7 ms·

I don't think you need a magic investment. Find a way to live on half of your after-tax income, save for ten to fifteen years the additional amount and put it

I don't think you need a magic investment. Find a way to live on half of your after-tax income, save for ten to fifteen years the additional amount and put it in large, relatively safe dividend stocks (DJIA is a good place to look). Then you have retirement at the same level as pre-retirement with about a 4-5% withdrawal rate even if your investment returns only average about 5% per year through the accumulation and disbursement phase.

eterm 11y ago
"only" 5%? Even 5% would be incredible return to have if it were consistent and low risk.
- Artistry121 11y ago
  Consistent and low risk were not requirements. http://www.dogsofthedow.com/dogyrs.htm http://www.dogsofthedow.com/dogyrs.htm Using funds with dividends can smooth returns (although not always tax beneficially).
- bradleyjg 11y ago
  A 5% arithmetic average nominal return over a multi-decade time horizon is not too difficult to achieve with even fairly low risk tolerance for undershooting the target. Change any of those qualifiers and it becomes a different story.
  - eterm 11y ago
    It wasn't too difficult to achieve, but past performance is no guarantee of future performance. Already that's looking far less true if you look at the past decade or two, but it's still the received wisdom because it's what people enjoyed in the past. The FTSE 100 hasn't peaked much higher than it peaked in 99/00, and in real terms still hasn't closed as high as it did back then. Since you were careful to talk about nomimal return, this is then further reduced by the effects of inflation. A 5% nominal return might well be easy in an environment with a high inflation rate. I'm not suggesting that people shouldn't invest, people clearly should invest as part of a mixed portfolio, and because cash returns are typically even slower, but the original article here is unrealistic as a goal. Edit: Dividends help too of course, they aren't tracked into the index whereas it is possible to reinvest them back in if you don't take them as income. I'm not denying that some people can get lucky with market timings and it works out well for them, and in fact there's the whole boomer generation it mostly worked out very well for, but it does no good to the next generation to account it all towards their actions and not account for any kind of good fortune in timing.
    - bradleyjg 11y ago
      I don't disagree with your points. In particular, I think real return, averaged geometrically, is a better number to look at and design these calculators / spreadsheets around. When you do that, the numbers end up looking quite a bit less cheerful, and as a side effect the big advantage of equities over debt erodes somewhat. The other thing that the frugality and savings über alles crowd neglects to mention is that different people have different preferences (and that's okay!). Including preferences dealing with intertemporal discounting. It's one thing when you are trying to develop pithy messaging aimed at the general public and quite another to make un-nuanced arguments in forums that allow for them.
- prewett 11y ago
  I believe the S&P 500 has returned 6% - 8% (depending on which quote you believe) for the past century. Pretty low risk index fund, there.
  - JoachimSchipper 11y ago
    Says the American. Now look at, say, the German or Russian stock market. ;-)
IshKebab 11y ago
> Find a way to live on half of your after-tax income This is like "How to have an easy life": 1. Find a way to have plenty of money. 2. ...
- Artistry121 11y ago
  How much money do you need to live? $15k a year? How much can you generate: 30k a year? You're set. This isn't talking about being wealthy - it's about considering alternatives and making good choices - if you can make more than $20k a year.
  - Retric 11y ago
    So step 1, don't have kids, step 2 don't get sick. That's like saying win the lottery. Sure, it could work, but it's a lot of risk and does not scale.
    - coldtea 11y ago
      No, it's just be frugal. You can still pay for insurance and kids. In fact in TFA he says he has a kid.
    - carlob 11y ago
      So step 1 don't live in the US. fixed that for you :)
      - anotherangrydev 11y ago
        Step 2: Do not get paid like in the US.
        toomuchtodo 11y ago
        Step 3. Live in a country with a proper healthcare system (not the U.S.).
    - Nadya 11y ago
mkozlows 11y ago
Your advice is not his advice.
- Artistry121 11y ago
  Correct - but the idea of retiring early is not nearly as some make it out to be.

eterm 11y ago

"only" 5%? Even 5% would be incredible return to have if it were consistent and low risk.

Artistry121 11y ago
Consistent and low risk were not requirements. http://www.dogsofthedow.com/dogyrs.htm http://www.dogsofthedow.com/dogyrs.htm Using funds with dividends can smooth returns (although not always tax beneficially).
bradleyjg 11y ago
A 5% arithmetic average nominal return over a multi-decade time horizon is not too difficult to achieve with even fairly low risk tolerance for undershooting the target. Change any of those qualifiers and it becomes a different story.
- eterm 11y ago
  It wasn't too difficult to achieve, but past performance is no guarantee of future performance. Already that's looking far less true if you look at the past decade or two, but it's still the received wisdom because it's what people enjoyed in the past. The FTSE 100 hasn't peaked much higher than it peaked in 99/00, and in real terms still hasn't closed as high as it did back then. Since you were careful to talk about nomimal return, this is then further reduced by the effects of inflation. A 5% nominal return might well be easy in an environment with a high inflation rate. I'm not suggesting that people shouldn't invest, people clearly should invest as part of a mixed portfolio, and because cash returns are typically even slower, but the original article here is unrealistic as a goal. Edit: Dividends help too of course, they aren't tracked into the index whereas it is possible to reinvest them back in if you don't take them as income. I'm not denying that some people can get lucky with market timings and it works out well for them, and in fact there's the whole boomer generation it mostly worked out very well for, but it does no good to the next generation to account it all towards their actions and not account for any kind of good fortune in timing.
  - bradleyjg 11y ago
    I don't disagree with your points. In particular, I think real return, averaged geometrically, is a better number to look at and design these calculators / spreadsheets around. When you do that, the numbers end up looking quite a bit less cheerful, and as a side effect the big advantage of equities over debt erodes somewhat. The other thing that the frugality and savings über alles crowd neglects to mention is that different people have different preferences (and that's okay!). Including preferences dealing with intertemporal discounting. It's one thing when you are trying to develop pithy messaging aimed at the general public and quite another to make un-nuanced arguments in forums that allow for them.
prewett 11y ago
I believe the S&P 500 has returned 6% - 8% (depending on which quote you believe) for the past century. Pretty low risk index fund, there.
- JoachimSchipper 11y ago
  Says the American. Now look at, say, the German or Russian stock market. ;-)

IshKebab 11y ago

> Find a way to live on half of your after-tax income This is like "How to have an easy life": 1. Find a way to have plenty of money. 2. ...

Artistry121 11y ago
How much money do you need to live? $15k a year? How much can you generate: 30k a year? You're set. This isn't talking about being wealthy - it's about considering alternatives and making good choices - if you can make more than $20k a year.
- Retric 11y ago
  So step 1, don't have kids, step 2 don't get sick. That's like saying win the lottery. Sure, it could work, but it's a lot of risk and does not scale.
  - coldtea 11y ago
    No, it's just be frugal. You can still pay for insurance and kids. In fact in TFA he says he has a kid.
  - carlob 11y ago
    So step 1 don't live in the US. fixed that for you :)
    - anotherangrydev 11y ago
      Step 2: Do not get paid like in the US.
      - toomuchtodo 11y ago
        Step 3. Live in a country with a proper healthcare system (not the U.S.).
  - Nadya 11y ago

mkozlows 11y ago

Your advice is not his advice.

Artistry121 11y ago
Correct - but the idea of retiring early is not nearly as some make it out to be.