Critique my financial retirement plan

[Julia]

Telling him to take the cash that was planned for retirement and invest in the market is pretty dangerous advice, no offence. If he is confident and experienced enough to generate a consistent return from the market he would've planned that in already. From his writing he does not have any experience actively managing shares before. To start this with capital planned for retirement is insanity in my books.

Back to this (and I note others have also commented on the cash not being put to work harder), I'd not previously noticed the OP's link to a blog. Inter alia, it says

I am not a financial planner and only have a modicum of finance experience. I completed the first year of a Masters of Applied Finance at Macquarie University some time ago. I do have post grad qualifications in Mathematics and Computer Science and consider myself very numerate.

So right there, not your 'average uneducated investor'. Further the material offered for assessment is not just more than professionally presented, it shows an intelligent understanding of how to seek out information and use it in his analysis. Anyone who can do this to the level demonstrated is not going to have much difficulty acquiring an understanding of how to use market trends, assess global and local factors influencing markets, find solid stocks via simple scan to start with that would provide a much superior return on funds.

And he's just 52, some years off retirement. There is $610,000 sitting in cash, presumably earning less than 4% or thereabouts. If Retirenow were to take say $100K of this and put it into some good stocks, at the same time familiarising himself with the optional approaches to managing these stocks, ie fundamental, price action via trends etc, he's risking a relatively small amount of overall asset base and potentially increasing his ability to generate income and capital gain.
See how it goes, then do similarly with more of the cash if that's what he wants.

None of us were born with market/investment experience. I think it's just wrong to be so negative as to assume that because many people fail, we will also.

Average stock market capital gains for past 100 years is 6.7%. Dividends and inflation cancels out. That's after many roaring bull markets factored in. Do you think right now the chances of a bull market is higher than a stagnant or bear market ? Even if you do, would you bet a big chunk of your retirement on it ?

This suggests an approach confined to buying a bunch of shares and walking away. The whole point of managing your own Super is to avoid that. We all know that most people with public super did in fact experience the approx 50% fall that reflected the general market. The better choice would have been, when it became clear what was happening, to get out, most profit intact from the strong run up, and take advantage of some of the very good interest rates that were available when the banks were squeezed for funds.
Then - when it was over - your cash could buy much greater quantity of the same shares, plus obviously increased grossed up yield as a result.

It's nothing more than observation and very basic capacity to follow what you see on a chart. Nothing fancy.
Many people over-complicate investing.

Obviously some of you think I am a financial planner posing as an amateur. I am very flattered by this!!!! Especially since I have no financial planning experience and I whipped up the graphs in a day!

Well, what you've done is demonstrate how competent someone with no formal training in planning can be. I suggest you would find exactly the same when it comes to investing, despite all the gloomy predictions.

Yes. Maybe I could look at putting some of it in more risky investments.

Do you plan to take it all with you when you pass?

ie. no plans to leave any inheritance to family or charitable organisations?

If so, a strategy of gradually consuming all available capital rather than living off the income generated maybe ok, depending of course on how long you and your wife live.

And on when another GFC-like event hits, potentially halving your super investment balance.

Good point about perhaps not being concerned about using up all capital. It might just be that Retirenow does just want to take such a passive approach. The thoroughness shown so far, however, doesn't suggest that particularly. And, even if there's no family who need the money, how good is it to be able to leave a couple of million to a worthy organisation?

 

[Habakkuk]

So right there, not your 'average uneducated investor'. Further the material offered for assessment is not just more than professionally presented, it shows an intelligent understanding of how to seek out information and use it in his analysis. Anyone who can do this to the level demonstrated is not going to have much difficulty acquiring an understanding of how to use market trends, assess global and local factors influencing markets, find solid stocks via simple scan to start with that would provide a much superior return on funds.

It's hard to disagree with that comment, but I'll have a go anyway.
Before I do that, let me list my credentials.
- I have no financial qualifications, never even done a T/A course, read a few books, though, if that counts.
- I have never owned any shares in my life.
- I have never traded anything, no futures, FOREX, options or any other financial assets. The closest I have come to trading is selling a few left-over PC spare parts on eBay ...


So I'm now going to disagree with Julia. In fact I'm even going to disagree with myself.
In my post at the top of this thread I said:

(I'm not sure if it's the done thing to quote yourself)

You could next use your energy and talents to research a plan to put your $610K cash to work ... I don't mean you should now develop the perfect diversified, balanced or growth portfolio that covers all the asset classes, geographically diversified, rebalanced every x months, etc., like some people here have done.
On the contrary.

