Tag investing

Asset Allocation ETFs are like Pasta!

Paul - The Wry Eye Guy Leave a comment
Portfolios & Pasta!

Many years ago we visited some Italian friends for dinner. That was the first time I realised that pasta wasn’t meant to have a couple of pounds of stew heaped on top of it. Pasta in our house was usually over-boiled spaghetti, buried under lots of meaty-tomatoey stuff. Sometimes, we tossed in a few tablespoons of curry powder. Or maybe some jalapeños. And left-over spuds were always a no-brainer addition. Look, I’m not saying I didn’t enjoy some of these concoctions. But I was totally taken aback by how much I truly enjoyed the far simpler pasta that we experienced at our friends’ house. Portfolios are a bit like pasta in that respect. Sometimes, we can get carried away by having too many ingredients to choose from. Simpler can be better.

BlackRock’s iShares XGRO (20% fixed income) & XBAL (40% fixed income) have been available as all-in-one portfolio solutions since 2007. The arrival of the all-equity ETFs boosted interest in these off-the-shelf portfolios. In 2019, Vanguard Canada launched VEQT, their all-equity ETF. In that same year, the iShares XEQT ETF & Horizons (now Global X Canada) HEQT were also launched. And in 2022 we got BMO’s ZEQT. These funds are globally diversified, with about 45% of the allocation going to the US, 30% to Canada, & the remainder going to International, which includes a small allocation to emerging markets. These ETFs hold 10,000, or more, different company stocks from around the globe. That is some kind of diversification! And according to Harry Markowitz, a Nobel Prize-winning economist, diversification is the only free lunch in investing. There are a bunch of academic papers that support this level of diversification. While there are minor squabbles about percentages, or how great the American market is, I think some of us could benefit from using the allocation model employed by these highly diversified ETFs. Of course, that won’t stop us trying to mess with a good recipe from time to time, eh?

My own portfolio has gone through changes over the years. I was a growth investor at one time. Later, a dividend growth investor. Over time, new ETFs made it easier to chase the next hot sector or geography, so I started adding some of those. It wasn’t long before my portfolio looked more like one of my mad Irish-Indian-Mexican, & only vaguely Italian, pasta dishes! I finally got around to doing pasta the Italian way. It took me a little longer to learn how to apply that same keep-it-simple philosophy to my portfolio. But both cooking & investing are a little easier now. I will, however, admit that I occasionally toss a little hot pepper, or a little hot stock, into the recipe too!

Regardless of your preferred investment philosophy, there’s probably an all-in-one solution out there for you now. Along with the 100% equity ETFs, if you want 20% bonds, there are the V/X/ZGRO ETFs. The V/X/ZBAL ETFs cover the 40% bond allocation model. And so on. If you want the fund managers to take care of selling shares for you for income, BMO now has the T Series ETFs, like ZGRO-T & ZBAL-T. These ETFs dispense monthly income at the rate of 6% annualised. Now this distribution is well supported by recent market performance, but you should consult a professional to see if that 6% spending rate is sustainable throughout a lengthy retirement. Global X launched some funds for the high income investor. In 2023, EQCL provided a covered call & leveraged ETF that pays out at about a 12% rate. This sounds like a dream ETF &, since it was launched, it has been. Along with the fantastically high distribution, the underlying share price has continued to grow. But a 12% withdrawal rate might not be a safe bet for anyone starting out with a long retirement horizon. To complement this, Global X also have a globally diversified ETF with only covered calls. And another with only some leverage. What’s your favourite flavour?

With any fund that deviates from just holding & compounding plain old company stocks, it’s worth comparing its total return performance against an equivalent regular version. Regardless of huge differences in yield, total return comparisons offer a very useful perspective on relative performance. This is important to review during different parts of the market cycle. Many of these new funds look good, but they’ve only been active during a period of generally great market growth. Or with some smaller shocks that recovered quickly. Comparisons of these newer funds over recent shorter timelines are not as useful. Be wary of overly optimistic expectations until there’s some history of performance during longer or more severe downturns. Maybe these funds will do well. But getting it wrong with overly optimistic expectations can wreak havoc with retirement planning.

