June 26, 2021

When you think about retirement planning, you will come across the 4% rule.

In this video, we will dive deep into how you can use the 4% rule to speed up your retirement.

The 4% rule, it doesn't apply in 2021. According to the Inventor of the rule itself. 

But nevertheless, if you want to understand how to use the 4% rule to retire faster for your future retirement then this video is made for you.

90% correct transcript

So welcome back to my channel. And in this video, we're going to talk about the 4% rule and how you can use the 4% rule for retirement. Now you might have heard of the 4% rule. It doesn't work anymore. The 4% rule, it doesn't apply in 2021, or the 4% rule is outdated. And the founder who made it, the 4% rule has changed the rule. But nevertheless, if you want to understand how to use the 4% rule to retire faster for your future retirement, and what does it mean when you are thinking about safe withdrawal, then this video is made for you. Now I have no idea how long this video is going to be, because when I'm looking at the agenda today, we have a lot of topics to go through. So if you're looking at the agenda right now, then you can see that the main topic and the goal is really how you can use the 4% rule for a faster retirement.

What is it? What is the ideal time to take out money from your portfolio? What is the origin of the rule and does the 4% rule work most of the time? When does it not work? And we will look at the last 10 years of S and P 500 data. And how does that compare with my portfolio and what you should do when the 4% rule fails? And what is the number one misconception when it comes to the 4% rule, and we're going to dive into specific age ranges, which is between 20 to 60 years old, what you should do with the 4% rule. And what if you're over 60 years old, I'll also cover that scenario as well. And then afterwards, we're going to talk about the annual retirement expense by state, uh, which is very helpful. If you're living in us, if you're living in Canada, then it should be around the same, uh, because we'll arrive at a conclusion and an afterwards, I'll also talk about how I withdraw money from the portfolio for expenses and how to deal with stuff like leasing, a car.

There's a bigger expense and it's interest expense as well. Finally, I'm going to cover the critical elements to a successful retirement to basically help you think through this process. So by the end of this video series, you should have a good understanding of the 4% rule, how you can use it in an actual environments like your own situation. And we'll go from there. Okay. Now, before I started recording to CDO, I think I'm planning for around two videos if it is too long, but I'll try to cram everything within one video. If you think the CDO is too long, didn't click subscribe in life. And then when the second video comes out, you can watch it as well. But let's see if we can do it all in one go. So for those of you who are just discovering my channel, my name is Eric CDOT.

I'm a CPA I'm based in Vancouver and Hong Kong. And as of the time I'm recording this video for you, I'm actually in Vancouver at the moment. So you can see mints house background. So I started investing when I was 18 and I tested well over 300 strategies, uh, for the last eight years. And then I started growing my portfolio using a very specific strategy for the last five years, from 2016 to 2020. My return in total is 783%. And that is an annualized return of approximately 54% for a year. Now it's important to note that my targets per year is only around 30% a year. So right now I'm a little bit over achieving in terms of my annual return. And this is my YouTube channel, where I share a lot of financial decisions thinking process based on the facts. So we're a very data-driven group here.

We always look at the facts. We're not necessary relying on other people's opinion. And basically the goal of this channel is really to make finances simple and easy to understand for you. So with that being said, let's get started. Who is this video for? Basically this video is for people who want to retire faster and you have heard of the 4% rule, but you're not sure what it is, and you're not sure whether it is still applicable in today's markets. And if you are interested in implementing the 4% rule for yourself, invest in the markets and basically have more control over your own retirement. Then this video is for you. So let's dive into the first piece of data. Now, the 4% rule is the safe withdrawal percentage from your portfolio on an annual basis. So the 4% rule really revolves around taking money out of the portfolio.

