Sunday, April 23, 2017

April 23, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

April 23, 2017....Bob Brinker hosted Moneytalk live today.....(comments welcome)

STOCK MARKET....Brinker commented that the S&P is at 2348 - 2% under its all-time-high. The Dow closed at 20,547.

ANOTHER ARMAGEDDON FORECAST SHOT DOWN....Caller Debbie from Oregon asked if the stock market was in danger of collapsing since Treasury yields were the "lowest they had ever been."

Brinker indignantly responded that what she said simply is not true - that Treasuries have been lower in the past.  "It's just another Armageddon Forecast coming out like a tsunami over the past weeks."  Here are Brinker's comments thanks to this short clip from  dRahme. 

BOND MARKET/10-YEAR TREASURY....Brinker didn't talk about bond fund duration today, however he did comment that the 10-year Treasury yield is 2 1/4%.

MARKETIMER RECOMMENDS 20% INTERNATIONAL STOCK FUND ....Brinker said: "Right now, in our investment letter (Marketimer) model portfolios,  we are using about 20% ratio international."

Honey EC: While it is true that Marketimer model portfolio I and II have 20% international stock holdings (Vanguard FTSE All-World), it is not true for model portfolio III (balanced) - which has only 10%. 

BOB BRINKER SAID: "Schwab is a blue chip firm. Chuck Schwab is a friend of mine and he's been on our show."

Honey sez...Brinker almost never mentions Schwab when recommending brokerage firms to Moneytalk listeners. He almost always mentions Fidelity and Vanguard. With friends like that, "Chuck Schwab" doesn't need any enemies. 

NOONE (sic) WORKS FOR  $0.06 - ONE SUBJECT, TWO CALLS: 

==> Caller Richard from LA asked about a service offered by a brokerage firm that would provide you with a computer printout of selected exchange-traded-funds with a total cost of .06. Brinker argued with him that no one would provide that much service for so little fee.

==> Later,  caller Tom from Wisconsin called and stated that Vanguard Total Stock Market Index charges that much. Brinker agreed and stated that he knows because he owns that fund, but that was not what caller Richard was saying.

Honey EC: Now if your head is spinning over those two calls, here is a short clip that contains them both, thanks to dRahme. :)

CONGRESS AIMS TO AVERT GOVERNMENT SHUT DOWN AND REPEAL OBAMACARE....BB comments.... "Dysfunctional" Congress returns from recess next week facing a possible shut down Friday night....if there is any common sense left in Congress, they will temporarily extend the funding.....very costly and a waste.....National Parks will all close....

Thanks to dRahme for a short Moneytalk clip of Brinker's opening monologue.

FRANCE ELECTION (FREXIT COMING?).....BB comments: "France voter turnout makes a mockery of what happens here. They have 80% turnout."  It looks like a run-off between LePen  and Macron.

Honey EC: If Le Pen can win, she will likely be instrumental in bringing about a Frexit. Thank to dRahme, here are Brinker's comments about the election in France. 

PRESIDENT TRUMP PRESENTING NEW TAX PLAN NEXT WEEK....BB said: "The president has promised this Wednesday he will announce the largest tax cut in the history of the United States."

Honey EC: Brinker gave his perspective on the possible upcoming tax cuts. Over the years, I have noticed that he is usually agin' em.....see dRahme's clip and my list below. 

BRINKER "DON'T KNOW ANYTHING" BUT....BB speculated about what loopholes and deductions Congress may look at to make up for cuts. Thanks to dRahme for this short clip. 


CALIFORNIA'S MORE EQUAL RETIREES.....Caller Susan from the San Francisco area, whose husband was retiring from a State University, needed help deciding whether to take a lump sum or monthly lifetime payouts.  
The lump sum offered was $1.8 MILLION. The monthly payouts were indexed for inflation and totaled $10,800 monthly = $130,000 per year.  
Susan claimed that her husband "didn't make that much" during his years with the University, but their net worth was about $2 Million. . 
Brinker advised her to take the lump sum and invest it in a balanced portfolio of stocks and bonds. 
Susan said that her husband was listening to the call and laughing because he agreed with Brinker - whereas, Susan wanted the monthly $10,800. 
Honey EC: As a Californian, I will refrain from commenting - but I did need to be pulled off the ceiling. 

