Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Old 08-16-2014, 11:26 PM   #41
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
Join Date: Oct 2006
Posts: 7,427
Originally Posted by pb4uski View Post
Good info. Thanks.

So if one had a $1 million 60/40 portfolio, then the cost of the hedge would be ~$20k a year ($76,500/2.375 years from mid Aug 2014 to Dec 2016*60%) or about 200 bps.

Let's say the 2% reasonable reflects the cost of the option on the 60% equity value. The question then becomes whether it is worth giving up 2% a year for the first 5-10 years of retirement to "insure" against sequence of returns risk. I suspect that some conservative members would make that trade-off. While I'm comfortable with the risk, it might be better than going all fixed income like some who are more conservative seem to prefer.
I think under normal circumstance I'd like ERD simply lower your AA. However, it today environment with bond prices arguably even more over valued than equities, it seems like a reasonable strategy. Certainly one that at macro level makes sense.

It's possible that stocks could return >50% over the next five year, but a -30 or -40% is also possible. I think bonds are very unlikely to return much over 15% and are equally likely to have -20% (all numbers real returns.)

The VIX at 13 is well below normal levels this makes portfolio insurance pretty cheap relative to historical levels.

I wonder if you could safely raise your withdrawal rate to 5 or even 6%, if we could eliminate a more than 10% loss over a 2 year period...

It seems like really interesting question for some graduate student to answer...

clifp is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


All times are GMT -6. The time now is 12:02 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.