I was up in the Bay Area over the weekend attending a bachelor party for a wedding I'll be standing up in later this summer.We went to a Giants game in the afternoon and a Warriors game at night.
A lot of follow up questions came in on General Electric (GE). One reader asked why I am not a fan of GE given that they seem to involved with a lot themes I care about.
Well, the short answer would be how'd those themes help last Friday? The company is involved in a lot of businesses that cannot move the needle. They might move the needle in the future but they don't now.
There was some great chatter about a 4% withdrawal rate to pay for retirement. RW kicked it up a notch talking about the difficulty in modeling returns very far out into the future (oy). Adam noted that if you only take 4% of whatever you have you'd never run out of money--mathematically speaking. One reader noted, correctly, that planning for inflation can't really account for healthcare costs accurately.
Well, on a theoretical level RW is right about future returns. I can't tell you there will be no problem in the future finding generally normal returns. I believe they may be a little harder to find but that could be too optimistic. Despite my bearish views about the current state of the markets I am an optimist by nature and choose to believe that global markets will reward investors as they have--that is to say capitalism will continue to work (not saying RW is not a capitalist but the tone of the question as I read it is to ask if capitalism still work).
Adam, a person can plan to live within their means, be disciplined enough to do it and still encounter an event that causes them to have to exceed their annual number. Say person's portfolio number today is $32,000. A high speed chase ends in their spare bedroom and through the magic of insurance our person is $15,000 short of what they need to properly fix the damage. In that given year the extra $15,000 means exceeding their number by 50%. Now if all this happens in a down market the person might have a real problem. Just an example off the top.
WRT to healthcare issues, I have a thought that, no doubt insensitively, could tie in with living below your means. Maybe the solution should include reducing the extent to which you are exposed to inflation. Is this even possible? Well maybe not but when you buy a car how about keeping it for 20 years? How about skipping one trade up cycle for housing? Doing these things would not spare you from having to endure getting jacked on your health insurance premium but not moving from a $400 car payment today to a $500 payment next year to an $800 payment six years from now wouldn't hurt.
One reader asked why I would take money from my HSA for a health related emergency. Well maybe it is not the ideal thing but the way I view it, if something health related came up and I needed to tap into an IRA to pay for it, there is no tax consequence for pulling from the HSA. In this vein there was some chatter about insurance policies tied to HSAs being lousy. Well I won't defend an insurance company but the savings perk is a great thing on a couple of levels. It allows you save an extra $5850 (I think that is the max) above and beyond whatever you can put in your regular qualified plan.
Lastly Stephen Drone left a link to a Kessler like article by Gary Schilling about US Treasuries. I only skimmed the article. I would be very wary about bond market studies that start in the early 1980's. This has been the greatest bull market in the history of the bond market. Rates went from very high to very low and are still very low.
3 comments:
The problems with China's economy are such that being out of emerging stock markets is a very good idea. China's leaders have fooled the world's population into thinking they have a huge amount of dollars at their disposal, which is untrue. The trade surplus is being used to a) line the leaders' pockets; b) feed the trillion peasants who earn around $5 per day; c) build the thousands of buildings to house and work the population; d) build a world-leading defence for the upcoming commodities war e) build a space ship to flee to Mars once global warming gets going f) buy all the abortionable records their pop stars release g) invest in lead
Toastmeister
For anyone interested in more chat on the 4% withdrawal rate, there are several threads over on the Morningstar boards. As you might imagine, everyone has an opinion, including some who believe that something closer to 5% is still safe.
"(not saying RW is not a capitalist but the tone of the question as I read it is to ask if capitalism still work)"
Interesting take since I didn't even mention capitalism but since you did I'll just add that capitalism is without question the best resource allocation mechanism, bar none, in systems where price signals (the 'invisible hand') are robust and information reasonably symmetrical, that is systems primarily dealing in fungible goods, but it tends to function poorly and may grossly mis-allocate in systems where price signals are weak or information strongly asymmetrical, most typically longitudinal relationships involving non-fungible goods. I made my first million by understanding the difference and its implications deeply and by not placing faith in much else besides God, rigorous analysis and the force of contract but will confess that some unknown portion of my earnings in all probability came at the expense of those sufficiently ignorant of the difference as to place their faith elsewhere.
OTOH I am always ready to learn so if someone can show me a retirement planning model with a 40+-year horizon and credible catastrophe contingents (that don't also require high net-worth) or a for-profit health business model that can compete with other businesses while paying all claims and accepting all comers I will examine it with great interest; actually there is one but if I mention it Roger may call me a socialist and I just don't know if I could take it (sob).
Post a Comment