FRANKJ'S THOUGHTS AND COMMENTARY ABOUT TAX REFORM

On today’s show Bob Brinker mentioned some tax reform measures soon to be considered in The Swamp. Don’t assume it will all be rainbows and unicorns – that was the message from Bob and it is also the message from Jason Zwieg, author of The Intelligent Investor Column in the Wall Street Journal on April 22, 2017.

Mr. Zweig warns us that there may be some unappetizing changes to 401(K) plans in the offing. Why? Because an estimate he gives in his column is that if pre-tax 401(K) type contributions are taxed, that would generate $1.5 Trillion over the next decade. This is just too big a pot of money for the Swamp Creatures to ignore.

Will the Trump administration put the kibosh on this? Unknown. Gary Cohn, late of Wall Street and now director of the White House National Economic Council discussed ideas that would remove pre-tax benefits from retirement accounts with the Senate Banking Committee recently.

The four “legs” of a sturdy retirement stool are: a 401(K) type plan, a pension, personal savings and Social Security. Only 13% of employees nationwide have BOTH a 401(K) type plan AND a pension according to the article. What percentage of Congress has both? The number is 100% according to Mr. Zweig. If that was your guess, then go to the head of the class.

What is a Congressional pension worth? The average of recently retired swamp creatures in 2015 was $41,316. But if you’ve been in the Swamp for 30 years or so, you slither away with anywhere between $104,600 and $ 130,500!

The government (uh… I mean the taxpayer-Serfs) match 5% of what the Swamp Creatures choose to put into their retirement fund. Even if they contribute nothing, the taxpayers kick in one percent of their $174,000 salary. That’s $17,400 of free money for Swamp Creatures whereas the maximum for the Serfs is $18,000 and most of that money comes out of their own earnings.

"No man's life, liberty or property are safe while the Legislature is in session." A quote from Gideon Tucker, a 19th Century American lawyer, newspaper editor and politician.

Honey here: Thank you for that educational wake-up call. Brinker didn't mention any of that. He did list these items as possibly being in the crosshairs of "The Swamp Creatures." 
  • Taxing employer paid health care benefits
  • Ending mortgage deductions
  • Ending destructibility of state and local taxes.
Brinker did not have a guest-author today.

Radio Stations:
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69 comments:

Bluce said...

"Chuck Schwab is a friend of mine." ?? Ha, who knew? He hardly EVER mentions Schwab brokerage as an excellent alternative to VG or Fido.

gabe said...
This comment has been removed by a blog administrator.
patjcin said...

In the past I have heard Bob say that Chuck Schwab was a friend of his and I could just tell today Bob was going to mention that friendship once again. Therefore, it would probably be unethical for Bob to recommend Charles Schwab Brokerage since they are such close friends.

Jerrod Clarkson said...



Bluce said THAT Bob said:

"Chuck Schwab is a friend of mine."



JC says:

Holy Starship Batman!!!

I think we can justifiably file that assertion under delusions of grandeur.



JC

jeffchristie said...

Pat

Does that mean Bob is not a friend of John Bogle since he recommends his firm all the time?

Bluce said...

Pat: Bob, being "unethical"??? Say it ain't so! When did that start?

FWIW, I've been listening to the REAL Bob since 1990 and I don't recall him ever saying he was a friend of Chuck. Maybe he did, but if so, then I missed it.

Honey . . . ? Your input here would be greatly appreciated.

Anonymous said...

I think Bob gave bad analysis to the income producing property guy at the beginning of the program.

The comparison should have been the net of the real value of the income producing property, the guy said 1.1 Million which is probably overstated net of the mortgage or financing on the property, which if I heard correctly was about 300k.

Also the income should have been on a gross basis just for ease of comparison to whatever alternative out there Bob wanted for a retiree 50/50 portfolio before taxes.

Or maybe it is just me.

smile

David said...

I should have gone to work for the University of California. $1.8 m lump sum pension? Did I hear that right?

patjcin said...

I have never heard Bob say he was a friend of John Bogle. If he has then I missed it. I have been listening to Moneytalk since 1999 and a subscriber of Marketimer since 2005.

House Doc said...

OMG, another outrageous CA pension take. My God this is highway robbery. I worked for IBM for 35 yrs and get 2360 per month after tax.

Honeybee said...

.
Bluce...I haven't heard Brinker actually say Chuck was a friend before today.

