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Old 05-26-2014, 01:42 PM   #21
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Although the data is not presented in the studies, you can use the same simulation methodology (e.g. with FIRECALC) but change the success criteria. I.e., define success as having > X% of the initial portfolio value after 30 years.
Can you add a target of having 100% in your portfolio after 10 years (100% in real terms, not nominal)? I can't find such an option in firecalc.

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Another alternative is to simply extend the number of years you run the simulation in FIRECALC or alternative program.
The issue is that I want to simulate a very long period (50+ years), and that means you'll be using a very limited dataset (1964 is the latest start date!). I think a better proxy is then simulate several 10 year returns and see which ones end up at least as high as your initial portfolio in real returns.

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What are your confidence bounds around the 20%? Is it narrow (e.g. 18-22%) or wide (5-50%)?
I didn't simulate, so there is no confidence bound in a statistical sense. I simply took historical 10y real returns with a CAPE above 25 and then counted the ones the returned 4% or more (20% of them, 16 of the 79 periods). The returns vary quite a bit: from -5% p.a. up to 6% p.a. or so. It seems pretty evenly spread between that interval (didn't check in detail yet).

So quite wide, but on average not so good (0% is the average)

I've thought in the mean time though it might be a better approach to look at returns not strictly above a CAPE of 25, but more around a CAPE of 25.

The results look nicer: If you look at CAPEs of say between 22 and 29, you'll have 40% of the periods with a 4% real return or higher (22 out of 58 observed periods). Still not stellar, but less doom & gloom.

And as I said, the analysis is a bit rough right now, if there is appetite I can polish and clean it up a bit and include more recent data
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Old 05-26-2014, 01:49 PM   #22
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At 34 ER wasn't even on my radar screen. If you don't have a small fortune, aren't you getting ahead of yourself here?
Roughly about $800k saved up. Annual burn rate roughly $30k or so.

In other words, 3.7% post-tax.

Most of it is from a job I quit three years ago, so my earning potential is drastically dropping as time marches on. Been planning for FI since very early on.
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Old 05-26-2014, 01:56 PM   #23
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Hmmm - Layed off age 49, 1993 - lived really cheap in Louisiana swamp - did some temp work - small non cola pension in 1998 - wiped out house wise 2005/Katrina - married a widow in Kansas 2012 with pension/401k.
That's some roller coaster you got there, and still it ends up ok for you, amazing!

You seem to be a great demonstration of some profound life wisdoms
* Stay flexible
* Marry the right person
* Enjoy the present
* Learn how to live in a swamp

That last one is new for me
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Old 05-26-2014, 02:11 PM   #24
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Swamps also have fauna that help reduce your food budget. I can think of fish, crawdads, alligators, nutria, etc... Some edible flora too, probably, but I do not know much about that.

Out here in the desert, we just cannot live off the land like that (eating cactus?).
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Old 05-26-2014, 02:14 PM   #25
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Going a bit off-topic, but can you actually eat (not to mention safely catch) an alligator?

How does that work?
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Old 05-26-2014, 02:21 PM   #26
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Going a bit off-topic, but can you actually eat (not to mention safely catch) an alligator?

How does that work?
You need to get out from behind that spreadsheet and live a little. Google 'fried alligator'...
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Old 05-26-2014, 02:26 PM   #27
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Going a bit off-topic, but can you actually eat (not to mention safely catch) an alligator?

How does that work?
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You need to get out from behind that spreadsheet and live a little. Google 'fried alligator'...
+1

I've had alligator in chili, chowder, tacos, and quesadillas. Doesn't taste like chicken.
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Old 05-26-2014, 02:29 PM   #28
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And wash that down with some moonshine.

I still do not know about alligator tasting like chicken or not, but did learn that moonshine was no Cognac.
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Old 05-26-2014, 03:37 PM   #29
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I am 36, so we're about the same age. In my investment plan, I use a 3% real return assumption, even though my AA has historically returned about 4.5-5% (based on historical return and inflation). With this return, and my savings rate, no SS factored in, and my pension, FIRECalc shows 100% spending a fixed amount from 42 until 95 (the amount comes out to about 3.5% of my starting value).

Until that changes, I'm not going to sweat market conditions too much. Talk to me again in 2019!

Of course, the T Rowe Price calculator shows me more than $5,000 per month short because they think I need $14,500 per month to maintain my standard of living. There have been two months in my life where I've approached that spending number: my wedding and my 2.5 week honeymoon to Australia/Fiji. :-)

Long story short: make conservative assumptions. If your math is based on everything being perfect, you're not going to sleep well in retirement anyway!
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Old 05-26-2014, 07:58 PM   #30
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We have a joint life expectancy of 50 more years. We have 35x expenses saved up (not including any Social Security in 20 years.) That's got to be enough.
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Old 05-26-2014, 08:03 PM   #31
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You need to get out from behind that spreadsheet and live a little. Google 'fried alligator'...

People here in Louisiana eat all kinds of things. I've eaten alligator a few times, it's ok. I wouldn't drive outta my way for it, but it's ok. Same with crawfish, although I do like it more than 'gator, and will join in with friends & family if somebody's throwing a crawfish boil, like my daughter & her husband did when she graduated college a couple of yrs ago. Don't have any plans to eat nutria. Just a big rat.
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Old 05-26-2014, 08:56 PM   #32
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Can you add a target of having 100% in your portfolio after 10 years (100% in real terms, not nominal)? I can't find such an option in firecalc.
I think you have to export the data as an excel file and than manually tabulate the results.


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The issue is that I want to simulate a very long period (50+ years), and that means you'll be using a very limited dataset (1964 is the latest start date!). I think a better proxy is then simulate several 10 year returns and see which ones end up at least as high as your initial portfolio in real returns.
I also prefer not to use very long runs in Firecalc for the same reason.