In other words I encouraged the OP to do something more adventurous than keeping his money in term deposits.
Upon reflection I think my comment was hasty and ill-considered. I was effectively encouraging the OP to take risks with his retirement nest-egg. Bad idea.

But what could be wrong with dividend-paying blue chips with "low" PE ratios or whatever, that keep growing year after year as any fool can see?

Spare a thought for Japanese investors who felt pretty much the same way in 1989. What happened in the next 20 years? The Nikkei lost 85% or something. It's picked up a bit since then.
Of course this couldn't happen in the lucky country. I'm not suggesting that it will.
But it doesn't have to be anything this drastic. Even a well-balanced, diversified portfolio suffered considerably in the GFC. Diversification proved to be kind of an illusion.

There is another point to consider that is not so obvious.
The OP is undoubtedly a very analytical, logical thinker.

another quote

A warning - I am quite numerate/numbers focused!

However, the traits required for success "in the markets" are almost exclusively psychological.
In fact, I suggest that "logical thinking" might well be a hindrance.
If the market were logical, we'd all be winners.

Furthermore, highly intelligent, analytical people sometimes screw up in a really big way. Because they know their research is right!

And finally, as has been suggested (in many other threads), all the required knowledge can be picked up, some of it right here on this forum.
Yeah, right!

I hope I'm not upsetting too many people. If anyone is offended, please remember my "credentials" above ...

 

[luutzu]

You might have neglected insurance.

 

[Julia]

It's hard to disagree with that comment, but I'll have a go anyway.
Before I do that, let me list my credentials.
- I have no financial qualifications, never even done a T/A course, read a few books, though, if that counts.
- I have never owned any shares in my life.
- I have never traded anything, no futures, FOREX, options or any other financial assets. The closest I have come to trading is selling a few left-over PC spare parts on eBay ...

So, on your own terms, not exactly commenting from a position of experience.
Thanks for being so candid.

But what could be wrong with dividend-paying blue chips with "low" PE ratios or whatever, that keep growing year after year as any fool can see?

Plenty, if you just blithely assume they will keep on doing the same.

Spare a thought for Japanese investors who felt pretty much the same way in 1989. What happened in the next 20 years? The Nikkei lost 85% or something. It's picked up a bit since then.
Of course this couldn't happen in the lucky country. I'm not suggesting that it will.
But it doesn't have to be anything this drastic. Even a well-balanced, diversified portfolio suffered considerably in the GFC. Diversification proved to be kind of an illusion.

1. I didn't even mention diversification. Personally I think it's overrated. Why would you hold a losing stock just because its sector presence provides part of a diversified p/f? Just as one example, for years, when QBE was a complete dog, analysts continued to insist that it was a 'well managed company' and should be included in any properly diversified p/f. Well, that just wasn't reflected in the share price. So why on earth would you want it until/unless its SP improved?

2. You are ignoring my earlier point regarding the necessity to be ever watchful and take evasive action should your p/f begin to fall (albeit making appropriate allowances for everyday noise/volatility).
When the shtf in the GFC, we had people everywhere saying "oh my goodness, that just came out of nowhere".
Of course it didn't. The signs were ominous from the first reporting of the US sub prime mess.

3. "Even a well balanced, diversified p/f suffered considerably in the GFC." Of course it did, if you allowed your p/f to follow the herd. Any active, aware investor would not have let this happen.

There is another point to consider that is not so obvious.
The OP is undoubtedly a very analytical, logical thinker.

However, the traits required for success "in the markets" are almost exclusively psychological.

Really? How have you reached this conclusion, especially considering you have no actual experience?

In fact, I suggest that "logical thinking" might well be a hindrance.
If the market were logical, we'd all be winners.

I have no idea what you mean about the market being logical. It doesn't have to be. It's not as though there is some prescribed pattern that markets are obliged to adhere to. Markets are what they are. It's up to the active investor to adjust to whatever the market sentiment is. In working this out, logic is a useful attribute imo.

Furthermore, highly intelligent, analytical people sometimes screw up in a really big way. Because they know their research is right!

Again I'll respectfully disagree. Analytical, intelligent people will quickly recognise flaws in their analysis and make the appropriate adjustments in their strategy. It's the blind assumption that all you have to do is buy a diversified bunch of companies, take no notice of any factors affecting their performance, and assume no further action is required that gets people into trouble. Plus inappropriate stock selection in the first place.
Do that and yes, you'll be pretty much guaranteed to fail unless you happen to climb on to a rampant bull market where everything rises with the rising tide.

