Investing at market high, market timing, best distribution strategy
01:08:30 Share

I don't usually do this, but I I think it's a good idea so people can decide, do I, anna, spend the next half hour with polar? Do I want to go out and work in the garden? So here's what i'm going to be talking about today, target date funds, market timing, market volatility, the merman wealth management company and my involvement in IT and flexible versus variable distributions.

So those are the topics and the i'm responding to a group A A A bunch of emails here that have come in. First one says um my name is joe and I recently came across your channel on youtube IT goes and say some nice things in finishes by saying those nice things by this is very much appreciated. That being said, I was hoping to get your thoughts on an investing approach that simply uses a low cost target date fund and a total world index fund in a roth ira.

The first, the target date fund, is in his four fifty seven. You probably guessed that, he says. But this is my situation. I have a hard time deviating from the overall market in my retirement accounts because I worry that if I added a value tit, I would tinker with the portfolio when going through periods of underperforming the total market.

And I think he means that the there times, yes, the small cap value will under perform and times IT should outperform, but yes, there will be difference in the returns. In my mind, I cannot risk messing around with this money, and these funds seem to help me stay. The course referred to the target date and the world wide fund.

I max out these accounts each year and contribute to a government pension plan full disclosure. I do invest a small amount each year in the advantage. A U.

S. Small cap value fund in a taxi ble account, just for fun, is out of sight and out of mines. Since IT is separate from the retirement funds.

All this to ask, do you think someone that simply maxes out their retirement account with target date funds and and total market funds will be fine? And he puts quotes around the word fine, which is appropriate because, you know, fine can be a whole bunch of things. Any insight would be appreciated. Well, I may have a job when I SAT with the john bogle in two thousand and seventeen for ninety minutes. He talked a lot about his, his, why he does, what he, what he did and and how we thought about the kinds of things that we do like adding small cap value.

But one of the things I remember that he talked about is the very question you're asking and his belief was that the target date funds were built to give people the ability, if they wished, by the way, to convert that target date fund into a pension, basically a single premium, immediate unity through an insurance company, or to have enough that taking money out over A, A, A Normal lifespan would provide enough. And I, and and I, the word enough was so important to him. I thinking in the ninety minutes I was with him, he must have used the word enough ten times.

So yes, I believe that is what they are built to do, the fact that they have ten percent in act in a fixed income when you're twenty year old or a thirty year old um is fruiting to me, they have an excuse forward or a reason for IT, but it's only ten percent. Mean, that's the good news, is only ten percent. I'd rather that you be all equities for the the first twenty year, even thirty years.

Um but but the bottom line is the target date fund is built to be enough. And IT sounds like you're going to have a pension and probably social security and you you sound like you're in the position of so many people that I run into where the the extra investments they've made may not even be be necessary in order to meet their cost of living. So I would say you're gonna be just fine.

I do find your comments about what small value or anything that looks different than the market would do to you a really meaningful comment because IT IT IT says something and I am not being critical about this. But there is a certain lack of of of comfort uh, about looking different. Then we'll call them heard.

But but when when the S M P. Five hundred is going up and it's doing well and you have a part of your portfolio in an asset class that may be making half as much in a particular year. IT may question that you're doing the right thing. And and possibly where I fear that the mistake would be made is that you might jump out of the small cap value at a point where it's now pressed to to to make to to go on A A good positive move. And and because we do know this, that the the average difference between the S M P five hundred and small cap value going back to nineteen and twenty eight is about fifteen percent a year.

So we expect that when the S M P I have hundred is up thirty and IT is from time to time that I would not be unusual for the small cap value to be a fifteen IT would also not be unusual for small cap value to be at forty five. So so IT is it's the nature of having a different kinds of asset classes. Now what is interesting is you have that going on right now inside of your target date fund because your target date fund is likely owns the total market index.