Quote:
I didn't simulate, so there is no confidence bound in a statistical sense. I simply took historical 10y real returns with a CAPE above 25 and then counted the ones the returned 4% or more (20% of them, 16 of the 79 periods). The returns vary quite a bit: from -5% p.a. up to 6% p.a. or so. It seems pretty evenly spread between that interval (didn't check in detail yet).
One problem with using rolling/overlapping periods is that it inflates the number of data points (compared to using completely separate periods). You can see that in the graph as there are "lines" in the way the points are distributed. I don't think there is a good statistical solution to this dependence and I don't believe MC methods can help here either.


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And as I said, the analysis is a bit rough right now, if there is appetite I can polish and clean it up a bit and include more recent data
I think this board loves to see graphs and analysis, so I'm sure it would be welcome.
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Old 05-27-2014, 12:43 PM   #33
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Ok, just to clarify on the alligator issue: I do get out sometimes

Have eaten crocodile in Kenya, and the occasional deer and such. Couldn't stomach spiders & crickets though.

Was just wondering how to actually catch a wild alligator without getting injured, and whether it was legal to do so. Apparently it's not legal unless specificallly bred for it i've learned in the mean time ..

Have started to look around here in Amsterdam to see if I can get my hands on some gator meat .. it should be possible. I'm curious now
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Old 05-27-2014, 12:56 PM   #34
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Was just wondering how to actually catch a wild alligator without getting injured, and whether it was legal to do so. Apparently it's not legal unless specificallly bred for it i've learned in the mean time ..
I think you are misinformed. Here in Texas all you need is a hunting license ....and some low-lying swamp land.

Here are the regs, including information on how to catch them:

Hunting Alligators in Texas: Rules, Regulations and General Information - Texas Parks and Wildlife Department
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Old 05-27-2014, 12:57 PM   #35
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+1

I've had alligator in chili, chowder, tacos, and quesadillas. Doesn't taste like chicken.
Yes not even close to chicken. I think it has an aquatic taste, not like fish, shrimp, or uni. More like turtle.
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Old 05-27-2014, 01:07 PM   #36
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I think you have to export the data as an excel file and than manually tabulate the results.
I found a decent approximation in firecalc: use the "percentage of remaining portfolio" with remainder set at 100%. That'll work quite well.

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One problem with using rolling/overlapping periods is that it inflates the number of data points (compared to using completely separate periods). You can see that in the graph as there are "lines" in the way the points are distributed. I don't think there is a good statistical solution to this dependence and I don't believe MC methods can help here either.
You are right, no easy solution. This is going to sound weird to some folks, but there just isn't enough data to work with. In any case, in many ways we are looking at the outcome of a process no-one really understands in a fundamental way, so it's dangerous to extrapolate to the future. Still, you have to work with some assumptions .. both in theory and practice.

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I think this board loves to see graphs and analysis, so I'm sure it would be welcome.
Thanks for the encouragement! Thinking about refining the thing and launching a small web app that gives back total 10y return when starting from a given CAPE-range. Could be a nice hobby project.

What I'm trying to establish is whether somehow there is a strong relation between yield (earnings / price) and returns, just like there is in bonds. I suspect there is, but with so much variability that it becomes useless as forecasting tool. Probably since stocks have a "forever" duration.

I'm just wondering out of curiosity and because in the Intelligent Investor benjamin graham often refers to equity yield vs. bond yield as a yardstick to compare risk between asset classes.
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Old 05-27-2014, 01:14 PM   #37
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Thanks REWahoo, I learned something new today!

(Actually, something new which was wrong which I now have to forget and replace with something new which is right)

Pretty strict guidelines and a short hunting season it seems, guess that makes it expensive?
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Old 05-27-2014, 01:16 PM   #38
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You are right, no easy solution. This is going to sound weird to some folks, but there just isn't enough data to work with. In any case, in many ways we are looking at the outcome of a process no-one really understands in a fundamental way, so it's dangerous to extrapolate to the future. Still, you have to work with some assumptions .. both in theory and practice.
Life is a much more important random process that has no guarantee. Forever a pessimist, yet I was reminded again recently that one cannot really extrapolate the perfect health of his first 56 years of life into the future. Yes, there's a correlation between good life habits and health, but it is not 1:1.

So, why worry so much about money? It's just... money! Do the best you can, and enjoy life. I still care about money, no I love it and look at my stocks all the time, but it's my health that is the much larger and more important uncertainty.
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Old 05-27-2014, 01:24 PM   #39
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Pretty strict guidelines and a short hunting season it seems, guess that makes it expensive?
Alligators were on the US list of endangered species until 1987, so that may be one of the reasons for all the restrictions.

As to expense, I have no idea as gator hunting isn't one of my hobbies. I grew up in gator country, spent a lot of time fishing and became very aware of the importance of maintaining a safe distance from the snake population. I have no interest in tangling with another water moccasin - ever.
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Old 05-27-2014, 01:56 PM   #40
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People here in Louisiana eat all kinds of things. I've eaten alligator a few times, it's ok. I wouldn't drive outta my way for it, but it's ok. Same with crawfish, although I do like it more than 'gator, and will join in with friends & family if somebody's throwing a crawfish boil, like my daughter & her husband did when she graduated college a couple of yrs ago. Don't have any plans to eat nutria. Just a big rat.
When we lived in Louisiana a local chef had nutria on the menu for a while. Of course I had to try it and it was okay, but not as nice as alligator. Nutria may look like a big rat but their eating habits are quite different as they are vegetarian.
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