TIME FOR SAVINGS. Watch and coins copy space concept for saving fund, financial, banking, investment, money or other your content. Malaysia coins.

How soon can I retire?

Reposted from “How Soon Can I Retire?”

TIME FOR SAVINGS. Watch and coins copy space concept for saving fund, financial, banking, investment, money or other your content. Malaysia coins. – How soon can I retire? June 1, 2017

 NEW YORK (CNNMoney) — “How do I calculate the earliest possible date I can retire — my “take this job and shove it!” date — beyond which working is my choice and earnings are gravy?” — Jason, New York

Like Jason, many of us are counting down to the day we can say “shove it!” to a job we hate and pursue our own interests. But most people wrongly assume that day won’t come until our 60s or 70s. Lots of people are taking the concept of “early retirement” to new extremes by becoming financially independent in their 50s, 40s, or even 30s.

While the concept of “retirement” may sound boring to some people, early retirement guru Brandon of the Mad Fientist blog prefers to call it “freedom.”

“Retirement makes you think of [old people] moving to Florida,” he says. “But really, retirement is freedom. Freedom to do what you want to do with your time, freedom from jobs you don’t like, freedom from bosses you don’t like.”

Brandon, who only uses his first name for privacy reasons, is part of an online movement of early retirement enthusiasts who preach that retirement is attainable for anyone at almost any age. It’s just a matter of calculating how much it costs for you to live, and saving up enough to support yourself for the rest of your life.

First, understand the math.

There are many schools of thought on how to calculate your number, depending on your spending and age.

“Traditional late-retirement advice aims to maximize lifetime consumption and what people therefore look at is either saving a million dollars or saving 10-15% of all income over some 40 years on the job,” explains Jacob Lund Fisker, author of the book and website Early Retirement Extreme.

But for those who want to retire much sooner than age 65, he says, that conventional advice does not apply.

“The goal [for early retirement] is to save 25-35 times one’s annual expenses. Once this goal is reached, one is financially independent and working is a choice.”

The early retirement rule is simple: For every $1,000 you spend a year, you need to invest $25,000 to $35,000.

The more money you save, the more you’d have to spend. Similarly, and key to many young retirees, the less money you spend each year, the less you have to save and the sooner you can retire.

This breaks down to spending, Fisker says. “The easiest way to find $1,000/year in the budget is to start the few largest expenses — namely, housing, driving, and eating. It’s easier to make a few decisions about a few big items than constantly make decisions about many small items.”

But how do you make the money last for decades? A common rule of thumb is what’s known as the “4% rule.” “This equation multiplies your spending by 25 to give you how much you need to save. If you need $40,000 per year, multiply that by 25 a year, you get a million bucks,” explains Fisker, “$40,000 is 4% of a million.”

But that assumes your money consistently earns at least 4% a year. Some experts think the rule is flawed and could cause some early retirees to run out of money.

Fisker takes an even more conservative approach with his equation: Annual expenses should be less than 3% of your invested savings. So for that same $40,000 a year in income, you’d need $1.3 million invested. (Fisker also has other tips on calculating how much money you need to retire.)

And of course, it never hurts to start planning early.

“Less than a decade of delayed retirement savings can cost someone $1 million in forgone savings,” says financial adviser Barbara O’Neill. “People who start saving at age 34 and accumulate $1 million at age 67 could have saved $2 million had they started at age 25, assuming an 8% average annual return.”

Or, they could have just retired much sooner.

Second, figure out when you’ll get there

So now that you have a general idea of the amount you need to call it quits, it’s time to figure out how long it’ll take you to get there.

A million dollars may seem like a big number, but the more you can save, the faster you’ll reach your goal. Say you’re 25 and you want to retire by 45. Investing $1700 a month will get you to a million in 20 years, assuming an 8% return. Too steep? Learn to live on less and you won’t need a full million. Or be less ambitious about your retirement age. Saving $675 a month will get you there by age 55. This CNNMoney calculator can help you figure out how long it’ll take.

Or try the FI Tracker on the Mad Fientist blog. This online app allows you to track your progress toward financial independence by calculating your net worth, expenses, savings, and countdown to retirement.

If this all feels too overwhelming, you can always find a Certified Financial Planner to walk you through the steps and coach you through your best path toward retirement.

“My best advice to someone trying to figure out if they can retire is to spend some time with a CFP to help them make one of the biggest decisions in their life,” says financial planner Howard Pressman. “You really only get one shot at this and it’s worth doing it right.”

Copyright 2017 Cable News Network. Turner Broadcasting System, Inc. All Rights Reserved.