I have heard him say that he had been on Moneytalk before and that Schwab was a good company - or words to that effect.

Honeybee said...

.
House Doc...That shows the comparison between corporate and State government retirements. I will cover that call in detail in the summary.

If you aren't mad now (I know you are because I am simply LIVID), you will be.

Honeybee said...

.
David...You heard right. Then to add INSULT to injury, the last caller in hour two wanted to talk about obscene California pensions, and Bob Brinker let him get one sentence out and then started yelling over him.

That caller was Bob in San Francisco, I hope he reads this:

Bob, you have a lot of class - GOOD FOR YOU FOR LEAVING KNOW-IT-ALL Brinker hanging and talking to himself - when you hung up on him!!!

Jim said...

Perhaps Brinker just uses the word "friend" rather loosely. I only consider a couple of people as a friend. Most of the people I know are "acquaintances"

Anonymous said...

John from SF said:
Let's cut Brinker some slack. Maybe he and Charles Schwab are Facebook friends. That might mean a lot to Brinker.

frankj said...

No third hour guest. Nothing to summarize. Am I out of a job or is this just a temporary layoff?

Jerrod Clarkson said...


I wonder if THAT Bob is envisaging a possible career change?

Problem is, I assume that he might need to show up at the office and/or at customer's residences occasionally.

Ah, the life of the rich and famous!

https://advisorhub.com/exclusive-schwab-is-back-aims-new-program-at-multi-millionaires/



JC

Anonymous said...

Seems like the $130000 annual retirement is a 7.22% return, not a bad guaranteed return. With Bob opting for the 1.8 mill he would have to take out an additional $58000 to match that (above the 4% withdrawal). How does one decide if it's better to take the cash and run versus the guaranteed monthly payout. Assuming good heath.
Doug

gabe said...

I am a tripple dipper..... 2 (pensions) from State of California and the other from NYC. Also, have paid health insurance. So...should I hang my head? It was not unusual for many individuals in the years past to decide to work in public service vs. corporate service because of lucrative benefits package offered in lieu of higher wages or income earned by folks in similar positions in the private service.

Just my opinion.

Gabe

Bluce said...

I missed the first segment of the last hour so apparently he didn't say anything about a guest, just launched into callers?

Gee: Good to "see" you again! Been a while.

frankj: Do you live in Cali? If so, and Honey laid you off for that one hour, you should be able to apply for unemployment. According to what I hear about Cali, you should be able to rake in some serious dough for that one hour of being unemployed. If you have any Meh-hee-can blood in you, all the better.

Anonymous said...

I wonder if the guest was supposed to be chuck Schwab?

Honeybee said...

.
Bluce...I just offered Frankj a job to make up for the hour he was out of work.

We shall see if he wants it or not. :)

SuzyPie said...

Wow that is a huge state retirement! It is way above any comparable private sector job. No wonder there is no money in the California budget for road repair. Mr Brinker is never surprised by the magnitude of California state pensions.

David said...

Doug,

The thing is that the monthly payout option is not guaranteed. I am not from California but I understand that the state retirement plans are underfunded and not earning enough to pay current distributions. And it's only going to get worse. The retiree runs the risk of her monthly amount being cut dramatically. And if the monthly payout is for life only, the payment stops when the retiree dies. If the retiree takes the lump sum, she will probably get less on a monthly basis, but if invested prudently, she will have the $1.8m under her control and available to access in an emergency and will be able to pass it on upon death.

Bluce said...

Honey: I just received a "communique" (cough) from frank, and he said your offer was better than Cali's!

Need any more help???

Honeybee said...

.
David...I knew right away that you are not from California or you would know that state retirement plans will never go unpaid or cut as long as Sacramento has the power to bleed us taxpayers. And I think the ability to stop that train left the station years ago.

Sorry for the mixed up metaphor.

frankj said...

My 2 cents on the California pension (from my perch) outside the state: Take the lump sum. With CA state pension funds in trouble, why take the monthly payment even though it looks attractive and then have to follow all the future drama associated with the financial health of the system?

The $10,000 plus per month is treated as ordinary income for tax purposes. Maybe they don't need that much and could calibrate withdrawals to suit themselves from the lump sum.

We don't often hear a situation like this from a caller where the annuity is indexed for inflation. Bob played it pretty cool.

