Switching Tables with Commercial Paper
Moderator: hocus2004
Switching Tables with Commercial Paper
Switching Tables with Commercial Paper
These tables list the Historical Database Rates (HDBR) for switching between 80% stocks and 20% stocks. All data were determined by the Retire Early Safe Withdrawal Calculator, Version 1.61, November 7, 2002. The fixed income investment is commercial paper. The switching threshold is set at (a P/E10 of) 12.0. The expense ratio was 0.20%. The initial balances were set at $100 000 to minimize round-off errors. The lifespan was 30 years. Other values were left at their default settings.
The Historical Database Rates under HDBR 80% correspond to years that I associate with each historical sequence. The rates listed in the adjusted year column correspond to what FIRECalc reports. They are offset from the HDBR 80% entries by exactly one year.
For those who have the calculator available, I refer to the first historical sequence. The numbers for 1871 are in column B and the numbers for 1872 are in column C. There are only three entries in column B: the stock balance, the bond (or fixed income) balance and the total, all for December 31, 1871. There are no calculations in column B beyond an initial allocation between stocks and bonds (or whatever fixed income security has been selected). The first entry in column C is for January 1, 1872. It is identical to the balance on December 31 of the previous year (i.e., 1871). There are a series of calculations in column C, reflecting the gains and losses of stocks and bonds (or other fixed income investments) throughout the year.
I have listed that first historical sequence as occurring in 1872 in the HDBR 80% column. I have listed it as 1871 in the adjusted year column.
Have fun.
John R.
These tables list the Historical Database Rates (HDBR) for switching between 80% stocks and 20% stocks. All data were determined by the Retire Early Safe Withdrawal Calculator, Version 1.61, November 7, 2002. The fixed income investment is commercial paper. The switching threshold is set at (a P/E10 of) 12.0. The expense ratio was 0.20%. The initial balances were set at $100 000 to minimize round-off errors. The lifespan was 30 years. Other values were left at their default settings.
The Historical Database Rates under HDBR 80% correspond to years that I associate with each historical sequence. The rates listed in the adjusted year column correspond to what FIRECalc reports. They are offset from the HDBR 80% entries by exactly one year.
For those who have the calculator available, I refer to the first historical sequence. The numbers for 1871 are in column B and the numbers for 1872 are in column C. There are only three entries in column B: the stock balance, the bond (or fixed income) balance and the total, all for December 31, 1871. There are no calculations in column B beyond an initial allocation between stocks and bonds (or whatever fixed income security has been selected). The first entry in column C is for January 1, 1872. It is identical to the balance on December 31 of the previous year (i.e., 1871). There are a series of calculations in column C, reflecting the gains and losses of stocks and bonds (or other fixed income investments) throughout the year.
I have listed that first historical sequence as occurring in 1872 in the HDBR 80% column. I have listed it as 1871 in the adjusted year column.
Have fun.
John R.
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Year P/E10 Dividends HDBR80% adjusted year
1871 no data 5.9% not collected 9.9%
1872 no data 5.4% 9.9% 10.2%
1873 no data 5.9% 10.2% 9.8%
1874 no data 7.1% 9.8% 9.5%
1875 no data 7.2% 9.5% 9.3%
1876 no data 6.7% 9.3% 9.7%
1877 no data 8.2% 9.7% 8.8%
1878 no data 5.8% 8.8% 8.6%
1879 no data 5.1% 8.6% 9.9%
1880 no data 4.0% 9.9% 7.3%
1881 18.4 4.3% 7.3% 7.7%
1882 15.6 5.4% 7.7% 7.7%
1883 15.2 5.5% 7.7% 7.2%
1884 14.4 6.3% 7.2% 6.7%
1885 13.1 7.2% 6.7% 6.7%
1886 16.6 4.6% 6.7% 6.5%
1887 17.5 4.0% 6.5% 6.7%
1888 15.3 4.7% 6.7% 6.4%
1889 15.8 4.4% 6.4% 6.1%
1890 17.2 4.1% 6.1% 6.1%
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Year P/E10 Dividends HDBR80% adjusted year
1891 15.4 4.5% 6.1% 5.7%
1892 19.0 4.0% 5.7% 6.0%
1893 17.6 4.3% 6.0% 5.0%
1894 15.7 5.7% 5.0% 5.0%
1895 16.5 4.9% 5.0% 5.0%
1896 16.5 4.4% 5.0% 4.8%
1897 17.0 4.3% 4.8% 4.9%
1898 19.2 3.7% 4.9% 4.9%
1899 22.9 3.3% 4.9% 5.5%
1900 18.6 3.6% 5.5% 5.3%
1901 20.9 4.3% 5.3% 5.3%
1902 22.3 4.0% 5.3% 5.7%
1903 20.3 3.9% 5.7% 5.3%
1904 15.8 5.2% 5.3% 5.7%
1905 18.4 3.7% 5.7% 5.5%
1906 20.1 3.4% 5.5% 5.5%
1907 17.2 4.3% 5.5% 5.4%
1908 11.9 6.4% 5.4% 5.9%
1909 14.7 4.5% 5.9% 5.2%
1910 14.5 4.4% 5.2% 4.7%
John R.
