dhb

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it is the easiest available measure of broad stock market performance I can find for you and likely the most applicable to an expectation of what you would generate these days via ETFs or index funds over a similar macro environment.
But it's skewed by only taking positive results since the negatives are removed. So what's the real return?
 

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But it's skewed by only taking positive results since the negatives are removed. So what's the real return?
the short answer is it does not effect it to a relevant degree. On a market cap weighted basis, as companies head to zero they carry less and less weight in the total market. It gets to be a fairly dense academic discussion if you want to wade deeply into the topic.
 

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the short answer is it does not effect it to a relevant degree. On a market cap weighted basis, as companies head to zero they carry less and less weight in the total market. It gets to be a fairly dense academic discussion if you want to wade deeply into the topic.
It might not affect the market much but at the individual portfolio level it will.
 
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It might not affect the market much but at the individual portfolio level it will.
not if the portfolio is something like a total market ETF. Of course if you invest in individual stocks that has separate specific risks. I'm referring to market returns and market risk.
 

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But the real world return of the index is not what the chart gives you right?

"Over the past 60 years or so, the S&P 500’s composition has changed dramatically. In 2007, the index’s 50th anniversary, S&P published a list of the 86 companies that remained from the original lineup. That number has steadily declined, and today, only about 60 original members remain."
 

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But the real world return of the index is not what the chart gives you right?

"Over the past 60 years or so, the S&P 500’s composition has changed dramatically. In 2007, the index’s 50th anniversary, S&P published a list of the 86 companies that remained from the original lineup. That number has steadily declined, and today, only about 60 original members remain."
I didn't link a chart, merely showed the calculated return. The S&P changes every single year and you get that return each year with index funds and ETFs.
 

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You continue to misrepresent my idea. I never said that "there is no reason to believe that stock market returns will change any time soon". I said there is no reason to believe that the tradeoffs paying off a mortgage vs investing will change any time soon. That is a fundamentally different statement. The advantages over decades towards investing and getting compound interest so outweigh a tax advantaged fixed rate mortgage that it has never even been particularly close. The idea that it is overwhelmingly likely to continue favor investments, even if by only a small amount, is not really controversial if your timeline is 30+ years.
It's not a misrepresentation. It's a trivial difference because you're still comparing paying off a mortgage to historical stock market returns. Compounded interest is great, but what if we have great depression/ultrastagflation redux part deux and the underlying stock assets have dropped 60% in value at the end of your investment period vs remaining flat from 1964 to 1984 . Additionally, you also didnt address whether paying off the mortgage early and then being able to invest a higher amount in the tail end would lead to a higher total return.

Again, I dont necessarily disagree with the statement that investing beats paying off a mortgage, mostly because I think technology in general is still in its historical infancy and likely its advancement will lead to continued levels of economic growth over the next 30-40 years. But, at the end of the day, this is more a faith statement than a reasoned analysis. We have no idea what kind of risks we will face from rising debt, being at the tail end of a 30 year bond bull market, climate change, resource depletion, demographic change, international competition, geopolitical strife, internal politics etc etc.
 
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Mman

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It's not a misrepresentation. It's a trivial difference because you're still comparing paying off a mortgage to historical stock market returns. Compounded interest is great, but what if we have great depression/ultrastagflation redux part deux and the underlying stock assets have dropped 60% in value at the end of your investment period vs remaining flat from 1964 to 1984 . Additionally, you also didnt address whether paying off the mortgage early and then being able to invest a higher amount in the tail end would lead to a higher total return.
Your trivial difference is a different topic than what I am addressing. I am not saying "stock market returns will be awesome". I am saying that when you look in total (tax benefits included) the idea that paying off your mortgage super early is going to end up as having been the best move you could have made is unlikely. I mean it never really has been. It's like Dave Ramsey's debt snowball paying off small debts first instead of high interest debts first. It's a psychological thing that works for some people, but mathematically it isn't the best move.

When talking about stock market returns as compared to paying off a mortgage, the odds that the stock assets are 60% less valuable 20 or 30 years later than they are now is so low as to be not worth considering. Stocks drop short term, if they drop for decades straight that means we have bigger problems in our country than people worrying about who paid off their mortgage vs who didn't and you probably shouldn't have any assets invested in this country.

As for not addressing paying off mortgage early and then having more to invest later, the spreadsheet I created does exactly that and every single post I have made utilized that assumption because that is the only way to think about it. You can plug in whatever you want but it invests every dollar that would have been going to the mortgage as soon as the mortgage is paid off. With compound interest, it's the earliest invested dollars that have the outsized biggest returns which is why investing earlier is almost always better than investing a larger amount later.

The only way to see bigger returns by waiting to invest until later gets into market timing and suggesting the market is going to drop for about the next 5 or 10 years and only then start bouncing back and shooting up.
 
