And it is continuing to move down that road. Just today Trump has made new trade deals with Japan and South Korea (after being gifted a gold medal and crown). The deals include $550 billion of investment in the US from Japan.
As to where the investments go, “The actual deciding will be done by the White House.”
This is not normally how private investment decisions are made.
“This is totally unprecedented,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. “It’s a venture into state capitalism. You could say it’s Chinese capitalism with American characteristics.”
I think the original OP wanted to keep this as apolitical as possible. It is not possible.
This looks to me like a parallel budget, paid by extorted from foreign governments via guaranties for private companies that act as a fig leaf for the foreign governments themselves. It is very worrying that the whole parallel budget (850 billion US$, but for how many years? Will it be renewabe?) is at the discretion of a single person, and that this person is trump, ie a moron. I see no mechanism for Congress oversight. The possibilities for corruption, embezzelment and theft are endless. It will also send false economic signals and reduce incentives for competitiveness and R+D. It could lead to a variant of the Dutch Disease where the problem is not too much natural ressources, but too much government money. It will not be worth the effort for companies to invest and produce, the most lucrative strategy is to bribe the president.
I think the article is too optimistic. When they write at the end:
Whether this works or not, we won’t know for many years.
I fear we will know sooner. But until then that money will help trump conceal the cracks in his economic policy (I use this word loosely), sending additional false signals out.
No, this does not make investment decisions in the USA easier. Not for me, anyway. But I have reduced my investments in the USA to the lowest level ever already. There is not much left to move out. Unfortunately, the false signals will also affect the RoW.
I know I kind of swore off American stocks but I’ve been thinking of buying google which I think is irrationally undervalued. It’s a tech giant with a 28 PE which is basically the average of the S&P 500. Google is basically fully integrated into our lives and has steady revenue and growth and it really makes no sense for the stock to be so cheap. Of course, whatever irrational (?) factors keeping google’s value low might keep it low next year or the year after that, so I can’t say for sure it’s guaranteed for growth, but it seems like a bizarrely undervalued stock and even if the AI bubble bursts that might make people realize how valuable google’s services are even without any sort of AI. I don’t know. It just seems like it has been consistently undervalued for what it is for a few months now. It’s a blue chip stock AND a tech stock and completely integrated into our lives and they’re always trying out new products and sectors, how can it not have some sort of P/E premium to it? It seems hard to imagine a future no matter what bubble bursts that google isn’t a huge part of.
Also, I don’t think I would own meta stock for ethical reasons but it seems like it’s down for no good reason. Their earning numbers are good. If you wanted to get in on that stock now would be the time.
On the other hand – the mag 7 stocks have driven almost all the growth in the economy over the last few years. Could that, alone, mean that they’re going to have to burst at some point?
An argument against - if AI delivers then their ubiquity may be challenged by new tools that are not the leaders in; if there is an AI bubble burst then they get pulled down with a run from big tech.
Regarding the valuation of Google, it’s a lot more than just search. YouTube, for example, is huge, perhaps the largest streaming service with an estimated valuation of $500 billion. Android gets about $48 billion in app revenues. And so forth. Google might be one of those companies that’s worth less than the value of its various businesses.
Under the current non-standard situation in the USA, almost any discussion of risk has the large wildcard that history and historical statistics may be utterly upended by cataclysmic change. But if we assume aside most of those dire possibilities, the info in the article is generally good news for many of us of standard Doper age.
Interesting article, but they don’t mention the most relevant part of retirement calculation: what amount do you start with? If you start with one hundred million it would suck to lose 50% on the first year, but it should not be life threatening. OTOH should you start with only 100,000 US$ you would probably soon run out of money, even if you avoided losses on your portfolio for the first ten years.
It seems interesting that according to the third graph in the article the fourth return quintile, with an average return rate of 11,9%, had a better failure rate of only 1% than the best return quintile, with an average return rate of 18.5%. They had a failure rate of 2%. Looks like a rounding artifact at first glance, still bizarre.
One of my frustrations with the various advisers, articles, etc. around retirement planning is this idea that you need to leave the principal alone. That’s how you get these rules of 4% and such.
Look, if someone wants to die on a pile, for whatever reason, good for them. But when I model my retirement, I’m planning a 75% drawdown, with the remaining 25% being the buffer (recession, live longer than I expect, etc). For some reason, conventional wisdom doesn’t like that.
Now, I’ve been a good boy and it looks like I probably won’t spend my principal if we get normal market returns. But in my perfect world, the month after the second of us dies, the checks start bouncing.
That is a naive approach to immortality. Some people seem to think that if they never touch the principal they could live forever. Ah, to be able to see the surprise in their eyes the moment they kick the bucket!
Same here. When we die it goes to charity. I don’t have big ticket items on my bucket list other than some fancy travel, and 4% should be fine, but I don’t want to feel constrained about spending some principal. I wish I could figure out some hedge other than a high (er) yield cash account, but that seems to not really exist. We’re getting towards 8% cash up from 3%.
The topic of this article was simply “When does sequence of returns (“SoR”) risk largely subside?” Which is a pretty rare topic. You can find legions of articles on what SoR risk is, and how to mitigate it as someone approaching retirement age. But none of those that I have read do any sort of statistical treatment on when you can stop being configured to defeat SoR risk. Which is darn valuable info.
