Lsbcal
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I have a model that I tweak to show me how much a 2 year decline could affect the portfolio. It seems to be a good thing to avoid getting a little too giddy at times. I'm tossing this out here because it might help someone.
I've adapted the modeling to show some portfolio compositions and how badly a $1 million portfolio would get hit. Here are the results and then I'll mention the modeling details:
Modeling details:
1) Monthly with stocks in the SP500 and bonds in 5 year Treasuries.
2) Time period is Jan 1969 to April 2014.
3) Assumes a 4% withdrawal rate (monthly withdrawals). If you have maybe 3% withdrawals in bad times just add back 2% loss you avoid over the 2 years.
4) No rebalancing except if the stocks go above the maximum allocation. This is my technique and I'm too lazy to change the model for other rebalancing options. Hopefully the results are still somewhat useful for others here.
For example, if you had a 50/50 portfolio you would never let the stocks go above 50% but they could drop a lot in a bad market. Your worse case portfolio during any 2 year period was experienced in September 1974 and would be $620,000. I chose 2 year drawdown as a metric because that is often the worst length of bear markets. For a 50/50 the table shows you would experience a -15% drawdown for 14% of the months from Jan 1969 to now.
Here is a picture of how things would have gone for a 50/50 portfolio since 1999:
The green circles are your absolute portfolio value. This plot does not show y-axis values but you get the rough picture here hopefully. The orange circles are the stock percentages monthly with the low in February of 2009 at 32% equities. The red diamonds just show -10% drawdown months. The blue diamonds show when stocks are sold to buy bonds because we are above the 50% equity allocation.
Now maybe FireCalc does a good job of showing this sort of thing. This may be redundant but I just thought it was a decent time to remember markets are not always friendly. Still you have to play the game.
I've adapted the modeling to show some portfolio compositions and how badly a $1 million portfolio would get hit. Here are the results and then I'll mention the modeling details:
Modeling details:
1) Monthly with stocks in the SP500 and bonds in 5 year Treasuries.
2) Time period is Jan 1969 to April 2014.
3) Assumes a 4% withdrawal rate (monthly withdrawals). If you have maybe 3% withdrawals in bad times just add back 2% loss you avoid over the 2 years.
4) No rebalancing except if the stocks go above the maximum allocation. This is my technique and I'm too lazy to change the model for other rebalancing options. Hopefully the results are still somewhat useful for others here.
For example, if you had a 50/50 portfolio you would never let the stocks go above 50% but they could drop a lot in a bad market. Your worse case portfolio during any 2 year period was experienced in September 1974 and would be $620,000. I chose 2 year drawdown as a metric because that is often the worst length of bear markets. For a 50/50 the table shows you would experience a -15% drawdown for 14% of the months from Jan 1969 to now.
Here is a picture of how things would have gone for a 50/50 portfolio since 1999:
The green circles are your absolute portfolio value. This plot does not show y-axis values but you get the rough picture here hopefully. The orange circles are the stock percentages monthly with the low in February of 2009 at 32% equities. The red diamonds just show -10% drawdown months. The blue diamonds show when stocks are sold to buy bonds because we are above the 50% equity allocation.
Now maybe FireCalc does a good job of showing this sort of thing. This may be redundant but I just thought it was a decent time to remember markets are not always friendly. Still you have to play the game.