Does being full-time investors help you getting better return?

[Paarslaars]

Those numbers don't seem right to me at all.. 2008 number seems equal to the 2023 one, that would mean the S&P has a 4% CAGR since 2008?

[Xerxes]

Thanks GFP

[CorpRaider]

I should go to 0 hours and buy QQQ.  hah

[frommi]

13 minutes ago, Paarslaars said:

Those numbers don't seem right to me at all.. 2008 number seems equal to the 2023 one, that would mean the S&P has a 4% CAGR since 2008?

The numbers are with withdrawals, so in this case around 40k are withdrawn every year and since the portfolio was down a lot already in the GFC its on a much smaller base than at the start. Withdrawals by selling stock can be deadly when your returns suck and you are in a bear market.

And at least when you look at shiller P/E the numbers/whole situation is similar to 2000 right now.

Edited September 3 by frommi

[Paarslaars]

Oh so the withdrawal amount is fixed, not the %. Yeah then it makes sense...

[Milu]

56 minutes ago, frommi said:

Dividends cover all living expenses for me, but depends on what you invest in. 

I haven't checked the numbers but can imagine they are right, especially if you are a true value investor. Everything above the amount that is necessary to cover living expenses is invested in NCAV stocks or other value plays.

Dividend are generally a quite tax inefficient way to return cash to shareholders seeing as they are taxed at the recipients income tax rate which is usually much higher than the capital gains rate. In pretty much all cases the investor would be better off selling 2% of the stock once a year, rather than receiving a 2% dividend. The dividend is paid out of the business which reduces the value of the stock but many people (even quite sophisticated investors) seem to think a dividend is this magical 'extra' thing created out of nothing.

[Saluki]

I think it depends on the person and your temperament.  If you have a full time job (or are managing money for others) then you have have money coming in which not only keeps you from having to sell in bad times to pay your living expenses, but gives you a psychological buffer.  

 

Lets say that you keep your day job and you can find 1 stock this year that will 10X in 10 years. Your returns will be be great, but it will probably be very volatile. Let's say that you quit your job and with all your new free time, you can find 10 stocks that will 10X in 10 years, and you spread your bets around.  The return will be the same, but less volatile, and less of an emotional roller coaster.  You get that same smoothing of temperament by having a weekly paycheck.  So maybe, as someone suggested, keep your job but go part time.  

 

Also, consider if your strategy would shift, knowingly or unknowingly, if your job situation changed. Nassim Taleb had an interesting idea, that if you are in a very low volatility job like a government employee, you should be investing in risky assets so you have a barbell like portfolio with the risky assets counterbalancing your safe job.  And if you are a musician or an actor, you should buy bonds because Hollywood is fickle so you want a safe investment to balance out your risky career.  Knowing what you know about yourself, besides more time to find new stocks, would your method and risk profile be the same if the cash was now what you were living off of?  

 

 

[frommi]

33 minutes ago, Milu said:

Dividend are generally a quite tax inefficient way to return cash to shareholders seeing as they are taxed at the recipients income tax rate which is usually much higher than the capital gains rate. In pretty much all cases the investor would be better off selling 2% of the stock once a year, rather than receiving a 2% dividend. The dividend is paid out of the business which reduces the value of the stock but many people (even quite sophisticated investors) seem to think a dividend is this magical 'extra' thing created out of nothing.

That depends on were you live. In a lot of countries the tax rate is better for dividends, for me it is the same tax rate.

The math is simple here, if you sell 2% of a stock that trades at 50% of its value, you are giving up double the amount of future value than if you get that money as a dividend, because the dividend is paid out of the "business value" and not the "stock value". Imagine a stock with a liquidation value of 10$ trading at 5$, if you sell 5$ you are left with nothing, but if the business pays out 5$ as a dividend you still have the stock which will surely not trade at 0$ after the distribution. (because there is still 5$ of value left in the company)
Its different if the business is overvalued, but why should you hold a stock that comes out of a bear market as overvalued?

Edited September 3 by frommi

[thepupil]

2 hours ago, Paarslaars said:

Those numbers don't seem right to me at all.. 2008 number seems equal to the 2023 one, that would mean the S&P has a 4% CAGR since 2008?

