Don't Invest in the S&P 500. Especially if you're retired. (108-year backtest results)

[@DonaldGravesC]

it doesn't matter but if you are retired by now you should have heard a consultant managing your assest and financial movement.

[@JonahHoward0997]

but so far so good S&P 500 has been up 23% and predictors are saying it would be adding more 10% next year being 2025.

[@KennyHopkinsF2000]

i retired 2 years ago and till date i've been using ' sophie kathryn jones ' as my consultant since a year plus to enable me build my portfolio, now i only manage my small supermarket.

[@CarltonRoyH0000]

@@JonahHoward0997 yes but the crash or will i say the $2 Trillion which was withdraw off the stock market. causing panic joined with the current inflation.

[@PhilBradleyH7000]

@@KennyHopkinsF2000 woah sophie is really this popular, it has been 1 year 3 months been transacting with her. no complain so far i will say she’s one of the best

[@AngelinaKleinQ12345]

i will say james is right i don't think S&P 500 are meant for retired i strongly believe its for cooperative and minor traders...

[@trade0714]

I admit I fell for the clickbait of "Don't invest in the S&P 500". To be more truthful, it should be titled "Don't invest in only the S&P 500". Other than that, it makes sense.

[@dgaz3057]

The clickbait is a problem....

[@MrFrobbo]

Spot on, a 50% allocation to the 500 and something like VG LS100% (if UK based) is a good hedge, providing a mix of domestic, emerging and global.

[@AlumniQuad]

Thumbs down, do not recommend channel.

[@SadGhost-f4h]

Thanks ​@@MrFrobbo

[@bootstrapstylerich]

Agree.

[@jeffDwyer1]

Well I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 25% of my $370k portfolio comprises of plummeting stocks which were once revered and i don't know where to go here out of devastation.

[@Jpoteete]

Safest approach i feel to tackle it is to diversify investments. By spreading investments across different asset classes, like bonds, real estate, and international stocks, they can reduce the impact of a market meltdown

[@Pconradsmith]

Diversifying your portfolio is crucial. Good stocks are a good starting point, but you should diversify your risk with a variety of assets. Fortunately, I can vouch for the effectiveness of this strategy with the help of expert advice, since my 130,000 portfolio has increased by 35% only this year alone. Maybe thats what you need.

[@SteveEstrada-js9nu]

This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? i'm in dire need of proper portfolio allocation

[@Pconradsmith]

I have Annette Christine Conte who oversees how my portfolio is allocated and what assets to acquire. She's well established and you'd find her professional bio on the net where you'd be able to connect with her, i'd suggest you go look her up yourself to conduct your due-diligence

[@SteveEstrada-js9nu]

Excellent share, just inputted her full name on my computer and searched online, top-notch credentials. I've seen commentaries about advisers, but not one looks this phenomenal..

[@tonyh1460]

The elephant in the room is that after 80 years of age, you’re not flying around the world, not buying Porsche cars, hell I eat out a lot and almost never see octogenarians in restaurants Maintaining a £500,000 pot is pointless as you age. (Nursing home fees ‘priced in’ of course)

[@PitDaddy]

That's because you're spending it on doctor bills

[@tonyh1460]

@@PitDaddy I’ve told my family, once I’m unable to bathe or ‘toilet’ myself, I’m packing it in and accepting the end 😀

[@pataleno]

It’s a nice sum to give the kids or grandkids though.

[@jackb5640]

​@pataleno so is your house, preusming its paid off. Id consider it enough giving my kids the odd bit of cash as a gift while living, my house in my will, and spending the vast majority of my liquid assets enjoying my retirement.

[@pataleno]

@@jackb5640 yeh fair enough. Yes my main home is paid off. I also have a second property I rent out (and a holiday home in spain I share with the family). Mortgage almost paid on that as well. My two kids will hopefully inherit these. I really want to leave as much as possible to them whilst not scrimping in retirement. Hope to retire in about 5 years.

[@Rogerederer-b2r]

Never understood why people are reluctant to buy dividend stocks, You're getting paid to be invested in the stock market,It's similar to owning a rental property,You get paid (rent) to own it while the value of the asset appreciates (hopefully)..Passive income is king

[@peggytaylor-v3e]

Dividend stocks are like owning a piece of land:You hold the asset, Collect income while you wait, Asset value might grow. Why not enjoy the fruits while the tree grows?

[@WilliamsF-e8r]

I've been in touch with a financial analyst ever since I started investing. Knowing today's culture The challenge is knowing when to purchase or sell when investing in stocks, which is pretty simple. On my portfolio, which has grown over 90% in a little over a year, my advisor chooses entry and exit orders

[@Morgangreen-b1l]

Sounds interesting! Please can you leave the info of your investment advisor here? I’m in much need for one

[@WilliamsF-e8r]

Diana Casteel Lynch is a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.

[@Morgangreen-b1l]

Thank you for this Pointer. It was easy to find her handler, She seems very proficient and flexible. I booked a call session with her.

[@blue-fj9ky]

Very thoughtful analysis! I'll add that the world is a small place now and US companies have serious international exposure, so holding a US index fund includes much of the world's returns. This was not always historically the case.

[@InvestWithFFI]

Yeah, globalization changed everything. I know that history repeats itself time and time again, so I may be wrong here but 100 years of history is not as relevant as it may seem. 1924 vs 2024.

[@mmohanc]

I 100% agree - I used portfolio visualizer and tested VTI versus VXUS and you can see that the graph is almost like someone traced one against the other -- so where is the benefit in so called diversification into international stocks when there is such a high degree of correlation between the 2 asset classes ?? Also I noticed this in the last one month when the SP500 has seen some volatility, the international stocks (Tickers SPY vs DBEF) also were identically affected.

[@remi418]

Excellent video, thank you, it helped me visualize what my FA has been trying to get across to me. I do have the exact same thoughts as the commenters here though. Looking at the past 100 years of stock history is an absolute must but planning only with this in mind is like walking into the future looking at the past. For sure there will be periods of boom and bust, small and large, just as in the past. But the world is quite different today, much more connected, so I too am questioning the value of US vs World or other geo-based strategies. The economy has been studied a lot more, I suspect governments and economists are much savvier now than 60 or 40 or even 20 years ago, they too benefit from the learnings of history. Investors themselves have been evolving with investing now available to much more people ("retail" investors, a condescending term?) with increasing knowledge (e.g. these videos) and whose thoughts about the economy and the world are different from the people who have been making the markets in the 100+ years (e.g. Robinhood, AI-based robot investing, etc). I am wondering if the reasoning behind the asset selection strategies used today by most isn't lagging a world that is evolving faster than ever before. Would love to hear others' thoughts on this. How, if at all, is this influencing your thinking and investment strategies?

[@andrewdiener3011]

I would simply re calculate a scenario every year that gave a ninety percent success rate and adjust my spending accordingly. A dynamic spending plan that would give you more to start, and give you more clarity, and also possibly more spending, most years.

[@JRRob3wn]

Yep. Alternate revenue streams help too: Pensions, Social Security etc. Have 2-4 years of cash and reduce spending in years that are down more than 20%. Also, take care of major expenses like a new car and big home repairs before retiring. As long as you don’t suddenly need a new roof or your house replumbed, scaling back spending by a bit should be fairly easy for most people.

[@skeller61]

Interesting ideas. The S&P 500 might be an American market, but the companies (e.g., Apple, Alphabet (Google group), etc.) are multinationals for the large part. So, while I take your point about America having a lucky run, I still think the S&P is diverse (in industries) and hires the most lobbyists to ensure they will continue to receive favorable treatment. I’m about 3-5 years from retirement and have just set up a Treasury ladder for two years worth of withdrawals (which I could increase to 4 years, if necessary) and S&P with the rest. As I draw down from the treasuries, I will sell the S&P to replenish them (but if it’s a bear market, I’ll be more frugal with my withdrawals until the market recovers, thus the 2-4 year flexibility. Thanks.