It's not necessarily an investing strategy, but it represents how much money you can take out of a portfolio. And you can still retire for many, many years to come now, depending on what kind of situation you're looking at, whether you're looking for an early retirement before 40 years old versus you're at 65, and you're looking to retire for the next 20, 30 years, that assumption is going to change his situation slightly. But if you are able to follow the 4% rule that you should be able to take out a fixed amounts of money over a long period of time, but that is 30, 50, 60 years to come on the right-hand side, I'm going to calculate what is the straw on an annual basis based on your portfolio size. Now, the first row you see is really $10,000, which means you can withdraw 400 bucks on an annual basis.

And the next row is $50,000, which you can withdraw $2,000 on an annual basis, so on and so forth. And initially when you look at the first couple of rows, you will see that, Hey, Eric is not that significant. And that's exactly the point. And once you reach around half a million to a million, then you can start taking out a more meaningful amount on an annual basis. So for example, if you're looking at half a million, which is $20,000, and that's approximately $2,000 a month, which can be quite a sizable amounts, and if you're retired and you have a lower amounts of expense and Hey, perhaps that's enough of living expenses for you. Now, if you're looking at the $2 million mark and you will be taking out around $80,000 per year, so this is a little bit more reasonable. You can see that is probably covering two people's worth of expenses.

If you're retired, for example, if you and your spouse are spending $80,000 per year in terms of expenses, then you need a $2 million portfolio. So we can actually pause this video and you can take a look at where you're at and more importantly, where you want to be. And I think you're going to quickly come to the realization that Hey, most of us wants to be somewhere between the 1 million to $2 million range. And that's why when you're looking at north America, there's a very strong focus of becoming a millionaire because once you reach that millionaire status and suddenly you're able to produce enough return from your portfolio to replace your income. So that's really what you're looking at when people are talking about, they want to be a millionaire. When they talk about the 4% rule and retirement. I also included two additional rows here.

Why, where I included 5 million and $10 million. And these are really for hard, more overachieving friends on this channel. And you can take a look at how much money you will be able to withdraw. If you're taking 4% out. Now, let me cover the first common mistake that most people make taking money out of your portfolio too early. If you look at the portfolio on the right hand side, you'll realize that it is not really meaningful to take money out until you hit half a million dollars using the 4% rule. Now, most of the retirees I talked to need around 30 to $40,000 worth of expenses. So you're really looking at the upper range closer to a million dollars. So I would say your target portfolio size is somewhere between 500,000 to a hundred to a million dollars. Uh, which I think is pretty standard when people are doing retirement planning.

Now, before you reach your desired portfolio size, you will want to let your money compound for you for as many years as possible. Now, if you are watching this video early and you're young, wait, whether you quit or you're a thirties or forties or even twenties, then not as great because you have a lot of time to let compound interest work for you. If you start taking money out of your portfolio too early, and now will actually slow down your growth, which will require you to work harder and longer and save more money in the future. So that's why investing is such a long-term endeavor because you need compound interest to work for you to get to that half a, to a million dollar mark. So this is really where most people realize that they need to become a millionaire in order to retire. And that's why in north America, they glorify and place a lot of emphasis on becoming a millionaire.

Basically when you are becoming a millionaire, you have made it. And based on this calculation, you'll realize that, Hey, being a millionaire and following the 4% rule only generates around 40 K in terms of income for a year. And when you think about it, huh, it's actually not that much in the grand scheme of things. So maybe it's due to inflation, maybe that's dogma or concepts. It's kind of outdated now, but being a millionaire in north America actually don't mean that much in terms of the 4% withdrawal rule, because you're only making 40 K a year. Now, of course, if you pay very, very cheap rents and you don't need to work a job, then you can possibly travel and you have a budget of $40 and dollars, which is not bad. But when you think about it, in terms of the absolute sense, $40,000 a year is not exactly fantastic.

If you are an engineer and you're making 60 to 80 K or even a hundred K or you're a doctor that's making well over a hundred K. So depending on your lifestyle, you really need to think about what is done, not enough money you need in order to retire, following this 4% rule in the next slide. Let's talk about how reasonable it is to take out 4% of your portfolio per year. And we'll also be stepping into the origin of the 4% rule and how the math works and so on. So right now on this slide, you will see the S and P 500 return for the last 10 years. Now I could have done this analysis over 30 years, but for simplicity, let's look at the last 10 years. And I also went ahead and pull out the inflation number on an annual basis.