Code: Select all
Year P/E10 Dividends HDBR80% adjusted year
1911 14.0 5.1% 4.7% 4.8%
1912 13.7 5.2% 4.8% 5.1%
1913 13.1 5.2% 5.1% 5.1%
1914 11.6 5.7% 5.1% 5.3%
1915 10.3 5.6% 5.3% 5.9%
1916 12.5 4.7% 5.9% 5.6%
1917 10.9 6.0% 5.6% 6.7%
1918 6.7 9.4% 6.7% 9.5%
1919 6.1 7.2% 9.5% 10.6%
1920 6.0 6.0% 10.6% 9.8%
1921 5.1 7.1% 9.8% 10.6%
1922 6.3 6.4% 10.6% 10.7%
1923 8.2 5.7% 10.7% 9.9%
1924 8.1 6.0% 9.9% 10.3%
1925 9.7 5.2% 10.3% 9.6%
1926 11.3 4.8% 9.6% 8.5%
1927 13.1 5.2% 8.5% 8.3%
1928 18.8 4.4% 8.3% 7.9%
1929 27.0 3.5% 7.9% 7.4%
1930 22.3 4.5% 7.4% 7.2%
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Year P/E10 Dividends HDBR80% adjusted year
1931 16.7 6.0% 7.2% 7.1%
1932 9.3 9.6% 7.1% 7.2%
1933 8.7 7.0% 7.2% 8.3%
1934 13.0 4.2% 8.3% 6.4%
1935 11.4 4.9% 6.4% 6.9%
1936 17.0 3.5% 6.9% 5.2%
1937 21.6 4.2% 5.2% 5.1%
1938 13.5 7.0% 5.1% 5.5%
1939 15.5 4.1% 5.5% 5.5%
1940 16.3 5.1% 5.5% 5.7%
1941 13.9 6.4% 5.7% 6.8%
1942 10.1 7.9% 6.8% 7.8%
1943 10.1 5.8% 7.8% 7.4%
1944 11.0 5.2% 7.4% 6.7%
1945 11.9 4.8% 6.7% 6.3%
1946 15.6 3.7% 6.3% 5.9%
1947 11.4 4.7% 5.9% 6.9%
1948 10.4 5.7% 6.9% 7.2%
1949 10.2 6.2% 7.2% 6.8%
1950 10.7 6.6% 6.8% 6.8%
John R.
Code: Select all
Year P/E10 Dividends HDBR80% adjusted year
1951 11.8 7.0% 6.8% 5.8%
1952 12.5 5.8% 5.8% 5.2%
1953 13.0 5.4% 5.2% 5.2%
1954 12.0 5.7% 5.2% 5.2%
1955 15.9 4.4% 5.2% 4.9%
1956 18.2 3.8% 4.9% 4.8%
1957 16.7 3.8% 4.8% 4.9%
1958 13.7 4.3% 4.9% 5.1%
1959 17.9 3.2% 5.1% 4.9%
1960 18.3 3.2% 4.9% 4.9%
1961 18.4 3.3% 4.9% 4.9%
1962 21.1 2.9% 4.9% 4.9%
1963 19.2 3.3% 4.9% 5.0%
1964 21.6 3.0% 5.0% 4.9%
1965 23.2 2.9% 4.9% 4.9%
1966 24.0 2.9% 4.9% 4.9%
1967 20.4 3.4% 4.9% 5.1%
1968 21.5 3.1% 5.1% 5.1%
1969 21.1 3.0% 5.1% 5.2%
1970 17.0 3.5% 5.2% 5.4%
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Year P/E10 Dividends HDBR80% adjusted year
1971 16.4 3.3% 5.4% 5.5%
1972 17.2 3.0% 5.5% 5.7%
1973 18.7 2.7% 5.7% 6.0%
1974 13.5 3.5% 6.0% 6.8%
1975 8.9 5.0% 6.8% 7.7%
1976 11.1 3.8% 7.7% 6.6%
1977 11.4 3.9% 6.6% 6.9%
1978 9.2 5.2% 6.9% 8.5%
1979 9.3 5.1% 8.5% 9.2%
1980 8.9 5.1% 9.2% not collected
John R.
I ran the numbers on my copy, and noticed that 20% improved 30 year withdrawals, but hurt 40 plus year withdrawals. Bumping equity up to 40% improved 40 plus year survival rates at the 4.7% withdrawal rate that survived all 30 year periods at 20%. According to this data, younger retirees may need to reduce withdrawals below 4.7%, and keep their equities nearer to 40% in high P/E years to make the portfolio last 40 plus years. Bumping up to 80% equities in low P/E years seems to add value for both 30 year and 40 plus year retirements.
Mike
Mike
According to this data, younger retirees may need to reduce withdrawals below 4.7%, and keep their equities nearer to 40% in high P/E years to make the portfolio last 40 plus years.
Mike:
I am preparing a Chronology of the Great SWR Debate which I expect to publish next year. In it, I will identify the key posts, botb the key positive posts and the key negative posts. In some cases, my listing of key posts will surprise no one. Obviously, the May 13, 2002, post was highly significant. Obviously, the post by JWR1945 that sits at the top of this board was highly significant. But there are a good number of posts that on the surface appear unassuming but over the long term proved to be turning points that took the debate in new and exciting directions.
Your post above will prove to be such a one, in my estimation. I have had my eye on you from your first post here, Mike, because from your first post you addressed realities and did not litter your posts with nonsense. Often in novels a character becomes associated in the reader's mind with his use of a particular phrase, a phrase that illuminates his entire personality. You know what the phrase is that I will always think of in connection with you, Mike?.It is that phrase I put in bold in my quote from your post--"According to this data."
