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>A tale of the worlds worst market timer: https://awealthofcommonsense.com/2014/02/worlds-worst-market https://awealthofcommonsense.com/2014/02/worlds-worst-mar

>A tale of the worlds worst market timer: https://awealthofcommonsense.com/2014/02/worlds-worst-market https://awealthofcommonsense.com/2014/02/worlds-worst-market... I see this posted from time to time, but the assumptions are kind of silly. A huge portion of the "miraculous" returns come from the fact that this fictional person was able to put an entire year's worth of salary into the market in one go, 50 years ago. In 1970 the average salary was about $6,000, but he managed to save one third each year to invest? So, sure it demonstrates the power of compounding. But, to me, an alternative lesson is that you can be an incredibly diligent saver and, through sheer bad luck, have barely enough to retire. I mean, it's not like $1MM in retirement money means "set for life" anymore.

Closi 6y ago
> It's not like $1MM in retirement money means "set for life" anymore. It absolutely does, unless you are planning on living in a mansion eating nothing but caviar.
- hcknwscommenter 6y ago
  ??? I think that is highly dependent on housing costs and how early you retire. If you have kids who are not in college (and live where college is not free) and have not paid off your house, 1MM in retirement is a woefully small amount of money (I think?). At 5% withdrawal (risky), you are living on 50K a year, 30K post-tax. That's not even going to cover your mortgage in many cases, much less other living costs.
  - valuearb 6y ago
    Uh, if you have kids not yet in college, how are you retiring?
  - Closi 6y ago
    1 million is a woefully small amount of money to retire with? HN needs to live in the real world and learn what most people retire with
    - itsoktocry 6y ago
      >HN needs to live in the real world and learn what most people retire with Most people retire with barely anything, I don't think that's disputed. Doesn't mean that $1M is a lot of money to retire on.
- lbotos 6y ago
  I've seen that inflation adjusted numbers put it closer to $2.5MM or $3MM now.
  - valuearb 6y ago
    All depends on where you want to live.
    - Closi 6y ago
      Of course, $100 million isn’t enough money to retire if you want to live on a super yacht. I just mean for the vast majority of the world, retiring with that sort of wealth is an unattainable goal. I’m sure most people can arrange their life to live incredibly comfortably with $1m.
      - valuearb 6y ago
        Just read great article in American retiree in Mexico living near beach for $1,000/month. When you retire you can move to the place that best fits your budget and interests.
        Closi 6y ago
        100% agree :) You can have an incredibly rich and easy life which others can only dream of for $1m. That's not to say you can live any life in any location, but assuming you use money wisely you can live with an amazing standard of living!
- DennisP 6y ago
  Historically, withdrawing 4% of your initial portfolio annually gives you a good but not perfect success rate with a 30-year retirement. I wouldn't say a $40K annual income is just shy of mansion/caviar territory. Further, if you believe the historical data enough to rely on that, you should also believe the same data which says when CAPE ratios are high, the safe withdrawal rate goes to 3% or less.
  - Closi 6y ago
    Mansion & caviar is an exaggeration, but you can probably live the rest of your days being looked after on a perpetual cruise ship for $40k if that’s your sort of thing. And if you can perpetually have the type of holiday most people only dream of, I would say you are doing ok!
    - DennisP 6y ago
      A quick google shows that's probably not the case at all. Assuming longer cruises are more cost-efficient, here's a 180-day cruise that costs $38K, and that's assuming you share a small stateroom with another passenger. https://www.cruisecritic.com/news/3762/ https://www.cruisecritic.com/news/3762/
      - Closi 6y ago