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Investment Shock Absorbers

Ever ridden in a car with worn-out shock absorbers? Every bump is jarring, every corner
stomach-churning, and every red light an excuse to assume the brace position. Owning an
undiversified portfolio can trigger similar reactions.

In a motor vehicle, the suspension system keeps the tires in
contact with the road and provides a smooth ride for passengers
by offsetting the forces of gravity, propulsion, and inertia.
You can drive a car with a broken suspension system, but it
will be an extremely uncomfortable ride and the vehicle will
be much harder to control, particularly in difficult conditions.
Throw in the risk of a breakdown or running off the road
altogether and there’s a real chance you may not reach
your destination.
In the world of investment, a similarly bumpy and
unpredictable ride can await those with concentrated and
undiversified portfolios or those who constantly tinker
with their allocation based on a short-term rough patch in
the markets.
Of course, everyone feels in control when the surface is
straight and smooth, but it’s harder to stay on the road during
sudden turns and ups and downs in the market. And keep in
mind the fix for your portfolio breaking down is unlikely to be
as simple as calling a tow truck.
For that reason, the smart thing to do is to diversify,
spreading your portfolio across different securities, sectors,
and countries. That also means identifying the right mix of
investments (e.g., stocks, bonds, real estate) that aligns with
your risk tolerance, which helps keep you on track toward
your goals.
Using this approach, your returns from year to year may not
match the top performing portfolio, but neither are they likely
to match the worst. More importantly, this is a ride you are
likelier to stick with.

Just as drivers of suspensionless cars change their route to
avoid potholes, people with concentrated portfolios may
resort to market timing and constant trading as they try to
anticipate the top-performing countries, asset classes,
and securities.

Here’s an example to show how tough this is. Among
developed markets, Denmark was number one in US
dollar terms in 2015 with a return of more than 23%. But
a big bet on that country the following year would have
backfired, as Denmark slid to bottom of the table with a
loss of nearly 16%.¹

It’s true that the US stock market (by far the world’s
biggest) has been a strong performer in recent years,
holding the number three position among developed
markets in 2011 and 2013, first in 2014, and sixth in 2016.
But a decade before, in 2004 and 2006, it was the second
worst-performing developed market in the world.¹

Predicting which part of a market will do best over a
given period is also tough. For example, while there is
ample evidence to support why we should expect positive
premiums from small cap, low relative price, and high
profitability stocks, these premiums are not laid out

evenly or predictably across the map. US small cap stocks
were among the top performers in 2016 with a return
of more than 21%. A year before, their results looked
relatively disappointing with a loss of more than 4%.
International small cap stocks had their turn in the sun
in 2015, topping the performance tables with a return
of just below 6%. But the year before that, they were the
second worst with a loss of 5%.²
If you’ve ever taken a long road trip, you’ll know that
conditions along the way can change quickly and
unpredictably, which is why you need a vehicle that’s
ready for the worst roads as well as the best. While
diversification can never completely eliminate the impact
of bumps along your particular investment road, it
does help reduce the potential outsized impact that any
individual investment can have on your journey.
With sufficient diversification, the jarring effects of
performance extremes level out. That, in turn, helps you
stay in your chosen lane and on the road to your
investment destination.
Happy motoring and happy investing.

1. In US dollars. MSCI developed markets country indices (net dividends). MSCI data © MSCI 2017, all rights reserved.
2. In US dollars. US Small Cap is the Russell 2000 Index. Frank Russell Company is the source and owner of the trademarks, service marks, and
copyrights related to the Russell Indexes. International Small Cap is the MSCI World ex USA Small Cap Index (gross dividends). MSCI data
copyright MSCI 2017, all rights reserved.

‘‘Outside the Flags’’ began as a weekly web column on Dimensional Fund Advisors’ website in 2006.
The articles are designed to help fee-only advisors communicate with their clients about the principles
of good investment—working with markets, understanding risk and return, broadly diversifying
and focusing on elements within the investor’s control—including portfolio structure, fees, taxes, and
discipline. Jim’s flags metaphor has been taken up and recognized by Australia’s corporate regulator
in its own investor education program.

Past performance is no guarantee of future results. There is no guarantee an investing strategy will be successful. Diversification
does not eliminate the risk of market loss.

Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the
management of an actual portfolio. Frank Russell Company is the source and owner of the trademarks, service marks, and
copyrights related to the Russell Indexes. MSCI data © MSCI 2017, all rights reserved.

All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed
as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
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Passive investing, a winner in 2016, shows no sign of stopping

Reposted from

Trend expected to accelerate in 2017 thanks to ‘fiduciary rule’

2016 was the year of the passive investor—again.

