How to Retire Forever on a Fixed Chunk of Money

The following three sentences represent the entire universe of probability for you:

If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)

If you start with a $1 million nest egg (a 4% withdrawal rate), you will very likely never run out of money

If you start with a $1.33 million chunk (a 3% withdrawal rate), it is overwhelmingly certain that you’ll have a growing surplus for life.

Interested? Definitely read the rest: 

https://www.mrmoneymustache.com/2018/11/29/how-to-retire-forever-on-a-fixed-chunk-of-money/ 

Bonds v Stocks: A timely reminder...

Over 30 year-year periods, portfolios with 100 percent stocks typically trounce portfolios with 60 percent stocks and 40 percent bonds. 

That’s why smart investors maintain diversified portfolios. They don’t pay attention to bond market interest rates. They don’t pay attention to stock market movements. They ignore economic forecasts and goofy horoscopes.

You might have the courage to stomach big declines. If that’s the case, build an assertive or aggressive portfolio with a low bond allocation. Your Thor-like resolve will help you make a lot of money. But if you don’t see an Action Hero when you look into the mirror, be honest with yourself.

Andrew Hallam is a Digital Nomad. 

https://en.swissquote.lu/international-investing/smart-investing/why-having-bonds-your-portfolio-can-help-boost-returns

You Need Boring but Stable Bonds...

Why you need boring but stable bonds in your portfolio, from a post by Andrew Hallam:

A real stock market plunge feels a lot like bungee jumping…in a third world country.  But in some ways, it’s worse.  On the way down, you have to wear a set of headphones.  Endless experts are telling you that the bungee cord is going to break.  Having bonds in your portfolio represent an extra bungee cord.  The drop still terrifies.  But it provides some comfort.

Last night, after my talk at Dubai College, Pele and I were enjoying an Indian restaurant dinner.  We reflected on what went well and what I could improve.  The restaurant didn’t serve humble pie.  But she put a huge dose on my plate.  I had mentioned, at the talk, that our portfolio represents 60% stocks, 40% bonds.  Cavalierly, I claimed to select this particular bond allocation because, if I die first, Pele might want a portfolio with added stability.

She called me on my crap.  The passing of time had warped my memory.  When I was 20 years old (and very single) I followed textbook portfolio allocation.  My percentage in bonds was similar to my age:  80% stocks, 20% bonds.  

In the year 2000, when I was 30 years old, I had 70% stocks, 30% bonds.  Having 30% in bonds helped me to emotionally weather the 3-year crash (2000-2003).  It also allowed me beat index fund portfolios comprising 100% stocks from 2000-2019.  Sometimes, bonds do more than help you sleep at night (see screenshot attached:  portfolio 1 = 100% global stock index; portfolio 2 = 70% global stock index, 30% bond index)

In 2007, I had about 35% in bonds.  As I mentioned during my talk, I wanted a market crash.  When stocks fell hard, in 2008, the world was calling for financial Armageddon.  It represented that 3rd world bungee jump.  Like everyone else, I wore headphones that said, “This time it’s going to be different.”  Once again, having bonds helped me stay the course when global stocks dropped 40%.   Despite low bond yields, a portfolio with 60% global stocks and 40% bonds also edged a portfolio of 100% global stocks from 2008-2019.  

As I mentioned in Millionaire Expat, no matter how old I get, I'll be sticking with 60% stocks, 40% bonds.

Stocks beat bonds over long time periods.  But sometimes, balanced portfolios (like mine) do just fine. 

Your tolerance for market volatility might be greater than mine.  It might be less than mine. Everyone is different.  I can’t recommend the perfect allocation for you.  But here’s what I know:  

If you choose a higher bond allocation, you might sleep better at night.  If a higher bond allocation helps you stay the course, then do it.  If it helps you stay on track when stocks crater again, that’s far more important.

And…I should listen to my wife….We have a portfolio with 40% in bonds because it matches my comfort level.  I’m glad she calls me out.  ☺  

Digital Disorganisation & Parenting: Part 2

Digital Organisation Essentials

As explained in Part 1, parents generally struggle to model effective practices when it comes to the organisation of their digital devices, but it's not all doom and gloom. When it comes to the use of digital tools for organisation, many—if not most parents—embraced these with enthusiasm some time ago, and are now generally proficient in their use. What they don't often realise is that they could and should encourage their children to use similar tools, in the same way, and for the same reasons they do. 

Where there can be confusion, is which tools to use; as there are a plethora of them out there. So in this post I will outline the organisational tools we encourage our students to use. While these may not be the same as the tools parents use, they will be very similar, and the ways to use them will be identical. So whether they're using Apple Reminders, or Evernote, or Google Keep is not the focus; it's not about the nouns, it's about the verbs, or to put it another way, it's not what you use, it's how you use it.

As our students progress through the college in Primary and Middle School they are expected to use a paper organiser. At the end of Grade 8, in preparation for High School where they have the freedom to choose whatever system they like, we formally introduce them to digital organisation tools at the start of term 3. What follows summarises our plans for our Middle School students as they prepare to make the leap from paper and pencil, to pixels and dings.

