Discussion
mikeiow said:
Good article!
I especially like “Side note: It’s bizarre when people say: “yeah but the safe withdrawal rate in [the UK / insert country name here] is lower”. Errrr…you do know you’re allowed to just buy a global tracker fund, right?” - I see this mentioned a lot on FIRE discussions, like we are a closed investment island!
Of course, all this stuff is a bit of a gamble......in my case, a gamble I won’t get sucked into buying too much tech rubbish!
Yes I'm finding this kind of article fascinating reading as I seem to be spending increasing amounts of time glued to a compound interest calculator and trying to understand the least amount of risk required to get where I want to be I especially like “Side note: It’s bizarre when people say: “yeah but the safe withdrawal rate in [the UK / insert country name here] is lower”. Errrr…you do know you’re allowed to just buy a global tracker fund, right?” - I see this mentioned a lot on FIRE discussions, like we are a closed investment island!
Of course, all this stuff is a bit of a gamble......in my case, a gamble I won’t get sucked into buying too much tech rubbish!
mikeiow said:
Good article!
I especially like “Side note: It’s bizarre when people say: “yeah but the safe withdrawal rate in [the UK / insert country name here] is lower”. Errrr…you do know you’re allowed to just buy a global tracker fund, right?” - I see this mentioned a lot on FIRE discussions, like we are a closed investment island!
Of course, all this stuff is a bit of a gamble......in my case, a gamble I won’t get sucked into buying too much tech rubbish!
Yes, but don’t forget currency risk, which is a key driver of differences in rates between countries. I especially like “Side note: It’s bizarre when people say: “yeah but the safe withdrawal rate in [the UK / insert country name here] is lower”. Errrr…you do know you’re allowed to just buy a global tracker fund, right?” - I see this mentioned a lot on FIRE discussions, like we are a closed investment island!
Of course, all this stuff is a bit of a gamble......in my case, a gamble I won’t get sucked into buying too much tech rubbish!
NickCQ said:
Yes, but don’t forget currency risk, which is a key driver of differences in rates between countries.
What do you mean by the 'currency risk' in this context?If (as many commentators appear to) one agrees that the UK SWR (safe withdrawal rate) is around 3.5%, rather than the oft-quoted 4% for people in the US......then why not fund a 'more-global' tracker?
mikeiow said:
What do you mean by the 'currency risk' in this context?
If (as many commentators appear to) one agrees that the UK SWR (safe withdrawal rate) is around 3.5%, rather than the oft-quoted 4% for people in the US......then why not fund a 'more-global' tracker?
Interest rates differ by country partly due to expected future movements in exchange rates. For example, government bond yields in local currency in Brazil are high, but the currency forward curve shows significant depreciation, meaning that the USD returns are lower. If (as many commentators appear to) one agrees that the UK SWR (safe withdrawal rate) is around 3.5%, rather than the oft-quoted 4% for people in the US......then why not fund a 'more-global' tracker?
If your expenses are all in GBP, you are negatively impacted by a significant appreciation of GBP if many of your investments are denominated in foreign countries. Many of us have enjoyed the reverse effect in the last few years.
https://en.m.wikipedia.org/wiki/Interest_rate_pari...
NickCQ said:
Interest rates differ by country partly due to expected future movements in exchange rates. For example, government bond yields in local currency in Brazil are high, but the currency forward curve shows significant depreciation, meaning that the USD returns are lower.
If your expenses are all in GBP, you are negatively impacted by a significant appreciation of GBP if many of your investments are denominated in foreign countries. Many of us have enjoyed the reverse effect in the last few years.
https://en.m.wikipedia.org/wiki/Interest_rate_pari...
& you feel that could negatively impact a more "world tracker-based" fund holding versus a more "UK-centric" one, to the point of impacting that SWR withdrawal I mentioned?If your expenses are all in GBP, you are negatively impacted by a significant appreciation of GBP if many of your investments are denominated in foreign countries. Many of us have enjoyed the reverse effect in the last few years.
https://en.m.wikipedia.org/wiki/Interest_rate_pari...
I'm less sure.....
mikeiow said:
& you feel that could negatively impact a more "world tracker-based" fund holding versus a more "UK-centric" one, to the point of impacting that SWR withdrawal I mentioned?
I'm less sure.....
The point is that most of us as UK residents have predominantly GDP-denominated liabilities / expenditures.I'm less sure.....
Assets outside the UK (& the FTSE 100) therefore have currency risk attached. If all of your assets were in the US and cable went from 1.21 back to 1.40 (i.e. pre-Brexit levels), your portfolio would be down 15% and at a 3% SWR you are 4 years of expenditure short.
You might reasonably say that the returns & diversification premium you get for going global outweighs the additional currency risk, but it's worth understanding the trade-off that one is making.
To be clear, I'm not advocating a 100% UK portfolio - rather I am objecting to the flippant way that the article dismisses this risk. To be honest I don't think the author has thought about it enough.
As an aside, to me a 3-3.5% SWR 'sounds right' whereas 4% seems a bit risky. Depends on your age obviously.
