Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-03-2014, 11:20 AM   #21
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,072
Quote:
Originally Posted by Lsbcal View Post
Maybe in my dotage I'll consider a mix of balanced funds like Wellington, Wellesley, and Dodge & Cox.
I was a big D&C fan until it fell prey to the lure of financial stocks in the run up to 2008. I recall it took a beating compared to the two Vanguard funds.
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo 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 Early-Retirement.org 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!

Old 01-03-2014, 11:21 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,318
NW, thanks for an interesting and sobering thread.
__________________

__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is online now   Reply With Quote
Old 01-03-2014, 04:42 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,389
Quote:
Originally Posted by audreyh1 View Post
Even though having a portfolio high in 30-yr treasuries may have held up well against withdrawals since 2000, I would NOT recommend that strategy today.
Quote:
Originally Posted by Lsbcal View Post
Yes, the rate decline since the 1980's will not be repeated.

Maybe growth at "almost" any price will be pushed by governments around the world. Just a guess.
Much of the gain in Treasuries is in principal appreciation, not due to the dividend. And the only way for principal to appreciate some more is for the interest rate to go even lower, or for deflation to occur. What already happened was once in a lifetime perhaps, not unlike the dotcoms of the late 90s.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-03-2014, 04:46 PM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,389
Quote:
Originally Posted by NW-Bound View Post
...

So, how could a 50/50 blend of VFINX+VUSTX be so bad? By just eyeballing the data, I could not see the reason. Do I doubt the results of FIRECalc?

Let me just say that I am putting the returns of these 4 funds into a spreadsheet I am building, and will report back on what I find.

Note: All numbers are in percent.

Year Wellesley Wellington -- VFINX -- --VUSTX-- Inflation
     
2000
16.17
10.40
-9.06
19.7
3.4
2001
7.39
4.19
-12.02
4.31
2.8
2002
4.72
-6.81
-22.15
16.67
1.6
2003
9.78
20.90
28.5
2.68
2.3
2004
7.70
11.34
10.74
7.12
2.7
2005
3.56
6.99
4.77
6.61
3.4
2006
11.39
15.07
15.64
1.74
3.2
2007
5.76
8.48
5.39
9.24
2.8
2008
-9.79
-22.23
-37.02
22.51
3.8
2009
16.14
22.34
26.49
-12.06
-0.4
2010
10.71
11.04
14.91
8.92
1.6
2011
9.74
3.95
1.97
29.27
3.2
2012
10.10
12.67
15.82
3.46
2.1
So, I have done what I said I would do, and some more. I have also resolved the apparent conflict between FIRECalc and my eyeballing of VUSTX.

It will take longer to prepare the tables for posting than it did for me to make the spreadsheet runs to check against FIRECalc and raddr's result. So, bear with me. Results will be shown shortly.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-03-2014, 05:38 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,389
First, I need to show the data I obtained off Vanguard site and Yahoo.

I will then use this data in a spreadsheet. The idea is to show performance of a theoretical balanced indexer la FIRECalc and other similar retirement calculators. I saw something there that bothered me, and I am the type who likes to overturn stones.

And then, I want to see performance of the passive indexer vs. Wellesley and Wellington share holders.

The annual returns of the following MFs are shown.

VUSTX: Vanguard Long-term Treasury
VTSAX: Vanguard Total Stock Market (US)
VFIAX: Vanguard S&P 500 Index
VWIAX: Wellesley Admiral
VWENX: Wellington Admiral

All numbers are in percent.
Year
VUSTX
VTSAX
VFIAX
VWIAX
VWENX
Inflation
2000
19.7
-9.06#
-9.06
16.17*
10.40*
3.38
2001
4.31
-10.89
-12.02
7.39*
4.19*
2.83
2002
16.67
-20.95
-22.15
4.72
-6.81
1.59
2003
2.68
31.42
28.5
9.78
20.9
2.27
2004
7.12
12.61
10.82
7.7
11.34
2.68
2005
6.61
6.09
4.87
3.56
6.99
3.39
2006
1.74
15.63
15.75
11.39
15.07
3.24
2007
9.24
5.57
5.47
5.76
8.48
2.85
2008
22.52
-36.99
-36.97
-9.79
-22.23
3.85
2009
-12.05
28.83
26.62
16.14
22.34
-0.34
2010
8.93
17.26
15.05
10.71
11.04
1.64
2011
29.28
1.08
2.08
9.74
3.95
3.16
2012
3.47
16.38
15.96
10.1
12.67
2.07
2013
-13.03
33.52
32.33
9.57
19.76
1.45**

