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Challenging the 4% Rule

Including Financial Independence and Retiring Early (FIRE)
xxd09
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Re: Challenging the 4% Rule

#473550

Postby xxd09 » January 16th, 2022, 4:31 pm

Invest-interesting post
In practice I sell from whatever is over target in my Asset Allocation therefore maintaining its integrity
I use Quicken which has a Portfolio Rebalancer program as one of its functions
Selling has turned out over the years to be mostly from the equity side though some bond sales have occurred
What you would expect from a long drawn out bull market
Will this change-who knows?
xxd09

CryptoPlankton
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Re: Challenging the 4% Rule

#473553

Postby CryptoPlankton » January 16th, 2022, 4:38 pm

vand wrote:The market dropped the most it has in a generation on March 2020. Did any retirees living off their portfolio plough their cash into the market at that time? If not, what makes you think you can do it next time? Even Buffett missed his window of opportunity and is remains stuck with over $100bn on the sidelines.


I didn't buy at the absolute bottom (not having a crystal ball) but bought significant tranches of VWRL and LWDB (as well as a few other more speculative "punts") once I sensed the market had stabilised - does that count? And I saw plenty of reported buying activity across this site over the period after the "crash", although I can't be sure how many of the posters were "retirees". Keeping some powder dry doesn't necessarily lead to opportunity cost, as evidenced by my returns to date on those investments...

AsleepInYorkshire
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Re: Challenging the 4% Rule

#473554

Postby AsleepInYorkshire » January 16th, 2022, 4:46 pm

vand wrote:
I was replying to AiY's idea that he would be retired with cash on the sides but would "buy in if the market crashed 50%" as a totally unrealistic proposition - which it is. When someone plans such things they imagine the stock market at a 50% discount with nothing else having changed in the world. However it doesn't work like that... the only times when stocks are on sale by that sort of discount is when something so scary is going on that that you think that this time next year it could be down another 50%. A virus that could change the fabric of society as we know it, a major war, a nuclear missile crisis, the end of the financial system as we know it, etc.

The market dropped the most it has in a generation on March 2020. Did any retirees living off their portfolio plough their cash into the market at that time? If not, what makes you think you can do it next time? Even Buffett missed his window of opportunity and is remains stuck with over $100bn on the side lines.

Huge apologies. I may not have made myself clear. For clarity if the market crashes by [an analogous] 50% I would have the opportunity to invest. That's different from saying I would invest. It's different from saying I can invest. But I accept I should be a little more concise. Having given myself the opportunity I don't have to take it. However, it would be prudent for me to repeat myself I think. I don't have one tool in my box. For example I retire on day one. On day two the market drops 25% due to China taking control of the South China Seas through military force. My equities are down 25%. I'm not bothered at that point. And I'm also not going to go charging into the equity market on day two. But I now have a war chest of £100K and if the opportunity presents itself I can buy more equities. Let's say I'm in the S&P 500 at the time (I'm 50% in that now). That would be the first place I look to "top up".

On day three the market could fall by another 25% because Russia invades the Ukraine. Who knows? I'm not going to look for the bottom. I don't need to. I can't time the purchase. But I do know I will still have 4 years cash reserves and as I've said if I drop my SWA by 50% I can lift that to 8 years. I can also obtain part time work, downsize my house or start drawing on what's left of my equities.

AiY

vand
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Re: Challenging the 4% Rule

#473637

Postby vand » January 16th, 2022, 9:49 pm

AsleepInYorkshire wrote:
vand wrote:
I was replying to AiY's idea that he would be retired with cash on the sides but would "buy in if the market crashed 50%" as a totally unrealistic proposition - which it is. When someone plans such things they imagine the stock market at a 50% discount with nothing else having changed in the world. However it doesn't work like that... the only times when stocks are on sale by that sort of discount is when something so scary is going on that that you think that this time next year it could be down another 50%. A virus that could change the fabric of society as we know it, a major war, a nuclear missile crisis, the end of the financial system as we know it, etc.