[@pauldichtel6410]

What is a treasury ladder?

[@skeller61]

@@pauldichtel6410 It’s just a name for buying a group of Treasury bonds that mature at regular intervals (for instance a one year ladder might have four separate maturities, three months apart). Schwab has a tool that helps you build one.

[@mkeller8114]

Good plan. I am thinking the same. Limits the damage from sequence of returns risk. And if I have a really bad year I will just scale back the withdrawal rate.

[@skeller61]

@@pauldichtel6410 No, it’s not something you climb up to get to your money (sorry, bad dad joke). There are quite few KZbin videos that explain it, but basically it’s buying a group of Treasury bonds (you can also do CDs, or other bonds if you want to) so they mature every 3 months, or so. For a one year ladder, you’d get bonds with 3,6,9, and 12 month maturities. That keeps your conservative money working, but allows you the choice of reinvesting or liquidating a quarter of the investment. Schwab (only on the web site, not the app, for some reason) has a Wizard that will walk you through the process, if you’re interested.

[@montyloads]

@@pauldichtel6410 its like a bond ladder... you have bonds that will mature annually and provide you with a certain guaranteed % that you can decide to use instead of your equities in the scenario that your equities enter a bear market and perform badly. by doing this you give your equity part of your portfolio some time to hopefully recover without withdrawing from it

[@kirsten121]

Interesting, thanks. I recently switched from S&P500 to Global All Cap. (I'm in the UK and 40 years old)

[@berniekeene868]

Did you sell your S&P 500?

[@kirsten121]

@@berniekeene868 yes, I sold it all and replaced it with Global All Cap. Now just going to invest in that for the rest of my life. No more switching.

[@stevewong220]

you should stay in S&P. You're young and still have ways to go before retirement.

[@ys9484]

Good choice. I am also invested in the global all cap.

[@NoNonsenseJohnson]

Silly move. Ride the short to mid term returns on S&P and phase into global as you approach retirement.

[@eddied112]

Another excellent video, James. One of the clearest explanations I've seen of why timing is everything when you retire and how a few years of poor performance can make all the difference. A great explanation of the difference between average returns and how volatility in those returns really does make a difference when you've retired.

[@Agatha.wayne0]

I’ve been diligently working, saving and contributing towards financial freedom and early retirement, but the economy so far since the pandemic has eaten away most of my portfolio, what I want to know is this: Do I keep contributing to my portfolio in these unstable markets or do I look into alternative sectors.

[@GersderaNioer]

"Yeah, these stories are wild! But hey, before you take that emergency fund on a treasure hunt, maybe consider chatting with an investment advisor. I was in a similar spot and trust me, having a pro in your corner makes a world of difference. No gold digging required!

[@Dave_East]

Due to my demanding job, I lack the time to thoroughly assess my investments and analyze individual stocks. Consequently, for the past seven years, I have enlisted the services of a fiduciary who actively manages my portfolio to adapt to the current market conditions. This strategy has allowed me to navigate the financial landscape successfully, making informed decisions on when to buy and sell. Perhaps you should consider a similar approach.

[@HersderaNilers]

I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?

[@Dave_East]

Finding financial advisors like " Stacy Lynn Staples " who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.

[@MemoryKasu]

Thanks, I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get.

[@legacymedia8468]

I started investing in dividends with my taxable account. I used the buy and hold strategy in my Roth, adding some Berkshire B stock, SCHD, and an S&P 500 and total market exchange-traded fund.

[@SF-fb6lv]

I've been doing the maths on retirement for a LONG time, and this is one of the most interesting and thought-provoking things I have ever heard! Great job; subscribed!.

[@colin3120]

Have you done the math for a global leveraged portfolio to get the same expected return as SP500? Will that be more or less volatile than SP500?

[@SF-fb6lv]

There are a lot of things to research, and I did not do that one@@colin3120

[@pompejio]

Keep in mind that the place of living very much changes the outcome. Not the performance but what you pay for a living. You won't need 4% in any part of the world. Like if you live till the end in the US with high living standards and especially huge health care costs, maybe 5% isn't enough. But in a low cost region you might only need 3% and therefore can effort a more risky type of investment. Then again, why building up more money when you won't use it anyway..? Paradoxic.

[@CatherineSorloth]

I just sold a property in Portland and I'm thinking to put the cash in stocks, I know everyone is saying it’s ripe enough, but Is this a good time to buy stocks? How long until a full recovery? How are other people in the same market raking in over $200k gains with months, I'm really just confused at this point.

[@Farina-Marcus]

Stocks like Tesla and NVIDIA still have some way up to go. It's always a good idea to go over it with a financial advisor. You might get new insights on how to go about it and that increases your chances of making huge profit.

[@AnyaCheongsam]

I was once faced with a similar situation. I sought advice from a top invęstment advisęr here in the States. Through portfolio restructuring and diversification with good ETFs, S&P 500 and growth stocks, I've turned my portfolio around from $220k to over $605k in a few years.

[@AndersonWilliam-d3d]

Glad to have stumbled on this conversation. Please can you leave the info of your investment advisor here? I'm in dire need for one.

[@AnyaCheongsam]

Elisse Laparche Ewing is a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.

[@TristanNolan-i8]

Thank you for the lead. I searched her up, and I have sent her a message. I hope she gets back to me soon.

[@darrenmcdermott6443]

You can protect yourself from this so called sequence risk with 2-3 years of cash...100% equities is the only way to go

[@bornufree]

Some drawdowns can last for many many years

[@rockycottage5188]

Bonds were supposed to let you sleep better at night by limiting exposure to stock market crashes - it’s all a matter of perspective though - my thoughts are to keep 5 years cash/fixed income in retirement (to avoid sequence of returns risk) and to view stock market crashes as a great opportunity to buy more stock with years 4/5 cash - historically, stock market crashes have recovered within 2 years 90% of the time - de-risking in/approaching retirement is fine if you want annuities but for drawdown you really need your money working hard to keep/beat inflation over next 30+ years

[@Holdeenio]

Agreed on the 100% equities. I think a significant holding of S&P500 is wise while accumulating, maybe move to a higher split of global equity as you approach retirement. I think I’ll remain 100% equities when I reach drawdown, mitigated by a large cash reserve.

[@davem.4003]

​​@@Holdeenioso if risk is mitigated in retirement by "a large cash reserve", then you are not 100% in equities; you may only be 75%, 80%, or 90%, depending on the size of your "large cash reserve". I guarantee that in the years immediately preceding your planned retirement, you will start to take a greater interest in the risk of your investments declining in value unexpectedly and this will cause you to review your investment strategy in order to preserve value, rather than continuing to chase growth. Thus it's simply a transition between 100% equities and your "large cash reserve". It is rarely a black and white choice or scenario.

[@michaelhuber1107]

Large value/ blue chip companies would help in retirement w those dividends being pumped out and lower beta then S&P500

[@randyyoung9892]

You should always have 5 or 6 years in a money market (cash) to allow for down years invest the rest in sp500 let it grow reinvest dividends and gains

[@Tnks4cmin]

My so called target retirement fund in 401k had absolutely terrible return compared to sp500. I moved all to sp500 but biggest regret of my life I didn't do it sooner..What else is best way for me to invest 200k for solid cashflow?

[@Marquez919]

I would avoid index funds, mutual funds, and specific stocks for the time being. Right now, the best option is a fixed income of 5%.

[@RobbStonee]

You need a certified financial planner straight up! personally, I invest in ETF's and also love investing in individual stocks. yes it’s riskier but am comfortable in my financial environment

[@Armstrong741]

You're right, I and a few Neighbors in Bel Air Area work with an advisor who prefers we DCA across other prospective sectors. Instead of a lump sum purchase, Following this, my portfolio grew 40% in the last quarter.