 

This isn't about CAGR, but rather sequence of returns risk. 

 

From Jan 1999 to August 2024, S&P 500 has CAGR'd at 8.1%/year. 

From Jan 1999 to August 2024, Divvy Aristocrat CAGR'd at 9.7%/ year

 

With 308 months of data (25.6 years), one might think the ending values would be different by something like this: 

 

1.081^26=7.57  1.097^26=11.1  7.57 / 11.1 = 68%, but I calculate that with $1mm starting out $40K annual withdrawals and 3% inflation of withdrawals that the S&P 500 investor ends with $720K and the divvy aristocrat investor ends with $4.0mm. My numbers are different than that post but are directionally in line with his. 

 

Why does the divvy aristorcrat do so much better and end w/ 5.7x as much? 

 

It's because from 1999-2008 the S&P 500 index lost a cumulative 13% and the aristocrats made a cumulative 40%, including the first 4 years where SPX lost 25% and Aristocrats eked out 4%. This is the S&P 500's infamous "lost decade", so you impair the capital by withdrawing money from a declining portfolio 

 

When people say volatility or drawdowns don't matter, I strongly disagree if one is making regular withdrawals from a portfolio. 

 

there's a HUGE difference between CAGR and withdrawal rate. the withdrawal rate is much lower than CAGR and there's also sequence of returns risk. 

 

	SPY	Aristocrat
1999	21.0%	-5.37%
2000	-9.1%	10.13%
2001	-11.9%	10.82%
2002	-22.1%	-9.87%
2003	28.7%	25.37%
2004	10.9%	15.46%
2005	4.9%	3.69%
2006	15.8%	17.30%
2007	5.5%	-2.07%
2008	-37.0%	-21.88%
2009	26.5%	26.56%
2010	15.1%	19.35%
2011	2.1%	8.33%
2012	16.0%	16.94%
2013	32.4%	32.27%
2014	13.7%	15.76%
2015	1.4%	0.93%
2016	12.0%	11.83%
2017	21.8%	21.73%
2018	-4.4%	-2.73%
2019	31.5%	27.97%
2020	18.4%	8.68%
2021	28.7%	25.99%
2022	-18.1%	-6.21%
2023	26.3%	8.44%
2024	19.5%	11.44%

 

 

Edited September 3 by thepupil

[SharperDingaan]

Ever the heretic .... most people would be a lot better off if they weren't full time investors!

 

For the same level of risk; subtract today's yield, from the yield you expect to average (rolling 5-7 yr), multiply by your capital, and divide by the additional hours that you expect to put into this. Most people would do better had they simply worked those additional hours for minimum wage at McDonald's - and would have incurred no additional risk. Sure, it might work if you have a few million to play with .... but that isn't most people!

 

Most people in 'real life' do lots of different things, and are far better off because they do so. Investment is simply glorified money management; your money works for you - not the other way around! Most people also invest to improve their future standard of living (get an education, live mortgage free, etc.); and hence systematically take gains off the table to make it happen. 

 

Life is much better with a more modest investment account, less stress, and a large number of good friends/family; than with a huge account, plus the associated stress, and few if any friends/family to enjoy it with. Not what the investment industry preaches, or what many would prefer to hear!

 

SD

 

[Gregmal]

You obviously become a better investor when you go full time because you are fully responsible for the successes and failures and at some point if you are good you get it and if you aren’t you are forced to pull the plug and face the music.

[thepupil]

just to add on to my earlier post, an 8% withdrawal rate goes bust in 8-15 years from that (cherrypicked) data point of Jan 1999

 

A 6% withdrawal rate goes to zero in 2013 for S&P 500 and changes the ending amount for the divvy aristocrats from $4mm to $587K...

 

using Jan 1999 as a starting point is enough to make one want to work forever 

 

 

Edited September 3 by thepupil

[73 Reds]

44 minutes ago, thepupil said:

 

This isn't about CAGR, but rather sequence of returns risk. 

