Early Retirement Extreme Forums

Jin+Guice wrote: ↑

Wed Jul 27, 2022 2:38 pm

Aren't I mitigating sequence of returns risk to a certain extent by continuing to work?

Not only "to a certain exteent" - continuing to work is in fact the only way to truly mitigate sequence of returns risk

candide wrote: ↑

Wed Jul 27, 2022 8:54 pm

Physical cash -- actual dollar bills ya'll -- is among the easiest physical stores of wealth to get your hands on (for now). And yes, you would be forfeiting the difference between what you would get from cash equivalents and the full rate of inflation, but you gain a measure of protection against bail-ins and some bonus protection against cyber attack. For the really paranoid, the "real" cash can be seen as a buffer during the first part of a crisis before you have go to real goods.

Though it is still not a guarantee: eg consider how Modi declared certain bill denominations not legal tender and instantly destroyed a portion of some Indians' wealth.

@ertyu

Good point. This suggests a message for the paranoid: don't just hoard hundreds.

The more you diversify, the more there is a chance that something will be lost or taken. But then, there is more chance some portions will survive. . .

Jin+Guice wrote: ↑

Wed Jul 27, 2022 2:38 pm

I've thought about buying and selling musical equipment, but this requires storing physical inventory, monitoring online shops and guessing correctly which items will become more valuable. I do have pretty good knowledge of this market and researching it more would be somewhat fun for me, but storing inventory and monitoring the store would be a pain.

Remember when you realized that spending to optimize WL was a potential good thing. Storage for a super valuable guitar or LP is no different than paying an expense ratio for a mutual fund. If this is your edge, I think you should use it.

You are correct in thinking of this as a potential restoration business (ie value added), but it doesn't have to be. It's just as easy to know that an LP or guitar is worth 10K and you can get it for 9.5 or 10K and store it. The question becomes will it's inherent value outpace inflation and storage costs. Capital preservation, remember. IOW, can you break even? even without value added?

Jin+Guice wrote: ↑

Wed Jul 27, 2022 2:38 pm

Confiscation vs. sequence of returns risk: Aren't I mitigating sequence of returns risk to a certain extent by continuing to work?

SOR, yes. But this is purely financialized thinking.

Confiscation... IMHO can only truly be mitigated with the type of financial wealth that requires multiple citizenship. Do you want to get that rich? or is that just something you have to cope with? this is better dealt with, from an ERE perspective, with other forms of capital, its much cheaper that way. you seem to already know this and actualize it in your life.

I'm not quite sure why you see everything else so clearly, but fail to understand that the financial side of life can be handled in the same WL 6-7 way you handle the rest of your life.

classical_Liberal wrote: ↑

Thu Jul 28, 2022 12:28 am

I'm not quite sure why you see everything else so clearly, but fail to understand that the financial side of life can be handled in the same WL 6-7 way you handle the rest of your life.

I'm not quite sure what you mean by this, but I am intrigued? What do you feel like I'm not seeing? I feel like I'm not seeing something, but I don't even know where to start looking.

Btw, I am not very concerned with sequence of returns risk or confiscation. Mostly bc I feel like they are out of my control and mitigating them will take a lot of work I don't want to do, so they are risks I have to live with. I do find thinking about them interesting and I like talking to those of you who think more in depth about these things, both out of pure intellectual fascination bc maybe you have found some solution that is easy enough for me to implement?





It would perhaps help if I expanded on the decisions I'm trying to make. @c_L, I get the feeling I'm having the semi-ERE equivalent of what I was talking to you about when you were still in your nursing job.


So I have this pile of money. It's not enough for me to retire by any ERE metrics. The ERE metrics are also hard for me to quantify bc my spending situation is unstable... at the extreme low end. But in a world where $3000/ year = $100k in necessary savings, this makes a huge difference in the math of figuring out how much to save. I also lack the confidence in investing to feel comfortable retiring.

Which is fine bc I don't even want to retire. What would really help is having some kind of concrete financial barometer to figure out if I am relatively likely to be ok in the future. Money is the form of capital I use to prepare for a future that is much like today.

So I am trying to weigh saving enough money for old age vs. taking extended periods of time off/ doing any job I want vs. large capital expenditures (right now this would be housing and land). I should also add that my work situation at my main job has drastically improved; however, this could reverse at any time, in which case I am totally prepared to quit immediately (or try to drop down to 1 less than 8 hour shift per week).


The concrete numbers I am trying to come up with are: What is my budget for a house (I'm buying some sort of moveable tiny house)? What is my budget for land (sort of non-important, bc I am not buying land in New Orleans unless there is a major real-estate crash... which can locally come in the form of a direct hit hurricane)? And what is the amount of money I want to have saved up at each year of my life (as this will determine how much risk I am willing to take in my job)?

There is of course part of me that is screaming to just not care about any of this bc I am likely going to be fine under any scenario.

