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Not a week goes by where we don’t get an email/comment/FB message something along the lines of “I’d invest, but I’m afraid we’re in stock market bubble.”
or,
“I read that we’re in a bond bubble. Should I sell all my bonds and move to cash?”
or my personal favourite,
“I don’t care that people are saying we’re in a housing bubble! I’m going to buy a house anyway and make sooo much money because everyone knows housing always goes UP.”
Ha. OK. Ahem.
As fun as it is to scoff at these people, they all share a common myth about investing. Specifically, price bubbles. This myth is actually so common you’ll read news stories spouting scary headlines about bubbles and impending crashes near CONSTANTLY in the mainstream media, or from investing sites, or from people who should generally know better, and all it does is sell newspapers and scare the ever-loving bejesus out of people.
So what is this myth?
It’s Possible To Predict a Bubble
Let me tell you a story.
It was the year 1720. Europe had just gotten out of one pointless bloody war and was (presumably) getting ready for its next pointless bloody war. I was a young lad having just turned -160, and I remember that year like it was yesterday [citation needed].
And if memory serves, a talented physicist by the name of Sir Isaac Newton was on top of the world, having achieved the fame and fortune that only a physicist could. It was a…different time.
ANYHOO, at the time there was a hot new company everyone was talking about called the South Sea Company. The South Sea Company had been granted a monopoly on trade with South America in exchange for buying out the government’s war debt. Investors figured this was a pretty good deal and started snapping up shares of the company. Starting at around £130 a share, in a month it had risen 35% to £175 a share.
Sir Isaac Newton noticed, and wanted in on the action. So he bought in just as the sharks started getting hungry.
Soon, the South Sea Company climbed higher and higher, hitting £330 a share in just two months. This was a 153% gain over a 2-month period!
Right around now, Newton, being no dummy, figured things were getting out of hand and quietly started eyeing the exit even as more idiots were jumping in. He got out at just under £400 a share, netting a cool 207% gain. He sat back, quietly chortling and counting his money as he watched greedy idiots pile in, thinking what went up would go up forever.
Newton knew better. He knew this was a bubble. And he knew a crash was coming.
But then something strange happened. A crash…didn’t come. Instead, the directors of the company circulated wild rumours about how much business they were doing and the stock just kept going up. And up. And UP!
Newton couldn’t believe it. He knew this price was completely unfounded, but for some reason that stock just seemed to defy gravity. The stock price crossed £400, then £430, then £460. By the time it hit £500 a share, many of Newton’s friends who had held onto their stake had now made 484% on their investment, compared to Newton’s paltry 207%. Newton couldn’t believe it. HE was supposed to be the smart one! How could he get outsmarted by a bunch of dimwits?!?
This injustice could NOT stand!
So he went back in. At £700 a share, he bought back into the bubble, KNOWING it was a bubble, because he couldn’t stand the idea of other people making easy money without him. In other words, he fell victim to the Fear of Missing Out.
And at first, he thought he made the right move, because the stock price just kept rising, to £800, then £900. But unfortunately, it turns out Newton WAS a genius after all, because he ended up being right. It was a bubble.
South Sea Company hit just over £1000 a share before news started to break that maybe those South American shipping contracts weren’t worth that much after all. So the price stalled, then started to reverse.
South Sea plummeted all the way down to £100 a share, losing 90% of its value and devastating investors.
When the dust had settles, Newton had lost over £20,000.
Adjusted for inflation, this was £3,000,000 in today’s pounds, or $4,000,000 USD.
It was Sir Isaac Newton’s entire life savings.
And it prompted him to grumble the quote that every stock trader on Wall Street knows by heart:
I can calculate the movement of the stars, but not the madness of men.
So if you think you can successfully predict or time a bubble, just know that smarter men than you have tried. And you can trot out all the charts and ratios you can find to support your position, but in the end, even Sir Isaac Newton, one of the greatest mathematical geniuses who ever lived, got caught with his frilly white pants down. Do you think you can do better?
So Don’t Even Try
Replace “South Sea Company” with “Houses” or “Bre-X” or “Home Capital” and you can pretty much describe how every single bubble rises then pops.