That index is made up of some companies that have had phenomenal returns this year and a whole bunch of them that have done poorly actually lost money. And so you're already fighting that problem within your portfolio. The good news is you don't see IT because it's all with in one found um and I would I would guess that if if if if then guard had a target date fund for more aggressive investors where they would um have maybe twenty percent in small cap value, um I suspect people would be able to adjust to that because they wouldn't see IT as a stand alone investment.

And I must say I put a smile on my face when you said that, well, okay, I do have some small cat value, but I have IT in a part of the portfolio that is there for fun. This is one of the many interesting aspects of investors and investing. I do not have a penny invested in anything that is for fun um as a matter of fact, and I live and talk about this today a little bit and that is that I have levels of diversification beyond anybody I know and and and I do that um not to have fun, not not to feel special.

I told that because IT gives me a sense that I am diversities as far as I can a without doing a crazy things will talk about that in just a few minutes here. The second email starts out by saying, I knew to retirement and read two of your books from the library. I think that's great when people go to the library and save the cost of buying the book.

Of course, most of our books are available free as A P D F download. But um if you go to a library, if you do ask if our books are not there, uh, very likely the library will will order one. I don't know if the world is very likely, let's call IT maybe and and we would love to get our books in as many libraries as possible.

But goes on to say what i'm finding in retirement is the accumulation phase was much easier and more straight forward than accumulating. If I knew how long or money needed to last, IT would be a piece of cake. I also liked die broke by bill perkins, but am nervous to implement ment his strategies, but I like his ideas of living life to the full st and gifting while alive.

Legacy is not a high priority. However, I have three kids and he doesn't say IT here, but I suspect IT could be the priority to them. But anyway, he says, what advice can you give to do IT yourself? Investors who are trying to decide what to do about how they access their money to live ve on and how much to take out.

I love the question. We have worked for thousands of hours and the wee includes a deal polls and Chris patterson. And this is a topic that I have focused on for a thirty years and and what we've done to try to help because I can't sit down with you.

If I sit down with you and look at your situation, I would take the role of an adviser, which I am not anymore, but I would take that role. And I would say, well, here's what I think you should do. And if you trusted me, then you would do that.

And there's nothing to figure out. You would just assume that I knew Better than you and and and would would, would agree with me as an adviser. You always have to tell people that you can't guarantee the future. But I will tell you, the tables that we put together are built to give people the ability to see what the past has looked like over over long periods of time. Um we go back to one thousand nine seventy with our find tuning tables and our distribution tables for every one of our different portfolios.

The two fund, the four fund, the ten fund is sara and we show not only the accumulation period and I agree with you when you've got a job and cash is flowing for for the work that you do uh and you've got your money invested for the long term and therefore, you don't have to worry about data day returns. IT is easy and not much anxiety there. I I suspect once people get closer to retirement, a little ananzi ety might seem in.

But what we've try to do is to help people not only look at what the implications might be of the S M P five hundred, just the S M P five hundred, a lot of people have that basically a or the total market index as their equity position. So what we show you, our tables that represent fixed distributions with inflation adjustments for just the S M P five hundred on its own and then in ten percent increments, adding bonds. So so we can we can see what that looks like if you're fifty, fifty or sixty four years, seventy, thirty all the way up and down the combinations of fixed income and equity.

And we and we show you in the fine tuning tables the returns over the last fifty four years. But IT goes beyond that. IT goes beyond that because we also show you, what if I took money out? What if I took three percent out, four, five, six percent, and I adjusted every year for inflation so that if there was inflation every year, the following year have to have to get an additional amount of money out of my um out of my investment pool.

And that's typically how people approach the fixed distribution strategy. A percentage plus and inflation adjusted. The other way, and i'll talk about this in a few minutes, uh, is the flexible uh way where you don't adjust for for inflation. And you can see for the same years from nineteen seventy on, you can see with all these different portfolios, given that you're gonna be taken three, four, five, six percent and in this case, not adjusted for inflation, but you're just gonna take out six percent a year of whatever the end value was at the end at the end of the previous year. That's what my wife and I do accept.

