Reality Check Please

[tink2mutt]

To the OP, you didn't mention your age, but did say that you nearing retirement. If you want to maintain your principle investments without depleting that balance, then 4% is the "de facto" draw-down rate quoted by many investment houses as a safe withdrawal rate. Seeing that you do not have any offspring, then why preserve the original capital? I am not saying to run through your capital like crap through a goose, but using the 4% draw-down and in those times where you need additional $$$, you can tap your principle as needed.

If you are basing your annual gains strictly on an equities performance, you may want to investigate high yield equities as there can be a greater return. Yields approaching 10%+ are not unheard of.

Other factors are other retirement income which you did not mention. If you are an Aussie, don't you qualify for Australian retirement income?

I am 55 so retiring early. Hence the pondering over the decision to leave the job and retire now. If I have enough and my logic is sound then I can put my feet up. But if guys like you who have the experience say not enough then maybe I need to heed advice and work a bit longer.

I am an aussie and if I fell on hard times after 67 I could return to my home country to get a pension - I hope it never comes to that. From what I understand you have to maintain a residence in Australia and cannot be out of the country for longer than 3 months at a time if you get a pension.

Anyway, I want to be a self funded retiree and be free to live without someone saying I am getting something I am not entitled to.

For the poster who said watch what you tell people - fair play - you do have to be careful theses days but I have received some very good advice on this forum - so it's worth the risk.

The time and effort you guys have invested in the reality check is greatly appeciated.

[samran]

Reality check?

Well, ignoring the fiscal viability of your plan, I think a loose attitude will be a bit more dangerous.

Do watch your figures in public. And figures are not the same as a lady's.

Stated with all the best.

What?????

If you state who you are, where you are and what you have in this small place called Thailand (and a forum), then quite simply the asset plans have limited value in a land of sharks. Just a reality check from another perspective.

......as spoken by perhaps the most disgruntled member of Thai Visa.

[bendix]

7% is in my opinion highly achievable although I am happy to admit my views on investing will differ to most.

I would happily guarantee 7% myself averaged over a nominal 10 year period, as long as I keep the additional monies !!

The problem with inviting answers on a forum such as this (good that it generally is) is that you'll end up with more doubts and questions than you'll start with.....

Personally I would go for 8.5% return.

as opposed to the OP your claim must be based on actively managing your portfolio Chivas. only then 8.5% or more is realistic.

Indeed a fair assumption....

I'm not so sure. It depends on your definition of 'actively managing'. It would be pretty easy to put half of the money in 3-4 high yield bond funds, and the remainder in 15-20 stocks with good dividends, and then sit back and enjoy the income.

In this instance, actively managing it would comprise no more than a six monthly rebalancing.

I'm getting 7.3% from doing nothing more than sticking some of my cash into a 5 year term deposit a couple of years ago. If that's active management, I'm a banana.

Edited April 23, 2012 by bendix

[chainarong]

It's all been said. However not being the voice of doom, things change and so will Thailand's monetary policies, be carefull , the thai expat road is litered with wrecked grand idea's and dreams , not all of it revolves around money either.

[Naam]

7% is in my opinion highly achievable although I am happy to admit my views on investing will differ to most.

I would happily guarantee 7% myself averaged over a nominal 10 year period, as long as I keep the additional monies !!

The problem with inviting answers on a forum such as this (good that it generally is) is that you'll end up with more doubts and questions than you'll start with.....

Personally I would go for 8.5% return.

as opposed to the OP your claim must be based on actively managing your portfolio Chivas. only then 8.5% or more is realistic.

Indeed a fair assumption....

I'm not so sure. It depends on your definition of 'actively managing'. It would be pretty easy to put half of the money in 3-4 high yield bond funds, and the remainder in 15-20 stocks with good dividends, and then sit back and enjoy the income.

In this instance, actively managing it would comprise no more than a six monthly rebalancing.

I'm getting 7.3% from doing nothing more than sticking some of my cash into a 5 year term deposit a couple of years ago. If that's active management, I'm a banana.

i said "8.5% or more".

you are getting 7.3% in one single currency, calculated in this single currency. but that does not mean that your yield is 7.3% measured vs. a basket of other currencies consistently every year.

achieving 8-10% in a single currency fixed deposit is even today not rocket science. shooting from the hip i can name at least four namely ZAR, TRY, BRL and INR. and you don't have to go far to get in excess of 15% when you invest in VND.

mind you, these are all cash investments. if you buy bonds of a low graded sovereign or quasi sovereign debtor getting 13-15% in USD or EUR is a piece of cake. a zero-bond, denominated in ZAR, public electricity provider owned by the Republic of South Africa, yields presently >11%

two or two and half years ago i mentioned Venezuela bonds in the thread "Financial Crisis" and a doubtful TV-member ("Flying") asked me for details because he couldn't believe what i posted. at that time the bonds i mentioned yielded, depending on maturity, 16-18%. their yield are now down to a "meager" 12-13% and the capital gains are an additional 50-70%!

Flying where are you? please confirm!

