Losing your FI to the markets

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unemployable
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Re: Losing your FI to the markets

Post by unemployable »

ducknald_don wrote:
Fri Mar 31, 2023 1:01 pm
I'm not sure about real estate
Oh, I'm probably even less sure; I was just giving examples of things that do well in anticipation of inflationary environments. Of course if it's your primary residence and you can cover the carrying costs, you don't even have to care what it's worth and can write it down to zero for scenario analysis purposes.

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Ego
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Re: Losing your FI to the markets

Post by Ego »

At some point this type of question shifts from a practical problem - how to hedge the financial risk - to an emotional/psychological one - how to deal with the fear. Need to hedge vs need to mitigate fear have different causes so different solutions.

Fear becomes overwhelming when the person believes they have no options and cannot return to work. They are dependent on their investment income. If it disappears and they are incapable of earning, they are in big trouble.

My solution, don't become incapable.

My peer group and Boomer friends are experiencing this now. The largest causes are physical and/or cognitive. For most, it is too late to make the necessary changes to maintain their physical and cognitive abilities. The second largest cause is technological. They did not grow up using computers and they have to learn things step-by-step rather than have an intuitive feel for how things work. When software or hardware updates, they simply cannot deal with learning the new processes rather than just knowing how it works. Something as simple as a password reset is beyond them.

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Re: Losing your FI to the markets

Post by jacob »

Compare ...
Seppia wrote:
Wed Mar 29, 2023 3:22 pm
Historically though US indexes (and I suspect global diversified to have done more or less the same) have seen their dividends fall MUCH less than prices in recessions.
IIRC in the 2008-9 GFC, where world equities plunged 50%, dividends were cut roughly 20% only.
to
ertyu wrote:
Wed Mar 29, 2023 11:39 pm
While your overall point stands, I don't think the experiences of those that caught one of history's greatest sustained bull markets (a 20+ year downward interest rate trend + QE) can generalize to those retiring now. Sequence of returns risk looks much differently for someone retiring now vs someone retiring in 2009.
This is apples and oranges. This is the difference between investing for income/living off the dividends or investing for total return/using a withdrawal strategy. One can argue that according to economic theory, they're the same---it's just numbers---but in reality they are two different mindsets and approaches.

I'm not going to say that one is better than the other. However, it is important to match one's approach with one's temperament and worldview in order to sleep-well-at-night. For example, since I focus on income, I sometimes feel jealous when there's a giant bull run and I miss out on capital gains. OTOH, I also don't suffer through capital losses and I always have capital income. This is all about risk tolerance. From an "more than enough income"-perspective, increasing one's networth is nice. But it is a nice-to-have, not a need-to-have and that makes a big difference for SWAN. Gains are not essential insofar the main goal is but to have a sustainable income rather a new NW high score or an increased peak from which to fall.

Investing for income also provides an automagic adjustment for all the CAPE debates. If the overall market yield is only 2%, you need to invest twice as much as the 4% SWR total return people. It's easy enough to get to 2% with a median salary at WL7 and rather harder at WL5 even with a salary that's 2x or 3x the median.

PS: With the yield curve going up, there's another opportunity for people to get on the income-train while the total return crowd sees this same opportunity as their SoR-risk having decreased.

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Sclass
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Re: Losing your FI to the markets

Post by Sclass »

Ego wrote:
Fri Mar 31, 2023 1:57 pm
My solution, don't become incapable.
:lol: When I think about harnessing creativity and initiative for money getting I think about your activities. It’s one thing to save. Your urban mining threads take self sufficiency to another level. As long as there is consumer runoff you’ll never go broke.

The sad part about people psychologically giving up is they often are knee capping themselves. A lot of this failing is a matter of mental attitude. As long as I don’t get dementia I won’t be going out a sucker. One has to keep up the fight. From what I can tell you approach it more as a game and less as a fight. A lot of ancient business people have this attitude.

@unemployabale yeah the inflation thing was also from my childhood. It really stressed out my folks. Dad’s income was flat, his investments flat and prices were taking off. Mom didn’t want to work outside the home like our neighbors. So we made do on less by doing almost everything ourselves. We made a lot of stuff and repurposed a lot of things my dad stole from work. I think I was deeply influenced by that upbringing. Not that it is correct, but it did allow us to survive when we had weak buying power. This went on for several years.