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Your trivial difference is a different topic than what I am addressing. I am not saying "stock market returns will be awesome". I am saying that when you look in total (tax benefits included) the idea that paying off your mortgage super early is going to end up as having been the best move you could have made is unlikely. I mean it never really has been. It's like Dave Ramsey's debt snowball paying off small debts first instead of high interest debts first. It's a psychological thing that works for some people, but mathematically it isn't the best move.

When talking about stock market returns as compared to paying off a mortgage, the odds that the stock assets are 60% less valuable 20 or 30 years later than they are now is so low as to be not worth considering. Stocks drop short term, if they drop for decades straight that means we have bigger problems in our country than people worrying about who paid off their mortgage vs who didn't and you probably shouldn't have any assets invested in this country.

As for not addressing paying off mortgage early and then having more to invest later, the spreadsheet I created does exactly that and every single post I have made utilized that assumption because that is the only way to think about it. You can plug in whatever you want but it invests every dollar that would have been going to the mortgage as soon as the mortgage is paid off. With compound interest, it's the earliest invested dollars that have the outsized biggest returns which is why investing earlier is almost always better than investing a larger amount later.

The only way to see bigger returns by waiting to invest until later gets into market timing and suggesting the market is going to drop for about the next 5 or 10 years and only then start bouncing back and shooting up.
If your mortgage is paid off, would you recommend taking out a mortgage so you can invest in securities?

If you still have a mortgage, would you recommend taking out a second mortgage so you can invest more in securities?
 

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If your mortgage is paid off, would you recommend taking out a mortgage so you can invest in securities?

If you still have a mortgage, would you recommend taking out a second mortgage so you can invest more in securities?
One small enough that you can afford it without relying upon those securities? Not a bad idea if you get a good enough rate.
 

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If your mortgage is paid off, would you recommend taking out a mortgage so you can invest in securities?

If you still have a mortgage, would you recommend taking out a second mortgage so you can invest more in securities?
Personal financial recommendations are beyond the scope of this thread but in general I would advise against either. Mortgages have up front costs that you never get back. And if you are leveraged so tight that you have no money laying around, a 2nd mortgage would seem to be a terrible idea.
 

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Personal finance is clearly both math and behavior. It’s been well demonstrated that behavior is far more important. Investing 5,000 per month for 30y is 5,000,000 at 6% return average. That’s 150k to 200k per year in retirement, plenty for me. This is well within the wheel house of any full time anesthesiologist and should be considered a minimum investment plan. Whether or not you put additional to paying off a mortgage 15 years early, pay off student loans early or use that additional money to invest and make an additional 1-2 million for retirement or for your heirs depends on what makes you feel good. All I know is it’s going to feel darn good for those 15 years knowing I paid off my mortgage and student loans way earlier than the end of a typical career....but that’s me. All y’all may be different and that’s ok too.


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Personal finance is clearly both math and behavior. It’s been well demonstrated that behavior is far more important. Investing 5,000 per month for 30y is 5,000,000 at 6% return average. That’s 150k to 200k per year in retirement, plenty for me. This is well within the wheel house of any full time anesthesiologist and should be considered a minimum investment plan. Whether or not you put additional to paying off a mortgage 15 years early, pay off student loans early or use that additional money to invest and make an additional 1-2 million for retirement or for your heirs depends on what makes you feel good. All I know is it’s going to feel darn good for those 15 years knowing I paid off my mortgage and student loans way earlier than the end of a typical career....but that’s me. All y’all may be different and that’s ok too.


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The buying power of a 5 mil retirement fund is going to be less than what it is today. For example per the below website $1 in 1990 is equal to about 2$ today. So if we assume inflation rate similar for next 30 yrs, then its kind of like retiring today with a 2.5 mil retirement fund. Not bad, but less than it seems. I guess it would work out more favorably if ones monthly investment also increased at a rate proportional to inflation, and therefore end up with some increased amount. Hopefully our income to support that investment will also...

CPI Inflation Calculator
 
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Mad Jack

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Most economists say cost is about 250-300k but that’s only to age 17 for an AVERAGE income household. If you have a high income and do all the stuff most high income houses do (nice vacations, multiple private lessons/activities/instruments/sports etc) AND you include college (which by the way is currently much higher than 50k/yr Dorm+tuition for higher tier private ones) then you are easily exceed 1 million. Add in private K-12 and/or grad school, if you plan to help with that, and 1-2 million is a reasonable figure.

If you want to choose to be financially unwise, that is a choice you are free to make. A family can be happy and successful spending far less than that.
 

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If you want to choose to be financially unwise, that is a choice you are free to make. A family can be happy and successful spending far less than that.
I think you’d be surprised how much average family in a doctor’s income range spends raising a kid.

