Investing for income?

[Craig Van Arsdale]

My FA's perspective is that equities are likely to outpace inflation for the foreseeable future. Inflation remains low due to the global economy being depressed, and my personal view is that the current levels of sovereign debt will keep interest rates artificially low.

Most FA's and most people are not seeing real inflation correctly and imo its going to be the biggest investment mistake over the next decade. CPI (Consumer Price Index) is how the Government measures inflation and where the 2-3% number always comes from. The catch... The Government gets to PICK which items it would like out of the CPI basket to make the inflation number what ever they want to target...

in 2020 the M2 money supply increased 25% but yet we only had a few % inflation!? total BS

Things that are not in the CPI basket

Your home
A college education
Equities or anything related to savings as the number is based purely on consumption.

If you want to rent and never aspire to have the finer things in life and pay for a college education for your kids then yeah no inflation at all, but if anyone has been paying attention to the prices of these things they aren't getting any cheaper. Paying an extra .30 cents for a RedBull isn't a good measure of human capital.

I agree that interest rates stay low and even flirt with negative rates. (real rates are of course negative already even if you use CPI inflation)

As far as Sovereign debt. Currently over 18 Trillon of negative yielding Sovereign debt worldwide and the number grows by the month. Fixed income markets are dead and yield is harder than ever to get. My bet is some of this flows into Bitcoin as its returning 200+% annualized over the last decade with zero counter party risk. And you can turn around and get yield from it in the 3-6% range at the moment...

 

[MattB]

in 2020 the M2 money supply increased 25% but yet we only had a few % inflation!? total BS

Things that are not in the CPI basket

Your home
A college education
Equities or anything related to savings as the number is based purely on consumption.

Where you getting your 15-20% real inflation number? Even healthcare is not increasing at that pace, let alone homes in the vast majority of the nation or college educations.

 

[Craig Van Arsdale]

Where you getting your 15-20% real inflation number? Even healthcare is not increasing at that pace, let alone homes in the vast majority of the nation or college educations.

It's an average of these top few items. M2 supply, median real estate, education and equites. If you look at the ivy league schools and the the most affluent area to own property the numbers are easily over 20% last year.

If the 1.9T stimulus gets passed M2 supply will be up 40%in the past 12-14 months so I don't see it slowing down anytime soon as just the cost to service all the prior debt is catching up to us from 2008 as well.

M2 is up 25% in 2020
Median Real Estate 13%
Median Tuition 6-7%
Equities
Nasdaq 2020 43% in 2020
S&P 500 2020 16%
Amazon 2020 73%
Apple 2020 78%

All in a year where global economies are being crushed and record unemployment.


Education

Median Real Estate 2020

 

[Mighty Mouse]

My bet is some of this flows into Bitcoin as its returning 200+% annualized over the last decade with zero counter party risk. And you can turn around and get yield from it in the 3-6% range at the moment...

Where/how are you getting yield from Bitcoin?

 

[Glory]

Closed end mutual funds. 8-10%. Reinvest dividends and let things compound.

Rentals. Or should I clarify, the right rental, At the right price in the right neighborhood. And I am not a fan of being a landlord.

But if you own a house with cash and make 8% on rent, have it go up in value 5% a year, and increase the value 15% right off the bat by fixing it up, you are winnning.

 

[Craig Van Arsdale]

Where/how are you getting yield from Bitcoin?

BlockFi

Up to 2.5 BTC is Tier 1 rates 6% and beyond that 3% Tier 2 rates


You can also borrow dollars using your bitcoin as collateral as well from Unchained Capital

Rates to borrow are high right now but I see them being reduced drastically in the next few years as everyone comes to realize Bitcoin is pristine capital.

 

[Mighty Mouse]

BlockFi

Up to 2.5 BTC is Tier 1 rates 6% and beyond that 3% Tier 2 rates

Thanks, I'll check it out. Would be nice to earn some yield while I'm HODL'ing.

 

[Craig Van Arsdale]

Thanks, I'll check it out. Would be nice to earn some yield while I'm HODL'ing.