We take five percent so that you can then explore the tables and end up and and we also have a calculator, uh, where you can make adjustments on what you want to assume for inflation or what you want to assume for the the rate you want to take out three and a half percent, you can use three and a half. So what we've done is try to build the data that people can manipulated and in in, in tested and see what that would be like. I think it's it's huge and is a different problem.

This thing about dying, broke or living the living the good life and end. By the way, you did include that gifting while you're alive and can see the funder whatever the joy IT brings to their lives. I think that's all great.

The chAllenge is two. One, we don't know how long we're going to live. And the second thing is we don't know what problems we're gonna have.

But we we just had an old friends stay with us for a few days down here in rantum, marge and we celebrated thanksgiving with the with our friend. And he just recently lost his wife to cancer, and he was healthy and cheap, appeared to have everything going for. He actually has a background of people in the family dying relatively Young.

And so the plans, all the plans that they made in his wife with the idea that he was gone to die first. Well, you know, unfortunately, the sequence of life and the sequence of returns in your portfolio are often very different from what from what we would like. But but the point is, is that if you are truly going to a work on a day broke kind of a strategy, I do hope that you will run up by a professional after you've put IT together because you've indicated that you do want to be a do with yourself investor.

That's great. But let's make sure that the light path is is appropriate for your situation. Number three, I subscribe to your mantra of index funds keeping costs low by an all at sea.

Is merman wealth management your company as well? I assume he's talking about as well as the foundation that that I work with. I asked because that company as spouses, marketmen and charges assets under management fees. Well, first of all, let me talk about the timing. Because the fact that the american wealth management company uses market timing is because of my work back in the eighties when I came in, when I retired at eight forty and decided to start an investment adviser, M. I.

I knew that many investors has spent most of the previous twenty years a breaking even and possibly even losing money, because the market would go up and then go back down and then go up and go back down on and and we we did not have the kind of run uh, long term bull market that we've had since the early eighties. So that's what I walked into and um nobody knew me as a money manager. Um I had worked many years earlier for a wall street firm for a couple of years, but I was not comfortable with the conflicts of interest and then had the good fortune of being able to an essence go back into the business has something to do in my so called earlier retirement and and I knew what people are just gone through for twenty years.

And we do fight all of us with rice recency bias. So we make a lot of decisions based on what's happened recently. And a lot of people, we're simply not comfortable being in the stock market and bion hold was not the strategy of the day because all people had seen was they if they went in high, they had an opportunity to lose money immediately.

If they went in low, they had an opportunity to have to go up and then come right back down to where they got in. So IT has been a really frustrated period reign investors. And so what I decided to do, because I understood market timing and had been taught by by a really smart guy who was very disciplined and used systematic timing systems.

And so I decided that maybe with the backup of a market timing system to get out when the market starts down again, i'm focused in essence in recent sea is as well that, that something would allow them to stay the course that they had an exit strategy. And so that's what we built the business on for the first ten years. And and then I was really my son who pushed me to add by and hold.

I mean, the reality is he had gone through all that I had gone through, having started in the business in mid sixties and been around the business since the ID sixties, uh, he saw the world through a different kind of investor, and he was attracted to buy and hold. And so we we also had clients that we're asking if we could help with traditional bian hole strategies. And so we did in in the take ninety three or ninety four, we started offering not only the timing, but the buyer hole in.

What we did find was that a lot of clients had a combination of bin hold and timing and and and and they like the combination. Well, IT IT probably didn't hurt that. I built personally a portfolio that was a combination of bian hold and timing.

So as I think many of you know, in in my own portfolio, i'm half way out, a little less than half now, but i'm more or less half buy and hold and half timing. I am half in stocks and half in bonds basically, and I am have in large and half and small and little more value than growth, but but kind of basically hf in value and alf and grow half U S. And alf and international.

And I have no interest what's going on in the market day to day for for the money that is, is being managed. By the way, I used an adviser. I do not want to have anything to do with the management.

