Socially responsible index funds + withdrawals

Office Hours
#1

Hello, I have two questions please:

1- What do you think about investing in social responsible ETFs/ index funds? Would that decrease the average rate of return? for e.g: Vanguard’s FTSE Social Index (VFTSX), or the Vegan ETF

2- How soon would you recommend withdrawing from my investment? and at what rate? I read something about a safe withdrawal rate- could you please explain what that means and how it is calculated?

thank you!

Sarah

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#2

I will try to answer your 2nd question.

So the average return of S&P 500 since its inception is about 10-11%. And if we put inflation into the mix, we take out 2-3%. So that will leave you with about 7% rate of return.

I have read in a bunch of books and forums that the safe withdrawal rate is 4% but some say it should be 3%. The lesser the withdrawal rate, the better. So what that means is that you withdraw 4% of your investment for you to live off of (10% rate of return - 3% inflation - 4% withdraw). Then you leave what is left for it to earn more and for you to use (withdraw from) again next time. Theoretically, that should be enough to support you after retirement (if you try to live within the 3-4% withdrawal rate).

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#3

I love your first question. A similar question was asked in another thread. I’ll link it here: Social Responsible Investing: MMM and Vanguard ESGV

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#4

I’ll cover this in tonight’s office hours (10/21/2020) with the recording available afterwards on the course site!

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#5

Thank you, Jeremy! I just watched the recording. Unfortunately, I can’t join the live sessions because where I am it would be very late (Around 2am), but that’s OK because I always watch the recordings.

thanks again,
Sarah

#6

Thanks, very interesting article!