Google tools

As a school that uses Google Apps it makes sense for us to utlise the apps in this suite, as they are just a click away from the GMail inbox and Google Drive that they've been using for many years. The slide deck shared at the top of this post outlines how to set these tools up, but to summarise, we expect students to use:

1. their Google Calendar to manage their timetable, adding other events from their busy lives, such as sporting events, activities, service, and rehearsals et cetera. 
2. the To-Do panel in our online learning platform (Teamie) to keep track of homework deadlines. 
3. Google Keep (or similar) for everything else, ie reminders, lists, and notes. 

Blended organisation

Many parents, and many of our students may prefer a more 'blended' approach—using a paper organiser for some items and areas, and using digital tools for others. If you do decide to use this approach, an important consideration is that you need to make sure that with one or both of these you are transferring events, otherwise you can end up with clashes between events, because one is recorded on paper and not included on the digital calendar, or vice versa. This does mean a certain amount of duplication, which for me was the reason why I eventually abandoned this approach, and switched to digital tools completely.

Why go digital? 

There are many reasons, but a brief summary follows, focused on the 'transformational' power of digital tools, ie what digital organisational tools can do that traditional tools cannot:

• Situated: unlike a paper organiser, digital organisation tools can be anywhere you are with a digital device, synced across all the devices you have connected, and all kept in sync in real time. 
• Access: an idea, an image, a quote, a website, a video, a document, a reminder, a list, all a click or two away, and a copy/paste makes it easy to locate later, or/and to annotate with some simple notes. Best of all, it's searchable, no more flicking through pages desperately skimming for that snippet of information. 
• Multimodal: Now you are not limited to text or to a hastily scribbled scrawl on the back of a proverbial envelope—notes can be a quick picture, or short video, or an audio recording. You can even dictate straight into your notes (just pretend you're on the phone 😉) Best of all are the audio notifications; that 'ding!' is incredibly useful. 
• Mutable: Need to change that date, that time, that place? Update/edit that note? Changed your mind? Need to add clarification? No problem,  and no crossed out entries in your planner. 
• Social: with a few clicks, notes, and calendar events can be shared with one or many. For parents in particular, if you can persuade your child to share their calendar with you, you will find much easier to keep track of what they're doing, and where they are, or where they should be...

Catch FIRE

 

https://youtu.be/XSHNDyinZSQ

Bed & Breakfasting

This is probably only relevant to Brits and Paddies, but maybe relevant to others as well. I've seen Andrew using this term but its not one he uses in his books as far as I know, but it's worth understanding... I'll sum up what I understand from the conversations on his Facebook group here: 

When the day finally comes for you to embrace financial freedom, and possibly return to your home country, but without paying CGT on your precious investments, a ‘bed and breakfast deal’ is an investing strategy where an investor sells before the calendar year of repatriation and then buys back after repatriation.

This strategy allows investors to minimise the amount of capital gains taxes they must pay. So if you're repatriating, you'd sell off all your investments, bring the cash onshore CGT free, and then reinvest it onshore. 

At least in the UK, the total sum brought onshore would be capital gains tax free (as we already paid tax on this income in Singapore) but any funds it generates once reinvested onshore would be taxable as a capital gain, apart from the £20,000 per year that can be put into an ISA. Those new onshore funds would only be taxable from the step-up date of repatriation, and they would only be taxable on realised gains (profits made on sales) after the date of repatriation.

When the time comes there are likely to be important details to consider, like the actual optimal timing,  so every expat needs an excellent tax accountant to consult who has knowledge in expatriate matters before making their move.

It's possible that a skilled tax accountant may know of a way to avoid bed & breakfasting at all upon repatriation—personally I want whoever Jimmy Carr used...  . 

https://www.investopedia.com/terms/b/bed-and-breakfast-deal.asp 

#CapitalGainsTax #tax  

Index Funds are not on the cusp of collapsing the markets....

Andrew does a great job of dispelling this myth in this article; but don't just take his word for it; I've included links to articles by US News and The Financial Times highlighting the same fundamental differences between index funds and the 'sub prime' market... 

"Wall Street analysts have predicted 100 of the past 3 market crashes." 

https://assetbuilder.com/knowledge-center/articles/why-the-big-shorts-michael-burry-is-wrong-about-index-funds

"the prospect of people being unable to find willing buyers for mainstream stocks is simply unrealistic. Market makers aside, Burry’s nightmare scenario seems to also require a situation where everyone is selling at once. Long-term investors should never give way to their emotions and surrender to such panics in the first place."

https://money.usnews.com/investing/funds/articles/do-index-funds-etfs-quietly-pose-a-systemic-risk-michael-burry-thinks-so 

"when a violent sell-off came this year, triggered by the coronavirus pandemic, equity and bond ETFs arguably came through with strengthened credentials — an experience that promises to further embed them into the workings of the capital markets." 

https://www.ft.com/content/e71a193f-0f35-45d9-ac59-d7ad00d52945