So what’s the message here? Having a big, sloppy, messy set of investments can add work & stress to the job of managing a portfolio. It’s worth comparing such a portfolio to the far simpler portfolios like those asset allocation ETFs we talked about above. If you are confidently outperforming an equivalent all-in-one or asset allocation fund, & if you don’t mind the work, then carry on doing what you’re doing. But if the off-the-shelf ETF is beating your portfolio over the long haul, you might want to ask why. Could the simple recipe be worth considering?

Of course you absolutely should consult a professional before you start moving investments around. There are so many things that can go wrong. You don’t want to get hit with a big tax bill from selling off investments in a taxable account, for example. Nor from shifting things between tax sheltered or tax deferred accounts incorrectly. That’s a huge no-no. Professional assistance may be required to avoid these, & other, potential pitfalls. And finally, if a big, sloppy, messy portfolio is underperforming by a significant amount, it may even be worth paying a professional to manage things. DIY investing isn’t something we’ve sworn an oath of allegiance to! At the very least, it may be worth interviewing a few financial planners & advisors, to get a feel for what they might do differently for you. Even if you decide to continue with the DIY approach, these encounters can be very educational. They may even help you create a better plan. You’ve already got a financial plan though, right?

Okay enough with all that for now, can you guess what’s for dinner tonight! 😜

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Where to Stash your Cash

Paul - The Wry Eye Guy Leave a comment
Stuffing the Mattress!

There are some simple tools that can help us figure out where we might stash some cash for a while. Preferably within registered accounts like the RRSP, RRIF, or TFSA. In a non-sheltered account, the tax exposure will negatively impact net returns, so factor that into the thought process. Regardless of the pros & cons of holding cash over the long haul, we can find ourselves wanting to sit on some cash from time to time. If the cash just sits there as cash, it’s under constant attack from inflation. The starting number remains the same. But the purchasing power is evaporating daily. Let’s see how that works.

Go to the Bank of Canada’s Inflation calculator & plug in $10,000.00, starting in 2014, & hit the calculate button. As of today, that returns a value of $13,108.11. That extra $3,108.11 is how much our original $10k would need to have earned in interest, in order to buy the exact same basket of goods in October 2025. If we were sitting in cash, earning nothing, we’ve lost almost a quarter of our buying power. The Bank of Canada rates are based on an average basket of consumer goods that track the consumer price index. We’re not average, of course, so our personal inflation rate might be different! Believe it or not, Statistics Canada can help with this. With the Personal Inflation Calculator! Here we can plug in the things we spend our money on & the calculator will give us our personal inflation rate, based on our individual spending biases. Don’t get all hung up on the finer detail of the results here, you just want some idea if you’re in the ballpark of the CPI numbers that the Bank of Canada produces. Depending on what you spend your money on, you may generally be a little higher or a little lower. Knowing that is sufficient for a reasonable comparison against the Bank’s data. For the purpose of this exercise, we’re going to assume we’re close to the Bank’s numbers.

On a side note: are you being bombarded by online advertising on short term promotional rates? I just saw one for a 4 month rate of 4.75% from a local credit union. Nice, eh? And hey, if you’ve got the time, & some cash sloshing around in a regular bank account, nothing wrong with hopping around to benefit from these offers. In regular accounts, be careful doing this with large chunks of money, where the yield might bump income into a higher tax bracket. Or into OAS clawback territory. In sheltered accounts, I prefer to avoid all the extra work required to chase interest yield. In these accounts, I like to keep it simple.

And the simple thing to do is to buy a HISA style ETF. There are many of them, so take your time finding one (or more) that you like. I’m going to use the Purpose High Interest Savings Fund, ticker PSA, for this example. It trades in Canada, in Canadian dollars, & it’s eligible for registered accounts. Today, the net yield (after MER is stripped out) is 2.44%. That’s an annualised number based on the rate for the past 7 days, so you can’t take it to the bank (🤪) for the long haul. But this yield number makes for an easy first-pass comparison to whatever else you might be looking at. There may be better rates out there on other ETFs, so do some hunting for comparison. But PSA is one of the older HISA types ETFs around & we can see what its total return is since 2014. And that’s why I used 2014 in the Bank of Canada example above.