[@Tipping-Point88]

I'm intrigued by this. I've searched for financial advisors online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation?

[@Armstrong741]

Well, I chose *Marissa Lynn Babula* as my advisor after her interview on CNBC In 2020. She is SEC regulated with offices in the US and quite frankly a genius with portfolio diversification. You should look her up

[@scottprice4813]

Munger and Buffet never talk about sequence of return risks . This is a lucid and valuable analysis you’re giving. The growing federal deficit and interest expense and the magnificent seven are warnings . The S&P is headed for years of lower performance .

[@larryjones9773]

Warren rarely sells his stocks and if he does, he's reinvesting in another stock, thus sequence of return risk isn't a risk for him. His holding period is forever, usually. For the rest of us, selling stock during a stock crash, can be very harmful to our portfolios. But, sometimes we have no other option, if we want to eat food and pay the electric bill.

[@AdamLevine759]

I have been retired for 6 years. I have a 130K annuity, plus a 401k depleted to $350,000 of money that I’m considering allocating in a 60/40 stocks and bond ratio. i'm hoping this is a valid thought process?

[@NicoleAniston-o]

May wasn't great, but if you step back and look, you'll see that the S&P 500 was up for the first quarter. In the last 30 days, my IRA gained $40k. If you're experiencing a significant drop, you might consider consulting a financial advisor.

[@Sylvesterhunter870]

The market's instability makes DIY investing risky. You don't need to find the next NVDA to succeed. Instead, opt for high-quality ETFs, dividend aristocrats, and a trusted advisor. I've turned $100k into $20k in annual dividends, which is a significant milestone.

[@Hamdanbin-]

I've been considering getting one, but haven't been proactive about it. Can you recommend your advisor? I could really use some assistance.

[@Sylvesterhunter870]

There are many experts in the field. Over the past few years, I've tried several, but I've stuck with Melissa Elise Robinson for about five years now. Her performance has been consistently impressive. She's well-known in her field, so look her up.

[@Hamdanbin-]

Thanks a lot for this. I just checked her out now and I sent her an email. I hope she gets back to me soon.

[@EdwinBoettcher]

I have a 3 fund portfolio consisting of 33% S&P, 33% Total stock, and 33% international. I feel a need to focus on complete growth so I went 100% stocks, but does the SP500 and TSM overlap too much to make sense holding both? However I’ve been in the red for a month now. I work hard for my money, so investing is making me a nervous sad wreck. I don’t know if I should sell everything, sit and just wait but watching my portfolio dwindle away is such an eye -sore.

[@KimberlyFlores-kr1bz]

There are many other interesting stocks in many industries that you might follow. You don't have to act on every forecast, so I'll suggest that you work with a financial advisor who can help you choose the best times to purchase and sell the shares or ETFs you want to acquire.

[@RichardGeorge-pz3wm]

I agree, that's the more reason I prefer my day to day investment decisions being guided by an advisor seeing that their entire skillset is built around going long and short at the same time both employing risk for its asymmetrical upside and laying off risk as a hedge against the inevitable downward turns, coupled with the exclusive information/analysis they have, it's near impossible to not out-perform, been using my advisor for over 2years+ and I've netted over 2.8million.

[@EdwinBoettcher]

Can you share details of your advisor? I want to invest my increased cash flow in stocks and alternative assets to achieve financial goals.

[@RichardGeorge-pz3wm]

BECKY LOU GORDON is who i work with and she is a hot topic even among financial elitist . Just browse, you’d find her, thank me later.

[@EdwinBoettcher]

I appreciate this. After curiously searching her name online and reviewing her credentials, I'm quite impressed. I've contacted her as I could use all the help I can get. A call has been scheduled.

[@classicsciencefictionhorro1665]

Your premise is flawed. Invest in dividend stocks and live off the divvies; do not sell stocks for cash.

[@ChidOki]

Super subjective. Principal preservation is a subjective, preferential thing for people who are more risk averse but often not willing to admit it, or who want to leave wealth behind.

[@pataleno]

Great Video James. I’m 55 in March and very heavy invested in S&P. I do also invest in a global index fund. Looking to retire in about 5 years. This is certainly food for thought on how I invest in future.

[@AshJun17]

Great content. I find a lot of finance you tubers default to the US with their commentary and analysis so it's good to see a different perspective.

[@JamesShack]

You're welcome!

[@richardwhite1120]

Yes, to hear some people talk you would think it's the only game in town but so often history has shown that the point of maximum euphoria is also the point of maximum danger.

[@ChidOki]

It’s because this guy is not just a KZbinr, he’s a practicing financial planner

[@richardwhite1120]

It's only when the tide goes out.........

[@DonaldMains]

I cant see it making much of a difference unless you are in emerging markets since all developed markets; Europe, UK, Japan, etc are highly correlated with US stock market. For example the correlation coefficient for Developed markets x UK with the US is .92. The first part of the video is just simple sequence of return risk which has nothing to do with any specific market.

[@ericj9011]

Right, for most of the years of the study they were not very correlated, but they have gradually become very correlated over time.

[@markbernhardt6281]

This answers my headscratching moment looking at the funds in my mom's annuity. US large cap growth and value, small cap growth and value, international, US bonds, International bonds. Killer job explaining

[@karlfunk6898]

You do not describe the "third strategy"....

[@gibrigg]

I suspect that if you had been able to use 500 index data rather than total market data, the 500 index would have crushed the global market. The index continuously sheds underperforming stocks and replaces them with better performing ones- with nearly no load. The 500 index math is hard to beat.

[@JamesShack]

There is barely and difference between US total market and S&P 500. See for yourself with: www.portfoliovisualizer.com/monte-carlo-simulation#analysisResults US total market outperforms slightly in fact.

[@KpxUrz5745]

This is a superb and very well-thought out analysis. Well, I actively manage a good sized retirement portfolio, and it is on track to pile up far faster than any expectation of drawing it down. There are so many pertinent factors of advancing age. Most people (and written articles) often talk in terms of enjoying "experiential" uses for the money. But there are those of us who really are not so drawn to continual travel, and who find such trips to be very exhausting and fraught with a variety of other negatives. In the end, I see no particular compunction to spend all of the money.

[@Werewolf0216]

I'm 56 with 34 years at my company and for my 401K I wish I only invested in the S&P 500. Instead I made the mistake of doing what is suggested -- diversify. Now I'm in my final few years before retirement and I've got everything in the S&P 500 for one final push to gain funds. From 2022 to 2024 I had no gains in my 401K at all despite investing a high percentage of my own money and getting employer match.

[@timharu62]

This is the right choice. Although you may retire in the next few years your investment horizon is longer like 30 years. S&P 500 Index beats 82% of other funds over 10 years, and 90% of other funds over 20 years, even greater at 30 years. There are 2 main reasons for this which is that they hold very little cash and the fees(expense ratio) are very low.

[@bobdykstra2188]

Your previous diversification approach wasn't a mistake. You just weren't as lucky as you could have been. Stick with your diversification plan; it's too risky (when approaching retirement) to go all in on S&P500 after it's already reached all time highs. Even 60% S&P500 and 40% cash (money market) will minimize risk of having to work forever (if there's now a long bear market).