Make a spreadsheet and make sure you include:
- increased size of house (vs if was just you and partner)
- food, clothing, toys, gifts
- lessons, activities, sports
- extra cost of vacations
- possibly extra/larger cars
- extra medical cost
- college (and primary school If you do private)

Notice I never said anything about being happy or successful - that has very little to do with spending 250k vs a million. It’s just that’s what a lot of people in this income end up doing.
 
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Mad Jack

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I think you’d be surprised how much average family in a doctor’s income range spends raising a kid.

Make a spreadsheet and make sure you include:
- increased size of house (vs if was just you and partner)
- food, clothing, toys, gifts
- lessons, activities, sports
- extra cost of vacations
- possibly extra/larger cars
- extra medical cost
- college (and primary school If you do private)

Notice I never said anything about being happy or successful - that has very little to do with spending 250k vs a million. It’s just that’s what a lot of people in this income end up doing.
And yet it is still... A choice.
 

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And yet it is still... A choice.
Yep it’s a choice. Everyone can spend whatever they want .... because it’s their money.

If I want to spend a million per kid and end up with 7 mill instead of 10 that’s not wise or unwise - it’s just the way I decided to spend my money. Some people like vacation homes or luxury cars which is also a choice but if it brings them happiness then good for them.

I personally can’t think of any better way to spend my money but you may have different priorities (feel free to list them)- which is just fine.
 
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My main goal is not so much FIRE as to achieve financial independence and go part-time (work 2 days a week) as early as possible, and eventually fully retire when I no longer derive enjoyment from work.

This. I am looking forward to not a hard/ fast retirement, but a slow steady fade into the sunset. I am 46 and take 20 weeks off a year....I plan to gradually increase that to 30 weeks a year over the next decade and then retire at some point after that. I must put all the babies through college first. soon. very soon.

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doctalaughs

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It’s times like this when I’m glad I’m still working. You need a wide margin of safety if you plan to retire early.
yes this. It never works to guess the market so I have no problem losing 15 percent (or 35) when I have enough horizon to just keep investing as things go down.

but in 12-15 years you bet my portfolio allocatio would take a much smaller hit (guess more like 3-5%) on a similar drop.
 
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yes this. It never works to guess the market so I have no problem losing 15 percent (or 35) when I have enough horizon to just keep investing as things go down.

but in 12-15 years you bet my portfolio allocatio would take a much smaller hit (guess more like 3-5%) on a similar drop.
Let's assume your portfolio is 100% equities now. Your "hit" is based on your equity selection. Let's assume a hit of 15% so far this year.

Now, fast forward 20 years and your portfolio is 50/50. Again, your hit will be based on equity selection. Let's assume a hit of 7.5%.

I'm 60/40 right now. I have increased my equity exposure over the past few days. I hope to go to 70/30 if the market keeps dropping to take advantage of cheaper prices. I will then gradually re-balance to 60/40 once the market hits an all time again (likely this year). Since I am not "retired yet" i can take on the risk of flexing my allocation to take advantage of market crashes. I am pretty certain that when I retire my baseline allocation will be 55/45 (equities vs non equities) but I will still "flex" up to 10% to take advantage of market crashes.
 
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Let's assume your portfolio is 100% equities now. Your "hit" is based on your equity selection. Let's assume a hit of 15% so far this year.

Now, fast forward 20 years and your portfolio is 50/50. Again, your hit will be based on equity selection. Let's assume a hit of 7.5%.

I'm 60/40 right now. I have increased my equity exposure over the past few days. I hope to go to 70/30 if the market keeps dropping to take advantage of cheaper prices. I will then gradually re-balance to 60/40 once the market hits an all time again (likely this year). Since I am not "retired yet" i can take on the risk of flexing my allocation to take advantage of market crashes. I am pretty certain that when I retire my baseline allocation will be 55/45 (equities vs non equities) but I will still "flex" up to 10% to take advantage of market crashes.
I’m more like 80/20 right now and also plan to go slowly to 100 percent as it drops, depending on how far it goes.

plan to be more like 35 / 65 when I’m retired (I know I will be losing on a good amount of gains but maybe just can’t tolerate the risk as much).
 
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I’m more like 80/20 right now and also plan to go slowly to 100 percent as it drops, depending on how far it goes.

plan to be more like 35 / 65 when I’m retired (I know I will be losing on a good amount of gains but maybe just can’t tolerate the risk as much).

35/65 in a low interest rate environment may not generate enough returns for a sustained withdrawal rate of 3-3.5%. Many so called "experts" have actually increased their recommendation of equities in retirement due to this very low interest rate environment.
 
