How long will money last? Money Mag

[earlyout]

Law of Averages and the Effect of Variation,

Thought for the day,

From 1969 to 1998 (30 years) average return was 11.71% for this portfolio: (asset allocated: 60% S&P, 30% US bonds, and 10% T-bills).

If someone had withdrawn 8% of there portfolio each year, by the end of 1981 (13 years) they would have been broke. This despite over the 30 year period the average return on their portfolio would have been 11.7%.

Reminds me of the 6 ft gentleman who drowned crossing a river with an average depth of 4 feet.

Helps explain the importance and difference between average return and variation of investment. Also, on % withdrawal

Have a good day

earlyout

[earlyout]

Follow-up to average vs variation

Firecalc shows that the portfolio has a 73% chance of success, starting in 1968 and therefore a 37% failure rate (broke). Firecal shows to get to 95% success would need to reduce withdrawal to approx 4%.

earlyout