You can choose to be paid your monthly yield payment in BTC as well! Just understand that albeit low risk you do take on counter party risk compared to holding your own keys.

 

[isocyanate]

I read JL Collins' book recently. I like what he has to say and am investing in VTSAX heavily.

But I can't help but recall that "Past performance is not an indicator of the future". Will the 4% rule continue to hold water in the next several decades (I'm 31)?

That's a pretty big question.

 

[Craig Van Arsdale]

I read JL Collins' book recently. I like what he has to say and am investing in VTSAX heavily.

But I can't help but recall that "Past performance is not an indicator of the future". Will the 4% rule continue to hold water in the next several decades (I'm 31)?

That's a pretty big question.

The Nasdaq is the fund to be investing in if you're going to be investing in Index funds. And no the 4% rule doesn't hold water today let alone in this environment of inflation looking forward.

 

[MR5X5]

Will the 4% rule continue to hold water in the next several decades (I'm 31)?

That's a pretty big question.

The 4% rule as used to estimate retirement income is outdated in consideration of how long people are living in retirement. While it makes sense to dial down risk over time/age, if you are retiring at 60 and your genes put you living into your 80s, it makes a lot of sense to be a more aggressive investor at least for awhile after you retire.

At 31 you should be aggressively invested. S&P over time has yielded 10% pre tax. That is a reasonable benchmark with a doubling period of 7.2 yrs.

 

[peterk123]

This thread for some reason reminds me of a commercial from about thirty years ago..... "I'm not a real doctor but I play one on television."

 

[isocyanate]

The 4% rule as used to estimate retirement income is outdated in consideration of how long people are living in retirement. While it makes sense to dial down risk over time/age, if you are retiring at 60 and your genes put you living into your 80s, it makes a lot of sense to be a more aggressive investor at least for awhile after you retire.

At 31 you should be aggressively invested. S&P over time has yielded 10% pre tax. That is a reasonable benchmark with a doubling period of 7.2 yrs.

Just to be sure we are talking about the same thing re: 4%, I am talking about the idea that if you only withdraw 4% of your investments as incom per year, the horizon at which you run out of money is sufficiently far in the future as to be irrelevant. We agree on risk tolerance relative to age, and my savings rate is over 30%. Shooting for 40 once a few more things get paid off.

 

[Top147]

With Biden administration, Green energy wind and solar. What you think of there etfs like FAN, TAN.

 

[Craig Van Arsdale]

This thread for some reason reminds me of a commercial from about thirty years ago..... "I'm not a real doctor but I play one on television."

Very true for most!

But to be fair most FA's underperform the market so be very skeptical whoever you are trusting with financial advise. The numbers never lie.

 

[MR5X5]

Punching at 40! More power to you...
Understand your 4% reference. The theory is that you can on average produce returns that allow you to withdraw 4% annually without ever touching principal. This assumes 4% is a reasonable target. To make the 4% model work, such that you don't get poorer by the rate of inflation every year, your account needs make 4% + inflation. Your projected time frame is quite long. Unknowns associated with time, i.e. inflation/taxes/health care are a few of the things you need to be wary of.

I'd suggest finding a financial planner, who can very easily put your variables into a SW tool that allows you to vary the assumptions (inflation, taxes, ROR, etc) and produce Monte Carlo (probability) outcomes in "then current dollars". The tool will provide annual income and remaining principal values for each year with an associated probability. I'd suggest looking at the 70%, 80%, 90% probabilities and see what you comfort level is.

That you are thinking about these things at 31 puts you ahead of the curve.

 

[MattB]

It's an average of these top few items. M2 supply, median real estate, education and equites. If you look at the ivy league schools and the the most affluent area to own property the numbers are easily over 20% last year.

If the 1.9T stimulus gets passed M2 supply will be up 40%in the past 12-14 months so I don't see it slowing down anytime soon as just the cost to service all the prior debt is catching up to us from 2008 as well.

M2 is up 25% in 2020
Median Real Estate 13%
Median Tuition 6-7%
Equities
Nasdaq 2020 43% in 2020
S&P 500 2020 16%
Amazon 2020 73%
Apple 2020 78%

All in a year where global economies are being crushed and record unemployment.


