GARCH

Research on Safe Withdrawal Rates

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JWR1945
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Post by JWR1945 »

gummy wrote:The point I'm making is this:

If I could find historical P/E values for individual stocks I could generate E10/P values for a portfolio with a dozen (two dozen? three dozen?) stocks.

P.S.
The S&P500 tends to be large cap growth stocks.
Many people believe that value stocks are a better investment.
Alas, E10/P for the S&P is of little value for these guys.

I think that the Federal Government (via the SEC?) has a service called EDGAR that includes all of the annual reports on all publicly traded companies in the US. I have not used it.

I think that there is a company that will supply you with user friendly access to this database. However, there is a fee.
Yes. You should be able to get everything via the internet, at least for recent years.

Individual companies have websites. My guess is that they make all of their annual reports available for downloading for free.

For those with really big bank accounts, there is the S&P computer database.

Have fun.

John R.
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Post by gummy »

When I said:

**The spreadsheet is in such a mess (and no doubt has bugs), but the idea will remain the same when it's neat and tidy.

I weren't kidding :(

Anyway, I've given up on doing the E10/P thing ... unless I can find a (free, easily accessible) source of data.
hocus2004
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Post by hocus2004 »

If I were the administrator I'd actually have to read all that crap

We all contribute in our own ways, Gummy. You made a significant contribution by providing us space for the tutorial at your web site. That's a big deal, and I hope that all of our fellow community members are grateful. I sure am.

One of the ways in which I try to give something back is by taking the lead on the intercst matter. It's no fun, I can tell you that much for sure. But it is work that very much needs to be done, and I can't say that I have seen too many fighting me for the assignment. I do what I can, and my personal view is that I do a not-at-all-bad job.

I hope that other community members will be thinking from time to time as to what they can do to help out, If you post at raddr-pages.com, please consider putting up a post telling raddr that you do not appreciate his smears of JWR1945 and his banning of JWR1945 from his board (or, for that matter, his smears of me or his banning of me). Tell him that if he does not begin administering his site in a more reasonable manner, you may have to take your posting business elsewhere. No one post is going to turn the tide. But a post like that will get the DCMs' attention and in time the pressure on them will become too great for them to resist it.

If you post at the Early Retirement Forum, speak up in opposition to the next smear you see posted there, especially if it is one that seems likely to cause obscenity filers to block fellow posters from participation. If you post at the Motley Fool, send an e-mail to TMFBogey or TMFTwitty telling them that you want more on-topic posting at that board and that you want appropriate actions taken against any posters there who engage in tactics aimed at blocking on-topic discussions. Let them know that you pay to participate there, that a portion of the money you pay goes to cover their salaries, and that you expect them to execute their job responsibilties in a reasonable manner. You are a paying customer at that site, and you have rights. Insist that they be given recognition.

I don't expect anyone else to put the amount of time into this that I have put into it. I question at times whether it makes sense for me to put so much effort into it. However, I do think I am right in thinking that discussion boards are not as "free" as we sometimes imagine them to be. Even when there is no monetary fee imposed for posting, the price of insuring that a board remains an effective learning resource is being willing to fight for it when it is under attack. If you take something from a board during the good times, you need to be willing to give a little something back when storm clouds arrive. That's my take.

A poster named "Mikey" put forward a disturbing thought at the Early Retirement Forum one time, He said that he has seen a number of discussion board communities make the switch from good to bad, but he has never seen one make the switch from bad to good. I think he is onto something with that one. One drop of poison can ruin a gallon of cool clean water.

Still, I think that the FIRE/Retire Early boards can be the exception that proves the Mikey rule. We have something special going at these boards. The desire among middle-class workers and investors to learn what it takes to win financial freedom early in life is intense. I don't think that these board communities are going to roll over and die as easily as some DCMs might wish would be the case. We are fighters or we wouldn't be here in the first place. Does it not take a certain amount of fight to reject the conventional money management ideas and aspire to retire not just by age 65 but a whole bunch sooner than that?