That’s why the foundation of Index Investing states that you don’t try to pick individual stocks, and you don’t try to time the market, because it’s essentially impossible. Sure, you might get lucky one or two times, but as Sir Isaac Newton found out, you have to correctly predict the entry point AND the exit point in order to make money if you try to market time. And THEN, you have to not second guess yourself after the fact. You could make the right buy/sell call 9 times in a row, but if you screw up just once, you may end up losing it all.
Index Investing, on the other hand, simply buys and holds the entire market, both stock and bonds. And as one rises past its target allocation, we rebalance it by selling the one that rises and buying the one that’s depressed. This way, we naturally avoid any bubble scenario, because if any one asset starts rising way way WAY too fast, our regular rebalancing will naturally cause us to exit that position as it gets more dangerous. And later one if it crashes back to reality, our rebalancing will cause us to gradually buy back in.
Don’t try to predict a bubble. But DO rebalance your way out of one.
And with that being said, it’s on to our regularly scheduled buys.
Canadian Portfolio
As always, we get a snapshot of our current portfolio (including our cash contribution)…
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | $25.85 | 89 | $2,300.65 | 36.98% | 40% |
| Canadian Index | VCN | $31.18 | 36 | $1,122.48 | 18.04% | 20% |
| US Index | VUN | $45.02 | 25 | $1,125.50 | 18.09% | 20% |
| EAFE Index | XEF | $30.55 | 30 | $916.50 | 14.73% | 16% |
| Emerging Markets | XEC | $26.41 | 9 | $237.69 | 3.82% | 4% |
| Cash | – | $1.00 | 517.69 | $517.69 | 8.32% | 0% |
Then, we calculate what we need to do to bring our portfolio back to our target allocation…
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference |
|---|---|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | 40% | $25.85 | $2,300.65 | $2,488.20 | 89 | 96.3 | 7.3 |
| Canadian Index | VCN | 20% | $31.18 | $1,122.48 | $1,244.10 | 36 | 39.9 | 3.9 |
| US Index | VUN | 20% | $45.02 | $1,125.50 | $1,244.10 | 25 | 27.6 | 2.6 |
| EAFE Index | XEF | 16% | $30.55 | $916.50 | $995.28 | 30 | 32.6 | 2.6 |
| Emerging Markets | XEC | 4% | $26.41 | $237.69 | $248.82 | 9 | 9.4 | 0.4 |
| Cash | – | 0% | $1.00 | $517.69 | $0.00 | 517.69 | 0.0 | -517.7 |
And finally, we decide on our buy orders being careful not to go into margin…
| Asset | Ticker | Unit Price | Action | Fractional Units | Units | Proceeds |
|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | $25.85 | BUY | 7.3 | 7 | $180.95 |
| Canadian Index | VCN | $31.18 | BUY | 3.9 | 4 | $124.72 |
| US Index | VUN | $45.02 | BUY | 2.6 | 3 | $135.06 |
| EAFE Index | XEF | $30.55 | BUY | 2.6 | 2 | $61.10 |
| Emerging Markets | XEC | $26.41 | BUY | 0.4 | 0 | $0.00 |
| Total | $501.83 |
American Portfolio
Similarly, for our American readers, we start by taking a look at our current portfolio including cash contributions…
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Bonds | BND | $81.73 | 28 | $2,288.44 | 36.91% | 40% |
| US Index | VTI | $122.02 | 14 | $1,708.28 | 27.56% | 30% |
| International Index | VEU | $50.00 | 33 | $1,650.00 | 26.62% | 30% |
| Cash | – | $1.00 | 552.72 | $552.72 | 8.92% | 0% |
We figure out how to rebalance our way back on target…
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference | |
|---|---|---|---|---|---|---|---|---|---|
| Bonds | BND | 40% | $81.73 | $2,288.44 | $2,479.78 | 28 | 30.3 | 2.3 | |
| US Index | VTI | 30% | $122.02 | $1,708.28 | $1,859.83 | 14 | 15.2 | 1.2 | |
| International Index | VEU | 30% | $50.00 | $1,650.00 | $1,859.83 | 33 | 37.2 | 4.2 | |
| Cash | – | 0% | $1.00 | $552.72 | $0.00 | 552.72 | 0.0 | -552.7 |
And finally, we figure out what our orders need to look like…
| Asset | Ticker | Unit Price | Action | Fractional Units | Units | Proceeds |
|---|---|---|---|---|---|---|
| Bonds | BND | $81.73 | BUY | 2.3 | 2 | $163.46 |
| US Index | VTI | $122.02 | BUY | 1.2 | 1 | $122.02 |
| International Index | VEU | $50.00 | BUY | 4.2 | 4 | $200.00 |
| Total | $485.48 |
And we are done! See you next week, everyone!