And you will see that there is inflation number from 2010, all the way to 2020. We don't have the inflation number for 2021 yet. Basically what this table is trying to achieve is to help you understand what is the residual return you're getting from S and P 500 after inflation. Now, why is this the first example? And this is because when you're looking at the average investor's portfolio, if you are fully diversified, you should be pretty close to S and P 500. Now you might be paying 1% in management fee, or you might be paying 2% in management fee, which I would consider it to be very high. You can still get a return that is very close to S and P 500. So in this case here, you will see S and P 500 in the first column. For example, in 2020, it was 18.4%, which is phenomenal.

The average return for SMP 500 is around 8% to 10%. So he can see in 19 and 20 SNP has been performing a lot better. So if you take that and minus the inflation amounts, then you'll get the third column, which has the residual by year. Now in 2020, it is 17%. That is a residual net of inflation. And in 2019 is 29%. So here, you can see that in both years, if you just take out 4% of your portfolio, then you'll still be doing fine. You have more than enough leftover for your portfolio to maintain its balance and continue to grow going forward. So that is great. But what if you look at 2018 and that's when the 4% rule is not enough in 2018, the inflation is 2.44%, and you can see the S and P 500 return is negative 4.38%. So that means the residual is negative 6.82%, which means after inflation, your portfolio actually shrunk by 6.82%.

So if you want to take out another 4% in 2018, then that will really hurt your portfolio in terms of its balance. And basically for that year, your portfolio is not growing. And if you needed the money, then your portfolio would decline even more. Now, if you look at the 2017 and 16 figures, then again, it is okay, again. Now, when you look at 2015, that year S and P 500 only netted a 1.38% return and inflation was 0.12%. So the net residual return, there is 1.26, and that is actually not enough to take out 4% without decreasing the balance. So in 2015 is also a year where the 4% rule, it didn't necessarily work. So if you look at the last 10 years of data, then you'll come to the conclusion. That's out of 11 years that we got here three years. Actually, it didn't work, but most of the time, the 4% rule works.

And there's usually enough residual value for you to take that money out. Now, when you're looking at this chart, you need to keep in mind that the S and P 500 is a hundred percent stocks. And as you get older, your financial advisor will probably tell your dad, Hey, investing in all stocks is risky. So you should probably add some real estate investment trusts or add some bonds into it, which will lower your return, because usually stocks will offer you the highest return and then as REITs, and then as bonds. So bonds offer you the lowest return, but it also gives you the guarantee that you're getting a certain amount of return, for sure. So when you think about it, okay, even if you invest a hundred percent in stocks, your residual three out of 11 years didn't work. So this is a problem that we'll have to solve later in the video.

So make sure you stick around. Now, at this point, I also like to evaluate my own portfolio against this four rule to see if there is a situation where it doesn't work and what to do about it. Now, in this case, I'm going to make his simpler, because I only have been using the same strategy since 2016. So we're going to look at the last five years of data. So in 2016, by return was around 78%. Choosing my strategy. 17 is 40% and in 2018 was only 3.5, 8%. So this is actually a number, or I pulled directly from my broker, which is tedious Canada. And in this case, you can see that year SFU south central was actually negative 4.3, 8%. And even though I kind of did a relatively good job, eating them markets and getting a positive return, which is 3.58, I still didn't meet the requirement to make 4%.

And if I remember correctly, let me just go back. One slide 2018 inflation was 2.4, 4%. So that means I actually didn't need to the 4% rule. So even if you get a strategy that is performing better than the market, it doesn't necessarily mean all of the years, you will be able to satisfy the 4% rule. So how should you prepare for that kind of situation? And that's exactly what we're going to be addressing in a bit. So when you're looking at my annual average return is approximately 40% to 50% per year. So once you analyze it, that's what it would be out of the last 10 years, the SMP 500, we return fails in 2011, 15 and 18. So three out of 11 years, it has failed now to solve this problem. We actually need a buffer for the volatility within the markets, because obviously the market doesn't go up in a straight line.