[tink2mutt]

Naam,

Your strategies are above my current level of investing expertise - but I will keep trying to learn how to get more out of my money.

I know you don't have a crystal ball - but do you think that 50% global bond / 50% emerging market shares can realistcally return 7% or more in the coming 3 to 5 years?

This is the optimal retirement mix for conservative types from what I read.

[Naam]

Naam,

Your strategies are above my current level of investing expertise - but I will keep trying to learn how to get more out of my money.

I know you don't have a crystal ball - but do you think that 50% global bond / 50% emerging market shares can realistcally return 7% or more in the coming 3 to 5 years?

This is the optimal retirement mix for conservative types from what I read.

i abhor shares. period! but i very much like your global bond idea. for somebody who does not, for whatever reasons, feel managing his investments alternatives exist if and is satisfied with 7-8% p.a. a bunch of exchange traded BOND funds with high liquidity exist. extremely interesting are funds which invest diversified in a bunch of currencies as well as country wise which the average investor cannot duplicate.

for diversification even i hold some of these funds although i basically smirk and make derogatory remarks when i hear 7% yield.

i don't recommend but only list (not according to priorities!) four favourite funds which i hold in my portfolio to demonstrate how broadly even i private investor can diversify. their ISINs (International Security Idenfication Numbers) are:

LU0255797556 issued by Pictet

LU0229949994 issued by Templeton

LU0170475312 issued by Tempelton

LU0332400406 issued by JP Morgan

a closer look at the currencies they contain as well as the location of debtors (country names unfortunately only in German but that shouldn't be a problem):

Breakdown Countries Pictet

Südkorea 16,70%

Singapur 14,80%

Indonesien 13,00%

Hong Kong 12,60%

China 10,80%

Malaysia 9,90%

Thailand 7,60%

Indien 6,40%

Philippinen 5,00%

Taiwan 3,20%

Breakdown Countries Tempelton 1

Südkorea 22,91%

Malaysia 19,84%

Indonesien 10,17%

Cash 8,38%

Sri Lanka 7,17%

Singapur 7,01%

China 6,85%

Indien 6,73%

Australien 5,83%

Fidschi 2,65%

Vietnam 1,03%

Philippinen 0,98%

Russland 0,36%

Kasachstan 0,12%

Großbritannien 0,10%

Ukraine 0,04%

Hong Kong 0,01%

USA -0,40%

Breakdown Currencies Templeton 1

Südkoreanische Won 23,58%

Malaysische Ringgit 20,42%

Singapur-Dollar 14,68%

Indonesische Ruphia 12,88%

Indische Rupie 12,50%

Philippinische Peso 12,07%

Australischer Dollar 6,72%

Chinesischer Renminbi Yuan 3,58%

Sri-Lanka-Rupie 2,42%

US Dollar -1,47%

Japanischer Yen -7,38%

Breakdown Currencies Templeton 2

US Dollar 28,28%

Südkoreanische Won 15,22%

Malaysische Ringgit 12,21%

Schwedische Krone 11,99%

Polnischer Zloty 11,18%

Australischer Dollar 9,08%

Singapur-Dollar 8,42%

Mexikanische Peso 6,91%

Ungarischer Forint 5,64%

Britisches Pfund 5,50%

Philippinische Peso 4,25%

Indonesische Ruphia 4,08%

Indische Rupie 3,68%

Uruguayischer Peso 3,46%

Norwegische Krone 3,25%

Ghanaischer Cedi 2,31%

Israelischer Neuer Schekel 2,07%

Chilenischer Peso 2,03%

Brasilianischer Real 1,94%

Ukrainische Griwna 1,34%

Sri-Lanka-Rupie 0,66%

sonstige 0,48%

Peruanischer Sol 0,06%

Japanischer Yen -9,27%

Euro -34,78%

Breakdown Countries Templeton 2

Südkorea 10,83%

USA 10,24%

Ungarn 7,53%

Irland 7,01%

Malaysia 6,36%

Polen 5,96%

Cash 5,70%

Schweden 4,45%

Ukraine 3,50%

Uruguay 3,46%

Mexiko 2,81%

Russland 2,78%

Indonesien 2,44%

Ghana 2,33%

Sonstige 2,23%

Philippinen 2,17%

Brasilien 2,02%

Island 1,99%

Israel 1,98%

Rumänien 1,61%

Supranationale 1,36%

Argentinien 0,91%

Singapur 0,87%

Kasachstan 0,75%

Großbritannien 0,73%

Sri Lanka 0,66%

Südafrika 0,65%

Litauen 0,56%

Lettland 0,55%

Ver. Arab. Emirate 0,52%

Norwegen 0,43%

Spanien 0,34%

China 0,32%

Venezuela 0,28%

Niederlande 0,24%

Luxemburg 0,24%

Ägypten 0,24%

Kanada 0,22%

Vietnam 0,19%

Kroatien 0,17%

Australien 0,16%

Frankreich 0,14%

Indien 0,13%

Jamaika 0,11%

Italien 0,10%

Deutschland 0,10%

Japan 0,10%

Trinidad und Tobago 0,07%

Peru 0,06%

Caymaninseln 0,06%

Irak 0,03%

Hong Kong 0,01%

Euroländer -0,14%

n.a. 1,44%

Edited April 23, 2012 by Naam

[AngryParent]

......as spoken by perhaps the most disgruntled member of Thai Visa.