Education

Median Real Estate 2020

The rationale of measuring a small bucket of things that are inflating the greatest doesn't make sense in terms of estimating actual inflation. That is equally as misleading as using CPI which largely excludes those items. The practical implication is that an increase in the cost of things people do not buy does not reduce their capacity to purchase other good/services. I guess the best way to determine "real" inflation is to weight it against the things that people actually spend money on, and that can be highly variable from person to person.

 

[Afhunter1]

Disclaimer: I have managed my own retirement finances for 15 years. I have a nest egg large enough that I decided to put it with Personal Capital earlier this year and I have been pleased with their service and investing mythology. I don't have time to deal with it myself even if I am more than qualified to do it. Their fees are low and they charge no trading fees.

There are people out there that argue using an advisor is for chumps because all you need to do is buy a Vanguard fund and hold it for 30 years and no FA will even come close to your performance. Then it is always backed up by just "compare them to the market". Well I'm not going to get too long winded but if your smart you have numerous retirement accounts and numerous funds. Nobody should be 100% in the "market" as everyone likes to call it. FA are very good for the average person and I'm not meaning Edward Jones. Diversification, retirement, education, health, estate, and tax planning are things the avg joe can mess up royally even with Vanguard funds. My FA uses Vanguard funds for some things ie emerging mkts.

I'm just saying that FA have more value than if they outperform the S&P 500. What good is it if you beat the market by .5% but then have a massive tax bill at the end of the year.

You should talk to a Fiduciary FA and run some simulations. Turning assets into income is a very hard topic to do right if you want to maximize your assets value.




Also be wary of a FA who wants you to buy American Funds! RUN!

 

[Jbenson]

I'll reiterate...a GOOD financial advisor like afhunter stated. You can't trust them right away, and you shouldn't. Get to know them on a personal level. Start small and make them prove they know their ass from a hole in the ground. Good ones know the avenues to guaranteed returns. And DIVERSIFY. If one avenue is down, have 3 more different ones to make up for it. Different sectors of the market, different funds etc. And give it time. Making big money quick isn't investing, it's gambling. And it works for some...never works for me Good advisors can do projections for your future to tell you where you stand and what you should do different. My $.02.

 

[Beendare]

I’ve managed my own finances for decades and yes it’s been a learning curve But It’s been well worth the education.

I think even the guys with financial advisors can’t just invest and forget you need to be an educated investor no matter what.... the time to start learning is now.

I would agree with Craig inflation is here. The central banks are doing everything they can to suppress and ignore it.... but eventually it’s going to rear its ugly head. I don’t see interest rates jumping in the short term but I do think a guy that has a 3% fixed mortgage in five years is going to be a very happy camper.

My portfolio would shock the naysayers. I made some recommendations a couple months back on this site one being Chinese ETFs .... a couple of mine are up 21% in 2 1/2 months.


I learned long ago the key to successful investing is not to look at the past but look at the future. With the changing of the president it was easy to predict what was going to be successful. in this specific China case, Trump was hammering on China, where Biden is In their back pocket andgoing to hand them the keys. He will talk tough on China in the media but watch policy. China will do well if they dont overstep(Taiwan)

Much of the easy money on the Biden predictions has already been made. I think there is room in the China play still but the solar and wind type stuff I personally wouldn’t touch right now partially because I think it’s a bad solution to our energy problems and partially because it’s run up so hard so fast.

There are many tenets to good investing: Managing risk, understanding the Mechanisms of the markets as a whole, evaluating risk reward, industry and stock selection.

To the topic here, A good return on yoyr money;

There is a lot of risk right now in some of the high dividend paying stocks, bonds, and real estate investments. A Lot!

Currently, Exxon can’t cover their high dividend for a long period- but of course they said they are not going to touch the dividend- never Heard that one before (sarcasm)

If inflation and bond rates rise you lose principal on bonds.

Buying that Walgreens triple net lease at 7% for the next 20 years might turn into zero if they vacate that building Cutting back on stores ( already happening)

its all about evaluating the risk/reward.

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