Investing

Couch potato investing for the last 14 years - tracking my progress

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  • Mar 30th, 2020 2:13 am
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Jr. Member
Dec 1, 2019
120 posts
95 upvotes
MoreDealsPlease wrote: That's a cool tool. Thanks for pointing out the effects of dividends and also that the couch potato portfolio would have outperformed S&P500 during those periods.

Here is the scenario I was describing: 2000 to 2013, 100K is only 124K at the end

Here is an even more pessimistic scenario: 2000 to 2009, 100K becomes 56K

Now, best case scenario if the person held on to cash for 2 more years and waited for the crash (2002 to 2013): 100K becomes 200K

The 9 year scenario is actually somewhat relevant to me because that's what I'm aiming at for reaching financial independence and we are at an all time high similar to those periods pre-crisis. 100K becoming 200K vs 124K is quite a difference.
Yes, in scenario one you only had 1.74% growth, less than inflation. Inflation adjusted, you went from 100K to 92,988. As you said, drawback of concentrating in a single country.

In scenario two, <10 years is an inappropriate time frame for an 80/20 stock/bond portfolio. Investors who panicked or were forced to withdraw funds due to retirement had locked in losses. 5 years from retirement you build a bond tent/GIC ladder so you aren't blindsided by crashes.

Image

A 60/40 diversified portfolio fares better, with a 0.15% growth rate, and an inflation-adjusted end value of 82,454.

A diversified conservative 40/60 portfolio basically was able to keep it's value, with a 2.21% growth rate, and an inflation-adjusted value of 98,074.

A diversified very conservative (read: income) portfolio gained value even through both downturns, at the cost of total growth. A 4.08% growth rate, and an inflation-adjusted end value of 114,160.

The chances of you having the best case scenario is very slim. You cannot predict a crash.

Image

We could go on another bull run for years. Staying in a conservative portfolio because of the fear of a downturn causes you to miss out on growth.

I think it's an unrealistic goal to use the stock market to reach FI within 10 years using passive investing. Compounding takes time. Trying to time the market isn't just gambling with your money, its gambling with your time as well.
Deal Fanatic
Mar 24, 2008
5919 posts
2104 upvotes
Toronto
095179005 wrote: ...
I think it's an unrealistic goal to use the stock market to reach FI within 10 years using passive investing. Compounding takes time...
It depends purely on numbers such as how large your portfolio is and how much you are withdrawing. What if you have a $3 million, 60/40 portfolio and need $60,000/year income to live? 10 years is more than enough if you follow strategies like variable withdrawal rate. There is a high chance that you'll end up with a portfolio that is larger than what you started with (inflation adjusted). Of course, it's best to aim higher and wait for longer but IMO, statements like 10 years is not enough aren't fair for the reasons above. Agree with other statements such as timing the market is gambling etc.
Illegitimi non carborundum
Jr. Member
Dec 1, 2019
120 posts
95 upvotes
ksgill wrote: It depends purely on numbers such as how large your portfolio is and how much you are withdrawing. What if you have a $3 million, 60/40 portfolio and need $60,000/year income to live? 10 years is more than enough if you follow strategies like variable withdrawal rate. There is a high chance that you'll end up with a portfolio that is larger than what you started with (inflation adjusted). Of course, it's best to aim higher and wait for longer but IMO, statements like 10 years is not enough aren't fair for the reasons above. Agree with other statements such as timing the market is gambling etc.
By the time you hit $3m, it's not hard to live off the interest and be FI. Everyone knows about that dream.

In this case we are talking about someone with $400k in assets and $400k in cash trying to hit FI in only 10 years. Very different.
Sr. Member
User avatar
Dec 11, 2009
510 posts
113 upvotes
Toronto, ON
095179005 wrote: I think it's an unrealistic goal to use the stock market to reach FI within 10 years using passive investing. Compounding takes time. Trying to time the market isn't just gambling with your money, its gambling with your time as well.
That's an interesting scenario. Let's say I have 2.1M in 2006 and decide to retire, right after that the market crashes and now my portfolio is worth 1.1M. In this case I will be withdrawing from a much smaller principal and I wonder how that will affect retirement. Some options are to work until the market improves (could take 10 years) or lower expenses.

Perhaps the best strategy for me is to lump sum the 400K. If my 7% average return for the next 8 years doesn't pan out I will still be 41 years old so it won't be the end of the world and there is always a chance that I hit the FI target but decide to continue to work regardless. I have other fall backs like "downsizing" from my detached city of Toronto house or retiring back in my country of birth where things are very affordable (for those that bring USD/CAD).

