I have already looked at dollar cost averaging and switching portfolio allocations during the accumulation phase. If you are starting from scratch, the numbers suggest starting by dollar cost averaging into a 100% stock portfolio. Later, after you have built up your resources, trade-offs favor preserving capital through switching. In particular, if you invested $1000 per year for 15 years and then switched portfolio allocations between stocks and 2% TIPS, you would gain enough in terms of safety to justify your giving up part of your portfolio's upside potential.
But what if you are not starting from scratch? And what if you are not immediately making withdrawals for retirement? I have collected some data to help you calculate your own numbers and to reach your own conclusions.
I have collected multipliers for the 15 years of leaving a balance untouched (except for switching stock allocations) and for 15 years of dollar cost averaging (into an all-stock portfolio).
Here is how you use them. Just multiply your starting balance by the first multiplier, the switching multiplier. Multiply any additional amounts that you wish to add by dollar cost averaging by the second multiplier, the dollar cost averaging multiplier. Add these two balances together and you have the (interim) total after 15 years.
If you wish to see what happens by leaving your portfolio alone for the following 15 years, multiply again after you align the new starting dates with the new switching multipliers. For example, if you are starting from 1923, you initially use the first (switching) and second (dollar cost averaging) multipliers for 1923. Fifteen years later is 1938. Multiply the interim balances by the first multiplier (i.e., for when the balance is left untouched) for 1938.
In all cases I used my latest Deluxe Calculator V1.1A07, which is a modified version of the Retire Early Safe Withdrawal Calculator, Version 1.61, dated November 7, 2002.
The details are simple. All investments were in the S&P500 index and in 2% TIPS. All dividends and interest were reinvested. All expenses were set at zero for these calculations. The portfolio consisted of 100% stocks with dollar cost averaging. Allocation switching was based upon Professor Shiller's P/E10 (the price of the index divided by the average of the previous ten years of earnings). Thresholds were set at P/E10 levels of 9-12-21-24 with allocations of 100-50-30-20-0% respectively. [When the P/E10 was below 9, the stock allocation was 100%. When P/E10 was between 9 and 12, the stock allocation was 50%. And so forth. The investment other than stocks was TIPS with a 2% interest rate.]
I have included two examples.
In the first, I started with $200000 and add $10000 per year through dollar cost averaging. The sums are 15-year balances.
The worst case outcome started in 1960. The $200000 grew only to $273916. Fifteen years of investing $10000 each year lost money. It fell to $126784. The total after 15 years is a frustratingly low $400700.
I started with $100000 in the second example and I added $10000 per year for 15 years. After that, I left the portfolio untouched (except for switching allocations) for 15 years.
The worst case outcome was in 1961. The $100000 grew to $171536 at the 15-year point. Dollar cost averaging of $10000 for 15 years produced $161362. The 15-year total was $332897. By leaving the account untouched except for allocation shifts, we would have ended up with $749925 after 30 years of investing. The best case balance almost twice as big at $1425707.
[When comparing this with the first example, remember that we started it with $200000 already invested and we started this example with $100000.]
This is a starting point. It is very easy for me to collect this kind of data.
Have fun.
John R.
Some Accumulation Multipliers and Examples
Moderator: hocus2004
Switching with 2% TIPS starting with $100K. The thresholds are 9-12-21-24 and the corresponding stock allocations are 100-50-30-20-0%.
Year, 15-Year Balances, Switching Multipliers
Switching multipliers for 1871-1987 in a form suitable for copying into spreadsheets.
Dollar cost averaging is next.