YAWN! I don't want to hurt your ego, but, your pathetic stalking of my posts is an indication of ____.

Get over it, even you know the dark side of the land of your citizenship.

[monty1412]

whack the lot into gold.. it will give you a better 2 year return than anything else as long as you can sustain the income loss. If the Fed goes QE3 then wqtch gold go

[monty1412]

OK I apologize.. yours was a serious question and i gave a generalised answer.. invest 60% in gold

[AngryParent]

Naam,

Your strategies are above my current level of investing expertise - but I will keep trying to learn how to get more out of my money.

I know you don't have a crystal ball - but do you think that 50% global bond / 50% emerging market shares can realistcally return 7% or more in the coming 3 to 5 years?

This is the optimal retirement mix for conservative types from what I read.

You want to spend 4% of your savings per year till you are 65 i.e 10 years. Why don't you just play safe and put it in a bank with 2-4% i.e. limited loss per year from grand sum (ignoring inflation)? I do realize that this will not wet the appatite of many, but, hey all your other options have inherent EXTREAM risks that could end with you losing 100% of your capital.

[Naam]

Naam,

Your strategies are above my current level of investing expertise - but I will keep trying to learn how to get more out of my money.

I know you don't have a crystal ball - but do you think that 50% global bond / 50% emerging market shares can realistcally return 7% or more in the coming 3 to 5 years?

This is the optimal retirement mix for conservative types from what I read.

You want to spend 4% of your savings per year till you are 65 i.e 10 years. Why don't you just play safe and put it in a bank with 2-4% i.e. limited loss per year from grand sum (ignoring inflation)? I do realize that this will not wet the appatite of many, but, hey all your other options have inherent EXTREAM risks that could end with you losing 100% of your capital.

a brilliant idea! in my [not so] humble view worth a nomination for the renowned "Eek-O-Nomickal Gobbel Prize".

[Naam]

OK I apologize.. yours was a serious question and i gave a generalised answer.. invest 60% in gold

...and be prepared to lose every day as gold investors lose virtually every day since seven months?

[fletchsmile]

Hey Tink2mutt I think you've made a reasonable start, although as you're finding executing this in practice is different from the hypothetical I'll offer you two angles, based on my own experiences and views, split into two posts:

#1

I manage a portfolio for my mum who is retired. Lives back in the West. It's not dissimilar to yours: 35% in various bond funds, 19% in equity growth style funds, 19% in equity income (dividend paying) funds, 14% in mixed funds 13% in "strategic funds". Ball park not too dissimilar to your own - coming down to half bonds/ half equities excluding the strategic funds

I don't have the balls to take significant risks with this money, and certainly not in investments I'm not comfortable with. I would say 7% is too high for a 50/50 equity/bond split. I work on 6%. Back-testing this a few years has proved 6% to be reasonable. 7% would be OK in my view for equity style funds, but not for bond funds - although obviously depends on the bonds. If you're looking at high yield bonds then there are funds currently decent quality funds with around 6% yields, but if higher grade investment bonds and sovereigns this will be lower. (Assuming you're playing with PIIGs and the like!).

So 1st suggestion: 4% take out is reasonable, but I'd say 6% on the returns if you only had these as your source of income.

You also need to think how you will "take the returns" from your funds. Bonds and equity income naturally pay dividends if you have selected income units rather than accumulation units. For your equity funds it's a nice idea to take 4% from growth. But what are you going to do in a year where the funds fall, particularly if you hit a year markets drop say 30 - 40%? It can have a disastrous impact on your capital if you continue to draw your 4%. eg 100 falls to 60 and you draw 4 = 56. Next year falls a little to say 54 and you draw 4 = 50. After 40% fall and a small 4%-ish fall the following year, you now need to double your money just to get back to where you started, and that's excluding inflation. This is one way when people talk of investment portfolio survival rates, that they fail even on conservative take-out assumptions. So in these 2 years for example I would try not to take any money. If you then got back to say 108 then you could claim the back years missed.