If you had invested the same $10k in this fund when it launched, back at the end of 2013, it’d be worth $12,723.00 today. That is only 385 bucks shy of the inflation indexed number from the BoC calculator. After almost 12 years, that is a whole lot better than the $3,108.11 we’d have seen evaporate if we’d let the $10k sit in cash. By all means, shop around & see if can find something that suits you better. There are many HISA type ETFs on the market now, like CASH, HSAV, etc. There are also money market funds that provide a similar smooth line performance to the HISA ETFs, take a look at ZMMK, MNY, CMNY, by way of example. You can use the Interactive PerfCharts from StockCharts to do the comparison. While bond ETFs will usually outperform these cash type ETFs over the long haul, they are subject to greater volatility than the HISA & money market funds. I’ve included a couple of popular bond finds in the link so you can see how they compare. They may outperform over time, but people don’t like to sell shares of a bond ETF after a crash. And bond funds tend not to recover as well as equity funds do after a crash. The other thing to bear in mind here is that old investing adage: past performance is no guarantee of future results! But leaving money sitting in cash guarantees inflation erosion.
Note – the link above has some of the ETF tickers already entered but the baseline time period is 200 days. Right click (or press & hold on a mobile device) the square at the bottom right of the chart where it shows “200 days” & select “All” from the menu that pops up. That’ll give you a longer timeline to look at.

Incidentally, owning a ladder of individual bonds is quite different to owning a bond fund. Buying individual bonds guarantees (for the most part!) that you’ll get your money back at the end of the term, along with getting the coupon payments en route. The mini-flash crash of some bond ETFs during 2020, & the bigger bond fund crash in 2022, have scared some investors into moving some of their hard-earned money into the more stable cash-like funds we are talking about here. You might need to talk to your financial advisor about how to balance across these products in your portfolio. But if you are going to hold some cash in interest bearing ETFs, some of these tools might help you evaluate your inflation exposure.

Purpose Investments Inc. also has a US currency fund – the Purpose US Cash Fund, ticker PSU.U. The current net yield on that is 4.03%, which could be useful if you have US dollars sitting around. And no, I am absolutely NOT suggesting that you go swapping your Canadian cash for US cash just to buy this for the better rate. There are a whole bunch of other considerations that surround currency exchange & conversion strategies. Learn how this all works before trying to play the currency game or it might cost more than it’s worth. But if you already have US cash sitting idle, an ETF like this might help offset the effects of inflation while it’s not being used.

I wish that interest rates could always be higher in our savings & investing accounts.
While being almost nothing on our car loans & mortgages! 😜

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Investing Advice & Weather Forecasting

Paul - The Wry Eye Guy Leave a comment
Pick the Best Lounger!

I’m going to tell a story today, no numbers & stuff. Just light reading for a Friday afternoon. TGIF!

I was enjoying a nice lunch on an oceanside patio earlier this week. It was a beautiful sunny day in Nova Scotia. Everyone was basking in a summer heat that was perfectly tempered by the breezes coming across the bay. An Ontario couple at the neighbouring table were asking our server about the harsh winters in Nova Scotia. At the next table, a person in a group of Quebec visitors chimed in that they were interested in hearing about that too. To cut a long story short, the people from Ontario wanted to confirm that winter here was way harsher than winter in their neck of the woods. Our young server, a born & bred Nova Scotian, agreed that winter on the coast was absolutely awful. The Quebec group included a couple that were interested in moving to Nova Scotia, so they were more than a little disappointed to hear this news. They really wanted to move to a place with a milder winter than theirs. Another couple in the Quebec group lived in a apartment building in downtown Montreal. They were connected to the underground city complex there & could work & live a very full life in Montreal without ever having to go outside during the winter months. Though they did head outside to the ski slopes periodically. They didn’t care what Maritime winters were like, they thought Montreal’s winters were great!

What was happening here was quite incredible. Ontarians who had never been to the Maritimes in winter set the stage by claiming winters here were horrendous. Maybe the worst in Canada. Their opinion was confirmed by our server. A local who grew up with Maritime winters. But he had never been to Ontario in winter & couldn’t really make that comparison with any authority. We all have our blind spots, eh! On top of that, the disappointment of the Quebec couple simply reinforced the negative echoes that were bouncing around in this newly formed echo chamber. And the other Quebec couple couldn’t have cared less, they were totally happy with how they enjoyed their winters in Montreal.

What was going on here?

One uninformed opinion was reinforced by another uninformed comparison, & this developing feeling was augmented by an additional negative emotional reaction. While yet another emotional reaction, albeit from a totally different perspective, served to further confirm the groupthink conclusion. That Nova Scotian winters were just awful. Regardless of how true this might (or might not) be, this is how echo chambers work.

