4 ms·

In this economy? Yes. The S&P 500 alone is up 20% this year.

by xwdv 5y ago

seanhunter 5y ago
If you invest in the S&P total return and take out 7% per year your capital will dwindle pretty quickly. The annualised total return on the S&P since 2000 has been 3.31% https://www.buyupside.com/alphavantagelive/stockreturncalccomputeavmonthavusesp.php?start_month=09&start_year=2000&end_month=09&end_year=2021&submit=Calculate+Returns https://www.buyupside.com/alphavantagelive/stockreturncalcco...
- xfhgjxcfgh 5y ago
  The oughts were a particularly bad decade for stocks, one of three in the past century. It isn't fair to choose a test period where stocks under-performed 50% of the time. A portfolio that includes some gold would have performed well enough during the 70s and 00s (gold wasn't a commodity in the same sense in the 30s).
  - qwytw 5y ago
    Still you can't really expect a constant 7% return. Looking at S&P 500 since 1990 there haven't been that many years when growth was between -10% and +10%: 2018: -6.24% 2016: 9.54% 2015: -0.73% 2011: 0.00% 2007: 3.53% 2005: 3.00% 2004: 8.99% 1994: -1.54% 1993: 7.06% 1992: 7.06% 1990: -6.56% in all other years it was double digit in either direction (of course it more often increased than fell). So it's still a huge gamble, if you start this at the beginning of recession and/or need to eat into your capital it won't end great.
    - xfhgjxcfgh 5y ago
      I agree. 4% is the most commonly discussed yearly withdrawal rate, and it might be too high.
  - NovemberWhiskey 5y ago
    The point is: it doesn't matter what the average return over a given period is, the safe draw-down rate is always less than that much.
- xwdv 5y ago
  You should only invest in S&P if you’re ignorant of the market. The best way to invest is to pick individual stocks in companies you have carefully evaluated. Also I never said anything about taking out 7% a year.
  - rout39574 5y ago
    The entire conversation is about using investments to create income, of which substantial portions must be disbursed annually. The original article says that their investments were deployed so that "7% earns me $31.5k per year.".
    - xwdv 5y ago
      Sell covered calls on your investments for income and you won’t have to worry about draw downs so much.
      - seanhunter 5y ago
        Selling covered calls is a bet that the market isn't going to go up. In a rising market your equity gets called away so it just gives up much of your upside.
  - NovemberWhiskey 5y ago
    >The best way to invest is to pick individual stocks in companies you have carefully evaluated. Only if you're able to guarantee a priori that you're an outstandingly good stock picker. A substantial majority of retail stock pickers lose out significantly to broad-based index funds.
  - _se 5y ago
    This is terrible advice.
- drocer88 5y ago
  "The annualised total return on the S&P since 2000 has been 3.31%". This is way off. I'm not sure what their mistake is. The alfphaantagelive calculator is reporting much lower numbers than the real value. Yahoo has a symbol for S&P 500 total return: ^SP500TR Check out: https://finance.yahoo.com/quote/%5ESP500TR/chart?p=%5ESP500TR https://finance.yahoo.com/quote/%5ESP500TR/chart?p=%5ESP500T... Punch in December 2000 for start and today's date for end. You'll get 398% total return. 398/21 = 19% annual return. Total return includes dividend re-investment. The alphavatangelive calculator says 3.31%, but even without dividend reinvestment the S&P 500 reports 11% average annual gains. This does not price in inflation which historically reported as 3% over long periods and was much lower until recently. Damodran has as good historical financial returns summary page: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... . According to the spreadsheet linked to on that page, S&P 500 returns with dividend reinvested is 11.64% since 1928. Assuming 4% inflation, that's 7.64% annual returns. So going all in on the stock market over a long time you can withdraw 7%. Even through world wars, depressions and stagflation periods. Some decades will be better than others.
  - kccqzy 5y ago
    > Punch in December 2000 for start and today's date for end. You'll get 398% total return. 398/21 = 19% annual return. I don't think you understand how percentages work. 19% annual return means on average every year you get 19% of the amount you have at the beginning of the year, not 19% of the amount when you began investing in December 2000. If the 21-year return is 398%, the correct annualized return is pow(1+3.98,1/21)-1 which is 7.9%.
    - drocer88 5y ago
      Thanks for the clarification. Mea culpa. That 19% seemed too high. Note the spreadsheet from Professor Damadoaran : http://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls http://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls The years 2001-2020 inclusive S&P 500 arithmetic average inflation adjusted total return is 6.79% ( =average(o92:o111) ). Which is below the 1928-2020 average return of 8.5%. Inflation might be underestimated. 6.7 is a lot closer to your calculation!
ren_engineer 5y ago
an economy where the US government racked up nearly 7 trillion in debt the last 2 years to keep it from utterly collapsing. The US economy is a ponzi scheme at this point

In this economy? Yes. The S&P 500 alone is up 20% this year.

by xwdv 5y ago

In this economy? Yes. The S&P 500 alone is up 20% this year.

