Price-Only Historical Database Rates

Research on Safe Withdrawal Rates

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JWR1945
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Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Price-Only Historical Database Rates

Post by JWR1945 »

I have given some thought to JanSz's approach and the dangers associated with high stock allocations when valuations are high. I have made a series of runs with my latest version of my calculator, which I have named JanSz-Chips Special Versions. You can read about my latest changes in Living off the Dividends dated Friday, Dec 26, 2003 at 6:36 pm CST.
http://nofeeboards.com/boards/viewtopic.php?t=1911

I wrote these words.

JanSz has come up with an approach that has one withdraw 2% of a portfolio's current balance plus one-half of the capital gains that have taken place over the previous six years. If there ar no gains, the withdrawal remains at 2%.

Reflecting upon JanSz's approach, his algorithm sounds very much like living off one's dividends plus a percentage of long-term capital gains. The S&P 500 index yields less than 2% these days. Our own research points strongly to the dangers of withdrawing much more than the initial dividend yield when valuations are high.

The traditional time-tested approach to retirement finances is to live off of one's dividends, leaving the principal untouched. therealchips advocates this approach. It has served him well.


I have attached series of tables of Price-Only Historical Database Rates. That is, dividends are stripped away from the calculation. I used a calculator version that included all of my modifications. But you can reproduce this entire data set using no more than the basic Retire Early Safe Withdrawal [Rate] Calculator, Version 1.61, dated 7 November 2002, and the Living off the Dividends modifications.

You do not have to use anything more sophisticated than the data analysis summaries that come with the basic calculators (in columns S and Z and rows 10 through 144). If the balance after thirty years (as seen in column Z) is positive, the portfolio survived. If not, it failed. You vary the Initial Withdrawal Rate (i.e., you withdraw a constant percentage of the portfolio's initial balance plus adjustments to match inflation) to determine when a portfolio would have survived.

Interpreting the Results

All of the rates are determined only by price changes. All of the withdrawals are based upon the portfolio's initial balance. An actual investor would receive money from dividends in addition to these amounts. Dividend amounts would decrease as his balance decreases.

Keep in mind that a 100% ibond portfolio at a zero percent real interest rate would throw off 3.33% for 30 years (or more if there is deflation). Any interest that an actual 100% ibond portfolio would generate would produce an income stream similar to stock dividends.

There were 13 years out of 60 in the 1921-1980 interval in which the Price-Only Historical Database Rates were less than 3.3% (and there were 4 years in which they were equal to 3.3%). In all of the years in which P/E10 was higher than 20, the Historical Database Rates were less than 3.2%. There were ten such years.

All of this points us toward conserving our portfolios along the lines suggested in our investigations of switching.

Have fun.

John R.
Last edited by JWR1945 on Tue Dec 30, 2003 6:15 am, edited 1 time in total.
JWR1945
***** Legend
Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Price Only HDBR Tables

Post by JWR1945 »

Price Only HDBR Tables

These are Historical Database Rates when dividends are removed from the total return. These were run on my JanSz-Chips Special Version 1.0 of the Retire Early Safe Withdrawal [Rate] Calculator.

Here are the conditions. The stock allocation is 80%. The commercial paper allocation is 20%. The investment expenses are 0.20%. The inflation adjustment is based on the CPI. The payout period is 30 years. The Initial Withdrawal Rate varies. The initial balance is $100000. Otherwise, I have used default settings.

Here are the special settings. The Capital Gains Percentage in cell B17 was set to zero. The Dividend Reinvestments in cell B22 were set to zero.

These are the Historical Database Rates with a precision of 0.1%. Portfolios survived at these rates. They failed when the withdrawal rate was increased by 0.1%.

The years that are listed are the same as FIRECalc produces. The P/E10 values are in row 186 (the S&P 500 "Real"Â￾ P/E Ratio). They are taken from Professor Shiller's database. (I do not know how the 1871-1880 values in row 186 were calculated.)