Update: Wow, it looks like today’s buy coincided with a triple digit loss on the US markets as Wall Street is digesting possible impeachment talks about President Trump. Guess I know what I’m talking about next week…
Continue onto the next article!
WORKSHOP TOOLS
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Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.
I wholeheartedly agree that chasing the stock market is a futile activity. Mental images of dogs and cats chasing their own tails come to mind. However, I don’t advocate for leaving a portfolio to fend for itself for years on end either. How often (let’s say per year) do you guys look at your investment elections and possibly change them?
I recently checked on my 401(k) elections and noticed that one of my index funds underperformed on a YTD basis while an index fund covering emerging markets was producing returns of +10%. I switched those two investments to take advantage of the gains and ensure that one underperforming fund doesn’t drag down the rest of the portfolio.
Your comment is ironic because it is doing exactly what you say is a futile activity in your opening sentence. You know buying winning stocks and selling losers is the same thing as trying to time the market, right? In fact, it is the complete opposite of what an index investing strategy is.
You are selling your under performing stock because right now it’s not doing as well as this shiny emerging market stock. So you’ve completely changed your portfolio allocation because one index is performing better than your current index. If you do this every time another index is performing better, you will be constantly in the tailwind and only catching the end of a surging market but you will bear the brunt of a declining market.
What will you do when the economy weakens and emerging markets gets crushed (which is what always happens in a downtown)? Sell your emerging markets and buy the safer US equity? Again, this is timing the market.
Do you know the entire premise of rebalancing a portfolio is to SELL your winning stocks and BUY your losing stocks? You are doing the complete opposite of every sound index investing philosophy out there by selling your losers and buying winners.
I do advocate long-term tweaks to a portfolio to an extent, for example I am considering moving out of my unhedged VUN ETF as it won’t perform well when the CAD strengthens, which it will do eventually but it might take another year or two. Just as I might advocate buying more stocks during a market crash as you are bound to benefit during the upswing. However, chasing profitable ETF’s jsut because yours isn’t performing as well as another is a good way to experience lower returns.
There is always going to be an ETF performing better than the ones you have, does this mean you will always sell yours and buy the one doing well?
You are making several assumptions. One, that I will change my index fund elections again soon, and so on and so on. Well, that’s not happening. And two, that one move changed my entire portfolio. Any diversified portfolio has more than one or two elections. The point is that every election you make will not be a good one for ten / twenty / … years to come. So back to my original question, how often do you guys look at your investment elections and possibly change them (not assuming that one should change them every month or so lol)?
Well let’s see, there are a couple of traits an index investor typically has to succeed, namely they aren’t emotional investors, and they generally select an acceptable allocation that will provide certain returns and maintain it forever. Your comment above displayed you have neither of these:
1) You’re emotional and don’t like seeing other funds doing better than yours, even if that is a very high risk fund (which emerging markets is). This tells me you will also be emotional during a major correction, which again is great way to lose money.
2) You either don’t stick to your allocations or you didn’t set up a correct allocation to begin with based on your risk/reward profile. If you sell a fund to buy emerging markets to chase higher returns, you are exiting your current allocation to chase high risk gains.
Index investing is simple. Pick your allocation, rebalance periodically and stick with it forever regardless of what the market does. Don’t go chasing successful funds and don’t leave a fund that is performing poorly. Sure, you can tweak your holdings for long-term reasons though (like gradually moving from 60/40 to 70/30 if you want more returns).
To answer your question, don’t look at your investment elections and you won’t be tempted to move out of them. The less you know and do, the better you will perform. I never review how other ETF’s are performing against mine because I know my portfolio will return the % I want at the risk level I want, why does it matter what other ETF’s are doing?
“… stick with it forever..”
