Test the robustness of your desired FI income strategy with these 2 historical sequences.

Yesterday I was informed/spam by people who inform me about this MAS warning 5 content makers in Singapore who may have given advice without a license.

I don’t really want to talk about, but more to concentrate on some of the subjects that were close to my heart.

In today’s article I want to provide a number of scenarios for readers who may be interested in stress that test their income strategy.

If you are planning to create a portfolio income from your portfolio for life after full-time employment, you may have your own way how you can tackle your income in challenging circumstances.

You have your dividend income strategies, perhaps your investment strategy with a pillow. Perhaps even a mix of this with income from rental properties.

And you will feel that your strategies are quite watertight or for those who are more careful are interested in finding out what some of the challenging scenarios are to consider.

Today I will offer two challenging 30-year sequences.

Imagine gathering what you need, and you have planned to remove a certain number of income consistently or in an irregular way from the portfolio of investments.

If you go through these challenging periods, how would your income strategy last?

You can think about how your strategy will deal with it and how it will end in year 30.

If your income strategy survives this period of two 30 years in their own way, they are very robust income strategies.

Let’s go to the first.

The high inflation from 1966 to 1995

Many people did not know some of the most challenging periods … do not have a large market collection.

Both sequences of this 30-year-old are the SWR framework for safe admission (SWR), reduced the highest income that you can get from a portfolio to only 3-3.5%. (Read my detailed item about the SWR)

They are extracted from it.

The first is the period from 1966 to 1995.

Here is how annual inflation, as a measure by Consumer Price Index (CPI), for the period 1966 to 1995:

The compound inflation is 5.39% PA during these 30 years.

The compound grow of 50% S&P 500 and 50% 5-year-old American treasure chest is 9.15% PA during these 30 years.

The The most important portfolio drawing wax -12% And that only happens in the 9th year.

Here is how the growth of $ 1 during this period:

$ 1 editions double up to $ 2 in 12 years.

$ 1 editions triple up to $ 2.9 in 16 years.

Here are the inflation data to make it easier for you:

0.034591195
0.030395137
0.047197641
0.061971831
0.055702917
0.032663317
0.034063261
0.087058823
0.123376622
0.069364162
0.04864865
0.067010309
0.090177134
0.132939437
0.125162972
0.08922364
0.038297871
0.037909837
0.039486673
0.037986705
0.010978957
0.044343893
0.044194107
0.046473028
0.06106265
0.030642751
0.029006526
0.027484143
0.026748973
0.025384103

The high inflation from 1968 to 1997

Here is the second challenging sequence of 30 years.

Here is how annual inflation, as a measure by Consumer Price Index (CPI), for the period 1968 to 1997:

The compound inflation is 5.34% PA during these 30 years.

The compound grow of 50% S&P 500 and 50% 5-year-old American treasure chest is 10% PA during these 30 years.

The The most important portfolio drawing wax -12% And that only happens in the 7th year.

Here is how the growth of $ 1 during this period:

$ 1 editions double up to $ 2 in 11 years.

$ 1 editions triple up to $ 2.9 in 16 years.

Here are the inflation data to make it easier for you:

0.047197641
0.061971831
0.055702917
0.032663317
0.034063261
0.087058823
0.123376622
0.069364162
0.04864865
0.067010309
0.090177134
0.132939437
0.125162972
0.08922364
0.038297871
0.037909837
0.039486673
0.037986705
0.010978957
0.044343893
0.044194107
0.046473028
0.06106265
0.030642751
0.029006526
0.027484143
0.026748973
0.025384103
0.033224757
0.01702396

Kyith, why should we consider inflation so? Can’t we just reduce our expenses to solve them?

I consider a negative order of return the risk of too much from your portfolio.

Too many expenses can be:

1. Your portfolio will not be good enough to give you the expenses you need.
2. You are forced to spend more, compared to your portfolio and you can’t do anything about it.
3. A combination of #1 and #2

What is less said by advisers there is #2.

They have trained your eyes on large market admissions, but the challenging thing about these two periods of 30 years is that your expenses are forced to double in just 11/12 years, and then 5 years later triple.

Many of the income rules have this:

When the market grows up, then I am:

1. Spending from the pillow of the money.
2. I take my money and revest on a layer.
3. I do not adjust my expenses through inflation.

These tactical rules do not work so well, because when you see … the largest portfolio decrease is only 12%. The majority of the rules are to combat volatility.

Can you lower the expenses? Yes.

But you must be aware that when you do that, you lose your purchasing power. You are forced to consume less A quality of life you are planning for.

And many don’t think in terms of quality of life, how flexible they are with it, how prepared they are to compromise it.

The biggest thing is if you have the opportunity to save, so that you do not endanger that quality of life, would you rather do it or live with a more poor plan?