Fortunately, for all the people in this story, I was there to save the day. As it happens, I have lived through several winters in all three locations! It’s not often in life that we are presented with opportunities to strut our stuff from a position of 100% conviction. In I waded, pointing out how awesome that coastal winters are & how they compare very favourably to the truly horrible winters in Ontario & Quebec. I might even have gone overboard, just a little, extolling the almost tropical nature of winters in the Maritimes! By the time I was done, they were all moving to Nova Scotia.

Okay, I’m kidding, they were not all doing that. But the couple who wanted to move were a little relieved. And the rest were actually mildly surprised that coastal winters weren’t as bad as they’d imagined. But despite my obviously superior level of knowledge & experience (😜) relating to this specific question, this was still just my opinion on the matter. Yes, it does snow, but it usually melts pretty quickly. And then it’ll probably rain & do some other weird stuff. And we really don’t have that many hurricanes & sou’westers, eh! Or is it nor’easters? I don’t know. But I do prefer the frequent melts we get here, compared to Ontario & Quebec. And that makes east coast winters better … but only in my opinion. Those who prefer to ski in winter, for example, might not agree. In my mind, I might have been right, but my version of right might not suit everyone. So even with my supposedly strong level of knowledge, backed by experience, my right answer will not necessarily be right for everyone. In fact, it might not even be right for me going forward. What if I wanted to start skiing in winter!?! Okay, that’s unlikely, but never say never.
Of course, I was careful to warn my new found friends that past performance is no guarantee that things will be the same in future. Sorry, couldn’t help that one!

So what’s the point of the story? Echo chambers are easily created. And we enjoy spending time in them. That’s not surprising, since we like to hang out with people who share our likes & dislikes. Be it for weather or for investing. But it can be enlightening to pull back & consider alternative perspectives. I think it’s worth trying to keep an open mind. And to spend time trying to find our own blind spots. Sometimes, facts & evidence are elusive. We need to push back against our personal biases to ensure we are seeing things clearly. If only to see if we might enjoy a winter skiing holiday in Quebec. Now to be honest, I might not hit the slopes. But I do need to practice my French lessons. And I really enjoy the food in Quebec. Regardless of the season!

If you’re a regular reader here, watch out for my biases!

PS … I had the fish and chips. Again! LOL

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Declutter an Investment Portfolio

Paul - The Wry Eye Guy Leave a comment
A tidy portfolio can deliver growth or income with less work!

Managing a bag of stocks & ETFs is difficult. The fund companies have come up with products that have the potential to take away much of this pain. The all-equity ETFs & the all-in-one asset allocation ETFs offer a complete portfolio, wrapped in a single ticker symbol. Of course, no matter how good these products are, there might be some emotional investing needs too. Investing is both mathematical and psychological, eh? So maybe a little tweaking is okay!

Owning an ETF like BMO’s ZEQT (or iShares XEQT, VEQT from Vanguard Canada, etc.) is probably a good core choice for many investors. An ETF like this is already globally diversified. It’s geographically weighted according to market size & importance. It includes what many consider to be a reasonable home country bias. It holds large, mid, & small cap companies. It’s a really big haystack that I think Jack Bogle would approve of. According to Nobel Prize winning economist, Harry Markowitz, diversification is the only free lunch in investing. These funds meet that bar too. And finally, it’s a simple approach that is a lot less work for a DIY investor.

Do you spend your time figuring out if you should be dumping some of the tech ETF, so you can buy more of the gold one? Or trying to figure out when you should be selling the US market off, in order to buy Europe & Asia? Are you trying to work out what to do with this week’s hot & cold stocks? Worried about sector ETFs that might be going in, or out, of favour? Surging or failing markets? It’s all quite stressful & time consuming, eh? Life is too short. Especially as we get older! An ageing brain needs some challenge. But not torture. The globally diversified funds have everything in there. Some stuff will go up, some will go down. These funds are diversified & that’s how they work. And there’s one other important point to simplicity: if there’s a chance that the investing manager of a couple might depart first, a decluttered portfolio might be greatly appreciated by the surviving partner. The simpler the investing solution in place, the better it’s likely to be.