So here I am trying to convince people to be doing yourself investors at the same time as as the what I tell people, uh, to do IT yourself as I tell them, don't don't try to do timing. And I really believe that most people who try IT will fail. That is not true by an old and they won't fail because timing doesn't work over the long term.

We by the way, we don't ever know what's gonna work over the long term. Now some people will say the longer you hold something to higher the probability of success, other people will say, and it's IT, IT, IT, IT. It's certainly has true the longer you hold something, the great of the probability that IT will fail at some point.

And I can certainly see that in in individual companies that at one time um were at the top of the list of a profitable big companies series robot general motors. The list is a long list of of when I say failures a, the companies may have made IT, but they weren't as as powerful and perceived to be great companies like they were at at one time. so.

The long term for me is probably ten years. I'd be happy with getting another ten years. And there's is not highly likely that there's gonna a collapse of the market, but IT could be in the marketplace in part of my portfolio will be built, built to deal with that.

So that's why merman uses market timing and buy and hold because I and that's what I built that the firm on early on. Having said that, I sold by part of the firm in two thousand twelve and and I have nothing to do with the firm step. They still managed my money, our money, I should say, and I have lots of friends there that that I trust.

There are also people in the industry that I consider to be truth tellers. They don't do IT through a news letter or books or broadcast, but they are truth tellers and what they do with their with their clients. So that's the back story.

I have zero conflict of interest. I wish them well. I wish every investment advisory firm well because my nature has always been to hope that everybody that everybody could win and and i'm still ruling for that. I think our work, if we look at IT, is, is, is try to help people who not sure how to be a winner, become a winner.

And if we can help in that process, then we feel like we one and as an inside here, this wasn't a question I was going to address, but I I just noted in in an email about markets timing and somebody was asking about huda. I used for marketplace ming. I just mentioned that my my old firm, but he goes on to save.

I've been trying to ignore markets timing, but with the current S M P five hundred P E ratio at thirty point four in a big run up, IT does give me some concerns about putting a large amount of new money in. And and this is one of this is one of the chAllenges of maintaining the market timing discipline. Uh, the the only kind that I could believe in would be a mechanical one.

If I had to make markets timing decisions based on how I feel, uh, about the economy, about politics, about the world, uh, I I would be tired and nuts. And so whether it's buying hold mechanically or market time mechanically, that is what I do believe in. But I think using market timing this way, as he's suggesting, is what I call the I C S.

I A strategy. The I can stand IT anymore and I don't blame anybody for being concerned about going into the market at this point. I'm going to address that in just a few minutes.

But I am not a believer that um that I don't want to encourage anybody to be a part time market timer and me they want to market time a part of their portfolio. Then then that's fine. That could be done mechanically.

On the other hand, this whole idea of when do you put money in the market, I don't blame anybody for not wanting to put new money into the market. I don't have that problem. I've taking money out to live on and and so IT is nothing i've had to face. I am not going doing inhered anything. So I don't have to face that.

But I guess the the question then is how would you decide uh to to go into the market? Would you dollar cost average in uh quarterly or monthly until the market has corrected by twenty percent or more? And then maybe maybe you put in all the rest of IT in or find some sort of a mechanical way like that, that will help get IT into the market.

And and IT IT may also be, I don't know how old this gentleman is, but IT IT might be a point in his life that he should be considering having having a little bit more in in bonds h anyway. So that that's also consideration. All right.

Question number four, have you seen anyone invest a hundred percent small cap value? Why not for grandchildren that where you're gifting money to them, give in funds to them? Um well, as I ve talked about before, we have chosen with our two year old granddaughter to have the money baLance between um the S M P five hundred.

Actually it's not the S M P five hundred is A V U S which is a more of a total market fan but built with more small and value than the total market index has. So it's it's got a bit of the tilt uh to um some large value um but um the other half is in A V us. And yes, IT is my belief that the money that we put into the fund uh for our granddaughter uh is meant to to underwrite her her rough ira when SHE qualifies for as long as IT will last.