        This link does a fairly in depth calculation and finds it’s possible: https://www.investopedia.com/articles/retirement/101416/how-retire-cruise-ship-less-1-million.asp https://www.investopedia.com/articles/retirement/101416/how-...
        DennisP 6y ago
        > Princess Cruise Lines, for example, offers last-minute deals from less than $100 a day per person.[5] Booking back-to-back cruises at low rates could help keep your retirement spending under $40,000 a year, which can help your retirement dollars go further. So to fit that budget you'd be constantly hustling for last-minute cruise deals, and for a cheap place to stay when you can't find a cheap cruise ready to go at your current port. That's not exactly what I'd call "set for life." Also note their estimate is "per person." Cruise lines price rooms for at least double occupancy so they're actually saying you'll need $200/day, unless you're splitting with someone who has their own money. On top of cruise fees, you'll need some budget to just buy stuff now and then. You might even want health insurance.
- eloff 6y ago
  That depends entirely where you live, how you live, and how long you live. A million doesn't go that far. It won't even buy a tiny fixer upper from the early half of the last century where I live (Vancouver). People can live 30 years from retirement. A million doesn't go far like that. There's no safe returns on that money anymore.
  - Closi 6y ago
    I think a million dollar house counts as a mansion in relative terms for most of the world. I just mean on a world scale I’m hot feeling pity for someone that “only” retires with a million and will have to try so so hard to make ends meet. You won’t struggle to live on a million dollars (in the real meaning of the word struggle).
    - eloff 6y ago
      Given low-interest rates and very high prices in both bonds and stocks, you could withdraw safely only about 3%, not the usual 5%. And that's not counting on any improvements in longevity over the next 30 years. You'll also have to deal with very high inflation rates in health care costs, which will dominate larger and larger chunks of your spending over the years in many countries - even those with free public healthcare. 3% of 1M is $30,000, before taxes on any investment gains. That's basically a little less or a little more than a minimum wage job, depending on where you live. Most likely both you and your spouse will need to live off of that. I don't think 1M is enough to retire in any manner of comfort. 2-3M would be a lot safer. And that's if you move to a cheaper locale and avoid any of the first-tier cities.
      - Closi 6y ago
        Withdrawing 3% is not high risk - You can get an inflation adjusted annuity that provides 3% if you retire at 65.
        eloff 6y ago
        I didn't say it was high risk, I said it was a safe withdrawal rate to plan for. I don't think market conditions allow for a 5% rate anymore, which used to be the recommended level. Also you've ignored everything else I said just to harp on one thing - which is rude considering the time I took to reply to you.
pembrook 6y ago
What's your better, alternative option? You're saying that $1MM in retirement isn't as much as you'd like...so...it'd be better to have nothing and have saved zero?
- DennisP 6y ago
  The obvious answer is to save more than that if at all possible, and if you're not in your twenties then diversify across asset classes instead of throwing it all into US stocks.
- itsoktocry 6y ago
  >You're saying that $1MM in retirement isn't as much as you'd like...so...it'd be better to have nothing and have saved zero? If this is what you got from my comment, it's probably pointless to engage with you. In the off-chance you're sincere: the thought experiment in the article is interesting, I get that. But it's trotted out as evidence that you can be the worst investor in the world and still make money. Okay. Now examine the assumptions. This fictional person started with $2,000 at age 22 (about $15,000 today. No student loans, nice windfall. Sound like the 22-year-olds of today?), and assuming they were making the average salary in 1970 (unlikely