I held bank stocks through the GFC, watched the value drop down during the crash. I had spare cash on hand and when they all offered share top up plans I bought as much as I could. The best play was CBA @ $27, they botched the original plan so they had to revise it and sell @ $26 a share. Both my wife and I topped up as much as we could.
I've had bank shares in my portfolio all my life, they are darn good stocks. They have all paid for themselves now with their dividends over the years. I just wish I had enough guts to pull the trigger on BHP when they hit $13.50. I remember a staff member of BHP coming on here saying something like "I have been offered a share purchase plan from the company to top up my BHP stocks at a discount, should I buy them?" Most us just said we would if we were in your position. Chances come along all the time but people do nothing sometimes, me included.
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Some great discussion here.
I've remained silent for most part.
But it has been my goal ever since I left school to aim toward excess.
If I have well over what I need then life will and has been a great deal
easier than struggle street.
As pulling back loomed the challenge was/is to continue that excess.
The only way for me to do that was to have more investments than I need
to live well going forward 30 years. If Im un lucky enough to last that long!
I have put in place people who can carry on with what I have created to give
me a continued income similar to that which Ive had for the last 10 yrs.
I urge you to find something you can invest in which can supply a continued
income to grow your investments. Hard but it can be done.
The 4% SWR draws an ever increasing amount from your savings over time. If the market crashes by 50% - too bad! Pay up chump! I want all my money, as usual! Or if the market doubles overnight, although we're now twice as rich, we pretend we're not. It's like being a contractor with a dramatically different income year to year, but pretending you're a salaried worker.
Having pointed out its weakness, in general, I think the 4% SWR is right for most people. But there are other equally valid methods. Which brings me to the fixed % AUM model.
The fixed % takes into reality what's actually happening with your money. If the market doubles - you're rich. You get to pay yourself more. If it crashes - it's time to tighten the belt. In a sense, it's a form of "dollar cost averaging", but in reverse.
In a sense, the fixed % method has an inbuilt safety mechanism that the 4% SWR doesn't have. Say I retire with 2 million, I'm paying myself 5%, so that's $100k each year. And then the market crashes, as we all know it will do every 20 years or so. My AUM is now only 1m. Oh no! That year, I take out my 5%, but alas, it's only $50k I'm being paid. Boo for me! But ya for my retirement nest egg. In dollar terms, I've agreed to take a pay cut during the bad times. That provides an inbuilt level of safety during bad times, and helps to protect your investments during a crash. Even during prolonged bad markets, you keep protecting your investements by taking less (in dollar terms)
The one drawback - and it's a pretty big one - is that you have to be OK with wildly fluctuating drawdowns. The best way to be OK with this, if you have a "smoothing" mechanism. I plan on running 90% shares, 10% cash/bonds. That 10% = 2 years of savings. And this is how the smoothing is done.
Using the previous example, we take a "moving average" of the incomes over several years. So let's say that's $75k. On a year where my drawdown equals $75k (by chance), then the money goes straight from the shares (dividends + capital sales if needed), into my pocket. The bond smoothing fund isn't touched.
Any year where my return is >$75k, I keep the 75, and put the rest into the bond smoothing fund. On years where my return is <$75k, then I top up the amount to $75k from the bond fund. If I pick that average right, then I should be able to play myself a consistent wage, indefinitely.
OK. So what I get to live off isn't quite so choppy as it first appeared. But how can 5% be safe for you, whereas the Safe Withdrawal Rate is only 4%? Well firstly, the 4% Rule is based on having 60% stocks / 40% bonds. By definition, the more bonds you have, the lower your expected return. But the more stable that return is. So they're trading away stellar returns, and instead getting better consistency.
Due to my much higher stock percentage, it makes sense I should be able to outperform 4% over time. If the total return (dividends + price rise) of the ASX or S&P500 is around 10% per year (and it has been if you look over long periods of time), take away 2% (or so) for inflation on average, leaving 8% real returns. I'm taking 5%. In theory, my assets should grow by 3% annually, give or take, over time. And as we've already established, after market crashes or extended sideways market, I'm taking a smaller dollar amount to compensate for that. Essentially, I'm trading consistency, for hopefully better returns.
That's the theory. It has the potential to outperform the 4% SWR in terms of growth, but it's not for the feint of heart. In a sense, I'm treating my nest egg as an active asset I'm trying to grow, rather than a passive annuity I'm drawing down on.Last edited: Nov 8, 2019
In the end she saw it for herself that it was impossible to stay on in her home and she made the decision to go. So we sold up the house and she went into a very lovely, well run private Aged Care Facility. The fee to get in was $500,000. For this she got a studio room on her own, I liked it and loved coming to visit Mum. The 500K (probably a lot more now) is a RAD (refundable accommodation deposit). This fee reduces the amount per week you have to pay for their services. Yes they took 85% of her pension but the RAD was still not enough to cover the service fee. Instead of the full $1,200 p/w cost she was up for around an extra $200 a Month. So her fees were a 500k RAD (with no interest) 85% of her pension plus $200 P/M of her own savings. It was manageable. This was the best and cheapest course of action we could do for Mum. We were happy that she lived in a nice place. Sorry for rambling but old age gets very expensive. If you have no money and no family then you will end up in a facility that is not so nice and sharing a room with other residents.
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