I wouldn't say I'm trying to time the market - I've been doing CPP for years and heard all of this before, I just don't want to make a big mistake that will set me back significantly. I'm not expecting the returns from the last 10 years to repeat but I was wondering if I could count on an average return of the last 25+ years at least which looks like I can't. Mostly trying to understand the implications of putting a large lump sum. I'm finding that the blanket statements of "don't time the market, time in the market" and etc that people love to repeat get a bit complicated when you have a large lump sum. Like you said passive investing is probably not a good strategy if my horizon is shorter (8 years) and if I have a lot of money to contribute fast. So then a question I need to answer, what would be better?
ksgill wrote: It depends purely on numbers such as how large your portfolio is and how much you are withdrawing. What if you have a $3 million, 60/40 portfolio and need $60,000/year income to live? 10 years is more than enough if you follow strategies like variable withdrawal rate. There is a high chance that you'll end up with a portfolio that is larger than what you started with (inflation adjusted). Of course, it's best to aim higher and wait for longer but IMO, statements like 10 years is not enough aren't fair for the reasons above. Agree with other statements such as timing the market is gambling etc.
Throughout his last reply he thoroughly explained why 10 years goal is unrealistic. It has to do with the risk of the market crashing just before you are about to retire. You presented hyperbolic example of someone having 3 million and needing only 60K/year, of course with these favorable numbers the person can probably survive a crash just before retirement.
Deal Fanatic
Mar 24, 2008
5919 posts
2104 upvotes
Toronto
MoreDealsPlease wrote: ...
Throughout his last reply he thoroughly explained why 10 years goal is unrealistic. It has to do with the risk of the market crashing just before you are about to retire. You presented hyperbolic example of someone having 3 million and needing only 60K/year, of course with these favorable numbers the person can probably survive a crash just before retirement.
Not sure how it's a hyperbolic example. 60/40 will not crash like 100% equities even in a 10 year time horizon. 2.1 million in a 60/40 portfolio did not end up at 1.1 million (dividends reinvested) in 2006-2008 (look up the exact numbers).

In order to be financially independent, you need to be in a "favourable" position. You can survive a crash before retirement by following a variable withdrawal rate strategy or by working a couple more years. That doesn't make it unrealistic.
Illegitimi non carborundum
Jr. Member
Dec 1, 2019
120 posts
95 upvotes
MoreDealsPlease wrote: That's an interesting scenario. Let's say I have 2.1M in 2006 and decide to retire, right after that the market crashes and now my portfolio is worth 1.1M. In this case I will be withdrawing from a much smaller principal and I wonder how that will affect retirement. Some options are to work until the market improves (could take 10 years) or lower expenses.

Perhaps the best strategy for me is to lump sum the 400K. If my 7% average return for the next 8 years doesn't pan out I will still be 41 years old so it won't be the end of the world and there is always a chance that I hit the FI target but decide to continue to work regardless. I have other fall backs like "downsizing" from my detached city of Toronto house or retiring back in my country of birth where things are very affordable (for those that bring USD/CAD).
I eluded to it in my reply, but the way to prepare for retirement in the last decade is to have enough safe investments to fund your yearly expenses in case of a market downturn.

https://www.moneysense.ca/save/retireme ... nt-income/

Image

Lets say the retirement you want requires $60k a year in spending.
That means building a 5-year GIC ladder worth $300k. The rest goes into a 60/40 allocation.
When you don't need the money, use the 60K and reinvest in another 5-year GIC.
In the event of a market downturn, the GIC that matures funds your expenses for the year.
Since downturns can last several years, the GICs keep you afloat while you ride out dip.

The other way is to change your asset allocation before retirement then change it again as you go further into retirement - a bond tent.

https://www.fiphysician.com/what-is-the ... etirement/
https://www.kitces.com/blog/managing-po ... -red-zone/
Deal Fanatic
Mar 24, 2008
5919 posts
2104 upvotes
Toronto
^ that's a brilliant strategy. Having enough cash to ride out a crash when close to retirement will help preserve a portfolio. The only consideration would be the opportunity cost of the money that's in cash/GIC.
Illegitimi non carborundum
Deal Addict
Dec 4, 2016
1750 posts
801 upvotes
MoreDealsPlease wrote: That's a cool tool. Thanks for pointing out the effects of dividends and also that the couch potato portfolio would have outperformed S&P500 during those periods.

