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Wednesday, January 16, 2008

Critical Mass for Investors: Definition of Term

"Critical Mass" is a term made popular by Bob Brinker, host of ABC Radio's "Moneytalk" and editor of the newsletter called "Marketimer." For investors, your investments are said to have reached "critical mass" when your investment portfolio can generate enough growth and income to meet your lifestyle needs and protect you against the ravages of inflation without you having to work.

Reaching critical mass gives you the financial freedom to retire or work at a job for the love of the work rather than the money!

For example, if you need $50,000 a year to live on, then using the "4% safe withdrawal rate" rule-of-thumb, you need $1,250,000 to retire. ($50,000 divided by 0.04)
Generally, a good critical mass portfolio has between fifty and sixty percent of assets in a well diversified basket of equities with perhaps ten to twenty five percent of that in international funds and the remainder in something like a total bond fund, CD ladders or United States Treasuries or GNMAs.

Rule of Thumb:

A good rule of thumb is, with regular rebalancing, a 65 year old can take 4% a year out of a "balanced portfolio" that has 50% of assets in the total stock market and 50% in the total bond fund at Vanguard or Fidelity. Both fund families offer very low cost index funds. If you go elsewhere, then the amount you can "safely" take out of your portfolio will be reduced by the higher expenses for the index funds.

What is meant by "safely?"

A "safe withdrawal rate" means there is a 90% or greater chance you will not out live your money by removing that amount at the start of each year.

"The Retirement Advisor newsletter" (only $99 a year!) gives three fairly conservative portfolios that range in equity exposure from zero to fifty percent.
  • 2007 Results:

    The Retirement Advisor Aggressive Growth and Income Model Portfolio 1, designed for someone approaching retirement who is interested in a portfolio allocation designed to provide income and capital appreciation while avoiding excessive risk, gained 9.52% in 2007, its first year of existence. This portfolio was 50% in stock index funds and 50% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection which we feel allows a lower allocation to equities and a 4% withdrawal rate.

    The Retirement Advisor Moderate Growth and Income Model Portfolio 2, designed for someone who has retired and seeks to maintain their current standard of living, even with inflation, gained 8.48% in 2007, its first year of existence. This portfolio was 30% in stock index funds and 70% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection

    The Retirement Advisor Conservative Capital Preservation Model Portfolio 3, designed for someone in the later stages of retirement who wants to avoid any losses in their portfolio and who does not need a lot of inflation protection, gained 8.32% in 2007, its first year of existence. This portfolio was 100% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection.

CLICK HERE to download the free, inaugural issue of "The Retirement Advisor" that has the portfolios that gave the above returns. You will need to SUBSCRIBE to get the latest portfolios since we made some changes to the model portfolios for 2008.

Other Definitions of Critical Mass:

"Critical mass" in physics refers to the amount of fissile material needed to sustain a nuclear chain reaction which will generate power or, under the proper conditions, explode (such as an Atomic Bomb). Wiki says for a bare sphere of fissile material, that the critical mass is about 50 kg for uranium-235 and 10 kg for plutonium 239. One needs to take what you read at Wiki with a "grain of Plutonium" as it is not always accurate.

"Critical mass" is also enough bike riders on the Streets of San Francisco to shut the city down. The group that does this calls themselves "Critical Mass."

Core and Explore Portfolios

For those who want to dabble in individual stocks via "Kirk's Explore portfolio" to use my "core and explore" approach to investing, "Kirk's Investment Newsletter" contains aggressive and conservative core portfolios made from seven Vanguard Index funds along with a portfolio of individual stocks and EFTs. Start making great retuns and subscribe NOW !

2 comments:

  1. Thanks for visiting my blog and for recapping Bob's thoughts. I look forward to reading your thoughts on investing in all of your blogs!

    ReplyDelete
  2. I did not allow wsu199013 to post his message here because it contained Bob Brinker's January 20th, 2008 Bulletin WORD-FOR-WORD. People pay for that and I don't want this blog to repost copyrighted material. It is fine to talk about what Brinker writes or says, but please do not attempt to post it word for word on this blog.
    Thanks
    Kirk
    =======

    Here is thet rest of the post:

    wsu199013 has left a new comment on your post "Critical Mass for Investors: Definition of Term":

    The following was posted on Bob's website today. It convinces me that he has no clue what he is doing. I subscribed to his newsletter during the past year and have decided to discontinue after seeing the low quality of his advice--the note below just confirms that he needs to heed his own advice: use index funds, dollar-cost average, and don't try to time the market.


    "January 20, 2008

    S&P 500 Index: 1325.19

    Recent stock market weakness has exceeded our expectations..... "


    If you just have to know what Brinker is saying, then pay for it.

    Subscribe to Marketimer

    Of course, I would prefer you subscribe to my newsletter

    or both.

    ReplyDelete

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