let go of a holding. My higher than ideal weighting to telco, pipeline and utility had some "widows and orphans" stock picking mentality behind it as these have traditionally been seen as defensive. Many of these have now entered bear market territory which is especially disheartening given the continued out-performance of the US market. So essentially in some cases looking at a 30-40% loss relative to simple S&P holding yet I would argue now is the time to be defensive this late in the cycle. 

So having said that, does a guy correct this now after facing this underperformance? Isn't that a classic case of chasing performance?

I actually do not have an IPS and I see the importance of it now. 'Winging it' with a 7 figure portfolio isn't smart. I think I struggle with wanting conflicting things with my portfolio. I want a higher yield to support myself when I retire but also higher growth while I am in my working years. Guess I can't have that both


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## fireseeker (Jul 24, 2017)

robfordlives said:


> So having said that, does a guy correct this now after facing this underperformance? Isn't that a classic case of chasing performance?


Answers: No. Yes.
In your next paragraph, you have nicely identified the issues. You're well on your way to better fortune!


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