Here is the scenario I was describing: 2000 to 2013, 100K is only 124K at the end

Here is an even more pessimistic scenario: 2000 to 2009, 100K becomes 56K

Now, best case scenario if the person held on to cash for 2 more years and waited for the crash (2002 to 2013): 100K becomes 200K

The 9 year scenario is actually somewhat relevant to me because that's what I'm aiming at for reaching financial independence and we are at an all time high similar to those periods pre-crisis. 100K becoming 200K vs 124K is quite a difference.
The 9 year scenario would require timing both the top and bottom of the market (knowing that you're at market top, and know exactly when the market bottom is going to be.)
Deal Addict
Dec 4, 2016
1750 posts
801 upvotes
ksgill wrote: Not sure how it's a hyperbolic example. 60/40 will not crash like 100% equities even in a 10 year time horizon. 2.1 million in a 60/40 portfolio did not end up at 1.1 million (dividends reinvested) in 2006-2008 (look up the exact numbers).

In order to be financially independent, you need to be in a "favourable" position. You can survive a crash before retirement by following a variable withdrawal rate strategy or by working a couple more years. That doesn't make it unrealistic.
Since 1981, all recessions has been deflationary, and medium/long bond yields tended to drop during a stock market crash, which means medium and long term bond values went up. A 60/40 portfolio would see the value of stocks go down, but value of bonds go up, providing better volatility protection than a portfolio of 60% stock and 40% cash.

Note that a 60/40 portfolio with significant medium and long term bond holding would not have done as well in a 70's stagflation scenario, when long term interest rates went up, destroying the value of long term bonds.
Sr. Member
User avatar
Dec 11, 2009
510 posts
113 upvotes
Toronto, ON
095179005 wrote: I eluded to it in my reply, but the way to prepare for retirement in the last decade is to have enough safe investments to fund your yearly expenses in case of a market downturn.

Do you think this changes if the person is planning on retiring early? Let's say early 40s retirement, there is still so many years for compounding to happen that maybe it makes sense to take more risk vs someone retiring at 65. It would be a shame to lose compounding effects from early 40s all the way to 80s or 90s. Now I guess I'm getting into the FIRE stuff and will likely find the answer to this there.
Jr. Member
Dec 1, 2019
120 posts
95 upvotes
MoreDealsPlease wrote: Do you think this changes if the person is planning on retiring early? Let's say early 40s retirement, there is still so many years for compounding to happen that maybe it makes sense to take more risk vs someone retiring at 65. It would be a shame to lose compounding effects from early 40s all the way to 80s or 90s. Now I guess I'm getting into the FIRE stuff and will likely find the answer to this there.
I think you just have to plan more because it depends what you intend to do when you consider yourself "retired". FatFIRE is retiring and living large. LeanFIRE is retiring with minimal expenses.
FIRE also doesn't mean you have to check out of the workforce. It just means the net worth you've built up gives you leverage/freedom to do the things you want to do.
SWR rules are also different because you're drawing from your nest egg earlier.

https://www.reddit.com/r/financialindep ... flections/
https://www.reddit.com/r/leanfire/comme ... ire_vs_fi/
https://www.reddit.com/r/financialindependence/wiki/faq

FIRE relies on being able to save at least 50%, preferably more, of your income.
Deal Addict
Dec 16, 2012
2299 posts
377 upvotes
Vancouver
Hey

I did some one off index "purchases" in my TD Easy Web, I wanted to check to make sure they are all correct but I can't see anywhere that a trade was purchased or not. Is there a way to check?
Newbie
Apr 23, 2017
30 posts
5 upvotes
QQ.. Is there anything equivalent of VGRO, VBAL, VCIP in US market, I want to buy something today since the markets are down.., I have RBC DI account and have some cash sitting in RRSP US$ account don't want to pay the exchange and would like to purchase something.
Sr. Member
User avatar
Oct 14, 2015
959 posts
522 upvotes
gladiator77 wrote: QQ.. Is there anything equivalent of VGRO, VBAL, VCIP in US market, I want to buy something today since the markets are down.., I have RBC DI account and have some cash sitting in RRSP US$ account don't want to pay the exchange and would like to purchase something.
https://www.blackrock.com/us/individual ... -en-us.pdf

Performance of the 4 ETFs since inception.
(right click the slider bar and choose "past week" to see them very short term)

https://stockcharts.com/freecharts/perf ... 6&O=011000
Jr. Member
Dec 1, 2019
120 posts
95 upvotes
gladiator77 wrote: QQ.. Is there anything equivalent of VGRO, VBAL, VCIP in US market, I want to buy something today since the markets are down.., I have RBC DI account and have some cash sitting in RRSP US$ account don't want to pay the exchange and would like to purchase something.
https://investor.vanguard.com/mutual-fu ... estrategy/#/

https://www.ishares.com/us/products/etf ... w=keyFacts

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