Year, 15-Year Balances, Switching Multipliers
Code: Select all
1871 221086 2.21
1872 219918 2.20
1873 211470 2.11
1874 214667 2.15
1875 214470 2.14
1876 202680 2.03
1877 226686 2.27
1878 210446 2.10
1879 182631 1.83
1880 169457 1.69
1881 155931 1.56
1882 161875 1.62
1883 166735 1.67
1884 177832 1.78
1885 174662 1.75
1886 170585 1.71
1887 172853 1.73
1888 175154 1.75
1889 165056 1.65
1890 172071 1.72
1891 186808 1.87
1892 172013 1.72
1893 162455 1.62
1894 190347 1.90
1895 188561 1.89
1896 188912 1.89
1897 188086 1.88
1898 179531 1.80
1899 163589 1.64
1900 161369 1.61
1901 169592 1.70
1902 160266 1.60
1903 136700 1.37
1904 137678 1.38
1905 127351 1.27
1906 105413 1.05
1907 128675 1.29
1908 173362 1.73
1909 151196 1.51
1910 184006 1.84
1911 199227 1.99
1912 209010 2.09
1913 231876 2.32
1914 269066 2.69
1915 279974 2.80
1916 242776 2.43
1917 222381 2.22
1918 263021 2.63
1919 398832 3.99
1920 387477 3.87
Code: Select all
1921 548188 5.48
1922 492615 4.93
1923 367319 3.67
1924 382007 3.82
1925 313603 3.14
1926 278473 2.78
1927 248759 2.49
1928 234943 2.35
1929 224885 2.25
1930 240256 2.40
1931 287458 2.87
1932 294066 2.94
1933 281376 2.81
1934 198140 1.98
1935 222705 2.23
1936 198706 1.99
1937 195649 1.96
1938 215249 2.15
1939 206474 2.06
1940 231235 2.31
1941 256883 2.57
1942 273313 2.73
1943 254424 2.54
1944 258580 2.59
1945 245204 2.45
1946 213209 2.13
1947 242038 2.42
1948 249547 2.50
1949 253783 2.54
1950 239777 2.40
1951 220723 2.21
1952 207580 2.08
1953 206616 2.07
1954 208221 2.08
1955 179175 1.79
1956 166510 1.67
1957 169555 1.70
1958 180679 1.81
1959 152181 1.52
1960 136958 1.37
1961 171536 1.72
1962 166814 1.67
1963 155723 1.56
1964 151251 1.51
1965 147755 1.48
1966 159147 1.59
1967 147138 1.47
1968 172883 1.73
1969 193149 1.93
1970 200953 2.01
1971 219461 2.19
1972 242152 2.42
1973 229234 2.29
1974 254449 2.54
1975 290853 2.91
1976 225272 2.25
1977 237937 2.38
1978 259382 2.59
1979 259593 2.60
1980 257586 2.58
1981 255765 2.56
1982 276640 2.77
1983 229009 2.29
1984 203506 2.04
1985 201659 2.02
1986 184924 1.85
1987 163802 1.64
Code: Select all
2.21
2.20
2.11
2.15
2.14
2.03
2.27
2.10
1.83
1.69
1.56
1.62
1.67
1.78
1.75
1.71
1.73
1.75
1.65
1.72
1.87
1.72
1.62
1.90
1.89
1.89
1.88
1.80
1.64
1.61
1.70
1.60
1.37
1.38
1.27
1.05
1.29
1.73
1.51
1.84
1.99
2.09
2.32
2.69
2.80
2.43
2.22
2.63
3.99
3.87
Code: Select all
5.48
4.93
3.67
3.82
3.14
2.78
2.49
2.35
2.25
2.40
2.87
2.94
2.81
1.98
2.23
1.99
1.96
2.15
2.06
2.31
2.57
2.73
2.54
2.59
2.45
2.13
2.42
2.50
2.54
2.40
2.21
2.08
2.07
2.08
1.79
1.67
1.70
1.81
1.52
1.37
1.72
1.67
1.56
1.51
1.48
1.59
1.47
1.73
1.93
2.01
2.19
2.42
2.29
2.54
2.91
2.25
2.38
2.59
2.60
2.58
2.56
2.77
2.29
2.04
2.02
1.85
1.64
Dollar Cost Averaging of $1000 per year for 15 years.
Year, 15-Year Balances, DCA Multipliers
Dollar Cost Averaging multipliers for 1871-1987 in a form suitable for copying into spreadsheets.