The biggest reason in my mind for taking the lump sum is that it becomes part of the estate vs. the stream of payments which stop.

Anonymous said...

Please clarify. BB starts out talking about International Bonds at 20% and the next paragraph talks about equities:

MARKETIMER RECOMMENDS 20% INTERNATIONAL BOND FUND ....Brinker said: "Right now, in our investment letter (Marketimer) model portfolios, we are using about 20% ratio international."

Honey EC: While it is true that Marketimer model portfolio I and II have 20% international stock holdings (Vanguard FTSE All-World), it is not true for model portfolio III (balanced) - which has only 10%.

Honeybee said...

.
Anonymous....That was my mistake in the heading of the section that you have copied. I have changed it to correctly read "STOCK FUND."

I think that fact is obvious, but thank you for calling it to my attention.

From now on, please clarify your identity with a Google account or at least a moniker.

StevieD said...

Vanguard and Fidelity are primarily mutual fund and ETF providers who do a side business as a brokerage. Schwab is primarily a brokerage firm that dabbles in properity mutual funds and ETFs. Perhaps that's why da Brink usually recommends Fidelity and Vanguard FUNDS over Schwab's?

Unknown said...

Today’s 3rd hour guest was to be an authority on the latest SPIVA U.S. Scorecard. Alas, the Starship wasn’t able to beam-up the quest on today’s MoneyTalk. Hopefully, this topic will be discussed in the not-to-distant future or in Marketimer.

Gawd said...

Just to mention, Bob Brinker doesn't refer to it as one of his "Model Portfolios" in his Marketimer newsletter, but his Active/Passive Portfolio also has 20% in the same international fund set at 20% in Model Portfolios I and II (and at 10% in Model Portfolio III); Vanguard All-World Ex-U.S. Fund (VFWIX).

Unknown said...

Gawd thanks for your posts here. I have routinely appreciated your accuracy and insights. In fact, your postings inspired me to establish a Google account in order to contribute in a positive and constructive way to Honey’s wonderful blog site. (Too much of social media is vulgar and malicious, but not Honey’s).

Anonymous said...

another great show by the master !!! he knows his stuff.. try getting advice like that out jim cramer long live the king of money talk

Anonymous said...

i loved that talk about getting rid of the real estate deduction the freeloaders using that especially 2cd homes if you can buy a 2cd home you've should be able to pay for it with out help from UNCLE SAM

gabe said...

An excellent article on Retirement withdrawals and spending in the WSJ 4/24/17. A must read!

Gabe

gabe said...

Made a few bucks today!

Gabe

Jerrod Clarkson said...

Honeybee said:

NOONE (sic) WORKS FOR $0.06 - ONE SUBJECT, TWO CALLS:
.
.
.
Honey EC: Now if your head is spinning over those two calls, here is a short clip that contains them both, thanks to dRahme.
:)


JC responds:

While it probably is unfair to judge a radio host based on only two calls, I have become increasingly concerned that THAT Bob has developed an acute case of GOMS (Grumpy Old Man Syndrome).


JC

Bluce said...

LOL @ "anon" #48577762: Paying fewer taxes isn't "getting help from Uncle Sam." It means that government is confiscating LESS of YOUR money.

Bluce said...

Regarding "Debbie's" call, which I believe was the first call of the day: I had forgotten about it, but reading HB's summary reminded me that I was going to comment on it yesterday.

She was obviously flustered, confused, and maybe a bit panicked. But Bob, as we expect, was typically rude by making his condescending comments then hanging up on her.

Hey REAL Bob: Did you ever think about maybe being civil, polite, and maybe even helpful? I can picture Debbie selling all of her equity holdings first thing this morning, thanks to Bob adding to her probable hysteria.

Hey Bob, why not do the decent thing, be nice to her, don't make her feel like an idiot, don't leave her hanging, and suggest she reduce the 70% down to 40 or 50% gradually, over a period of several months -- which is the usual way of making a large change in allocation?

Anonymous said...

Sound Bogle advice stay the course... last two days exemplifies timing the market can be hazardous to your wealth if you bet wrong...

I think Sy Harding probably went to cash yesterday on his seasonal MACD.

Personally I think you can do both by keeping an eye out for growth issues and impacts.

TaxCut high level conceptual direction tomorrow.

N.Korea still out there.

smile

gabe said...

Picked up a few bucks!