I hope I'm not upsetting too many people. If anyone is offended, please remember my "credentials" above ...

I doubt anyone will be upset. You're entitled to express your view. Thank you for it.

 

[minwa]

So right there, not your 'average uneducated investor'. Further the material offered for assessment is not just more than professionally presented, it shows an intelligent understanding of how to seek out information and use it in his analysis. Anyone who can do this to the level demonstrated is not going to have much difficulty acquiring an understanding of how to use market trends, assess global and local factors influencing markets, find solid stocks via simple scan to start with that would provide a much superior return on funds.

None of us were born with market/investment experience. I think it's just wrong to be so negative as to assume that because many people fail, we will also.

Again we have differing views, to me those maths/science/logic based degrees are a hindrance to me than assistance to investing. Van Tharp says its easier to teach a high school dropout than a doctor/lawyer/engineer to invest.

I am only negative because its his retirement money. Otherwise I would be all for "punting" with that money. He has a viable retirement option now - why risk it with speculation. I don't care how safe people think dividend big name shares are - if you buy shares you are speculating. He does not desire more "luxury", what he has now seems enough to cover everything he needs.

 

[Julia]

I am only negative because its his retirement money. Otherwise I would be all for "punting" with that money.

OK, fine. The OP will do what he wants regardless of your or my opinion anyway.
I'll just repeat though, in the interests of clarification, that he is only 52, still working, presumably earning decent money. So it's hardly punting with his entire retirement asset base. I suggested taking just $100K out of the cash amount of $610K to buy some shares in solid companies.

 

[SuperGlue]

Don’t get bored silly in retirement

http://www.marketwatch.com/story/dont-get-bored-silly-in-retirement-2014-11-06

 

[minwa]

OK, fine. The OP will do what he wants regardless of your or my opinion anyway.
I'll just repeat though, in the interests of clarification, that he is only 52, still working, presumably earning decent money. So it's hardly punting with his entire retirement asset base. I suggested taking just $100K out of the cash amount of $610K to buy some shares in solid companies.

Ok that's fair enough, I did not see anywhere in your original post that you implied 100k out of 600k so I thought you menat putting the 600 in.

When you say you are 'planning to use cash to finance our living expenses until it runs out', do you mean exactly that? ie it reads as though you are simply planning to have cash in the bank at going rate and use up the capital to supply your living expenses.
Surely you'd be better off investing that cash in , say, high yield shares where you'll generate around 7.5% grossed up yield and possibly capital gain as well?

 

[Julia]

Ok that's fair enough, I did not see anywhere in your original post that you implied 100k out of 600k so I thought you menat putting the 600 in.

Here you go, minwa, my post of mid afternoon yesterday:

And he's just 52, some years off retirement. There is $610,000 sitting in cash, presumably earning less than 4% or thereabouts. If Retirenow were to take say $100K of this and put it into some good stocks, at the same time familiarising himself with the optional approaches to managing these stocks, ie fundamental, price action via trends etc, he's risking a relatively small amount of overall asset base and potentially increasing his ability to generate income and capital gain.
See how it goes, then do similarly with more of the cash if that's what he wants.

Thanks for the discussion.

 

[Habakkuk]

1. I didn't even mention diversification. Personally I think it's overrated.

I agree 100%. You're preaching to the choir. But it's one of the cornerstones of financial planning, along with "time in the market, not timing the market", dollar-cost averaging, etc.

3. "Even a well balanced, diversified p/f suffered considerably in the GFC." Of course it did, if you allowed your p/f to follow the herd. Any active, aware investor would not have let this happen.

and

Analytical, intelligent people will quickly recognise flaws in their analysis and make the appropriate adjustments in their strategy.

I'm not so sure about that, but I hope you're right for retirenow's sake.

I have no idea what you mean about the market being logical. It doesn't have to be.

I didn't say it was or had to be. I said *IF* the market were logical, we would all be winners. We are not and the markets are not logical. That was precisely my point.

Really? How have you reached this conclusion, especially considering you have no actual experience?

Referring to "almost exclusively psychological", I presume.
Just my opinion, based on ... yes, my inexperience. No, really, I have put some thought into it.

Going slightly OT here, I think we basically disagree about only one point.

You believe that any intelligent, analytical investor will take the "appropriate" action.

I believe (going out on a limb here) they will more likely take the exact wrong action. Not ALL the time and maybe not ALL of them. Because the markets are not logical and because the required traits are psychological ... IMO.

This is now more of a philosophical argument about the behaviour of "other" people.
We don't need to agree. Interesting discussion, though.