Now for a couple of examples.
Year, 15-Year Balances, DCA Multipliers
Code: Select all
1871 39583 39.58
1872 39679 39.68
1873 36678 36.68
1874 37276 37.28
1875 37609 37.61
1876 29865 29.87
1877 40634 40.63
1878 33953 33.95
1879 22268 22.27
1880 26819 26.82
1881 22644 22.64
1882 25020 25.02
1883 28839 28.84
1884 35083 35.08
1885 27476 27.48
1886 30051 30.05
1887 31358 31.36
1888 31917 31.92
1889 26462 26.46
1890 29583 29.58
1891 36504 36.50
1892 28773 28.77
1893 26513 26.51
1894 30571 30.57
1895 28307 28.31
1896 28477 28.48
1897 26277 26.28
1898 24552 24.55
1899 18852 18.85
1900 20088 20.09
1901 22703 22.70
1902 19641 19.64
1903 15481 15.48
1904 14350 14.35
1905 14430 14.43
1906 12248 12.25
1907 16052 16.05
1908 19648 19.65
1909 18068 18.07
1910 25955 25.96
1911 28875 28.88
1912 29573 29.57
1913 40999 41.00
1914 58459 58.46
1915 50204 50.20
1916 37075 37.08
1917 23054 23.05
1918 23431 23.43
1919 32588 32.59
1920 31039 31.04
Code: Select all
1921 46528 46.53
1922 47523 47.52
1923 28523 28.52
1924 30850 30.85
1925 27675 27.67
1926 23966 23.97
1927 18442 18.44
1928 19123 19.12
1929 21574 21.57
1930 26507 26.51
1931 35976 35.98
1932 26562 26.56
1933 20860 20.86
1934 20446 20.45
1935 23792 23.79
1936 26839 26.84
1937 29889 29.89
1938 34026 34.03
1939 32478 32.48
1940 43974 43.97
1941 48811 48.81
1942 48900 48.90
1943 41876 41.88
1944 51589 51.59
1945 49723 49.72
1946 41198 41.20
1947 48898 48.90
1948 45706 45.71
1949 48914 48.91
1950 44518 44.52
1951 43168 43.17
1952 35662 35.66
1953 35119 35.12
1954 33810 33.81
1955 25222 25.22
1956 22891 22.89
1957 23548 23.55
1958 25629 25.63
1959 18211 18.21
1960 12678 12.68
1961 16136 16.14
1962 16392 16.39
1963 13989 13.99
1964 14665 14.67
1965 14827 14.83
1966 16349 16.35
1967 14330 14.33
1968 17513 17.51
1969 19713 19.71
1970 20641 20.64
1971 24889 24.89
1972 30957 30.96
1973 27047 27.05
1974 29412 29.41
1975 34841 34.84
1976 30632 30.63
1977 36427 36.43
1978 35377 35.38
1979 34193 34.19
1980 31554 31.55
1981 38635 38.63
1982 45684 45.68
1983 50045 50.05
1984 57646 57.65
1985 57906 57.91
1986 47921 47.92
1987 35623 35.62
Code: Select all
39.58
39.68
36.68
37.28
37.61
29.87
40.63
33.95
22.27
26.82
22.64
25.02
28.84
35.08
27.48
30.05
31.36
31.92
26.46
29.58
36.50
28.77
26.51
30.57
28.31
28.48
26.28
24.55
18.85
20.09
22.70
19.64
15.48
14.35
14.43
12.25
16.05
19.65
18.07
25.96
28.88
29.57
41.00
58.46
50.20
37.08
23.05
23.43
32.59
31.04
Code: Select all
46.53
47.52
28.52
30.85
27.67
23.97
18.44
19.12
21.57
26.51
35.98
26.56
20.86
20.45
23.79
26.84
29.89
34.03
32.48
43.97
48.81
48.90
41.88
51.59
49.72
41.20
48.90
45.71
48.91
44.52
43.17
35.66
35.12
33.81
25.22
22.89
23.55
25.63
18.21
12.68
16.14
16.39
13.99
14.67
14.83
16.35
14.33
17.51
19.71
20.64
24.89
30.96
27.05
29.41
34.84
30.63
36.43
35.38
34.19
31.55
38.63
45.68
50.05
57.65
57.91
47.92
35.62
Example 1
15-Year Balances starting from $200000 with switching and adding $10000 each year (i.e., dollar cost averaging) into a 100% stock portfolio.
