If you retired in 1988 and died in 2018 This would have been your S&P 500 SOR. Bold is negative returns. Only 6 years in the last 30 were down years! In a 1988 retirement you didn’t experience a bad SOR till 12 years into retirement, just one small loss near the beginning. The average 30 yr reinvested return was 10.012% Not bad!

Here is a retirement in 1998 now 20 years old. It’s average return is 5.86% and 5 down years. Notice the negative SOR is bunched up early.

Here is a 19 year retirement beginning Dec 1999. it’s average return is 5.09% and 5 down years.

And here is a 18 year old retirement with a 5.735 return and 5 down years.

Notice how the worst return starts the year BEFORE for bad SORR. 1999 the year before the dot com bust was the worst year in the past 30 years to retire. The next year (2000) the year of the actual bust was better.

Get ready FIRE crowd!

This is a 2008 retirement!

This 10 years yielded a whopping 13.654% annual return and 2 down years.

One year later only 11.967% return, and only 1 down year.

The thing to note NONE of these includes withdrawal of any money, It’s just what would have happened to the portfolio had you filled up the portfolio on the so called year of retirement and let it ride adding no more money, nor subtracting money. Look at the variability WRT to when retirement started and when the bad SOR started in the sequence. It makes a huge difference in income and portfolio viability. Also it points out the red herring of the FIRE movement which came of age during good SOR. It’s hard not to become a Johnny come lately millionaire if you’re making 13%.

I read a recent article on Bucket portfolios by Swedroe, extremely interesting. The paper contains a discussion of techniques to prolong portfolio longevity based on AA optimization in the face of SOR. You have to drill down to the PDF files cited to get the full discussion. The upshot is the bucket portfolio destroys end of life portfolio value based on it’s constant withdrawal of higher risk assets into a risk free asset which earns virtually nothing. A risk free asset is also a return free asset or may even loose some money due to inflation. What the study found on the average the optimum portfolio is a 60/40 portfolio. It beats the bucket because it is properly risked. It also shows people running 80/20 portfolio are suboptimal. It discusses the creation of a metric that looks at half the SD, the downward pushing half, which is the half that drives you into failure. It’s more complicated than I want to write about but I agree with the concept. I’ve been brewing a scheme for a couple years that combats SOR early in retirement. It allows re-sequencing the higher risk portfolio (say the 60/40 portfolio which seems to be optimal) to a more favorable sequence by providing a respite to 60/40 withdrawal from a fund different fund that is the efficient frontier tangent fund. The EF tangent is the balance point of risk and reward, the point where your reward costs the least risk. It has a bit more risk that risk free but also has the propensity to grow. The tangent portfolio of a S&P 500/Short term treasury fund is 20/80 with an expected 6% return. So if you put $500K in a tangent $400K is risk free and 100K is risked optimally. If the market drops 50% the next year (which we saw was worst case). Your tangent would drop $50K in the stocks leaving $450K available, only a 10% dent. You would start living off tangent money and leave the 60/40 closed to withdrawal except for re-balancing. If you go 2 years with no bad SOR the tangent will grow to 561K. Extract 61K and use it to add to the 60/40 by withdrawing less and re-balance the tangent. In other words for the third year of retirement at 100K/yr withdrawal pull 61K out of the tangent and 39K from the 60/40. This effectively donates 61K to the portfolio and you are 3 years into retirement. Do the same at 5 years except donate 100K to the portfolio by removing no money from the 60/40 that year and 100K from the tangent. Re-balance everything. You are now 6 years into retirement. If bad times come close the 60/40 and live off the tangent. If not continue to dollar cost average into the 60/40 by modulating the wealth transfer from the tangent into the 60/40. Since the hit from a SOR is most deadly early you need SOR re-sequence insurance early. As time goes on the portfolio becomes less susceptible to SOR. Eventually the tangent WILL run out of money which means it did its job. There is no need to refill the tangent since the tangent’s job is to refuel your portfolio not act as a drag as in the bucket method. In this case the tangent acts as a supercharger by limiting SORR.

I haven’t worked out the details so the money injections into the 60/40 are my guesstimates and not quantitative. I did do some preliminary work on AA and portfolio SOR risk and it turns out There is a definite danger in excess risk if you draw a bad SOR. On about the 20% SOR line a 80/20 portfolio does much worse and fails much more often than a 50/50 or a 20/80 for the same WR using a total stock/total bond portfolio.

Lotta stuff to think about in this post. In the end low WR big, nest egg and a couple pool’s of variable risk and a plan is a good thing. Early retirement in the context of unusually high rate of return (good SOR) regression to the mean plenty of threads to pull on

Emergency Money

There are all kinds of schemes to have some money on hand just in case in retirement. They range from 5 years of cash on hand to “just use credit cards and leave the emergency money invested. I think in retirement the “just use credit cards” ploy is stupid. When you have a W2 it’s might be an OK plan. Enjoining leverage at 19% is the last thing I would want to do in an emergency, penny wise pound foolish. You incur the full market risk of your portfolio and add a 19% loan on top. But then a big wad of cash is a slow drag on your net worth because of inflation. $1000 @ -2% is worth $800 in 10 years. So whats a mother to do? How about employ the efficient frontier? The tangent portfolio on efficient frontier is the portfolio that provided the most return for the least risk.