As to the general question of how much is enough, it greatly depends on your expectations. Somebody used to living in a singlewide in the boonies of Tennessee has very different retirement expectations than somebody used to multiple homes and private jets to travel between them. The latter may not be destitute with a mere $10M left to their name, but they’d sure feel devastated by it and would be trying to avoid that just as much as the singlewide dweller is trying to avoid starvation.
The gotcha is that between inflation and last yearish of life care expenses, somebody who starts retirement a little skoshy on principal can’t actually draw down much before their portfolio starts the death spiral where real quickly each month’s spend is 90% principal and 10% income. If that. BK follows quickly.
One solution for those folks is to plan to start the drawdown at e.g. age 95. The odds on living far enough beyond that to spend down even limited principal is pretty small.
Conversely, if your portfolio is so large that in a statistically normal return year you’re already spending less than the income and portfolio growth net of inflation and taxes, well, you’re going to die stupid rich unless you come up with some new expensive hobbies.
Here’s an article on that flip side of the “safe 4%” rule and similar. Dealing with the fact that if 4% is “safe” for principal preservation in the worst case, what does that result in for the average case, the better than average case, or the great case?
Here’s a perspective on using Monte Carlo differently than most advisors do that may be a lot more relevant to the more sophisticated retiree:
Lastly, if you want to model various drawdown plans yourself using Monte Carlo methods, I’m very happy with this planning tool:
Speaking for me, I’m a statistical corner case. But the concept behind my approach is to have a relatively low monthly “nut” compared to my portfolio average returns, then live very lavishly on top of that nut. Which lavishness I can stop all but instantly if something changes. Conceptually speaking: Live modestly, but rent the beachfront mansion with cook and masseuse when you travel. And travel 2 weeks a month.
However that “low nut + high discretionary” mix translates into your situation, it’s a resilient approach that permits a lot more than a 4% withdrawal rate in good times without saddling you with a bunch of financial boat anchors in bad times.
This has certainly generated good returns over the last 10 years, but each metric (YTD, 1 year, 3, 5, and 10 year annualized) shows that the returns are consistently about 1/2 of an S&P 500 index fund.
It’s meant as both an income source and as a hedge against S&P500 volatility. It underperforms SPX in good times, but overperforms a bunch in bad. And is not tightly correlated to SPX. Although nowadays damned near every investment of every description has more SPX correlation than we all might prefer.
In my portfolio it essentially performs the same function a Treasury bond ladder might, but with vastly better returns in normal or excellent times, still better returns in recessionary times, but probably somewhat worse returns in true Depression scenarios.
It’s also something I’ve moved into starting last year as a more defensive posture given US politics. I sure would not have held any of it at age 50 with normal US politics. That’s what SPX is was for before criminal trump showed up.
Which mix now mostly overall suits my risk appetite now as a 67yo.
As I’ve said in several posts, I’m still trying to find a decent non-US hedge against truly awful US cases. But I believe I’m fairly well set for a range of US outcomes from great down to bad but not catastrophic.
We’re fairly fortunate, as a childless couple. We’ve focused on our careers and spend less than half our income each month, saving the rest. What we spend now is what makes us happy- that is, we don’t have to deny ourselves things we want, but in part that’s because neither of us wants things like a BMW or a Benz. I drive a $29k 2019 Chevy Colorado and she drives a $32k 2021 Mazda 3. And we’ll drive them for a minimum of 10 years. And we’re like that with most things in life.
So I model for us to spend the same amount in retirement as we do now, and ignore social security (and adjusting for inflation, of course). In addition, I budget for two international trips per year because that’s the missus’ big ask in retirement. I’ve resisted a lot of vacation travel because I do so much of it for work, but once I’m retired I think I’ll have a better attitude about it.
Right now, at a 5% annual return, the money runs out in 61 years. At A 6% return I continue to grow my principal. Obviously that assumes I don’t retire and we enter a bear market the next day, so I will probably work another 3-ish years and she another 6-ish, which should pump things up enough to withstand such an event. Assuming we haven’t gone full CHUD by then.
That is the core design assumption of Maxifi: live the same inflation-corrected $ lifestyle every year from midlife through end of life. Adjust how much you save now and how much you spend later to get the biggest possible constant lifestyle out of your total lifetime supply of wage income while working and portfolio income once not working.
You’re probably over-saving now. Which is not an awful thing if you’re truly happy living as you do.
ETA: OTOH, I’ve found it’s not that hard to learn to substitute e.g. Outback or Longhorn for Golden Corral if that’s what you’re used to. Or e.g. Mortons for Longhorn if that’s what you’re used to.
And maybe worth mentioning, we’re in a very expensive area (suburban Boston), but once we retire we plan to head back up north. Unless a lot changes, that will leave us with a paid for house and a few bucks left over.
I’ll give it a look, thanks. I notice in the sector breakdown that it is still about 32% technology, but that’s a lot less than the S&P. And as the fed seems to be shifting towards lower rates the 4.57% yield is starting to look a bit more attractive, especially as the dividend has been pretty consistent over a long period.