Um we would love IT if the market took off and and sufficiently to actually fund her roth ira for life but time will tell we won't be here to see IT but the reason we went fifty fifty is because when he is eighteen and SHE gets a video and from us and he gets a letter from us, we're gona tell her what we've done and why we did IT and we're going to walk her through how the money was invested and encourage her to look at each year how different returns were. Uh and and maybe we are very pleased because the IT is that investment is and he's just two years little over two years old is up over forty percent and that's a whale of have a good start, by the way, I didn't do that. The market did that.

I've never made money for a client. The market makes you the money that you end up with. And so i'm happy that, that's happened, but I want her to be able to see the impact of diversification.

In the fact is, is he stayed with this of money, one hundred percent in equity, split between small cap value and the S M. P. Five hundred for the rest of her life, even into retirement.

I'm going to be recommending that he does IT and SHE takes not gone to be the only money that he has. And the amount of money that was invested is not going to be perceived to be very much, i'm sure, at the time that he started taking money out. But i'm going to recommend that SHE keep at all equities for her entire life and that SHE would have other money that would be managed more conservative.

I I just have this dream and my wife feels the same way that she's going to do some really special things with the money that comes out of this relatively small gift that we've made to her. But I just think the split between the two is probably a good lesson for her diversification. IT may turn out.

We should have put IT all in smoke APP value. But you know something, if small cat value does well over the next decades, I be sure the E S, P, five well as well. I want I want to share a few quotes from ben carlson, and then I want to talk a little more about where we are in this market.

As our a email are mentioned, a with P E racial at thirty that's high. And and I was I want to share some tables with you will have links to these tables. I think they are they are important to every student of investing.

If you want to get a sense of how i'll use the quotes, crazy the market can be and really IT isn't about being crazy. It's just the nature of the market and can go from from uh being very um a positive to pain, very negative about the world. But I want to read that this of handful of ben carlson quotes to set this up bow markets make you feel invincible.

Everyone feels like a genius in a bull market. Here's another quote from ban. Markets are always and forever cyclical. So are investor emotions.

You never want to get out too high or too low, because the market can be unforgiving to those who go to extremes. Another, while IT is true, the pendula swings back and forth. They can go much further in either direction. Then you was soon. This ball market has made many intelligent people look very dumb by trying to predict when it's going to come to an end and one more timing.

The market is notoriously difficult, but it's probably not a bad time to rebaLance and ensure you have an asset allocation in place that you feel comfortable with during both bowl and bear markets, which leads me to discuss a couple of sets of tables or graphs that I hope you'll do a little digging because because the idea it's not to be surprised. The idea as as an investor i'm talking about, the idea is to have a good sense of what is Normal. And and so let me just tell you what these two pieces are.

One is the S M P five hundred P E raco by year. And so I can see the P E ratio o over the S M P going back to eighteen seventy one. Now obviously there was no S C P five hundred and eighteen seven one.

So the academics have put this together, but I that's fine with me. And yes, there is. Is november twenty nine, two thousand and twenty four.

The P. E ratio is thirty point nine. Now I can look at every quickly, look at years going back.

In fact, I go back here to two thousand twenty one to see at higher. At that point, IT was thirteen, six, approximately P E, racial. But if I go back to january at two thousand twelve, IT was about fifteen.

So about half of that. And and of course, what can cause a lot of trouble is when the P E ratio goes down at the same type as the earnings um uh go down or or level off. So IT IT can cause quite an adjustment in the value. Now I do wanted note one year here in particular that two thousand and nine, the P E ratio was seventy point nine.

And that is because earnings were way down and often times P E, racial s are high because because the companies are doing poorly and people who own those companies understand that it's a temporary chAllenge and they're not going to a salem cheap and knowing that these are companies that are more than likely going to come back. But if we go back, for example, to A A nineteen eighty two, now one thousand and eighty two started a huge run in the market that went on for decades, basically are almost decades in, in, in. That is at that point there was seven point four was the the P E.

ratio. And and then IT about ten years later, IT was an eleven point eight. So that's one of the reasons there was A A huge run in the market.