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Increasing Longevity Shifts The Focus

“The 60/40 portfolio is no longer a good option for investors to place their entire retirement in because people are living longer and should plan for 20 to 30 years of retirement,” says Daniel Hill, president and CEO of Virginia-based Hill Wealth Strategies. “This has potential to be problematic because as inflation rises, so will expenses when they’re in retirement.”
Hill says holding 60% of assets in stocks and 40% in bonds results in a moderate asset mix. While that exposes investors to less risk than a more aggressive portfolio, returns may not be able to keep pace with inflation.
That could limit investors’ purchasing power once they’re ready to retire. The rule of 110 may be more helpful for shaping allocation.
“The rule of 110 says to take your current age and subtract it from 110, giving you the amount of your portfolio you should invest in equities,” says J. Timothy Corle, president and owner of Tycor Benefit Administrators.


 

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35/65 in a low interest rate environment may not generate enough returns for a sustained withdrawal rate of 3-3.5%. Many so called "experts" have actually increased their recommendation of equities in retirement due to this very low interest rate environment.
Those experts are recommending a risky maneuver. My advice for retiring in a low interest rate environment is far less risky. Live on less or work longer.


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Those experts are recommending a risky maneuver. My advice for retiring in a low interest rate environment is far less risky. Live on less or work longer.


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As usual great advice. I simply wanted to point out that others are advocating for a much higher allocation to equities. If your sustained withdrawal rate of 3% can be met with a 35/65 allocation then that is fantastic:

1583086167765.png
 
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Blade, what about 100% equities (80% domestic and 20% international) except for 5 years of living expenses in cash in CD ladder/prime money market?

In good years in the market, live on your dividends mainly. In bad years, live on cash reserves and reinvest dividends in the market. When the market goes back up, sell enough to replenish your 5 years living expenses in cash equivalents.

This is based on the idea that basically all recessions/depressions (to date anyway) resolve within 3 years.

Edit: this is pre RMD years.
 

dr doze

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As usual great advice. I simply wanted to point out that others are advocating for a much higher allocation to equities. If your sustained withdrawal rate of 3% can be met with a 35/65 allocation then that is fantastic:

View attachment 297211

Samurai died early and often. 40/60 is about where I expect to be when I am done earning an income.
BTW, even after the pullback, stocks are not even close to cheap.
 
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BLADEMDA

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Blade, what about 100% equities (80% domestic and 20% international) except for 5 years of living expenses in cash in CD ladder/prime money market?

In good years in the market, live on your dividends mainly. In bad years, live on cash reserves and reinvest dividends in the market. When the market goes back up, sell enough to replenish your 5 years living expenses in cash equivalents.

This is based on the idea that basically all recessions/depressions (to date anyway) resolve within 3 years.

Edit: this is pre RMD years.
So, that is basically what some experts say to do in terms of a 70/30 portfolio. Use the 30% during bad times and live off the 70% during good times. This way you never sell equities during a recession. Others say the first 3 years of retirement is the most dangerous time of the portfolio because 3 bad years during your beginning of retirement can really affect the long term performance of the portfolio and sustainability of the withdrawal rate. Hence, if you can ease into retirement by working 20 hours per week I think that really helps with not selling equities during a recession.
 
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BLADEMDA

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Samurai died early and often. 40/60 is about where I expect to be when I am done earning an income.
BTW, even after the pullback, stocks are not even close to cheap.
I absolutely agree with you. Stocks are no where near "cheap" valuations but haven't been for years now. What we do know is the Fed will cut rates and add QE which will artificially inflate the price of stocks. Hence, maybe they are cheap if the 10 year treasury note is yielding 1.3%. Eventually this has to end badly but my hunch is that won't be in the next 1-2 years.
 

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Blade, what about 100% equities (80% domestic and 20% international) except for 5 years of living expenses in cash in CD ladder/prime money market?
At the risk of stating the obvious here ...

You don't have a 100% equity asset allocation if you have 5 years of expenses in cash equivalents.

If a modest retiree from the cheese factory has $1 million in equity, and $250,000 in cash ($50,000/year living expenses x 5 years), he can tell his friends he's 100% in equities, but he's not. He's 80% equity / 20% cash. Changing the name of the pot of money doesn't change the overall asset allocation. It is what it is. That "living expenses" fund IS his bond-equivalent in his AA.
 

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ease into retirement by working 20
This is more the path I see myself taking (although I think I’d prefer to just work a normal schedule 1 month on 1 month off as opposed to 20h per week). I figure I can have just as much fun with 26 weeks off as I can with 52. Plus I think working/staying productive helps keep you mentally sharp and “younger” than if you totally check out.

I also look at it this way. We’re lucky in that working 1/2 time we can still pull >200k/year. That’s the equivalent to having an additional 5mil in retirement assets (using the 4% rule).
 

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Fair. I guess what I’m talking about is “timing” which bucket you pull out of based on market conditions.
Gotcha

Just sticking to your chosen asset allocation should handle that for you. If stocks go down, your portfolio will be overweighted toward bonds, so take your withdrawals from there.
 
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