“… don’t look at your investment elections…”
There are two sides to gambling with your investments. One, looking at them and adjusting them too frequently. And two, never looking at them. If you are willing to make your elections and then float them out to sea without ever looking at them again, be my guest. But please don’t give that “advice” out to other people.
Lol, I guess you’ve never heard of JLCollins, you might want to give his book a read, it’s called “The Simple Path to Wealth”. Here’s his blog if you want to have a look: http://jlcollinsnh.com/stock-series/. Excellent advice throughout, none of which you follow (in fact you are laughing at it right now). I can summarize though, he basically says buy 1 ETF (two if you want less risk). Keep putting money in it forever. Never sell, never buy another ETF. You will be rich in 20+ years. The end.
“There are two sides to gambling with your investments” – This tells me all I need to know. To you it’s a gamble, to me it’s not. Have fun gambling, I’ll stick to index investing.
VB, spot on.
But to answer FM, your target allocation decisions should be made based on your risk tolerance and investment timeframe, not on day-to-day news stories. So for example, when you’re starting out you might be more aggressive (80/20). As you approach retirement you may shift to a more balanced allocation (60/40). And as short-term swings happen, you rebalance by selling assets that have overperformed and buying assets that have underperformed. But you don’t shift your target allocations based on near-term performance or news stories. As VB points out, this defeats the purpose of Index Investing.
So you sold low and bought high?
Hi W&F,
first of all thank you for sharing the knowledge with newbies like me and motivation stories along with that.
also heartful thanks for the response to my last week email and it made me finally pull the trigger.
I opened Qestrade account two days back and funded 10k to begin with.
Hope you get the referral (small contribution towards your efforts).
Now, I am caught between the allocation decision..being 45 and targeted to RE in 5 years…the stats showed me to go with 20-80 (If I remember correctly)…
But I am inclined toward 40-60 (assuming that I can with stand 25% down with out panic..have to see in reality how it works).
Also, i am wondering is there any easy way to calculate the no of units based the decided allocations without having much mathematical knowledge (not sure if quest trade will give me those numbers based on the allocations choosen)..
the third party tool provided was not supporting to Canadian investors..really appreciate if any one can point to the solution of my dilemma on numbers..
Once again..kudos to you all for the endless contributions.
Sure, no problem.
Your target allocation is something you have to decide for yourself but personally I’d go with higher equity allocation. I’m retired and I’m still 60% equity 40% fixed income, and that’s working out pretty well for me. The literature that suggests you go heavily into fixed income assumes you’re in you’re 60’s.
Thanks W,
I am at 45 and my target retirement will be by 50 years. My risk tolerance is less than 25%. which suggests to go for 40(equity)/60(bonds), but Based on the current all time high indexes, and adopting DCA for next 5 years..do you think 60(equity)/40(bonds) will be idle then?
Also, despite few times reading the allocation buy units article, I was not able to get it. (totally non-math). Is there a spreadsheet with the formulas which will give me the no of units every time I have to buy based on the current allocation and target allocation.
sorry, you area already spoon feeding us but some how the numbers look greek n latin 🙁
I hope some tool can reduce the headache..
Kindly give me the number of units for 60(equity)/40(bonds) for the 5 ETFs that you are buying..
Also, Is there a way to load my entire lumpsum in cash and earn some interest while I am buying 10k every month from this cash account?
Please ignore my previous reply as finally I figured out with my dumb brain about how to find the units for the target allocation via spread sheet.
I wish some tool can help us people like me to just punch in the target allocation, based on the current allocation fetched from Qesttrade account and gives the final numbers.
Regarding the other question…does the cash in questtrade account generates any interest like savings account in Banks?
As I opted for DCA rather than investing the lumpsum, I wanted to bring all the funds into questtrade and invest as per your buy cycle.
If not, then I should keep it in my CIBC savings account (which is surprisingly giving 1.75% interest) and make automatic paybil to quest trade few days before your buy cycle..
Once again, sorry for somany newbi questions..hope I get my basics cleared before I do the first buy.
So are you saying Amazon.com Inc will not keep going up to at least $1200000 a share, with a PE ratio of 4804755000 ?
If so, you’re walking a lonely road, my friend.