[@orcadian99]

Ben is withdrawing 3% or higher every year. This impacts his investment choice. If he invests in ETFs with lower volatility he’s more likely to hit his target despite lower predicted returns because he’s withdrawing the same amount every year. But you don’t need to withdraw anything. You’re still at work. If S&P 500 underperforms in a few years while you’re saving up for retirement you may be able to swerve course, either postpone retirement or maybe S&P 500 rebounds and you bought some of it at lower prices by saving monthly into your pension (dollar cost averaging) so it comes out good. You have to know what course you’re traveling to choose the correct horse. The third strategy is to buy a mix of ETFs - you could call this “diversify” but James Shack is not telling you to stay away from higher volatility ETFs like S&P 500 if you also buy a % allocation into other index ETFs that have very low overheads but may not correlate exactly with S&P 500. This is technically challenging. You can ask AI for an allocation explaining your situation and retirement plans and your current portfolio allocation (eg100% S&P 500 ETF) but it’s not the same as a financial advisor and it wouldn’t take any responsibility for its advice, just a sounding board to bounce ideas off. In my experience, the AI I asked gave me wrong annual charges for some ETFs and even got some tickers wrong so go carefully.

[@carrotblog1746]

to be honest, keeping a good health, and add a little years of working can turn out to be better for the guy in question.

[@user-zo2ge3oe8d]

I love that chart @ 12:40 really. It shows the intensity of the Japanese Asset Price Bubble in a way I’ve never really thought of.

[@Paul71H]

Many retirement withdrawal strategies are based on withdrawing a certain amount the first year, and then each subsequent year withdrawing the same amount plus an inflation adjustment. But what if you decided to withdraw 5% (or 4% or 6%) of your portfolio every year, and adjust your spending to live on that amount? For example, you start with $1,000,000. At the beginning of the first year, you withdraw 5% ($50,000) to live on for that year, leaving $950,000. By the beginning of the second year, let's say that the $950,000 has grown to $1,100,000. So then you withdraw 5% of that amount, which is $55,000, leaving you with $1,045,000. Over the next year, the stock market performs badly, and so by the beginning of the third year, you have only $900,000 in the account. So for that year, you again withdraw 5%, which is now only $45,000, leaving you $855,000. (So you would have to cut back your spending in this third year -- maybe any vacation plans or other large purchases would have to be delayed.) And so on. If you're able to adjust your level of spending with the ups and downs of the markets, wouldn't this strategy allow you a higher safe withdrawal rate?

[@martinz5851]

Very good video. Many thanks. I intend to invest 85% in Global Stock Index (ACWI) and 15% in Small Caps.

[@MattMcQueen1]

The problem, particularly with pension funds, is that no amount of backtesting can tell you what will happen in the future. Even if your pension fund is mostly in bonds, you can experience huge unexpected losses (as has happened in recent years), early on in your retirement. You can make estimates over the long term, but that is no good if you are retiring today and are trying to avoid a catastrophic loss in the first year. You could see a 25% increase in your investment this year, or it could equally drop by 50%.

[@parkmantle489]

I'm currently looking at my retirement drawdown options (I'm 61) but my plan is to take more in the early years (e.g. aged 61-75) after this I'll most likely want to slow down and do less anyway and quite frankly if the funds/income is minimal at say 80 years old plus it really doesn't matter and I could always downsize my property. I guess what I am saying is that the plan doesn't need to assume an income amount with an annual increase until you're in you're 90's - for me that's illogical. Anyhow, appreciate the analysis James and I know you have covered the point I make previously.

[@necroCODE]

Very good point. Never thought about it

[@Tensquaremetreworkshop]

You are absolutely correct. I am now 79, having retired at 52. My portfolio was mainly in cash (yes, really)- I regarded volatility as my greatest enemy. I travelled much, especially in my 60s (holidays buy memories, and the earlier the longer you have them). Has it worked out? Yes- I am now over-funded. Main reason is inflation- most forecasters glibly put in a value such as CPI. Study how it is measured and you lose all faith in it being sensible. I have tracked my expenditure for 35 years now, and inflation, for me, is a fraction of the published numbers. But my state pension (SP) goes up each year by that or more. When I and my wife first received it, we could cover all our 'normal' expenditure (running costs, excluding holidays and other discretionary spending) with 85% of SP. It now takes only 60%. Try as I might, I cannot keep up with our spending target. Not only am I not withdrawing capital, or even growth on capital, I am not spending all my income (SP & pensions). Saving at my age is madness- but what can I do? My biggest mistake was not retiring earlier- but I believed forecasts like this... One has more control over spending than earning. If squeezed, one can drop from 3 holidays a year to two. Perhaps forsake business class for the shorter hops. In retirement, one has the time to shop around, and choose well. And, as you say, as you get older you have less desire to spend- most of the bucket list has been ticked off...

[@parkmantle489]

What a great perspective. It's always a worry that you'll withdraw too much too soon but you also don't know what your health will be like as you get older and so I intend to focus on the earlier years and if necessary cut back when I'm older. I also like your comment about having the memories for longer the earlier you do something!

[@davem.4003]

@@Tensquaremetreworkshop It sounds as though you've had a fantastic retirement already - congratulations! Your comments do provide an indication why James will not make specific recommendations though - because each person's circumstances are different. I shall be in a similar financial situation to you but having retired around 12 years later, in that the state pension will cover the majority of our fixed expenditure but someone that is used to a higher income and higher expenditure will have a greater dependency on their personal pension savings. What to do with your surplus? Donate to charities, or family - this probably needs some professional financial advice.

[@Tensquaremetreworkshop]

@@davem.4003 Sounds like you are suffering from Parkinson's second law- expenditure rises to meet income. IMHO 'subscriptions' are a major contribution- the modern trend to break down ongoing costs into monthly payments. They are like leaks in a ship- they require constant baling to avoid sinking. You have much more control over your spending than your income- retirement gives you the time to examine each and every drain on your wallet, and determine if you are getting value for it. Or if there is a better choice. Yes, everyone's circumstances are different- and complex beyond the time a professional can spend on it. And, in almost all cases, the information is not available. Only you can gather where it all goes, and put your value on it. The only one fully vested in your interests is you. IFAs use crude measures such as 'risk apatite' - a construction that does not pass even the most cursory analysis. Professional advice? - I have yet to meet an advisor that does not follow his trite training, divorced from your reality. Never forget, s/he is doing it for money- his money. It really is not that hard- I have done many more difficult things in my life than manage my money. Do with the surplus? A friend of mine determined to will his money to charity (his children were well set up). A year later, I asked him how it was going. He was frustrated- his investigations (he is a thorough person) had not turned up a single charity that he felt worthy of his money. How diligent would a 'professional' be? Remember, most advisors do worse than the market. There is no science- it is a drunkards walk.

[@commonsense5555]

The 4 % rule sucks when you could never sell a share and actually get a very predictable raise every year with very little fluctuation of income by going the SCHD + REITS route and your wealth will continue to grow allowing a strong inheritance for your children and grandchildren or your charity of choice if you have no kids.

[@allthegearuk]

This is interesting but reading some of the comments remember this is specifically for retired people making withdrawals. If you are still building your pot and can ride out dips in the market you should still consider the S&P500 while it continues to perform.

[@MikePhillips-pl6ov]

I know, good point. I've been waiting for a video like this for ages, much neglected area, of those already retired or now at retirement age - everything else is for folks with a while to go before retiring. And yet many of the comments on here talking about/asking about long term investing for retirement! Please can't they let us slightly more mature folk have one video and one discussion on our needs, for a change!

[@blipblap614]

14:42 I notice the "success rate" of a 100% equity portfolio strictly dominates the standard 60/40 retirement allocation. Presumably, this is because of falling US interest rates since 1980 (and below 4% from 2008 - 2023).

[@scareybailey]

Many global funds are heavily weighted to the US, as it's still currently the chief value of equity in the world. A global fund only reduces the US exposure, but not by much.

[@michelbruns]

i have 2 etfs, one for the developed world (60% usa) and one for emerging markets (0% usa), developed weight is 70% and emerging markets 30%, going from 100% usa to ~50% usa is much lol

[@scareybailey]

@@michelbruns But you have chosen 2 funds to create app. 50% US weighting. Just choosing a single global fund, as the video indicates, does not reduce the US weighting by much.

