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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Tyler9000
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Re: FIRE reaching Critical Mass

Post by Tyler9000 » Sat Oct 20, 2018 11:43 am

jacob wrote:
Thu Oct 11, 2018 7:10 am
@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:
For a good idea of how long total real stock market returns can stay negative, try this excellent PDF from Crestmont Research. Note the angled black line at the 20 year mark. Jacob is correct that stocks have proven capable of staying underwater in terms of real purchasing power for 20 years, and I totally agree that the younger "stocks always go up!" crowd with little sense of financial history will eventually be in for a rude awakening when the inevitable drawdown exceeds their financial and emotional ability to stick with the plan.

That said, diverse rebalanced portfolios of different types of assets are a whole 'nother story. That Crestmont Research chart was the inspiration for my own Heat Map. Browse the same data for different types of portfolios, and you may not be so fast to write off indexing as an option. ;)

BTW, if you want to play with the long-term stock numbers for yourself Robert Shiller publishes free S&P500 and CPI data going back to 1871. You can also find my calculations for nominal US stock returns (including dividends) for a bunch of different indices here.

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SnailMeister4000
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Re: FIRE reaching Critical Mass

Post by SnailMeister4000 » Tue Nov 20, 2018 3:10 pm

Here's another article: www.theguardian.com/money/2018/nov/20/c ... ho-say-yes

"(...) Through his widely read blog, Adeney has become the philosopher king of the movement, though he admits his ideas were anticipated by earlier practitioners such as Jacob Lund Fisker in his blog Early Retirement Extreme. (...)"

thegreatvoid
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Re: FIRE reaching Critical Mass

Post by thegreatvoid » Wed Nov 21, 2018 12:14 am

what are the first two rules of fight club ?

Sorry for the douche movie reference, but I don´t get why everybody want´s to widely spread ERE and FI. Understandable because a few key players have a lot to gain monetarily, but I think we should just let people find us. If they want the information fine, we should be happy to give it to them, but not try to convert anybody.

I also feel a little like Gollum. My Precious !!

Seppia
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Re: FIRE reaching Critical Mass

Post by Seppia » Wed Nov 21, 2018 12:28 am

I think it's still such an incredibily different lifestyle from "the norm" that most "normal" people reading these articles just think of it as something weird and stranger, but I agree.
I think there is the risk of backlash, especially with the inevitable pension crisis that is going to affect most western counties in the coming decades.

thegreatvoid
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Re: FIRE reaching Critical Mass

Post by thegreatvoid » Wed Nov 21, 2018 12:44 am

@Seppia totally know what you mean,
@herp wrote something about the danish government conducting a study, as to why so many people have left the workforce and considering changing the tax code to get full employment.

That´s one of the things I hate the most about europe. The EU is slowly turning into the Soviet Union.

People and politicians have this insane ideology, that work is the only thing that gives a person meaning ( I hear this particular much from left parties ) and that we all have the obligation to work and contribute to society. Retirement age being pushed to 70 . unless we have 0 % unemplyment the world isn´t right.

Bet the EU would love to get it´s hands on chinese the social credit system and implement it on it´s citizens.

The US seems better on this point. It alllows for more pesonal freedom. A couple of years ago there was a lot of talk about the low workforce participant rate. I believe it has risen again, but should it dip , I wouldn´t be suprised if governments implemented a Bachelor tax.

Jean
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Re: FIRE reaching Critical Mass

Post by Jean » Wed Nov 21, 2018 3:15 am

I wan't to propagate it because degrowth would make the future better for my grand children. ERE is a very attractive way to degrow. It is also a very good way to take advantage of capital favoring law, thus reducing this advantage. It also increase the value of labor, which is good for social justice. If people sensitive about this choose to go for ERE, they will be less anoying than now.
I'm confident about the inability of society to force me to work, because I would be better of if society collapsed and I don't really need its consent to have my lifestyle. It's just less annoying with it.

Crazylemon
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Re: FIRE reaching Critical Mass

Post by Crazylemon » Wed Nov 21, 2018 3:31 am

I spent more time than I care to admit in the comments. Same criticisms as aways although the more statist 'you must contribute' theme was stronger. | guess that could be a concern but really hard to specifically target a group of people living on low incomes with <1mil of capital because you affect so many other groups more.

Given one of the main benefits of pushing more people towards ERE is moving vaguely in the direction of screwing the planet up slightly less I am generally in favour.

tonyedgecombe
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Re: FIRE reaching Critical Mass

Post by tonyedgecombe » Wed Nov 21, 2018 4:03 am

@thegreatvoid That kind of works both ways though, you could argue the US makes it harder because there is little state support to fall back on, healthcare being the obvious problem. In reality lack of employment is seen as a problem everywhere and politicians are quick to claim credit when it is low.

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7Wannabe5
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Re: FIRE reaching Critical Mass

Post by 7Wannabe5 » Wed Nov 21, 2018 6:10 am

Going off topic a bit... I am wondering if there is some tail wagging the dog in this analysis? IOW, maybe it's not the case that the message is spreading, but rather that the receptive audience is growing? Something to do with the fact that the pace of technology/innovation at the bleeding edge is greatly accelerating average career cycle? So, it becomes more natural to consider the possibility of retiring and investing in an index fund in order to avoid having to retool again and again? IOW, let whoever is in control of the equities represented do the work of retooling. Something like that?

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Re: FIRE reaching Critical Mass

Post by tonyedgecombe » Wed Nov 21, 2018 6:50 am

@7w5 That's an interesting point, especially when you consider many of the evangelists seem to be in software development which has been booming over the last few years and has a reputation for kicking people out when they start going grey.

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Re: FIRE reaching Critical Mass

Post by jennypenny » Wed Nov 21, 2018 7:40 am

When I was driving home from the airport last night, I saw a billboard for Prudential that said "People say Millennials are lazy. Retire early and prove them right."

I think the fact that a big corp is trying to make a buck off the idea definitely means it's going mainstream. (the idea at least ... I still don't think its most people's cup of tea)

Mister Imperceptible
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Re: FIRE reaching Critical Mass

Post by Mister Imperceptible » Wed Nov 21, 2018 9:42 am

If you have a genuine desire to see civilization perpetuate/grow/advance and for mankind to survive/reach the stars, I can respect that you would want to issue the imperative “You must contribute to society.” This would require at least an historical sense, and perhaps even, a religious one.

However, it seems most of the people doling out this imperative are expressing sour grapes because they can’t FIRE. In practice, many of these people do not even know what contributing to society means (digging holes and filling them back up does not count), and are more likely to be contributing to the bank accounts of their corporate overlords than to society.

For those who think FIRE is some great thing we have to keep secret, I am 100% confident it will never become mainstream. Most people do not have the discipline/time preferences. Also, this:

https://en.m.wikipedia.org/wiki/Iron_law_of_wages
Jean wrote:
Wed Nov 21, 2018 3:15 am
I'm confident about the inability of society to force me to work
baller

American Employer: We are CONVINCED of our ability to employ you. We will give you a two million dollar signing bonus and pay all of your expenses each time we need you to fly to America.

Jean: Two million is nothing. It’s NOTHING. It’s pennies in today’s world. Besides, I’m very virile, and cannot fly to America for work because I may have impregnated someone between now and each time you wish me travel.

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