Start Year, Contributions from the initial portfolio, Contributions from dollar cost averaging, Total Amounts after 15 Years.
The second example follows.
15-Year Balances starting from $200000 with switching and adding $10000 each year (i.e., dollar cost averaging) into a 100% stock portfolio.
Start Year, Contributions from the initial portfolio, Contributions from dollar cost averaging, Total Amounts after 15 Years.
Code: Select all
1923 734639 285230 1019869
1924 764014 308496 1072510
1925 627205 276749 903955
1926 556947 239660 796607
1927 497517 184424 681941
1928 469886 191225 661111
1929 449771 215743 665513
1930 480512 265068 745580
1931 574917 359760 934677
1932 588131 265622 853754
1933 562751 208600 771351
1934 396279 204459 600739
1935 445411 237918 683329
1936 397413 268387 665799
1937 391298 298891 690189
1938 430499 340263 770762
1939 412948 324780 737728
1940 462470 439743 902213
1941 513766 488106 1001872
1942 546626 488998 1035624
1943 508848 418757 927605
1944 517161 515890 1033051
1945 490408 497231 987639
1946 426418 411984 838401
1947 484076 488979 973055
1948 499094 457059 956153
1949 507567 489141 996707
1950 479554 445178 924732
1951 441446 431682 873128
1952 415161 356623 771784
1953 413232 351192 764425
1954 416442 338097 754539
1955 358350 252217 610567
1956 333020 228908 561927
1957 339110 235483 574593
1958 361359 256293 617652
1959 304362 182111 486473
1960 273916 126784 400700
1961 343071 161362 504433
1962 333627 163921 497549
1963 311446 139887 451334
1964 302502 146653 449155
1965 295510 148270 443780
1966 318294 163493 481786
1967 294276 143295 437571
1968 345766 175132 520897
1969 386298 197134 583432
1970 401906 206414 608320
1971 438923 248886 687808
1972 484304 309574 793878
1973 458469 270465 728934
1974 508898 294119 803016
1975 581707 348409 930115
1976 450544 306319 756864
1977 475875 364269 840144
1978 518765 353772 872537
1979 519187 341929 861116
1980 515171 315536 830707
1981 511530 386345 897875
1982 553280 456840 1010119
1983 458017 500451 958468
1984 407012 576458 983470
1985 403317 579061 982379
1986 369848 479212 849060
1987 327603 356230 683833
Example 1
15-Year Interim Balances starting from $100000 with the switching of stock allocations and adding $10000 each year (i.e., dollar cost averaging) into a 100% stock portfolio followed by 15 years of switching alone.
Start Year, Contributions from the initial portfolio, Contributions from dollar cost averaging, Total Amounts after 15 Years, Switching Multiplier after 15 Years, Final 30-Year Balances.
Have fun.
John R.
15-Year Interim Balances starting from $100000 with the switching of stock allocations and adding $10000 each year (i.e., dollar cost averaging) into a 100% stock portfolio followed by 15 years of switching alone.
Start Year, Contributions from the initial portfolio, Contributions from dollar cost averaging, Total Amounts after 15 Years, Switching Multiplier after 15 Years, Final 30-Year Balances.