One of the biggest investment trends of the past decade continued unabated this past year, as investors rotated out of active investments—where the components are chosen by an individual or team rather than being pegged to a benchmark—to passive-based ones.

According to Morningstar, active funds saw outflows of $285.2 billion in 2016; passive funds attracted inflows of $428.7 billion. This extends a trend that has occurred for nearly 10 years, according to EPFR Global.

While more assets continue to be held in active strategies than passive—$9.3 trillion versus $5.3 trillion, according to Morningstar—the shift is clear, and the reasons behind it are simple: Not only are passive-based strategies typically cheaper than active ones (analysts see the industry in a “race to zero” when it comes to fees), they’ve historically boasted greater performance.

Winning may be hard to measure. Passive strategies, by definition, cannot outperform (or underperform) their underlying index. And, the number of active strategies that can consistently “beat the market” over the long term is essentially zero. According to S&P Dow Jones Indices, a mere 0.81% of large-cap domestic equity funds remained in the top quartile of performers over five consecutive 12-month periods. Results were even worse for other market cap and asset class categories.

These issues—performance and fees—have also led to an exodus from hedge funds and their Exchange-traded fund imitators in 2016.

Passive strategies particularly pay off in bull markets, when gains are fairly broad-based. In order for an active equity fund to outperform this year, it would have had to surpass the S&P 500’s SPX, -0.07%  11.1% rise, and do so by such an extent that the gains were larger than the broader market’s return even after fees were taken into account.

That outcome is so hard to achieve that in a relatively strong period for active managers—the third quarter of 2016, when markets were extremely volatile due to the fallout from Brexit and the U.S. election—only 53% of active managers managed the feat.

Opinion: This might be the time to turn away from index funds

A number of active managers fail to outperform because they have low degrees of “active share,” meaning they have a high overlap with their underlying benchmark. This limits the funds’ potential for outperformance, especially after fees are taken into account.

According to Andrew Slimmon, a managing director at Morgan Stanley Investment Management, it is extremely difficult for an active manager to outperform net of fees if their active share is below 80%. Arguably, only one well-known entity has managed the feat: the Dow Jones Industrial Average DJIA, +0.16% which is chosen by committee and has outperformed the S&P 500 for large stretches of time.

The move into passive is not only seen continuing in 2017, it is expected to accelerate, when the Labor Department’s “fiduciary rule” takes effect in April. The rule requires that the financial advisers and brokers who handle individual retirement and 401(k) accounts must act in the best interest of their clients, rather than recommending investments that, although clients may be able to afford them, may not be the cheapest or best options.

Advisers are more likely to recommend passive to a far greater extent than active or “smart beta” funds, which use rules designed to deliver a particular investing strategy like “low volatility” or “momentum.” These funds have higher fees than passive strategies, and research has shown that they don’t boast notable or consistent outperformance over passive strategies.

In May, Morningstar estimated that “upwards of $1 trillion may move into passive investments” as a result of the rule. By another estimate, the market for exchange-traded funds—more tax-efficient than mutual funds and heavily tilted toward passive strategies—could triple to $10 trillion by 2020.

Advisers to President-elect Donald Trump have said that he would repeal the rule, but most industry watchers think that step is unlikely. Even so, such action isn’t expected to halt the trend toward passive investing.


Couple happy with money

Does Your Spending Bring You Joy?

Re-posted from Does Your Spending Bring You Joy?

Think about the last thing you bought, or the last several things. Did they add happiness or a meaningful experience to your life? Some experts think they should.

“Most people get money in their lives when they work,” says Manisha Thakor, Director of Wealth Strategies for Women at Buckingham & the BAM Alliance and author of Get Financially Naked. “When you spend money, what you’re spending is your life’s energy. I often observe people spending money in ways that bring absolutely no joy.”

When you spend money, what you’re spending is your life’s energy.Manisha Thakor

What Is “Joy-Based” Spending?

The idea behind joy-based spending, Thakor says, is to squeeze the maximum amount of joy from your money. That means being mindful about what you want, what’s meaningful to you, and whether the things you’re spending on are enhancing your life. Many people haven’t viewed their spending as a potential key to happiness, and when they’re introduced to this concept, it’s a welcome revelation.

“There seems to be, societally, a very deep hunger for bringing more joy back into daily living,” Thakor says. “And I think that goes hand–in–hand with the recognition that time has become our single most precious resource, and that the time/money equation is much more tightly linked than any of us have given proper honor to in the past.”
There seems to be, societally, a very deep hunger for bringing more joy back into daily living.Manisha Thakor

This approach to spending essentially flips budgeting on its head, giving people the freedom to explore what makes them authentically happy in life. Rather than linking money with guilt and judgment, you’re linking money with happiness. “You get to go on a treasure hunt of figuring out where you might be leaking money, so that you can take that money and put it toward the things that are enhancing the joy in your life,” Thakor says.

