The Economic Cycle- Ray Dalio-
The subject of Debt, Inflation, Fed policy rates and the Central bank printing money-
An interesting 30 minute video- I don't think I posted the link here before-
http://www.economicprinciples.org/
Having an interest in Investing vs trading, I have been reading different books over the past few years concerned with Investing, Asset allocation- Timing methods- and I have become a fan of John Bogle- Vanguard-Funds low cost approach - whether through the low cost Index funds they offer- or perhaps their combined approach in Target date funds for those that don't want the bother of determining how much of what to invest in and then rebalance- Primarily, it's the low cost approach that gets the majority of the index's return.
I'm reading a book by Tony Robbins-"Money -Master the Game" where he also promotes the low cost approach- and -being promotional- an organization he is involved with that
may provide oversight- for a small net annual fee- less than the typical fees imposed through conventional brokers-
The book offers some views of different approaches to investing that I have not ever heard of. I haven't verified the accuracy of any of the items I mention here- just a book report- but it has some elements and controversial concepts that I find interesting, but skeptical about.
How about this for a start-
Would you be willing to Invest with the guarantee that your investment would remain intact- that you would get charged a 1.5-2% fee on positive market returns and nothing on any year when the market declined? And you would get the remainder of the gains added to your account? Sounds too good to be true-Sounds like a hedge fund guarantee- If the market returns 15, and you keep 13%- and the next year it drops 15%, your gain is intact? and no fee? Doesn't seem possible-
Aside from the link to the promotional organizations he is associated with, there is a lot of instructive material. In this book, he offers different approaches- Ray- Dalio's market approach to reduce Risk, but still give above average market returns- is interesting-
It is now a a popular fact - and the cornerstone of passive investing- that active management generates higher costs and on average lower returns over time.
Dalio would appear to be the exception- with an average return of 9.88% over 40 years- with only 6 losing years in 40 years- and the worst loss less than 4%.in 2008 . The market average return is something like 7.5% historically.
His portfolio recommendation includes some layers of Bonds, TIPS, commodities including Gold- Stocks- - but a smaller exposure to stocks- Noting that the market decline in 2008 took down both stocks and bonds- I expect that Dalios allocation structure had more active management than just a simple allocation model allowed- And Dalio uses leverage that a typical investor would not employ- That being said- Nothing is black and white- but investing with the belief that what we have had for the past 5 years is going to just continue into the future for another 5 years is naive.
On that realization, it is worth considering how one will identify that a minor correction is turning into a major correction- and we will only know the extent in hindsight-
Professionals protect their assets with Options- or rebalancing allocations to non-correlated areas. The rest of us do as we normally do and keep our fingers crossed the music keeps playing.
Robbins also promotes some thinking of newer types of financial products- as methods to reduce RISK- including newer types of Variable annuities that may indeed be nothing like the crap that was peddled in past years- and that gave annuities such a bad name.
He also touches upon areas of long term financial planning that most of us simply don't get around to thinking about- but perhaps we should.
Not so much from this book- but planning for retirement- one can not expect to survive on social security alone- it will be a stark financial existance if one is not able to supplement SS with something one planned and invested for.
In the book, Robbins also touches upon -what if one does plan for the future- and the market dives for 1-2-or 3 years just as one retires- What is one's exposure?
Do we even consider that such an event would occur after we work for 40 years and plan to now 'enjoy' ourselves?
Statistically, WE (retiring generation) are not well prepared for retirement- and the following generations less so. The recent generations- seeing 2 market declines in a decade is skeptical - and you can't blame them on what seems to be a Random market
decision. For those people that had "plans' to retire at that point, Life dished up a plate of 'unexpected' - and they had to make do with what they were handed.
Does that mean the long term planning they had put in place over decades was simply wrong by chance? Maybe we should expect the unexpected is the new normal and plan differently?
What will it take to retire and take withdrawals to supplement the SS?
Safer estimates use 4% of asset value should be able to be withdrawn, and the principal continue to maintain, possibly grow- based on historical norms.
What is the goal for income in retirement? Expense will be 60% of present expenses. If the home is paid for.
If SS provides $1500.00/ month, and the retirement account investment allows 4%, and that is 100,000.00 - you can withdraw $4,000.00 that year additionally- or approx $333.00 every month. With inflation- that extra amount might buy a week's worth of groceries. Is retirement survivable on SS 12 x $1500= $18,000.00 + $4,000.00 =
$22,000.00- Wow- That's a grim reality-
Let's assume we made more & planned better when we reach retirement age-
We get $2,000/month from SS, and we have 1/2 a million dollars in Investment/savings.