Code: Select all
1923 367319 285230 652550 2.15 1404609
1924 382007 308496 690503 2.06 1425707
1925 313603 276749 590352 2.31 1365101
1926 278473 239660 518134 2.57 1330998
1927 248759 184424 433183 2.73 1183946
1928 234943 191225 426168 2.54 1084275
1929 224885 215743 440628 2.59 1139377
1930 240256 265068 505324 2.45 1239076
1931 287458 359760 647219 2.13 1379928
1932 294066 265622 559688 2.42 1354657
1933 281376 208600 489976 2.50 1222719
1934 198140 204459 402599 2.54 1021730
1935 222705 237918 460624 2.40 1104469
1936 198706 268387 467093 2.21 1030981
1937 195649 298891 494540 2.08 1026566
1938 215249 340263 555513 2.07 1147779
1939 206474 324780 531254 2.08 1106182
1940 231235 439743 670978 1.79 1202227
1941 256883 488106 744989 1.67 1240479
1942 273313 488998 762311 1.70 1292535
1943 254424 418757 673181 1.81 1216299
1944 258580 515890 774471 1.52 1178596
1945 245204 497231 742435 1.37 1016826
1946 213209 411984 625193 1.72 1072427
1947 242038 488979 731017 1.67 1219437
1948 249547 457059 706606 1.56 1100349
1949 253783 489141 742924 1.51 1123679
1950 239777 445178 684955 1.48 1012055
1951 220723 431682 652405 1.59 1038283
1952 207580 356623 564203 1.47 830156
1953 206616 351192 557808 1.73 964355
1954 208221 338097 546318 1.93 1055208
1955 179175 252217 431392 2.01 866894
1956 166510 228908 395417 2.19 867788
1957 169555 235483 405038 2.42 980808
1958 180679 256293 436973 2.29 1001691
1959 152181 182111 334292 2.54 850602
1960 136958 126784 263742 2.91 767102
1961 171536 161362 332897 2.25 749925
1962 166814 163921 330735 2.38 786943
1963 155723 139887 295611 2.59 766762
1964 151251 146653 297904 2.60 773339
1965 147755 148270 296025 2.58 762518
1966 159147 163493 322640 2.56 825198
1967 147138 143295 290433 2.77 803454
1968 172883 175132 348014 2.29 796983
1969 193149 197134 390283 2.04 794249
1970 200953 206414 407367 2.02 821491
1971 219461 248886 468347 1.85 866086
1972 242152 309574 551726 1.64 903735
1973 229234 270465 499699
1974 254449 294119 548567
1975 290853 348409 639262
1976 225272 306319 531592
1977 237937 364269 602206
1978 259382 353772 613155
1979 259593 341929 601523
1980 257586 315536 573122
1981 255765 386345 642110
1982 276640 456840 733479
1983 229009 500451 729460
1984 203506 576458 779964
1985 201659 579061 780720
1986 184924 479212 664136
1987 163802 356230 520032
John R.
I consider it highly significant that dollar cost averaging (DCA) lost money in several 15-year periods.
[This corresponds to DCA multipliers below 15 and/or DCA balances below $150000 with an annual investment of $10000.]
This means that investing in anything that matches inflation (e.g., TIPS and/or ibonds at 0% interest) can be a superior choice when looking into an extended bear market.
Our best estimate, based upon Professor Shiller's work and today's P/E10 level, is that we are looking into an extended bear market.
An alternative to buying TIPS and/or ibonds is purchasing income streams directly. This leads us to dividend-based investments.
Both of these accumulation alternatives are consistent with the results of our Safe Withdrawal Rate investigations.
Have fun.
John R.
[This corresponds to DCA multipliers below 15 and/or DCA balances below $150000 with an annual investment of $10000.]
This means that investing in anything that matches inflation (e.g., TIPS and/or ibonds at 0% interest) can be a superior choice when looking into an extended bear market.
Our best estimate, based upon Professor Shiller's work and today's P/E10 level, is that we are looking into an extended bear market.
An alternative to buying TIPS and/or ibonds is purchasing income streams directly. This leads us to dividend-based investments.
Both of these accumulation alternatives are consistent with the results of our Safe Withdrawal Rate investigations.
Have fun.
John R.