Want bonds? Choose one of the all-in-one ETFs (ZGRO, XBAL, VCNS, etc.) with a bond allocation that matches your needs. These are very simple solutions for highly diversified, asset-allocated portfolios, & they come with built-in rebalancing. Some investors might prefer an all-equity ETF that is complemented by separate bond & cash-like ETFs. There are some good arguments for breaking out the bond & cash allocations. It’s a little extra work, but it may make sense for some.

Now different investors have different approaches, so it’s not just about growth & accumulation. Fortunately, there is often a simple solution for many of the other investing styles too. For example, an income investor that favours high yield funds can choose something like the EQCL ETF, from Global X Canada, for the equity portion of their portfolio. It’s very similar in asset mix to the all-equity configuration of ZEQT. But instead of focusing on growth, this fund uses covered calls & leverage to drive a far higher distribution. People are different. Some are happy to go for maximum growth & sell off shares for income. Others prefer that the fund company delivers a bigger income stream for them. Rather than selling shares, these people are more comfortable figuring out how much of the big distribution they need to reinvest, in order to sustain & grow that income stream. Some investors like to mix & match such strategies. There are those who use different strategies in different accounts, so one style will be used in the TFSA & another in the RRSP. If you are new to these income funds, note that there are some total return & tax characteristics that are different to the regular type. Take the time to learn before diving in. Though that suggestion applies to everything. And it should have previously applied to the messy portfolios we sometimes find ourselves with! LOL

BMO offers yet another approach with their T6 Series ETFs. These funds dole out a targeted 6% distribution with funds like ZGRO.T & ZBAL.T. Here the fund manager is delivering the extra income, primarily via return of capital, but without the investor having to manage the sale of shares. This is cool for those who think that the 4% Rule isn’t allowing them to spend as much as they’d like. But it’s not as biased towards the far higher distributions that come from some of the high yield funds. This is more of a middle ground for income seekers. Don’t assume that this 6% distribution is a given for an inflation beating income stream for a full retirement lifecycle, by the way. Read this post on the Safe Withdrawal Rate in Retirement on why that might not work all the time. Nonetheless, the T6 funds will take care of automatically delivering a higher monthly yield, based on the value of the underlying fund at the end of the previous year. You still need to pay attention to the variability of the income stream over time. There may be a need to reinvest a little extra when income goes up after a great year, for example. That might safeguard against an income drop if the markets go down the following year. If the fund is subject to successive down years, the income stream will decline too. No solution is perfect when we try to predict the future, eh? But the bottom line is that simpler solutions exist for most investing styles & strategies. And for varying levels of distributions. Regardless of the investing strategy that is preferred, it shouldn’t stop an investor exploring ways to tidy up a messy & confusing portfolio. Especially if it reduces stress, while improving visibility & returns. Decluttering can be both refreshing & potentially rewarding.

If you can’t get your head around having so few holdings, how about putting the BMO one (ZEQT) in the RRSP, the iShares one (XEQT) in the TFSA, & Vanguard’s (VEQT) in the non-registered. Each one of these is globally diversified. They own a little piece of everything traded on the public markets. These are all essentially identical. But I get it. I totally feel the need to spread it around the different fund companies myself! There is also something to be said for making the single ticker solutions the core of a portfolio. While leaving a smaller allocation available for some gambling on the side. Sorry, I meant some intelligent macro investing on the side to boost alpha! If you know you can do it well, or if you can afford the greater uncertainty of return for a small part of the portfolio, then it might be fun, no it’s still crazy, okay! 😜

One other consideration. If the current messy portfolio performance is seriously lagging that of a single ticker solution, ask why. There may be good reasons why. And good reasons to justify staying the course with existing investments. But if we can’t come up with good answers (that aren’t guesswork or wishful thinking!), then consider this … if a portfolio is consistently underperforming the single ticker ETFs by an amount that is significantly more than 1%, it might be better off in the hands of an advisor who only charges 1% to manage the portfolio. Even if all the advisor does is invest it all into ZEQT or VBAL & manage the financial planning & cashflows for the investor thereafter!

There is also one big caution with all this. Decluttering a portfolio isn’t like spring cleaning at home. Do NOT rush into selling a bunch of stuff without getting some professional tax & investing advice. A long-term holding in a non-registered account, for example, may have significant capital gains tax liability if sold off. It might bump income up to a higher tax bracket. It might generate income that exceeds an OAS clawback limit, & so on. There are many potential issues, so seeking professional help is often the best course. There can be other challenges with balancing different fund types across the different account types. If you don’t know how to manage all this, get some help. Even if you’re just not sure if you know enough to manage all this, get some help first!