Where Do You Start?

Joy–based spending requires deep self–reflection and awareness. You must think about what matters the most to you and what is key to your happiness as an individual. For Nick Messina, 30, joy–based spending meant taking a leave from his corporate job to travel the world and spend money on experiences instead of things. “I find myself less stressed, more satisfied and with a whole lot less clutter, compared to when I spent the majority of my money on physical amenities,” says Messina, who was most recently in China.

In a society in which people are constantly on a quest for more — more money, more possessions, a bigger house — joy–based spending means changing your focus. It means taking a break from a busy life to figure out who you are and what would satisfy your soul. “What would happen if we changed our quest for more to a quest for awe in daily living?” Thakor says.

You don’t necessarily have to travel around the world to find your key to happiness. For Roberta Perry, 54, joy comes from the drum lessons she’s been taking for the last 13 years. “I literally started playing because I always liked banging on tables,” says Perry, who lives in Bethpage, NY. “It has changed my life, and is the thing I turn to when I am feeling low or stressed.”

Spending Focus: Houses, Cars, Education And Everyday Expenses

Joy-based spending can be applied to both big-picture and small-picture thinking:

    • House: On a larger scale, is your grand lifestyle — and grander home — making you happy? For Thakor, it wasn’t. “I once lived in a house that had more bathrooms than people, and rooms that literally weren’t used for months on end,” she says. “Then you’d pay a cleaning person to come and clean this space that you weren’t even really using. Was that bringing me joy?”

    • Car: People sometimes feel pressured to drive an expensive vehicle, and there’s stress that comes with keeping up with the payments and maintenance. Are you getting adequate joy out of what you’re driving? Nearly 40% of households with a luxury vehicle no longer owned one four years later, according to a Federal Reserve analysis. In another survey, nearly one in three luxury car owners felt negatively about purchasing another luxury car in the future, mainly due to current and future affordability.

Nearly 40% of households with a luxury vehicle no longer owned one 4 years later.Federal Reserve Analysis

    • Education: Another area of spending–joy mismatch is education. In a time when the average college graduate is leaving school with more than $37,000 in student loans, according to Student Loan Hero, Thakor wonders whether people are taking the time to really consider whether their college choices are the ones that will bring them the most happiness. “We have not helped people think through clearly enough what is a reasonable amount to spend relative to the career path being followed and what the commensurate debt would mean for this person’s life,” Thakor says. In one survey from American Student Assistance, 30% of those with student loans said their debt was the deciding factor or had a considerable impact on their choice of career, and 29% said they’ve delayed marrying because of it.

The average college graduate is leaving school with more than $37K in student loans.Student Loan Hero

  • Everyday spending: Think of all the little things people spend money on: utility bills, takeout, those drinks with friends on Friday night. It might be hard to imagine that paying your cable bill could bring you joy, but if you’ve put conscious thought into what you really use and need — and trimmed your bill accordingly — that monthly expense can bring you a sense of satisfaction. And that dinner with friends can feed your soul, so long as you’re spending quality time with people who are important to you. If you leave those encounters frustrated by a noisy restaurant, a too–high group tab and that hour you were stuck talking to someone you find draining, you may want to rethink how that purchase makes you feel.

Bringing Mindfulness To Spending

“When I first started talking about this concept, it was at a very micro level, and it was truly about helping people get rid of the gym membership they didn’t really use,” Thakor says. “Then it moved up to slightly bigger levels, to ‘Wow, this is a great tool to see if you bought more house than you can afford.'” Now, she says, the discussion has expanded to broader issues: How much do you really need? How much is enough?

In a way, joy–based spending is about mindful finance. You must be deliberate about what you’re choosing to spend your money on and what you’re getting from the equation. One way to do this is to break your income down into what you’re making per hour. You can use this information to decide whether new purchases are worth it — because they represent a defined amount of your working time.

For Jeremy Bray, 29, this technique helps him avoid spending money unwisely. “Whether it’s a new computer or concert tickets, I always ask myself how many hours it will take to make the money to purchase it, and is what I want worth that amount of work?” says Bray, who lives in Pueblo, CO. “Sometimes it is and sometimes it isn’t.”