The market dropped the most it has in a generation on March 2020. Did any retirees living off their portfolio plough their cash into the market at that time? If not, what makes you think you can do it next time? Even Buffett missed his window of opportunity and is remains stuck with over $100bn on the side lines.

Huge apologies. I may not have made myself clear. For clarity if the market crashes by [an analogous] 50% I would have the opportunity to invest. That's different from saying I would invest. It's different from saying I can invest. But I accept I should be a little more concise. Having given myself the opportunity I don't have to take it. However, it would be prudent for me to repeat myself I think. I don't have one tool in my box. For example I retire on day one. On day two the market drops 25% due to China taking control of the South China Seas through military force. My equities are down 25%. I'm not bothered at that point. And I'm also not going to go charging into the equity market on day two. But I now have a war chest of £100K and if the opportunity presents itself I can buy more equities. Let's say I'm in the S&P 500 at the time (I'm 50% in that now). That would be the first place I look to "top up".

On day three the market could fall by another 25% because Russia invades the Ukraine. Who knows? I'm not going to look for the bottom. I don't need to. I can't time the purchase. But I do know I will still have 4 years cash reserves and as I've said if I drop my SWA by 50% I can lift that to 8 years. I can also obtain part time work, downsize my house or start drawing on what's left of my equities.

AiY


No worries. You have clearly thought a lot about it and I'm sure that your plan is right for you, and at the end of the day that's all that anyone can do. I'm not trying to rub anyone up the wrong way, but my goal on this thread is to just challenge people to make sure they've really considered it from all angles.

People can have elaborate rules about cash, rebalancing, spending guardrails etc.. all that is probably worth exploring. However as you allude to, the best defence is almost certainly just to remain employable and once again become an accumulator rather than a distributor of wealth if and when an irresistable opportunity in the markets presents itself. Personally, I'd have no hesitation in doing this, as I don't like to look a gifthorse in the mouth. A year or two of topup earnings when expected returns are high are the best insurance anyone can have, and I don't care if the RE police does come knocking down my door.

The 4% or whatever % rule didn't fail you - nobody knows that for sure until you actually do eventually run out of money.. but giving it a mid retirement booster can only help.

tjh290633
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Re: Challenging the 4% Rule

#473652

Postby tjh290633 » January 16th, 2022, 11:18 pm

vand wrote:The market dropped the most it has in a generation on March 2020. Did any retirees living off their portfolio plough their cash into the market at that time? If not, what makes you think you can do it next time? Even Buffett missed his window of opportunity and is remains stuck with over $100bn on the sidelines.

I am not living off my portfolio but my practise is to stay virtually fully invested all the time, with a relatively small cash holding elsewhere for drawing on when needed.

I have done that since 1970 and have never found it to be a problem. 2008-9 did require portfolio adjustments to compensate for the considerable number of shares which stopped paying dividends, but in terms of capital value, my income units are currently just off the all time high that they reached on Thursday, 13th January. Dividend income is still recovering, but is moving in the right direction.

TJH

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Re: Challenging the 4% Rule

#473702

Postby UnclePhilip » January 17th, 2022, 9:32 am

xxd09 wrote:One practical problem is that the cheap platforms that every amateur investor currently uses gets swamped in a downturn and become effectively inoperable
In fact it is unwise to trade in these conditions as orders may be seriously delayed -not what you want in volatile stockmarket conditions
If you want to practice this type of buying at the bottom a stockbroker is required-expensive
Really a game for the professionals
Amateur investors are better to have a Plan in place and sit out the storm-market corrections usually occur relatively quickly
xxd09


I write to share my experience, not to boast.

Having recently sold an investment property, in April 2020 when the markets were going down over 30%, I managed to put a sizeable chunk of that cash into Vanguard VEVE and VWRL with cheap execution online brokers (iWeb and Charles Stanley)

Uncle

xxd09
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Re: Challenging the 4% Rule

#473718

Postby xxd09 » January 17th, 2022, 10:10 am

Well done!
xxd09

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Re: Challenging the 4% Rule

#473824

Postby floyd3592 » January 17th, 2022, 2:47 pm

vand wrote:
The market dropped the most it has in a generation on March 2020. Did any retirees living off their portfolio plough their cash into the market at that time? If not, what makes you think you can do it next time? Even Buffett missed his window of opportunity and is remains stuck with over $100bn on the sidelines.