So 2nd Suggestion: from your non-bond funds and non equity income funds try not to draw any capital in bad years. Although if you get a good year subsequently think about making up the year you missed and take 8% etc. The way I do this is to ensure that I never take any money out if original cost + cumulative market returns to date less money already taken out reduces below original cost. You may want to do something similar. You may also want to adjust for original cost + say 3% per year. I don't as my mum has other income and life expectancy quite a bit less than 25 years so don't bother if she eats into a bit of her capital. However, I won't let it fall below original capital,

3rd Suggestion that comes out of this: consider dis-aggregating your income sources in your calculations so they are more granular and accurate instead of just a ball park 7%, eg

Equities that are non dividend paying 7% - Care how you take money from this > only take out 4% in positive years with an option to take more if a very good year brings you back above original costs, but only to compensate for years "missed"

Equities paying a dividend = dividend yield + growth that you expect, eg 4% yield + 3% growth (still say 7%)

Bonds = say 5%/6%

Others = say 5%

Then recalc your numbers

Suggestion 4: Consider looking at other asset classes such as "strategic funds" or "total return" or "absolute" style funds. These allow hedging/ shorting etc and generally will do less well in a good year, but better in a bad year. The problem with long only equity funds is if the market is clearing falling they've not much option except fall too, so these offer some alternatives

Suggestion 5: Have a very good safe cash cushion so you have money for the unexpected as well as being able to ride out bad years of return. Something like 2 years minimum is not unreasonable in a simple case like I've outlined with some other income coming in outside investment income.

Suggestion 6: Keep thorough records of what happened in practice and keep "back testing" reality vs your projections. Your projections will never be 100% accurate as investments don't usually yield nice smooth returns where equities are a part in particular, plus there will always be things you haven't thought of. eg if Inflation starts to rise you need to keep back more.

A lot will depend on your own attitude to risk, but do think how you will react in bad years. The above example is much simpler than yours, but hopefully will give you some ideas of a simple scenario. I'll outline some more below for an expat abroad with a Thai wife living in Thailand...

Edited April 23, 2012 by fletchsmile

[fletchsmile]

#2 - In addition to above, as an expat living in Thailand with a Thai wife, life is a whole lot more complicated. Here are some among many of the other things to think of:

7) Look after your wife. Consider your wife's ability to manage money when you're dead. You might be comfortable with your investment portfolio and understand it all. Would your wife? In addition you're probably sensible enough to manage pressures and demands on you for cash from others. With you not around your wife could be financially vulnerable. Sure $600k sounds a nice pot particularly for many Thais in Thailand, and Chiang Mai isn't expensive. Even if she takes say $20k a year that's 30 years regardless of growth and sounds easy. There's a hell of a lot of things that could go wrong, eg: That could well be like winning the lottery for someone with no idea on money (many lottery winners end up bankrupt); being encouraged by financial advisors to do the wrong thing, family and friends suddenly popping up and being too kind-hearted to say no, fraud, financial crisis, marrying again to someone who p###es it away and so on. Suggestion 7 in my view: Buy an annuity with part of your money, for a minimum amount she would need to get buy. That's guaranteed income for life, no-one else can touch the source/capital on it no matter what happens as it's already been exchanged for an income flow. BTW I assume you've also made sure she always has a roof. So whatever happens to the rest of your portfolio she has a roof over her head and some money coming in.

8) Foreign currency risk. You don't seem to have considered this above. 7% return sounds OK (6% more realistic), but 7% on what? If your AUD and western currencies depreciate over the decades that could be 7% return on not very much. Sure it could go in your favour, but you should plan for the worst. I've watched posters give advice of saying GBP 150k yielding 7% cash is enough to retire on. Then the 7% return falls and their currency is also worth half or 2/3 of what it was, plus cost of living has gone up. Ignore the people who chant the mantra of don't invest in Thailand. Build some Thai assets. That's assuming you're living here. If you're a western pensioner in the west, fine, but in Thailand what counts is your worth in THB. Suggestion 8: think about investing some of your money in equity funds into Thai equity funds in Thailand. Another option is a Thailand country funds held overseas.

9) Living funds and liquidity. As in the above post. Hold some money in cash. Suggestion 9: For me as I'm in Thailand I hold about 3 years THB cash, plus other currency cash + Thai bonds on top. That way I can ride out any financial crises in the investment markets and am not worrying about exchange rates. Part of that cash can alos fit nicely with the fact you have to keep THB 400k or 800k in an account for Visa requirements anyway

10) Don't underestimate the psychological side to living off investments. Your investment portfolio is not risk free. No-one's is. You don't want to be worrying about money and watching it all the time. Suggestions 10: Before you take the plunge "stress test" your scenarios by saying what happens if? eg stock-market drops, you become disabled, unable to do that extra work, returns available move etc. Look for your weak points and have an action plan. Also if you're worried you don't have enough then there's a good chance you don't and should leave it a few more years and work a bit longer. Even if you do end up having enough, having enough and worrying isn't a great combination. Also find yourself a good hobby to give yourself something else to think about

11) Make a will and get your wife to make one at the same time. Are you aware for example that if she dies if before you, there's no will a hefty chunk goes to parents or children or brothers and sisters all the way thru to more distant relatives just so you don't get 100%. Ball park think 50% but check it out, and be particularly careful if the place you live is in her name as this forms part of her estate assets

12) Tip No.12: Consider a Vasectomy Kids are f****g expensive in Thailand Best investment you could ever make and covers a lot of unforeseen surprises. Cost about THB 15,000 at Bumrungrad's finest, and pays for itself at least 20 times over a year if you're putting a kid thru international school. So 1st year ROI over 2,000% and payback period less than a month - you can't get better than that for purely financial investments.