Code: Select all

Year   P/E10   HDBR80-Prices Alone      
1871   13.3   5.8%      
1872   14.5   5.7%      
1873   15.3   5.3%      
1874   13.9   5.4%      
1875   13.6   5.4%      
1876   13.3   5.7%      
1877   10.6   5.9%      
1878    9.7   5.9%      
1879   10.7   6.8%      
1880   15.3   4.9%      
1881   18.5   4.6%      
1882   15.7   4.7%      
1883   15.3   4.5%      
1884   14.4   4.5%      
1885   13.1   5.1%      
1886   16.7   4.4%      
1887   17.5   4.4%      
1888   15.4   4.3%      
1889   15.8   4.1%      
1890   17.2   4.0% 

Code: Select all

Year   P/E10   HDBR80-Prices Alone      
1891   15.4   4.0%      
1892   19.0   3.8%      
1893   17.7   3.3%      
1894   15.7   3.7%      
1895   16.5   3.8%      
1896   16.6   3.6%      
1897   17.0   3.8%      
1898   19.2   3.4%      
1899   22.9   3.4%      
1900   18.7   3.3%      
1901   21.0   3.0%      
1902   22.3   2.9%      
1903   20.3   2.7%      
1904   15.9   3.3%      
1905   18.5   2.7%      
1906   20.1   2.4%      
1907   17.2   2.4%      
1908   11.9   3.3%      
1909   14.8   2.9%      
1910   14.5   2.4%      
1911   14.0   2.7%      
1912   13.8   2.8%      
1913   13.1   2.7%      
1914   11.6   3.0%      
1915   10.4   3.3%      
1916   12.5   3.1%      
1917   11.0   3.7%      
1918    6.6   5.4%      
1919    6.1   5.9%      
1920    6.0   5.4%   


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Year   P/E10   HDBR80-Prices Alone      
1921    5.1   5.7%      
1922    6.3   5.7%      
1923    8.2   5.1%      
1924    8.1   5.2%      
1925    9.7   4.7%      
1926   11.3   4.2%      
1927   13.2   3.9%      
1928   18.8   3.1%      
1929   27.1   2.3%      
1930   22.3   2.4%      
1931   16.7   2.8%      
1932    9.3   4.1%      
1933    8.7   4.9%      
1934   13.0   3.7%      
1935   11.5   4.3%      
1936   17.1   3.3%      
1937   21.6   2.7%      
1938   13.5   3.8%      
1939   15.6   3.6%      
1940   16.4   3.8%      
1941   13.9   4.9%      
1942   10.1   6.2%      
1943   10.2   6.0%      
1944   11.1   5.6%      
1945   12.0   5.3%      
1946   15.6   5.0%      
1947   11.5   6.5%      
1948   10.4   7.0%      
1949   10.2   6.9%      
1950   10.7   7.1%      

Code: Select all

Year   P/E10   HDBR80-Prices Alone      
1951   11.9   6.3%      
1952   12.5   5.8%      
1953   13.0   5.6%      
1954   12.0   5.8%      
1955   16.0   4.5%      
1956   18.3   3.9%      
1957   16.7   4.0%      
1958   13.8   4.4%      
1959   18.0   3.5%      
1960   18.3   3.4%      
1961   18.5   3.4%      
1962   21.2   3.1%      
1963   19.3   3.3%      
1964   21.6   2.9%      
1965   23.3   2.7%      
1966   24.1   2.6%      
1967   20.4   3.0%      
1968   21.5   2.8%      
1969   21.2   2.8%      
1970   17.1   3.3%      
1971   16.5   3.4%      
1972   17.3   3.3%      
1973   18.7   3.2%      
1974   13.5   4.2%      
1975    8.9   5.6%      
1976   11.2   4.7%      
1977   11.4   4.8%      
1978    9.2   5.8%      
1979    9.3   6.0%      
1980    8.9   6.0%   


Have fun.

John R.
JWR1945
***** Legend
Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Price Only HDBR Tables

Post by JWR1945 »

Price Only HDBR Tables 1921-1980

These tables list the Price-Only Historical Database Rates from 1921-1980 of an 80% stocks / 20% commercial paper portfolio as ordered by P/E10. All dividends were stripped away. Withdrawals at the rates shown resulted in 30 years of portfolio survival. Withdrawals at rates 0.1% higher than those shown failed. Withdrawals were adjusted to match inflation. Investment expenses were set at 0.20%. All withdrawals are based upon the portfolio's initial balance. There was no switching of portfolio allocations.

