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Old 02-11-2011, 12:47 PM   #41
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Originally Posted by REWahoo View Post
Yep. Ultimately it comes down to what each of us thinks.
Ain't that the truth!

Sometimes I'm almost persuaded by the Slice & Dicers, and think that I might shave equity volatility with broad diversification. Then I read compelling arguments for lower equity returns going forward. Then wbern makes the case for lower bond returns than in the past century. But now we have TIPS!!!...
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Old 02-11-2011, 12:52 PM   #42
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Originally Posted by Cb View Post
Sometimes I'm almost persuaded by the Slice & Dicers, and think that I might shave equity volatility with broad diversification. Then I read compelling arguments for lower equity returns going forward. Then wbern makes the case for lower bond returns than in the past century. But now we have TIPS!!!...
You failed to mention precious metals, real estate, beever cheeze futures or variable fixed universal annuities....
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Old 02-11-2011, 02:30 PM   #43
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Originally Posted by ERD50 View Post
FIRECalc: A different kind of retirement calculator

FIRECalc: A different kind of retirement calculator



So at the 10 year mark, with 80% EQ, your roller coaster has dipped from $1M to $410K.

And the 40% EQ/60% Bonds has had this gentle lazy-river-ride, down to... $431K! Not much difference, really.

-ERD50
I see where it says that on the output page, but when I download the spreadsheets I got very different results. Here are the statistics that you get from the data runs:

40/60 Portfolio
Min: $673,773
Max: $2,523,544
Median: $1,116,622


80/20 Portfolio
Min: $420,491
Max: $3,401,034
Median: $1,211,549
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Old 02-11-2011, 02:46 PM   #44
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40/60 Portfolio
Min: $673,773
Max: $2,523,544
Median: $1,116,622


80/20 Portfolio
Min: $420,491
Max: $3,401,034
Median: $1,211,549
This is much more in line with my expectations.
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Old 02-12-2011, 10:34 PM   #45
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Originally Posted by Gone4Good View Post
I see where it says that on the output page, but when I download the spreadsheets I got very different results. Here are the statistics that you get from the data runs:

40/60 Portfolio
Min: $673,773
Max: $2,523,544
Median: $1,116,622


80/20 Portfolio
Min: $420,491
Max: $3,401,034
Median: $1,211,549
Well that is perplexing.

The graphs and numbers in the text output on the page seem to match. But I looked at the spreadsheets and saw the same as you did.



Let's look at the 80% equity, 10 year output - (bold mine) -

Quote:
Here is how your portfolio would have fared in each of the 130 cycles. The lowest and highest portfolio balance throughout your retirement was $409,965 to $2,998,126, with an average of $1,380,437. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

Open an (unformatted) Excel spreadsheet showing the inflation-adjusted end-of-year portfolio balances for every year in each of the cycles tested by FIRECalc. Open a spreadsheet showing the year by year inputs, data, and formulas for the cycle beginning in 1960
And the 40% EQ, 10 year output -

Quote:
Here is how your portfolio would have fared in each of the 130 cycles. The lowest and highest portfolio balance throughout your retirement was $430,536 to $2,037,575, with an average of $1,116,454. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
I always took those two bold phrases to be an awkward wording of the same thing; 'in terms of' meaning 'inflation adjusted' . Since the whole point of FIRECALC is to show your inflation adjusted portfolio performance, the graph must be in inflation adjusted dollars, right? And the graph matches the text (as close as I can determine by eye - which is not too hard with the ten year cycles).

Could this possibly mean the graphs are not inflation adjusted (that just doesn't seem right), and the SS is? But could that explain the difference?

Maybe I'm just bleary-eyed at this point, and I'm missing something obvious. FIRECALC has always showed a pretty flat success % response to wide changes in AA, so those numbers were making sense to me. I know 'success' is different than volatility, but I'm pretty sure there would be a lot of correlation - nasty swings down would lead to failures unless you really had some 'just right' data where the swing was real low and then recovered. But a slight change in WR would drive those to failures.

Once again -

-ERD50
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Old 02-13-2011, 02:12 PM   #46
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Once again -
Yup.

The only thing that is clear to me is that the Excel spread sheet has data that is different from what is displayed on the output page. Here are copies of the graph that FIRECalc produces and one that I generated with the Excel data (using the same axis scale to ease comparisons). These aren't the same data sets.

Long ago I recall playing with the spread sheet data and came to the conclusion that it wasn't inflation adjusted. That may very well explain the difference. The minimum balance in the chart I produced occurs in year 4 at $420K. If you go back to the data and locate that point, it is year 4 of a retirement beginning in 1929. Deflation would have made your portfolio worth more in real terms, which may be why you don't see those same low balances in the FIRECalc chart.
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Old 02-13-2011, 02:34 PM   #47
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Long ago I recall playing with the spread sheet data and came to the conclusion that it wasn't inflation adjusted. That may very well explain the difference. The minimum balance in the chart I produced occurs in year 4 at $420K. If you go back to the data and locate that point, it is year 4 of a retirement beginning in 1929. Deflation would have made your portfolio worth more, which may be why you don't see those same low balances in the FIRECalc chart.
Thanks, I think that must be it. I saw the same year 4 of the 1929 run minimum, and deflation would explain that not being as low on the inflation/deflation adjusted chart.

So it looks like the only way to get these properly inflation adjusted numbers from FIRECALC is to do something along the lines of what I was doing, taking snapshots at 5 year periods, and maybe zooming in on anything interesting in between. Kinda crude, but probably close enough since the future is a crap-shoot anyway!

As a partial answer to REWahoo's gut feel - sure, you can pick a point where the high stock AA will take a more dramatic dip than a low stock AA (lots of points actually, any steep stock decline period). But when you look at a longer time period, those stocks were typically on a rise before the fall, so a long term B&H/re-balancer would have been up significantly before the fall, so the fall doesn't dip as low.

To think other wise (in general) means that stocks don't out-perform bonds in the long run, and that isn't likely. Or, another way to look at it is, yes, stocks have more volatility, but a relatively steeper upward bias still tends to keep those dips from being as low as they would otherwise.

Whew, I was ready to rebalance there to 40%, glad to have this thought out some more before I jumped!

-ERD50
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Old 02-13-2011, 02:54 PM   #48
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I looked at the single year Excel spreadsheet which has columns labeled "Ending Portfolio" and "Infl Adj End Portfolio".

For the one year I checked, the numbers in the other Excel spreadsheet (the one that has one row per beginning year) matched up with the "Ending Portfolio" (non-inflation adjusted) column.

I think the top line on the graph, the purple one that ends $1.4 $1.8 $2.5 $2.3 $2.1 seems to match up with the inflation adjusted values for start year 1921.
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