NickCQ said:
The point is that most of us as UK residents have predominantly GDP-denominated liabilities / expenditures.
Assets outside the UK (& the FTSE 100) therefore have currency risk attached. If all of your assets were in the US and cable went from 1.21 back to 1.40 (i.e. pre-Brexit levels), your portfolio would be down 15% and at a 3% SWR you are 4 years of expenditure short.
You might reasonably say that the returns & diversification premium you get for going global outweighs the additional currency risk, but it's worth understanding the trade-off that one is making.
To be clear, I'm not advocating a 100% UK portfolio - rather I am objecting to the flippant way that the article dismisses this risk. To be honest I don't think the author has thought about it enough.
As an aside, to me a 3-3.5% SWR 'sounds right' whereas 4% seems a bit risky. Depends on your age obviously.
Fair enough!Assets outside the UK (& the FTSE 100) therefore have currency risk attached. If all of your assets were in the US and cable went from 1.21 back to 1.40 (i.e. pre-Brexit levels), your portfolio would be down 15% and at a 3% SWR you are 4 years of expenditure short.
You might reasonably say that the returns & diversification premium you get for going global outweighs the additional currency risk, but it's worth understanding the trade-off that one is making.
To be clear, I'm not advocating a 100% UK portfolio - rather I am objecting to the flippant way that the article dismisses this risk. To be honest I don't think the author has thought about it enough.
As an aside, to me a 3-3.5% SWR 'sounds right' whereas 4% seems a bit risky. Depends on your age obviously.
I suspect a bigger risk (than age) is just not being able to be flexible - to reduce that SWR where markets suggest you should.....but since none of us have a crystal ball for the next week, never mind the next 30+ years, it is a bit of a tricky topic!
I *believe* the UK, as a proportion of 'The World' (in terms of stock/shares/GDP etc), is less than 4-6%, so I suspect most of us are "heavy" on UK investments....although even then one could argue that much of the FTSE100 (maybe even 350) is 'global' anyway (& then I remember "when America sneezes, the World catches a cold" !!). Investment-wise, I find the things stated by Lars Kroijer to be interesting.
Anyway, this has drifted a bit from FIRE (apologies OP!) - back on that topic - I am a great believer in at least firmly aiming for the ability to retire before one reaches State Pension Age, so FIRE=good!
Those who post here (& on the MSE retirement pages - a wealth of detail/dross in there!) at least are showing some semblance of planning, which I think is half the battle!
& in the back of my mind, after attending too many funerals in the past 18 months, I am always aware of the wedge of death
Cheerful stuff, eh!
mikeiow said:
Anyway, this has drifted a bit from FIRE (apologies OP!) - back on that topic - I am a great believer in at least firmly aiming for the ability to retire before one reaches State Pension Age, so FIRE=good!
Those who post here (& on the MSE retirement pages - a wealth of detail/dross in there!) at least are showing some semblance of planning, which I think is half the battle!
& in the back of my mind, after attending too many funerals in the past 18 months, I am always aware of the wedge of death
Cheerful stuff, eh!
No apologies needed I lap this stuff up Those who post here (& on the MSE retirement pages - a wealth of detail/dross in there!) at least are showing some semblance of planning, which I think is half the battle!
& in the back of my mind, after attending too many funerals in the past 18 months, I am always aware of the wedge of death
Cheerful stuff, eh!
I'm very late to this having totally missed the boat of the last 10 or so years where seemingly a blind chimp could have made good returns.
I think one of the most important milestones is “f
k You Money” and I'm there which is a nice feeling.NickCQ said:
Interest rates differ by country partly due to expected future movements in exchange rates. For example, government bond yields in local currency in Brazil are high, but the currency forward curve shows significant depreciation, meaning that the USD returns are lower.
If your expenses are all in GBP, you are negatively impacted by a significant appreciation of GBP if many of your investments are denominated in foreign countries. Many of us have enjoyed the reverse effect in the last few years.
https://en.m.wikipedia.org/wiki/Interest_rate_pari...
The macro trend over the last hundred years has been for the pound to drop against the dollar. Do you really expect this to reverse?If your expenses are all in GBP, you are negatively impacted by a significant appreciation of GBP if many of your investments are denominated in foreign countries. Many of us have enjoyed the reverse effect in the last few years.
https://en.m.wikipedia.org/wiki/Interest_rate_pari...
pteron said:
The macro trend over the last hundred years has been for the pound to drop against the dollar. Do you really expect this to reverse?
Like JP Morgan said, all I know is that it will fluctuate.I'm not smart enough to take a directional bet up or down but I stay conscious of the volatility. Even within that hundred year trend you will be able to find 5-10 year periods where it went the other way.
NickCQ said:
Interest rates differ by country partly due to expected future movements in exchange rates.
I think it's the other way round?https://www.investopedia.com/terms/i/ife.asp
CaptainSlow said:
NickCQ said:
Interest rates differ by country partly due to expected future movements in exchange rates.