Then again life is about much more than money, and Thailand is a good place to realise that. You can cut your cloth according to your measure, and kids are definitely worth cutting your cloth for if you decide not to cut your little best friend.

People + Happiness First. Money Second...

Cheers

Fletch

Edited April 23, 2012 by fletchsmile

[AngryParent]

#2 - In addition to above, as an expat living in Thailand with a Thai wife, life is a whole lot more complicated. Here are some among many of the other things to think of:

7) Look after your wife. Consider your wife's ability to manage money when you're dead. You might be comfortable with your investment portfolio and understand it all. Would your wife? In addition you're probably sensible enough to manage pressures and demands on you for cash from others. With you not around your wife could be financially vulnerable. Sure $600k sounds a nice pot particularly for many Thais in Thailand, and Chiang Mai isn't expensive. Even if she takes say $20k a year that's 30 years regardless of growth and sounds easy. There's a hell of a lot of things that could go wrong, eg: That could well be like winning the lottery for someone with no idea on money (many lottery winners end up bankrupt); being encouraged by financial advisors to do the wrong thing, family and friends suddenly popping up and being too kind-hearted to say no, fraud, financial crisis, marrying again to someone who p###es it away and so on. Suggestion 7 in my view: Buy an annuity with part of your money, for a minimum amount she would need to get buy. That's guaranteed income for life, no-one else can touch the source/capital on it no matter what happens as it's already been exchanged for an income flow. BTW I assume you've also made sure she always has a roof. So whatever happens to the rest of your portfolio she has a roof over her head and some money coming in.

8) Foreign currency risk. You don't seem to have considered this above. 7% return sounds OK (6% more realistic), but 7% on what? If your AUD and western currencies depreciate over the decades that could be 7% return on not very much. Sure it could go in your favour, but you should plan for the worst. I've watched posters give advice of saying GBP 150k yielding 7% cash is enough to retire on. Then the 7% return falls and their currency is also worth half or 2/3 of what it was, plus cost of living has gone up. Ignore the people who chant the mantra of don't invest in Thailand. Build some Thai assets. That's assuming you're living here. If you're a western pensioner in the west, fine, but in Thailand what counts is your worth in THB. Suggestion 8: think about investing some of your money in equity funds into Thai equity funds in Thailand. Another option is a Thailand country funds held overseas.

9) Living funds and liquidity. As in the above post. Hold some money in cash. Suggestion 9: For me as I'm in Thailand I hold about 3 years THB cash, plus other currency cash + Thai bonds on top. That way I can ride out any financial crises in the investment markets and am not worrying about exchange rates. Part of that cash can alos fit nicely with the fact you have to keep THB 400k or 800k in an account for Visa requirements anyway

10) Don't underestimate the psychological side to living off investments. Your investment portfolio is not risk free. No-one's is. You don't want to be worrying about money and watching it all the time. Suggestions 10: Before you take the plunge "stress test" your scenarios by saying what happens if? eg stock-market drops, you become disabled, unable to do that extra work, returns available move etc. Look for your weak points and have an action plan. Also if you're worried you don't have enough then there's a good chance you don't and should leave it a few more years and work a bit longer. Even if you do end up having enough, having enough and worrying isn't a great combination. Also find yourself a good hobby to give yourself something else to think about

11) Make a will and get your wife to make one at the same time. Are you aware for example that if she dies if before you, there's no will a hefty chunk goes to parents or children or brothers and sisters all the way thru to more distant relatives just so you don't get 100%. Ball park think 50% but check it out, and be particularly careful if the place you live is in her name as this forms part of her estate assets

12) Tip No.12: Consider a Vasectomy Kids are f****g expensive in Thailand Best investment you could ever make and covers a lot of unforeseen surprises. Cost about THB 15,000 at Bumrungrad's finest, and pays for itself at least 20 times over a year if you're putting a kid thru international school. So 1st year ROI over 2,000% and payback period less than a month - you can't get better than that for purely financial investments.

Then again life is about much more than money, and Thailand is a good place to realise that. You can cut your cloth according to your measure, and kids are definitely worth cutting your cloth for if you decide not to cut your little best friend.

People + Happiness First. Money Second...

Cheers

Fletch

Reasonably good advice from the socio-cultural side. And given free!

[flying]

two or two and half years ago i mentioned Venezuela bonds in the thread "Financial Crisis" and a doubtful TV-member ("Flying") asked me for details because he couldn't believe what i posted. at that time the bonds i mentioned yielded, depending on maturity, 16-18%. their yield are now down to a "meager" 12-13% and the capital gains are an additional 50-70%!

Flying where are you? please confirm!

Krup............Tis true !

I would have liked to also do the same except for 2 things..............

1- US citizens not allowed

2- I dont have that kind of $$$$

[exeter]

must be dreaming to think 7percent I would aim much lower, say 3 or 4 percent may be more realistic

The plan looks good, seems like you have done your homework well, but that 7% return looks a bit optimistic to me, if you get it good for you, I would work on 3% and if it comes in over that well thats a bonus. as you say once you retire there is no going back, its a one way door! Be cautious 3%.

