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Re: Living Off Your Money by Michael McClung

Posted: Sun May 02, 2021 10:32 am
by NotSoERN
This has been a fascinating thread having just read McClung's book (well almost, I'm still on the final chapter on GI).
Just wondering if you had seen any reference to investment management/platform/fund fees (aside from in the GI chapter)? Presumably these have to be taken into account as an 'expense' that the SWR has to cover? I listed to a recent webinar interviewing Bill Bengen (originator of the '4% rule') who made a brief comment that his calculations assumed very low costs. But he didn't elaborate. Just wondering what McClung would have to say about this.

Re: Living Off Your Money by Michael McClung

Posted: Sun May 02, 2021 2:03 pm
by Scott 2
While his why is great, I found McClung's treatment of exactly what to buy and how cursory. His example funds directed me to factor based investing, specifically this book: ... 0692783652

McClung didn't go deeply on fees. A big problem I had, was finding access to factor based funds or ETFs. The dimensional funds he lists, are typically offered via financial advisors, charging significant asset management fees. This is 50-100 basis points, on top of the individual fund fees. When you are looking at SWR in the 3-4% range, that's a big chunk. It seems to eat the possible superior returns.

From what I read, the last decade of bull market returns has not been kind to financial advisors using McClung style portfolios. Protection from the bad returns comes at a limiting of the good returns. During a long bull market, people wonder why they are paying for underperformance (tracking error) and leave. I think this created pressure on Dimensional to offer ETFs to the public.

Launch of the Avantis factor ETFs applied additional pressure. Dimensional has responded by offering some ETFs to the public. From what I could tell, it's now possible to build a McClung style portfolio with reasonable fees.

After reading the factor based investing book above, and heavily assessing my own personal situation, I decided not to pursue it.

The gap from my starting point was just too high. I'd never even bought an ETF before. Simply implementing a tax efficient, low cost, 4 fund portfolio required me to learn a bunch. I screwed that up a little. Maybe more important - I could see the gamification of modern investment tools easily drawing me into rash decisions.

I struggled with the idea of buying an international REIT or specific emerging market fund. I have no idea what those really are - funds of what? It's not houses. I wasn't making time to resolve my ignorance, so such purchases felt like speculation.

It also looked to me like the premium associated with a specific factor decreases over time, as the broader investing community learns of it. I saw the book linked to above, as well as factor based funds being offered to the public, as symptoms of that erosion. I don't want to continually learn about new factors.

The final nail in the coffin, was wanting a strategy my wife could understand and follow herself. She has zero interest and limited aptitude for this stuff. McClung's portfolio was too complex.

We copied the vanguard 60/40 life strategy portfolio and adjusted SWR downwards to accommodate.

Re: Living Off Your Money by Michael McClung

Posted: Mon May 03, 2021 3:59 pm
by NotSoERN
Thanks for your tip on factor based investing - something I've not come across. I'm not at the stage of building the retirement portfolio but trying to build a McClung style portfolio with reasonable fees would be the aim. Reference to Dimensional is handy - I'm UK-based so finding an equivalent may be interesting. Vanguard is growing in the UK and the low fees are attracting a lot of business (including some from me via their life strategy portfolios as part of the accumulation phase). Like some people I expect, I do have concerns around how McClung's Prime Harvesting and other recommendations will work with market values high (particularly in the US) alongside the increasing risk to bond values with very low interest rates and expectations for inflation.

Re: Living Off Your Money by Michael McClung

Posted: Mon May 03, 2021 9:23 pm
by Scott 2
I am using prime harvesting. With US valuations so high, I expect it to act like a bond tent. From what I've seen in other sources (including ERN) the bond tent tests well for mitigating sequence of returns risks in a high CAPE environment.

Personally, I found the arguments against prime harvesting more theoretical than practical. The spreadsheet makes it easy to implement. Also, when it comes to explaining things to my wife, there is benefit to a well documented strategy provided by an unbiased third party.

I don't know anything about investing in the UK.

When it comes to investing in the US - buying life strategy funds, instead of the underlying funds (and rebalancing), was the biggest chunk of "sure" money I left on the table. It's impossible to build a tax efficient portfolio when one fund owns all asset classes. I could have saved a couple thousand dollars per year, had I been more tax efficient.

Re: Living Off Your Money by Michael McClung

Posted: Fri May 07, 2021 5:42 am
by NotSoERN
Thanks for your comments - nice to hear you're using Prime Harvesting. As I read/learn more no doubt I'll return to this.