Credit deflation and the reflation cycle to come (part 2)

[Sasquatch]

15 minutes ago, DurhamBorn said:

Yes thats the play off.I agree for a lot of people transfer is the best option,but people do need to be careful and not go on a spending spree.It can easy catch people out if they are drawing down 5%,the fund loses 10% and inflation is 6% etc.People need to be flexible and be able to adjust spending a bit.I think taking the natural yield is the best option and keeping a decent sized cash buffer you can use in big downturns when divis are cut.I think the state pension is now pretty decent at around £170 a week,if you have no debt etc then you dont really need much on top to be fine.

But, I do worry that millennials and gen z will have to pay greater NI contributions to maintain future state pension allowances. I'm 16 years off claiming my state pension and not totally confident. They (younger generations) will not be happy........

[DurhamBorn]

1 minute ago, Sasquatch said:

But, I do worry that millennials and gen z will have to pay greater NI contributions to maintain future state pension allowances. I'm 16 years off claiming my state pension and not totally confident. They (younger generations) will not be happy........

100% certain the state pension will never ever be cut apart from through inflation and rolling back the date you can get it.Pensions arent the problem in the UK,tax credits,housing benefit and disability are.

[MrXxxx]

1 hour ago, DurhamBorn said:

Yes thats the play off.I agree for a lot of people transfer is the best option,but people do need to be careful and not go on a spending spree.It can easy catch people out if they are drawing down 5%,the fund loses 10% and inflation is 6% etc.People need to be flexible and be able to adjust spending a bit.I think taking the natural yield is the best option and keeping a decent sized cash buffer you can use in big downturns when divis are cut.I think the state pension is now pretty decent at around £170 a week,if you have no debt etc then you dont really need much on top to be fine.

Agree, I was aware of this but it didn't really `hit home` until I read a worked drawdown example in a pension book yesterday. It cited a £100k pot with a £5k dd and a 5% loss...yr1 you are down to £90k, yr2 you are down to £80.5k, yr3 you are down to £70.75k, yr4 you are down to £65.4...You have lost a third of your pension in as little as 4 years!...and these figures are by no means exceptional.

[DurhamBorn]

1 hour ago, MrXxxx said:

Agree, I was aware of this but it didn't really `hit home` until I read a worked drawdown example in a pension book yesterday. It cited a £100k pot with a £5k dd and a 5% loss...yr1 you are down to £90k, yr2 you are down to £80.5k, yr3 you are down to £70.75k, yr4 you are down to £65.4...You have lost a third of your pension in as little as 4 years!...and these figures are by no means exceptional.

Exactly and the problem is few will spot it early or be able to cut payments.I think its crucial to have a broad spread of companies who can increase divis with inflation or more over a cycle.I also think its crucial to have a cash buffer.Iv always thought a £40k buffer gives you £80 a week to draw over 10 years if needed.It doesnt sound a lot,but if your retired early on say £280 a week in dividend income,it will cover you for a decade if you take a 30% haircut across the portfolio in income without having to sell assets.

My worry for people is the next cycle is almost certain a reflation,and that could be a disaster for pension drawdown funds in 60% bond and tracker set ups.

[MrXxxx]

9 hours ago, DurhamBorn said:

My worry for people is the next cycle is almost certain a reflation,and that could be a disaster for pension drawdown funds in 60% bond and tracker set ups

Hence my point above about using a small DB as a minimum living safety net, so that a retiree can risk to move away from the traditional life style model and into a riskier (I.e all share) approach with the rest of their capital...`safe` bond/gilt type assets are low is some ways by higher in others I.e inflation.

[MrXxxx]

Whilst we are talking inflation I thought I would share this example that I have just read (all in today's values @ inflation rate in brackets). We have £1k,

in ten years time it will be worth

£781(2.5%),

£614(5%),

£485(7.5%),

£386(10%),

in twenty years time it will be worth

£610(2.5)

£377(5)

£235(7.5)

£149(10)

OK, unlikely that we would have 10% inflation for 10 years (let alone 20!), but 5% is feasible and fits nicely with a 4-5% drawdown rate that many FIRE`s target.

