Fixed versus equity when withdrawing

[bigfoot]

When withdrawing funds in a down market, irreparable damage to an equity portfolio can occur, but no damage is done with a fixed portfolio. Reverse dollar cost averaging is the killer in an equity portfolio. For the period 2000-2010, the damage to an equity portfolio was severe. How to reconcile this with long-term superior performance of equities if not withdrawing? Big concept here but worth throwing to the forum for comments?

 

[FIRE'd@51]

In a rising interest rate environment you can do serious damage to a fixed-income portfolio if you are withdrawing more than the interest payments.

 

[Rich_by_the_Bay]

Lots of previous discussion on this, but I think most of us have in common some kind of cash fund (say, 2 years of expenses or more) which we can tap for expenses during down years. The more conservative you are the larger the reserve fund. Combined with rebalancing and value averaging this seems to reduce the volatility risk. Such a strategy can take many forms but that is the core idea.

 

[FIRE'd@51]

Lots of previous discussion on this, but I think most of us have in common some kind of cash fund (say, 2 years of expenses or more) which we can tap for expenses during down years. The more conservative you are the larger the reserve fund. Combined with rebalancing and value averaging this seems to reduce the volatility risk. Such a strategy can take many forms but that is the core idea.

I agree, but OP said a fixed portfolio (which I took to mean fixed income portfolio), not a cash portfolio. Obviously, my comment applies to fixed-income portfolios with a longer duration.

 

[CyclingInvestor]

I have been living on my 72t withdrawals from my IRAs since retiring in 2006. The dividends from the 100% stock portfolio (PG JNJ KO ADP etc, averaging a bit over 3%) have slightly exceeded my withdrawals (I chose the simplest, annual recalc, averaging about 3%), and so have been a net purchaser of stocks so far. No damage done.

 

[LOL!]

In a down market you should be buying equities to rebalance, but another way to rebalance is to spend your fixed income portion. Neither of these involve selling equities. So what's the big deal?

 

[bigfoot]

I was thinking in terms of a fixed indexed annuity that can increase with an index but can never go down, to be used for income for life, as contrasted with a stock or mutual fund equity portfolio.