Notes:

Admiral shares are used where available to reduce expense ratio.
#: N/A, and VFIAX is used for filler.
*: N/A. Normal shares (non-Admiral) are used for filler.
**: Data available only through Oct, and pro-rated through year end.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-03-2014, 05:41 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,455
Quote:
Originally Posted by REWahoo View Post
I was a big D&C fan until it fell prey to the lure of financial stocks in the run up to 2008. I recall it took a beating compared to the two Vanguard funds.
They recovered. And a banner 2013.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 01-03-2014, 06:02 PM   #27
Thinks s/he gets paid by the post
 
Join Date: Jul 2012
Location: Mississippi
Posts: 1,878
ezbacktest is a nice tool to backtest a fund portfolio.

Free Download: EzBackTest

Here's VFINX+VUSTX (40/60), it looks similar to VWINX
Attached Images
File Type: jpg vfinx-vustx.jpg (41.2 KB, 8 views)
__________________
rbmrtn is offline   Reply With Quote
Old 01-03-2014, 06:14 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
NW I am not sure if you are aware (I wasn't until today) that Raddr 25% fixed income allocation is not the default Long commercial interest rates by rather 90 day T-bills.

This makes the Y2K retiree portfolio look worse than I suspect it was for everybody.
__________________
clifp is offline   Reply With Quote
Old 01-03-2014, 06:18 PM   #29
Dryer sheet aficionado
 
Join Date: Jan 2013
Posts: 47
NW, great information. Whatever the results during the 'lost decades' my big takeaway is that the market falls off the cliff about every 35 years. That means, on average, we should be good for at least the next 16 - 21 years - until about 2030 - 2035. Woohoo!😄😄😄

I will definitely take your advice and adjust my port by then!
__________________
"It is not the man who has too little, but the man who craves more, who is poor" Senaca
Siestatime is offline   Reply With Quote
Old 01-03-2014, 06:25 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,389
Quote:
Originally Posted by rbmrtn View Post
ezbacktest is a nice tool to backtest a fund portfolio.

Free Download: EzBackTest

Here's VFINX+VUSTX (40/60), it looks similar to VWINX
Darn! It would have saved me a lot of work. But I am still glad I went through the exercise because I found a thing about FIRECalc that I did not know.

Quote:
Originally Posted by clifp View Post
NW I am not sure if you are aware (I wasn't until today) that Raddr 25% fixed income allocation is not the default Long commercial interest rates by rather 90 day T-bills.

This makes the Y2K retiree portfolio look worse than I suspect it was for everybody.
When I ran FIRECalc with all 4 fixed income options, I noted that the Commercial paper (short-term apparently) gave the poorest result, and it was reasonably close to Raddr's numbers.

Later, when I looked at FIRECalc result with 50% long treasury + 50% S&P, it bothered me that it looked worse than one would expect, just by eyeballing VUSTX + VFIAX.

Anyway, I have found the reason for discrepancy. Please stay tuned.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-03-2014, 06:31 PM   #31
Thinks s/he gets paid by the post
 
Join Date: Jul 2012
Location: Mississippi
Posts: 1,878
Quote:
Originally Posted by NW-Bound View Post
Darn! It would have saved me a lot of work. But I am still glad I went through the exercise because I found a thing about FIRECalc that I did not know.

Anyway, I have found the reason for discrepancy. Please stay tuned.
Your exercise will enlighten all of us.
__________________
rbmrtn is offline   Reply With Quote
Old 01-03-2014, 06:51 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,389
So, using the return and inflation data that I posted above, I used a spreadsheet to look at the performance of a retiree who retired right on Jan 2000, who withdrew 4%WR with COLA.

