Friday, August 27, 2021

Short Takes: Changing Risk Appetite, the 4% Rule, and more

Over the past decade I’ve rented places in Florida through VRBO, and I’ve noticed an interesting change in the ongoing battle between owners and renters.  Early on, when searching for a place, filtering by price worked reasonably well.  You could count on the actual full price to be 20-25% more than the advertised rental price once they added various fees.  Then owners got clever and began to add ever-larger nonsensical fees.  In one extreme case, the added fees doubled the total rental cost.  Filtering by price became useless.  VRBO responded by calculating a full price with all the add-on fees to show to prospective renters during their search.  So, filtering by price works again, except for a new game.  Owners are very cagey about the price of pool and hot tub heat.  Because this is optional, VRBO doesn’t include it in advertised prices.  Owners try to get renters to commit to a rental and then hit them with punitive pool heat prices.  To find a place, we now have to find some suitable rentals and send queries to their owners to find out about pool heat cost.  Owners generally reply, but they avoid giving an actual price. Sometimes they eventually give a figure after a few exchanges, but sometimes they don’t.  In one case, they wanted US$40 per day, which is many times what it costs to heat a much larger pool in Canada.  It pays to understand the game and be wary.

Here are my posts for the past two weeks:

Narrative Economics

Retirement for the Record

Here are some short takes and some weekend reading:

Tom Bradley at Steadyhand
discusses ways to change your risk appetite when it differs from your risk capacity.  I’ve long believed that with the right approach, young people should be able to become comfortable with the gyrations of the stock market with their long-term savings.

The Rational Reminder Podcast
has a recent episode that gathers together expert opinions on the 4% rule for retirement spending from a portfolio.  This includes Moshe Milevsky’s entertaining demonstration of the foolishness of picking a spending level and blindly increasing it by inflation each year without any regard for how your portfolio grows or shrinks.  However, that doesn’t mean William Bengen’s original work on the 4% rule was foolish.  We can decide to adopt a flexible spending plan but choose an initial spending level that isn’t likely to have to be reduced.  We then do an analysis similar to Bengen’s to choose that starting spending level.

Robb Engen at Boomer and Echo say that what we should do about high stock prices is “If you’re invested in a globally diversified and risk appropriate portfolio, the answer is to lower your expected future return assumptions and do nothing else.”  He sees those who act on predictions of market crashes as overconfident.

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