 

From Jan 1999 to August 2024, S&P 500 has CAGR'd at 8.1%/year. 

From Jan 1999 to August 2024, Divvy Aristocrat CAGR'd at 9.7%/ year

 

With 308 months of data (25.6 years), one might think the ending values would be different by something like this: 

 

1.081^26=7.57  1.097^26=11.1  7.57 / 11.1 = 68%, but I calculate that with $1mm starting out $40K annual withdrawals and 3% inflation of withdrawals that the S&P 500 investor ends with $720K and the divvy aristocrat investor ends with $4.0mm. My numbers are different than that post but are directionally in line with his. 

 

Why does the divvy aristorcrat do so much better and end w/ 5.7x as much? 

 

It's because from 1999-2008 the S&P 500 index lost a cumulative 13% and the aristocrats made a cumulative 40%, including the first 4 years where SPX lost 25% and Aristocrats eked out 4%. This is the S&P 500's infamous "lost decade", so you impair the capital by withdrawing money from a declining portfolio 

 

When people say volatility or drawdowns don't matter, I strongly disagree if one is making regular withdrawals from a portfolio. 

 

there's a HUGE difference between CAGR and withdrawal rate. the withdrawal rate is much lower than CAGR and there's also sequence of returns risk. 

 

	SPY	Aristocrat
1999	21.0%	-5.37%
2000	-9.1%	10.13%
2001	-11.9%	10.82%
2002	-22.1%	-9.87%
2003	28.7%	25.37%
2004	10.9%	15.46%
2005	4.9%	3.69%
2006	15.8%	17.30%
2007	5.5%	-2.07%
2008	-37.0%	-21.88%
2009	26.5%	26.56%
2010	15.1%	19.35%
2011	2.1%	8.33%
2012	16.0%	16.94%
2013	32.4%	32.27%
2014	13.7%	15.76%
2015	1.4%	0.93%
2016	12.0%	11.83%
2017	21.8%	21.73%
2018	-4.4%	-2.73%
2019	31.5%	27.97%
2020	18.4%	8.68%
2021	28.7%	25.99%
2022	-18.1%	-6.21%
2023	26.3%	8.44%
2024	19.5%	11.44%

 

 

Yep, good post.  How many professional money managers fail to even outperform their benchmark indices?  They may live to see another day by taking fees from their investors but a DIY investor will almost always be better off sticking with an equity index AND a job.

Edited September 3 by 73 Reds
spelling

[rohitc99]

5 minutes ago, thepupil said:

just to add on to my earlier post, an 8% withdrawal rate goes bust in 8-15 years from that (cherrypicked) data point of Jan 1999

 

A 6% withdrawal rate goes to zero in 2013 for S&P 500 and changes the ending amount for the divvy aristocrats from $4mm to $587K...

 

using Jan 1999 as a starting point is enough to make one want to work forever 

 

 

 maybe the lesson from you analysis is - Dont quit at the market top or in a bubble and become a full time investor. 

[frommi]

15 minutes ago, 73 Reds said:

Yep, good post.  How many professional money managers fail to even outperform their benchmark indices?  They may live to see another day by taking fees from their investors but a DIY investor will almost always be better off sticking with an equity index AND a job.

That depends. A DIY investor with a true value mindset would have thrived from 2000->2008. But you have to be able to go against the crowd. But returns in my backtests for that timeframe for value was in the ballpark of 20-50% annual returns just to give you an idea. The index was dead money in that time.

[73 Reds]

1 minute ago, frommi said:

That depends. A DIY investor with a true value mindset would have thrived from 2000->2008. But you have to be able to go against the crowd. But returns in my backtests for that timeframe for value was in the ballpark of 20-50% annual returns just to give you an idea. The index was dead money in that time.

There are, of course exceptions.  But as @thepupil pointed out, sequence risk is real.  A paying job all but eliminates such risk.  Not to suggest that there isn't a time to quit and focus on investing.  It would seem that if/when your investment income begins to dwarf your employment income, your time may then be getting too valuable for paid work.  Or otherwise, if employment income is no longer needed.