So, you know, you need some sort of buffer. So that means during the bad years, you want to have some cash on hand before bad years happen. So for example, in 2020 2019, you'd probably want some additional cash on hand allows you to weather through one to two years of that market. Now, when we're looking at the last 11 years, feedback, yours are only individually happening. So they're not consecutive bad years, but we can't remove the possibility that there can be two consecutively bad years. And because of that, we should prepare for around one to two years worth of cash to be invested in something like money markets or bonds, basically to provide you with some sort of buffer when you're taking money out, you don't need to take out money immediately. Now, if you have a more capital gain focused portfolio like myself versus a more dividend focused portfolio, which is not something that I focus on, then I'll also talk about how to take on money during that time.

Because for capital gains focus portfolio, you need a little bit more timing versus a dividend driven portfolio where you get paid on a quarterly basis or a monthly basis on an annual basis. Okay? So basically the solution to that is to create a buffer. And in my opinion, I think if you have a buffer of 40 K to 80 K, which is one to two years of additional capital that is not invested in stocks or whatnot, then I think you will be able to do fine. And this can only be done during a good year. For example, in 2019, where it has to be 500 return is 31%. You can take a little bit more than 4% to weather through that store. Okay? So by now you probably understand that the 4% rule is really a strategy for the end game. You're trying to take money out when you're retired, you're trying to take money out when you don't have as much income, but what if you are working because most people die watching this channel.

You're going to be working between 20 to 60 years old, maybe up to 65 years old. And your goal is really to reach that desire level of wealth, as soon as possible. Now, in this case, we'll just use a round number, which is a million dollars. And basically you're trying to get there using the money you have in your portfolio, and you want to leave it alone. And at this point you want to be utilizing all of the tax advantageous accounts, such as 401k Roth, IRA and us or IRA. And in Canada is TFS and RRSP. And I did a whole tax series on my channel on how to use TFS, a RSP, how to pay as little capital gain as possible. So he can watch those videos as well. And basically what you're trying to achieve here is to make sure that most of your 100 K is compounding tax-free because the last thing you want is to pay a lot of taxes along a long, the way, because that would actually slow down your growth and make you take a lot more time to compound have reached out retirement goal, and actually did another video on that as well, and basically explaining the tax impact.

If you are taking a profits every single year. Now on the right hand side, you'll see the table I've created for you. Now, the first column you see is that if you have a hundred thousand dollars and you fully compounded without taking any money out or putting any money in and you make 10% per year for the next 15 years now, this is actually quite interesting because you can see that if you are starting to plan for retirement, when you're a 50 years old, you start with a hundred thousand, of course you will save more money, but then as you keep compounding without taking money out, let's say in a 401k or a Roth or TFS, a RSP at the end of 15 years, you will be at $379,000 and 750. Okay. Now what if you make 10%, but you want to take 4% out, you're following the 4% withdrawal rule.

Now, if you do that, then what you end up getting is starting a hundred thousand and it will only grow to 226,000. So you can see that the growth they're actually slowed down significantly is the difference between $150,000. So that's actually quite significant when you think about it. And if you're looking to achieve that 1 million mark ASAP, then you need to have that discipline to not take money out, keep letting it invest in work for you, because initially it is going to be slow. And if you take money out and it's going to be even slower and it might be so slow that you might not get to a million even after 15, 20 years, and you can see the math here. If the market is not that surprising that it should follow this projection. Now on the third column, I also added fully compounded 30% return.