as a young person), they managed to save a substantial proportion of their salary every year. This gets invested, instantly cut in half, but then compounds for 45 years, with more dollars added along the way. Yes, you can be the worst investor ever and get reasonable results over 45 years if you're a really good saver. So what? This person managed to 6x their money over half a century. In my opinion that's a devastating result. Now imagine if you're one of those people in between the best/worst saver/investor? Without some luck your results will be similar, ie not great. And this doesn't account for the fact that past results != future results. It also doesn't account for when you need to disinvest. This article was written in 2014, with stocks near record highs at that time. Pretty convenient for this calculation. What happened if retirement came a few years earlier, in early 2009? So to answer your question, of course something is better than nothing. But the other lesson I see there: saving what you can and investing it blindly in an index fund isn't a guarantee of a cushy retirement, even though that's what the population is being sold. This is a crisis in the making.
valuearb 6y ago
He never saved more than $6,000 a year, which is likely less than 10% of his income at terminus. And you missed the point that this is the worst you could do. If “Bob” had simply invested every year, his end result is likely 2-3x.
- itsoktocry 6y ago
  >He never saved more than $6,000 a year He started with $2,000 and was saving $2,000 per year...in 1970. That is a lot. If you are able to do that as a 22-year-old entering the job market, good for you. It's unrealistic for the vast majority of people. The average savings rate in the US is about 7%. "Bob" managed 30%+ in the most important (read: earliest) years, allowing it to compound for a long time. His savings was front-loaded. This is not normal. Most people don't start saving anything of significance until they are into their 40s. >And you missed the point that this is the worst you could do. You missed my point that this isn't nearly "the worst you could do". This fictional person started with incredibly privileged circumstances: A substantial windfall, apparently no debt, apparently a great job straight out of college, that allowed them to invest significant funds very early in their career. The unrealistic investing scenario is countered by the unrealistic saving ability. Not a particularly valuable thought experiment. And, once again, I don't disagree with the premise: save what you can and invest it in a diversified portfolio and allow it to compound over your life. This is the best option for 99.9% of the population. But, it also doesn't guarantee a comfortable retirement for that 99.9%, which is scary.
heipei 6y ago
It's not about the absolute numbers so much as the fact how that fictional saver behaved after having a huge chunk of his investment wiped out by each following market downturn: He never sold anything, and that's the key lesson here. For me reading about this worst market timer was actually quite comforting because it's assuming the unrealistic worst-case scenario in terms of timing coupled with level-headed behaviour afterwards. There was also a study done by Vanguard which showed that historically, dollar-cost averaging underperforms lump-sum investments which was just as interesting to me.
- joubert 6y ago
  > There was also a study done by Vanguard which showed that historically, dollar-cost averaging underperforms lump-sum investments which was just as interesting to me. I'd be very interested to read the study, but the only text I've found so far is this: https://investor.vanguard.com/investing/online-trading/invest-lump-sum https://investor.vanguard.com/investing/online-trading/inves... It seems logical to me that lump sum investing > dollar-cost averaging (which is why I do the former), but I'd be curious to see empirical research.
  - potiuper 6y ago
    https://web.archive.org/web/20200313022845/https://personal.vanguard.com/pdf/ISGDCA.pdf https://web.archive.org/web/20200313022845/https://personal....

