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a 3% rule?
Old 03-31-2007, 01:50 PM   #1
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a 3% rule?

an intersting read on how the "other half" lives ...
Over time and as a general rule, Tiger 21 members say they have learned that spending 3% of assets annually to live is the maximum one can spend each year before stressing one's portfolio and tilting it towards short-term income over long-term gains.
And, they say, holding 9% of assets in cash allows them to withstand three years of market distress without having to liquidate long-term holdings at unnecessary losses.
It's interesting to note the conservative nature of this asset allocation, especially given the increased weighting toward private equity investments. The data seem to show that while these high-net-worth investors are only willing to shave off 3% of their portfolio for living expenses (at $10 million, let's say that's $300,000 a year), yet they are willing to increase their exposure to what seems like riskier investments: hedge funds and private equity instruments.

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Re: a 3% rule?
Old 03-31-2007, 03:53 PM   #2
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Re: a 3% rule?

These people are probably planning on keeping their assets high forever -- not just one or two lifespans. That reduces the withdrawal rate.

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Re: a 3% rule?
Old 03-31-2007, 05:25 PM   #3
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Re: a 3% rule?

It appears they are using a reduced withdrawal rate due to higher portfolio volatility from a low fixed income allocation plus illiquid private investments.
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