And this is really for my own amusements because my target is to make 30% return a year. And also for some of the students in investing a celebrator because their target is also making 30%. So here you can see that it started with a hundred thousand dollars, no capital injection or withdrawal, and it will keep compounding. And by the end of 10 years, you will see that the capital has basically 10 X. And this will allow me to reach a million dollars in year 10 and an afterwards to continue and grow after that. So in this case, you can actually see someone investing a hundred thousand and achieve financial freedom in a relatively short amount of time, which is 10 years. And you can imagine if for some odd reason, you're 20 years old, you have a hundred thousand dollars and you reach a million by 30, then bam, you're retired.

And when you're 40 years old and you have a hundred thousand invest compound 10 years, and then you're retired now at this point, for those of you who don't know me, then you'll probably think that, oh, Hey, I have never heard of people making 30% before it sounds ridiculous. How come I go to the bank? And nobody tells me that I can make 30%. And the answer is because most of the strategies that allow you to make 30% are not available in the bank. So for example, private equity funds investing in startups, investing in hedge funds. They can aim for 30%, sometimes even more, but those strategies are not in the bank. So if you go to the bank and ask the teller or the financial advisor there, they're not going to give you a fund or a mutual fund. That is an index that can get 30% return for a year.

Now I want to cover the next slide, which is what to do if you are 60 plus years old. And if you have reached your desire portfolio, then that's great. You can start taking money out and should you take it all in the beginning of the year? Should you focus more on dividend stock? How should you structure your portfolio for a capital gain driven portfolio like myself? I like to take money out of the portfolio when I take profits. And this is important because I try to time to market in a way where I'm maximizing the profit taking. So I don't take money out because I need the money. I take money out because it is at maximum profits. So that's kind of, what's important. And this ensures that my money is only taken out when the mark out of the market, when I need it.

And I try to exit at a high price as much as possible. I'm probably going to get attacked for saying that I tied the markets because I do. And I try my best to time. It's, it's not perfect. But if you are able to time the market and get that extra 5%, 10%, it's out of the market, then, Hey, why not? Now, if you are 60 plus years old, and you're a little bit more conservative, you don't like having your entire portfolio focuses on capital gain instead of dividends, then you can choose a more income driven approach for your portfolio. Now your taxes might be higher because obviously dividend and capital gains have very different tax rates, which are covered in another video in my tax series. But if you don't think you will be able to time the markets and you want some sort of certainty, whether that is a monthly dividend, a monthly interest distribution, or a quarterly dividend or whatnot, then you can structure it a part of your portfolio to be that way.

But you need to keep in mind that let's say you structured a $30,000 dividend per year portfolio, and you don't need $30,000 that year. And suddenly you're getting tax on that dividend. And you need to reinvest that dividend back into the stock market, which can be quite troublesome. So in a sense, what you're, what are you doing to yourself is that I'm investing in a stock. I'm getting dividends, which is money that I don't need, or I don't need right now. And I reinvested because I don't need right now, but then I still get taxed on it because I got paid a dividend. So when you think about it, that's why I'm a strong advocates of capital gain, but that's also because I'm younger and I don't feel like I need any dividends at all. So I think this is a matter of preference and skill because when you're 60 years old and you want some dividend, you want some guaranteed income that I think fine.

But when you're looking at guaranteed or dividend income, that is very predictable and the return will also be lower. So when you're looking at a high dividend stock, for example, like 8%, 9%, 10%, then usually you have almost no capital gain and a stock price will also go down. So you kind of keep that in mind, because if you invest in the stock that is going down, then over time, their stock value is worth less and less and less. And at the end you don't get back the stock value. And basically the stock itself has gone down so much that your capital has gone and is paid out fruit dividends. Now, the next thing I did for you is really to calculate the annual expenses by states. And this is actually an article I found on Yahoo finance. And then I kind of wrap the data.

I cleanse the data. And then afterwards, I took that number divided by 4%, which is the withdrawal rule that we're talking about here to calculate. What is the portfolio balance you need by state to retire. If you are looking at this chart, you can actually pause this video, change it to high definition and look at your own states. I'm just going to highlight a couple of states here, but basically I think you can look at what is the portfolio balance you need. It is sorted. So the lowest annual expenditure to retire is Mississippi. So congratulations. My subscribers who are living in Mississippi, Kansas, Oklahoma, New Mexico. So these are the states that have the lowest annual expenditure and your portfolio balance just needs to be around a 1 million to 1.1 million in order for you to retire. So when you think about the next 10, 20, 30 years, you just need to figure out a way to get to that balance.