Ha. You know it’s funny you mention Amazon, for the longest time I never understood how a company like that could trade on the stock market. It wasn’t even profitable for the longest time! I remember looking it up and seeing a PE ratio of “N/A”. Even now, it has a PE ratio of 178, indicating an earnings yield of 0.5%. I could make more money in a savings account! Why are people touching this thing?!?
Hey Wanderer, what it’s your opinion about re-balancing a portfolio w/ new money instead of selling anything. Does that affects the overall results? Do you guys do that?
It looks like the Investment Workshop series is already set up to rebalance with new money, as Wanderer calculates the purchase lots for each fund based on the difference between the current allocation and the target allocation. See tables 2 and 3 for the Canadian and American portfolios.
I can’t speak for the author, but I would expect slightly better long-term results from rebalancing by adding new money, as it both increases the size of your total portfolio and reduces your early capital gains tax liability (assuming you are investing in a taxable account).
Note that for very large portfolios or big swings in fund prices, the lump sum needed to rebalance may be larger than you have on hand, requiring the sale of a few shares in addition to the new purchases. I would caution against using any cash already set aside for other purposes (such as your emergency fund). You only want to be investing money that you won’t need for a few years at least.
Right. When I say “rebalancing” I just mean buying/selling stuff until it goes back to your target allocations. When you add new money, you naturally shift your allocation to be over-allocated cash and under-allocated everything else, so you “sell” cash and “buy” ETFs.
When you’re still working and accumulating, you tend to rebalance only with buys because you’re continuously adding new money. After you retire like us, rebalancing involves both sells and buys, but the process is exactly the same. I just chose to demonstrate an accumulating portfolio for the Workshop because that’s what most people who are reading this blog need to learn how to do.
That’s the best way to re-balance as it doesn’t involve any selling fees. I re-balance every month by adding new cash and buying the losing ETF’s.
You can’t do this forever though as the larger your portfolio gets, the harder it gets to re-balance using new money since a slight change in the market is a big change to your portfolio.
A 2% swing in a $100,000 portfolio can be corrected with $2,000. a 2% swing in a $1,000,000 portfolio needs $20,000 to correct it…You’re going to have to start selling when your portfolio is that large (unless you can invest $20,000 of course)
When I read the title of this thread my immediate thought was: Who Cares? You don’t stop investing whether there is a bubble or not….of course that was your answer, but unfortunately I think the emotion of things gets the better of people.
I wish we were in a bubble and I wish the bubble would hurry and explode haha. I’m really hoping to find myself in a position where I can take out an investment loan after a market crash and take advantage of the massive upswing. Here’s a little factoid you might find interesting:
Based on the S&P, if you buy an ETF after a year in which the index fell 10 per cent or more, the average gain was 20.8 per cent. If you buy the year after the market dropped more than 20 per cent, the average gain in the next year was 28 per cent. Dayum! I’m not too tempted by mortgages but an investment loan looks extremely tempting the year after a market crash. Not sure I’d have the cojones to actually take out a loan to invest during a market crash though.
Also, it’s far better for a bubble to burst at the beginning of your investment cycle than towards the end, so the sooner the better for me!
In theory that makes sense, but do you remember how scared people were during 2008? I don’t think anyone would have given you an investment loan during that time period.
True, in all honesty I don’t remember 2008 too well as I didn’t really care about financial markets during that time (I was 19). I wouldn’t be sure I would be comfortable to use an investment loan at all until the markets started getting better, at which point it might not be as advantageous.
I don’t know much about how market crashes affect the loan industry though. Would it be significantly harder to get a loan during this period, even with excellent credit? Part of me thinks banks would want to give out loans to stimulate the economy, but perhaps not.
Great story on Sir Issac Newton, the man many consider the smartest to have ever lived. Of course, there is still time for a full review of you, Wanderer. 😉
But this post is a step and now an addendum on my last here: http://jlcollinsnh.com/2017/04/14/sell-sell-sell-sell/
Ha! Awesome!
And incidentally, for some reason whenever I say something that sounds smart (it’s not deliberate, I swear), someone invariably brings up The Simple Path To Wealth in the comments.
Since you have previously mentioned “the Bearded one” what is your opinion of his inclusion of preferred etfs and over weighting American index etfs. I see you follow the couch potato. personally I have ZAG and ZPR as income with VCN and XAW for growth.