This is the efficient frontier of total US stocks v short term treasury. It has an expected return of 7.11% over a 40 year period with only a 3.97% risk. Why would you choose this for your safe emergency money? Most FIRE types are way over risked. They’re all running 80/20 portfolios. In an 80/20 portfolio if stocks drop in half that 80% goes to 40% and you go from rich to poor as you are down to 60% of what you were. In a 20/80 portfolio if the stock market drops 50% you go down 10% and therefore are at 90% of your previous glory. Numerically say you have $500K in a rainy day fund $400K in short term treasury and $100K in total stocks. If the market drops in half like in 2008, you have $400K in treasuries and $50K in stocks, barely a dent. The value of your emergency is effectively maintained.

Let’s say you don’t use your emergency money for 10 years.

Your emergency money grows to close to 1M on the average. Yea but what about inflation you say.

Even with lousy 10% SOR you’re still money ahead inflation adjusted. Just from inflation you would expect your $500K to be worth $400K if you were in cash. This analysis assumes re-balancing to keep the fund at 20/80. If you recall the 1973 recession it looked something like this:

You’ve all seen this picture, it’s from FIREcalc. This is the SOR if you retired in 1973 (red), 1974 (blue) or 1975 (green). In a 73 retirement you were out of money in 20 years. In a 75 retirement you were worth double. 2 years mattered. If you had the emergency fund you could easily live off the emergency fund for 2 (or 5) years while the market recovered effectively indexing your retirement from a 1973 loser to a 1975 winner. Can’t do that with a credit card. It turns out in my analysis you would only need to use this money once to save your portfolio. The graph also informs you a bad SOR still lasted 20 years, one year of indexing to a 74 retirement lasted all 30 but lost some and a 2 year indexing lasted all 30 and doubled, so the risk is early and takes a while to manifest but the manifestation is relentless. 10 years into your retirement you can probably begin small withdrawals from your “emergency money” to supplement your income if you don’t need it to save your bacon, and still keep a nice pot around “just in case”.

I was alive and kicking in 73 and my first year of investing was 75. I remember it. Retired people were freaked out. People talk a big game about their risk tolerance. I’ve lived through and remember 1960, 65, 73, 80, 87, 93, 2000 and so on and so on. One thing is for sure if you whip it out someone is going to cut it off. A little cash in an emergency fund tangent portfolio is just the ticket against the castration of too much bravado.

It’s All Speculation Don’t Kid Yourself

Everybody has a strategy. Some people call themselves investors and look down their noses at at people they call “speculators”. Speculators look down their noses at commodities traders like those ex-football jokers on CNBC with the pony tails. Those guys look down their noses at the Vegas card counters they call gamblers. My favorite lottery game is going out of business. It’s a game that has 3M:1 odds so for 3 bux you have a million to one shot. I usually spend 2 bux because the real odds are nearly zero and as the game progresses without a winner the excess the prize money of the lower payout more likely wins grows. This week I’m playing 4 chances for free on winnings from previously won payouts so my odds are 750K to 1, still effectively zero. The next higher up odds are lotto at 22M:1 but I haven’t bought into that so my risk tolerance is somewhere between 1M:1 and 22M:1.

My wife looked into scratch-off games and found web sites devoted to scratch-off strategies devoted to changing the odds. These strategies are quite similar to card counting and betting strategies used in Vegas. I didn’t know anything about them till she mentioned them to me. She was considering to get my kids some scratch-offs for stocking stuffers at Christmas and decided to teach herself about scratch-offs. In the end she didn’t buy any because if one kid won $100 and the other kid didn’t win the non winner would feel gypped and who needs that headache. My wife is smart. I would have just bought the tix and stuffed ’em in the sox next to the Christmas tree snickers. The correct trick would be to buy each kid a an entire roll of scratch-offs since each roll is pretty much guaranteed to have winners, and the fun is in being a winner but then the kids might have to go to gamblers anon if they had too much fun.

Doesn’t this narrative sound like a FIRE narrative? The investor considers himself quite wise investing only in blue chip stocks like wait for it: GE and SHLD better known as General Electric and Sears. Remember Blockbuster? Replaced by something that looks like a red industrial refrigerator and Netflix. Bet you’re glad you don’t own any Blockbuster! What about AAPL? People have made a fetish about owning iPhones and AAPL reaped the profits hitting $227 last Aug but $150 today in a roaring raging bull economy where a $1000 for a phone shouldn’t phase anybody, should it? Don’t look at me I’m running a five year old $200 Google 5x. When they quit updating the software I’ll move on up the line to something new/er that continues updating.

The point being what exactly do you own as you look down your nose? Do you own hype? AAPL is hype, GE making a come back is hype, winning the lotto is hype. They are stories we tell ourselves in which to encase our denial and shield ourselves from our stupidity. 4% x25 hmmmm low cost index funds is the BEST PORTFOLIO hmmmm You can’t beat the market hmmmm Can you clap with one hand? It’s all speculation. How much of your future have you based on hype? What’s the likelihood your portfolio will become a blockbuster, a Blockbuster or a GE? Bitcoin? Only a dope would invest in BTC but then I’m up 1300% in BTC with a free trade. I have no equity remaining in my BTC only profit. I took out the equity when I was up 5000% and put that into BRK.B which has gone up 30% since I bought it in 2016.