[John Hjorth]

39 minutes ago, Gregmal said:

You obviously become a better investor when you go full time because you are fully responsible for the successes and failures and at some point if you are good you get it and if you aren’t you are forced to pull the plug and face the music.

 

This!

 

This reads very simple /simplified, but it is never the less the true reality [not sure of the existence of a false or distorted reality].

 

The economic side of it is  pretty simple math/algebra, actually, to do the basic calculations. It naturally also gets more complicated if you try include risks and margins of safety to your calculations.

 

If you can't make the ends of the calculations ends meet, just continue working, and update your calculations, from time to time] It is a very efficient tool to get cost concious in the household. One dollar saved is one dollar earned and all that. 

 

There is, visible to everyone reading this topic, already a good deal af survivorship bias in the posts answering the question asked by sharing own doings and experiences, where we only read the successful stories.

 

In short it's a business venture, if you're considering going full time investing, by dropping a job, full time, or part time.

 

This also implies one should think about and define / set up criterions for success, and the opposite, especially in relation to when to call it a day, and not including only matters. This I think should include partner, fianceé, spouse, especially if you have kids, so that you have some kind of feeling and control of that you aren't on an unsustainable path to ruin your private and personal life, by building up fundamental, substantial and insurmountable disagreements, if you are married.

 

 

[Munger_Disciple]

4 hours ago, thepupil said:

 

This isn't about CAGR, but rather sequence of returns risk. 

 

From Jan 1999 to August 2024, S&P 500 has CAGR'd at 8.1%/year. 

From Jan 1999 to August 2024, Divvy Aristocrat CAGR'd at 9.7%/ year

 

With 308 months of data (25.6 years), one might think the ending values would be different by something like this: 

 

1.081^26=7.57  1.097^26=11.1  7.57 / 11.1 = 68%, but I calculate that with $1mm starting out $40K annual withdrawals and 3% inflation of withdrawals that the S&P 500 investor ends with $720K and the divvy aristocrat investor ends with $4.0mm. My numbers are different than that post but are directionally in line with his. 

 

Why does the divvy aristorcrat do so much better and end w/ 5.7x as much? 

 

It's because from 1999-2008 the S&P 500 index lost a cumulative 13% and the aristocrats made a cumulative 40%, including the first 4 years where SPX lost 25% and Aristocrats eked out 4%. This is the S&P 500's infamous "lost decade", so you impair the capital by withdrawing money from a declining portfolio 

 

When people say volatility or drawdowns don't matter, I strongly disagree if one is making regular withdrawals from a portfolio. 

 

there's a HUGE difference between CAGR and withdrawal rate. the withdrawal rate is much lower than CAGR and there's also sequence of returns risk. 

 

	SPY	Aristocrat
1999	21.0%	-5.37%
2000	-9.1%	10.13%
2001	-11.9%	10.82%
2002	-22.1%	-9.87%
2003	28.7%	25.37%
2004	10.9%	15.46%
2005	4.9%	3.69%
2006	15.8%	17.30%
2007	5.5%	-2.07%
2008	-37.0%	-21.88%
2009	26.5%	26.56%
2010	15.1%	19.35%
2011	2.1%	8.33%
2012	16.0%	16.94%
2013	32.4%	32.27%
2014	13.7%	15.76%
2015	1.4%	0.93%
2016	12.0%	11.83%
2017	21.8%	21.73%
2018	-4.4%	-2.73%
2019	31.5%	27.97%
2020	18.4%	8.68%
2021	28.7%	25.99%
2022	-18.1%	-6.21%
2023	26.3%	8.44%
2024	19.5%	11.44%

 

 

 

Very few people are aware of sequence of returns risk with periodic withdrawals, let alone understand it. Great post & I wish I could give it more than 100% emoji. 

Edited September 3 by Munger_Disciple

[Viking]

10 hours ago, Redskin212 said:

Viking,

 

I like your framework and the conservatism to reduce stress.

 

6.) My goal at the start of each year has been to make +8% per year. Modest but doable. My long term average annual return has been about 20%. I still have an 8% target at the start of each year. This helps to keep my stress level low.