Code: Select all

Year   P/E10   HDBR80-Prices Alone      
1921    5.1   5.7%      
1922    6.3   5.7%      
1924    8.1   5.2%      
1923    8.2   5.1%      
1933    8.7   4.9%      
1975    8.9   5.6%      
1980    8.9   6.0%      
1978    9.2   5.8%      
1932    9.3   4.1%      
1979    9.3   6.0%      
1925    9.7   4.7%      
1942   10.1   6.2%      
1943   10.2   6.0%      
1949   10.2   6.9%      
1948   10.4   7.0%      
1950   10.7   7.1%      
1944   11.1   5.6%      
1976   11.2   4.7%      
1926   11.3   4.2%      
1977   11.4   4.8%      
1935   11.5   4.3%      
1947   11.5   6.5%      
1951   11.9   6.3%      
1945   12.0   5.3%      
1954   12.0   5.8%      
1952   12.5   5.8%      
1934   13.0   3.7%      
1953   13.0   5.6%      
1927   13.2   3.9%      
1938   13.5   3.8% 

Code: Select all

Year   P/E10   HDBR80-Prices Alone      
1974   13.5   4.2%      
1958   13.8   4.4%      
1941   13.9   4.9%      
1939   15.6   3.6%      
1946   15.6   5.0%      
1955   16.0   4.5%      
1940   16.4   3.8%      
1971   16.5   3.4%      
1931   16.7   2.8%      
1957   16.7   4.0%      
1936   17.1   3.3%      
1970   17.1   3.3%      
1972   17.3   3.3%      
1959   18.0   3.5%      
1956   18.3   3.9%      
1960   18.3   3.4%      
1961   18.5   3.4%      
1973   18.7   3.2%      
1928   18.8   3.1%      
1963   19.3   3.3%      
1967   20.4   3.0%      
1962   21.2   3.1%      
1969   21.2   2.8%      
1968   21.5   2.8%      
1937   21.6   2.7%      
1964   21.6   2.9%      
1930   22.3   2.4%      
1965   23.3   2.7%      
1966   24.1   2.6%      
1929   27.1   2.3%  


Have fun.

John R.
JWR1945
***** Legend
Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Post by JWR1945 »

Price-Only HDBR Tables 1921-1980

These tables list the Price-Only Historical Database Rates from 1921-1980 of an 80% stocks / 20% commercial paper portfolio in their decreasing order. All dividends have been stripped away. Withdrawals at the rates shown resulted in 30 years of portfolio survival. Withdrawals at rates 0.1% higher than those shown failed. Withdrawals were adjusted to match inflation. Investment expenses were set at 0.20%. All withdrawals are based upon the portfolio's initial balance. There was no switching of portfolio allocations.

Code: Select all

Year   P/E10   HDBR80-Prices Alone      
1950   10.7   7.1%      
1948   10.4   7.0%      
1949   10.2   6.9%      
1947   11.5   6.5%      
1951   11.9   6.3%      
1942   10.1   6.2%      
1980    8.9   6.0%      
1979    9.3   6.0%      
1943   10.2   6.0%      
1978    9.2   5.8%      
1954   12.0   5.8%      
1952   12.5   5.8%      
1921    5.1   5.7%      
1922    6.3   5.7%      
1975    8.9   5.6%      
1944   11.1   5.6%      
1953   13.0   5.6%      
1945   12.0   5.3%      
1924    8.1   5.2%      
1923    8.2   5.1%      
1946   15.6   5.0%      
1933    8.7   4.9%      
1941   13.9   4.9%      
1977   11.4   4.8%      
1925    9.7   4.7%      
1976   11.2   4.7%      
1955   16.0   4.5%      
1958   13.8   4.4%      
1935   11.5   4.3%      
1926   11.3   4.2%     

Code: Select all

Year   P/E10   HDBR80-Prices Alone      
1974   13.5   4.2%      
1932    9.3   4.1%      
1957   16.7   4.0%      
1927   13.2   3.9%      
1956   18.3   3.9%      
1938   13.5   3.8%      
1940   16.4   3.8%      
1934   13.0   3.7%      
1939   15.6   3.6%      
1959   18.0   3.5%      
1971   16.5   3.4%      
1960   18.3   3.4%      
1961   18.5   3.4%      
1936   17.1   3.3%      
1970   17.1   3.3%      
1972   17.3   3.3%      
1963   19.3   3.3%      
1973   18.7   3.2%      
1928   18.8   3.1%      
1962   21.2   3.1%      
1967   20.4   3.0%      
1964   21.6   2.9%      
1931   16.7   2.8%      
1969   21.2   2.8%      
1968   21.5   2.8%      
1937   21.6   2.7%      
1965   23.3   2.7%      
1966   24.1   2.6%      
1930   22.3   2.4%      
1929   27.1   2.3% 


Have fun.