I think it's the other way round?https://www.investopedia.com/terms/i/ife.asp
bhstewie said:
Interesting read.hstewie said:Of course, the rollercoaster analogy is fine when you are in the accumulation phase.......but gets trickier in the decumulation, I strongly suspect!
When still paying in, if the market takes a dip, you are then buy whilst it is then low. Helps ameliorate the bad news.....
If all you are doing is taking out....then you have to try to sit on your hands and await a rise....
I spent yet more time today fiddling with a spreadsheet to examine some scenarios.....essentially checking the reality of the 'sequencing of returns risk' - with some numbers thrown together, a 20% drop at the start could spell disaster (even with everything else sitting at 4%)....whereas if the same happens after 10 years, all is okay.
Fun times, eh!
Of course, if one really *knew* where the bottom of the market was, once might throw some spare cash at the problem....but if it was heading down a further 10+%, that could be pretty painful too!
Now then....where exactly did I put my crystal ball?
Which is why you have to have 2 things IMHO.
1 at least a years expenses, maybe two, sat in something you can easily access.
2 some type of skill or ability to work should you have a fire failure.
The problem with 2 is that often in a major down turn finding a job can be difficult - which goes hand in hand with a market crash/fire failure - but all this leads back full circle to living fairly frugal life and even in a major down turn you can just sit back and ride it out. Our very basic bare bones budget is probably about 15k a year but I reckon if it came to it we could chop off a few grand so maybe 12k a year. That's a part time job on minimum wage doing 3 days a week. You would have to hope it would be possible to find that type of work.
1 at least a years expenses, maybe two, sat in something you can easily access.
2 some type of skill or ability to work should you have a fire failure.
The problem with 2 is that often in a major down turn finding a job can be difficult - which goes hand in hand with a market crash/fire failure - but all this leads back full circle to living fairly frugal life and even in a major down turn you can just sit back and ride it out. Our very basic bare bones budget is probably about 15k a year but I reckon if it came to it we could chop off a few grand so maybe 12k a year. That's a part time job on minimum wage doing 3 days a week. You would have to hope it would be possible to find that type of work.
red_slr said:
Which is why you have to have 2 things IMHO.
1 at least a years expenses, maybe two, sat in something you can easily access.
2 some type of skill or ability to work should you have a fire failure.
The problem with 2 is that often in a major down turn finding a job can be difficult - which goes hand in hand with a market crash/fire failure - but all this leads back full circle to living fairly frugal life and even in a major down turn you can just sit back and ride it out. Our very basic bare bones budget is probably about 15k a year but I reckon if it came to it we could chop off a few grand so maybe 12k a year. That's a part time job on minimum wage doing 3 days a week. You would have to hope it would be possible to find that type of work.
Yeah, I have several budgetary possibilities.....the "comfortable what we would like" budget.....the "could easily drop to this by trimming a couple of things (partly investments!)", & the "what just happened - batten down the hatches"1 at least a years expenses, maybe two, sat in something you can easily access.
2 some type of skill or ability to work should you have a fire failure.
The problem with 2 is that often in a major down turn finding a job can be difficult - which goes hand in hand with a market crash/fire failure - but all this leads back full circle to living fairly frugal life and even in a major down turn you can just sit back and ride it out. Our very basic bare bones budget is probably about 15k a year but I reckon if it came to it we could chop off a few grand so maybe 12k a year. That's a part time job on minimum wage doing 3 days a week. You would have to hope it would be possible to find that type of work.
mikeiow said:
I spent yet more time today fiddling with a spreadsheet to examine some scenarios.....essentially checking the reality of the 'sequencing of returns risk' - with some numbers thrown together, a 20% drop at the start could spell disaster (even with everything else sitting at 4%)....whereas if the same happens after 10 years, all is okay.
In Abraham Okusanya's book "Beyond The 4% Rule" he spends quite a bit of time going into exactly that and showing the impact it can have. It's an interesting read if you've not already seen it.mikeiow said:
bhstewie said:
Interesting read.hstewie said:Of course, the rollercoaster analogy is fine when you are in the accumulation phase.......but gets trickier in the decumulation, I strongly suspect!
When still paying in, if the market takes a dip, you are then buy whilst it is then low. Helps ameliorate the bad news.....
If all you are doing is taking out....then you have to try to sit on your hands and await a rise....
I spent yet more time today fiddling with a spreadsheet to examine some scenarios.....essentially checking the reality of the 'sequencing of returns risk' - with some numbers thrown together, a 20% drop at the start could spell disaster (even with everything else sitting at 4%)....whereas if the same happens after 10 years, all is okay.
Fun times, eh!
Of course, if one really *knew* where the bottom of the market was, once might throw some spare cash at the problem....but if it was heading down a further 10+%, that could be pretty painful too!
Now then....where exactly did I put my crystal ball?
If you're in the very highly priced and low yielding US indexes (so not the US REITS that seem a decent yield play with real asset backing) then falling share values will have a significant impact.
Or am I missing something?
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