Now, of course, if you tell me, Hey, Eric, I'm actually a more frugal person. I don't spend that much money. I don't have much hobbies. I don't like to travel. I just kind of take care of my garden and retire, and I just need 20,000 to retire per year. Then. Yeah, you can just follow the formula, take that 20,000 divided by 4% and you will get to the portfolio balance you need. Anyways. Now some of the more expensive states, which are also some of the locations I want to retire in will be California, New York, not really district of Columbia and Hawaii, which is one of my favorite states in United States. And here you can see the annual expenditure is a hundred thousand, $207. So this means you would need a portfolio of 2.5 million, which is the highest across all the states. So we can see that as actually pretty intense, because what is the possibility that someone can make $2.5 million to retire by 65 now, depending on your income and your occupation, this might seem like an achievable goal, but I know a lot of people that's, it will be quite a bit of efforts in terms of savings to get to this 2.5 million mark.

So when you think about it, there's gotta be a better way to retire faster. And when you're looking at the financial independence and retire early community, you'll find out, they always talk about moving from a high cost of living location to a low cost of living location. And looking at this slide, you will be able to clearly see why that is so important, because if you're living in Hawaii, you need to save 2.5 million. If you're living in Mississippi, then Hey, you just need to save 1 million. So it's a lot easier to retire in certain states compared to the other ones. Now I'm going to move on and talk about how I withdraw money from my portfolio. When there is a large expense and actually created a YouTube series about this earlier called wall street buys me a Tesla. And basically I'm trying to buy a Tesla that is around 75, 70 $8,000 using capital of $75,000.

So basically the premise of that video series is that I could have bought that Tesla today, but instead I decided to invest it first, wave three to five years and then buy the Tesla Watts. So this is really a great example of delayed gratification. And I basically use $75,000 to make $78,000, which is approximately 30% per year, which is double in three years. And this is really achieved through multiple investments. It's a three, four video series where I invested in American express Kirklin Pfizer, which is the vaccine stocks, and also Altrix as well to achieve that $78,000 in a span of 1, 2, 3 years. And surprisingly, I actually achieved that in one year. I guess the market was doing a little bit better. I expected, but my original plan is to achieve that in three years. So far, my latest and last investments was Pfizer, where I put in a hundred thousand dollars and I made 30% after a one to two months because obviously Pfizer vaccine is really popular right now.

And the stock also went up. So how does that apply to withdrawing money from the portfolio? So when you're withdrawing money from the portfolio out, try to time it around the exits. So when I invest in Pfizer, my plan was to hold it for a year. Now, of course, the stock went now faster than I expected, so on and so forth. And I exited after two months approximately. So at that point, when I take profits from Pfizer, then I will take out the money. I need to buy Tesla. Now, of course, that I do that. The answer is no I didn't because I realized I kind of made too much money too quickly. So then I need to reinvest that capital until I'm ready to buy a Tesla. Now there's one more consideration when it comes to buying a large purchase, like a car, my goal is really to make that monthly payments.

So I want to invest my capital and take on a lease from Tesla. So then I pay a monthly payments instead of a lump sum. Now you might be wondering, Hey, Eric, that means you're paying interest on the lease. And the answer is yes. And I'll talk about that in a bit, but basically I'll reinvest all of my capital and only withdrawal the amount needed for the lease. So for example, let's say I take on the lease and the lease payments is approximately 700 bucks a month for Tesla. And what I would do is when I exit Pfizer, I would actually take out a year's worth of lease payments, meaning that I would take 700 times 12, which is approximately $8,000. And I would use that and put that money aside in a cash account. I'm not going to invest that money when I exit Pfizer and for the remaining 122,000, I took profits after investing advisor, I would use that to invest in something else and I don't need to take money until my next stock position becomes profitable and I take money from that.