Closi 6y ago

> It's not like $1MM in retirement money means "set for life" anymore. It absolutely does, unless you are planning on living in a mansion eating nothing but caviar.

hcknwscommenter 6y ago
??? I think that is highly dependent on housing costs and how early you retire. If you have kids who are not in college (and live where college is not free) and have not paid off your house, 1MM in retirement is a woefully small amount of money (I think?). At 5% withdrawal (risky), you are living on 50K a year, 30K post-tax. That's not even going to cover your mortgage in many cases, much less other living costs.
- valuearb 6y ago
  Uh, if you have kids not yet in college, how are you retiring?
- Closi 6y ago
  1 million is a woefully small amount of money to retire with? HN needs to live in the real world and learn what most people retire with
  - itsoktocry 6y ago
    >HN needs to live in the real world and learn what most people retire with Most people retire with barely anything, I don't think that's disputed. Doesn't mean that $1M is a lot of money to retire on.
lbotos 6y ago
I've seen that inflation adjusted numbers put it closer to $2.5MM or $3MM now.
- valuearb 6y ago
  All depends on where you want to live.
  - Closi 6y ago
    Of course, $100 million isn’t enough money to retire if you want to live on a super yacht. I just mean for the vast majority of the world, retiring with that sort of wealth is an unattainable goal. I’m sure most people can arrange their life to live incredibly comfortably with $1m.
    - valuearb 6y ago
      Just read great article in American retiree in Mexico living near beach for $1,000/month. When you retire you can move to the place that best fits your budget and interests.
      - Closi 6y ago
        100% agree :) You can have an incredibly rich and easy life which others can only dream of for $1m. That's not to say you can live any life in any location, but assuming you use money wisely you can live with an amazing standard of living!
DennisP 6y ago
Historically, withdrawing 4% of your initial portfolio annually gives you a good but not perfect success rate with a 30-year retirement. I wouldn't say a $40K annual income is just shy of mansion/caviar territory. Further, if you believe the historical data enough to rely on that, you should also believe the same data which says when CAPE ratios are high, the safe withdrawal rate goes to 3% or less.
- Closi 6y ago
  Mansion & caviar is an exaggeration, but you can probably live the rest of your days being looked after on a perpetual cruise ship for $40k if that’s your sort of thing. And if you can perpetually have the type of holiday most people only dream of, I would say you are doing ok!
  - DennisP 6y ago
    A quick google shows that's probably not the case at all. Assuming longer cruises are more cost-efficient, here's a 180-day cruise that costs $38K, and that's assuming you share a small stateroom with another passenger. https://www.cruisecritic.com/news/3762/ https://www.cruisecritic.com/news/3762/
    - Closi 6y ago
      This link does a fairly in depth calculation and finds it’s possible: https://www.investopedia.com/articles/retirement/101416/how-retire-cruise-ship-less-1-million.asp https://www.investopedia.com/articles/retirement/101416/how-...
      - DennisP 6y ago
        > Princess Cruise Lines, for example, offers last-minute deals from less than $100 a day per person.[5] Booking back-to-back cruises at low rates could help keep your retirement spending under $40,000 a year, which can help your retirement dollars go further. So to fit that budget you'd be constantly hustling for last-minute cruise deals, and for a cheap place to stay when you can't find a cheap cruise ready to go at your current port. That's not exactly what I'd call "set for life." Also note their estimate is "per person." Cruise lines price rooms for at least double occupancy so they're actually saying you'll need $200/day, unless you're splitting with someone who has their own money. On top of cruise fees, you'll need some budget to just buy stuff now and then. You might even want health insurance.
eloff 6y ago
That depends entirely where you live, how you live, and how long you live. A million doesn't go that far. It won't even buy a tiny fixer upper from the early half of the last century where I live (Vancouver). People can live 30 years from retirement. A million doesn't go far like that. There's no safe returns on that money anymore.
- Closi 6y ago
  I think a million dollar house counts as a mansion in relative terms for most of the world. I just mean on a world scale I’m hot feeling pity for someone that “only” retires with a million and will have to try so so hard to make ends meet. You won’t struggle to live on a million dollars (in the real meaning of the word struggle).
  - eloff 6y ago
    Given low-interest rates and very high prices in both bonds and stocks, you could withdraw safely only about 3%, not the usual 5%. And that's not counting on any improvements in longevity over the next 30 years. You'll also have to deal with very high inflation rates in health care costs, which will dominate larger and larger chunks of your spending over the years in many countries - even those with free public healthcare. 3% of 1M is $30,000, before taxes on any investment gains. That's basically a little less or a little more than a minimum wage job, depending on where you live. Most likely both you and your spouse will need to live off of that. I don't think 1M is enough to retire in any manner of comfort. 2-3M would be a lot safer. And that's if you move to a cheaper locale and avoid any of the first-tier cities.
    - Closi 6y ago
      Withdrawing 3% is not high risk - You can get an inflation adjusted annuity that provides 3% if you retire at 65.
      - eloff 6y ago
        I didn't say it was high risk, I said it was a safe withdrawal rate to plan for. I don't think market conditions allow for a 5% rate anymore, which used to be the recommended level. Also you've ignored everything else I said just to harp on one thing - which is rude considering the time I took to reply to you.

pembrook 6y ago

What's your better, alternative option? You're saying that $1MM in retirement isn't as much as you'd like...so...it'd be better to have nothing and have saved zero?