[feed]

56 minutes ago, MrXxxx said:

Whilst we are talking inflation I thought I would share this example that I have just read (all in today's values @ inflation rate in brackets). We have £1k,

in ten years time it will be worth

£781(2.5%),

£614(5%),

£485(7.5%),

£386(10%),

in twenty years time it will be worth

£610(2.5)

£377(5)

£235(7.5)

£149(10)

OK, unlikely that we would have 10% inflation for 10 years (let alone 20!), but 5% is feasible and fits nicely with a 4-5% drawdown rate that many FIRE`s target.

You don't need high inflation to run for a long time to make a material difference. The rate at which inflation (or inflation > return) halves value.  

I'm targeting a FIRE in 2-4 years.   Stress testing this is painful.  

[Democorruptcy]

1 hour ago, feed said:

You don't need high inflation to run for a long time to make a material difference. The rate at which inflation (or inflation > return) halves value.  

I'm targeting a FIRE in 2-4 years.   Stress testing this is painful.  

I messed about with a spreadsheet to see how many years money might last but as well as the effect of inflation added options for drawdown, bits of income etc.

Let me know if you spot a bug in the figures, it could take years off!

 

[CVG]

47 minutes ago, Democorruptcy said:

I messed about with a spreadsheet to see how many years money might last but as well as the effect of inflation added options for drawdown, bits of income etc.

Let me know if you spot a bug in the figures, it could take years off!

 

You're not sticking that in an Easy Access account are you? That average Income % is way off. You should be targeting inflation+2% return.

Check out Portfolio Charts for safe withdrawal amounts for different investment strategies

https://portfoliocharts.com/commentary-all/page/2/

And don't forget to add in State Pension when/if it kicks in. PLus don't expect to spend as much after 80 as before

[Democorruptcy]

1 hour ago, CVG said:

You're not sticking that in an Easy Access account are you? That average Income % is way off. You should be targeting inflation+2% return.

Check out Portfolio Charts for safe withdrawal amounts for different investment strategies

https://portfoliocharts.com/commentary-all/page/2/

And don't forget to add in State Pension when/if it kicks in. PLus don't expect to spend as much after 80 as before

I didn't say that sheet represented my position. It was actually a screen grab of a play in it, to show someone how good it was playing 'safe' with cash long term

[NogintheNog]

57 minutes ago, Democorruptcy said:

I didn't say that sheet represented my position. It was actually a screen grab of a play in it, to show someone how good it was playing 'safe' with cash long term

I use a similar calculator on an excel spreadsheet;

Example shows £100,000 with £4,500 per year starting drawdown with 2.5% inflation added each year and 4% return on Capital each year.

After 28 years you are down to £649 and will run out for year 29.

 

[NogintheNog]

Put in 5% inflation and it's a very different story;

At year 22 you run out of money!

 

[Frog]

I found this tool really useful, puts things in perspective to see that death is often more likely than running out of cash. http://engaging-data.com/will-money-last-retire-early/

 

 

[Noallegiance]

As someone who was indoctrinated into leaving pensions with 'people/companies that know about these things' I am frankly terrified of transferring them all to a SIPP and deciding upon my own losses. This stuff is as familiar to me as Mandarin.

[DurhamBorn]

53 minutes ago, Noallegiance said:

As someone who was indoctrinated into leaving pensions with 'people/companies that know about these things' I am frankly terrified of transferring them all to a SIPP and deciding upon my own losses. This stuff is as familiar to me as Mandarin.

All those people do mostly is stick it one of Vanguards lifestyle funds like this one

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-40-equity-accumulation?theSource=PC060&Override=1&adg=G+FVGD+VLS+40+E&gclid=CjwKCAjwxt_tBRAXEiwAENY8hZw_NJwY90AmkNwRf_nXvTMqd95oT2ALnZhdCd0MechXVeY2fKcLHRoCMiAQAvD_BwE

They then charge you a fee of around 1% for the luxury of ongoing advice.That advice take about 30 seconds a year.Slow down your draw down,change to life cycle 30,20 etc.