For all of the decisions I've outlined above plus the YOLO scenario (which just basically means I do any job I want, which is def some job part-time, most of the time), I need a capital preservation strategy, which is why I asked this question. Some of you are questioning me into a territory where I feel like I needed to share more about what my situation is to receive constructive feedback.



Please anyone feel free to continue commenting about capital preservation strategies or the various tangents we've gone off on.



Thanks again for the help y'all. Thanks also to people who commented about Golden Butterfly, rn I am going to try to time buying the indices (yes I know this goes against the philosophy and I am likely to lose money doing it).

2 GB questions: Does anyone have an opinion on doing I-bonds as part of the LT bond portion? $10k would be a significant part of my LT bond position.

Does anyone have any experience with moving money in a solo 401k between funds? Rn I have everything with Vanguard, which may not be the ideal place to do GB (although it looks possible to replicate it with everything except gold and I-bonds).

I have a bunch of non retirement fund cash too, but I'm currently keeping that totally liquid due to wanting to buy a house in the next 1-2 years.

Jin+Guice wrote: ↑

Thu Jul 28, 2022 9:28 am

Does anyone have any experience with moving money in a solo 401k between funds? Rn I have everything with Vanguard, which may not be the ideal place to do GB (although it looks possible to replicate it with everything except gold and I-bonds).

I have a bunch of non retirement fund cash too, but I'm currently keeping that totally liquid due to wanting to buy a house in the next 1-2 years.

I do everything in vanguard (though not in a 401k account), including the gold. I buy ETFs, and vanguard lets you buy non vanguard ETFs through them. GLDM and SGOL are both available through there.

If main time where you start withdrawing is physical disaability, I would look at actuarial tables and set time horizon, then stock/bond portfolio appropriate for this time horizon

In something like GB, I-bonds function more like how the short-term bonds are supposed to work.

LT bonds tend to spike when stocks fall -- a great exception being the current regime of interest rates rising to tame inflation. But look at EDV or TLT the first few months of most stock market crashes. They anti-correlate, and this gives you an opportunity to rebalance -- selling high(er) to buy low(er), thus smoothing your returns.

If there is a draw-down that isn't caused by the Fed chasing inflation, then I-bonds won't have that counter-spike. They are working like, and probably doing a better job, than ST bonds in GB, which by rolling over quickly are able to gain higher yields as interest rates go up.

ertyu wrote: ↑

Wed Jul 27, 2022 10:27 pm

Though it is still not a guarantee: eg consider how Modi declared certain bill denominations not legal tender and instantly destroyed a portion of some Indians' wealth.

I would worry about theft, fire, flood. We burnt up some cash in our house fire. It was a cash gift from my IL’s. Ironically, we had just decided that we would use it to purchase a fireproof gun safe. The fire changed the trajectory of our lives and the gun we were mostly interested in protecting from fire and theft was not ever replaced. Nor would the safe probably done it’s intended job since the fire burned unnoticed for hours. I personally don’t store cash in my house in amounts that exceed what I would be angry to lose.

ertyu wrote: ↑

Wed Jul 27, 2022 10:27 pm

Though it is still not a guarantee: eg consider how Modi declared certain bill denominations not legal tender and instantly destroyed a portion of some Indians' wealth.

They were given 60 days to deposit the cash into a bank account. It was done to clamp down on black money and corruption apparently.

candide wrote: ↑

Thu Jul 28, 2022 10:43 am

In something like GB, I-bonds function more like how the short-term bonds are supposed to work.

LT bonds tend to spike when stocks fall --

This is a great answer to the I-bond question.

Just to expand. LT does well when LT rates are decreasing, which is often correlated with poor stock performance due to poor economic growth.

The thing that makes the GB or PP so great is the noncorrleation. So anything that is substituted MUST have a history of correlation to the substituted asset. IOW, I-bonds add safety of inflation protection but have the opposite impact in a deflationary, low rate environment. So they are best substituted for the STT/cash portion. (Edit to add: Ibonds are a good substitute in today's stagflationary environment, but may not be in the future. Understand why or don't substitute).

I really think this a great example in that a person should understand why this is, before they choose a GB/PP strategy. Not understanding this suggests a fundamental misunderstanding of such a portfolio. I tend to think nonunderstanding leads to questioning, which leads to not following the chosen portfolio at critical times. Which leads to horrible mistakes.

@J+G
Regarding my point above. What I was really trying to get across is that I think its a bad strategy to separate financial NW from personal system. However you choose to invest financially, it should be in sync with everything else you have going on. To view a financial wealth management strategy separately from the rest of your life means a lack of integration. The financial strategy should serve to help "plug holes" or "grease the wheels" of everything else in totality. Put another way, unless you plan to live off a SWR of purely financial assets in the near future, why is SWR important to you?

classical_Liberal wrote: ↑

Thu Jul 28, 2022 12:28 am

Remember when you realized that spending to optimize WL was a potential good thing. Storage for a super valuable guitar or LP is no different than paying an expense ratio for a mutual fund. If this is your edge, I think you should use it.