The first thing they tell you is thew “low cost mutual fund rap”, that’s the hook. The next they tell you is to pick your risk tolerance like you have a friggin clue what your “risk tolerance” is. (I’ve established my risk tolerance it’s between 1M:1 and 22M:1). You don’t want to look like a chump so you pick 80/20 OUT OF THIN AIR. They ask you how much do you need in retirement? You wan’t to look upper middle class so you pick $100K OUT OF THIN AIR and they go: OK daddyo here’s the deal save up 2.5M take out 4% and you can live forever on that dough! Have a nice day! They point you to a calculator that looks at periods of history of adjustable lengths and it query’s the history about failure. The first period starts in 1871, 6 years after the Civil war ended and only 2 years after they drove the golden spike. Only 10 years after the demise of the Pony freakin Express! You mean I’m supposed to base my projected income need for my 2036 projected death on 1871 economic conditions??? That’s supposed to make me feel warm and fuzzy and confident? I just looked in the mirror and do not have MORON tatted on my forehead. What’s tatted on your forehead? A screed by MMM or 10 bullet points by WCI? Famous WCI quote “it’s 20% content and 80% marketing”, iPhone “it’s 20% phone and 80% marketing”. Like the title says it’s all speculation don’t kid yourself. If you look in investopedia they define speculation and investing in terms of longevity and risk. A good assessment. If you base your 50 year retirement need on a highly speculative stock portfolio are you pretending you short term bet is a long term winner? The variables are amount, longevity, reward, risk, sequence of return, budget, taxes. All of these are quantifiable and none of them get picked out of thin air. None of them should rely on economic data analysis leading back to the era of the pony express. It’s always good to consider and re-consider the assumptions and then track the plan as it plays out.

Addendum: I didn’t win but found another game to play with the same kind of trickle down payout strategy. The odds of the grand prize is 1:300K, over all odds of wining something 1:7, In this game I’m looking at using a number choice strategy of most likely distributions as opposed to quick picks. I’ll limit myself to $100/yr and see what happens.

Sir Francis Galton, Blaise Pascal and Where You End Up in Life

There was a mathematical genius that lived in 19th century Victorian England named Galton. There was a triangle invented by Paschal a 17th century French mathematical genius. The work of these two don’t define reality but it completely informs reality. Paschal invented his famous triangle:

You can read about the magic of Paschal’s Triangle here

It turns out the first reference was by the Chinese in the early 14th century and was used as a calculating machine. Francis Galton invented a means to animate Paschal’s triangle  It’s worth watching the progress of the balls as they settle from the collection bin into the distribution. The distribution of course is the famous Gaussian distribution described by mathematicians and gamblers Gauss and Adrain in the 19th century but hinted to by Galileo in the 16th century. Galileo noticed errors were distributed. Small errors more likely than large errors which then leads one to ask what is error accumulation and how does error accumulation effect things? The answer of course is the effect can be massive or indiscernible since errors can be of either sign and can add or cancel. This is the concept of sequence of return risk from the 16th century.

David Byrne et. al. put it this way:

And you may find yourself 
Living in a shotgun shack
And you may find yourself 
In another part of the world
And you may find yourself 
Behind the wheel of a large automobile
And you may find yourself in a beautiful house
With a beautiful wife
And you may ask yourself, well
How did I get here?

Where you end up is a function of a normal distribution of millions of decisions.

Notice that one lone ball way out in the right tail. How the hell did he get there and what is the probability? (the answer is 2^14) This assumes the board is level and gravity is acting equally on each ball and there is a 50/50 probability of a ball bouncing left or right at any given peg. Tilt the board the odds change. Here is the story of how you got there. This is how life works in a probabilistic universe, and you can use that to qualify your risk and effect where you end up. If you constantly make rightward choices you end up in right bins. Left choices, left bins. This example belies the silliness of the expression “you can’t beat the market so invest in low cost mutual index funds” . What that statement defines is the 50% bin. Clearly A LOT of balls beat the 50% bin. So the next time you hear someone quacking that party line tell ’em “you’re a clueless dumb ass” because they are. The way you end up on the left of the 50% bin is to make leftward choices. The next time you hear someone quacking about 4% x25 understand it depends. In a 50/50 portfolio counting from the left that puts you in bin 6 or so (98% chance of success). 80/20 moves you to bin 7 from the left. 99/1 gets you to maybe bin 8. Yes you can beat the market but the market can also beat the hell out of you by rightward decisions instead of leftward decisions. People do this all the time, claim you can’t beat the market and then proceed to try and beat the market by using real estate or by taking monstrous equity risk in their portfolio. People sit around with cash in the bank which they intend to invest but just can’t bring themselves to invest “waiting for a pull back”. This is called market timing and market timing can be a leftward decision, except you have to know when an event leans left which implies you need rules for trading that force leftward decisions. An example of leftward market timing is re-balancing to a predetermined portfolio risk level every so often. The mechanical nature of re-balancing forces leftward decisions. Sitting around waiting for a pull back merely means your portfolio is not risked correctly and money you intend to put at risk to procure some profit is not doing the job, a decidedly rightward decision cloaked in a leftward delusion. Lets say you choose to “MAX OUT YOUR PRETAX accounts” ever hear that one? Is that a leftward or rightward decision? How did you get here? You let the days go by. What that means is you wind up with a huge pretax pile some of which is owned by the government and at age 70 is wholly controlled by the government. RMD is progressive and taxes are progressive so the government by law is going to take a (progressive)^2 tax bite. Here is what happen in a (progressive)^2 scenario:

The red line is the ever evolving tax bite eaten by the government in retirement. The black line is money already taxed. Over time black beats red. Betting red was a rightward decision, black a leftward decision. It just took some time to manifest itself, yet people quack that nonsense all day long. A better tactic (and the leftward decision) is some of each and to optimize that ratio along the way. To understand that you need to understand what each account will be used for in funding retirement and the rules of taxation for each account going in and coming out, so you can make leftward decisions. Do not just let the days go by or it will be the same as it ever was.

I took a little break from the blog to live my life. I bought some Udemy courses on various topics on black Friday for $10 each, topics heavy into computer programming, micro controller programming, excel programming and a few others. Udemy is a little better choice than Youtube since you can correspond with the lecturer. I also completed my CME to keep my medical license active and I’ve been doing stuff in the yard since it’s FL and 70 degrees outside. It’s a great time to make some vitamin D in FL. I’ve really started to whittle down my blog involvement especially other blogs since the information contained is often useless if not actually wrong. Some sites are so agenda and marketing driven as to be unreadable. Some sites conflate ideas into a miss mash of gobbledygook and then dole it out in “10 Bullet Points of Nonsense”. If if the adage is “it’s 20% content and 80% marketing”, that’s another way of saying “you can rely on 80% of what I say to be BS!” Who needs it? I started working on an outline for a non Bogglehead approach along the above lines of processing probabilities in making financial plans. We’ll see where that goes. May be worth while may be a piece of junk.

Bar Bell? Dumb Bell? It’s All About Risk Management

I got involved in an interesting discussion about Bar Bell investing. The idea comes from splitting risk in bond futures trading or commodities trading. I traded commodities back in the 70’s and in fact saved up enough money I could either go to medical school or buy a seat on the Chicago Jackson street mini-market, so I was more than a little into it. Commodities trading is a zero sum game and a game of leverage. You might but a contract that has a potential for $1 gain but you may pay only 20 cents or 5 cents for the chance. Contracts expire so you can’t just buy and hold, your only choice if you’re in the game is to trade or get the hell out, so you place bets, and you win some and loose some. If you win more than you loose at the end of the year you have a profit, loose more than win a loss. Loose too much you’re busted. So it’s all about wining and its all about controlling your losses such that you have money to play. Commodities trading is not investing. It is trading on a market with the idea of buying low and selling high and the very real possibility of buying high and being forced to sell low. If you loose, what you loose goes to whomever had the other side of the trade your “buy high sell low” pair is his “buy low sell high” pair. If you don’t like that much risk you can do something called spread trades and there are all kinds of spread type trades.

So in a poker game you may have the main game going on and bets on the side. Bets on the side have a different risk of paying off than the main game. By knowledge of the odds of the side bets and the odds of the main game you can improve your risk by making enough on the side to make up to some extent for the risk of the main game. FIRE types do this all the time in fact they plan this into their strategy. They work 10 years with the idea of having that 10 year “investment” generate 60 years worth of income. Sounds psychotic doesn’t it? So they hedge their bets with a side bet called a “side gig”. A little blog or something that generates some income to cover part of the risk of the nutzo 10 years work 60 year play narrative. FIRE types think they are investing but actually they are speculating same as a commodities trader or a poker player. Small businesses fail 20% in the first year 30% in the second year and fully 50% fail in the first 5 years. 30% fail AFTER 10 years. So that little blog is anything but a sure thing. It is the reason startups sell out. Start up, make some money, sell out before you fail. Speculation. So what about Bar Bells?

The Bar Bell portfolio comes from splitting risk in bond trading. You can buy low yeild high quality paper and are pretty much assured of making your coupon. You can buy high yield low quality paper that if it pays off, pays off big but there is a definite risk of default. This is called a spread. You spread your risk between a sure bet which pays you and a speculation which may or may not pay you, and this is why it’s called a Bar Bell. It’s a bi modal risk. Pictorially

Here is a balanced portfolio of known risk and known reward and it sits on the efficient frontier. It has an expected return, the peak at the center, and an expected risk the range of values above +- 3. What if you squish down the center?

You get a bimodal distribution with a risky end (pink) and a safe end (blue). This is a Bar Bell The argument is you split your risk between safe and risky and if risky dumps you still have safe but in reality you have just the same amount of area under the curve in Bell as Bi-Modal it’s just distributed differently. The net portfolio will still work out to some average risk and reward. What if you have a BIG blue and a LITTLE pink but pink has a chance to multiply dramatically or it can go away completely? Lets look at some charts

Here is a portfolio of SPY. You retire in Dec 1999 just before the 2000 .com crash and also experience 2008. You’re a Bogglehead and expect SPY to generate 8.82% return over the long term.