If you invest in the S&P total return and take out 7% per year your capital will dwindle pretty quickly. The annualised total return on the S&P since 2000 has been 3.31% https://www.buyupside.com/alphavantagelive/stockreturncalccomputeavmonthavusesp.php?start_month=09&start_year=2000&end_month=09&end_year=2021&submit=Calculate+Returns https://www.buyupside.com/alphavantagelive/stockreturncalcco...

xfhgjxcfgh 5y ago
The oughts were a particularly bad decade for stocks, one of three in the past century. It isn't fair to choose a test period where stocks under-performed 50% of the time. A portfolio that includes some gold would have performed well enough during the 70s and 00s (gold wasn't a commodity in the same sense in the 30s).
- qwytw 5y ago
  Still you can't really expect a constant 7% return. Looking at S&P 500 since 1990 there haven't been that many years when growth was between -10% and +10%: 2018: -6.24% 2016: 9.54% 2015: -0.73% 2011: 0.00% 2007: 3.53% 2005: 3.00% 2004: 8.99% 1994: -1.54% 1993: 7.06% 1992: 7.06% 1990: -6.56% in all other years it was double digit in either direction (of course it more often increased than fell). So it's still a huge gamble, if you start this at the beginning of recession and/or need to eat into your capital it won't end great.
  - xfhgjxcfgh 5y ago
    I agree. 4% is the most commonly discussed yearly withdrawal rate, and it might be too high.
- NovemberWhiskey 5y ago
  The point is: it doesn't matter what the average return over a given period is, the safe draw-down rate is always less than that much.
xwdv 5y ago
You should only invest in S&P if you’re ignorant of the market. The best way to invest is to pick individual stocks in companies you have carefully evaluated. Also I never said anything about taking out 7% a year.
- rout39574 5y ago
  The entire conversation is about using investments to create income, of which substantial portions must be disbursed annually. The original article says that their investments were deployed so that "7% earns me $31.5k per year.".
  - xwdv 5y ago
    Sell covered calls on your investments for income and you won’t have to worry about draw downs so much.
    - seanhunter 5y ago
      Selling covered calls is a bet that the market isn't going to go up. In a rising market your equity gets called away so it just gives up much of your upside.
- NovemberWhiskey 5y ago
  >The best way to invest is to pick individual stocks in companies you have carefully evaluated. Only if you're able to guarantee a priori that you're an outstandingly good stock picker. A substantial majority of retail stock pickers lose out significantly to broad-based index funds.
- _se 5y ago
  This is terrible advice.
drocer88 5y ago
"The annualised total return on the S&P since 2000 has been 3.31%". This is way off. I'm not sure what their mistake is. The alfphaantagelive calculator is reporting much lower numbers than the real value. Yahoo has a symbol for S&P 500 total return: ^SP500TR Check out: https://finance.yahoo.com/quote/%5ESP500TR/chart?p=%5ESP500TR https://finance.yahoo.com/quote/%5ESP500TR/chart?p=%5ESP500T... Punch in December 2000 for start and today's date for end. You'll get 398% total return. 398/21 = 19% annual return. Total return includes dividend re-investment. The alphavatangelive calculator says 3.31%, but even without dividend reinvestment the S&P 500 reports 11% average annual gains. This does not price in inflation which historically reported as 3% over long periods and was much lower until recently. Damodran has as good historical financial returns summary page: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... . According to the spreadsheet linked to on that page, S&P 500 returns with dividend reinvested is 11.64% since 1928. Assuming 4% inflation, that's 7.64% annual returns. So going all in on the stock market over a long time you can withdraw 7%. Even through world wars, depressions and stagflation periods. Some decades will be better than others.
- kccqzy 5y ago
  > Punch in December 2000 for start and today's date for end. You'll get 398% total return. 398/21 = 19% annual return. I don't think you understand how percentages work. 19% annual return means on average every year you get 19% of the amount you have at the beginning of the year, not 19% of the amount when you began investing in December 2000. If the 21-year return is 398%, the correct annualized return is pow(1+3.98,1/21)-1 which is 7.9%.
  - drocer88 5y ago
    Thanks for the clarification. Mea culpa. That 19% seemed too high. Note the spreadsheet from Professor Damadoaran : http://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls http://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls The years 2001-2020 inclusive S&P 500 arithmetic average inflation adjusted total return is 6.79% ( =average(o92:o111) ). Which is below the 1928-2020 average return of 8.5%. Inflation might be underestimated. 6.7 is a lot closer to your calculation!

ren_engineer 5y ago

an economy where the US government racked up nearly 7 trillion in debt the last 2 years to keep it from utterly collapsing. The US economy is a ponzi scheme at this point