[@michelbruns]

@scareybailey then take 2 etfs, wheres the problem lol. Even using the first one i mentioned drops the usa weight from 100 to 60

[@marshallmason1]

Why in the world would you want to backtest 108 years? The world changes more rapidly than a century, and the global economy changes breathtakingly more rapidly than that. You just need to look far enough back in history to capture most of the kinds of market conditions that tend to arise during our era. The two worst times to retire was July 2000 and September 2007. In both cases, 8% would have done fine with either investment style. Global barely does better in only the first case, but it comes at a cost a much higher volatility along the way. In the second case, S&P 500 blows it out of the water.

[@pistopit7142]

Great episode James. It's worth noting that adding bonds to portfolio greatly reduces success rate in a long run. This feels a bit ironic, assuming most/some investors add bonds to their portfolio to reduce the risk of runing out of money. There is no place for bonds in most portfolios if the plan is to have a high SVR for a long time. For what it's worth, some of my suggestions for future episodes: 1) Drawdown techniques vs how actual retirees drawdown their portfolios? 2) Protection from sequence of return risk in early retirement. 3) What should early retirees think of when moving permanently to another country. - this one is almost non existent subject and yet so many people would be interested. Take UK citizens residing/planing to reside in Spain as an example audience. 4) Factor investing for UK based investor.

[@mikerodent3164]

Yeah, his talk of bonds here (as in "60/40") is VAGUE in the extreme. Which is quite surprising: James, like every other FA on the planet probably, did not warn of the coming bond collapse 2 years ago. And a couple of weeks he did a video touching on bonds. But here he seems to have forgotten all about them again, and gone back the "stability" mantra, which I find disappointing. I don't think retail investors should hold bonds (and certainly not bond funds) at all.

[@PhillipHomer]

@@mikerodent3164 in my limited understanding, there is a huge difference between bonds (guaranteed return if you hold to maturity) and bond funds (which act much more like stocks). I hold bond funds and have learned the hard way that they don't hedge against a big stock dip - quite the opposite perhaps.

[@byteme0000]

I have to agree. Even as someone ready to retire, bonds are just not the place to be… at least for me. I’ve recently repositioned my portfolio for income. There are plenty of opportunities for stable equity investments that pay dividends and are less volatile (than, for example, an S&P 500 fund).

[@haiducflorin7847]

​@@byteme0000 can you name some stable economy investments..please..

[@ChidOki]

Check out some of the latest research/thinking in retirement planning - “bond tents” or “rising equity glide path.” You build toward retirement with a decreasing equity glide path and then upon retiring, maintain a conservative or balanced portfolio with 40-60% to bonds; then, start increasing your equity exposure again gradually over time. You avoid sequence of returns risk early on in retirement and then assure more growth over time.

[@mjs28s]

create a portfolio of stocks with a history of increasing dividends over time such that the portfolio averages 4.5% at first withdrawal and you only take 4% initial and then inflation adjusted going forward - you will never tap principal thus never run out of money while always getting to increase your lifestyle over time.

[@arubaga]

Lol, that is a good one. Don't invest in the S&P 500 - when that is one of the best indexes. You can't drive a car by looking backwards.

[@ralphparker]

I would like to see a good model of a bucket system, where 2 years are in Cash or FDIC insured investments (Bucket 1), 3 to 7 years are invested in Bonds, CD's, (Bucket 2). 8 years out (Bucket 3) would be invested in Total US market like VTI. Include in dividends and interest feeding Bucket 1 first, then Bucket 2. On good years, Bucket would be consumed to make up losses in Buckets 1 and 2 respectively. On poor years, Bucket 2 replenishes bucket 1. This could be personalized by being able to add Pensions, annuities and Social Security and planned expenses.

[@ostrogonov]

In then end, if the withdrawal of money is less than 3%, it can be easily achieved with a dividend ETF with similar yield and not touching the principal.

[@danvaida6938]

Exactly

[@Oxers-KO]

I completely agree that investing solely in the US near retirement is a risk, however, a global portfolio will have a high percentage of US stocks and if the US drops significantly, the chances are the rest of the World will see it too. I get the principle though.

[@aurinator]

I might agree with you on "investing," but Options-Wheeling SPY over and over while not necessarily ever even holding SPY is a better strategy than Buy-&-Hold IMO.

[@stubrooks2667]

Hi James - an interesting perspective! One question though, why are advisors still recommending a 60/40 mix?? when bonds have proved a disaster when compared to shares in recent times. they did not negate the recent stock market fall like they where meant to and did quite the opposite. i know that advisors may accuse punters like myself of 'recency bias' but i cant help feeling that more emphasis should be put on recent times (last 30-40 years) rather than the last 108. i have yet to see a youtube video too convince me of a valid reason to pick bonds, maybe you can convince me otherwise??

[@Ebenezer563]

Even with the long term analysis he used in the video, the success rate of the 60/40 portfolio was lower.

[@musheopeaus4125]

BEcause they are clowns

[@davem.4003]

Because it's not just about growth, it's also about reducing risk and volatility. James did say that this aspect is more important for those who are retired, or nearing retirement. If you still have 15-20 years before your planned retirement, then you would be more willing to accept higher volatility and risk in return for greater returns. Some people have commented that using a historical duration of more than 100 years is not relevant to modern circumstances. Similarly, the issues with bond rates vs. equities is a recent historical anomaly and from where we are today, bonds are predicted to provide a secure investment solution that could well exceed returns from equities in the short-term. The problem is that no one can accurately predict the future, so decisions are always a best guess of risk vs. reward.

[@Ebenezer563]

@@davem.4003 how are you defining risk? Surely the risk with respect to a retirement strategy is the success rate - the likelihood of not running out of money before the end of your timeline. As James shows in the video, the success rate with bonds is lower so you are MORE likely to run out of money and the risk is higher.

[@davem.4003]

@@Ebenezer563 The risk in my mind is the one described in James's video - that the fund could lose a significant part of its value near to your prospective retirement date and that could have a significant effect on your success rate, especially if you are retiring early and rely on drawdown to bridge the gap to normal pension age. Long-term, I agree that a 60/40 fund is extremely unlikely to achieve the growth of a fund containing a higher proportion of equities. Another response to stubrooks point is that many people simply do not want the complexity of managing investments into their 70's and 80's, so a likely destination for their pension fund is an annuity. Also, people in general do not understand the difference between risk and volatility, so they have a low tolerance for "losses" (meaning a reduction in the value of their investments) in the short-term, short-term being less than three years in the context of a 30+ year retirement.

[@PhilipMurray251]

Successful investing is hard work because it means disciplining your mind to do the opposite of human nature. Buying during a panic, selling during euphoria, and holding on when you are bored and just craving a little action. Investing is 5% intellect and 95% temperament.

[@privacyowl]

Could you tell what ETF or combination of “global stock markets” are you using to represent the global returns? I’m also interested in understanding the asset allocation of your “more diversified” portfolio.

[@shawniscoolerthanyou]

Yeah, I"m not sure how it's different from "global" when global should include large, mid, and small-cap stocks from all countries (with public markets).

[@Bugginout79]

We must remember times have changed most of the global market is top US companies that are worldwide now Bonds are different also as they are tax free as is the roth . Its very hard to replicate

[@KailinruAdao]

Thank you! I am a single mom, I've been thinking about investing going into 2024. I'm starting a business and am about to be financially stable enough to start putting money into the market. My biggest question before I get started is: How do I know if the stock market is too high right now so should I wait for a downturn before investing? Or what type of stocks (ETF, Index Funds, Penny Stocks, High Yield Dividends, etc.) should I buy at different turns in the market?

[@ArchieLatham502]

@sammyphon you're really doing well for yourself, my retirement plans are going down the drain. I've tried investing in the stock market several times but always got discouraged by fluctuations of stock value, I'd rather not reinvent the wheel. Since this strategy works for you, how can I contact your advisor?