You had you had an increase in P, E, rails at the same time as you had horrific returns. Now there there were a number of times when the P, E, racial. And these are all about the S A P.

Five hundred bth away was down. In fact in seventy five IT was eight point three. And let's see here we we look back at one hundred and twenty nine just for interest.

IT was seventeen point eight in nineteen eighteen. IT was five point seven. So IT had tripled from january first of two thousand eighteen through the first of two thousand twenty eight nine.

And the only reason and you get i'll give you a linked to to these numbers, but IT will give you a sense of the range of periods when folks were willing to pay what john, but will calls the speculative return and other periods they are not only do they not want to speculate on things getting Better, but they want to buy things at a discount. So we know they're right now based on the history P E, racial are high. Now the other thing is kind of interesting to me, and i'll give you a link on this one as well.

And that is about the book value of the S M P five hundred and and IT shows IT from two thousand through two thousand twenty four. And what they have in common is IT was at five. This is the Price to book at five in two thousand, and its five point two now.

So we have approximately the same Price to book to book value that we had at a point that the market then went through one of its ugly corrections and went down fifty percent. So I understand being nervous, by the way, IT is interesting to note that the booked value for large cap value is a basically about half of the S M P five hundred small cap. How you depending on the on the on the fund is for on one point two or one point seven times a book value.

So there is a widespread in. And by the way, if you looked at just large cap growth at the S M P five hundred, because the S M P five hundred is a combination of value and growth. But large cap growth itself is eight point nine a Price to hi, I have to admit for some reason recently, i've talked to a lot more people who do not want bonds in their portfolio, and many of them are are retired folks.

And of course, I have always considered myself to be an aggressive chicken. I mean, I love to try to get stock market rates of return, but I, I, I also have concerns about the catastrophic event happening, and i've had that my whole life. So it's nothing new with the Price of the market today. But but IT is interesting.

How many people do not transpose in the reason, I think, a bees, because of what happened several years ago when long term treasuries went down twenty five plus per cent and intermediates went down ten percent or nine percent and and and IT let people down because people expected that bonds would be would be um sturdy, stable when a market went down. And that kind of thing that we expect, not a coral light that we that we expect is going to do the opposite kind of of some other part of the portfolio. I I, I still think bonds represent that.

I mean, two thousand eight, yes, bonds went down. Long term corporate went down. About ten percent of high fields, in some cases went out down forty percent um but um the the stock market uh was down four hundred and fifty percent.

So IT in the in the in the government only short to intermediate term bonds that our client and and I hold in my own accounts. They actually went up about seven percent in two thousand and eight. So I am still a believer in bonds for stability is just that, that they're not as stable as I thought they would be.

But but by the way, they shorted intermediates did not get hurt nearly a bad obviously, in in twenty two. So when I think about IT, IT brings up the list of things that are important to me because the bonds are stability. And I still believe in that.

I believe in diversification. I believe in as equity asset class diversification. I even have diversification in the bond portion in terms of maturity, I believe IT in bian hole, but I also believe in timing.

So I have that diversification. I have equities and fixed income. I've got that diversification. Um I have uh U S. International small and large value and growth and and my hopes are that I will get a reasonable rate return in relationship to inflation. IT is interesting.

What we learned in the sixties, in the nine hundred and sixty, if you could get two to three percent after inflation as a retirement, you were doing well. And and so I suspect that is much less than the average investor once today. But I can tell you that's what people believe that.

And of course, that party was driven by the experience that they had a had with their report follows because remember, there were people at that time, they still had been around during the depression. And I might have the other thing that I believe is that future will return will be very similar to past returns. They'll be some great times and bad times of low P E S I P E, some low book to bark sa and that if you live long and if you're probably going to see them all the full range, that's just the nature of the market.

The story behind the market will always be different. And the other thing that we can cow on is the sequence of returns that I don't have any way to know. Now I have left for the last topic, a topic that includes a lot of numbers for retirees who are having to make a decision about whether to use fixed or flexible distribution.

