walkitout (walkitout) wrote,

can I please _pound_ the next person who talks about not spending the principal?

Robert Frank commits this particular bit of nonsense in more than one spot (he also asserts we have a national health care system, which does not include concierge doctors -- I can't make that work no matter _how_ I define the terms). On top of that, in his stories of group for the rich (Tiger 21 and so forth), he depicts members of the group going after the 50ish guy whose portfolio was 60/40 bonds/equity(like) investments. (I have no problem with the consensus on he should have had more in stocks and less in bonds. I thought his investment returns were pretty pitiful myself. But I thought his _real_ problem lay on the spend side.)

It's _possible_ Frank has in mind that the equities should be generating enough dividend income that, in conjunction with a bond(like) component of the portfolio, would indeed meaningfully segregate "principal" from "income" or "interest". However, this kind of portfolio structure is going to have similar problems in terms of limited quarterly returns (altho structured correctly, it may have substantially less volatility over longer periods of time, so "risk adjusted" return may be higher or lower).

In any event, it's quite clear that Frank doesn't have a good way to present (and that's assuming, which is optimistic, he understands) the really interesting question of sustainable run rate for net assets, much less the more esoteric, but even more important problem of portfolio structure and how much cash you need to have so when you pull money out for day-to-day, you don't have to sell assets you expect to recover which might have undesirable tax consequences -- or might not be currently liquid at all. I suppose it would be asking a lot for Frank to cover endowment theory as part of _Richistan_, when _clearly_ talking about 400+ foot yachts is way more fun.

Oh, well.
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