[@Edgardo477]

Exactly what I’m doing again this week. The smartest thing I’ve ever done was having 30% in cash to buy on the way down in 2021. It hurt watching 30-40% discounts drop to 50, but grabbing Google, NVDIA, Apple, and others near the bottom has paid off. I love the bull outlook but I’m not confident to should hold all equities

[@ArchieLatham502]

Thanks for sharing. searched for her full name and her website popped up

[@KailinruAdao]

Thanks a lot🙏 i really appreciate. Was amazing speaking with Martha

[@adamnealis]

For me, the main point of the 4% rule is the idea behind it. Since it states "if blah blah blah you can retire", it's a good starting point. If you get to 4%, which is easy to track, take a closer look. The method is easy enough to replicate in a spreadsheet.

[@K_Art4845]

Hi James, I love your videos, this one is great, I must check my funds. I just watched another one where I found out you can put £2,880 into a pension and the govt will add £720 in tax relief even if you are not working or do not pay tax. My partner is not working but he does get some property income (less than the personal allowance at present). Could you do a video explaining pension contributions for non working partners in a bit more detail. Many thanks

[@davidbiran4572]

See the following form HMG: If you do not pay Income Tax You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you: you do not pay Income Tax, for example because you’re on a low income your pension provider claims tax relief for you at a rate of 20% (relief at source) Source: www.gov.uk/tax-on-your-private-pension/pension-tax-relief So anyone (up to the age of 75) can pay up to £2880 pa net into a SIPP and will receive 25% of the net sum (20% of the gross) in tax relief.

[@JamesShack]

This.

[@MikePhillips-pl6ov]

This is what I am doing

[@NickHoadley]

The problem with this is that in the last downturn, the hedges against a stockmarket crash such as bonds and gilts also crashed. Government gilt funds, supposedly the safest, dropped 30%. The safer diversified fund, where some assets hold up while others crashed, didn't work out. Appreciate this is a different point to investing in US stock index vs global.

[@jocar-1735]

Very useful information as always and essential viewing for those nearing or just started their retirement journey. Perhaps a mention of dynamic withdrawal guardrails could have been added as an additional method for sustainable withdrawals. As you have highlighted, investment fund and/or bonds selection for appropriate diversification is important since index funds will contain all listed companies and will therefore contain trash as well as winners.

[@Emrico35]

Past result don't guarantee future results, I agree. I believe dollar may lose its reserve currency status in upcoming 10-15 years. Bitcoin not discovered and understood much yet at the moment. More value on Bitcoin since fiat is losing value each day

[@PhillipHomer]

James, have you ever done a video on the exchange rate risk of investing in S&P500 if saving outside the US?

[@RobbieB123]

Would be interested to see this

[@timg.2392]

Somewhere in the past I heard about the concept of finite and infinite games and that the stock market is an infinite game. What is the difference? For finite games you can aim for winning but for infinite games you have to avoid to get ticket out of the game. On the stock market you can only lose everything one time and you are out and that is something you should avoid. Because a slight higher return is not worth risking to leave the game

[@garycumberland8089]

Ironic that you released this video today as S&P closed out yesterday up 24% for 2023. That being said, I totally agree with diversification, another great video

[@alistairstanger2940]

And was down 18% in 2022 …

[@garycumberland8089]

@@alistairstanger2940 I think that emphasized the point of diversification

[@alistairstanger2940]

Exactly 👍🏼

[@mikerodent3164]

How come you were never taught the meaning of the word "ironic" at school? I know, I know: you never paid much attention at skool. Teechers are a drag.

[@garycumberland8089]

@@mikerodent3164 I am content with my use of the word ironic

[@timelston4260]

A $1M 100% S&P500 portfolio that started withdrawals using the 4% rule in September 2000 would be down to $260K now. It could easily run out of money in the next 6.5 years. Both a US-based 60/40 and Global 60/40 at the same withdrawal rate during the same period are still holding right at their original $1M portfolio value.

[@Tensquaremetreworkshop]

Great and careful analysis- except for one point. Like most forecasters, you glibly put in a value for inflation. Yes, it needs considering- but there is a problem- not a single person in this country has the same inflation rate as CPI in the long term (and this is the long term). Having tracked accurately my costs for 35 years now (I started with Excel v1), I know what mine is- and it is way below CPI. This is especially true in retirement- you have reducing expenditure. I gave up golf (handicap was going the wrong way) and downsized (mowing lawns in retirement- no thanks) meaning my inflation over a 14 year period was actually negative. Plus I gained a tax-free lump sum. At 79, my income (state pension and annuity) exceeds my spending (despite all my efforts). Belief in inflation can cause you to retire later than you need to. Step one in any retirement plan is to understand your own costs, and your own inflation. Yes, it is grunt work, but essential.

[@timharu62]

I was a quant analyst for a top 5 investment bank, we analyzed bonds and concluded that it's an asset class to avoid for a longer-term investment horizon. We found that holding equities and cash ( shorter interest-bearing securities - duration of less than 2 years) provided much lower volatility without compromising returns. We of course could not socialize this for obvious reasons. For the last 15 years I have been a global HR leader for various Fortune 500 US companies all are part of the S&P 500 index. The S&P 500 companies are no longer American firms, they are global companies that do business around the world to take advantage of cheaper labor and revenue opportunities. 50% of the world's most profitable companies are American firms and they are all part of the S&P 500 index. You do not need to diversify into international markets. Owning the S&P 500 Index is the best investment.

[@elliowb2]

You make some excellent points. What you are saying is strongly supported by decades of academic research as well, however, you put it in a more palatable form. Your key points are great: 1) each of us only has one time path through the market (which will cause our actual results to vary from the average, sometimes very significantly); 2) we can alter our withdrawals if needed part way through if we are on a low return path; 3) DIVERSIFICATION is important, it lowers risk and can actually result in higher returns as well. Thanks.

[@soundslight7754]

As the client has expected 40 years of life ahead of him, why do we cash in all his holding on retirement? Wouldn't investing most of his pension pot in dividend growth securities within his pension wrapper be a smarter move?

[@GaryCAMERON-lu9yc]

Great video James . I’m in process of looking to invest £1.1m in my SIPP and like the 60/40 split as im now retired and taking an income. I’m struggling to get my perfect selection of etf and bonds. Any suggestions? I appreciate not advice but shortlist would help.

[@Indy_at_the_beach]

There is no such thing as guaranteed return. Annuity schemes promise that but have so many loopholes and fees that you will end up living in a box when you retire.

[@TheSimArchitect]

I wonder what happens if we have a Japonification for the next few decades and we are already or near retirement on a very lean FIRE having to survive without a State pension for potentially 30 years. As you have shown a collapse mid retirement can make you fail if you are using variable income while fixed income might be too low 😬 Happy Almost New Year 🥂

[@richardwhite1120]

That's a very good point. At 63 I'm old enough to remember the rise and fall of the Nikkei, and some of the comments in the press during the early 1990's which,with hindsight, were hopelessly wide of the mark.

[@johnoneill1011]

What happens? You go back to work until things get back on track.

[@TheSimArchitect]

The problem is being employable. @@johnoneill1011

[@michaelhuber1107]

Large cap Value companies w an etf like SCHD should help lower your volatility in retirement

[@TheSimArchitect]

Thanks for reinforcing my point, @@johnoneill1011 That's obviously what most retirees, specially ones that retired early on a lean FIRE, want to avoid, and what the governments want to promote as they want more participation in the workforce by this specific segment, as it tends to be the most productive (while working).