I believe that the DCMs are going to lose this battle. I already see signs of the tide turning against them at a number of boards. The key is that we take action against them as a community. Go one on one with a DCM, and he will cut your head off. I've seen it happen scores and scores of time. Take action as part of a community, and the DCMs are blown into the wind like so many silly little pluffballs. As a community, we possess a strength that not one of us possesses as an individual Information Seeker.

The entire purpose of the various board communities is to provide us the means by which to benefit from the work and experience of others seeking similar life goals. The community is here to help us not only with substance problems, but with process problems too. Intercst possesses no magical powers. Call him on his nonsense, and you will find that he is nine parts bluff and bluster for each one part of substance. I've done it, so I know what I am talking about on this matter.

I look forward to the day when there is no community member who needs to live in fear of another, when the person who is working up the courage to give up lurk status and put forward his first post obtains the same respect for his words as the founder of the first board community. We ain't there yet, not by a country mile. But we are indeed getting there, post by post, thread by thread, board by board.

Someday, everything is going to be smooth like a rhapsody. Or so Bob Dylan once so sagely observed in a post he titled "When I Paint My Masterpiece." And, as longtime readers know, Bob Dylan is one of my favorite personal finance advisors of all time,.
JWR1945
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Post by JWR1945 »

I have placed the Gummy 02 version of Deluxe Calculator V1.1A08 into our special SWR Research Section.
http://nofeeboards.com/jwr/jwr.html

It is in a self-extracting zip file. I have checked it out. My dialog box identifies the size as 4.56 MB during downloading.

I take all responsibility for making corrections. If you identify a flaw, let me know so that I can correct it (not gummy).

Have fun.

John R.

P.S. It is very easy for me to extract the actual data that are used in calculations. Should anyone have a question, understand that it is easy for me to copy and post such data.
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Post by JWR1945 »

gummy has brought up this theme several times.
gummy wrote:Large cap value, and especially small cap value really did well during that period.

... which is the point of burning question #1:
What does Sally do if her portfolio is 100% GE stock?

... or 100% large cap value where there ain't no E10/P to guide her?

Alas, there appear to be no answers to my burning questions? Confused

I can understand the need to demonstrate that current valuations (like E10/P) should determine withdrawal rates.

I just don't understand how one should advise Sally if she has no access to E10/P for her particular portfolio.

Mike
Try 100% large cap value, starting in 1928.
The maximum you could withdraw to survive 30 years was 3% :cry:
It turns out that we can do quite a bit.

Alec has found a great site with returns from a variety of investment categories. I had never seen anything like it!
http://www.gummy-stuff.org/returns.htm

I did an earlier analysis of Small Cap Value for Mike by making a special calculator. I pasted his Small Cap Value data over the S&P500 data. Mike made a modified calculator as well and he reported his findings.

Professor Shiller's 100E10/P from the S&P500 did a great job with Small Cap Value. Evidently, the broad based influence of the overall market affected what was best for Small Cap Value.

Start naming what you are interested in. Identify all of the combinations of interest that you see at the site that I mentioned earlier. I will get back to you with useful information.

I did not see General Electric stock.

I did see 30-year bond data that include capital gains! This can give us much, much better information than we have been able to extract so far. There are data for 5-year notes as well.

Visit the site and give me your wish list. I am limited to exploiting the S&P500's 100E10/P at this time. But as I mentioned earlier, it worked with Small Cap Value. It may work with something else.

Have fun.

John R.
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Post by gummy »

I said (somewhere, above) that a 4% withdrawal rate increasing with inflation from 1966 to 1974 becomes 6.5%.

(That's 9 years of inflation starting with the Jan, 1966 CPI and ending with the Jan, 1975 CPI. Those 10 CPI values give 9 increases in CPI over 9 years.)

In fact, there are so many historical CPI numbers (hence inflation rates) that I suspect I could find a set that gives 2Pi % :D

Anyway, using the U.S. Dept. of Labor average annual CPI numbers turns 4% into 6.6%

Schiller's inflation numbers are identical to those obtained using the January CPI from the Dept. of Labor.

The inflation numbers I used are (again!) slightly different :?

