ERN Community - Recent Topics

SWR toolbox...how to calculate portfolio balance after each month?

caymann — Sat, 13 May 2023 23:53:14 +0000

Out of curiosity, i decided to test this tool by looking at portfolio balance at the end of each month.

For simplicity,

100% cash,

0% inflation,

0% growth on cash

Final Value target=0%

Let's say portfolio is 120k and i want to deplete this to zero in 120 months (10 yrs)

I am thinking my SWR = $1k/month

But the calculator shows 4.46% with a safe withdraw of $446/m and at end of 120m i have $66,524 left (i was expecting this to be 0)

The portfolio balance at the end of every month = (previous month balance-$446)

What may i be doing wrong?

thanks for any feedback

jim

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How is everybody doing trading options?

TwentySomething — Thu, 22 Dec 2022 05:59:30 +0000

Since the year is drawing to a close, I am reviewing my finances for the year. Naturally, I want to see how well I did trading options. I am pretty much exactly following Big ERN's strategy of options trading throughout the whole year with a small number of periods of interruption due to vacation. I re-read the Part 3 article (https://earlyretirementnow.com/2019/03/27/passive-income-through-option-writing-part-3/) where there was a chart showing how much net profit he kept for every $100 of gross put option premium. My own figure this year is only $11. That's worse than every single year on that chart. My biggest losses of this year occurred on Apr 22, June 10, Sep 13, May 18 (in that order). Still better than S&P 500 though—at least I made a profit not a loss.

How's everybody else doing?

What do you think of holding JEPI?

Jason — Tue, 20 Dec 2022 18:48:45 +0000

What are your thoughts on holding JEPI, or a similar type fund, instead of or in addition to bond funds? It hasn't been around that long but it has shown to outperform in flat or declining markets which is what many think we will be dealing with for the next few years. It does this partially by writing calls as part of its investment strategy. By doing this it limits the upside, but also the downside. Isn't that what we look for from our bond allocation but could a fund like this do it better or at least similarly while providing additional diversification? The expense ratio is higher than index funds but lower than other actively managed funds which it is. I'm currently 100% equities (VTSAX) but plan to switch to 70/30 when I retire in 2-3 years so I am looking for options other than putting that 30% all into bond funds. Thanks.

SPX vs /ES

mpaziran — Thu, 15 Dec 2022 20:35:57 +0000

What is the difference between SPX and /ES (E-mini S&P)?

Currently SPX is trading around 3904 and /ES is trading around 3935. However, when I look at a particular contract, the premiums are similar for the same strike/expiration date. Wouldn't it make more sense to trade /ES instead of SPX since there is more buffer? What am I missing? Thanks!

What do you think of a 40% VTSAX/40% BRK-B/20% Bond Portfolio in retirement?

Jason — Tue, 15 Nov 2022 21:52:11 +0000

I was comparing my beloved VTSAX to BRK-B after noticing Berkshire has outperformed the market in the past 12 months. VTSAX has a better record over the past 24 months though and that got me thinking, would a 40% VTSAX/40% BRK-B/20% Bond Portfolio outperform a typical 80/20 portfolio? The obvious problems here are there isn't enough historical data on Berkshire to backtest it properly and Berkshire may look and perform much differently in 10 years when it will likely be under new management. Despite all of that, any thoughts on this allocation?

Annuities now cash flow almost 6%: SWR implications?

Chris B — Wed, 02 Nov 2022 02:20:49 +0000

I noticed that annuities are now yielding almost 6%. A 45 y/o male, for example can buy a 5.63% lifetime stream of income plus 10 years after his death for his beneficiaries. If he delays income for 2 years, that becomes 5.87%, and of course the payout goes up from there. I suspect these payouts will be even higher by 2Q 2023.

It seems annuities could reduce SORR by fixing some percentage of one's income and protecting one against the risk of having to reinvest their bond AA at lower rates someday in the future. In a Japanification scenario, this could save one's retirement. I will try entering a custom income stream in the spreadsheet to see what happens to SWR - when I get a chance 🙄.

Of course downside of annuities and long-duration fixed income is that the payout is unchanging in nominal terms. Thus these payments are eroded by inflation in a way that stock earnings are not necessarily. If annuity payouts reach 7%, it will be tempting to place a bold bet on a low-inflation future, but that would leave one vulnerable if we have, say, 5 years of 10% inflation. Yet, forward inflation expectations are currently very low. This is obviously a tool we could use to address disinflationary SORR events, but not really address inflationary SORR events.

I wonder if there is a way to hedge this risk using options on the Federal Funds Rate or SOFR. I.e. if rates are high on some series of future dates, it'll be good these options made money because one's annuity payments will needs some assistance. Today's low implied 2 year and 5 year inflation rates suggest such insurance could be bought cheaply. Anyone have thoughts here?

Source: https://www.immediateannuities.com/