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Re: 4% Rule
Old 10-10-2003, 08:59 AM   #41
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Re: 4% Rule

As far as participating, thanks, but I'll have to beg off for now....I'll certainly "drop by" once I get back to Texas and get reestablished.

That's sounds great. Actually, I didn't mean to suggest scheduling anything right away. I am trying to refrain from posting much myself between now and the end of the year. So I was thinking of putting together the Special Event for sometime in January.

If you don't feel comfortable being indentified as an "expert," I understand. Personally, I still think you qualify as an "expert" as you clearly do have at least some background in statistics (a lot more than I do, I am certain, and I have never let my lack of skill with numbers hold me back from making bold statements on SWRs and lots of other matters!) and are the founder of this Forum. So I still find appeal in the idea of you participating as our second SWR board Special Event guest. But if you would prefer to just take a look in at the work we are doing from time to time, and perhaps contribute an observation here and there, that would also be a big help to the community that congregates there.

We have some good stuff up already, as I noted in my first post, but I don't expect the board to be too terribly active between now and perhaps the middle of next year. My hope is to be able to attract some new posters when I put up a web site on financial independence issues that I am hoping to get up in May 2004, and then engage in some publicity efforts re the web site (which I can justify spending money on because the site will help me promote the book I am writing). It will probably be just me and JWR1945 for a little while (and any others who elect to pay a visit), but I have hopes of the board turning into a real happening place after we get the number of posters up. Early next year, I'll be putting up some posts noting initiatives that I have planned to publicize the work we have done thus far. So that might be a good time to pay a return visit.

Good luck with your efforts here. It's a great thing you do running this site. It helps a lot of people learn important things re how to manage their money, and I very much believe that that is important work. Thanks for all you do here to keep this place running smoothly, Dory36.
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Re: 4% Rule
Old 10-12-2003, 08:05 AM   #42
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Re: 4% Rule

The, of course, there's the x% of current portfolio rule ... where you never run out of money

http://home.golden.net/~pjponzo/with...strategies.htm
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Re: 4% Rule
Old 10-13-2003, 06:27 AM   #43
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Re: 4% Rule

The ultimate x% of portfolio is to build a portfolio with a current SEC yield of say- 4% - difficult to do today but I have/had(as of March 03) a 'hobby' portfolio of utilites,banks, REITS, food, converts, oils and other weird stuff yielding 4% when marked to market.

Real money(80-90%) is balanced index funds subject to endless SWR calculations and pondering( SEC yield in the 2.44 - 2.9% range this year).

The real world hasn't changed for us - keep fixed expenses low - and party(discressionary$) on the rest with SWR providing EMOTIONAL not mathimatical comfort based on history.

Life is finite and we plan to die broke- but since the future is unknowable - we are betting on history - somewhere above actual SEC yield and below SWR which is a lot of fun runnig different models.

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Re: 4% Rule
Old 10-13-2003, 08:02 AM   #44
 
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Re: 4% Rule

Why do you use the SEC yield instead of one of the other yeild numbers they list? Is it becaus eit's always the lowest yield and therefor the most cautious? Or is there some magic in that SEC number?
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Re: 4% Rule
Old 10-13-2003, 01:57 PM   #45
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Re: 4% Rule

No magic at all- its just what I read in fund statements. I don't even know how it's calculated.
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Re: 4% Rule
Old 10-13-2003, 03:24 PM   #46
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Re: 4% Rule

This discussion began with a question of could one use the peak value of 2000, to begin their withdrawal % in 2003. Many good posts provided interesting comments.

The x% withdrawal, periodic rebalancing are other methods for withdrawals.

Fircecalc, (if I understand correctly) uses historical data to arrive at a SWR based on certain parameters. These include the "worst" and "best" market years in any 30-40 year, etc time line. Can Firecalc (or other), show SWR for a period that EXcluded the worst (or best years)? For example what would Firecalc show for a SWR for a 30 year period begining in 1932 (after the market fall)?