The 2,000 gives us $24,000.00 a year to live on- and the 4% on the $500,000.00
gives us $20,000.00 -We now can live on $44,000 a year or just under $4,000.00 per month. If our home & car is paid for,
That $4,000/ month can pay for food 4 x $250.00 =1,000.00
Utilities- $500.00 Elec, water, gas, oil heat, AC
Health insurance supplement $300.00
Medications $500.00
property taxes $600.00
vehicle expenses- insurance $300.00
homeowner's insurance $300.00
incidental medical expenses not covered by insurance- $250.00
Bingo 4 nights a month $80.00
Lottery tickets $2/week $8.00
Investment advisor $250.00
Oh Crud- Over budget-
Something to consider! We get there by starting-
Let's assume we start early and often-
Let's be the hypothetical investor that has the desire and the income to do better:
And we now have $1,000.000.00 in our retirement account- We are a millionare!
and get to spend 4% per year so we have $40,000.00 a year plus $24,000.00 from SS.
That's more reassuring- Gives a bit of breathing room- Maybe even a cruise if we budget carefully!
We've got the allocation right- 60% bonds, 40% stocks-
and Bang- another 2007-2009 and we lose 30% on our conservative allocation.
We now have only $660,000.00 and we just took the cruise off the list. It was not a good year. We are now concerned that this 1st year sharp decline will be followed by a second year of losses. We become very conservative and transfer our assets to a fixed
allocation with a guaranteed 1.5% return.
We need to use $40,000.00 per year to just maintain our modest quality of life.
Costs are actually increasing every year, nothing seems to cost less as time goes on.
Government regulations and budget deficits have taxed our Social Security payments.
We retired at age 67-
By age 87, Some 20 years into retirement, my nest egg has been depleted. The market fluctuations were unexpected. The doctors estimate i will live into my late 90's- perhaps reach 100 -110 years thanks to the great medical advances/medications now developed-
I hope my children have a room available....
There are some elements of truth in the above scenario- Will this be the outcome each of us faces? What are we planning for?
They are being experienced in one form or another every day by people like you and I that have reached that point in their lives where they are relying on something to provide for them in their retirement years that may not be as beneficial as they thought it would be.
This is a provocative subject- How many of us actually consider this in any detail?
The subject of Debt, Inflation, Fed policy rates and the Central bank printing money-
An interesting 30 minute video- I don't think I posted the link here before-
http://www.economicprinciples.org/
Having an interest in Investing vs trading, I have been reading different books over the past few years concerned with Investing, Asset allocation- Timing methods- and I have become a fan of John Bogle- Vanguard-Funds low cost approach - whether through the low cost Index funds they offer- or perhaps their combined approach in Target date funds for those that don't want the bother of determining how much of what to invest in and then rebalance- Primarily, it's the low cost approach that gets the majority of the index's return.
I'm reading a book by Tony Robbins-"Money -Master the Game" where he also promotes the low cost approach- and -being promotional- an organization he is involved with that
may provide oversight- for a small net annual fee- less than the typical fees imposed through conventional brokers-
The book offers some views of different approaches to investing that I have not ever heard of. I haven't verified the accuracy of any of the items I mention here- just a book report- but it has some elements and controversial concepts that I find interesting, but skeptical about.
How about this for a start-
Would you be willing to Invest with the guarantee that your investment would remain intact- that you would get charged a 1.5-2% fee on positive market returns and nothing on any year when the market declined? And you would get the remainder of the gains added to your account? Sounds too good to be true-Sounds like a hedge fund guarantee- If the market returns 15, and you keep 13%- and the next year it drops 15%, your gain is intact? and no fee? Doesn't seem possible-
Aside from the link to the promotional organizations he is associated with, there is a lot of instructive material. In this book, he offers different approaches- Ray- Dalio's market approach to reduce Risk, but still give above average market returns- is interesting-
It is now a a popular fact - and the cornerstone of passive investing- that active management generates higher costs and on average lower returns over time.
Dalio would appear to be the exception- with an average return of 9.88% over 40 years- with only 6 losing years in 40 years- and the worst loss less than 4%.in 2008 . The market average return is something like 7.5% historically.
His portfolio recommendation includes some layers of Bonds, TIPS, commodities including Gold- Stocks- - but a smaller exposure to stocks- Noting that the market decline in 2008 took down both stocks and bonds- I expect that Dalios allocation structure had more active management than just a simple allocation model allowed- And Dalio uses leverage that a typical investor would not employ- That being said- Nothing is black and white- but investing with the belief that what we have had for the past 5 years is going to just continue into the future for another 5 years is naive.