So that's actually how I would do it on a fairly mechanical basis. And this allows me to have that buffer, minimize the amounts of capital, not investing in and reinvest as much as possible because I don't need most of the money today. And that is really how I maximize reinvestments of my capital. So when you look at the portfolio cycle, I would only have $8,000 that is idle in terms of cash. Whereas all my money is fully invested in the markets and working for me. So, okay. When you're looking to lease an assets, you need to make sure that's the money you use to lease is for a good cause you are using it to invest in good investments. You're not using it to spend on other consumable items that is not making you money. And what's important is that the return you're making needs to be higher than the lease interest rate.

So that's, what's important because typically the lease interest rate I see is around 6% to 9%, depending on your credit score. Now, right now, the interest rate is very, very low, like zero to 1% from the bank of Canada or a fence. So you might be able to get a lower rate, at least interest rates, which is 4% to 5% return. But I expect stats in the next couple of years, the interest rate will be going up. So you need to be careful because when you hit that 6% to 9% mark, then you'll realize that it is not very beneficial to lease a car because it's the same return as you would get from SMP 500, which is eight, 9%, maybe sometimes 10%. So unless you have a strategy that allows you to get a significantly higher return. So for example, my strategy targets 30% return, and it might not be beneficial to lease a car.

You might be better off if you just buy a car with full cash and then you depreciate it within your business and whatnot, then you can pull it off. But yeah, if you're not making a very high return, like three, 4%, then you might be off just paying off the lease, just buy the car with all cash and go from there. And some of the other options of course, is to buy a used car. So this situation only applies. If you're trying to buy a new car, there's also an additional situation. Like what if you want to buy a car, you don't have enough capital and you don't want to pay a higher lease interest rates. Can you use a line of credit to buy it? Now, first step to that is really, you need to check your house to see if you have a line of credit that is having a very, very low interest rates.

So I'm talking about 2%, 3%. Now I can try to take advantage between the line of credit interest rates, which is two to 3% first is to lease interest rates, which is five to 9%. So what you're doing here as essentially, you're taking the line of credits 2% to buy a car, using all cash versus getting a lease from the dealership, which is five to 9%. So using that because there is security, uh, so on and so forth, and you are basically having an arbitrage where you're making the difference of four or 5% between the lease and the line of credit. Now, in this case, you actually need to be careful because interest rate is looking to increase in the future. So obviously the lease interest rate will not increase if you entered into a lease for five years, but the line of credit interest rates, my fluctuates based on the markets.

So that's tomorrow announced an increase in interest rate that boom for line of credit interest rate will be going up as well. Okay. Of course you want to use our line of credits to invest in the markets and you should only, only, only, only, only, only do this, if you are absolutely sure that you will make money and make a higher return than the line of credit return. So if your line of credit is 3% and you need to be absolutely sure that a you don't lose it because it's not your money and B you make more than 3% or whatever the interest rate is for your line of credits. And if your line of credit is more than 5%, then probably is not worth it to take that risk because that rate is actually quite high in my opinion. So you're probably better off sticking to stocks and not use any line of credit.

Okay? So finally, we're going to cover the critical elements to retirement here. You will see, there are basically three factors that you need to consider. So the first one is how much you save when you're working a full-time job. And this really depends on your lifestyle. If you are a frugal person, then that's great. So you should be saving a lot more. But if you have family, you have four kids. You want to travel little bits while you're still young, then you're saving less. So this is within your control, but it also depends on your lifestyle and what kind of standard of living to you want. Now, the second one is how long you can invest for, and the answer is so it's 65 years minus your age, and you should be better now because after watching this video, you should be very motivated to start investing today.