So i'm on to grab my my tables, and i'm coming right back. This discussions starts from an email from a fellow that I met at the bugle, that conference. He was there with his son.

I always loves seeing the, the, the, the family members that were there. And they were great. They were quite a few of them. But he mentions he's trying to work through the distribution decision that he's making. He likes the idea of a flexible distribution.

But he heard in an interview with with bill bank that there's a big downside potentially for people who are going to try to use a flag about a distribution and and in this fellow who wrote to me is is really surprised that more people don't recommend the flexible strategy. So I I went through with him the numbers that I thought told the best story. Uh, and I also see very clearly why people are afraid to recommend the flexible strategy for people to to adapt as as their distribution strategy.

And i'm going to be making reference to a handful of tables. I'm not you're not going to have to grab the tables, but if you want to grab them, there are both fixed and flexible um for the S M P five hundred for both with A A A forty thousand dollar distribution to start with looking at those tables in using as the investment the S M P five hundred. And i'll also talk briefly about the four funds strategy. But here's the point I would make in the point that maybe a lot of people are overlooking when we talk about the downside of the flexible distribution member.

What that flexible distribution does IT starts out, lets say, in this particular take situation, taking out four percent of the million dollars and that your first year's income and then at the end of that first year, whatever that number is, you take four percent of IT for the next years income and so forth as opposed to the fixed distribution is going to take up forty thousand at the beginning of the year, but the second year's distribution is going to be plus inflation. So if there is no inflation, the second year's distribution would be forty thousand dollars. So here's what I know about the flexible and the fixed.

If I look out over thirty years, so we don't have to look at too many numbers at the end of thirty years, I can see here that out of that million dollars, using the S M. P. Five hundred as the investment and having IT been a hundred percent in equities now, now we're gonna go to sixty, forty in a minute.

But but the fellow I was talking with about this, he saw all equities. So we use the S M. P. Five hundred to start with.

So at the end of thirty years, having taken out about three point two million dollars in distributions, starting with forty thousand, so over thirty years they end up averaging over one hundred thousand dollars a year. And distributions that was a bad time for inflation. As a matter of fact, the cost of living had doubled in eleven years, starting in one thousand hundred and seventy.

So at the end of that thirty years, not only had you take IT out three point two million dollars, but you were left with six point four million. Now when I look at the flexible distribution, I see that at the end of the thirty years, what's left over is almost fourteen million. Now that obviously is a huge advantage.

Well, why is there so much money left over? Because instead of taking more money every year, forcing yourself to take money every year, you, you, you, you only took a percentage of what was left. And that is a huge defensive step to take.

And by the way, that becomes a problem in a minute, as you will see. So the in terms of how much is left over to the air at the end of thirty years, assuming that, that you live for thirty years and had to build up to these numbers, you had twice much money to leave others. On the other hand, I mentioned before that there was about three point two million and distributions with the flexible plan, there were three point seven million and distributions.

Now that sounds great, but the problem is that the reason that the uh flexible didn't have more is because in the early years, the market didn't do very well. And so not much money was taken out comparatively with the inflation adjusted IT kept demanding more and more and no food me has I can't remember the plan's name now in little shop, a horse anyway. So there's there's a problem for somebody who uses A A, A flexible strategy is that you can run into this this a period like the seventies where you took out remember, we're talking about all equity.

You took out forty thousand to start with, but by one thousand nine hundred seventy five, you were taking out twenty nine thousand and we help that. Just is that a small problem? Because theoretically, that would be a have an adjustment, particularly when you're the earlier years of your retirement and you're thinking it's time to celebrate.

I'm not gona live forever. I don't want leave all this money for others. I want to enjoy IT too. So there in lies the problem. If you recommend people use a flexible strategy, IT really is important that you have more than you need.

The whole thing about the four percent distribution strategy is that you that that you need the return in order to meet your cost of living. You need that adjust for every year for inflation because because the forty thousand was just enough. So that's a stumbling block for the for before the flexible.

