Withdrawal rates (in 2000)

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ataloss
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Withdrawal rates (in 2000)

Post by ataloss »

He has found that if you eliminate the Great Depression years but prepare for the worst of the post war years--- the 73-74-market crash and the years of inflation that followed--- clients can have significantly higher withdrawal rates and still feel safe.

How much higher?

Try 10 percent instead of 4. In practice, he personally feels more comfortable with a limit of about 8 percent.


http://www.dallasnews.com/business/scot ... 0718TU.htm
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Re: Withdrawal rates (in 2000)

Post by BenSolar »

ataloss wrote: Try 10 percent instead of 4. In practice, he personally feels more comfortable with a limit of about 8 percent.


OOOUUFFF! I wonder what that 8% inflation adjusted withdrawal starting in 2000 would be now? Interesting article though.
To demonstrate, Mr. Jones demonstrated six different ways of investing $1 million beginning in 1964--- the start of the worst post war 10-year investing period. He asked the spreadsheet to solve for a withdrawal rate that would rise with inflation and leave an inflation-adjusted $1 million by the end of 1999.

The results are surprising. If you have invested in large cap growth stocks, you portfolio would hit bottom at a calamitous $279,000 and your withdrawal rate (to maintain constant purchasing power) would have been only 3.4 percent or $2,840 a month.

A mixed portfolio, however, would never have fallen below $504,000 and would have allowed a 6.7 percent withdrawal rate or $5,561 a month--- nearly twice as much. The full results are shown below in the rank ordered table.


While ignoring the 1929 start is questionable, at best, 6.7% for a 35 year withdrawal period starting in 1964 with no loss of portfolio purchasing power at the end is pretty darn impressive. I wish the article detailed the breakdown of his 'mixed portfolio'.

Brings to mind raddr's findings that the SWR goes up to about 5% when drawing from a diversified slice and dice portfolio. Big difference between 5% WR and 4% WR.

If you could live on $25,000 a year then at 5% WR you only need a $500,000 stash. If you didn't need to live in a hotspot, then 25k a year is very easily doable. Especially if you owned your own 100k house for total capital required of 600k. Hmm. Maybe I'm closer than I thought. :)
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
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Post by raddr »

Interesting article in the sense that it shows a stellar example of datamining. :lol:

It turns out that his arbitrary starting point of 1964 was a pretty good time to retire. But what if one had retired only 5 years later? Here's what I get with my database which uses a slightly different ScV index compared to the Fama and French portfolios. The TIPS coupon is set at 2.5%. The drawdown period is 35 years, expenses are ScV 0.4%, S&P500 0.2%, TIPS & cash 0.0%:

Code: Select all

ScV   TIPS   S&P500   Cash      SWR:   1964   1969 
100   0          0   0                   9.7   4.4 
40   60          0   0                   6.9   5.2 
60   40          0   0                   8.1   5.3 
0   0          100   0                   4.3   3.6 
0   0           75   25                  4.4   4.0 																																		


As you can see there is a huge difference here. Why not just pick 1942 where the SWR for a 100% ScV portfolio would've been 18%? :shock:

One interesting finding is how superior ScV has been compared to S&P500 or TSM, both of which are usually treated as the "gold standard" for retirement planning. In contrast, a combination ScV/TIPS portfolio is about as good as it gets in my historical analyses.
Last edited by raddr on Tue Jun 10, 2003 11:05 am, edited 1 time in total.
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Post by Bookm »

Greetings fellas. This article sure does show when it was written (mid 2000). Like with this quote:
"If you reduce volatility you can get a higher withdrawal rate. You just don't have the valleys that take away your ability to compound--- the declines that make recovery difficult. You can also take more from an optimized portfolio--- one where the ups and downs have been reduced.


Yea right. There was still quite a considerable "valley" over the last three years, when the great majority of asset classes were getting pummelled. True, diversity led to a more shallow valley, but just the same, climbing back out was no picnic (or should I say WILL BE). Now if some of the better performers were over weighted, like SCV, REITs, Gold and/or LB agg., you would be smiling about now, but there aren't many of ya'.

Even being mildly diversified, my port lost over 20% of it's value in the last 3 years. Not many escaped, even in Mr. Jones' world.

Bookm
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Post by BenSolar »

raddr wrote: One interesting finding is how superior ScV has been compared to S&P500 or TSM, both of which are usually treated as the "gold standard" for retirement planning. In contrast, a combination ScV/TIPS portfolio is about as good as it gets in my historical analyses.

Greetings, raddr :)

Do you have any thoughts on valuation in the small cap value sector? I recall you have said previously that it pretty much avoided the bubble of 2000 ... where do you look for valuation data on this sector? For instance do you (or anyone else reading, of course) know where to find dividend yield for one of the small cap indexes going back a pretty good ways?

Ben
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Post by raddr »

Hi Ben,

There's not much available data for small cap valuations. Fama & French have book-to-market data going back to 1926 and ScV does look reasonably valued, though not a screaming buy, based on their data. It is interesting to note, however, that there has been a slow upward creep in avg. B/M ratios for all market sectors over the years. This would seem to roughly parallel the increase in PE ratios over the same time period. ScV certainly didn't get carried along in the great 90's bubble like the S&P500 and so far I see no signs of excessive speculation in the ScV sector.

I don't know of any source for dividend yield going back more than 10-15 years for ScV. :cry:
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Post by ataloss »

I thought it was interesting that you could get some overly optimistic withdrawal rate advice in 2000 even as the bubble was starting to deflate :wink:
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Post by BenSolar »

raddr wrote: There's not much available data for small cap valuations. Fama & French have book-to-market data going back to 1926 and ScV does look reasonably valued, though not a screaming buy, based on their data. It is interesting to note, however, that there has been a slow upward creep in avg. B/M ratios for all market sectors over the years. This would seem to roughly parallel the increase in PE ratios over the same time period. ScV certainly didn't get carried along in the great 90's bubble like the S&P500 and so far I see no signs of excessive speculation in the ScV sector.

Hi raddr, :)

Thanks for the info.

Do you know of an internet site that has the Fama & French data for free? Or charts of movement of small cap book-market over the years? If you have figures for mean SC book-market and current value I'd be interested, if nothing else is publicly available.

Thanks!
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
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Post by raddr »

BenSolar wrote:
Do you know of an internet site that has the Fama & French data for free? Or charts of movement of small cap book-market over the years? If you have figures for mean SC book-market and current value I'd be interested, if nothing else is publicly available.

Thanks!


Ben,

See if this is what you are looking for:

http://mba.tuck.dartmouth.edu/pages/fac ... s_5x5_.zip

You can see what the book-to-market ratio was for any market cap quintile going back to 1926.
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Post by BenSolar »

raddr wrote: See if this is what you are looking for:

http://mba.tuck.dartmouth.edu/pages/fac ... s_5x5_.zip

You can see what the book-to-market ratio was for any market cap quintile going back to 1926.


Thanks, raddr!

That indeed was what I'd hoped to find. I'd located French's site from an earlier post of yours, and suspected the data was there, but hadn't located the right file yet. :)

Thanks, again!
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
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