I took the opportunity in May 2020 of 'ploughing my cash' into the US market, as I felt Covid wasn't going to be as bad as the market had thought and I considered the market had stabilised. I used a significant part of a substantial lump sum of US dollars I held, to set up a 'HYP-ish' portfolio of US stocks. Currently its yielding around 4% giving me a nice income in USD, but the capital gain is an eye watering 43%...

TUK020
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Re: Challenging the 4% Rule

#473845

Postby TUK020 » January 17th, 2022, 3:56 pm

On March 23rd, 2020, I did a series of trades, 5-10% of my portfolio. Turned out the timing for purchase was opportune.
I sold Gold & a Utility (Pennon), used some cash reserves, and bought Legal & General (major purchase) and a small punt on BT.

Legal and General was oversold, has since doubled in price. (I wish I had gone for SMT in retrospect).
BT has not matched that. (My reasoning for BT was that no-one was going to economise on broadband in lockdown, and that a pandemic that knocked off oldies might do wonders for a pension deficit)

Pennon was holding up well in price, and has subsequently proved a timely sale.
Gold was interesting. When I sold, the price was down around 10%, but very quickly recovered. The financial press was saying that everyone raided their gold reserves to cover margin calls - I hadn't expected that.

I retired some 15 months later, so this wasn't a move done when living off the proceeds, and I have a DB pension which will provide >50% of my retirement income.

3 things worth noting:
a) not panicking at this point helped me to decide to retire - felt I could cope with a repeat of this sort of crash without doing anything too stupid (no commentary on my choice of BT please).
b) even though I was fairly confident that what I was doing had a reasonable chance of success, I was not willing to do a broader level of trading
c) I had planned to do my "market timing" in 3 tranches, this, + 3 months and + 6 months. A lot of the big market movements had dissipated by these later points.

This approach still feels to be fairly sensible in what was at the time a high degree of uncertainty.

Hope this doesn't make me too cocky next time round.

dealtn
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Re: Challenging the 4% Rule

#473852

Postby dealtn » January 17th, 2022, 4:16 pm

TUK020 wrote:... worth noting:
a) not panicking at this point helped me to decide to retire - felt I could cope with a repeat of this sort of crash without doing anything too stupid (no commentary on my choice of BT please).


No need to apologise re BT.A it's up quite a bit since then.

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Re: Challenging the 4% Rule

#473960

Postby andyalan10 » January 17th, 2022, 11:46 pm

So much ground to cover on this discussion, and so many variables.

I have been living off savings/investments since October 2018, and am currently 60. The most important thing to say is that I did buy additional shares from a cash reserve. 7 times between late January and mid-March 2020. My plan is to buy when the market falls by a set percentage and sell when it rises. Those percentages have changed over time, and are not symmetrical. So for example it might have been sell on +5%, buy on -2% whilst accumulating. Sell on +3%, buy on -6% in rundown.

Did it work in 2020? Up to a point Lord Copper. (https://evelynwaughsociety.org/2018/scoop-x-3/)

The percentage I set were too small, so I bought too early as the market fell, and sold too early as it rose again. Having said that I'm grateful that I didn't put a fixed time period between trades, as others have noted, the markets moved down, and up, very quickly. Also my share picking was not always brilliant. But it gave me an interest, and I was able to sleep at night all the way through.

Other variables which may contribute to my unusually relaxed attitude to risk:- No direct descendants, a partner who is much more risk averse and who holds a larger cash reserve than I do, a (small) DB pension 5 years away and a paid for house with the ability to generate income.

My current budget allows plenty of eating out and the overall food and drink spend could easily be reigned in, conversely I wouldn't have any problem spending more than I currently do. So on one hand I have no need of a "4% now and it must increase by CPI each year". Conversely I am not in the position which some allude to of "I have no desire for more regular income so I can tone down the risk I take".

Andy


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