 

I have one question as you have been doing this for 20 years.  How do you allocate money to your "living expenses" or annual operating costs?  Do you set an amount annual aside or do you always have a large cash position to cover expenses?

 

Thanks

 

@Redskin212 and @Milu this might sound a little bizarre, but I simply pull money out of my accounts as I need it. What likely makes this doable is I like carrying a cash balance (for the optionality). There is the odd time where I am fully invested and I have to sell a security - but it has not been a big enough issue over the years that I think I need to change my process. Bottom line is my process works for me. 

 

Now I should note that up until  couple of years ago, all of my investments were in tax free accounts. This allowed me to buy/sell without having to think about taxes. I only had to think about taxes as I was withdrawing money needed to cover living expenses (pretty simple). 

 

Over the past 4 years, my financial situation has changed quite a bit - now a chunk of my net worth is in taxable accounts. As a result, my withdrawal strategy is evolving (which account). In recent years, my strategy was focussed on minmizing taxes paid. This year I shifted to more aggressively pulling money from my tax-free accounts (LIF's and RRSP's) as they are actually getting too big.

 

I am seeding my 3 kids tax-free accounts (FHSA, TFSA) and have decided to pull the funds primarily from my tax-free accounts - the tax bill is large but I don't care. It is crazy how fast the kids accounts are growing. By the time they are 25 years old each kid could have $200,000 stuffed mostly into tax free accounts compounding tax-free for the rest of their lives. So I am happy to pay a little tax today on money I don't need to put my kids in that position.  

----------

Importantly, I have avoided the big bear markets of the past 25 years:

- 1999 .com bubble: I owned the boring old economy stuff that actually did pretty well.

- 2007/08 US housing bust: I owned an oversized position in Fairfax who was sitting on massive CDS gains.

- 2020 Covid: I went to 100% cash before the stock market crashed.

- 2022: Once again owning an outsized position in Fairfax worked like magic.  

Edited September 3 by Viking

[Milu]

29 minutes ago, Viking said:

 

@Redskin212 and @Milu this might sound a little bizarre, but I simply pull money out of my accounts as I need it. What likely makes this doable is I like carrying a cash balance (for the optionality). There is the odd time where I am fully invested and I have to sell a security - but it has not been a big enough issue over the years that I think I need to change my process. Bottom line is my process works for me. 

 

Now I should note that up until  couple of years ago, all of my investments were in tax free accounts. This allowed me to buy/sell without having to think about taxes. I only had to think about taxes as I was withdrawing money needed to cover living expenses (pretty simple). 

 

Over the past 4 years, my financial situation has changed quite a bit - now a chunk of my net worth is in taxable accounts. As a result, my withdrawal strategy is evolving (which account). In recent years, my strategy was focussed on minmizing taxes paid. This year I shifted to more aggressively pulling money from my tax-free accounts (LIF's and RRSP's) as they are actually getting too big.

 

I am seeding my 3 kids tax-free accounts (FHSA, TFSA) and have decided to pull the funds primarily from my tax-free accounts - the tax bill is large but I don't care. It is crazy how fast the kids accounts are growing. By the time they are 25 years old each kid could have $200,000 stuffed into tax free accounts compounding tax-free for the rest of their lives. So I am happy to pay a little tax today to put my kids in that position.  

----------

Importantly, I have avoided the big bear markets of the past 25 years:

- 1999 .com bubble: I owned the boring old economy stuff that actually did pretty well.

- 2007/08 US housing bust: I owned an oversized position in Fairfax who was sitting on massive CDS gains.

- 2020 Covid: I went to 100% cash before the stock market crashed.

That's great thanks for the additional info. Nice work avoiding the bear markets!

[Viking]

3 minutes ago, Milu said:

That's great thanks for the additional info. Nice work avoiding the bear markets!

 

@Milu my big mistake over the past 20 years when investing has been to be way too cautious as we come out of bear markets.

[Junior R]

1 hour ago, Viking said:

 

@Redskin212 and @Milu this might sound a little bizarre, but I simply pull money out of my accounts as I need it. What likely makes this doable is I like carrying a cash balance (for the optionality). There is the odd time where I am fully invested and I have to sell a security - but it has not been a big enough issue over the years that I think I need to change my process. Bottom line is my process works for me. 