My SIPP fees work out about 0.1% a year.You need to outperform me by 30%+ over your retirement  to break even with me.If you draw down at 5% you need to get a 20% higher return than me each year just to pay the fees.

Two things kill a diverse portfolio,inflation and fees.Two together is a very bad mix.

I think people worry too much about running out of money.I figure once your down to £50k get it into silver or gold physical and go on means tested benefits,without council tax i could live easily on the state pension and once you are down to state pension only you pay no council tax.

[DurhamBorn]

1 hour ago, Frog said:

I found this tool really useful, puts things in perspective to see that death is often more likely than running out of cash. http://engaging-data.com/will-money-last-retire-early/

 

 

Iv seen lots of people retire at 65 and a few retire at 50/55,most of the 65 year old ones dropped dead soon after,or had very poor health.Most of the 50/55 ones were in much better shape and had long mostly healthy lives.Im convinced the key age is between 50 and 55 where health starts to drop fast through work.Especially manual/poor hours work.

You can live very very cheaply in the UK if you want to.In fact its never been better.You can eat for almost free and healthy food if you learn how to cook.You can also buy anything you need for the house 2nd hand for almost nothing,and the same goes for clothes,you can kit yourself out in good quality stuff for £150 a year on Ebay.Talking of that iv just bought a £700 3mx2m wool rug for £40 on Facebook marketplace,thats a goldmine of DB pensioners selling quality stuff dirt cheap as the change the colour schemes etc because they are bored and loaded and most of the time simply sell so you take it away for them.

If money does run out,or is running out later in life simply buy physical gold/silver and then go on means tested benefits.Without council tax hitting you state pension is enough to live on,and if you need to replace anything take a day trip to Blackpool and cash in a bit of physical at Chards.

[Starsend]

1 hour ago, DurhamBorn said:

Iv seen lots of people retire at 65 and a few retire at 50/55,most of the 65 year old ones dropped dead soon after,or had very poor health.Most of the 50/55 ones were in much better shape and had long mostly healthy lives.Im convinced the key age is between 50 and 55 where health starts to drop fast through work.Especially manual/poor hours work.

You can live very very cheaply in the UK if you want to.In fact its never been better.You can eat for almost free and healthy food if you learn how to cook.You can also buy anything you need for the house 2nd hand for almost nothing,and the same goes for clothes,you can kit yourself out in good quality stuff for £150 a year on Ebay.Talking of that iv just bought a £700 3mx2m wool rug for £40 on Facebook marketplace,thats a goldmine of DB pensioners selling quality stuff dirt cheap as the change the colour schemes etc because they are bored and loaded and most of the time simply sell so you take it away for them.

If money does run out,or is running out later in life simply buy physical gold/silver and then go on means tested benefits.Without council tax hitting you state pension is enough to live on,and if you need to replace anything take a day trip to Blackpool and cash in a bit of physical at Chards.

So long as you've got a house. Otherwise, I agree.

[DurhamBorn]

28 minutes ago, Starsend said:

So long as you've got a house. Otherwise, I agree.

Yes,you can get a decent terrace in the north east for £60k though.If someone wants to retire early they can do it,but might have to move north.

[Frog]

Another good way to smash the mortgage early is to take in lodgers.

[Democorruptcy]

3 hours ago, DurhamBorn said:

Iv seen lots of people retire at 65 and a few retire at 50/55,most of the 65 year old ones dropped dead soon after,or had very poor health.Most of the 50/55 ones were in much better shape and had long mostly healthy lives.Im convinced the key age is between 50 and 55 where health starts to drop fast through work.Especially manual/poor hours work.

You can live very very cheaply in the UK if you want to.In fact its never been better.You can eat for almost free and healthy food if you learn how to cook.You can also buy anything you need for the house 2nd hand for almost nothing,and the same goes for clothes,you can kit yourself out in good quality stuff for £150 a year on Ebay.Talking of that iv just bought a £700 3mx2m wool rug for £40 on Facebook marketplace,thats a goldmine of DB pensioners selling quality stuff dirt cheap as the change the colour schemes etc because they are bored and loaded and most of the time simply sell so you take it away for them.