No REITS or High Yeild. You have done a great job here. I recommend your blog to all my young friends.
Preferred ETFs (and other higher-yielding assets like REITs) make sense for people seeking higher yield like me, so I like them. However, for people just starting out and a decade away from retirement, it doesn’t make as much sense to trade off longer-term total gains for shorter-term yield (plus, it’s less tax efficient anyway). That’s why I don’t use them for the Workshop since it’s meant to teach people who are just starting out with investing, while I use preferreds myself since I’m retired.
As for Garth’s overweight on US, he has a saying “Never bet against the US.” Jury’s still out on whether he’s going to be right, but his “overweight” is like 3% yoinked from Canada and put towards US, so he’s taking a position but not an overly dramatic one.
Great post. I think this article highlights the need to choose an asset allocation that will keep you sleeping at night. If the market were to suddenly drop 30% would to panic and sell? Would to then sit on the sidelines and wait to jump back in as the market recovers? Hopefully not, as that is a sure way to lose money. Pick an asset allocation that keeps you from getting too emotional to help you avoid this mistake. For those who are less experienced indexers, you may find this short primer helpful:
http://www.realsimplefi.com/financial-independence-wise-investing/
Well that might work for some but today I sold all my VTSAX. I am a technical analyst and charts are telling me today was an ignition bar….Sell in May and go away applies. See you guys back in October where I buy it back.
Good luck and Godspeed, sir. We’ll see you on the other side.
Ignition bar, death cross, head-and-shoulders. I know you’re being sarcastic, but have you ever actually stared at a stock chart and tried to find these patterns? If I tried hard enough, I could find every single technical indicator depending on how hard I squinted my head and zoomed in the viewer. That stuff seems like black magic to me.
Meh…
Your fear on stocks as a bubble is exactly right. Hence you can invest in stocks only with other other earning possibility as a support. This will lift you when the bubble is out. 🙂
That’s what fixed income is for.
As much as I don’t really want to see the markets tanking, the timing might be perfect for us since we are 3 years from retirement and are ramping up our savings by putting 25-35% of each paycheck into our investment accounts.
By the time we’re finally free, we will have bought low and will be ready for the next bull market.
That’s actually the best way, but it feels just so wrong to shovel money into a falling market doesn’t it? I cut my teeth in investing in 2008, and that was not so fun. Hopefully we won’t see anything that dramatic for awhile.
This looks pretty good! 🙂 Dollar cost averaging, the occasional rebalancing of your index funds via your chosen percentage mix of bonds, American, Canadian, Shenzhen Composite (399106), HSI, International Market, Cash or whatever you play with …. seems to be the safest LONG term bet … though there will always be short term silliness and mayhem in the markets… add to that a few side gigs like a part-time job and/or bizness …. maybe a few rental properties (if that is your cup of tea) …and you will cover your bottom? …as best as can be hoped for … it seems the top investing geniuses of the last 100 years basically agree with this …… aka Warren Buffett and John Bogle ….. it is interesting that John Bogle sees lower returns in aggregate (3-4%) over the next decadish …. so low cost index funds with side gigs will be important probably over the next little while … God Bless, Beijing, China 🙂
I always like to ask the question, “Where does your money come from?”
From the market or from the business itself? Once you know the difference between the two, bubbles become much easier to predict and deal with.
That, plus a proper understanding of risk premium against risk free yields, will help any investor pay a proper price.
Hi all,
My personal take is that it is better to remain in the market at all times. One will continue earning dividend along the way. Effect of compounding will settle all the issues.
Ben
Balancing with a Fixed Income from other sources:
In the not too distant future we’ll have income from our work Defined Benefit Pension Plans. This income is indexed and will cover 50% of our annual needs. Although the amount drawn from our investments will reduce by 50%, we still need to draw 4% from 100% of what will have left in our investments to cover the other 50% i.e. $40K from the DB Plans + $20K from investments of $500K.
So, to the question: Should the $500K investment include a significant (40% or greater) Fixed Income component, or will the DB Plans count as Fixed Income for the entire investment?
I guess the same question will come up once various government pensions start paying out.
Thank you so much for the work you’ve put into this Workshop, it’s really appreciated.