 

Now I should note that up until  couple of years ago, all of my investments were in tax free accounts. This allowed me to buy/sell without having to think about taxes. I only had to think about taxes as I was withdrawing money needed to cover living expenses (pretty simple). 

 

Over the past 4 years, my financial situation has changed quite a bit - now a chunk of my net worth is in taxable accounts. As a result, my withdrawal strategy is evolving (which account). In recent years, my strategy was focussed on minmizing taxes paid. This year I shifted to more aggressively pulling money from my tax-free accounts (LIF's and RRSP's) as they are actually getting too big.

 

I am seeding my 3 kids tax-free accounts (FHSA, TFSA) and have decided to pull the funds primarily from my tax-free accounts - the tax bill is large but I don't care. It is crazy how fast the kids accounts are growing. By the time they are 25 years old each kid could have $200,000 stuffed into tax free accounts compounding tax-free for the rest of their lives. So I am happy to pay a little tax today to put my kids in that position.  

----------

Importantly, I have avoided the big bear markets of the past 25 years:

- 1999 .com bubble: I owned the boring old economy stuff that actually did pretty well.

- 2007/08 US housing bust: I owned an oversized position in Fairfax who was sitting on massive CDS gains.

- 2020 Covid: I went to 100% cash before the stock market crashed.

@Viking Nice post what stocks did you own in 1999 during .com bubble? Which of the 3 bear markets was your best one? I think 2020 since you were fully in cash and that's when mr market gave us all a good opportunity on FFH

 

 

20% cagr over the 25 years is wonderful 

Edited September 3 by Junior R

[sholland]

to answer the question posed by the original poster - if you are having any doubts you probably shouldn’t do it.  52 second YouTube video below:

 

[SharperDingaan]

There is a very simple test for this ...... cdn example

 

TFSA: The 2024 LTD maximum contribution is 95K, inclusive of a 7K 2024 contribution. TFSA contributions/withdrawals are tax-free, and there is no tax on gains/dividends earned while the money is in the TFSA (ie: zero tax impact). If your total TFSA investment earns 7K/yr in dividends; would you also make the 7K 2024 TFSA contribution ? Would your answer change if you had invested 'wisely' , the TFSA had 250K in it, and now earned 18.75K/yr in dividends (7.5% cash yield) before trading gains/losses.  https://www.wealthsimple.com/en-ca/learn/tfsa-limit

 

If the answer is that you would stop contributing to the TFSA ... continue working; as the TFSA is now self-financing ... enjoy yourself and spend that foregone TFSA contribution on additional/better vacation. Those near retirement might do the same analysis on their RRSP, and spend the foregone RRSP contribution on house renovation/upgrades prior to retiring.

 

When the numbers are small .... quitting your job to go full-time into investing is a pretty dumb idea 

 

SD 

 

 

Edited September 4 by SharperDingaan

[Viking]

44 minutes ago, Junior R said:

@Viking Nice post what stocks did you own in 1999 during .com bubble? Which of the 3 bear markets was your best one? I think 2020 since you were fully in cash and that's when mr market gave us all a good opportunity on FFH

 

 

20% cagr over the 25 years is wonderful 

@Junior R , my memory is not as good as it used to be. What i remember about the late 1990’s period is .com stocks ruled. Anything considered ‘old economy,’ irrespective of fundamentals, was considered to be garbage. So they traded a crazy low valuations (supply and demand at work). Lots of these stocks had great dividends. I owned a big position in Canadian bank stocks - great prospects and large dividends. I think that was the last time I owned a sizeable position in Berkshire Hathaway. And this was the last time i actually owned bonds in any of my portfolios. 
 

In terms of which bear market was my ‘best one’ i am not sure. I really hate to lose money. So the fact i was able to side-step each bear market was really the most important thing to me - that ‘don’t lose what you got’ thing. The most important thing is… be as rational as possible. And think for yourself - the crowd is always very wrong at inflection points (it has to be by definition).