Full time employment: Posting here.
Join Date: Aug 2005
$1,000,000 in Firecalc/ 9 withdrawls/10 yr
When you plug 1,000,000 in FireCalc with 0 withdrawals taken over a 10 year period as previously discussed you come up with an ending portfolio
after 10 years of $697,772 as the low mark, $1,853,141 as the average, and
$3,789,153 as the highest.
First question: When you take 0 withdrawals and all dividends are presumed reinvested as I believe they are in FireCalc. How do you wind up with $697,772 of your million after 10 years. Would the assumption be you hit a very severe drop in the beginning of your 10 years, and the following 8 or 9 years was not long enough to recover even with 0$ withdrawn? Could it be that a correction occurred at the end. (seems less likely if the correction occurred at the end as opposed to the beginning) So my assumption for this scenario to bare out would be someone entering the market during a very inflated bubble period of high evaluations, and recovery pursued, but not to the bubble level. Would this be a correct assumption?
2nd Look: FireCalc calls the middle number "average". Meaning , I assume if you add up the total ending $ numbers at the end of the 131 cycles, then divided by 131, you would come up with "average".
As "average/mean" does not really reflect true average as we tend to think or like to think of average in this case. The "average" figure stated in FireCalc would most likely be misleading and overstated to most. As to evaluate the more realistic "average" we must look at the median. In this manner.
The median is the middle number; they lined up all of the income amounts and crossed off the highest and the lowest numbers one by one until they found the middle.
1, 3, 7, 9, 10, 11, 12, 99, 100
3, 7, 9, 10, 11, 12, 99
7, 9, 10, 11, 12
9, 10, 11
10 is the "median"
The average is the mean; they added all of the numbers up and divided by the amount of numbers that they had.
28 is the "average"
Therefore, in FireCalc, looking at that chart, those 6 or so lines at the top really distort the actual "average" figure in so far as it represents the likelihood of what your portfolio might look at at the end of a ten year time frame. The lowest $ denominator as well as the highest $denominator will be a correct figure, but that average figure is misleading, and people need to realize this (if my assumptions are correct).
If there were to be any future improvements in FireCalc, I think this is one that needs to be addressed. Though admittedly, I know this would not be a simple task. I am not sure if Excel could somehow do such a calculation, or if it would have to be a manual entry. One way might be to take off the six lowest, and then six highest entries and then divide. It would not be 100% accurate by any means, but perhaps closer the the median that we are all really looking for.
If I am wrong in my assumptions, please correct me.