The 4% Rule

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  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    jamesd wrote: »
    They have bearing because they show a wide range of situations. I currently have 31% or so in fixed interest via peer to peer lending and expect to be above 50% by next summer. That's a big increase from my historic under 1% but won't reach my current 70% target by then. Still, about ten percent in largely fixed interest or equivalent VCTs should help.

    You obviously have a good inside knowledge of P2P to consider whether the risk is priced correctly or not. As for VCT's. When one delves deeper , the high charging structures removes the gloss somewhat. Neither are for me. As spent too long at the coal face of finance.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 2 September 2017 at 2:36PM
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    jamesd wrote: »
    I've had the advantage of investing mostly during a long bull market, with really substantial sums not invested until after the 2008 drops.

    I've been investing since 1987 and so have been through a number of cycles, but sticking to a basic 60/40 allocation through ups and downs has worked out ok. I've had the advantage of a bullish bond market and several bullish stock markets, but mostly I've had the advantage of time and a simple strategy to take me through both bull and bear markets.
    There are parts of the UK where houses and flats can be bought for under £60,000, though under £70,000 increases the selection. A fair amount of diversification is possible without a huge amount of money if you pick your areas and use mortgages. You could undoubtedly do the same in the cheaper US markets if you wanted more properties. It's worth thinking about if you don't mind the work, have a big enough total portfolio value and want the diversification.

    I bought a house with a rental flat in it to make the day to day management of the place as easy as possible. I used the rent to make extra principal payments on the mortgage and paid it off in 15 years. So I retired without a mortgage and with a nice income form the flat. It's a great way to get away from the 4% rule for income production and without a mortgage payment my expenses are quire low.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • TBC15
    TBC15 Posts: 1,452 Forumite
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    bostonerimus wrote: »
    I've been investing since 1987 and so have been through a number of cycles, but sticking to a basic 60/40 allocation through ups and downs has worked out ok. I've had the advantage of a bullish bond market and several bullish stock markets, but mostly I've had the advantage of time and a simple strategy to take me through both bull and bear markets.



    I bought a house with a rental flat in it to make the day to day management of the place as easy as possible. I used the rent to make extra principal payments on the mortgage and paid it off in 15 years. So I retired without a mortgage and with a nice income form the flat. It's a great way to get away from the 4% rule for income production and without a mortgage payment my expenses are quire low.

    Have you ever run the numbers back and seen how you would be today with a 100% market allocation?
  • redpete
    redpete Posts: 4,693 Forumite
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    Thrugelmir wrote: »
    Who is holding 40% of their portfolio in fixed interest at the current time? We are in uncharted territory. Where historic charts have offer no bearing.

    Fortunately I've got 20 yrs of contributions in a deferred FS scheme to take into account (unless I decide to transfer out).
    loose does not rhyme with choose but lose does and is the word you meant to write.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    redpete wrote: »
    Fortunately I've got 20 yrs of contributions in a deferred FS scheme to take into account (unless I decide to transfer out).

    Fewer of the next generation will have the same backbone to support their retirement plans.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    edited 2 September 2017 at 8:53PM
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    TBC15 wrote: »
    Have you ever run the numbers back and seen how you would be today with a 100% market allocation?

    It's tricky to do a direct comparison as I was obviously using the rent to pay off the mortgage and now I'm using it to live off. But over 30 years my 60/40 portfolio has returned an annual average of around 8.5% (reinvested dividends and capital gains) and my rental property produces rent of around 6% of the value of the property after expenses and has averaged 5% annual capital appreciation over 20 years. An investment in retirement with 6% yield and 5% capital growth is pretty attractive. If the yield of such an investment was reinvested it would give an annual growth of 11%. Of course there is the work involved with the rental and the probability of times when it won't be rented. I just did a major renovation that took 4 months and cost $30k, but it's increased the value of the flat and the rent that I'm now getting. The biggest plus for me is that the rent is income for me that is not linked to the stock market and being freed from the "4% rule" is great.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Terron
    Terron Posts: 846 Forumite
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    Whilst being a landlord is not for everyone it can work well.

    I lost my job when I was 54 and since my skills were near obsolete finding one paying anything close was unlikely. I have a significant amount in pensions set to pay out when I am 60, and quite a lot of other savings. Rather than live off my savings I chose to buy properties to provide an income. I bought where I grew up in NW England and make over 7% net. That includes paying an agent for full management and the costs of repairs but ignores potential capital growth. From 8 properties I make around the UK average salary. Not fantastic but enough to live on. When the pensions kick in I will be quite comfortable.

    I plan to sell my most expensive property, my former home and use the proceeds and the tax free lump sums from the pensions to pay down most/all of the mortgages when the pensions kick in.
  • atush
    atush Posts: 18,726 Forumite
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    bostonerimus wrote: »
    The diversification of a rental property worked well for me and I think it's still worth considering. I'm just describing what has worked for me; rental property, index funds and aggressive saving. I hope people will find my experience useful and that it doesn't come off sounding like boasting, but I don't need any other validation than the fact that I retired at age 52 with a 7 figure retirement and investment portfolio and no need to use any of it for retirement income so I'm not worried about the 4% rule .......now I am boasting.

    Your experience, as a US resident does not really help a UK centric forum.

    As the taxation of UK BTL has changed significantly recently, and therefore is no longer the road to a good income stream it once was. AS it is far less tax efficient than it once was. And many BTL investors are currently selling off portfolios.

    Not to mention a single BTL is a far higher risk proposition than many international funds. A number of rental properties is of much less risk than one single one.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    bostonerimus wrote: »
    It's tricky to do a direct comparison as I was obviously using the rent to pay off the mortgage

    Yields aren't generally great enough in the UK to support this concept. The BTL boom was built on capital inflation of property prices not the income. To settle debt. LL's are going to have to realise equity. Out of which tax will be paid. Reducing the overall return somewhat.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    atush wrote: »
    Your experience, as a US resident does not really help a UK centric forum.

    As the taxation of UK BTL has changed significantly recently, and therefore is no longer the road to a good income stream it once was. AS it is far less tax efficient than it once was. And many BTL investors are currently selling off portfolios.

    Not to mention a single BTL is a far higher risk proposition than many international funds. A number of rental properties is of much less risk than one single one.

    People always need to run the numbers to see if an investment will work. Not being able to deduct mortgage interest is certainly a hit. That's why I said a BTL should only be considered after an ISA and pension are funded and as a compliment to equities and fixed interest. I would say a single BTL is better than owning multiple properties for most people because it doesn't require as much capital or work. Time that a place is unrented can be minimized by good planning, a sensible lease and buying a desirable property in the first place.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
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