Spy between 2000 and 2018 under performs BY A LOT

You’re expecting 8.82%, your actually getting 4.58% or half of what you expected. SPY experienced 2 recessions in that 18 years and so the volatility ate your lunch and your nearly 2/3 done with retirement! How much “return is it going to take to get you back to your expected 8.82% over the next 12 years? If you started with 1M and compounded at 4.58 x 18 years you would have 2.4M Your expected at 30 years with 8.82% is 12.6M, so at 18 years you are 10.2M under expected and NEED to make 13% / year for the next 12 years to make up the difference. The expected is 8.82% Do you really think it’s going to work out? THIS IS SEQUENCE OF RETURN and this is a real present day example not just some speculation This is exactly what happened to a guy who retired in Dec 1999 with 100% SPY

Let’s Monte Carlo a SPY portfolio for 30 years 4% WR

over 1/10 times you 100% run out of money. You run out of money because of the RISK in SPY

Here is the kicker to 100% SPY

Your portfolio starts dying EARLY. By 15 years it’s already heading down and for some is out of money. Retire at 60 get to 75 Uber Driver here you come!

Lets say you buy only VBMFX which was has been around since 2000. It’s expected return is

almost 5% and in fact it did better than that. Over the past 18 years VBMFX has returned

5.75% since inception in 2000. Bonds have been in a 30 year bull market.

So if you had SPY and took out 4% you could expect 0.6% growth on your money, less than inflation in the past 18 years, where as if you had VBMFX you could expect 1.75% growth about equal to inflation. What happens if you Monte Carlo VBMFX?

You survive 98% of the time but notice purple is headed into the dirt.

What about the kicker, what about the kicker??

The kicker is you don’t start running out of money till after you’re probably dead with this SORR

SPY alone and VBMFX alone are Bi-Modal when you look at them together, and they are almost perfectly uncorrelated as we saw in the example. Stocks under performed Bonds over performed. What happens if you Model a 50/50?

The kicker?

You fail about 2.8% of the time but look at purple, it is barely headed into the dirt and will survive for many years to come. The idea is to then have a “less risky part of the portfolio and a risky part for a Bell so lets add 20% AMZN for a 20/30/50 AMZN/SPY/VBMFX portfolio

Holy Cow! a >99% survival!

The kicker?

All you needed to do was to know to buy AMZN in 2000

Substitute GE of AMZN for a 20/30/50 GE/SPY/VBMFX portfolio Uh oh 89% survival no better than SPY!

It can be even more complicated if you change SORR or Inflation assumptions.

So what does all this mean? By choosing at Bar Bell you are speculating just the same as a poker player with side bets. Some times you win some times you loose, good time Charlie has the blues! How do you apply risk management? 1. You over fund to start. If you start at 20% above your 100% of need it can be a home run or a strikeout. If you’re a 3%/33 type with a million bucks you need 1.2M to start. An extra 200K is roughly an extra 7 years of work. If you strike out, YOU’RE OUT. It means you weren’t cut out to be a speculator. You don’t know what you are doing. Do not put hamburger money in the pot. See #2.

2. NEVER send money from low risk to high risk. You may send money the other way, in fact that’s how you get rich in this kind of scheme, dollar cost average the risk. When things are up stuff some into the mattress When things are down you have your 100% of need so go to the beach. Another way to play this is to completely divorce the portfolios into 2 independent portfolios one for investing and one for speculation. WR is strictly NOT part of speculation. The flow sheet for this kind of risk management is

You are always siphoning profit or principal off into investment never the other way. Here is my story with this technique but not with these numbers. The ratios are correct. In 2005 I bought a penny stock for 10K. It grew to 50K and I pulled out my 10K and put that in BRK.B. This is called a free trade. The remaining 40K was free money. The investment bobbled around till 2015 when I sold that 40K to cash. When I sold it it was worth 50K. I put half in BRK.B and half into BTC. 25K into speculation and 25K into investing. I had made 500% profit, and my principal was tucked in BRK.B plus half my profit. BTC exploded and my 25K went up to 1.5M. On the way up I took out the 25K and put it into BRK.B (free trade) and left the free money alone. BTC crashed OH WOE IS ME? Hell no The money was free money. It could go to zero and I’d be out nothing. As it turns out it’s still up 1300% and I have all that loot in BRK.B to boot. If I went to zero Whoope shit I had a good ride and made some money which I stuffed into BRK.B. But the thing is BTC is not going to zero. BTC is creative destruction and creative destruction multiples. AMZN is creative destruction. Apple smart phone is creative destruction. NFLX is creative destruction. Remember the brick and mortar Block Buster? NOT creative destruction. In the mean time I’m going to the beach quite content to do nothing.

The point is if you had co-mingled the portfolios the risk of one would seep into and erode the value of your hamburger money. In retirement do not let greed eat your hamburger money. Do not be a Dumb Bell because you read a Bogglehead book and think you know something. Reading a Bogglehead book doesn’t mean you know Jack it means you know Taylor Larimore, who’s just an old coot with a system (sorry couldn’t resist). These traders make their living eating your lunch and they are damn good at it. This ain’t bean bag. If you can’t practice risk management, don’t play. If you don’t know what you’re doing, don’t play. Speculation is a zero sum game. Some’s gonna win some’s gonna loose.