Gabe

frankj said...

Sy is deceased, is he not?

Unknown said...

A few highlights from the latest blockbuster U.S. SPIVA Scorecard.

“Starting with this scorecard, we will report the relative outperformance or underperformance of actively managed funds against their respective benchmarks over a 15-year investment horizon. The longer time horizon provides a complete market cycle to measure the effectiveness of managers across all categories.”

“Given that active managers’ performance can vary based on market cycles, the newly available 15-year data tells a more stable narrative. Over the 15-year period ending Dec. 2016, 92.15% of large-cap, 95.4% of mid-cap, and 93.21% of small-cap managers trailed their respective benchmarks.”

“Across all time horizons, the majority of managers across all international equity categories underperformed their benchmarks.”

“Funds disappear at a significant rate. Over the 15-year period, more than 58% of domestic equity funds were either merged or liquidated. Similarly, almost 52% of global/international equity funds and 49% of fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis.”

I haven’t seen such a scathing indictment of the actively managed mutual fund industry since the Frontline broadcast of The Retirement Gamble back in April 2013.

Anonymous said...


Gosh, Bob's funny Philly accent caused a chuckle here during the first hour on Sunday. At the 10:50 point in the On Demand replay he started a monologue about automation in industry. He started talking about robots, which he was pronouncing as "ro-butts".

Did anyone else hear that? He said "ro-butts" many times.

Jimmy, Farad CA

Jerrod Clarkson said...

Frankj,

Yes, Sy passed on April 21, 2015.

http://www.legacy.com/obituaries/news-journalonline/obituary.aspx?pid=174750411

http://stockcharts.com/school/doku.php?id=chart_school:trading_strategies:six_month_cycle_macd



JC

Bluce said...

Jester: Yes, the record on managed funds isn't good. One of the famous authors said that (as I recall) 80% fail to beat their benchmark. Of course, the problem is trying to identify the 20% that outperform ahead of time so you can invest in only THEM. And most of the outperformers revert to the mean (or worse) after some years.

Ha, you mentioned that PBS show. I watched that several times. It was, well, sad. Some of the people I didn't really feel sorry for though -- they were dumping significant portions of their income into things they knew NOTHING about. They didn't even know the basic fundamentals of investing.

"A fool and his money is soon parted."

gabe said...

HB: Some of my posts are intermittently not posted.

Thanks!

Gabe

Anonymous said...

Explains why my old link to Sy Harding no longer displays his blog and is in Japanese. RIP

smile

Mad as HELL! said...

Honeybee,

Out tax dollars at work - a continuing series.

Honeybee, sorry to report these two items to you. Please advise if you would like us to put in an emergency call to the ceiling extractors.


Re: Janet Napolitano, UC Slush Fund:

This article is from the LA Times. I'm not sure if a subscription is needed to access it, but just in case here is part of it:


"The administration of the University of California system pays top workers salaries and benefits significantly higher than that of similar state employees, and failed to disclose to the Board of Regents and the public that it had $175 million in budget reserve funds while it was seeking to raise tuition, a state audit found Tuesday.

The audit triggered a dispute with UC President Janet Napolitano, who said charges of hidden funds were false, while two members of the UC Board of Regents charged recommendations to give the Legislature budget authority over the Office of the President encroached on UC’s constitutional powers.

Among the sticking points, the auditors believe the regents should contract with an independent third party that can assist the regents in monitoring a three-year corrective action plan.

The audit of the Office of the President also found that it failed to satisfactorily justify its spending on system-wide initiatives and “inappropriately” screened surveys submitted by auditors to campus officials.

“Our report concludes that the Office of the President has amassed substantial reserve funds, used misleading budgeting practices, provided its employees with generous salaries and atypical benefits, and failed to satisfactorily justify its spending on systemwide initiatives,” State Auditor Elaine Howle wrote to Gov. Jerry Brown and the Legislature.

“Furthermore, when we sought independent perspective from campuses about the quality and cost of the services and programs the Office of the President provides to them, the Office of the President intentionally interfered with our audit process,” Howle wrote.

The auditor said that because of recent tuition hikes, she recommends the Office of the President should refund available funds in the reserves by returning them to the campuses for the benefit of students".


http://www.latimes.com/politics/essential/la-pol-ca-essential-politics-updates-university-of-california-administration-1493137774-htmlstory.html

--

PS:

Here is an excerpt from a Sept. 16, 2013 LA Times article concerning her (his) remuneration. God only knows what her (his) current deal is).


