That is such a big lesson. In a sense, we're privileged to not be retired and see how these low interest rates play out. So now we all know that unless you're super rich, you'll always need a percentage of your funds invested and at risk.Let's say I did hit that 1M, then based on my naïve plan (the same plan many to be retirees were relying on by the way), retirement would be easy. Just put the whole thing in the bank.
The problem is we got screwed with the interest rates. So it's not so easy any more.
Yes, all very true.Well theoretically it's possible to live off it. But putting 100% in to an Index ETF means could be in for periods of high volatility and draw-downs at the mercy of the stock market. One needs to be comfortable to handle that as well.
That's why a mix of diversified assets is better in my opinion. The draw down fluctuations could be less and smoothed out, while still maintaining an income from the portfolio of assets.
It's definitely something that takes time to reflect and make wise changes to your portfolio mix. I haven't rushed to do it because I want to feel comfortable to leave the portfolio alone once the right mix is decided. The last thing I want to do is to panic sell in market downturns etc.That is such a big lesson. In a sense, we're privileged to not be retired and see how these low interest rates play out. So now we all know that unless you're super rich, you'll always need a percentage of your funds invested and at risk.
I just had a bit of a thought aus trader, one has to a bit careful making mental notes, I have been caught doing it at times.Hey mate, I know I am not in a position to give any advice, but if you already have enough exposure to the banks via an asx market ETF, I think you have to be careful to not go overweight into that sector further and make sure there is good diversification in the portfolio IMHO.
I think you're our most conservative so far
Yes, I understand where you are coming from. However I found it's not always profitable buying just because the share got hammered. It could get beaten down further and sometimes for a long period of time. A recent example might be the fresh fruit and veg producer Costa Group Holdings Ltd (CGC).I just had a bit of a thought aus trader, one has to a bit careful making mental notes, I have been caught doing it at times.
What I mean by that is, often when a share is on the nose, it is actually the perfect time to be buying into them. For example 4 years ago when the Samarco dam failed, BHP went to $12-13 range, with the Brexit issues a couple of months back CYBG went below $3, IOOF went below $5 two months ago.
It kind of backs up the old saying about when everyone is heading for the exits.
The big 4 in Australia are kind of pseudo government agencies, they are regulated by the Government and as such they IMO will be around for a long time, I will add to them if the opportunity presents. With the current outgoing remeadiation, they are being hammered, but it wont go on for ever and as Zaxon said they will find other ways to make money. They have to, for the economy to function.
But as you say, there is no point in going overweight in something, I am already overweight in.
Yes, I understand where you are coming from. However I found it's not always profitable buying just because the share got hammered. It could get beaten down further and sometimes for a long period of time. A recent example might be the fresh fruit and veg producer Costa Group Holdings Ltd (CGC).
In terms of the banks, yes I agree that they won't go out of business because the Government will ensure that. They showed us how protective of the banks they are during the GFC.
I just made the comment about how you can be overweight to the banks in your portfolio if you already hold a portion of your wealth in ASX index funds and decide to buy the individual banks on top of that. The reason for my concern was the ASX index ETF will have the banks at the top of the list with some of the highest weightings. Let's say you bought an ASX200 ETF to give your portfolio exposure to the largest 200 blue chips on the Australian market, those 4 banks will be right near the top with some of the highest weightings of that fund. See the culprits with their weightings all within the top 10 holdings of the ASX200 fund below:
View attachment 98460
I like the idea of going into retirement with a good margin of safety, so this idea has a lot of merit. I'm thinking there's a "Goldilocks amount" between having too much out of the stock market, and therefore stacking the odds of a good return against you, and having sufficient in bonds that the chance of a crash happening on the day you retire, is mitigated.There is another way of thinking
To reduce sequence of return risk, have a high initial bond allocation and withdraw the first 5 years (at least) from the bonds only.
I am certainly thinking along the line of % drawdown per annum. That way, in the leaner years when the market returns are poor the amount withdrawn will also be lower based on %'s. If it's a fixed amount, it can end up depleting too much of the fund during a downturn.As a second question for everyone: what is your withdraw rate when you retire? Are you doing a fixed rate based on your balance on retirement + CPI? Are you doing a variable rate as a percentage of your assets under management each year? And what percentage are you using?
Yes very good discussion indeed.The LIC's and Australian ETF's all have heavy weighting to the Banks, but as has been shown recently, if the Banks don't lend money everything goes pear shaped.
You are spot on with your observation.
When the GFC happened CBA went to $26 and ANZ,NAB and WBC from memory, went to around $15. I will be loading up again if that happens.
Just my opinion.
Below is an LIC and ETF holding example.
Milton's top 20 holdings.
https://www.asx.com.au/asxpdf/20191105/pdf/44b8v01tfvzwhm.pdf
Even VAS top 10 holdings include the big 4 Banks and financials make up 31% of their holdings.
https://www.vanguardinvestments.com...t.html#/fundDetail/etf/portId=8205/?portfolio
Great discussion thread this.
Both my wife and I draw the minimum amount of 4%. As we are younger retirees we kind of figure that if the minimum is enough for us to live on now then it is better to keep the rest for when you really need it.As a second question for everyone: what is your withdraw rate when you retire? Are you doing a fixed rate based on your balance on retirement + CPI? Are you doing a variable rate as a percentage of your assets under management each year? And what percentage are you using?
I held bank stocks through the GFC, watched the value drop down during the crash. I had spare cash on hand and when they all offered share top up plans I bought as much as I could. The best play was CBA @ $27, they botched the original plan so they had to revise it and sell @ $26 a share. Both my wife and I topped up as much as we could.But as you said if it is doing a trade to buy the banks from a GFC recovery type scenario I would be interested, if I can get the timing right
Great post Bill, we all suffer from the same problem, when the herd is stampeding for the door it is hard not to go with them.I held bank stocks through the GFC, watched the value drop down during the crash. I had spare cash on hand and when they all offered share top up plans I bought as much as I could. The best play was CBA @ $27, they botched the original plan so they had to revise it and sell @ $26 a share. Both my wife and I topped up as much as we could.
I've had bank shares in my portfolio all my life, they are darn good stocks. They have all paid for themselves now with their dividends over the years. I just wish I had enough guts to pull the trigger on BHP when they hit $13.50. I remember a staff member of BHP coming on here saying something like "I have been offered a share purchase plan from the company to top up my BHP stocks at a discount, should I buy them?" Most us just said we would if we were in your position. Chances come along all the time but people do nothing sometimes, me included.
As a second question for everyone: what is your withdraw rate when you retire? Are you doing a fixed rate based on your balance on retirement + CPI? Are you doing a variable rate as a percentage of your assets under management each year? And what percentage are you using?
Great paper Sir Burr, terrific read.Hi Zaxon, there people out there have done work based on history for us. Using historical monthly start dates of retirement and comparing fixed withdrawal rate percentages. This paper is for early retirees but has the numbers for 30 year retirement too. It would be using US data.
There is a chart on page 4 showing the probability (based on history) of your money lasting the distance. 4% looks pretty good.
Safe Withdrawal Rates: A Guide for Early Retirees
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=292032
Some great discussion here.
… live well going forward 30 years. If Im un lucky enough to last that long!
I urge you to find something you can invest in which can supply a continued income to grow your investments.
The draw down from super is legislated, starting at 4% and increments with age to 14%.As a second question for everyone: what is your withdraw rate when you retire? Are you doing a fixed rate based on your balance on retirement + CPI? Are you doing a variable rate as a percentage of your assets under management each year? And what percentage are you using?
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