There is a program called PGP “Pretty Good Privacy”. It’s a cryptography program for emails and such and does what it’s name implies. The algorithm is good enough to protect your stuff from prying eyes. It’s based on using a set of rules as well as the algorithm and if you follow the rules… It’s not super duper government un-crackable requiring super computers but Pretty Good. It was designed as an educational tool to teach peeps how to wrap one’s head around cryptography. There is an open source version and a commercial version undoubtedly the commercial version is better and suitable for enterprise security.

My last series of articles constitutes PGRP. Pretty Good Retirement Planning

Goalscape Introduces a planning tool that succinctly allows you to encapsulate goals in a pictorial format. The ratios are variable and you can grow granularity. There is a free version to use but its somewhat crippled because it allows only one job at a time and has only 30 conditions to display. The limitation can be overcome by simply pasting screen shots of your Goalscape creation into a personal blog.

Goalscape is a planning tool so use it to make a plan. In retirement you need a portfolio and a cash flow to substitute for your job. There are a multitude of ways to get there and a multitude of accounts you can fund from Bank to Roth to IRA/401K to Brokerage. Money also comes from SS. The accounts are treated differently in distribution and most of them are owned by you AND the government understand the treatment is important since there are consequences to going down one path or another.

RMD Calc and Uses

RMD Calc and Uses looks at methodology and strategy to help plan those consequences by using Schwab RMD calculator, Tax Plan Calculator and Excel. The tax code is progressive and the RMD % is progressive so through out your retirement the government is taking a larger and larger bite out of “your” (plural) money because IRA money is owned by both you ad the government. By knowing whats waiting at the end you may make different choices at the beginning RMD calc shows you how to think about that prospect.

Where We Stand

Where We Stand is an article that looks back on a projected future from death back to accumulation. Very often planning is done from the other perspective from accumulation going forward. By looking backward from a projected future you can start to predict what is more or less important and how to optimize years in advance. You can’t spend Tax Loss Harvest if you never Tax Loss Harvested and you won’t see the advantage of a Brokerage and TLH if all you ever did was max out your tax deferred accounts which are owned by you and the government and taxed as ordinary income. Brokerage has different tax treatment so it’s like tax diversification, suddenly each account has a different risk and a different cost associated with ownership and can be incorporated to serve a different purpose in your old age. Money is fungible meaning you can’t tell one buck from another but the efficiency of how that money is created is specific and the plan and details matter. You only get to keep what the government says you can keep, harsh truth. No biggie, you got tools and a plan! Go slay the dragon!

Personal Capital

Personal Capital is an article on using a web based portfolio aggregator, a tool that tracks your portfolio in it’s entirety. Vitally important to making efficient decisions. The ability to accurately track and analyze is absolutely invaluable. It as important as giving sight to the blind. Use it or loose it.


Mint is an article on using a cash flow aggregator aka budgeting tool plus Excel to give you customized information on where the money goes. It’s implementation is trivial to use and it’s depth of knowledge is immense. I didn’t use it when I was getting rich because it didn’t exist. Had I used it I likely would be richer.

How I Knew When to Retire

How I Knew When to Retire is an article about understanding “enough” on a personal level using as a guide. Retirement is not boiler plate it’s personal. Retiring with “not enough” is a drag. Retiring with “too much” may mean you stayed too long. It may also mean your work pays you only in excess risk and stress, bad juju. The method along with the other articles gave me a personal way to understand my future in light of my past and be able to predict with virtual certainty the outcome even though I have yet to experience the outcome.

So there ya go! PGRP I could drone on about portfolio construction etc, but Personal Capital is adequate for that, in fact better than adequate it’s damn good.

Rock the Casbah

Rock the Casbah

Sharif don’t like it

Sometimes my opinions clash


  1. a place where money is coined, especially under state authority.
  2. a vast sum of money.
  3. produce for the first time.
  4. a peppermint candy.

Which one do you think of when you hear the word Mint? Mint is my go to budgeting tool. I’ve suffered budgeting for decades trying to discern the ins and outs of Microsoft Money and Quicken and Andrew Tobias’s Managing Your Money which I ran on an Intel X386 laptop under DOS with 1 mb of ram and a 4 bit grey scale on a 12 inch black and white panel. It was better than a napkin but infuriating to get any work done. I had a dozen accounts between me and my wife including business accounts and retirement accounts etc So pretty much I did it in a spread sheet in simple categories gross money, tax money, net money, investment money, living expense money, based on my accounts and called it a day. The granularity didn’t tell me what was going on just that something was going on, but the energy hump for any of these programs to actually provide accurate information was beyond the pale. So I used the slop in the system as my protection. Make a buck, save some for me, save some for taxes. use some to live on. don’t spend too much. don’t go into debt. I always made more than I spent so forward progress happened. Sound familiar?

Eventually I retired and the slop method worked, I had a nice pile of money, I guess you might call it directed slop, but it wasn’t tuned except in a gross way. I came across Mint and it was what was needed. It is what what all those other programs promised to be. I use Mint strictly to track my cash flow and acquire data which I transfer to Excel. I have 2 hub accounts a bank account and a credit card account. Both accounts do a nice job of automatically tracking category and are amenable to learning my customization without a lot of muss and fuss so it’s easy to tease out insurance line items and taxes and housing costs etc with some means to drill down and it’s easy to see what a transaction was an go to the account record for more complete information. The bank account is used to store money for living but not a huge amount. My money is in the brokerage which is linked electronically to the bank. The credit card is also linked to the bank so I can pay that bill one touch. The credit card pays cash back so I charge virtually everything which generates an excellent transaction and category record and gives me recourse if I didn’t like the outcome of a transaction. The cash back goes strait to the brokerage for investment. The bank pays the CC as well as automated accounts like power and internet. My wife has some other credit cards for her business she uses and I pay those as just another bill.