[@irenaeusofpensacola]

Even as a fellow income investor, my first reaction after seeing the title of this video is to throw the virtual wrench at you, but after hearing your video, I somewhat agree with your conclusion. If someone asks me for one thing to invest in, I recommend a total market index fund (which IS a good investment), but if someone wants to get really involved, I teach them about income investing. In my retirement account, I hold dividend growth ETFs, high-yield dividend ETFs, bond funds, and leveraged bond funds. In my taxable accounts, I hold mostly dividend stocks (BRK-B is an exception) and high-yield municipal bond funds.

[@leecraddock4037]

As usual another excellent video. Not what I expected and thanks for the tip, as I am hurtling towards retirement. Keep the videos coming, they are really good at assisting your viewers understanding of a complex subject matter

[@Miner-dyne]

Interesting concept. The pamphlet I read on retirement planning in the 1970's still holds true. It used a simple future value calculation, taking into account inflation. This would have been a 2 minute video if you had just said diversify your investments. The charts and graphs should help some get the point. Darn good video!

[@NicoleWillams-d1q]

The difficulties that the current generation faces are quite depressing. I wanted to know how to use some money that I had. I used a small portion of it for online sales, but that failed. My primary concern is safeguarding my $300K stock portfolio from loss, but I'm not sure how to go about it.

[@dannyowen-k4y]

Yes, things may be difficult now, but I've realized that there are always possibilities to make significant gains in bear and bull markets, recessions, and economic booms. I used to call people out when they boasted about making a fortune in these down situations, until I actually did.

[@margie-b2v]

Nice. People often underestimate financial advisors' importance. Over 50 years of data reveal that those who work with advisors typically earn more than those who go it alone. I've been fortunate to work with one for 13 years, resulting in a $1 million portfolio, largely from early investments in AI and other growth stocks..

[@emilyburton-h2l]

That's really great. I've tried doing some research myself to hire a financial advisor, but it's really overwhelming. Could you recommend who you work with please?

[@margie-b2v]

Monica Shawn Marti has always been on the top of my list..She is regarded as a genius in her area and well knowledgeable about financial markets. I highly recommend you look her up if you want excellent collaboration.

[@emilyburton-h2l]

She appears to be well-educated and well-read. I ran an online search on her name and came across her website; thank you for sharing.

[@tomhuyck734]

What is the "global portfolio" he speaks of? What is the global equity mix he proposes? Can we assume that US equities are part of the global portfolio?

[@Ferdinand208]

Does Ben have the stomach for 2022 with a 60/40 portfolio? Would he have sold everything in 2022? If he didn't in 2022. Why would he do it with a 100/0 portfolio?

[@jaquevius]

I’m with you. In my after tax brokerage accounts, I plan on having 5 years of living expenses in cash equivalents like money market, cds and possibly some tax advantaged bonds to weather down markets up to 5 years. Everything else will be in S&P 500 and I’m fortunate enough to have ~90% of that in Roth and 10% in traditional, so my taxes will be simple and have more spending power. I want those accounts to go up and down like a yo yo on a string that I’m holding while walking up a steep mountain to the top.

[@Ebenezer563]

It's very simple: Ben is risk averse so he wants to increase his chance of failure by adding bonds.

[@jaquevius]

@@Ebenezer563 ha. Kind of true. Bonds will likely do very well the next couple of years as interests rates decline, but the old dogma of bonds as safe guards probably doesn’t apply to current and future financial reality. Unless you don’t have the short term reserves to weather down markets and MUST pull the same amount of money out every single year without making adjustments, I just don’t see bonds as a sound investment. Maybe a small percentage for the less common years where bonds do outperform stocks, but 40% of your assets barely keeping up with inflation (or not even keeping up quite often in the last two decades) seems to be riskier to me.

[@BillyCarsley]

If you're retiring now, sure move to a money market. But you could also just leave everything in the market index and take 4% (or anything lower than 5.8%) each year. That's because the market goes up and down, but overall it goes up.

[@MikePhillips-pl6ov]

James, many thanks for this. I wish you and other KZbin financial commentators would do more like this, for those of us many, like me, already at retirement age or already retired, with money to invest and starting from zero. 99% of videos are for either much younger folks with a lifetime to invest, or those with 5-10 years to go until retirement and how to plan for it. There are many like me in my situation - only started earning the bigger salary late in career and now with a lump sum payout (company assumes it'd be for a pension, but up to the individual). No previous investments, so have to get that money working for me NOW, with some growth, but need an income. Luckily I'm still fit and working age, at 61 I may find more work, and have the mortgage paid off, and a small pension already coming in. But if folks at 60 can't find work again, they need any lump sum they have working for them. Any suggestions on funds to invest in, dividend stocks and funds, and income investing, would be very welcome! I enjoy all your videos, but this one is the closest to my own circumstances. Thanks.

[@davem.4003]

You may not realise it but your situation is not so different to someone planning to retire in 10, or 20 years because, if you are still in good health, then you could still be benefiting from your pension investments in 20-30 years time. The main difference, if you need to consume some of those investments as income to take you through to normal pension age, is to have sufficient funds in accessible savings to carry you through any volatility in your other investments. I recommend viewing James's previous videos. In your situation, it is important to gain a sound understanding of the HMRC (assuming that you are in the UK) tax rules. For example, if the lump sum that you referred to is part of your pension (Pension Commencement Lump Sum "PCLS") then you are not allowed to put that back into a pension arrangement (pension recycling) but you can put it into an ISA, subject to annual limits (currently £20k for the 2023-24 tax year). Commencing drawdown from a Defined Contribution scheme, or SIPP also sets a limit on future pension contributions, including from continuing employment.

[@sbkpilot1]

You are missing the point that US companies have become increasingly global in the last two decades so you are getting global diversification even holding US stocks

[@mwp6662]

Really great deep dive! I’ve noticed that the US economy is more resilient and set up for business than other parts of the world so perhaps the assumption the US will continue to outdo others is a good one

[@jimbob2hats925]

Well yes in general for investment only and over long-term, but kind of against the whole point of the video! (e.g. avoiding volatility & consistent drawdowns)

[@mwp6662]

@@jimbob2hats925 About managing risk and volatility, yes, I suppose you're right. But some of the desire for hedging that risk is the assumption that the US will not be as strong as it has been, and that the last 100 years may be more of an anomaly in history

[@jimbob2hats925]

@@mwp6662 did you not see the graphs at 12:40 and 13:00 (ish)? It already is volatile...

[@KelticStingray]

​@@mwp6662again the video isn't talking about hedging "against" thst risk. It's talking about volatility and drawing down from this.

[@Petersworld77]

Surely the answer is to change investment strategy as you go along, ie take a riskier approach early on to built up a larger pot and then as you get older move to less riskier investments to avoid downturns. Also, in the uk you get a £10k pa state pension from 67 so is this built into the model?

[@Bluearmy76]

Bet against the US S&P 500 at your peril…. Going back 108 years isnt really relative to anyone alive. What i will add, if you are close to retirement or at retirement keep a 3 year cash buffer fund just incase there is a large crash. This can be kept in a money market fund so it continues to grow to some degree. If there is a crash, draw from this cash fund at that time so not to damage the long term performance of the S&P 500 fund, until it recovers. You get the best of both worlds then 🙏🏻

[@wololo4761]

I don't believe James suggested betting against the S&P 500. Just that it isn't necessarily going to be the best tool for this job.

[@Bluearmy76]

@@wololo4761 it is if you keep a Cash Buffer, in case of a crash… Run the exercise again for the last 30 years (much more relevant than the 108 years used), utilising cash in the event of a crash (2001/2008/2019) the S&P 500 would crush it!! You may have 4/5 bad years (which the cash would assist with) but if you invested elsewhere you would have lost out big time on the other 25/26 years

[@johnstewart1814]

What money funds? Aren’t they fixed years? Any examples?

[@SigFigNewton]

Nobody recommended betting against the S&P500. He’s recommending against late stage investors keeping all their money in a volatile place

[@johnstewart1814]

@@SigFigNewton what funds for cash?