If money does run out,or is running out later in life simply buy physical gold/silver and then go on means tested benefits.Without council tax hitting you state pension is enough to live on,and if you need to replace anything take a day trip to Blackpool and cash in a bit of physical at Chards.

Plus if it goes pear shaped and you get caught for fiddling benefits, you will still get a roof over your head and 3 meals a day in prison!

[DurhamBorn]

1 minute ago, Democorruptcy said:

Plus if it goes pear shaped and you get caught for fiddling benefits, you will still get a roof over your head and 3 meals a day in prison!

Cant help it if that metal detector in the cupboard keeps finding sovs DC.I actually do very well with mine when we go to the coast.At brid i often find enough in an hour to pay for both our breakfasts.Have to be out as soon as its light though as those flipping tractors now scoop up everything when they clean the beach.I know a couple of spots where the ice cream van parks on the beach.Always find a lot of cash there as people drop their change or miss their pockets.Metal detecting is a nice healthy hobby for the frugal.If you can get on local parks where they had a music festival on its great.Just detect where the beer tent was,always money in the ground there,dropped and trampled in.

[sancho panza]

4 hours ago, DurhamBorn said:

Cant help it if that metal detector in the cupboard keeps finding sovs DC.I actually do very well with mine when we go to the coast.At brid i often find enough in an hour to pay for both our breakfasts.Have to be out as soon as its light though as those flipping tractors now scoop up everything when they clean the beach.I know a couple of spots where the ice cream van parks on the beach.Always find a lot of cash there as people drop their change or miss their pockets.Metal detecting is a nice healthy hobby for the frugal.If you can get on local parks where they had a music festival on its great.Just detect where the beer tent was,always money in the ground there,dropped and trampled in.

As ever,I jsut keep learning new stuff on this thread.....

[sancho panza]

Someone was asking about royalty streamers

Decl:we're long SAND

https://incakolanews.blogspot.com/2019/10/sandstorm-golds-sand-sslto-size-matters.html

In the opinion of your humble scribe (and one of the several reasons I own some), SAND is overdue a re-rating. And part of that is simply because the wider market hasn't appreciated the growth in market cap we've seen as this company is now worth over U$1Bn, one of the important threshold numbers that allows more US instos to participate if desired. Also SAND trails the price/sales price/earnings multiples of the big streamer/royalty plays (FNV, WPM, RGLD) by too much these days and when the market begins to gives it due credit for growth, pipeline and its much improved financial standing (SAND has come a long way from the failed Brazilian bets of a few years ago), we should see a virtuous circle appear which sends SAND share prices and therefore market cap higher, simply because its market cap is higher. I see no reason at all why SAND can only command a price/sales of 11X while Franco, Wheaton etc get at least 15X and at some moments, up to 25X. 

 

SAND as stands today can go a lot higher, all it requires is a little more market traction. For sure when Hod Maden starts to kick in the company will change forever, but there's no need to wait that long for a successful trade.

[sleepwello'nights]

10 hours ago, NogintheNog said:

Put in 5% inflation and it's a very different story;

At year 22 you run out of money!

 

As I hit three score and ten later this year it doesn't seem a major problem.

[sancho panza]

15 hours ago, Cattle Prod said:

I have a long term holding I want to add to, I'm not sure when I should. Weekly stochs and macd look good to me (perhaps @Harley has a more informed comment). I think oil could revisit the 30s in which case BP should drop to about 350/400 where I would fill my boots. However that is only a 20-30% downside. Ideal for a few 8% ladders. 

Also, BP earns mostly dollars. As I think the dollar will fall vs gbp I have to consider this, though a commensurate rise in the price of oil should compensate.

Edit: theyve just announced a 41% reduction in quarterly earnings compared to last year, which is mostly oil price. Might get a nice pullback, but only down 1% so far... 

I've thought about that $£ effect but reason it out similarly to you CP.

We've already built a 3% position in BP over the last 5 years.Both you and DB have said oil could get sub $40.Interesting call ref BP at sub 400 wouldget me breaking 5% I suspect.

There does seem some good long term value in the sector,particualrly EQNR,XOM,BP,ENI