What a sweet phrase for someone who has been struggling for 17 months to share valid information about SWRs to hear! Hearing that phrase is like coming across a tall glass of water while walking across desert sands. It mattered little to me what words followed that in your post, those words alone told me what I needed to know about you. You are the real thing, not a pretend Information Seeker. Welcome to the SWR Research Group, Mike! Please remain with us awhile and help the community that congregates here (small now, but to grow over time, I hope) learn about how to achieve financial independence early in life. That's what we come here to do, to learn, and it is done by using magical phrases like the one you employed. Your use of the phrase "according to this data" is a turning point in the debate, I believe, and it is one that I have been watching for expectently for a long time.
A dynamic that I have seen play out many times in the course of this is that it is the relatively unknown posters who enhibit the greatest courage. It was path40a who stood up at the front of the room and opposed the idea of aiming to silence the expression of alternate points of view on SWRs. It was CrazyLegs883 who dared to tell the community that in fact there was a good bit of academic research supporting my claims, despite the assertions of far better known posters that the things I was saying were "loony" and "irrational." I don't recall the name of the poster who observed at the REHP board one time that defernders of the conventional methodology were "acting like a bunch of ants" in their panicky efforts to block any possibility of reasoned debate. Perhaps he only posted that one time, but his words cut to the chase; he perfomed a public service. There was another little-known poster who had the temerity to ask (I am paraphrasing) "Why is it that the majority here regulary berates hocus for prolonging the SWR discussions but hocus is seemingly the only board member who never starts a new thread on it?"
It is not the big names at the REHP board or at the FIRE board who are going to lead us to a better place. They had their chance, and most of them have come out too strongly in favor of now-discredited SWR ideas to now open themselves to examination of the benefits of a true data-based approach. This debate is about change in more ways than one way. It is about change in our thinking on SWRs and it is also about change in our thinking about which posters offer reliable advice on how to achieve financial independence early in life. Change is often hard. But the benefits of change, when change is really necessary, can be great indeed.
Looking at the tactics that defenders of the conventional methodology have employed to block change, I think it is more than fair to say that this is a case where change really was needed. Your post is an early sign of Spring. We have a lot of cold wintry days ahead of us, I do not want to be giving out false hope here of a quick resolution to the problems we face. But your post shows that it is possible for a community member to post in an informed and honest way on this subject matter and to survive to post again.
Will there be attacks on you for putting foward a constructive post on this matter? Perhaps. But my sense is that the tactic of attacking anyone who puts forward an informed and honest post is becoming less and less effective all the time. It has been employed so many times that it is becoming too obvious to all that Intimidiation is the only hope remaining for defenders of the conventional methodology. The old regime is crumbling, and the cracks in the walls are becoming too big for anyone paying attention not to notice them.
If you are not attacked for your post, others will notice. That means that others will work up the courage to join us in time. In days ahead, it will be four of us engaged in the process of learning together, not just three. And not long after that it will be five, and so on. Intimidation is a highly effective strategy in the short term, but a highly ineffective strategy in the long term. I see your post as a sign that 17 months is the dividing line between short-term and long-term on this matter. As the short-term strategies employed by defenders of the conventional methodology become increasingly less effective, the long-term strategy of looking to the data to determine the SWR will come to pay greater and greater dividends.
I see your post as a turning point, Mike. It took some guts to step up to the plate and let it rip. I won't forget the name of the poster who did this, and other Information Seekers who review the history of this matter in years to come will not forget it either.
The Wave applauds you!
Mike:
I am preparing a Chronology of the Great SWR Debate which I expect to publish next year. In it, I will identify the key posts, botb the key positive posts and the key negative posts. In some cases, my listing of key posts will surprise no one. Obviously, the May 13, 2002, post was highly significant. Obviously, the post by JWR1945 that sits at the top of this board was highly significant. But there are a good number of posts that on the surface appear unassuming but over the long term proved to be turning points that took the debate in new and exciting directions.
Your post above will prove to be such a one, in my estimation. I have had my eye on you from your first post here, Mike, because from your first post you addressed realities and did not litter your posts with nonsense. Often in novels a character becomes associated in the reader's mind with his use of a particular phrase, a phrase that illuminates his entire personality. You know what the phrase is that I will always think of in connection with you, Mike?.It is that phrase I put in bold in my quote from your post--"According to this data."
What a sweet phrase for someone who has been struggling for 17 months to share valid information about SWRs to hear! Hearing that phrase is like coming across a tall glass of water while walking across desert sands. It mattered little to me what words followed that in your post, those words alone told me what I needed to know about you. You are the real thing, not a pretend Information Seeker. Welcome to the SWR Research Group, Mike! Please remain with us awhile and help the community that congregates here (small now, but to grow over time, I hope) learn about how to achieve financial independence early in life. That's what we come here to do, to learn, and it is done by using magical phrases like the one you employed. Your use of the phrase "according to this data" is a turning point in the debate, I believe, and it is one that I have been watching for expectently for a long time.
A dynamic that I have seen play out many times in the course of this is that it is the relatively unknown posters who enhibit the greatest courage. It was path40a who stood up at the front of the room and opposed the idea of aiming to silence the expression of alternate points of view on SWRs. It was CrazyLegs883 who dared to tell the community that in fact there was a good bit of academic research supporting my claims, despite the assertions of far better known posters that the things I was saying were "loony" and "irrational." I don't recall the name of the poster who observed at the REHP board one time that defernders of the conventional methodology were "acting like a bunch of ants" in their panicky efforts to block any possibility of reasoned debate. Perhaps he only posted that one time, but his words cut to the chase; he perfomed a public service. There was another little-known poster who had the temerity to ask (I am paraphrasing) "Why is it that the majority here regulary berates hocus for prolonging the SWR discussions but hocus is seemingly the only board member who never starts a new thread on it?"