Our retiree would withdraw his COLA'd WR at the beginning of the year. He also rebalanced on Jan 1st.

I was able to run up to the end of 2013 with the following portfolio options.

100% Long-term Treas.
100% Total US Stock
100% S&P Index
100% Wellesley
100% Wellington
50/50 Blend of Total Stock & Long-term Treas
50/50 Blend of SP & Long-term Treas
75/25 Blend of Total Stock & Long-term Treas

All amounts are nominal dollars.
  
100%
100%
100%
100%
100%
50/50
50/50
75/25
Year End
Cumul. Infl.
COLA WR
VUSTX
VTSAX
VFIAX
VWIAX
VWENX
VTSAX/VUSTX
VFIAX/VUSTX
VTSAX/VUSTX
2000
3.38
40.00
1,149
873
873
1,115
1,060
1,011
1,011
942
2001
6.31
41.35
1,156
741
732
1,153
1,061
938
932
837
2002
8.00
42.52
1,299
552
537
1,163
949
876
865
703
2003
10.45
43.20
1,289
669
634
1,229
1,095
975
950
819
2004
13.41
44.18
1,333
704
654
1,277
1,170
1,023
988
862
2005
17.25
45.36
1,373
698
638
1,275
1,204
1,039
996
868
2006
21.05
46.90
1,349
753
684
1,368
1,331
1,079
1,032
920
2007
24.50
48.42
1,421
744
670
1,396
1,392
1,106
1,056
929
2008
29.29
49.80
1,680
437
391
1,214
1,043
980
934
684
2009
28.85
51.72
1,432
497
430
1,350
1,213
1,006
946
751
2010
30.97
51.54
1,504
522
435
1,437
1,290
1,080
1,002
805
2011
35.11
52.39
1,877
475
391
1,520
1,287
1,183
1,099
814
2012
37.90
54.04
1,886
490
390
1,614
1,389
1,241
1,146
860
2013
39.90
55.16
1,592
580
444
1,708
1,597
1,308
1,196
981


Observations:
  • Total Market was better than S&P, either in 100% equity or blended with Treasuries.
  • Wellesley was slightly better than Wellington, but that's because the last decade was the decade of bonds.
  • Both Wellesley and Wellington beat the 50/50 blend of Total Stock and 30-yr Treas. However, the latter does not look as bad as FIRECalc showed.
  • Cumulative inflation was 40%! Wellesley and Wellington kept up with it, but the passive balanced investor did not. Starting with $1M in Jan 2000, you must have $1.4M now to keep up with inflation.

But here's the most interesting point. At the end of 2011, FIRECalc shows that the 50/50 blend of Total Stock/Long Treas portfolio balance would be $714K in nominal dollars (see earlier post), while my spreadsheet shows $1183K. That's a big difference!

The answer to the $469K question is next.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-03-2014, 07:00 PM   #33
gone traveling
 
Join Date: Jun 2012
Location: Austin
Posts: 245
I sure do like how Wellington and Wellesley look! Thanks so much for working on this.
__________________
LakeTravis is offline   Reply With Quote
Old 01-03-2014, 07:15 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,389
Quote:
Originally Posted by Siestatime View Post
NW, great information. Whatever the results during the 'lost decades' my big takeaway is that the market falls off the cliff about every 35 years. That means, on average, we should be good for at least the next 16 - 21 years - until about 2030 - 2035. Woohoo!������

I will definitely take your advice and adjust my port by then!
Well, I am not sure if we can ever time anything so well. Sorry, but I did not imply anything about how the future will hold. This has been just an exercise to look back at the last 14 years, where we had two bad recessions, to see how different hypothetical portfolios would perform.

I think the lesson I myself took from this is that a balance approach is still the safest. And that some long-tenured MFs such as Wellesley and Wellington did manage to beat a passive index investor.

Well, I cannot help thinking that a index investor who could and would rebalance at an opportunistic moment, instead of my robotic spreasheet that does it on Jan 1st, would be able to match Wellesley or Wellington.