This would be interesting info to look at. If memory serves me right, post 1929 Firecalc had WR over 7% for certain years. The RE homepage has the " Even Safer Withdrawal Rates" article as well.

Wondering if there is a range or band where SWR could be estimated (historically) based on market performance. Say, 3-6% range, with target 4% based on whether bull or bear.

Thanks
earlyout

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Re: 4% Rule
Old 10-13-2003, 10:58 PM   #47
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Re: 4% Rule

Quote:
Can Firecalc (or other), show SWR for a period that EXcluded the worst (or best years)? For example what would Firecalc show for a SWR for a 30 year period begining in 1932 (after the market fall)?
Actually, Firecalc considers all possible contiguous historical intervals for the number of years the user specifies. If you consider a 30 year interval, then it starts with 1871 to 1901, then 1872 to 1902, etc. If you look at the detailed print out, it will tell you the end result for each period it considered.

So if you want to do the kind of analysis you are talking about, you can run the simulation repeatedly while increasing the initial withdrawal rate and examine the results as specific 30 year intervals fail. The problem intervals will depend both upon the number of years you choose to consider as well as the equity/fixed ratio you choose.
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Re: 4% Rule
Old 10-13-2003, 11:04 PM   #48
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Re: 4% Rule

Quote:
Just wondering, am I the only one with a portfolio worth more today than in 2000? *This discussion is kind of moot for me. *I retired in 2002 and added to my portfolio in 2000, 2001, & part of 2002. *But, even without the additional investments, my portfolio has grown a little from 2000. *After a little over a year of retirement, my withdrawal rate is essentially 0%. *Can't get much safer than that. * 8) :
I have the same experience, GDER. I worked till April 2003 and invested enough of my income during 2000 - 2002 that my portfolio never really declined significantly. My net worth bounced along at approximately the same level for about 3 years and has risen dramatically this year. I have never tried to figure out what the value of my pre-March 2000 investments are worth.
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Re: 4% Rule
Old 10-13-2003, 11:19 PM   #49
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Re: 4% Rule

Quote:
Just wondering, am I the only one with a portfolio worth more today than in 2000? *
Good point. My total annualized IRR was 1.5% per year from 3/2000 until 9/2003. So I too am slightly up overall.
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Re: 4% Rule
Old 10-14-2003, 03:56 AM   #50
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Re: 4% Rule

Quote:
Fircecalc, (if I understand correctly) uses historical data to arrive at a SWR based on certain parameters. These include the "worst" and "best" market years in any 30-40 year, etc time line. Can Firecalc (or other), show SWR for a period that EXcluded the worst (or best years)? For example what would Firecalc show for a SWR for a 30 year period begining in 1932 (after the market fall)?
You can always just define "safe" as some percentage less than 100%, and let Firecalc figure out the rate that would get you there; that would ignore some of the worst years.

Ignoring some of the best years isn't possible currently, but it would not provide useful information anyway, as Firecalc only looks at the number of failing periods as a percentage of total periods, not at the magnitude of those results. (The only exception is the average ending balance, which I consider an almost totally meaningless figure.)

If your interest is in excluding "ancient" history on the premise that post-depression legal and market changes have made pre-depression conditions irrelevant, there are a couple of ways to test your ideas. First, of course, you can run Firecalc's "detail" version, copy the data into Excel, and explore the numbers to your heart's content.

That approach is best, as it lets you really look at the trends affecting your results. It has one big problem though -- to make even a slight change in your starting conditions, you have to rerun, redownload, and so forth.

For those who really want to do this, I added a custom version that will allow you to ignore the years before whatever year you believe represents the beginning of our relevant history. (Actually, I restored this feature for this special version. It was previously in Firecalc, but I took it out. It confused LOTS of people, and was only useful if you really wanted to explore these issues.)