On that realization, it is worth considering how one will identify that a minor correction is turning into a major correction- and we will only know the extent in hindsight-
Professionals protect their assets with Options- or rebalancing allocations to non-correlated areas. The rest of us do as we normally do and keep our fingers crossed the music keeps playing.
Robbins also promotes some thinking of newer types of financial products- as methods to reduce RISK- including newer types of Variable annuities that may indeed be nothing like the crap that was peddled in past years- and that gave annuities such a bad name.
He also touches upon areas of long term financial planning that most of us simply don't get around to thinking about- but perhaps we should.
Not so much from this book- but planning for retirement- one can not expect to survive on social security alone- it will be a stark financial existance if one is not able to supplement SS with something one planned and invested for.
In the book, Robbins also touches upon -what if one does plan for the future- and the market dives for 1-2-or 3 years just as one retires- What is one's exposure?
Do we even consider that such an event would occur after we work for 40 years and plan to now 'enjoy' ourselves?
Statistically, WE (retiring generation) are not well prepared for retirement- and the following generations less so. The recent generations- seeing 2 market declines in a decade is skeptical - and you can't blame them on what seems to be a Random market
decision. For those people that had "plans' to retire at that point, Life dished up a plate of 'unexpected' - and they had to make do with what they were handed.
Does that mean the long term planning they had put in place over decades was simply wrong by chance? Maybe we should expect the unexpected is the new normal and plan differently?
What will it take to retire and take withdrawals to supplement the SS?
Safer estimates use 4% of asset value should be able to be withdrawn, and the principal continue to maintain, possibly grow- based on historical norms.
What is the goal for income in retirement? Expense will be 60% of present expenses. If the home is paid for.
If SS provides $1500.00/ month, and the retirement account investment allows 4%, and that is 100,000.00 - you can withdraw $4,000.00 that year additionally- or approx $333.00 every month. With inflation- that extra amount might buy a week's worth of groceries. Is retirement survivable on SS 12 x $1500= $18,000.00 + $4,000.00 =
$22,000.00- Wow- That's a grim reality-
Let's assume we made more & planned better when we reach retirement age-
We get $2,000/month from SS, and we have 1/2 a million dollars in Investment/savings.
The 2,000 gives us $24,000.00 a year to live on- and the 4% on the $500,000.00
gives us $20,000.00 -We now can live on $44,000 a year or just under $4,000.00 per month. If our home & car is paid for,
That $4,000/ month can pay for food 4 x $250.00 =1,000.00
Utilities- $500.00 Elec, water, gas, oil heat, AC
Health insurance supplement $300.00
Medications $500.00
property taxes $600.00
vehicle expenses- insurance $300.00
homeowner's insurance $300.00
incidental medical expenses not covered by insurance- $250.00
Bingo 4 nights a month $80.00
Lottery tickets $2/week $8.00
Investment advisor $250.00
Oh Crud- Over budget-
Something to consider! We get there by starting-
Let's assume we start early and often-
Let's be the hypothetical investor that has the desire and the income to do better:
And we now have $1,000.000.00 in our retirement account- We are a millionare!
and get to spend 4% per year so we have $40,000.00 a year plus $24,000.00 from SS.
That's more reassuring- Gives a bit of breathing room- Maybe even a cruise if we budget carefully!
We've got the allocation right- 60% bonds, 40% stocks-
and Bang- another 2007-2009 and we lose 30% on our conservative allocation.
We now have only $660,000.00 and we just took the cruise off the list. It was not a good year. We are now concerned that this 1st year sharp decline will be followed by a second year of losses. We become very conservative and transfer our assets to a fixed
allocation with a guaranteed 1.5% return.
We need to use $40,000.00 per year to just maintain our modest quality of life.
Costs are actually increasing every year, nothing seems to cost less as time goes on.
Government regulations and budget deficits have taxed our Social Security payments.
We retired at age 67-
By age 87, Some 20 years into retirement, my nest egg has been depleted. The market fluctuations were unexpected. The doctors estimate i will live into my late 90's- perhaps reach 100 -110 years thanks to the great medical advances/medications now developed-
I hope my children have a room available....
There are some elements of truth in the above scenario- Will this be the outcome each of us faces? What are we planning for?
They are being experienced in one form or another every day by people like you and I that have reached that point in their lives where they are relying on something to provide for them in their retirement years that may not be as beneficial as they thought it would be.
This is a provocative subject- How many of us actually consider this in any detail?