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Beware of Advice from Recent Retirees!

Paul - The Wry Eye Guy Leave a comment
Gambling on Retirement!

It’s unfair to tarnish all retirees with that statement, some might be offering great advice. But I’d be a little more circumspect about advice from those retirees advocating for earlier retirement because of their recent success. Some of these well-meaning folk might be suffering from recency bias. What’s that?

Anyone retiring in the past 15 years, with big stock market exposure, has probably been pretty lucky. Or, as they might prefer to see it … they are brilliant investors! This is especially true if their portfolio was biased towards the US markets. S&P500 Index® funds have returned close to 14% annually. The tech heavy Nasdaq 100 Index® has done even better.
I have to admit, some of them do look like investing geniuses!

Over the past decade & a half, it almost didn’t matter what strategy was employed. Just about any broad based American equity funds worked well. The growth investor did well & dividend investors did well. Investors who choose funds delivering huge yields via covered calls & partial leverage did well. They are all still doing well. Some of these retirees are mocking the old 4% Rule. As they sip frozen margaritas on a beach in the Caribbean! They are having a ball. And it’s hard to argue with success. But this might not apply to the next batch of retirees. And those with more limited finances need to be especially careful.

The 4% Rule is not a rule, it’s a rule of thumb. A guide only. But there are good reasons for its existence. Reasons that are at least broadly acknowledged by most. In a “normal” world, the safe withdrawal rate of 4% generally worked. In the “modern” world, it seems like you can haul out 12 or 13% every year & ride that gravy train all the way to the bank. Or the beach! That’s been the story for anyone retiring from 2010 onwards. The few blips we had along the way, like the one earlier this year, another in 2022, the 2020 downdraft for covid. They all repaired so quickly that nobody really noticed these as bad events. In fact, all those rapid blips did was reinforce the “buy the dip” philosophy. And, for those who didn’t panic, that has worked out very well.

But there will almost certainly come a time, where the dips will hurt a little more than these recent examples. There will be more enduring dips. And in such times, the 4% withdrawal rate may be more appropriate for managing retirement income risk. Ask anyone who retired in 2000. I’m not kidding, find an older retiree & ask. You probably won’t find them on social media! The experiences of more recent retirees is not how things always were. And while the good times are still rolling, they may not continue forever.
In case you can’t track down one of those older retirees, read this post on the Safe Withdrawal Rate in Retirement.

If you were planning on saving a million bucks before retiring, but you’ve only made it to half a million so far, pause a minute. Think very, very carefully about taking any advice that suggests you can retire immediately on your half-sized stash. Some recent retirees may think it’s okay to use 10% withdrawals nowadays. Or maybe they suggest that you can buy a bunch of funds yielding 10, 12, or even 15%, & go enjoy life sooner. This might not be good advice. Remember the old investing disclaimer: past performance is not indicative of future returns? In fact, it’s more likely going to be the opposite. After such an amazingly good run of returns, it’s far more likely that future returns will not be as good.

Look, I don’t know what the future holds. Maybe these enthusiastic retirees are right. But for anyone on the threshold of retirement, or for those younger retirees with a longer retirement timeline, caution is warranted. I’m sure I would enjoy spending a little more after a really good year of returns. And I’d probably do that again the following year, if there was another good year in the bank. But I would not start out a full retirement cycle of 20 or 30 years with the expectation that 10% a year is going to be the norm. While it’s not a commandment, I would treat that 4% Rule of Thumb with a little respect. I sure hope that we might still enjoy some good years of 5 or 6% spending. Who knows, maybe even a little more than that from time to time. Actually, let’s be honest here, I’m really hoping that 10% thing holds up for my retirement, from beginning to end! But I’m not taking that optimistic hope to the bank for the long haul. It’s probably not going to work as a good financial planning number!

If you can’t figure this all out on your own, please see a qualified financial planner & step through the process carefully with them. They will help you figure out how much you need to save to retire. And how much you might be able to spend during retirement. I know it’s expensive to work with a financial planner, but it might prove to be money well spent. Rather than finding out that you got it wrong half way through retirement.

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.