Why aren’t we thinking about the time–money relationship in a more mindful way?Manisha Thakor

At its core, joy–based spending is an acknowledgement that the one resource for every single person on the planet that is limited is time. “Because most of us are earning money through exchanging our time for work, why not apply some level of rigor or thought to that as we would to planning a vacation?” Thakor says. “Why aren’t we thinking about the time-money relationship in a more mindful way?”

Thinking about how money and happiness are intertwined in your daily life? Read Use Your Money to Improve Your Life

Kate Ashford
Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, and Parents, among others.
2016 Presidential Election

How the Presidential Election Has Affected Fixed Income Rates – November 2016

The unexpected election of Donald Trump as president on Nov. 8 has sent shockwaves through the financial markets as investors begin to assess the full impact of his economic platform. Going into the election, the overwhelming majority of market participants were expecting a win for Hillary Clinton and had priced assets accordingly. Below is a chart of yields as of market close on 11/8 versus where rates stand as of 11/14.


8-Nov 14-Nov Change
5-Year Treasury 1.33% 1.66% 0.33%
5-Year TIPS -0.31% -0.08% 0.23%
5-Year B/E Inflation 1.64% 1.74% 0.10%
10-Year Treasury 1.86% 2.24% 0.38%
10-Year TIPS 0.12% 0.35% 0.23%
10-Year B/E Inflation 1.74% 1.89% 0.15%


As you can see, since the election we have had a fairly dramatic move in rates. Both the five-year and 10-year U.S. Treasury bonds rose more than 30 basis points in less than a week, which is an astonishing move in such a short period of time. We have also seen a sharp rise in inflation expectations. The five-year break-even inflation rate moved up to 1.74 percent from 1.64 percent, while the 10-year break-even inflation rate has risen a more pronounced 15 basis points from 1.74 percent to 1.89 percent.

Why have we seen such a dramatic rise in interest rates?

The Trump economic plan calls for increased fiscal spending, reduced regulation, a significant change to rules governing financial-services institutions, a potential change of leadership at the Fed and increased trade protectionism. If President-elect Trump is able to push these policies through, it could be very bullish for the economy while also inviting unexpected inflation and triggering faster interest rate hikes from the Federal Reserve.

Higher inflation obviously eats into the value of future cash flows of nominal bonds, so in response investors demand a higher yield to compensate them for this risk. The risk of higher inflation has been one of the main drivers behind the selloff in U.S. Treasury bonds, as evidenced by the jump in break-even inflation rates. The potential specter of faster Federal Reserve tightening is another big driver of the selloff because investors again are demanding a higher yield now that they anticipate interest rates rising more quickly in the future.

Should we make any changes to our fixed income strategy?

The emphatic answer is no. Interest rate risk, reinvestment risk and credit risk are the three biggest risk factors when investing in fixed income. By buying high-credit quality bonds, we greatly reduce credit risk, leaving only interest rate and reinvestment risk. What we are currently seeing in the markets is interest rate risk, which is the possibility that, as rates increase, bonds of longer maturities will go down in value. Reinvestment risk, on the other hand, is the risk we had been seeing over the past several years. This occurs when a security matures and the prevailing interest rate is lower than when the security was originally purchased. Unfortunately, interest rate and reinvestment risk are at loggerheads. If you try to eliminate interest rate risk by buying only very short maturities, you are introducing more reinvestment risk and vice versa.

Our approach of building short- to intermediate-term ladders balances these two risks. For example, over the past several years as rates have fallen steadily, the longer rungs of the ladder have appreciated greatly. This has offset the fact that maturing bonds were being reinvested at lower yields. Now, the opposite is happening. As rates have risen, the longer rungs of the ladder have dropped in value, but they can now be offset by reinvesting maturing bond proceeds at higher yields. By staying in short- to intermediate-term maturities, we have also significantly reduced our interest rate risk compared to longer term portfolios and with only small sacrifices in yield.

Also note that, despite the recent selloff, yields are still below where we started the year, and many fixed income funds still holding on to positive returns. For example, the DFA Five-Year Global Fixed Income Portfolio is up 2.42 percent year to date, while the DFA Municipal Bond Portfolio is up 1.44 percent year to date. Despite the momentum we have seen in the fixed income markets, investors must remember that this is no guarantee that rates will continue to move higher. We have seen several instances, most notably the taper tantrum in 2013, of rates moving up considerably only to stabilize or fall later on down the road. Even if we continue to see rates move higher and fixed income returns turn negative, investors should not fret over this short-term pain; in general, higher fixed income rates are better in the long run for investors. This is especially true for clients in or near retirement because higher interest rates mean more interest income, which can allow them to potentially take less equity market risk in their portfolios.


Copyright © 2016, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.

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