4 thoughts on “My September 2018 quarterly portfolio review is posted”

  1. Michael

    Thanks for sharing your September portfolio review. You also made a great presentation last Tuesday, things make more sense to me now that i understand the history of the fantasy portfolios.

    I was thinking about your household portfolio the other day while walking my dog. There was something about it that bugged me and that i could not put my fingers on but it finally came to me. I was going to write you earlier but i knew that your review was coming up and it made more sense to mention it now. Actually, i think you may have stumbled upon it yourself by the reference to a change in your expected returns.

    This is basically an exercise in math comment in where your self imposed total portfolio target of 7 % is over ambitious. The problem lies in the non equity side of your portfolio, in that these assets are simply not returning enough and your equity side has to over-perform to make your target. You have 32 % in bonds, 10% gold and 8.5% cash all returning maybe 4 percent per annum combined, assuming gold is returning its average and that you ignore paper losses on bonds. To achieve 7% in total, where you have roughly a 50/50 fixed income equity split requires the equity side to average 10 percent. So now your 4% fixed return plus your 10 % equity return equals 14% divided by 2 equals 7%, your target.

    Your equity positions basically needs to out perform the market longterm average by about a point or two every year in order to satisfy your target. This is extremely difficult to achieve consistently even for the best investor. The target maybe easier to achieve in a high rate environment but you would likely have higher inflation for which we would have to make “real return adjustments” and its uncertain if your real return objectives would be satisfied or not.

    The idea of lowering your return expectation as you referenced is a valid approach, but this has huge effect on your retirement calculations. As an example, if you originally wanted to retire with 2 million dollars returning 7 % and a draw down of 4-5 percent, a move to 4.5% target return, all things being equal, would require a 3.1 million dollars. I don’t know too many people in the last few years before retirement that can come up with a spare million. Alternatively to balance the math, you could substantially lower the draw down, or increase the target by increasing the number of higher returning assets, or keep working longer, maybe a combination?

    Am i seeing this correctly? Maybe my assumptions are wrong? I don’t have all the data admittedly, so please correct me if i am wrong.

    Again, i thank you for making your portfolio public, it takes allot of courage to put it all out there.


    1. Hi Raven,

      Your math is pretty sound. It was in the back of my mind that I would have to adjust expected returns downwards as the retirement glide path kicks-in; I’ve started to do that. A combination approach most closely matches what I am considering moving forward but there are other personal factors that I’ve not broadcasted that are involved. So while my portfolio and plan is public, due to some sensitivities involved, not all of my personal situation is.

      I’ve been spending a fair bit of time running scenarios through Steven Brown’s Retirement Forecaster to see how things might play out (found on Brad’s page here: https://money4retirement.ca/brads-page/). It is a useful tool for planning. One conclusion is I will likely work part-time for a while longer….

      Thanks for dropping by and commenting.


      1. Michael,

        The glide into retirement is never a smooth landing, nor is it what you would expect. For the most part i kept my investing approach the same, but the lifestyle aspect had to be entirely re-written. Gone are the big house, sports cars, euro vacations, eating out on a regular basis etc…. i really dont miss it, as i filled my time with less expensive and more meaningful activities and things. Simple in concept, but complicated as we humans generally get use to a certain level of lifestyle and have difficulties even contemplating adjustments downwards. It gets more complicated with personal factors as you mentioned, many people in retirement are still paying for mortgages, financial responsibilities toward adult children, health issues, and my favorites…second girlfriends and gambling. All noble expenses, and often unavoidable.

        The above coupled with the unrealistic return expectations of most small investors is a big problem. Most think that they can out perform the market on an ongoing basis. This is a cognitive error based on over confidence. It took me 2 decades for me to consistently beat the market ever so slightly. It seems easy to me now, but the path to get there had huge costs, and does not necessarily mean i will continue doing so in the future. I am constantly advising people to put most of their money into a market ETF and keep a small hobby portfolio for themselves. The reality is that most people are not willing to put the necessary time, effort and most importantly dicipline to achieve decent returns.

        Somehow we have to balance the equation of expected return on our retirement portfolios with future retirement lifestyle expenses. Its really not easy. I actually started a part time small business right after retirement because i was uncertain that i had the retirement income to finance my reduced lifestyle. I was obviously over cautious, and quit only 4 months later when it was clear that my anual allowance was enough to support the new lifestyle.

        Transitioning to retirement for me,was not easy. No one that i ever came across had a global view of what is involved…..the financials, physical health, mental health etc…. As much as i am past all this, I would suggest that it could be beneficial for pre retirement members to have a speaker on any of these transition areas of retirement.

        Thank you again for your post. I hope you find the right balance as you glide in.


        1. Hi Raven,

          So far in my case the transition hasn’t been too bad. I’ve started reducing regular hours at work (more so this year than last) and taking even more time off for vacations. I am very, very fortunate to have an employment situation that allows me to do this. I don’t have to go from full-time to nothing – at least not yet! That would be much harder I think.

          With regards to lifestyle changes, I respect whatever choices you have made. If they work for you, they are great choices. In my case, I have a serious travel bug and have a lengthy list of places on this planet I’d like to see if I can. So that motivates me to keep income a little higher than would otherwise be the case. While our household is generally pretty frugal with day to day things, we do enjoy our lifestyle. The balance in my case involves me working a bit longer, but I know a lot of the money I’m making is going to pay for fun experiences and adventures. There are also some charities we sponsor (modestly) that I wish to continue working with. So that is another purpose for working a bit more.

          To your point about beating the market, I think for most people having a core ETF portfolio with a small hobby portfolio makes a lot of sense. It takes a lot of time and effort, and yes, discipline, to be a portfolio manager – even if the portfolio is only household sized. If most of the investing is passive, the hobby portfolio can also become a training ground. Some may refer to this as a form of “core and explore” portfolio.

          I fully agree there are many implications to retiring and not all, perhaps not even the most important ones, are financial. I also agree these topics would make for interesting speaker presentations. If you ever encounter someone that might fit the bill please let me know.

          I had a bit of an epiphany a couple of months ago after a friend I was very close to, and required a lot my time due to illness, passed away. I realized suddenly, and quite clearly, a lot about what I want to do with the rest of my life. It’s not that I hadn’t thought about it before. It’s just the passing triggered me to focus on making some big decisions. So, a little more work and a lot more fun is in the cards should fate agree.

          Cheers, Michael

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