Additionally, it has been known that a mid-cap and value tilt would let one pick up a little bit more. This has been reconfirmed when we see how Total Market with the small and mid-caps beats S&P which is all large-cap.

PS. The 4% WR with COLA is still possible. Long live the 4%!

PPS. I am going to stick with 3.5% however. I want to make sure my portfolio will grow, even ever so slowly.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-03-2014, 07:20 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,318
Thanks. That cumulative 40% inflation over 13 years is a real eye opener.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is online now   Reply With Quote
Old 01-03-2014, 07:31 PM   #36
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
The numbers shown by NW help make the case for (SPIA) annuitizing a portion of your nest egg to (along with SS) provide a base living income.

The remaining nest egg can then be depleted using a variable withdrawal schemes.

Imagine the outcome back in Y2K with bond yields what they are now.
__________________
MasterBlaster is offline   Reply With Quote
Old 01-03-2014, 08:27 PM   #37
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,389
Quote:
Originally Posted by NW-Bound View Post
...
But here's the most interesting point. At the end of 2011, FIRECalc shows that the 50/50 blend of Total Stock/Long Treas portfolio balance would be $714K in nominal dollars (see earlier post), while my spreadsheet shows $1183K. That's a big difference!

The answer to the $469K question is next.
Here's the thing I've found with FIRECalc.

When I started this thread, I was simply looking to explore further the unfortunate fate of our "Hapless Y2K Retiree" as Raddr first exposed the situation on his site. As Raddr used short-term commercial paper for the bond portion, and then only 25% at that, I was curious to see how a bit more fixed income and those of a different type would help. And I used FIRECalc for the results shown in the beginning of the thread. It was simply bleak, bleak, bleak...

And as people implored me to look at Wellesley/Wellington, as these balanced funds have often been touted as good and safe MFs for "Norwegian widows", I wanted to see for myself too. And when I happened to look at VUSTX, an MF most fit to represent long-term Treasuries, I was bothered that its performance appeared to be better than FIRECalc showed.

And my own spreadsheet result as posted above shows that a 50/50 Total Stock/Long Treas. did not do bad at all, compared to FIRECalc result.

I examined the spreadsheet downloaded from FIRECalc and saw the following. FIRECalc only applies the income or dividend of the bonds to its growth. FIRECalc does not consider the appreciation of the principal when the interest drops, and the bond yield follows it.

So, the bond portion, at least for the 30-yr treasury option, does not follow the market value as one sees with VUSTX. Because the bond is undervalued in FIRECalc, it does not provide enough "oomph" to help the lousy stock return. Rebalancing also does not help as much, because it does not have one outperforming half to sell high, in order to buy low with the other underperforming half.

How the above effect impacts the simulation results going way back prior to 2000, I do not know. But for the years 2000-2012, the lousy stock return should be cancelled out by the bond gain, and our hapless Y2K retiree would do a lot better if he had some more long bonds in his portfolio, and his long bond is marked to market.

PS. I had very little long bond and still did well, but that's a story for another post.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 01-03-2014, 08:37 PM   #38
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 10,137
Great sleuthing. Thanks.
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 01-03-2014, 08:44 PM   #39
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,072
Quote:
Originally Posted by Gumby View Post
Great sleuthing. Thanks.
+1

So this means for a portfolio which includes bonds, FIRECalc is showing a higher failure rate than actual history, making FIRECalc even more conservative than one would expect?

If that's the case, you've just added a layer of duct tape to my belt and suspenders...
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 01-03-2014, 08:55 PM   #40
Thinks s/he gets paid by the post
 
Join Date: Jul 2012
Location: Mississippi
Posts: 1,878
Quote:
Originally Posted by REWahoo View Post
+1

So this means for a portfolio which includes bonds, FIRECalc is showing a higher failure rate than actual history, making FIRECalc even more conservative than one would expect?

If that's the case, you've just added a layer of duct tape to my belt and suspenders...
But if it is not reflecting the change in bond prices, assuming a bear market in bonds is coming, wouldn't that make it less conservative in that case.
__________________

__________________
rbmrtn is offline   Reply With Quote
Reply


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 04:36 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.