It is not the big names at the REHP board or at the FIRE board who are going to lead us to a better place. They had their chance, and most of them have come out too strongly in favor of now-discredited SWR ideas to now open themselves to examination of the benefits of a true data-based approach. This debate is about change in more ways than one way. It is about change in our thinking on SWRs and it is also about change in our thinking about which posters offer reliable advice on how to achieve financial independence early in life. Change is often hard. But the benefits of change, when change is really necessary, can be great indeed.
Looking at the tactics that defenders of the conventional methodology have employed to block change, I think it is more than fair to say that this is a case where change really was needed. Your post is an early sign of Spring. We have a lot of cold wintry days ahead of us, I do not want to be giving out false hope here of a quick resolution to the problems we face. But your post shows that it is possible for a community member to post in an informed and honest way on this subject matter and to survive to post again.
Will there be attacks on you for putting foward a constructive post on this matter? Perhaps. But my sense is that the tactic of attacking anyone who puts forward an informed and honest post is becoming less and less effective all the time. It has been employed so many times that it is becoming too obvious to all that Intimidiation is the only hope remaining for defenders of the conventional methodology. The old regime is crumbling, and the cracks in the walls are becoming too big for anyone paying attention not to notice them.
If you are not attacked for your post, others will notice. That means that others will work up the courage to join us in time. In days ahead, it will be four of us engaged in the process of learning together, not just three. And not long after that it will be five, and so on. Intimidation is a highly effective strategy in the short term, but a highly ineffective strategy in the long term. I see your post as a sign that 17 months is the dividing line between short-term and long-term on this matter. As the short-term strategies employed by defenders of the conventional methodology become increasingly less effective, the long-term strategy of looking to the data to determine the SWR will come to pay greater and greater dividends.
I see your post as a turning point, Mike. It took some guts to step up to the plate and let it rip. I won't forget the name of the poster who did this, and other Information Seekers who review the history of this matter in years to come will not forget it either.
The Wave applauds you!
Mike
I post these results for all who have an interest. I have taken the numbers from the Retire Early Safe Withdrawal Calculator data summaries.
Have fun.
John R.
I have compiled two sets of tables to build upon Mike's observations. I have not completed an analysis.I ran the numbers on my copy, and noticed that 20% improved 30 year withdrawals, but hurt 40 plus year withdrawals....
I post these results for all who have an interest. I have taken the numbers from the Retire Early Safe Withdrawal Calculator data summaries.
Have fun.
John R.
Switching with a 4.7% withdrawal rate.
The stock allocations at high valuations and P/E10 thresholds vary. Below threshold, the stock allocation is always 80%. The fixed income component is commercial paper. The expenses are 0.20%. The initial balance is $100000 to keep round-off errors small. Other values were left at their default settings. All data were determined by the Retire Early Safe Withdrawal Calculator, Version 1.61, November 7, 2002.
All of these results are from the summary tables for 1871-2002. There are some artifacts associated with the details of summarizing the data. For example, the survival rate for 50 years may be higher than for 40 years. This is caused by the treatment of partially completed historical sequences. (However, this has happened so frequently as to be of concern.) These data have not been examined for anomalous behavior in the 1871-1920 time period. The earlier period included prolonged periods of significant deflation. In this respect, commercial paper sometimes produced higher returns than TIPS would have. (Deflation has been a significant factor as late as 1933. There have been infrequent instances of shallow deflation since then.)
Threshold = 10.0
Threshold = 11.0
Threshold = 12.0
Threshold = 13.0
Threshold = 14.0
Threshold = 15.0
Threshold = 16.0
Threshold = 17.0
Threshold = 18.0
Threshold = 19.0
Have fun.
John R.
The stock allocations at high valuations and P/E10 thresholds vary. Below threshold, the stock allocation is always 80%. The fixed income component is commercial paper. The expenses are 0.20%. The initial balance is $100000 to keep round-off errors small. Other values were left at their default settings. All data were determined by the Retire Early Safe Withdrawal Calculator, Version 1.61, November 7, 2002.
All of these results are from the summary tables for 1871-2002. There are some artifacts associated with the details of summarizing the data. For example, the survival rate for 50 years may be higher than for 40 years. This is caused by the treatment of partially completed historical sequences. (However, this has happened so frequently as to be of concern.) These data have not been examined for anomalous behavior in the 1871-1920 time period. The earlier period included prolonged periods of significant deflation. In this respect, commercial paper sometimes produced higher returns than TIPS would have. (Deflation has been a significant factor as late as 1933. There have been infrequent instances of shallow deflation since then.)