Mint has an export feature that allows export of a comma delimited spreadsheet and I open that file in Excel and cut and paste each month into my master Excel money management spreadsheet. The sheets are multiple and form a book organized by years. I just started 2019. Once the data is copied into Excel I go through the list and change the sign of every transaction labeled “credit” to negative and leave the debits alone. If there is a special deal I don’t want to track like something being paid for from an non tracked account I set that entry to zero and put that amount out to the side so it gets tacked but not counted in the totals.

Here is an example

Since I changed the signs on credits and debits I just go to the bottom of the Amount column and hit AutoSum and get a to the penny accounting. Down load, cut, paste, change signs, AutoSum, DONE! Mind blown! Since the data is in Excel I can do custom totals and averaging and track expensive months and cheap months. My budgeting is based around a generous monthly maximum compared to my need. I usually don’t reach the maximum but some month I may go over a bit like I pay home owners insurance once a year so that’s a big month. Under months compensate for over months and Excel is not bugging me about artificial spending goals and helpful hints to “improve” my situation.

When I first retired I was still tuning my spending knowledge and what retirement was really going to cost not just some projected number, so I checked often. As time went on the routine became predictable so now I check twice a month unless there is a specific question. If I wonder if something got paid I just turn on Excel and look. 2 seconds. So I use Personal Capital to aggregate my portfolio and Mint and Excel to aggregate my cash flow. Both of these are so easy to use. I recommend!!

How I Knew When to Retire

Here I am hard charging at 25. I had a boat load of Human Capital, not much risk, a small portfolio, my first house. I was trading commodities at this point in my life, had a steady job as an engineer.

Here I am at 45. Out of med school, out of residency, out of the Navy, Fee for service private practice, Anesthesia main gig, Pain Management side gig 5 days a week. I was Reelin in the years and stowin away the time.

By now I’m working a same day center. My FFSPP turned into a group then our contract was cancelled so we went into competition with the hospital. Did that gig for 7 years plus pain on the side. No call, no weekends, still pretty stressful as the Human Capital was winding down. At 65 I realized what 70 would look like if I continued to work. Human Capital a sliver, Risk through the roof, a tiny bit of reward compared to a big portfolio. Risk and stress dominate this picture. I needed a New Goal!

What I did was go to and looked at my life long Medicare earnings. Medicare earnings are not capped. I added them up and divided by the number of years I worked. That was my Human Capital gross and average for my work life. Out of that HC I had funded a retirement portfolio, bought a house, some cars, paid for college for my kids, food, travel, insurance, taxes. all the stuff of life. I looked at my bank account and portfolio and saw I had 1.5 times in the bank what the value of the Human Capital was I had expended over the course of my life. What I had in the bank would easily substitute for my Human Capital and give me and my wife security to the completion of our lives. A few more years or another million meant nothing compared to the growing risk and stress. I knew what my HC had paid for and I was completely satisfied with living at that level. That trip to changed my life and was just the tool needed to correctly assess my risk and reward going forward. The rest was merely details, get some health care together, re-jigger some TIRA to Roth pre-RMD, Optimize taxes going forward, Optimize SS, reduce SOR risk by moving to 5 years of cash to live on while Roth converting, details. Nirvana is about moving from being a Human Doing to becoming a Human Being. The portfolio is correctly sized and funded so there is virtually no risk, My time is my own so there is no stress. Nirvana is a place of Zen:

Nirvana is a place of perfect peace and happiness, like heaven. In Hinduism and Buddhism, nirvana is the highest state that someone can attain, a state of enlightenment, meaning a person’s individual desires and suffering go away.

I’m Catholic not Buddhist so I have my guilt to deal with but this is where I’m at today.

Been down one time, Been down 2 times, Never going back again.

This is what it means to win.

This is what the calculation provided me. A clear personal picture of where I stood in my life. Displayed in that table was a history of what I did and what I could expect. I knew how it felt to live my life and what that cost. I knew what it took to get where I was and for the first time I saw where I was going, Not some normative projection or a FV calculation or bla bla bla on a forum or article in Forbes. At that point I internalized what enough meant and I had more than enough. At that point return became irrelevant and I realized my life had become ALL RISK and it was time to make a decision. I did risk really well. I was good at risk, but I a needed New Goal. So I gave myself permission. The relative sizes of the triangles are important. My retirement and self insurance out sized what my life had cost. There is no leverage needed in a flush retirement save perhaps enough to cover inflation.

There is a TON of leverage in this retirement. The little purple triangle needs to generate ALL of the green triangle. So when someone is bragging about retiring at 30 what they are bragging about is their stupidity and failure at risk management. Do not be deceived by the shiny object.

Personal Capital

I signed into Personal Capital and was greeted by a lecture on risk management This is one reason I like this site, the investment advice is actual investment advice not just back of the napkin. Why pay for your return with too much risk when in the long run the risk can and will eat your lunch and ruin your sleep????