"UC leases housing at $9,950 a month for president Napolitano
September 16, 2013|By Larry Gordon

Janet Napolitano, former U.S. Secretary of Homeland Security, is about to become UC system president.

The University of California has leased an Oakland residence for incoming system president Janet Napolitano for $9,950 a month, officials said Monday. Napolitano, the former U.S. secretary of Homeland Security and former governor of Arizona, will be provided the housing plus an annual $570,000 salary, $8,916 a year for car expenses and $142,500 for one-time relocation costs.

Napolitano is scheduled to begin her UC presidency Sept. 30, with her office at UC system headquarters in downtown Oakland".


Mad as HELL! said...

Jimmy,

I am intrigued by your post and also your location.

I have never heard of Farad CA, so I looked it up. I can't even get a Google map for Farad. The best I can do is...

This:
"Farad is a former settlement in Nevada County, California. Farad is located on the Southern Pacific Railroad, 1 mile south-southwest of Mystic. The Truckee River crosses Farad halfway between Truckee, CA and Reno, NV".
-Wikipedia

And this:
http://www.satelliteviews.net/cgi-bin/g.cgi/?fid=1654250&state=CA&ftype=locale


Jimmy, I am pretty sure you never have problems with noisy neighbors!

gabe said...
This comment has been removed by a blog administrator.
gabe said...

HB: 10.01 not my entry!

Gabe

Jerrod Clarkson said...

Well, we are about to start seeing the parade of "SELL in MAY and GO Away!" articles.

In view of the above nuttiness, an interesting, well-reasoned article:

http://awealthofcommonsense.com/2017/04/when-holding-is-the-hardest-part/


JC

Jerrod Clarkson said...

Decent market today - that is until 3:18 PM when the (you know what) hit the (you know what).

Still and all, I managed a +0.04% gain (squeak). Better than the major averages (except $RUT that was up +0.59%.) An outlier I suppose.

Tomorrow is a HUGE earnings day. 70 companies reporting (or 14% of SP 500). After market close - Alphabet, Amazon, Intel and Microsoft are among the biggies.


JC


frankj said...

Big Sis' car allowance from 2013 ("$8,916 a year for car expenses") may need a bump since Gov. Moonbeam and the legislature raised the gas tax.

Anonymous said...

Doubtful that "Sell in May" crowd will be prominent this year with earnings coming in so strong and forward looks and momo on tax reform.

Doubling the standard deduction - sign me up. I am getting my popcorn out to see how GOP deficit hawks swallow this.

I think even long time devotees of Sy's MACD seasonal adaptation will likely ignore the signal which as stated went off already I think (I don't follow just vaguely aware).

Growth signal and Business cycle assessments are key metrics to watch 4me.

Wife said she saw a group of investors at McD's meeting this am. - not frothy enough yet till maybe Uber driver's start gabbing stock picks.

smile

Unknown said...

smile – I couldn’t help but chuckle at your comment of UBER driver’s gabbing about stock picks. It reminded me of when Joseph P. Kennedy Sr. successfully market-timed the 1929 market crash when he received stock tips from a shoe-shine boy and subsequently exited the market.

Anonymous said...

-Watch out for Brinker's 4 percent withdrawal cream puff. In today's environment, it ain't so pretty. I know, I know, academic studies back it up. But check out today's reality.

The "4 Percent" premise has always been: Retire with $1 million in a balanced portfolio and it will generate $40,000 income (4 percent). Maybe it did yesterday, but nowadays, the bond half will reap 2.5 percent and the stock dividends will bring 1.5 percent, if conservatively using St. John Bogle's total market index. Adds up to 4.0 percent, right? Wrong answer.

If 2.5 percent is brung from the bond HALF of the portfolio ($500,000), the calculator says $12,500. And if the stock HALF brings 1.5 percent, the HB 32S RPN (reverse polish notation, not kidding) calculator says $7,500, which adds up to $20,000 total. Sort of a shortfall.

BB always adds in "capital gains" to the pot, but if a weirdo like me uses a total stock market index fund for the equity portion, it's supposed to be "tax efficient", meaning very minimal capitol gains distributions.

Lately, Bob has been saying, "I don't have heartburn if you liquidate assets."