Threshold = 10.0
Code: Select all
Allocation 20 30 40 50 60 years
10% 89% 74% 34% 30% 26%
20% 96% 80% 40% 33% 35%
30% 97% 85% 53% 41% 38%
40% 99% 92% 61% 49% 43%
50% 100% 92% 73% 62% 50%
60% 100% 92% 76% 73% 58%
Threshold = 11.0
Code: Select all
Allocation 30 40 50 60 years
10% 85% 45% 37% 33%
20% 90% 52% 43% 39%
30% 96% 63% 51% 43%
40% 98% 73% 59% 50%
50% 97% 79% 68% 54%
60% 92% 80% 74% 64%
Threshold = 12.0
Code: Select all
Allocation 30 40 50 60 years
10% 97% 82% 85% 78%
20% 100% 82% 88% 78%
30% 100% 86% 87% 78%
40% 98% 89% 84% 75%
50% 97% 89% 85% 78%
60% 93% 86% 84% 76%
Code: Select all
Allocation 30 40 50 60 years
10% 97% 82% 85% 78%
20% 100% 82% 88% 78%
30% 100% 86% 87% 78%
40% 98% 89% 84% 75%
50% 97% 89% 85% 78%
60% 93% 86% 84% 76%
Threshold = 14.0
Code: Select all
Allocation 30 40 50 60 years
10% 87% 84% 88% 78%
20% 89% 86% 90% 79%
30% 93% 88% 87% 79%
40% 93% 91% 85% 75%
50% 92% 89% 87% 78%
60% 92% 86% 85% 78%
Code: Select all
Allocation 30 40 50 60 years
10% 87% 84% 89% 81%
20% 88% 85% 90% 81%
30% 91% 89% 87% 82%
40% 92% 91% 85% 76%
50% 92% 89% 87% 78%
60% 92% 86% 85% 78%
Threshold = 16.0
Code: Select all
Allocation 30 40 50 60 years
10% 91% 89% 90% 86%
20% 89% 92% 94% 86%
30% 91% 92% 93% 89%
40% 92% 92% 90% 88%
50% 92% 89% 88% 85%
60% 92% 87% 87% 81%
Code: Select all
Allocation 30 40 50 60 years
10% 94% 86% 83% 75%
20% 95% 89% 80% 72%
30% 94% 90% 82% 71%
40% 93% 89% 84% 74%
50% 91% 86% 83% 76%
60% 91% 84% 82% 75%
Threshold = 18.0
Code: Select all
Allocation 30 40 50 60 years
10% 94% 80% 71% 63%
20% 94% 84% 74% 64%
30% 96% 85% 80% 67%
40% 94% 86% 84% 72%
50% 91% 84% 82% 72%
60% 90% 83% 82% 74%
Threshold = 19.0
Code: Select all
Allocation 30 40 50 60 years
10% 88% 89% 93% 89%
20% 89% 89% 93% 86%
30% 89% 89% 89% 86%
40% 89% 89% 89% 83%
50% 89% 86% 84% 79%
60% 89% 85% 84% 76%
John R.
Switching with a 4.5% withdrawal rate.
These tables have been corrected for the error in 1955 results.
The stock allocations at high valuations and P/E10 thresholds vary. Below threshold, the stock allocation is always 80%. The fixed income component is commercial paper. The expenses are 0.20%. The initial balance is $100000 to keep round-off errors small. Other values were left at their default settings. All data were determined by the Retire Early Safe Withdrawal Calculator, Version 1.61, November 7, 2002.
All of these results are from the summary tables for 1871-2002. There are some artifacts associated with the details of summarizing the data. For example, the survival rate for 50 years may be higher than for 40 years. This is caused by the treatment of partially completed historical sequences. (However, this has happened so frequently as to be of concern.) These data have not been examined for anomalous behavior in the 1871-1920 time period. The earlier period included prolonged periods of significant deflation. In this respect, commercial paper sometimes produced higher returns than TIPS would have. (Deflation has been a significant factor as late as 1933. There have been infrequent instances of shallow deflation since then.)
Threshold = 12.0
Threshold = 13.0
Threshold = 14.0
Threshold = 15.0
Threshold = 16.0
Threshold = 17.0
Have fun.
John R.
These tables have been corrected for the error in 1955 results.
The stock allocations at high valuations and P/E10 thresholds vary. Below threshold, the stock allocation is always 80%. The fixed income component is commercial paper. The expenses are 0.20%. The initial balance is $100000 to keep round-off errors small. Other values were left at their default settings. All data were determined by the Retire Early Safe Withdrawal Calculator, Version 1.61, November 7, 2002.
All of these results are from the summary tables for 1871-2002. There are some artifacts associated with the details of summarizing the data. For example, the survival rate for 50 years may be higher than for 40 years. This is caused by the treatment of partially completed historical sequences. (However, this has happened so frequently as to be of concern.) These data have not been examined for anomalous behavior in the 1871-1920 time period. The earlier period included prolonged periods of significant deflation. In this respect, commercial paper sometimes produced higher returns than TIPS would have. (Deflation has been a significant factor as late as 1933. There have been infrequent instances of shallow deflation since then.)
