FIRE reaching Critical Mass

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Seppia
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Re: FIRE reaching Critical Mass

Post by Seppia » Wed Oct 10, 2018 6:09 pm

I agree with all your points Jacob, but realistically, what’s the average investor’s alternative?
Normal people don’t even invest.
Wise people save
Then they pick between
Real estate
Cash
The markets (stocks/bonds)
What would you guesstimate has the best potential return on investment in the next 20-30 years?
I’d personally go with Europe and emerging stocks.

Of course I may be wrong, but unfortunately we don’t get to pick our starting point.
Staring in 1979, one could have investendo in pretty much anything and done ok
Right now? I think our options all kinda suck, but it’s about picking the “best” among the cards one has been dealt.

RealPerson
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Re: FIRE reaching Critical Mass

Post by RealPerson » Wed Oct 10, 2018 11:52 pm

Seppia wrote:
Wed Oct 10, 2018 6:09 pm

Real estate
Cash
The markets (stocks/bonds)
What would you guesstimate has the best potential return on investment in the next 20-30 years?
I’d personally go with Europe and emerging stocks.
I agree that the US market has essentially run its course. It has been great for us, but I would not get into the market now. But I don't know why Europe's market would do well. Brexit is still a huge question and an economic unknown, in spite of the positive spin from the last few days. What makes you optimistic?

BRIC/emerging markets. Aren't they always on the verge of a break through? Brazil is a mess right now, but maybe it can only go up?

I would like to invest in real estate, but the prices in the US are so incredibly inflated, at least in my area.

We are clearly at the verge of a spike in inflation, in my opinion. Maybe bullion gold? If you hold it physically, it could also be a hedge in case the wheels really come off. Or buy I-bonds or TIPS.

slowtraveler
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Re: FIRE reaching Critical Mass

Post by slowtraveler » Thu Oct 11, 2018 12:22 am

Jacob posted a link to the S&P prices, not total return from my understanding. So it excludes dividends. It was my understanding that the S&P total return, including deflation, returned to it's 1929 peak in 1936, before falling back down again for some time.

http://www.multpl.com/sitemap is the site map and the link to what Jacob posted is filed under "Inflation Adjusted Prices" on the site. Also, googling S&P index shows the price of the S&P matching the price on multpl so that is further evidence supporting it as a price, not total return index.

I get where Jacob is coming from, but being too pessimistic when I first got here caused me to miss out on great returns for years so I don't want others falling into the same trap.

jacob
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Re: FIRE reaching Critical Mass

Post by jacob » Thu Oct 11, 2018 7:10 am

@Seppia - I reread the ERE book's advice and I stand by it. TL;DR: The average investor should pay attention and be willing to be flexible and not behave as if they've found religion and the one true investment god to worship. I think the Terhorsts (you can find some interviews with them) are a good example of people who have been EER'ed for decades and who have shown this flexibility.

@slowtraveler - ARGH, I think you're right---which means I'm wrong. Dividends are not included at multpl. Having dividends for supper would certainly change things for the better. I've looked around for an inflation-adjusted total return version, but I can't find it. Maybe a job for Tyler9000? :mrgreen:

PS: Being too optimistic is what caused people (former colleagues) in California to buy as much house as they could afford in 2007 and they've only just recently been able to get their head above water, so I too don't want others to fall into the same trap.

A Life of FI
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Re: FIRE reaching Critical Mass

Post by A Life of FI » Thu Oct 11, 2018 4:28 pm

The best source I know of this is Firecalc (I beleive cfirecim includes this also). Although you would need to extract this using the spreadsheet output you can downloand from the site for free (under the Investigate tab).

In relation of the WR, Firecalc gives a 3.25% maximum inflation adjusted withdrawal rate on a 100% S&P 500 portfolio at 100% success rate over a 50 year period with investment fees set to 0% (to verify the dividends are included, download the output spreadsheet for one year and you can see they are included in the calculation of the yearly return)

Lucky C
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Re: FIRE reaching Critical Mass

Post by Lucky C » Fri Oct 12, 2018 1:18 pm

@jacob The S&P 500 has not had a 20-year negative total return. If you scroll to the 4th chart you'll see that the worst annualized 20-year total return is -0.06% in the early 1920's...

https://www.advisorperspectives.com/dsh ... er-coaster

However! The S&P Composite began in 1923 with only a few stocks, expanded to 90 stocks in 1926, and became the S&P 500 in 1957. Hence that tiny negative blip on the 20-year return chart would not have been S&P data but pretty much the best data they (I'm assuming Shiller) could get. It's plausible that the worst case 20-year return could have been positive if there were more stocks available or more complete data available for that time. At any rate the worst case 20-year real total return is around zero.

Then if you look at the next chart with 30-year real total returns, if you look at the S&P 500 years (starting 1957), you'll see that the worst case is 4.01%. Interesting! But you'll still have failures running the FIRE sims with 4% SWR due to some bad starting years in the late 60's / early 70's. So it's not fair to say that a certain withdrawal rate will fail based on its real total return but due to volatility and sequence-of-returns risk. You could look at a 30 year span with 10%+ CAGR that would fail a 4% withdrawal rate if the return the first year is -96%.

Seppia
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Re: FIRE reaching Critical Mass

Post by Seppia » Fri Oct 12, 2018 3:16 pm

RealPerson wrote:
Wed Oct 10, 2018 11:52 pm
I agree that the US market has essentially run its course. It has been great for us, but I would not get into the market now. But I don't know why Europe's market would do well. Brexit is still a huge question and an economic unknown, in spite of the positive spin from the last few days. What makes you optimistic?
Mostly, the fact that Europe and emerging have underperformed for a full decade.
There's a lot of bad news around Europe (otherwise, they wouldn't have underperformed) but it's still a 350 million people market economy with mostly stable democracies and great purchasing power.

Emerging markets are where the demographic growth is coming from, they may be more unstable but they're the future of humanity

prognastat
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Re: FIRE reaching Critical Mass

Post by prognastat » Fri Oct 12, 2018 5:05 pm

Between the UK wanting to leave, the financial situations in both Italy and Greece, and the issues surrounding immigration and the ensuing political instability I'm not sure Europe is all that promising compared to the US.

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