What am I missing? Did I attend too many Dead concerts?
Doyle

Anonymous said...

Doyle,

off the top of my dome the percentages you have of earnings are not additive. In other words there is no way you can make 2.5% earnings or 1.5% earnings = total yield of 4%.

Your stock portion would have to yield closer to the norm 8% equity yield or about 6.4% in order to make up for the shortfall of the bonds.

If I remember correctly I think the goal of the 50:50 split is to get close to 80% or something close to that (.8 x 8%) = 6.4% coincidentally) of the average yield of holding a higher concentration of stocks.

kinda of sleepy but that is best I can offer.

wait for the brains of this outfit - plenty available - for further insight


smile

Anonymous said...

Doyle

I forgot to add two things:

1) the equation to get to 4% would be:

(.015 + x)/2 = 4%

solving for x = 6.5%


2) one of the selling points of the 50:50 portfolio is you are supposedly getting a yield close to (maybe 80%) of the yield of a full on stock portfolio with much less risk.

aka risk adjusted rate of return

now I can go to sleep..... zzzzzzzzzzzzzzzz

smile

Gawd said...

Doesn't the 4% recommendation factor in the likelihood that you will occasionally need to liquidate some stocks along the way to meet your annual income stream needs but that the inevitable gains in the market over extended periods of time will ensure that you would need to live a very, very long time for those occasional equity share sales to reduce your portfolio to zero?

Also, I believe the income stream amount comes first in the calculation every year, not the percentage of withdrawal. In other words, in the above example, if you believe you could live just fine for the rest of your life on $40,000 per year, then the 4% rule requires a "starting point" portfolio worth $1,000,000. Then, after that first $40,000 withdrawal, you could reasonably add cost-of-living increases on that initial $40,000 withdrawal in subsequent years to maintain its buying power. I mean, it isn't as though you withdraw an exact 4% from your portfolio as it stands each and every year. Instead, you are withdrawing an adjusted-for-inflation dollar amount based on that initial $40,000 withdrawal.

As the market fluctuates, and particularly taking into account the market has throughout its history gone up in value more often than down, there will no doubt be times when that adjusted-for-inflation $40,000 is greater than 4% of your current portfolio while it is also likely there will be many more times when it represents less than 4% of your current portfolio. Yes, the 50% stocks-50% bonds split of a balanced portfolio in retirement recommendation might get your attention quite a bit more when you make that annual withdrawal. But, remember, the recommendation is to also be re-balancing to maintain that 50%-50% split. So, presumably, you will be buying more stocks and at a lower price during down times with the bond side of it and enjoying the gains in those lower price stocks when the market rallies.

frankj said...

http://www.investopedia.com/terms/f/four-percent-rule.asp

The four percent rule. Origin, pitfalls.

All financial gyrations associated with income in retirement need to start with expenses.

Moe Howard said...

IMHO, the 4% rule is just a guide line, it gives you an idea where to start. As frankJ said previously, start with expenses. I always tell younger people, save as much as you can and adjust your lifestyle to the money you have. My withdrawal rate is based on my expenses. The portfolio needs to be set at your comfort level in retirement. If you are not making enough at a 50/50 then you either spend less or increase your risk.

gabe said...
This comment has been removed by a blog administrator.
gabe said...

April 28, 2:55 PM not my note!

Gabe

Mad as HELL! said...

I am about 102.786982% certain that we are "messing" with Lil' Kim Jong-Un's firecrackers. Lately, he lights 'em and we extinguish 'em.

I am pretty sure that we have the technology to take over launch and guidance control of some/all of his firecrackers. Maybe we could light all of them up at once and aim them directly at his various palaces. If so, that would redefine the term "surgical strike".

Bluce said...

MAD: Any idea where I can get a haircut like "The Dear Leader"?

frankj said...

Regarding Susan's call last week. I figured out why her husband who was ready to retire was laughing in the background when Bob disagreed with his wife, the caller.

She wanted to take the 10,800 per month which had a COLA adjustment.
He wanted the $1.8 million lump sum.
Bob agreed with him on some generalities without a lot of calculations.

If the guy is 65 and they take the lump sum and follow the 4 percent rule until RMDs begin for withdrawals, and they manage to earn 4.85% on the principal, after 20 years they would still have about $1.8 million at age 85.