Threshold = 12.0
Code: Select all
Allocation 30 40 50 60 years
10% 100% 77% 80% 79%
20% 100% 86% 84% 79%
30% 100% 92% 90% 81%
40% 100% 96% 94% 83%
50% 99% 96% 91% 86%
60% 98% 95% 89% 83%
Threshold = 13.0
Code: Select all
Allocation 30 40 50 60 years
10% 100% 85% 90% 86%
20% 100% 89% 90% 86%
30% 100% 93% 91% 86%
40% 100% 97% 95% 93%
50% 99% 97% 93% 88%
60% 98% 95% 90% 86%
Threshold = 14.0
Code: Select all
Allocation 30 40 50 60 years
10% 98% 89% 90% 88%
20% 98% 91% 90% 89%
30% 98% 93% 93% 88%
40% 98% 93% 96% 93%
50% 95% 93% 93% 88%
60% 95% 93% 90% 86%
Threshold = 15.0
Code: Select all
Allocation 30 40 50 60 years
10% 94% 88% 90% 89%
20% 98% 90% 90% 89%
30% 98% 93% 94% 88%
40% 96% 93% 96% 93%
50% 95% 93% 94% 88%
60% 94% 92% 90% 86%
Code: Select all
Allocation 30 40 50 60 years
10% 98% 95% 96% 93%
20% 99% 93% 98% 96%
30% 98% 93% 98% 97%
40% 98% 93% 98% 96%
50% 96% 93% 95% 89%
60% 95% 96% 91% 88%
Code: Select all
Allocation 30 40 50 60 years
10% 99% 92% 91% 82%
20% 99% 92% 94% 85%
30% 99% 93% 94% 85%
40% 97% 92% 93% 83%
50% 97% 93% 89% 82%
60% 95% 92% 87% 81%
John R.
Last edited by JWR1945 on Thu Nov 06, 2003 1:22 pm, edited 1 time in total.
Data Analysis Tables
Here are some summary tables for switching of stock allocations when the fixed income component is commercial paper. In all instances the stock allocation was 80% whenever the P/E10 was below threshold. The allocations above threshold are listed in the tables. All of this is extracted from the Retire Early Safe Withdrawal [Rate] Calculator, version 1.61, dated November 7, 2002 and its summary tables.
Optimal Stock Allocations (above threshold) versus Thresholds and Portfolio Lifespans (with a 4.7% withdrawal rate).
Survivability Percentages versus Thresholds and Portfolio Lifespans (with a 4.7% withdrawal rate and with all stock allocations (10-60%) above threshold).
Optimal Stock Allocations (above threshold) versus Thresholds and Portfolio Lifespans (with a 4.5% withdrawal rate).
Highest 40-Year Portfolio Survivability versus Threshold at the Optimal Stock Allocations (above the P/E10 Threshold and with a 4.5% withdrawal rate).
Special note: there was a broad minimum from 20-50% at a threshold of 16, but the survivability was still 92%, a very small decline. At a threshold of 17, the survivability was 91% or more for all allocations from 10-60%.
When examining data such as these, keep in mind the kind of information that you might find useful. For example, it is very worthwhile to know the sensitivity of the data to various decisions. If we end up with a non-optimal allocation (in the future), how badly will we be hurt? It is probably a good idea to change allocations gradually as valuations (as measured by P/E10) change. The reason that we are only looking at a single threshold (and two allocations, 80% below threshold and the tabulated values above threshold) is a limitation of the calculator. It is not because using a single threshold is optimal. It may or may not be. It is worth thinking about two (or more) thresholds in terms of developing an actual strategy.
We know from theory that an optimal stock allocation requires a balance between growth and volatility. High stock allocations mean more growth, but they also mean more volatility. Earlier failures are more likely, but the likelihood of long-term success increases when those early failures can be avoided.
When we introduce switching, we take advantage of bargain prices as they occur. We are constantly exposed to the danger of achieving too little growth while we wait for those bargains to appear. Having an additional threshold (or several thresholds) should reduce this possibility while still preserving enough cash for us to buy heavily when prices are low.
I have noticed that the sensitivities are mild. You will not be seriously harmed if you do not get the allocation or the threshold exactly right. In addition, the tolerance for making an error decreases as the threshold increases.
We are still at an early stage of our investigations.
Have fun.
John R.
Here are some summary tables for switching of stock allocations when the fixed income component is commercial paper. In all instances the stock allocation was 80% whenever the P/E10 was below threshold. The allocations above threshold are listed in the tables. All of this is extracted from the Retire Early Safe Withdrawal [Rate] Calculator, version 1.61, dated November 7, 2002 and its summary tables.
Optimal Stock Allocations (above threshold) versus Thresholds and Portfolio Lifespans (with a 4.7% withdrawal rate).
Code: Select all
Threshold 30 40 50 60 Years
10 40-60% 60% 60% 60%
11 40% 60% 60% 60%
12 20-30% 40% 50-60% 60%
13 20-30% 40-50% 20% 10-30%,50%
14 30-40% 40% 20% 20-30%
15 40-60% 40% 20% 30%
16 40-60% 20-40% 20% 30%
17 20% 30% 40% 50%
18 30% 40% 40% 60%
19 20-60% 10-40% 10-20% 10%
Survivability Percentages versus Thresholds and Portfolio Lifespans (with a 4.7% withdrawal rate and with all stock allocations (10-60%) above threshold).
Code: Select all
Threshold 30 40 50 60 Years
10 74-92% 34-76% 30-73% 26-58%
11 85-98% 45-80% 37-74% 33-64%
12 93-100% 72-89% 72-84% 69-75%
13 93-100% 82-89% 84-88% 75-78%
14 87-93% 84-91% 85-90% 75-79%
15 87-92% 84-91% 85-90% 76-82%
16 89-92% 87-92% 87-94% 81-89%
17 91-95% 84-90% 80-84% 71-76%
18 90-96% 80-86% 71-84% 63-74%
19 88-89% 85-89% 84-93% 76-89%
Optimal Stock Allocations (above threshold) versus Thresholds and Portfolio Lifespans (with a 4.5% withdrawal rate).
