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Re: Actively managed funds have + alphas in the worst of times
Old 09-12-2006, 09:55 PM   #21
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Re: Actively managed funds have + alphas in the worst of times

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Originally Posted by Hydroman
So where do you have the other 75% of your portfolio invested? By not wanting to be involved in the "game" does that mean you intend on not exceeding the 25% stock allocation for the duration of your retirement or are you just timing the market? What was your starting withdrawal rate as our percentage of your total portfolio before application of your formula for future years? What is the percentage right now after applying your formula (I assume you have ERed and have actually implemented your plan).
Bond funds, money mkt funds. Yes will stay at 25% - I tried various algorithms that allocated more to stocks after a down year, less after an up year, but surprisingly they didn't come out as well. Starting withdrawal is a specific amount based on past spending not a %. The withdrawal as % of portfolio is not relevant for this approach. And I'm just starting this plan (6 months), though have been ERed for a few years.
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Re: Actively managed funds have + alphas in the worst of times
Old 09-12-2006, 10:21 PM   #22
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Re: Actively managed funds have + alphas in the worst of times

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Originally Posted by timo
Haven't run it against historical yearly data, though I do utilize some historical data as guidance. I use a Monte Carlo simulation over 40 years, where the stock market returns are normally distributed random values with a mean of 7% (i.e. average 7% yearly return over 40 years) and a standard deviation of 18% (that last is supposedly the historical s.d. for the overall market). By the way sorry for all the OT posts. (But you did ask.)

It runs for 100 trials and reports average/best/worst outcomes. So, using actual historical data would be like just running 1 trial, which at least for me would not inspire confidence. (Not that any prediction method really inspires confidence.)
How do you model inflation? Or is that 7% return assumed to be real, and you leave inflation out of your model?

As you can see, we are interested in your idea.*

Ha
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Re: Actively managed funds have + alphas in the worst of times
Old 09-12-2006, 11:57 PM   #23
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Re: Actively managed funds have + alphas in the worst of times

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Originally Posted by timo
The withdrawal as % of portfolio is not relevant for this approach. And I'm just starting this plan (6 months), though have been ERed for a few years.
It is relevent depending on the specific dollar amount you require to support your needs and lifestyle expected during retirement. There has to be some point of relevancy unless you are claiming that a 50% withdrawal rate is not relevent because you have found the holy grail.. Yes we are interested in how your system works and on what basis your withdrawal as a percentage of portfolio is not relevant whether or not it is part of your formula.
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Re: Actively managed funds have + alphas in the worst of times
Old 09-13-2006, 07:21 AM   #24
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Re: Actively managed funds have + alphas in the worst of times

Timo:

You may feel a little under fire here but the questions are not intended to antagonize. You introduced a novel withdrawal algorithm and naturally many of us are curious about how, and if, it works. We have the basic ongoing withdrawal setting approach including the up/down limits. But the starting amount is critical - that is why we are interested in what it is as a percent of the starting portfolio. It can't be irrelevant as you state as can be seen if you imagine starting at a high amount (e.g. 10% or even 50% like Hydro suggested).
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Re: Actively managed funds have + alphas in the worst of times
Old 09-13-2006, 11:02 AM   #25
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Re: Actively managed funds have + alphas in the worst of times

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Originally Posted by donheff
Timo:

You may feel a little under fire here but the questions are not intended to antagonize. You introduced a novel withdrawal algorithm and naturally many of us are curious about how, and if, it works. We have the basic ongoing withdrawal setting approach including the up/down limits. But the starting amount is critical - that is why we are interested in what it is as a percent of the starting portfolio. It can't be irrelevant as you state as can be seen if you imagine starting at a high amount (e.g. 10% or even 50% like Hydro suggested).
Well the starting amount as % of portfolio is actually not relevant - it does not appear anywhere in the algorithm. But the amount itself is of course critical, as are other parameters. My input parameters are: average market gain, average market std. dev., interest rate, inflation rate, tax rate, starting total assets, stock allocation. Output parameters are average/high/low (across 100 trials) of: inflation-adjusted ending withdrawal amount, loss/gain relative to initial withdrawal, ending total assets, and a few other less important measures.

Clearly using a fixed interest rate assumption (I'm using 5%) over 40 years is oversimplifying - but trying to use a random distribution for interest as well as stock mkt would make the whole model too complex for me. The same applies to inflation rate (using 3%).

My starting withdrawal happens to be about 3% of total assets. But this is coincidence. It may well be that the model would not give good results (i.e. worst case trial ends up millions of dollars in the red) if the starting withdrawal was a much higher pct. In that case you'd have to adjust the starting withdrawal, along with stock allocation pct, to see if good results are possible. But for my purposes I kept starting withdrawal as a fixed value, and varied other parts of the model to get the best result.

If anyone's really interested in looking at it in detail, maybe I could put up a simple web page. (Of course, being ERed, this might start to seem like work...)

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Re: Actively managed funds have + alphas in the worst of times
Old 09-13-2006, 11:20 AM   #26
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Re: Actively managed funds have + alphas in the worst of times

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Originally Posted by timo

If anyone's really interested in looking at it in detail, maybe I could put up a simple web page. (Of course, being ERed, this might start to seem like work...)
Yes, I think many of us would be very appreciative of it. You would also get the benefit of critque from many of the "experts" here. Suggest we start a new called "Timo's Algorithm". We have definitely steered off the original topic here. There are many members of this forum who will be interested but are not participating because it is buried under this topic hearding.

By the way what age did you ER?

Thanks
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Re: Actively managed funds have + alphas in the worst of times
Old 09-13-2006, 11:52 AM   #27
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Re: Actively managed funds have + alphas in the worst of times

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Originally Posted by Hydroman
Yes, I think many of us would be very appreciative of it. You would also get the benefit of critque from many of the "experts" here. Suggest we start a new called "Timo's Algorithm". We have definitely steered off the original topic here. There are many members of this forum who will be interested but are not participating because it is buried under this topic hearding.

By the way what age did you ER?

Thanks
OK will publish it somehow, and yes getting a critique and possibly having bugs pointed out would be most helpful. I ERed at "about" 52 - I say about because I had a software business for many years that did well but finally petered out, so there was no specific retirement date and it was not really by intention.
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