[Naam]

must be dreaming to think 7percent I would aim much lower, say 3 or 4 percent may be more realistic

The plan looks good, seems like you have done your homework well, but that 7% return looks a bit optimistic to me, if you get it good for you, I would work on 3% and if it comes in over that well thats a bonus. as you say once you retire there is no going back, its a one way door! Be cautious 3%.

why not be extremely cautious, plan for a zero return and take anything above that as a bonus?

[tink2mutt]

Hey Tink2mutt I think you've made a reasonable start, although as you're finding executing this in practice is different from the hypothetical I'll offer you two angles, based on my own experiences and views, split into two posts:

#1

I manage a portfolio for my mum who is retired. Lives back in the West. It's not dissimilar to yours: 35% in various bond funds, 19% in equity growth style funds, 19% in equity income (dividend paying) funds, 14% in mixed funds 13% in "strategic funds". Ball park not too dissimilar to your own - coming down to half bonds/ half equities excluding the strategic funds

I don't have the balls to take significant risks with this money, and certainly not in investments I'm not comfortable with. I would say 7% is too high for a 50/50 equity/bond split. I work on 6%. Back-testing this a few years has proved 6% to be reasonable. 7% would be OK in my view for equity style funds, but not for bond funds - although obviously depends on the bonds. If you're looking at high yield bonds then there are funds currently decent quality funds with around 6% yields, but if higher grade investment bonds and sovereigns this will be lower. (Assuming you're playing with PIIGs and the like!).

So 1st suggestion: 4% take out is reasonable, but I'd say 6% on the returns if you only had these as your source of income.

You also need to think how you will "take the returns" from your funds. Bonds and equity income naturally pay dividends if you have selected income units rather than accumulation units. For your equity funds it's a nice idea to take 4% from growth. But what are you going to do in a year where the funds fall, particularly if you hit a year markets drop say 30 - 40%? It can have a disastrous impact on your capital if you continue to draw your 4%. eg 100 falls to 60 and you draw 4 = 56. Next year falls a little to say 54 and you draw 4 = 50. After 40% fall and a small 4%-ish fall the following year, you now need to double your money just to get back to where you started, and that's excluding inflation. This is one way when people talk of investment portfolio survival rates, that they fail even on conservative take-out assumptions. So in these 2 years for example I would try not to take any money. If you then got back to say 108 then you could claim the back years missed.

So 2nd Suggestion: from your non-bond funds and non equity income funds try not to draw any capital in bad years. Although if you get a good year subsequently think about making up the year you missed and take 8% etc. The way I do this is to ensure that I never take any money out if original cost + cumulative market returns to date less money already taken out reduces below original cost. You may want to do something similar. You may also want to adjust for original cost + say 3% per year. I don't as my mum has other income and life expectancy quite a bit less than 25 years so don't bother if she eats into a bit of her capital. However, I won't let it fall below original capital,

3rd Suggestion that comes out of this: consider dis-aggregating your income sources in your calculations so they are more granular and accurate instead of just a ball park 7%, eg

Equities that are non dividend paying 7% - Care how you take money from this > only take out 4% in positive years with an option to take more if a very good year brings you back above original costs, but only to compensate for years "missed"

Equities paying a dividend = dividend yield + growth that you expect, eg 4% yield + 3% growth (still say 7%)

Bonds = say 5%/6%

Others = say 5%

Then recalc your numbers

Suggestion 4: Consider looking at other asset classes such as "strategic funds" or "total return" or "absolute" style funds. These allow hedging/ shorting etc and generally will do less well in a good year, but better in a bad year. The problem with long only equity funds is if the market is clearing falling they've not much option except fall too, so these offer some alternatives

Suggestion 5: Have a very good safe cash cushion so you have money for the unexpected as well as being able to ride out bad years of return. Something like 2 years minimum is not unreasonable in a simple case like I've outlined with some other income coming in outside investment income.

Suggestion 6: Keep thorough records of what happened in practice and keep "back testing" reality vs your projections. Your projections will never be 100% accurate as investments don't usually yield nice smooth returns where equities are a part in particular, plus there will always be things you haven't thought of. eg if Inflation starts to rise you need to keep back more.

A lot will depend on your own attitude to risk, but do think how you will react in bad years. The above example is much simpler than yours, but hopefully will give you some ideas of a simple scenario. I'll outline some more below for an expat abroad with a Thai wife living in Thailand...

Dear Fletch,

Well, that is the most comprehensive and sensible advise I have received in years!! I am going to print this post and your follow-up post and compare it with my plans and make some necessary arrangements. I am also going to discuss what you have written with my financial adviser. He is very smart but a young guy with lots of clients so this will make him also stop and think through my scenarion and maybe think on a wider scale.

Thank you for the effort you put into this. I read people on other threads saying "why would you ask strangers on a forum for financial advise?' - well this is why. Guys like you and Naam are very astute and give of your time and knowledge freely.