John R.
JWR1945
***** Legend
Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Post by JWR1945 »

Price-Only Historical Database Rates (for 1921-1980) and P/E10 are not nearly so tightly related as normal Historical Database Rates (which include dividend reinvestments) and P/E10.

If you separate the Price-Only Historical Database Rates into thirds, the rates with the highest valuations (as measured by P/E10) range from 2.3% to 3.9%. The rates with intermediate valuations range from 2.8% to 6.5%. The rates with the lowest valuations range from 4.1% to 7.1%. The highest and lowest ranges almost overlap.

This is consistent with the notion that long-term earnings, as seen in their ten-year average E10, form the basis of both prices and dividends. The remaining component of the total return, known as the speculative return, is caused by multiple expansion and contraction. It is seen in P/E10.

Have fun.

John R.
JWR1945
***** Legend
Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Post by JWR1945 »

I have added Price Only Historical Database Rates with a 50% stock / 50% commercial paper allocation to these tables. HDBR80-P is for the 80% stock allocation and HDBR50-P is for the 50% stock allocation.

These are Historical Database Rates when dividends are removed from the total return. These were run on my JanSz-Chips Special Version 1.0 of the Retire Early Safe Withdrawal [Rate] Calculator.

Here are the conditions. The stock allocation is 80%. The commercial paper allocation is 20%. The investment expenses are 0.20%. The inflation adjustment is based on the CPI. The payout period is 30 years. The Initial Withdrawal Rate varies. The initial balance is $100000. Otherwise, I have used default settings. [That is for HDBR80-P data. For HDBR50-P data, the stock allocation is 50% and the commercial paper allocation is 50%.]

Here are the special settings. The Capital Gains Percentage in cell B17 was set to zero. The Dividend Reinvestments in cell B22 were set to zero.

These are the Historical Database Rates with a precision of 0.1%. Portfolios survived at these rates. They failed when the withdrawal rate was increased by 0.1%.

The years that are listed are the same as FIRECalc produces. The P/E10 values are in row 186 (the S&P 500 "Real"Â￾ P/E Ratio). They are taken from Professor Shiller's database.

Code: Select all

Year  P/E10  HDBR80-P  HDBR50-P
1871   13.3   5.8%   7.0%   
1872   14.5   5.7%   6.9%   
1873   15.3   5.3%   6.5%   
1874   13.9   5.4%   6.5%   
1875   13.6   5.4%   6.3%   
1876   13.3   5.7%   6.5%   
1877   10.6   5.9%   6.4%   
1878    9.7   5.9%   6.1%   
1879   10.7   6.8%   7.2%   
1880   15.3   4.9%   5.7%   
1881   18.5   4.6%   5.7%   
1882   15.7   4.7%   5.8%   
1883   15.3   4.5%   5.5%   
1884   14.4   4.5%   5.2%   
1885   13.1   5.1%   5.6%   
1886   16.7   4.4%   5.1%   
1887   17.5   4.4%   5.1%   
1888   15.4   4.3%   5.0%   
1889   15.8   4.1%   4.7%   
1890   17.2   4.0%   4.6%   

Code: Select all

Year  P/E10  HDBR80-P  HDBR50-P   
1891   15.4   4.0%   4.5%   
1892   19.0   3.8%   4.4%   
1893   17.7   3.3%   3.7%   
1894   15.7   3.7%   3.9%   
1895   16.5   3.8%   4.0%   
1896   16.6   3.6%   3.8%   
1897   17.0   3.8%   3.9%   
1898   19.2   3.4%   3.7%   
1899   22.9   3.4%   3.8%   
1900   18.7   3.3%   3.7%   
1901   21.0   3.0%   3.5%   
1902   22.3   2.9%   3.6%   
1903   20.3   2.7%   3.3%   
1904   15.9   3.3%   3.7%   
1905   18.5   2.7%   3.3%   
1906   20.1   2.4%   3.1%   
1907   17.2   2.4%   3.1%   
1908   11.9   3.3%   3.6%   
1909   14.8   2.9%   3.5%   
1910   14.5   2.4%   3.0%   
1911   14.0   2.7%   3.1%   
1912   13.8   2.8%   3.3%   
1913   13.1   2.7%   3.3%   
1914   11.6   3.0%   3.4%   
1915   10.4   3.3%   3.7%   
1916   12.5   3.1%   3.7%   
1917   11.0   3.7%   4.3%   
1918    6.6   5.4%   5.7%   
1919    6.1   5.9%   6.4%   
1920    6.0   5.4%   5.9%  