Investing for dividends is good! The OP’s numbers suggest he or she is somewhat capable in doing this.

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Lemur
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Re: Losing your FI to the markets

Post by Lemur »

Might be worth OP's time to look into market-neutral strategies.

bridgebetween
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Re: Losing your FI to the markets

Post by bridgebetween »

Laura Ingalls wrote:
Thu Mar 30, 2023 3:56 pm
@bridgenbetween

I am curious as to your timeframe to FI. What kind of market downtowns have you been through before?

I am having a had time figuring out if you have an asset allocation issue? anxiety issue? Or just a first timer at market conditions that downturns did just recover quickly?
It took me 8 years to get to FI and quit working.
My anxiety is around companies in general, being able to pay out and sustain dividends.
I am not taking capital from my portfolio, its income-based.
Some of the funds are fixed-income ones.
I am getting c. 5% because I bought really low, locked in a high % yield, also have one equity that yields about 7% and its solid enough.
Yes, I have been thru market carnage before.
The way I look at things is... if I get taken down, then most everyone else will also be goosed.
Ive thought about a side hustle, but I have self-diagnosed with a serious attitude problem. I am not able to work for the man anymore.

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Re: Losing your FI to the markets

Post by Laura Ingalls »

Hmm
Being the geezer that I am I think anyone didn’t have money in the market in 2008 and get laid off for extra misery is just a baby. :lol:

I think less focus on actual dividends and more on other things (side hustle, garden, social capital, buying Berkshire and selling fractional shares and not getting any dividends.)

I never paid too much attention to dividends. Mostly because in the straight up accumulation phase they just got reinvested. Currently because it is less impactful than our two crummy part-time jobs, premiums on covered calls, LT capital gains, keeping income low-ish for good health care subsidies and financial aid I and even credit card points games. Look at the income robustness thread.

At the end of the day it’s about if you are living the life you want.

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Ego
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Re: Losing your FI to the markets

Post by Ego »

Sclass wrote:
Fri Mar 31, 2023 8:09 pm
One has to keep up the fight. From what I can tell you approach it more as a game and less as a fight. A lot of ancient business people have this attitude.
This morning I ran into Roger, the guy who bought a painting at a flea market and sold it at Sotheby's auction for $1.4m in 2000. It was dark and we were side by side, our headlamps shining down into the bottom of boxes full of dead people clutter as we dug for gems. Without looking up I said, "Roger, if you had all the money in the world, you would still be right here, right now, wouldn't you?" He didn't hesitate a second, "You bet your life I would."

I don't know for sure what happened to all the money he got for the painting but I believe it somehow evaporated. While you can never really know what is going on inside someone else's head, he sure seems to me to be perfectly indifferent to the loss. That is freedom.

Henry
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Re: Losing your FI to the markets

Post by Henry »

@ Ego

The literary quality of that post is breathtaking. The only change I would make is to the last word. Instead of "freedom" I would use "fucked" but that is of course subjective. Which just so happens to be the state of my FI due to the unspeakable things the markets has done to my portfolio.

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Sclass
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Re: Losing your FI to the markets

Post by Sclass »

Bought some tires yesterday for my car. My random thoughts on inflation I had while wandering around Costco last night:

I’ve owned the same SClass Mercedes for thirteen years. I dug out the receipts for the last three sets of tires yesterday to see what I’d paid.

2010 prior owner put on 4 Michelin Primacy tires at Costco for $400 to sell the car. Nice guy. Some kind of ritual people do to magically add value to an old car before selling. I went on to drive the car seven years on his new tires. Had his receipt. He didn’t get the buy four tires get one free deal Costco routinely runs.

2017 I replaced all four tires with four Michelin Defender tires at Costco for $480. This is a slightly cheaper tire than the Primacy. Took advantage of the buy four pay for three deal.