Khop Khun Khup-um

[tink2mutt]

#2 - In addition to above, as an expat living in Thailand with a Thai wife, life is a whole lot more complicated. Here are some among many of the other things to think of:

7) Look after your wife. Consider your wife's ability to manage money when you're dead. You might be comfortable with your investment portfolio and understand it all. Would your wife? In addition you're probably sensible enough to manage pressures and demands on you for cash from others. With you not around your wife could be financially vulnerable. Sure $600k sounds a nice pot particularly for many Thais in Thailand, and Chiang Mai isn't expensive. Even if she takes say $20k a year that's 30 years regardless of growth and sounds easy. There's a hell of a lot of things that could go wrong, eg: That could well be like winning the lottery for someone with no idea on money (many lottery winners end up bankrupt); being encouraged by financial advisors to do the wrong thing, family and friends suddenly popping up and being too kind-hearted to say no, fraud, financial crisis, marrying again to someone who p###es it away and so on. Suggestion 7 in my view: Buy an annuity with part of your money, for a minimum amount she would need to get buy. That's guaranteed income for life, no-one else can touch the source/capital on it no matter what happens as it's already been exchanged for an income flow. BTW I assume you've also made sure she always has a roof. So whatever happens to the rest of your portfolio she has a roof over her head and some money coming in.

8) Foreign currency risk. You don't seem to have considered this above. 7% return sounds OK (6% more realistic), but 7% on what? If your AUD and western currencies depreciate over the decades that could be 7% return on not very much. Sure it could go in your favour, but you should plan for the worst. I've watched posters give advice of saying GBP 150k yielding 7% cash is enough to retire on. Then the 7% return falls and their currency is also worth half or 2/3 of what it was, plus cost of living has gone up. Ignore the people who chant the mantra of don't invest in Thailand. Build some Thai assets. That's assuming you're living here. If you're a western pensioner in the west, fine, but in Thailand what counts is your worth in THB. Suggestion 8: think about investing some of your money in equity funds into Thai equity funds in Thailand. Another option is a Thailand country funds held overseas.

9) Living funds and liquidity. As in the above post. Hold some money in cash. Suggestion 9: For me as I'm in Thailand I hold about 3 years THB cash, plus other currency cash + Thai bonds on top. That way I can ride out any financial crises in the investment markets and am not worrying about exchange rates. Part of that cash can alos fit nicely with the fact you have to keep THB 400k or 800k in an account for Visa requirements anyway

10) Don't underestimate the psychological side to living off investments. Your investment portfolio is not risk free. No-one's is. You don't want to be worrying about money and watching it all the time. Suggestions 10: Before you take the plunge "stress test" your scenarios by saying what happens if? eg stock-market drops, you become disabled, unable to do that extra work, returns available move etc. Look for your weak points and have an action plan. Also if you're worried you don't have enough then there's a good chance you don't and should leave it a few more years and work a bit longer. Even if you do end up having enough, having enough and worrying isn't a great combination. Also find yourself a good hobby to give yourself something else to think about

11) Make a will and get your wife to make one at the same time. Are you aware for example that if she dies if before you, there's no will a hefty chunk goes to parents or children or brothers and sisters all the way thru to more distant relatives just so you don't get 100%. Ball park think 50% but check it out, and be particularly careful if the place you live is in her name as this forms part of her estate assets

12) Tip No.12: Consider a Vasectomy Kids are f****g expensive in Thailand Best investment you could ever make and covers a lot of unforeseen surprises. Cost about THB 15,000 at Bumrungrad's finest, and pays for itself at least 20 times over a year if you're putting a kid thru international school. So 1st year ROI over 2,000% and payback period less than a month - you can't get better than that for purely financial investments.

Then again life is about much more than money, and Thailand is a good place to realise that. You can cut your cloth according to your measure, and kids are definitely worth cutting your cloth for if you decide not to cut your little best friend.

People + Happiness First. Money Second...

Cheers

Fletch

Now some other food for thought here.

I like your attitude where you are saying educate my wife about the investment. Yes - it would be a shame to take care of the money and then turn the toes up only to have the amount squandered. She wouldn,t do that by the way - she is a real kee neow mark mark!!

Thanks again Fletch - your efforts are outstanding.

[Naam]

Dear Fletch,

Well, that is the most comprehensive and sensible advise I have received in years!! I am going to print this post and your follow-up post and compare it with my plans and make some necessary arrangements. I am also going to discuss what you have written with my financial adviser. He is very smart but a young guy with lots of clients so this will make him also stop and think through my scenarion and maybe think on a wider scale.

Thank you for the effort you put into this. I read people on other threads saying "why would you ask strangers on a forum for financial advise?' - well this is why. Guys like you and Naam are very astute and give of your time and knowledge freely.

Khop Khun Khup-um

what do you mean by "freely"? do you think Fletch and me will each forego that bottle of icecold Singha we are entitled for our consulting services?

