Financial Independence Daily FI discussion thread - January 28, 2020 |
- Daily FI discussion thread - January 28, 2020
- FIRE and country risk - an underappreciated risk?
- Downside of investing my down payment money
- Bigger pockets money podcast ep 40 with joe Saul-sehy. Guest claims 4% rule has been debunked.
| Daily FI discussion thread - January 28, 2020 Posted: 28 Jan 2020 12:08 AM PST Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  | ||||||||||||||||||||||||||||||||||||
| FIRE and country risk - an underappreciated risk? Posted: 28 Jan 2020 05:46 AM PST A potentially underappreciated consideration for FIRE is country risk. I am based in South Africa, and while my cost of living is low, the tax rate is high, and economic growth is muted. I can mitigate some of that by investing offshore, and I have both ETFs locally (which come with a 0.86% fee) and abroad (which are a much more pleasing 0.12% fee). Gains and dividends are still taxed on offshore holdings, however, and those rates are increasing over time. Herewith some examples: Capital Gains tax, there is an exclusion amount, currently R40,000 (or $2,750), but the percentage paid has increased significantly over the last five years:
Income tax. This normally keeps pace with inflation, but recently a new threshold was introduced: 45% for income above R1.5m (just over $100k). Value added tax. This has been at 14% for a very long time. Last year due to shortfall, it was increase to 15%, and some think that it might be increased again to 16% this year. Dividend withholding tax. Previously dividends were tax free (the business paid the tax). South African "aligned" to international norm where the recipient of the dividend, not the company paying it, is liable for the tax. What you would expect is that declared dividend would then be higher since corporation now doesn't have to pay the tax, although I don't believe this has been the case.
If you were relying on dividends in retirement, you've just seen a big chunk of your income disappear, while simultaneously seeing the price of goods increase due to the change in VAT. To summarise, if your investments are only in South Africa (even with international holdings) your fees are going to be much higher than most FIRE adherents are used to. The 4% SWD doesn't include fees is my understanding (i.e. you need to still factor that in), so you'd need to change your withdrawal rate to 3% to deal with the increased fees. Your income in retirement based on your current expenses might not be sufficient based on the higher tax you could be paying when disposing of assets (triggering CGT) or relying on dividends (which are taxed higher) to buy goods that are more expense (due to increased VAT). I don't think any of this would be captured in the official inflation numbers, which is what you should be increasing your withdrawal by. tl;dr, your pot might need to be a bit bigger to account for downside country risk. [link] [comments]  | ||||||||||||||||||||||||||||||||||||
| Downside of investing my down payment money Posted: 28 Jan 2020 04:30 PM PST Guys need help in thinking through my situation. I've been holding on to my house down payment money for 2 years now. It's starting to look less likely that we'll be buying a house in the immediate future(1year). I'm getting a major fomo with all the unrealized returns I could've had. And since I live in a HCOL area the sum is significant. I'm thinking of investing it all in vanguard ETFs. Downpayment makes 70% of our total savings so it's definitely a risk. But my argument is that worst case, the market tanks 20% we'll still have enough for a downpayment. My wife disagrees. [link] [comments]  | ||||||||||||||||||||||||||||||||||||
| Bigger pockets money podcast ep 40 with joe Saul-sehy. Guest claims 4% rule has been debunked. Posted: 28 Jan 2020 12:08 AM PST I know it is 70 episodes ago...but I was semi listening along and the guest (who I believe is a financial planner?) claimed 4% is likely to fail and newer studies with more data say you need more. He cites 'sequence of returns risk' which I think I understand fairly well. Now he didn't actually cite a source. He pulled a name out of a hat but I don't recall it now. I know for very long horizons it is probably best to be flexible, shoot under 4%. Reduce spending when markets fall, have a bond tent or cash reserves etc. but what is up with this guy? I find myself irrationally annoyed. Edit: I believe the guest also claimed the 4% rule didn't cover inflation, which it does. I was shaking my head. edit 2: he vaguely cited wade pfau. After maybe an hour of reading my summary of pfau is--- A 90% chance of success isn't high enough. 95% isn't high enough. BUY MY BOOK. The probability of failure is low but the consequences of failure are high, and vary a lot. Many people use money managers and these managers don't vary the withdrawals so people aren't flexible. BUY MY BOOK. Past performance ins't indicative of future success. If you run the data past 1926 back to 1900 it looks worse. Other countries have not been able to match the US/canada for consistent growth so it is reasonable to assume these are outliers and are not sustainable. BUY MY BOOK. Pfau suggests stocking away more money and using some to buy annuities, take a reverse mortgage to avoid dipping into investments or cash value of life insurance as an income 'floor' to avoid selling at the bottom. [link] [comments]  |
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