Because when you look at the chart on the rights that earlier you start investing, the more you can compound. And when you think about investing in retirement, the most of the gains it's not achieved in year one to two year two, most of the gain is achieved in year 14 to year 15. So if you look at the difference from gear 14, a year 15, it goes from free 45,000 for that, for the first column to three 79,000. And that amount difference alone is like 35,000 or so versus the first year where the difference is only 10 K. When you invest slates, you kind of put up that decision. You kind of delay it because you're indecisive. The cost of investing is not the first year. The cost of investing is a last year. So the earlier you start, the more your compound and the more money you make near the end.

And that is the tricky parts about investing because it is based on time. And the only way you can speed it up is to third factor, which is how much return you make. And that depends on your investing strategy. So if you look at the table on the right again, and the first column is your typical S and P 510% return, the third column is a more advanced strategy that requires more management. That requires more in-depth financial knowledge. And that is my targets personally, as well. So here you can see dots in year four, you can actually double your portfolio using a 30% return. So when I say year four, it really means year three, because in year one, you're starting with a hundred thousand. So it should actually be years, zero, but just stick with me here. So if you are able to achieve 219,000 in year four, that basically allows you to double, when you follow the normal 10% return, it would take you year nine to get to the same amount.

So essentially what you're doing is if you can make three times to return, then you'll get there three times faster. It's kind of obvious Eric. We already know that, but I'm just pointing it out and giving you the math. So you can see it clearly yourself. And that brings me to my investing strategy. So I just want to celebrate another couple of case studies within investing a celebrator where a flow made 41% from bank of America in five months. That's fantastic. Flow is actually lawyer in Australia. Serena made 18% from TD after 40 days. And that is fantastic. Uh, Serina is based in Canada and she works in the it field. And this time she used stocks, not options and sent to cash made 80% from Boeing in two months. And this time he actually used options. And this was actually made after COVID when Boeing was cheap.

So if you're looking at this video, now, you can still look at the charts and see how he made 80% using options. Now, Tony also made 104% from Boeing in three months. So obviously his holding period with fender cash slightly different. And Eric is an engineer he's retired and he made a hundred percent from Boeing and one and a half months. And finally, Mike, a doctor in the United States made 30% from RTX, which is actually defense company in five months. So these are all great case studies from investing accelerator and congratulation to you all. Now, if you're interested in becoming part of investing accelerator or learning more about it, then there's actually a free case. Study into description is actually just the first link. And if you click on that link and you watched a four hour webinar, it actually outlines how I invest, how I help people to achieve this kind of return.

And after that, if you are interested in becoming part of investing accelerator, then yes, you can schedule a free chat with me. It's called a free strategy session to chat with me, and then I'll assess your situation and see if you are a good fit for the program. And if you are a good fit, then you'll be a parts of investing in accelerator that on average, each month, I'm looking to help around 20 full-time professionals without a financial background to master investing. So to target as 30% return a year. And sometimes I can accommodate 30 people, but my target is really 20 a month. So that's my goal. And that's how many people I help on a monthly day. So that is it for this video and turns out I'm able to fit all of that content within a single video, which I'm sure we are at like the 40 something minute mark now.

So it's quite long. Uh, so let me know down below in the comments section. So see if you liked this kind of long video, or if you prefer shorter ones where I only have 10 minutes or whatnot, uh, per video. So those are more concise. Yeah. Whereas this one is more an in-depth and more or complete guide to a certain concepts in terms of finances. And in this case, it's the 4% rule. And if you have implemented the 4% rule successfully, let me know in the comments as well, I will be interested to know how is that going? What you do during the bad years, is there a better strategy to weather through that bad times, other than having a buffer of one to two years, which is my plan for now. And if you have any additional ideas, let me know. Okay. Comments, section below. So I'm looking forward to chat with you and previously for one of my most popular videos, which is the capital gains tax, I do try to reply to all the comments. So if you leave a comment below and I do, uh, read it and I'll like it, for sure. So yeah, that's it for this video and I'll see you in the next one.

About the author 

Eric Seto

Investor, CPA (Canada) based in Hong Kong and Vancouver

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