Code: Select all

Year  P/E10  HDBR80-P  HDBR50-P
1921    5.1   5.7%   5.8%   
1922    6.3   5.7%   5.7%   
1923    8.2   5.1%   5.3%   
1924    8.1   5.2%   5.3%   
1925    9.7   4.7%   5.0%   
1926   11.3   4.2%   4.5%   
1927   13.2   3.9%   4.3%   
1928   18.8   3.1%   3.7%   
1929   27.1   2.3%   3.0%   
1930   22.3   2.4%   2.9%   
1931   16.7   2.8%   3.0%   
1932    9.3   4.1%   3.6%   
1933    8.7   4.9%   4.0%   
1934   13.0   3.7%   3.4%   
1935   11.5   4.3%   3.7%   
1936   17.1   3.3%   3.1%   
1937   21.6   2.7%   2.7%   
1938   13.5   3.8%   3.3%   
1939   15.6   3.6%   3.2%   
1940   16.4   3.8%   3.3%   
1941   13.9   4.9%   4.0%   
1942   10.1   6.2%   4.7%   
1943   10.2   6.0%   4.7%   
1944   11.1   5.6%   4.5%   
1945   12.0   5.3%   4.4%   
1946   15.6   5.0%   4.5%   
1947   11.5   6.5%   5.5%   
1948   10.4   7.0%   5.7%   
1949   10.2   6.9%   5.6%   
1950   10.7   7.1%   5.9%   

Code: Select all

Year  P/E10  HDBR80-P  HDBR50-P   
1951   11.9   6.3%   5.6%   
1952   12.5   5.8%   5.3%   
1953   13.0   5.6%   5.2%   
1954   12.0   5.8%   5.3%   
1955   16.0   4.5%   4.5%   
1956   18.3   3.9%   4.1%   
1957   16.7   4.0%   4.2%   
1958   13.8   4.4%   4.5%   
1959   18.0   3.5%   3.9%   
1960   18.3   3.4%   3.8%   
1961   18.5   3.4%   3.8%   
1962   21.2   3.1%   3.6%   
1963   19.3   3.3%   3.8%   
1964   21.6   2.9%   3.5%   
1965   23.3   2.7%   3.3%   
1966   24.1   2.6%   3.3%   
1967   20.4   3.0%   3.5%   
1968   21.5   2.8%   3.4%   
1969   21.2   2.8%   3.4%   
1970   17.1   3.3%   3.8%   
1971   16.5   3.4%   3.8%   
1972   17.3   3.3%   3.8%   
1973   18.7   3.2%   3.8%   
1974   13.5   4.2%   4.5%   
1975    8.9   5.6%   5.4%   
1976   11.2   4.7%   4.9%   
1977   11.4   4.8%   5.0%   
1978    9.2   5.8%   5.7%   
1979    9.3   6.0%   6.0%   
1980    8.9   6.0%   6.1% 


Have fun.

John R.
JWR1945
***** Legend
Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Post by JWR1945 »

I have added Price Only Historical Database Rates for a 50% stock / 50% commercial paper allocation. HDBR80-P is for the 80% stock allocation. HDBR50-P is for the 50% stock allocation. These tables are ordered according to HDBR50-P

These tables list the Price-Only Historical Database Rates from 1921-1980 of a 50% stocks / 50% commercial paper portfolio in their decreasing order. All dividends have been stripped away. Withdrawals at the rates shown resulted in 30 years of portfolio survival. Withdrawals at rates 0.1% higher than those shown failed. Withdrawals were adjusted to match inflation. Investment expenses were set at 0.20%. All withdrawals are based upon the portfolio's initial balance. There was no switching of portfolio allocations. HDBR80 is for 80% stocks / 20% commercial paper. HDBR50-P is for 50% stocks / 50% commercial paper.