Many found that planning with a standard straight line is 3% PA inflation conservative enough, since the inflation in Singapore for the last 20 years is 2% PA or less.

Again, the purpose of this exercise is to help you see the robustness of your income strategy.

If you want to assume that you will stop working for the next 30-60 years (based on your plan), the government will do so well to control inflation, you can continue and do not perform this robust control.

But I think many of you would experience the same thing:

1. Your rent for your apartment was $ 3,000 and now it is just like $ 4,000 to $ 6,000 monthly after Covid.
2. If you rent a room, you cannot find a place with considerable quality at pre-known rental prices.
3. You can see the prices that used to cost $ 2.50- $ 3.50 in food spots, up to $ 4.50- $ 6.50.

Then you ask yourself:

1. Have they come down?
2. Would the government not do something because this type of inflation is not sustainable, right?
3. Do you now cut down, do you limit your expenses because the inflation of food and housing has risen? Have you chosen a smaller place to save to budget? Have you only eaten two vegetables?

You would realize … you don’t adjust your expenses down when your work income goes up.

Well, the rents and food prices are delayed in their progress.

But this is what you see in those two 30-year-old inflation sequences. They suddenly rise in the prices and then slow down (such as slowing down to 2-3% increase haha).

One of the reasons why persistent higher inflation is okay is because Employees’ income is also constantly increasing.

You don’t feel it that bad because your income has also been proportional.

But you are planning for financial independence if you do not have a work income.

And so you can consider whether your income from your portfolio keeps track of.

Not only keeps track of, but some income strategies do not spend their capital, but only their natural benefits (from their net rental income, dividend only income), Increases your income in the final step with the inflation needs?

What about the inflation of Singapore in 1966 to 1995?

I present you the inflation data from Singapore.

The compound inflation is 3.48% PA during these 30 years.

$ 1 editions double up to $ 1.97 in 15 years.

Here are the inflation data to make it easier for you:

0.020185788
0.032503458
0.006846766
-0.002550078
0.003334692
0.018833783
0.021421581
0.196167495
0.223656105
0.025795815
-0.018978516
0.031873374
0.040671476
0.040046665
0.085400578
0.081880875
0.039182909
0.010376525
0.026033557
0.004910905
-0.013795327
0.004834825
0.015222342
0.022938101
0.034509481
0.034394275
0.022434169
0.02292147
0.030937859
0.017248278

Due to a period of 30 years, the inflation of Singapore is much milder during that period. Normal inflation was lower at 2-3% instead of 3-4%. There is a difference.

But you still have to take into account the two years in which inflation rose 19% and 22%. And the two years where inflation rose 8.5% and 8.2%.

This exercise is for your peace of mind, not mine.

How much shock do we have for things we do depends on what our original expectations and reality were.

I don’t really want to put gaps intentionally in your income strategy, because you tell me my preferred strategy, many of whom know it is based on Safe Ceptal Rate (SWR), is unworkable, complex, not based on reality, that I have never used it before.

Hey man, my SWR income strategy has survived these two, if they ever happen more and I feel a bit comfortable with my income strategy. In a sense I felt my strategy tackle these two scenarios well, compared to everyone else.

And strangely enough, I thought of enough strange rules to help people with a high affinity with popular investments such as CPF Life, Investment Properties, Dividend Stocks to take on these two challenges, although I don’t use them. Don’t feel like por always, but don’t actively think about having them work.

You depend on your income strategy and you must feel confident enough about it.

A robust income flow is not only one that gives good returns or retains the capital. They should also:

1. Give you a income flow to give a certain quality of lifestyle that you have in mind.
2. Long enough for when you need.
3. Not too complex to manage.
4. Considering the uncertainty of markets, interest and inflation.

Always keep in mind that you have to consider everything, and if you do, you will realize that you have to pack a robust income strategy around your investments to make them work.

Ultimately it is your peace of mind, not mine.

For those who have tested, or by experimenting with these two scenarios, let me know how you would tackle them with your desired income strategy.

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Kyith is the owner and some writer behind investment canals. Readers coordinate investment canals to learn and build stronger, stronger power foundations, how to have a passive investment strategy, to know more about investing in Reit’s and the notes and bolts of active investing.

Readers also follow Kyith to learn how to plan well for financial security and financial independence.

From 2004 to 2019, Kyith worked as an IT operational engineer. He is currently working as a senior solutions specialist in insurance. All opinions about investment canals belong to him and do not represent the views on providing.

You can view Kyith’s current portfolio herethat uses his Free Google Stock Portfolio Tracker.

His favorite investment broker is Interactive brokersAs a result of which he is able to invest in the effects of various stock markets around the world, at very low commission rates, without retention, near spot currency rates.

You can read more about Kyith here.