John:
I was wondering how you got that 5.666% as a result of increasing 4% for 9 years of inflation. It appears that you took the CPI for 1967 and 1974 to calculate the inflation over 9 years.

That's only 7 years worth of inflation, isn't it?
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Post by JWR1945 »

gummy wrote:John:
I was wondering how you got that 5.666% as a result of increasing 4% for 9 years of inflation. It appears that you took the CPI for 1967 and 1974 to calculate the inflation over 9 years.

That's only 7 years worth of inflation, isn't it?
Here is my explanation of what is going on. It is not a justification.

My calculators are modified versions of the Retire Early Safe Withdrawal Calculator, Version 1.61 dated November 7, 2002.

The calculator sets the first withdrawal amount equal to the withdrawal rate times the portfolio's initial balance. It allocates a percentage of this amount to the beginning of the year. It allocates whatever remains to the end of the year.

This first entry appears in the following year 's set of calculations.

The 1966 historical sequence begins in column CS. Final balances are on row 1925.

The withdrawals begin in column CT. This amount starts at $4000. The index value associated with column CT is listed as the 1967 value. It is 32.9 for the CPI. (This is found in cell CT188. When the CPI is selected, it also appears in cell CT190.)

Notice this shift of one year. The first withdrawal amount is $4000, not $4000 plus the inflation from 1966 to 1967.

The year 1974 is in column DA. The inflation index value for 1974 (from cells DA188 and DA190) is 46.6.

The ratio [46.6/32.9] times $4000 equals $5 665.6535 or $5666 rounded.

Have fun.

John R.
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Post by JWR1945 »

Remember this?
JWR1945 wrote:gummy has brought up this theme several times.
gummy wrote:Large cap value, and especially small cap value really did well during that period.

... which is the point of burning question #1:
What does Sally do if her portfolio is 100% GE stock?

... or 100% large cap value where there ain't no E10/P to guide her?

Alas, there appear to be no answers to my burning questions? :?

I can understand the need to demonstrate that current valuations (like E10/P) should determine withdrawal rates.

I just don't understand how one should advise Sally if she has no access to E10/P for her particular portfolio.
...
I just ran the numbers. WOW!

Tell Sally to use the S&P500's P/E10 from Professor Robert Shiller's website. Use those numbers for varying her stock allocations.

I have not yet determined Historical Surviving Withdrawal Rates for Large Cap Value. I have determined what has happened historically when switching allocations between Large Cap Value and commercial paper.

To the extent that a withdrawal rate of 4% ever made sense (with a portfolio consisting of stocks and commercial paper), switching allocations increases the rate to 5%. Investing in Large Cap Value instead of the S&P500 pushes this number above 6%.

I am impressed.

Have fun.

John R.
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Post by gummy »

The ratio [46.6/32.9] times $4000 equals $5 665.6535 or $5666 rounded.
Aha, so it is just 7 years of inflation, which explains the difference between my 6.5% (9 years inflation) and your spreadsheet calculation.

Your WOW calculation is very interesting.
It suggests that one mught use the E10/P values for the S&P to decide upon the withdrawal rate for a large cap value ... and, perhaps, other portfolios. :D

P.S.
If I ask the "sensible withdrawals" spreadsheet for the "best" portfolio, I find that (using random returns from 1928 to 2000) it's 60% large cap growth + 40% small cap value.
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Post by JWR1945 »

gummy wrote:Your WOW calculation is very interesting.
It suggests that one might use the E10/P values for the S&P to decide upon the withdrawal rate for a large cap value ... and, perhaps, other portfolios.
My WOW calculation was wrong.

The corrected results are better.

This is a rare event for me: numbers that get better after I find a mistake.

Have fun.

John R.
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Post by gummy »

Well, since I already had a spreadsheet to play with using E10/P to modify withdrawal rates each year, I might as well make it available ... here:

http://www.gummy-stuff.org/E10-P.htm

Note the example:
80% Large Cap Value + 20% Govt Long Bonds
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Post by Mike »

100% SCV worked pretty good during that period. Of course, value is very popular now, so it is not necessarily as good a value as it was.
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