Code: Select all
Threshold 30 40 50 60 Years
12 10-40% 40-50% 40% 50%
13 10-40% 40-50% 40% 40%
14 10-40% 30-60% 40% 40%
15 20-30% 30-50% 40% 40%
16 20% 60% 20-40% 30%
17 10-30% 30%,50% 20-30% 20-30%
Highest 40-Year Portfolio Survivability versus Threshold at the Optimal Stock Allocations (above the P/E10 Threshold and with a 4.5% withdrawal rate).
Code: Select all
Threshold Allocation Survivability
12 40-50% 95%
13 40-50% 96%
14 30-60% 92%
15 30-50% 92%
16 60% 95%
17 30%,50% 92%
When examining data such as these, keep in mind the kind of information that you might find useful. For example, it is very worthwhile to know the sensitivity of the data to various decisions. If we end up with a non-optimal allocation (in the future), how badly will we be hurt? It is probably a good idea to change allocations gradually as valuations (as measured by P/E10) change. The reason that we are only looking at a single threshold (and two allocations, 80% below threshold and the tabulated values above threshold) is a limitation of the calculator. It is not because using a single threshold is optimal. It may or may not be. It is worth thinking about two (or more) thresholds in terms of developing an actual strategy.
We know from theory that an optimal stock allocation requires a balance between growth and volatility. High stock allocations mean more growth, but they also mean more volatility. Earlier failures are more likely, but the likelihood of long-term success increases when those early failures can be avoided.
When we introduce switching, we take advantage of bargain prices as they occur. We are constantly exposed to the danger of achieving too little growth while we wait for those bargains to appear. Having an additional threshold (or several thresholds) should reduce this possibility while still preserving enough cash for us to buy heavily when prices are low.
I have noticed that the sensitivities are mild. You will not be seriously harmed if you do not get the allocation or the threshold exactly right. In addition, the tolerance for making an error decreases as the threshold increases.
We are still at an early stage of our investigations.
Have fun.
John R.
I have noticed that if withdrawals are kept below about 3 1/2 %, 100% equity portfolios survived all past periods. However, if equity allocations are dropped to zero above P/E 15, average terminal portfolio values increased significantly for 40 plus year portfolios. Survival is still 100% for all periods.
There is considerably more S&P total gains in the period from Novermber 1 to May 1 (back to 1871), but I have not figured out how to make the calculator sort for only holding stocks during these months during high P/E years. I had the thought that this might mitigate some of the risk of holding equities during high P/E years.
There is considerably more S&P total gains in the period from Novermber 1 to May 1 (back to 1871), but I have not figured out how to make the calculator sort for only holding stocks during these months during high P/E years. I had the thought that this might mitigate some of the risk of holding equities during high P/E years.
This is a very good observation. At the moment I am looking into whether the previous 1871-2002 results and the 1921-2002 results are similar. Or whether the early years 1871-1920 hide some sensitivities found in the later period 1921-2002. Without switching, the earlier period behaves dramatically different than the later years.Mike wrote:I have noticed that if withdrawals are kept below about 3 1/2 %, 100% equity portfolios survived all past periods. However, if equity allocations are dropped to zero above P/E 15, average terminal portfolio values increased significantly for 40 plus year portfolios. Survival is still 100% for all periods.
So far, we have only made a general survey.
I do not have the tools to look at this issue. I do not know whether they exist. I am reluctant to investigate any traditional timing study (such as this, which is based on the calendar instead of valuations) because their advantages are perishable. This particular approach has worked for years and there used to be a newsletter that used it. I forget the details (I think that the newsletter originator died and it was sold by his estate). In any event, that strategy was still working and it was working well when coverage ended. Remember the Dogs of the DOW and similar strategies. They had worked well for years (or even decades) until they become popular. Then they stopped working.There is considerably more S&P total gains in the period from November 1 to May 1 (back to 1871), but I have not figured out how to make the calculator sort for only holding stocks during these months during high P/E years. I had the thought that this might mitigate some of the risk of holding equities during high P/E years.
Have fun.
John R.
If I calculated correctly, the tendency persists back to 1871. I put the Schiller monthly prices onto a spreadsheet, then calculated returns for each 6 month period directly below the data. At the right of the series of individual 6 month returns, I used the formula product(winter1871:winter2002) to multiply all of the individual returns for those periods. The winter period came out 24.62, while the summer was only 8.9
You are right that if too many people attempt to follow this type of strategy, it will not work. If I were writing a book that I wanted millions to follow, I would have no choice except to recommend low cost index funds. That many people could not hope to outperform the market, since they would be the market. Their best bet would be to collectively minimize costs, and accept the market returns. As a matter of fact, if too many people attempt to buy equity index funds, the dividend yield would go so low that there would no longer be any hope of reasonable return for them. A valuation model, such as the one you are developing, would have to be included so that people knew when to stop buying. I can see your point.
You are right that if too many people attempt to follow this type of strategy, it will not work. If I were writing a book that I wanted millions to follow, I would have no choice except to recommend low cost index funds. That many people could not hope to outperform the market, since they would be the market. Their best bet would be to collectively minimize costs, and accept the market returns. As a matter of fact, if too many people attempt to buy equity index funds, the dividend yield would go so low that there would no longer be any hope of reasonable return for them. A valuation model, such as the one you are developing, would have to be included so that people knew when to stop buying. I can see your point.