You are correct in thinking of this as a potential restoration business (ie value added), but it doesn't have to be. It's just as easy to know that an LP or guitar is worth 10K and you can get it for 9.5 or 10K and store it. The question becomes will it's inherent value outpace inflation and storage costs. Capital preservation, remember. IOW, can you break even? even without value added?


SOR, yes. But this is purely financialized thinking.

Confiscation... IMHO can only truly be mitigated with the type of financial wealth that requires multiple citizenship. Do you want to get that rich? or is that just something you have to cope with? this is better dealt with, from an ERE perspective, with other forms of capital, its much cheaper that way. you seem to already know this and actualize it in your life.

I'm not quite sure why you see everything else so clearly, but fail to understand that the financial side of life can be handled in the same WL 6-7 way you handle the rest of your life.

Jin+Guice wrote: ↑

Thu Jul 28, 2022 9:28 am

I'm not quite sure what you mean by this, but I am intrigued? What do you feel like I'm not seeing? I feel like I'm not seeing something, but I don't even know where to start looking.

If J&G is involved with the musical instrument trade, and takes care of the instruments, and profits from bid-ask spreads or increased nominal prices, he is an active participant in preserving capital, and the activity is congruent with the rest of his life.

If he buys long term bonds or stocks, which he knows nothing about, he is putting money into a financialized managerial system where others attend to the capital and the costs to him are hidden. And maybe the capital is stolen. And whether or not it is stolen, it may be destroyed either way.

That is not to say you couldn’t benefit from buying financial instruments, but if investing and markets are boring to you, really simple instruments that aim to preserve capital (cash, I-bonds, gold) are going to maximize your results relative to effort.

Maybe a PP could be implemented for better gains with more effort (IMO the other instruments on offer from the PP offer very poor and probably negative long term future returns from the other instruments). So if I am right that US stocks and US LTT have poor future long term returns, the extra effort would be for nothing.

If you have retirement funds anyway and GB/PP is of interest, you can buy stocks and bonds with those funds because you are more limited with what you can do, but, if I recall correctly, you would not have tax advantaged deferred funds as a sizable piece of your ongoing net worth increases because you don’t work full time jobs.

Outside of that, you would have to find alpha, and J&G seems poorly equipped to attempt that in the financialized world.

Capital preservation discussed further here 25:37-30:35

https://m.youtube.com/watch?v=OiQnqA6zRkE%3D1537s

chenda wrote: ↑

Fri Jul 22, 2022 3:26 pm

I'd be interested if anyone here invests in local businesses. Hairdressers, cafes, nail salons, massage services (not 'massage') or, well, anything really. Employ a manager or be a silent partner and let someone else do all the hard work and you cream off the profits. I have no idea of how easy this is.

Given the failure rate of small businesses...........this would not be easy at all

Jin+Guice wrote: ↑

Wed Jul 27, 2022 2:38 pm

This is sort of my strategy, it's just that I have way more money than I realistically need to just keep it on hand and it just keeps going up.

This is a sign of success of the current system. You are making deposits now, one day you will make withdrawals.

Genesis 41:30
Genesis 41:54

Hey J+G, hope all is well man!

Just updating this a bit for you. If you haven't done anything yet, or have more to allocate, you should consider TIPS over the I-Bond now. Rates have DRAMATICALLY shifted in favor of TIPS over the past several months (see the last link). An I-bond will pay you CPI+0 right now, and a ten year TIPS will pay about CPI+1.6%, plus they pay out interest on the adjusted principle balance.

A few considerations.
1)Taxes. With TIPS you get taxed on the interest and inflation adjustment as it happens. This means that if you are in the 0-10% federal tax bracket a longer dated TIPS may outperform I bond for you by a decent margin these days. TIPS also ensures no single large tax hit the year you redeem (ie prevents risks in known unknowns about future income tax brackets/rates). This can be good or bad depending on your tax situation as noted above.

2)The amount of interest will shift as the value of the TIPS changes with inflation (ie higher inflation, more interest on the next payment).

3)TIPS are more liquid and can be sold on the open market at all times. They will have more or less open market value based on changes to interest rates on newly issued TIPS (IOW rate sensitivity). I Bonds have a 1 year required hold period, and then penalties for cashing in in the first 5 years.

4) I-bond NEVER devalue in deflation. So with year one CPI gives 10% interest, and year two CPI is -2% underlying asset remains the same. TIPS never devalue below the original FACE VALUE, but can give back accumulated inflation additions to the adjusted value if deflation occurs. Note, this only matters if we see YOY deflation, which has only happened once in the last 70 years and it was very low (-0.4% i think). Additionally, rates will likely move lower in deflation and that will more than cancel out any losses.