Look at http://early-retirement.org/fire/latestart.asp if you want to play around with it.

This is the same calculator, but it ignores starting years earlier than the year you enter in the box just above the bottom of the form.

Dory36
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Re: 4% Rule
Old 10-15-2003, 04:30 PM   #51
 
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Re: 4% Rule

The topic of SWR usually transgresses into very complicated forumulas, and soon leaves the real world.

I would guess that anyone that had computed an SWR with the assitance of NASA and MIT Graduates would make some changes once they saw their portfolio plunge 40% by a bear market.

The whole idea of a fixed withdrawal amount over 35 years is ridiculous. It's good for basic planning purposes, but does anyone actually believe that someone would start out in the year 2000 or 2003 with a SWR of 3.8% and stick to this number for 35 years?
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Re: 4% Rule
Old 10-16-2003, 03:44 AM   #52
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Re: 4% Rule

Cut throat,

Thank you your point is well taken. Too precise planning can get you into an endless loop. That said, to get where you want to be you need a plan. having an understanding of historical returns, asset allocation , etc gets you going. I have taken a number of road trips, you have a destination and a route to get you there. You still encounter detours, side trips, breakdowns, etc. even with the best of plans. Not unlike investing.

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Re: 4% Rule
Old 10-16-2003, 04:19 AM   #53
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Re: 4% Rule

Quote:
The topic of SWR usually transgresses into very complicated forumulas, and soon leaves the real world.

I would guess that anyone that had computed an SWR with the assitance of NASA and MIT Graduates would make some changes once they saw their portfolio plunge 40% by a bear market.

The whole idea of a fixed withdrawal amount over 35 years is ridiculous. It's good for basic planning purposes, but does anyone actually believe that someone would start out in the year 2000 or 2003 with a SWR of 3.8% and stick to this number for 35 years?
As with much of life, we measure with a micrometer, mark with a lumber crayon, and cut with an axe!

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Re: 4% Rule
Old 10-16-2003, 11:43 AM   #54
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Re: 4% Rule

Quote:
The topic of SWR usually transgresses into very complicated forumulas, and soon leaves the real world.
I swear at no time during this discussion did my body leave this world -- nor did I leave the atmosphere of earth. But if others did, I would like to hear about it.

Quote:
I would guess that anyone that had computed an SWR with the assitance of NASA and MIT Graduates would make some changes once they saw their portfolio plunge 40% by a bear market.
Although to my knowledge, no NASA or MIT Graduates were involved in my own financial planning, I confess to making changes to my plans regularly. Discussions like the one in this thread often lead me to other ways of thinking about things and actually prompt those changes. I hope my plan keeps getting better as I learn, but I would be hard pressed to prove it to anyone.

Quote:
The whole idea of a fixed withdrawal amount over 35 years is ridiculous. It's good for basic planning purposes, but does anyone actually believe that someone would start out in the year 2000 or 2003 with a SWR of 3.8% and stick to this number for 35 years?
I don't think anyone believes or suggests fixed withdrawal over 35 years is likely to happen. But as you point out, it may be an excellent starting point for your plan.

I've had to plan and coordinate a number of long-term, large project budgets over the years. (Thanks to RE, I only have to do this for myself now). The linear budget with time has almost always been the starting point. If you can't buy all the capital and pay for all the labor you need in the allotted time, then the budget just won't work. Distribution of those expences in a linear fashion is a first cut budget, and if that looks like it could reasonably be accomplished, then there is almost certainly a way to complete a more serious and realistic allocation of resources that fluctuates month-to-month.
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Re: 4% Rule
Old 10-16-2003, 07:37 PM   #55
 
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Re: 4% Rule

Quote:
I'm not sure why some of you have focused on correlation and decided that it is bad. Correlation is, in fact, one of the strengths of a historical calculator -- not a weakness. The financial data (investment returns, inflation etc.) for a given year is highly correlated, not only to itself, but to the financial data and events of previous years. This correlation is important, but so complex as to be nearly impossible to understand and predict. The complexity of this correlation is one of the key reasons why Monte Carlo simulations so badly underestimate safe withdrawal rates. By using historical data in correct chronological order, we are guaranteed to include the complex data correlations without understanding the underlying causes for it or having to describe those correlations mathematically.