[Chivas]

whack the lot into gold.. it will give you a better 2 year return than anything else as long as you can sustain the income loss. If the Fed goes QE3 then wqtch gold go

I've not laughed longer and louder for a long long time.......

Bookmark the post because Gold will be below $1000 before the end of 2014.......Even Naam one of the greatest Gold followers on the forum has slightly retracted lately........

[Naam]

whack the lot into gold.. it will give you a better 2 year return than anything else as long as you can sustain the income loss. If the Fed goes QE3 then wqtch gold go

I've not laughed longer and louder for a long long time.......

Bookmark the post because Gold will be below $1000 before the end of 2014.......Even Naam one of the greatest Gold followers on the forum has slightly retracted lately........

greatest gold follower? are you joking or do you need reading glasses? i am the most hated poster in TV's wet golden dream forum because of my outright pessimism as far as gold is concerned.

[tink2mutt]

Dear Fletch,

Well, that is the most comprehensive and sensible advise I have received in years!! I am going to print this post and your follow-up post and compare it with my plans and make some necessary arrangements. I am also going to discuss what you have written with my financial adviser. He is very smart but a young guy with lots of clients so this will make him also stop and think through my scenarion and maybe think on a wider scale.

Thank you for the effort you put into this. I read people on other threads saying "why would you ask strangers on a forum for financial advise?' - well this is why. Guys like you and Naam are very astute and give of your time and knowledge freely.

Khop Khun Khup-um

what do you mean by "freely"? do you think Fletch and me will each forego that bottle of icecold Singha we are entitled for our consulting services?

Fletch & Naam,

I owe you one when I get settled there.

The drinks are on me!!

Thanks again.

[craigt3365]

whack the lot into gold.. it will give you a better 2 year return than anything else as long as you can sustain the income loss. If the Fed goes QE3 then wqtch gold go

I've not laughed longer and louder for a long long time.......

Bookmark the post because Gold will be below $1000 before the end of 2014.......Even Naam one of the greatest Gold followers on the forum has slightly retracted lately........

greatest gold follower? are you joking or do you need reading glasses? i am the most hated poster in TV's wet golden dream forum because of my outright pessimism as far as gold is concerned.

Thanks...gave me a great laugh.

[Chivas]

whack the lot into gold.. it will give you a better 2 year return than anything else as long as you can sustain the income loss. If the Fed goes QE3 then wqtch gold go

I've not laughed longer and louder for a long long time.......

Bookmark the post because Gold will be below $1000 before the end of 2014.......Even Naam one of the greatest Gold followers on the forum has slightly retracted lately........

greatest gold follower? are you joking or do you need reading glasses? i am the most hated poster in TV's wet golden dream forum because of my outright pessimism as far as gold is concerned.

Thanks...gave me a great laugh.

I had the odd giggle myself following the Chelsea victory...........People have very short memories..........

[ExpatJ]

7% is in my opinion highly achievable although I am happy to admit my views on investing will differ to most.

I would happily guarantee 7% myself averaged over a nominal 10 year period, as long as I keep the additional monies !!

The problem with inviting answers on a forum such as this (good that it generally is) is that you'll end up with more doubts and questions than you'll start with.....

Personally I would go for 8.5% return.

Thank you Chivas.

My question to you is - do you think that 7% is too optimistic given a 50% equity/50% bond split?

Yes, very, very unrealistic.

Chivas- care to tell us how you get your guaranteed 8.5% per year?

[ExpatJ]

7% is in my opinion highly achievable although I am happy to admit my views on investing will differ to most.

I would happily guarantee 7% myself averaged over a nominal 10 year period, as long as I keep the additional monies !!

The problem with inviting answers on a forum such as this (good that it generally is) is that you'll end up with more doubts and questions than you'll start with.....

Personally I would go for 8.5% return.

as opposed to the OP your claim must be based on actively managing your portfolio Chivas. only then 8.5% or more is realistic.

Indeed a fair assumption....

I'm not so sure. It depends on your definition of 'actively managing'. It would be pretty easy to put half of the money in 3-4 high yield bond funds, and the remainder in 15-20 stocks with good dividends, and then sit back and enjoy the income.

In this instance, actively managing it would comprise no more than a six monthly rebalancing.

I'm getting 7.3% from doing nothing more than sticking some of my cash into a 5 year term deposit a couple of years ago. If that's active management, I'm a banana.

7.3% per year? Or 7.3% in total after 5 years, in which case you are losing money given inflation.

[Chivas]

7% is in my opinion highly achievable although I am happy to admit my views on investing will differ to most.

I would happily guarantee 7% myself averaged over a nominal 10 year period, as long as I keep the additional monies !!

The problem with inviting answers on a forum such as this (good that it generally is) is that you'll end up with more doubts and questions than you'll start with.....

Personally I would go for 8.5% return.

Thank you Chivas.

My question to you is - do you think that 7% is too optimistic given a 50% equity/50% bond split?

Yes, very, very unrealistic.

Chivas- care to tell us how you get your guaranteed 8.5% per year?

Personally I would guarantee 7% but i actually stated I would would expect 8.5%.....