I have confirmed Mike's observations using a 4.5% withdrawal rate. You can see the numbers in the Analysis of Switching Data thread from Sun Nov 02, 2003 at 2:27 pm.I ran the numbers on my copy, and noticed that 20% improved 30 year withdrawals, but hurt 40 plus year withdrawals. Bumping equity up to 40% improved 40 plus year survival rates at the 4.7% withdrawal rate that survived all 30 year periods at 20%. According to this data, younger retirees may need to reduce withdrawals below 4.7%, and keep their equities nearer to 40% in high P/E years to make the portfolio last 40 plus years. Bumping up to 80% equities in low P/E years seems to add value for both 30 year and 40 plus year retirements.
Mike
http://nofeeboards.com/boards/viewtopic.php?t=1658
We have now determined that 40% is better than 30% as well as 20%.
Great!
Good work, Mike.
Have fun.
John R.
There doesn't appear to be much advantage at all to holding the S&P above P/E 20. 80% below P/E 15, 40% up to P/E 20, and zero above produced the best average terminal values over 40 plus year periods. Bumping equities up to 100% below P/E 10 improved average terminal values even more than 80% did. At P/E ratios below 10, it is likely that one could mostly just live off of the dividends, and leave the equities untouched, but it would depend upon individual circumstances.
Thank you for your observations, Mike. Let me encourage you to continue.
For the moment it is necessary for me to verify that the modifications that I have made to the Retire Early Safe Withdrawal Calculator have not changed it calculations. They should not. But I must make sure.
Making surveys of the kind that you have just done are very valuable. We need to know what to look into and where the opportunities are. Thoroughness is valuable as well. It is good to know what doesn't work as well as what does.
If you are able to come up with possible cause-and-effect relationships, please mention them. They are always valuable, even when the numbers show that they are wrong. Knowing why they are wrong can be important.
Be very careful about focusing on 40-year results. The last completed 40-year historical sequences started in 1962. With the calculator, survival percentages are reported only for completed sequences. I do not know about terminal values.
In many respects, especially with higher stock allocations, the 1960s was the worst decade for starting a retirement. The Great Depression years were not nearly so bad. A key feature of the 1960s was that there were so many bad years in a row. There was a lot of consistency. During the Great Depression, there was a lot of choppiness. There were some very good years mixed in with the bad years. (This has to do with investment returns, which is not the same as the unemployment rate. The unemployment rates during the Great Depression were exceedingly high. I recently heard that they averaged 17%, excluding farm labor. I cannot verify that number. I can verify that the rate was well above 10% and that it peaked around 25%.)
Be sure to report your results (including your non-results) and your hypotheses, whether proved true, false or something in between. All of this is valuable since we are covering new ground.
Have fun and thanks!
John R.
For the moment it is necessary for me to verify that the modifications that I have made to the Retire Early Safe Withdrawal Calculator have not changed it calculations. They should not. But I must make sure.
Making surveys of the kind that you have just done are very valuable. We need to know what to look into and where the opportunities are. Thoroughness is valuable as well. It is good to know what doesn't work as well as what does.
If you are able to come up with possible cause-and-effect relationships, please mention them. They are always valuable, even when the numbers show that they are wrong. Knowing why they are wrong can be important.
Be very careful about focusing on 40-year results. The last completed 40-year historical sequences started in 1962. With the calculator, survival percentages are reported only for completed sequences. I do not know about terminal values.
In many respects, especially with higher stock allocations, the 1960s was the worst decade for starting a retirement. The Great Depression years were not nearly so bad. A key feature of the 1960s was that there were so many bad years in a row. There was a lot of consistency. During the Great Depression, there was a lot of choppiness. There were some very good years mixed in with the bad years. (This has to do with investment returns, which is not the same as the unemployment rate. The unemployment rates during the Great Depression were exceedingly high. I recently heard that they averaged 17%, excluding farm labor. I cannot verify that number. I can verify that the rate was well above 10% and that it peaked around 25%.)
Be sure to report your results (including your non-results) and your hypotheses, whether proved true, false or something in between. All of this is valuable since we are covering new ground.
Have fun and thanks!
John R.
Commercial Paper Switching Model
Using the 4.12% withdrawal rate initially programmed into the REHP, the 100/40/0 allocation with switching at P/E 15 and 20 produces better results in 30 plus year periods. Most 20 and 10 year periods also gain average terminal values. Survival rates are 100% for all periods except for 40 years, which has a 99% survival. The gains in 40 plus year survival rates and terminal values compared to the standard 60% regardless of P/E algorithm is remarkable, but as you say doesn't include data from more recent decades.
Reversion to the mean appears to have played a strong historical role with regard to past returns.
Reversion to the mean appears to have played a strong historical role with regard to past returns.
Re: Commercial Paper Switching Model
This is interesting stuff! I may have to get motivated to dust off the old spreadsheet and do the JWR fix to play with it some more. It's both disappointing and encouraging that the time I spent with the old spreadsheet was at least partly wasted. It is nice to see that the logical three tier approach does in fact appear to pay off with improved survival and terminal values.Mike wrote:Using the 4.12% withdrawal rate initially programmed into the REHP, the 100/40/0 allocation with switching at P/E 15 and 20 produces better results in 30 plus year periods. Most 20 and 10 year periods also gain average terminal values. Survival rates are 100% for all periods except for 40 years, which has a 99% survival. The gains in 40 plus year survival rates and terminal values compared to the standard 60% regardless of P/E algorithm is remarkable, but as you say doesn't include data from more recent decades.
Reversion to the mean appears to have played a strong historical role with regard to past returns.
"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