“The proof of the pudding is in the eating.” As someone who loves food, that’s the kind of reality test I like.
Try the pudding.
See if it’s good.
That’s why I do this annual Pudding Report. Instead of giving you reams of percentages and other abstractions, I give the most basic, dirt-cheap Couch Potato portfolio the ultimate reality test: I show the results of simple investing as measured in real pudding.
That would be cash.
Reporting Actual Dollars
It’s the dollars you have at the end of each investing period and the income you’ve been able to take.
The figures are astounding. Who would have thought we’d be looking back over the last 20 or 30 years, rubbing our hands, and marveling what a great time it was to be an investor?
But that’s what it has been.
Up nearly 5x in 30 years
If you had retired 30 years ago, at the beginning of 1992, and had invested half of a $100,000 nest egg in a total domestic stock market fund and the other half in a total domestic bond market fund, you’d now have $483,921. That’s nearly five times your original investment.
You’d have this much in spite of taking an annual $4,000 that was adjusted upward for inflation each year. Indeed, you’d now be taking income at the rate of $8,062 a year. The only problem you might have is that, if you had retired at age 65, you’d now be 95 years old.
If you were still alive.
(As a practical matter, my bet is that many people, finding their assets were rising so nicely, would decide it is time to be more generous to themselves or to others. You really can’t take it with you, so why not?)
The table below shows the results over a variety of time periods from one to 30 years.
Retirement Results for The Couch Potato Portfolio |
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| This table shows the results for investing equal amounts in two basic indexes and withdrawing at a 4 percent initial rate that is adjusted upward for inflation each year. It is done with indexes rather than actual funds due to the long time periods involved, but fees would have only a minor impact on the actual results. It’s important to note that portfolios can show decline for two reasons. The first is a decline in the value of the portfolio itself due to a negative return for the year. The second is when the portfolio has a decline from year to year because the withdrawal exceeded the annual return. | ||||
| Years | Beginning Year | End Amount | End Income | Years negative portfolio return and years principal declined from previous year due to withdrawal exceeding return. |
| 1 | 2021 | $107,643 | $4,281 | 0 years and 0 years |
| 3 | 2019 | $138,632 | $4,439 | 0 years and 0 years |
| 5 | 2017 | $139,723 | $4,619 | 1 year and 1 year |
| 10 | 2012 | $181,357 | $4,942 | 1 year and 2 years |
| 15 | 2007 | $166,932 | $5,526 | 2 years and 3 years |
| 20 | 2002 | $181,404 | $6,311 | 3 years and 6 years |
| 25 | 1997 | $285,067 | $7,032 | 4 years and 4 years |
| 30 | 1992 | $483,896 | $8,037 | 5 years and 7 years |
| Source: www.portfoliovisualizer.com | ||||
It’s easier to do today
Back in 1992, a year before the launch of the first exchange-traded-fund, it would not have been easy to create this simple retirement portfolio. Today, and most of this century, it has been easy. It can also be done with any brokerage account.
So, if you don’t have an account with Fidelity, Schwab or Vanguard (all of which have their own total stock and bond market ETFs), you can still buy those ETFs, usually with no sales commission. Even better, the expenses for these funds are generally under 0.05 percent a year.
This is something you can do even if you are afraid of money and investing. You open an account, use a calculator to divide your nest egg by the number 2, then invest one amount in a Total Stock Market ETF and a Total Bond Market ETF.
The importance of doing as little as possible
Then take a nap for 12 months.
By avoiding the unending financial drain of paying 1 percent, or more, in fees for a managed fund and another 1 percent, or more, in fees to an adviser who helps select managed funds, you’ll be at least 2 percent a year ahead of the game. Over a long period of time very, very few professional managers can increase returns enough to cover those costs.
Related columns:
Earlier cash results reports:
Scott Burns, “The Pudding Report, 2020,” 1/30/2020 https://scottburns.com/the-pudding-report-2020-the-proof-is-in-the-pudding/
Scott Burns, “Show me the money!,” 12/05/2020 https://scottburns.com/show-me-the-money/
Scott Burns, “It’s 2020. Are You Broke Yet? Not Hardly,” 4/11/2020 https://scottburns.com/its-2020-are-you-broke-yet-not-hardly/
Scott Burns, “The Longevity of the Couch Potato Portfolio,” 2/9/2019 https://scottburns.com/the-longevity-of-the-couch-potato-portfolio/
Scott Burns, “Living (Well) with the Couch Potato Portfolio, 7/15/2018 https://scottburns.com/living-well-with-the-basic-couch-potato/
Couch Potato Investing:
Scott Burns, “The Simplicity Manifesto,” 3/31/2019 https://scottburns.com/the-simplicity-manifesto/
Scott Burns, “On the Importance of Being a Dull Investor,”9/29/1991 https://scottburns.com/on-the-importance-of-being-a-dull-investor/
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns, 2021
(c) Scott Burns, 2022