Now to to be fair, I think is is important to know most people are not gonna be a hundred percent equity. So when I look at the sixty forty for the fixed distribution, instead of having six point four million, you have five point nine million leftover almost as much as the S M P. Five hundred and one hundred percent.

But because um because i'm looking at the flexible now because you had the the defense of the fixed income portion instead of going down to twenty nine thousand IT goes down to thirty six thousand. It's still uncomfortably short of what you likely need to live on. But let's not forget the whole theory of the flexible strategy is IT is for people who have over saved I I this is not me bragging kind of a frugal guy.

I don't like to spend money on things that, particularly for myself, which is the nature of a lot of frugal people who are able to spend money. But certainly for myself, I want to be frugal. But, but, but I suspect that if we really live down what we need, we have three times what we really need to retire.

And and so if that's the case, then in the case, for example, of the a hundred percent equity that went down to twenty nine thousand, let's call IT thirty, that would be the equivalent there of somebody who has saved three times what they need, in essence, of ninety thousand. And now what is the cost of living, the amount that you would be getting out of the fixed that would have been and and IT would have been about fifty eight thousand. So so you are uh certainly within the limits of not having to cut back your your lifestyle because you never said so.

Then the question comes and I have still don't have the exact answer, how much over that that million dollars, let's say, said do you do you need to be able to take out more? Now my wife and I take out five percent at the first each year of the portion of our savings that's for retirement. We have other portions of our savings that are for a charity.

They're not for our retirement. But but but the bottom line is there is some number where IT IT works out O, K, and it's gna depend on the seconds of returns. But if you started out with one point five times one and a half times what you really needed, and you started out with a million five, and you took out five percent, that would be seventy five thousand dollars.

So you you would probably, as I look at the table, be tight for a few years. But once you get past that period when the market was in, unfortunately, IT was shing. You write at the beginning of the process that that's always the sequence of return risk for a retire as you walk right into a bear market.

And that was one of the worse bear markets in history, by the way. I think it's also important to note that would save people's bacon in that decade because everybody got hurt through the end of seventy four. But what came back ring back where the value investments and small cap and an international too, by the way, anyway, oh, oh.

And then before I leave, I did the same thing. I also looked at the the S. M.

P. Five hundred versus the U S. Four fund portfolio. That's the portfolio that we look at on the quilt charge that the portfolio that I claim is less volatile than the S M P five hundred.

But I will just mention that at the end of the thirty years before with the S M P five hundred, with the fixed, there was about six point four million. If you were in the forests und strategy is nineteen point five million. If you're in the sixty forty a fixed with the S M P five hundred, IT was five point nine million versus eleven point seven million for the four fund strategy.

And and if you look this one's fun too. If you looked at the flexible strategy, uh at the end of the um thirty years, you had about eighteen point four million left over with the the all equity versus about fourteen million and and you had almost twice much money taken out. Remember the thing about the flexibility is over a long period of time, if the future looks anything like the past, you're gonna take out a lot more money out of the flexible strategy.

Then the fixed as man of fact, if I justice for the sake discussion, if I might, if we take over the fifty four years with the fixed distribution from the S M P five hundred, you you but you take out. The same eight point eight million dollars because remember you everything's fixed. On the other hand, what you have left over in the fixed is about this is with the S M P.

Five hundred is about eleven million. With the four funds strategy, it's about one hundred and thirty million, I know. And we will buy the way, have those links to those tables so that you can look at them and and fire away with questions about these distribution tables because will be looking at them, updating them after the first of the year.

And you may have comments about things that, that you think would be would be helpful. okay. Thanks, as always for main with us.

And we'll be with you next week with the with another podcast. Keep those questions come on. I really appreciated. Wish I had time to answer every one of them.

But and i'm going to get a little behind during december because i'm working seriously a new set of videos that we're working on for western washington university. So anyway, thank you. Thank you for being here.

Thank you for your emails. Thank you for your contributions. I really do appreciate those in thank you for passing our information along to others.