2023 last night I had four Michelin Defender tires installed at Costco for $680. Buy four get one free gimmick again. Same car. Same tires. The tech said there was some tread left. I didn’t drive them as bald as I had in the past. I figured I can afford to replace them a year earlier. I’m getting to old to drive tires bald.

Made me think of this thread. Things go up. These are the same things. I guess they didn’t go up that much. 7% a year will double in ten years. Maybe latex prices keep up because they cannot print rubber trees.

While I was walking around at Costco I saw their offering for a new Nissan Altima out front for $30,000. I hear the average car sale in the US is now $40,000. Ouch.

My investments have gone up over the same period but it is kind of a disconcerting feeling to think that a good part of that asset appreciation is just keeping up with rising costs.

WFJ
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Re: Losing your FI to the markets

Post by WFJ »

The inflation dragon had been dormant for 40 years, it's out and not going away quietly. The only way to hedge against inflation is to have a job that benefits from inflation, drug sales or insurance sales are the best examples as prices go up, commissions go up or be highly leverage with income producing assets (and hope you can refinance when the loans roll over).

I grew up during the last bought of inflation and parents had one car over a decade old as a result, parents never owned a car made in the 70's, 1969 Plymouth, then a 1986 Honda. Don't think it's possible to explain inflation to someone who didn't experience the 1970's in the US themselves (or several developing nations over the past 30 years). Had a friend from a country that forced citizens to exchange old money for new money every few years and still made her angry 20 years later talking about it as she new it was just a way for the government to reduce her family's ability to live.

WFJ
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Re: Losing your FI to the markets

Post by WFJ »

Always have a plan to return to work, learn a new skill that someone else will pay for. In the FIRE community there is still this belief that one just has to avoid a negative 50%+ return year and FIRE will work. What wrecks FIRE is a few years of small negative returns in a row, the longer the time horizon, the higher probability this happens. 50 years is 2x-3x riskier than a 30-year time horizon FIRE as a result. "The 4% rule" more accurately should have been called "The 30-year retirement rule" to avoid this misconception. (I assume OP is planning a 30+ year time horizon FIRE).

OP: I'd plan to return to work. I've been semi-FIRE's several times and always had a plan to return to work when working conditions improved. Even now, if someone paid me to do something interesting, would take it despite not needing the money. Forsee a market grind for 5+ years and planned accordingly.

zbigi
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Re: Losing your FI to the markets

Post by zbigi »

You can also take a perspective that, as long as your money was invested in real estate and stock market, then the very high gains made in the past 10 years was mostly just asset inflation that was now caught up with consumer inflation. Which means that people's capital in stocks/RE was well protected and there's no "loss" - they just need to use 2012 or 2014 and not 2021 as a benchmark (in 2021 their assets were already super inflated, but consumer inflation hasn't started yet - it might have given people temporary illusion of being richer than they actually were).

thedollar
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Re: Losing your FI to the markets

Post by thedollar »

You are better off than 99.99% of everyone out there.

- Your expenses are around 1% of your NW and they are covered 4x by cashflow.
- You are well diversified
- Your spending is extremely low and that's only possible if you are skilled/flexible

Imagine being a regular family right now. They don't have any spending flexibility/skills. They don't have any room for these price increases because they are likely spending 90-100% of their income already. If they loose their job (and they might in a recession) they are screwed.

With the interest rate at 5% you could cover your entire expenses just from the interest on your cash.
Last edited by thedollar on Thu May 04, 2023 7:58 am, edited 1 time in total.

loutfard
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Re: Losing your FI to the markets

Post by loutfard »

Our not very ERE consumption decisions put me on the winning side of the inflation game:
- The mortgage on our primary residence is only a hair over 1% fixed APY, refinanced exactly at lowest ever interest in history.
- Energy price inflation hardly touches us in a very well-insulated townhouse with much of our food from a food waste app.
- Bought a secondary residence just before a serious covid-19 related rural property price hike.
- Financed the secondary residence purchase with savings.
- Financed the (re)build with a mix of savings, interest free loan from my parents (they insisted) and a 3.99% fixed APY personal loan.
- Sourced most building materials and labour at covid slump prices, right before cheap Russian and Belarussian imports mostly stopped.

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