DennisP 6y ago
The obvious answer is to save more than that if at all possible, and if you're not in your twenties then diversify across asset classes instead of throwing it all into US stocks.
itsoktocry 6y ago
>You're saying that $1MM in retirement isn't as much as you'd like...so...it'd be better to have nothing and have saved zero? If this is what you got from my comment, it's probably pointless to engage with you. In the off-chance you're sincere: the thought experiment in the article is interesting, I get that. But it's trotted out as evidence that you can be the worst investor in the world and still make money. Okay. Now examine the assumptions. This fictional person started with $2,000 at age 22 (about $15,000 today. No student loans, nice windfall. Sound like the 22-year-olds of today?), and assuming they were making the average salary in 1970 (unlikely as a young person), they managed to save a substantial proportion of their salary every year. This gets invested, instantly cut in half, but then compounds for 45 years, with more dollars added along the way. Yes, you can be the worst investor ever and get reasonable results over 45 years if you're a really good saver. So what? This person managed to 6x their money over half a century. In my opinion that's a devastating result. Now imagine if you're one of those people in between the best/worst saver/investor? Without some luck your results will be similar, ie not great. And this doesn't account for the fact that past results != future results. It also doesn't account for when you need to disinvest. This article was written in 2014, with stocks near record highs at that time. Pretty convenient for this calculation. What happened if retirement came a few years earlier, in early 2009? So to answer your question, of course something is better than nothing. But the other lesson I see there: saving what you can and investing it blindly in an index fund isn't a guarantee of a cushy retirement, even though that's what the population is being sold. This is a crisis in the making.

valuearb 6y ago

He never saved more than $6,000 a year, which is likely less than 10% of his income at terminus. And you missed the point that this is the worst you could do. If “Bob” had simply invested every year, his end result is likely 2-3x.

itsoktocry 6y ago
>He never saved more than $6,000 a year He started with $2,000 and was saving $2,000 per year...in 1970. That is a lot. If you are able to do that as a 22-year-old entering the job market, good for you. It's unrealistic for the vast majority of people. The average savings rate in the US is about 7%. "Bob" managed 30%+ in the most important (read: earliest) years, allowing it to compound for a long time. His savings was front-loaded. This is not normal. Most people don't start saving anything of significance until they are into their 40s. >And you missed the point that this is the worst you could do. You missed my point that this isn't nearly "the worst you could do". This fictional person started with incredibly privileged circumstances: A substantial windfall, apparently no debt, apparently a great job straight out of college, that allowed them to invest significant funds very early in their career. The unrealistic investing scenario is countered by the unrealistic saving ability. Not a particularly valuable thought experiment. And, once again, I don't disagree with the premise: save what you can and invest it in a diversified portfolio and allow it to compound over your life. This is the best option for 99.9% of the population. But, it also doesn't guarantee a comfortable retirement for that 99.9%, which is scary.

heipei 6y ago

It's not about the absolute numbers so much as the fact how that fictional saver behaved after having a huge chunk of his investment wiped out by each following market downturn: He never sold anything, and that's the key lesson here. For me reading about this worst market timer was actually quite comforting because it's assuming the unrealistic worst-case scenario in terms of timing coupled with level-headed behaviour afterwards. There was also a study done by Vanguard which showed that historically, dollar-cost averaging underperforms lump-sum investments which was just as interesting to me.

joubert 6y ago
> There was also a study done by Vanguard which showed that historically, dollar-cost averaging underperforms lump-sum investments which was just as interesting to me. I'd be very interested to read the study, but the only text I've found so far is this: https://investor.vanguard.com/investing/online-trading/invest-lump-sum https://investor.vanguard.com/investing/online-trading/inves... It seems logical to me that lump sum investing > dollar-cost averaging (which is why I do the former), but I'd be curious to see empirical research.
- potiuper 6y ago
  https://web.archive.org/web/20200313022845/https://personal.vanguard.com/pdf/ISGDCA.pdf https://web.archive.org/web/20200313022845/https://personal....