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No need to end in cash, you can stay invested
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Off topic / Re: Question re FIRE future returns
« on: December 02, 2019, 08:17:46 am »
Hey Bevan,
I'm not terribly concerned. I think the world is making a lot of progress in addressing poverty, and still managing lots of growth. My bigger concern is that the growth has been higher than the fundamentals would indicate it should be.
Just FYI, the world as a whole has been making amazing progress on ending poverty over the last few years, and I expect it'll continue to improve over time:
https://ourworldindata.org/grapher/world-population-in-extreme-poverty-absolute
As to the main question, what sort of growth do we need to maintain a withdrawal of 4%? A quick excel should show that the simple answer would be inflation + 4% growth: https://docs.google.com/spreadsheets/d/1XBK7V7VKA_V5iL7ZIVJvdOBcMlEP1YzuhD6dByIQMEA/edit?usp=sharing
The more complex answer would be inflation + 4% + enough to take care of taxes, fees, costs and more taxes! It's hard to figure out how much that would be, but I imagine adding another 1% would be enough, so my guess is inflation + 5%!
The other problem is that growth isn't linear and predictable. I wish it was, it would make life so much simpler to predict, so on top of the growth number I also fee you've got to build in some flexibility, kind of in the way I spoke about in my 5% drawdown without fail blog post: https://investorchallenge.co.za/the-5-rule-that-has-never-failed/
I'm not terribly concerned. I think the world is making a lot of progress in addressing poverty, and still managing lots of growth. My bigger concern is that the growth has been higher than the fundamentals would indicate it should be.
Just FYI, the world as a whole has been making amazing progress on ending poverty over the last few years, and I expect it'll continue to improve over time:
https://ourworldindata.org/grapher/world-population-in-extreme-poverty-absolute
As to the main question, what sort of growth do we need to maintain a withdrawal of 4%? A quick excel should show that the simple answer would be inflation + 4% growth: https://docs.google.com/spreadsheets/d/1XBK7V7VKA_V5iL7ZIVJvdOBcMlEP1YzuhD6dByIQMEA/edit?usp=sharing
The more complex answer would be inflation + 4% + enough to take care of taxes, fees, costs and more taxes! It's hard to figure out how much that would be, but I imagine adding another 1% would be enough, so my guess is inflation + 5%!
The other problem is that growth isn't linear and predictable. I wish it was, it would make life so much simpler to predict, so on top of the growth number I also fee you've got to build in some flexibility, kind of in the way I spoke about in my 5% drawdown without fail blog post: https://investorchallenge.co.za/the-5-rule-that-has-never-failed/