Some references if your interested.

https://www.treasurydirect.gov/marketab ... ties/tips/ (Trading Info)

https://www.thebalancemoney.com/compari ... ds-2388668 (Concise comparison info)

https://www.multpl.com/10-year-real-interest-rate (rate info)

classical_Liberal wrote: ↑

Thu Oct 13, 2022 3:04 pm

I-bond NEVER devalue in deflation. So with year one CPI gives 10% interest, and year two CPI is -2% underlying asset remains the same. TIPS never devalue below the original FACE VALUE, but can give back accumulated inflation additions to the adjusted value if deflation occurs. Note, this only matters if we see YOY deflation, which has only happened once in the last 70 years and it was very low (-0.4% i think).

TIPS adjust monthly and I-bonds adjust semi-annually. So you can front-run the adjustments to both if we have deflation in either period and you want to sell. We've had two periods of semi-annual deflation in the history of I-bonds, in spring 2009 (-2.78%) and spring 2015 (-0.80%).

Bonds, all risk, returns below m2 or cpi.

Stocks, tracked m2 in US last 20 years, no ath since 2000 when adjusted for m2. Volatility, counterparty risk, losing money after taxes.

Real estate, at least you can use it and have control, less chance of seizure typically but illiquid and complicated.

5 years in cash, checking accounts pay well nowawadays compared to the first 2 options. Rest in btc or eth in a cold card/foundation/bitbox/grid with a 2pw at least, a multi sig ideally. Take profits every 4 years to top up the cash reserves.

Working well for me. Don’t forget to take profits for taxes if you’re American or Eritrean.

Wouldn’t yet recommend staking large portions of eth due to counterparty risk if using a liquid staking solution like lido or rocket and technical/slashing risk if doing directly.

@Unemployable

Good point about the duration periods of price changes. My understanding of I Bonds is that in a deflationary CPI print, CPI can not be calculated below the zero point. IOW CPI+0 I bond will never yield less than zero in any six month period. If CPI is calculated at -3, for the bondholder, the price remains CPI 0. That is not the case for a TIPS holder, as a negative CPI month will result in losses of accumulated inflation adjusted principle, but cannot go below original face value.

Side note tangent. Maybe I was wrong about Credit Suisse when I posted in your journal last week?
https://www.zerohedge.com/markets/cue-d ... -swap-line

classical_Liberal wrote: ↑

Fri Oct 14, 2022 2:19 pm

Good point about the duration periods of price changes. My understanding of I Bonds is that in a deflationary CPI print, CPI can not be calculated below the zero point. IOW CPI+0 I bond will never yield less than zero in any six month period. If CPI is calculated at -3, for the bondholder, the price remains CPI 0. That is not the case for a TIPS holder, as a negative CPI month will result in losses of accumulated inflation adjusted principle, but cannot go below original face value.

That is all correct. Negative CPI adjustments do matter to those of us who bought I-bonds with a positive premium. In that case the rate goes below the amount of the premium when six-month CPI is negative, but again cannot go below zero.

For those keeping score at home, they use CPI-U. It's often useful to have a table showing the month-by-month values, and my go-to link for that is here. Although it says "Mid-Atlantic" the first table is the national CPI=U.

So I am trying to weigh saving enough money for old age vs. taking extended periods of time off/ doing any job I want vs. large capital expenditures (right now this would be housing and land). I should also add that my work situation at my main job has drastically improved; however, this could reverse at any time, in which case I am totally prepared to quit immediately (or try to drop down to 1 less than 8 hour shift per week).

I've read your journal. The way you live your life is not terribly compatible with FIRE models of risk and return.

Your low burn rate, coupled with independent earned income sources, means your risks/concerns are simply different from those who live in the salaryman quadrant, then retire to become passive salarymen.

If you suffered a 90% loss on your savings, how would that affect your life a month afterwards? And how would a FIRE salary man react? Do you see what i mean about the difference?

So I would recommend that you stop trying to apply FIRE-logic to your stash. Your stash serves a different purpose.

Rather, I would recommend that you look at your stash as a tool. It allows you to leverage your interests when you find opportunities. And finding those opportunities is closer to the way you choose to live than finding passive income opportunities.

Use your money to do that which you already want to do. So maybe the next urban farm you work on, will be your own, or partially your own.

Then your stash simply becomes one more aspect of all that you bring to the table, on anything you want to do. It is an enhancement of the J&G package, just one more trick that you can pull off when/if the need arises.

If your stash decreases, accept it, or change it. That's a completely different reaction from what a salary man could do. That's why your risks/strategies are different.

But by all means, invest what isn't currently needed. But don't give investment more headspace than it deserves. Keep your focus on achieving whatever you want, not preventing that which you don't.