I was going to go into a long over view but I’ll play this instead It gives the overview. Personal Capital is a suite of integrated tools.  Its main feature is it’s an account aggregation program. It will log into all of your accounts and create an aggregate snapshot of what you own, what you spend, what you save (or forgot to save), and it will help you spiff up your returns and help you to set your AA to place you smack dab on the Efficient Frontier at your chosen level of risk. It will optimize in a way that projects your mistake into the future and shows you the difference between “your way” and the optimized way. The optimized way wins.

It freaked me out at first allowing all of my accounts to be scanned by the aggragator but the payoff is worth it and nothing has been hacked. I really like the way it aids in portfolio planning. It uses the same kind of tools to do the analysis that I have been describing Efficient Frontier and Monte Carlo analysis. It optimizes taxes to some extent and has a hierarchy of account payout strategy It’s not perfect but very good and these strategies are what I’ve read about in professional investment journal articles . So the advice is professional and up to date in portfolio theory.

It tracks accumulation and reads out probability of success and allows testing of different scenarios. I still do things my way but I always check my results against the PC software. I use a proprietary aggregator which is more granular and can help me answer specific questions but for a free program PC is hard to beat and wholly adequate for anyone but a money Nerd like me. Employing an aggregator was the single most powerful investment decision I ever made. Between me and my wife at one point we had 14 accounts with 14 asset mixes based on assets available to the account and before the aggragator it was impossible to correctly track reality. This one does it automatically and has the prognostication and optimization tools built in and they are reliable. If you have the real probabilities laid out before you it’s easy to judge the risk and choose correctly. If you veer off course PC will help you correct soonest. Because the program is not emotional it helps relieve fear and fantasy and the epic tales of great Ulysses or Buffet from the mix. The only way to know is to sign up and create your portfolio. Here is the web site I am not affiliated in any way, just a fan! They make their money by selling advice. They will to to sell you advice but like Nancy Reagan said “just say no”. I don’t know anything about their investment advice service except it seems a little expensive. I did look up some reviews and they do help with tax planning and a good tax plan like tax loss harvesting can save you a lot more than management fees but again this is not a recommendation for or against the professional services.

Where we Stand

We have been using modern tools to plan a retirement portfolio using an epoch strategy for accumulation and deflation. Here is an example of where you might want to end up at age 65

We have 1M in the Roth which we started saving for at age 24

We have 1M in Taxable Brokerage which we have been stuffing extra money into all along. We have managed to tax loss harvest an additional 200K over the years. This turns the taxable into a Roth like account until the TLH is used up. Useful for the TIRA to Roth conversion situation.

We have 600K in TIRA which becomes an annuity with RMD so it pays out a yearly income. 600K keeps us in the 12% low tax bracket for a long time. Included are 5 yr increasing payouts. At 6% the TIRA grows to 700K by age 85 so there is extra money here to increase payout along the way if needed

Our W2 job provided the ability to save for an HSA so we stashed a little and let it compound to use to pay our Medicare Insurance expense well into retirement. There are tax dodges associated with HSA but IMHO those can be cut or means tested at any time so a little dab will do ya IMHO

We chose to max out SS and dual spousal income pays out 50K+/yr I use 50K as a convenient example.

We have a bank account and credit. We store some in the bank enough for say a year which gets spent down during the year and we have credit for emergency cash. We pay all out bills with credit card, get cash back, pay it off monthly from bank account. We save some every month to buy a new/er car every 6 years. The money is stashed in CD’s and timed so between us a new/er car is purchased every 3 years alternating spouses. It was useful during my working life because it guaranteed a healthy car, less so in retired life. YMMV

College: this might be a typical plan, save some for tuition and save some for kid expenses outside of college but still in the kids name. It separates cash flow in retirement and if funded correctly can replace some insurance costs along the way since once established and funded they grow on their own till needed. IMHO college should neither be over funded nor underfunded but properly funded and that requires making some boundaries on likely disposition when accumulation commences. The best gift you can give your kid is a richly lived (not necessarily costly) debt free start. For me that didn’t include Harvard in the plan or money for grand kids.

Roth conversion is a special case that need to be analyzed. It has a big cost and a big benefit associated depending on your situation.

We haven’t covered funding TIRA and Taxable Brokerage and we haven’t covered how to fund living during the W2 stage of life. But by describing where we want to be at 65 and where that money will go after 65 and the built in safety nets we have a stronger understanding of how to jigger the numbers and what forces like progressive RMD compounded by progressive tax code can affect your decisions. The government is very happy to maximize their “take” in accounts where you have joint ownership like taxable accts and TIRA. But the code also allows you to make maneuvers to control that “take”. You can also “what if”, like what if two spouses becomes one single. What if you get divorced, what level college funding can you really afford etc. We have learned to use modern tools that take into account risk as well as reward and read out in a range of probable futures so you can set upper and lower limits on expectations and create your own SOR of safety to reduce the chance of failure to nearly zero. Wait there’s more! We will learn about Personal Capital as a very sophisticated account aggregation tool and longevity planner. We will learn how to budget and track expenses in Mint and use that along with Excel to track and predict. We will learn how I knew it was time to retire and the dangers of RE. It’s all doable but nothing like the monstrosity save 25x spend 4%.