Financial Independence Daily FI discussion thread - Thursday, September 30, 2021

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Daily FI discussion thread - Thursday, September 30, 2021 Posted: 30 Sep 2021 02:02 AM PDT 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. submitted by /u/AutoModerator [link] [comments]

Bengen 2020: The 4% SWR is 5%, could be 7%, also TIPS may not work as well as believed in an inflationary environment Posted: 30 Sep 2021 06:04 AM PDT From: https://www.marketwatch.com/story/the-inventor-of-the-4-rule-just-changed-it-11603380557 TLDR: 4% rule is often misunderstood "finance not a natural science ... should not be treated like Newton ... is not a law of nature" 4% rule was created in 1991 as worst-case scenario based on retiring in Oct 1968 into high inflationary period Based on portfolio of: 30% S&P, 20% US small-cap, 50% intermediate US Treasury bonds The average SWR historically is 7%, has hit 13% at times Bengen adjusted it to 4.5% in 2006 and 5% in 2020, which he now personally uses Inflation is more damaging to retirees than bear markets, because bear markets recover while inflation eats purchasing power in only one direction. Also buried near the bottom: TIPS performance may be unexpected because its never actually been tested in an inflationary period. There are plenty of unknowns—both known unknowns and unknown unknowns. We don't know if the Fed can prevent deflation, let alone get prices higher. We don't know what Covid is going to do to long-term returns. We also don't know, for example, whether inflation-protected TIPS bonds would work better than regular government bonds. Although TIPS are designed to adjust their prices to reflect rises in the Consumer Price Index, they weren't around in the 1970s, so we don't know how exactly they would have done. Oh, and right now they are so expensive that they actually guarantee a small, but significant, loss of purchasing power for up to 30 years. submitted by /u/AlphaTerminal [link] [comments]

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