[@inspectormills3290]

Good thing I paid zero attention to this dribble last month. I think the S&P 500 hit 5,000 plus today.

[@daviddean6032]

Happy New Year, Mr. James Shack. Thank you for all your videos and may I wish you the very best for 2024 and appreciation from Nova Scotia, Canada.

[@jont96686]

Is it not the case that back testing means you only test outcomes starting from the last century? If you start a test from 2001 you can only check 22 years results, which take your hypothetical pensioner to 77. So most of this data is from an era with totally different conditions, mostly far lower debt in the financial system. So I would question how relevant the historical data really is.

[@MikePhillips-pl6ov]

I'm reading a book on choosing investment funds, and the author suggests never using back testing, or never even looking at past performance!

[@fly1ngf1sh]

Great video James. I’ve seen a similar argument against investing in just the S&P500 made before but your explanation is much clearer and more compelling!

[@tonykelpie]

Being dependent on investments alone for retirement is often bad planning. Occupational pension opportunities should be fully utilised throughout working life, and State Pension investment should be optimised too. Investments can then be the ‘icing on the cake’ , or passed on to future generations

[@davem.4003]

The vast majority of non public-sector pension schemes are now "Defined Contribution" (DC), or money purchase schemes, so they are investment based. Unfortunately it also seems that the charges can be high, the choice of funds small and the default fund selection may not be appropriate for some employees. I agree that optimising the state pension is also important but for some (especially high earners) the state pension will only contribute a small part of their desired retirement income.

[@keithahlstrom176]

Where I live, the vast majority of people are self employed contractors. No company pension except the investment you sort out for yourself. I’m planning on moving to a mud shack in Somalia for my “retirement”.

[@stevegeek]

Top class video James. I’m 55 and just started my early retirement so this is very relevant to me. I have a similar sized pension to the example and was pleased to hear that my strategy of going for good global diversification is the recommended approach. I’ve been using my SIPP provider’s portfolio X-Ray tool to make sure I am well spread across geographies and sectors, with a mix of growth and income funds. It’s slightly scary, knowing that decisions I make now will impact me (and my family) in the future, but I also quite enjoy researching funds, and watching YT videos like this! 😊

[@gcbadger]

Which Sipp provider do you use? Mine does not offer anything like as useful as this.

[@stevegeek]

@@gcbadger I’m with Interactive Investor. Very impressed with their service and platform so far. I’m in the process of moving my S&S ISA over to them as well (from Hargreaves Lansdown) due to their lower fees.

[@Steve-wz5pz]

Wow, there is some whining below due to the title. The content is great and makes total sense, so thanks!

[@sarchmaster5779]

Excellent stuff again James. One issue with factor investing is the psychological aspect, small cap value has shown itself to outperform historically, but it could underperform for years or decades. You need to be absolutely sure you feel good holding it while you can read in the paper again and again how "the stock market" is having record breaking gains and your small cap value ETF is going nowhere.

[@pingbounce2851]

Have there been more longer periods when small caps have underperformed the S&P than vice-versa? If not, you could also make the same psychological argument about the lost decade (2000-2009) for the S&P, which returned -0.9% while small caps returned +12.3%. Its just part of a diversified portfolio. Different parts go up and down at different times. In a sense, investing in the S&P 500 or the MSCI World Index is factor investing because you are only going for medium and large caps.

[@diogoadega5030]

All the showcases i see similar to this keep forgetting or not taking into account one simple thing: Where are the taxes you have to pay on every withdraw? Because in Portugal for instance the taxes over stocks gains are 28%.... How much more do you need taking this into account?

[@simoncook1325]

What about taking state pension into account?

[@mikerodent3164]

Loose change innit? It'll buy him a couple of bottles of Thunderbird wine a week.

[@aca99da]

Very interesting analysis James. One of the reasons I've steered my portfolio to US stocks is that the vast majority of the research into safe withdrawal rates seems to be based on US stocks - so I felt like I was 'wandering off into the unknown' if I deviated too much from US stocks. So this is useful insight. Although there is one other factor to consider and that is that global stock funds seem to have higher management fees than a fund of purely US stocks, which I would imagine in reality makes this sort of analysis look slightly better than it turns out to be for global funds when you've taken the management fees into account.

[@IAmebAdger]

A good point on fees, however if you do passive investing with low cost index funds rather than active investing you get to ignore management fees and only have to deal with OCF and platform fees which you can minimise to the point of insignificance.

[@mikerodent3164]

HSBC FTSE All-World Index Fund Accumulation C: 0.13% OGC on the fund and the ETF. The Vanguard equivalent is 0.23% (in the UK).

[@george6977]

VEVE ETF is 0.12% ongoing charge.

[@mikerodent3164]

@@george6977 VEVE is not All-World: it's Developed World. Which is fine if that's what you want.

[@patrickdrewello4196]

So invest in the US to build greater returns whilst building up your pension and then shift over to diversified global stocks when you start retirement?

[@loutol2952]

Totally agree with your call!

[@MikePhillips-pl6ov]

Or did the video not mean Global plus S&P at retirement?

[@stephenpantry2626]

Thanks James. Great content as always. Would be great to hear more about possible dynamic withdrawal stratagies, as I suspect that could have a massive impact on success outcomes for fairly small changes to early retirement incomes.

[@davem.4003]

Check out James previous video: Watch "Stock Market Crash in Retirement - How to protect your future" - kzbin.info/www/bejne/pardg2qqgtKdb9Esi=JwHTAgkEXCdYi76R This may provide a partial answer to your question.

[@Paul71H]

7:53 - Are those 11.46% and 9.85% numbers average returns or compound annual growth rate (CAGR)? CAGR is a better number (and is typically a bit lower), because it gives a more realistic idea of the returns you actual received or could expect to receive.

[@Henry-nt5zg]

So basically invest in something like the Vanguard Global All Cap, as that has lots of small cap stocks as well as a global diversification?

[@shawniscoolerthanyou]

I thought that's basically what he's saying, but how is that different from the "global" column on the graph?

[@Henry-nt5zg]

I'm not sure.. I guess it would fall under the global column but I'm struggling to see what to invest in/ which fund to choose if we want the "more diversified" option. US: SNP 500, Global: Global All Cap or similar. More Diversified: no idea!

[@bartbrodsky7190]

This is a brilliant summation of sequence of returns risks in an overpriced market. Definitely worth considering diversifying my stock allocation outside the USA, epsecially at current valuations.

[@MrJason005]

I'm only 22, so I will keep investing my entire SIPP in the S&P 500 (by buying VUSA units). Hopefully I stay alive long enough to witness my portfolio grow!

[@mikerodent3164]

Unless you're suffering from some terrible disease (or ride a motorbike), your chances are VERY good on that! But if it doesn't grow over the next 2 years, say, just remember this: there has NEVER been an L-shaped crash on any stockmarket (except the Russian one in 1917). All crashes are V-shaped and all indices recover. Bear in mind too that the PAIN of losing money in investments is about 20 times more painful than the pleasure of seeing an equivalent growth. In such an eventuality, tough it out and hold the faith, Mr Jason!

[@boyasaka]

In the uk You need to spend all your private pension pot befire your say 75 as once that age the state pension is more than enough and if you end up having to go into a home ,if you have money You will have to pay £750 ish a week for your care ,if you have not much money ,the government pays that 750 a week My friends mother is paying 900 a week for her care in nursing home ,her friend in next room pays nothing as ahe doesn't have much

[@beau6113]

00:10 right out of the gate this is wrong. Hard to take anything else seriously.

[@rezwhap]

If you mean the chart, it’s a bit sensitive to his exact date range but looks broadly right. TR in GBP.

[@billerrthum8831]

I’ve tried investing in more international stocks. Where the S&P always out performed even during the rise of China. Your advice makes sense, but doesn’t seem to work.