Code: Select all

Year  P/E10  HDBR80-P  HDBR50-P
1980    8.9   6.0%   6.1%   
1979    9.3   6.0%   6.0%   
1950   10.7   7.1%   5.9%   
1921    5.1   5.7%   5.8%   
1978    9.2   5.8%   5.7%   
1948   10.4   7.0%   5.7%   
1922    6.3   5.7%   5.7%   
1951   11.9   6.3%   5.6%   
1949   10.2   6.9%   5.6%   
1947   11.5   6.5%   5.5%   
1975    8.9   5.6%   5.4%   
1954   12.0   5.8%   5.3%   
1952   12.5   5.8%   5.3%   
1924    8.1   5.2%   5.3%   
1923    8.2   5.1%   5.3%   
1953   13.0   5.6%   5.2%   
1977   11.4   4.8%   5.0%   
1925    9.7   4.7%   5.0%   
1976   11.2   4.7%   4.9%   
1943   10.2   6.0%   4.7%   
1942   10.1   6.2%   4.7%   
1974   13.5   4.2%   4.5%   
1958   13.8   4.4%   4.5%   
1955   16.0   4.5%   4.5%   
1946   15.6   5.0%   4.5%   
1944   11.1   5.6%   4.5%   
1926   11.3   4.2%   4.5%   
1945   12.0   5.3%   4.4%   
1927   13.2   3.9%   4.3%   
1957   16.7   4.0%   4.2%   

Code: Select all

Year  P/E10  HDBR80-P  HDBR50-P   
1956   18.3   3.9%   4.1%   
1941   13.9   4.9%   4.0%   
1933    8.7   4.9%   4.0%   
1959   18.0   3.5%   3.9%   
1973   18.7   3.2%   3.8%   
1972   17.3   3.3%   3.8%   
1971   16.5   3.4%   3.8%   
1970   17.1   3.3%   3.8%   
1963   19.3   3.3%   3.8%   
1961   18.5   3.4%   3.8%   
1960   18.3   3.4%   3.8%   
1935   11.5   4.3%   3.7%   
1928   18.8   3.1%   3.7%   
1962   21.2   3.1%   3.6%   
1932    9.3   4.1%   3.6%   
1967   20.4   3.0%   3.5%   
1964   21.6   2.9%   3.5%   
1969   21.2   2.8%   3.4%   
1968   21.5   2.8%   3.4%   
1934   13.0   3.7%   3.4%   
1966   24.1   2.6%   3.3%   
1965   23.3   2.7%   3.3%   
1940   16.4   3.8%   3.3%   
1938   13.5   3.8%   3.3%   
1939   15.6   3.6%   3.2%   
1936   17.1   3.3%   3.1%   
1931   16.7   2.8%   3.0%   
1929   27.1   2.3%   3.0%   
1930   22.3   2.4%   2.9%   
1937   21.6   2.7%   2.7% 


Have fun.

John R.
JWR1945
***** Legend
Posts: 1697
Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Post by JWR1945 »

Interpreting these Results

All of the rates are determined only by price changes. All of the withdrawals are based upon the portfolio's initial balance. An actual investor would receive money from dividends in addition to these amounts. Dividend amounts would decrease as his balance decreases.

Keep in mind that a 100% ibond portfolio at a zero percent real interest rate would throw off 3.33% for 30 years (or more if there is deflation). Any interest that an actual 100% ibond portfolio would generate would produce an income stream similar to stock dividends.

With an 80% stock allocation, there were 13 years out of 60 in the 1921-1980 interval in which the Price-Only Historical Database Rates were less than 3.3% (and there were 4 years in which they were equal to 3.3%). In all of the years in which P/E10 was higher than 20, the Historical Database Rates were less than 3.2%. There were ten such years. The lowest Price-Only Historical Database Rate with 80% stocks was 2.3% The highest Price-Only Historical Database Rate with 80% stocks was 7.1%.

With a 50% stock allocation, there were 6 years out of 60 in the 1921-1980 interval in which the Price-Only Historical Database Rates were less than 3.3% (and there were 4 years in which they were equal to 3.3%). The lowest Price-Only Historical Database Rate with 50% stocks was 2.7%. The highest Price-Only Historical Database Rate with 50% stocks was 6.1%.

What this means is that an 80% stock allocation can cost you up to 1.0% from price volatility when compared to risk free investments. A 50% stock allocation can cost you up to 0.6% because of price volatility when compared to risk free investments.

That is, stock dividends should yield at least 1.0% more than TIPS and/or ibonds to justify holding a high stock allocation (80%). Stock dividends should yield at least 0.6% more than TIPS and/or ibonds to justify a medium stock allocation (50%). Otherwise, stock price volatility can reduce your safe withdrawal rate.

This is very important in today's stock market with its low dividend yields.

There really is such a thing as risk.

Have fun.

John R.
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