Sounds a bit over the top to me.
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Re: 4% Rule
Old 10-16-2003, 10:49 PM   #56
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Re: 4% Rule

Quote:
Sounds a bit over the top to me.
I guess the bar at the top is different heights for different people.
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Re: 4% Rule
Old 10-17-2003, 07:15 AM   #57
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Re: 4% Rule

As I noted previously, FIRECalc's output tends to be weighted towards the years in the middle of the period of analysis. This weighting effect does not make any difference if a person is looking for the absolute worse case historical scenario, but it makes some difference if they are looking for an investment strategy that would have been successful in anything less than 100% of past periods.

My educated guess is that the stock market of the future has less risk of "crashing" the way that happened during the 1930's (because of greatly improved monetary policy) but that the long-term total return will be less (for fundamental economic reasons).

These changes can be addressed in using FIRECalc by (1) exaggerating the "expense ratio" on investments (which has the effect of reducing the total return) but (2) feeling comfortable with a "probability of success" of less than 100%.

All of this is great for planning an approximate allowable spending rate, but in the real world most people have periodic large expenditures such as automobiles and vacations. Logically, they tend to make these large expenditures when the stock market is "up" and they are feeling wealthy. But illogically, many of them pay for these expenditures by liquidating assets other than stocks. If everybody did a better job of keeping their asset allocation in balance, it would reduce the volatility of the stock market and associated business cycle.
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Re: 4% Rule
Old 10-17-2003, 07:37 AM   #58
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Re: 4% Rule

... less risk of "crashing" the way that happened during the 1930's

Let's hope so.
Anybuddy care to predict end-of-Oktober?
End-of November?

http://home.golden.net/~pjponzo/Oktoberfest.htm
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Re: 4% Rule
Old 10-18-2003, 07:08 AM   #59
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Re: 4% Rule

Quote:
[i]
Anybuddy care to predict end-of-Oktober?
End-of November?

http://home.golden.net/~pjponzo/Oktoberfest.htm
Considering the long-term trend in the real return of the stock market, it is about "on track" now after having slightly over-retracted from the "bubble" that extended from about 1997 to 2000. Long term, I expect the real return on large cap stocks to be maybe 5.5% to 6% and on small cap stocks to be maybe 6.5% to 7%.

While I believe that stock prices have this upward bias, neither I nor anyone can predict what prices will do in the short term. On Oct 17, I said that I think there is less risk of the market crqashing the way that it did inb the 1930s. That was a protracted crash associated with a collapse of the real economy, and I consider a repeat of that to be less likely because of numerous government programs (such as Federal Deposit Insurance) and policies (such as Federal Reserve adding liquidity) that were not in place in the 30's.

There certainly still is a significant chance of a short-term "crash" of the typed that occurred in October 1987. In fact, the chances of it being triggered by a terrorist event are probably greater. But the people who were hurt by that were day traders and people with stock on margin. For long-term investors of the type that retirees should be, it was just another short-term fluctuation. The bottom line is that I'm modestly increasing my allocation to stocks in my portfolio now that the economy appears to be recovering and stocks are fairly valued relative to bonds.
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Re: 4% Rule
Old 10-18-2003, 01:45 PM   #60
 
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Re: 4% Rule

Ted,

I'm doing just the opposite.

After the 2000 point runup of the Dow, I reduced my Stock Holdings to 50% Stocks and 50% Cash in late August. I think the U.S. economy is not creating jobs fast enough. Here is the take on the market from Templeton.

http://www.heraldtribune.com/apps/pb...0140464&Ref=AR
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