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Old 12-23-2013, 05:02 PM   #21
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Sounds a bit like VG Lifestrategy Moderate Growth fund which has a 60/40 mix by investing in 4 index funds, and has been around since 1995 with an 8% /year return over that period.
This caught my attention, so of course I had to check this fund out as I never heard of it.

According to Morningstar, a $10K invested in this VSMGX fund on 12/22/1994 would become $43.748K on 12/22/2013. A factor of 4.37X in 19 years works out to an annualized gain of 8.08%. Very impressive.

But wait. The $10K would have become $22.743K on 12/22/1999. This factor of 2.27X in 5 years works out to 17.8% annualized gain.

And then, from 2000 until now, the fund appreciated only 1.9X in 14 years for an annualized gain of 4.78%, and this is before inflation adjustment.

So, what happened was that the 8% "long-term" performance included the go-go years of the 1990-2000 decade. The more recent performance is not so impressive, and then we need to correct for inflation.

Inflation from Jan 2000 till Nov 2013 is 38%. Apply that to our annualized gain of 4.78% above, and we end up with a whopping 2.4% per year.

I rest my case.
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Old 12-23-2013, 05:14 PM   #22
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This caught my attention, so of course I had to check this fund out as I never heard of it.

According to Morningstar, a $10K invested in this VSMGX fund on 12/22/1994 would become $43.748K on 12/22/2013. A factor of 4.37X in 19 years works out to an annualized gain of 8.08%. Very impressive.

But wait. The $10K would have become $22.743K on 12/22/1999. This factor of 2.27X in 5 years works out to 17.8% annualized gain.

And then, from 2000 until now, the fund appreciated only 1.9X in 14 years for an annualized gain of 4.78%, and this is before inflation adjustment.

So, what happened was that the 8% "long-term" performance included the go-go years of the 1990-2000 decade. The more recent performance is not so impressive, and then we need to correct for inflation.

Inflation from Jan 2000 till Nov 2013 is 38%. Apply that to our annualized gain of 4.78% above, and we end up with a whopping 2.4% per year.

I rest my case.
Nice work, you have proven to the OP that timing is everything, and that past history does not indicate future success. Maybe he should do similar analysis on the past histories of the funds he is looking at to determine their likely success.

I chose the VG fund above because it is a similar style to what he was suggesting in that it is 60/40 and simply is comprised of a collection of a few other funds. It was pure chance that it had the exact return he was looking for since it is a very young fund compared to the likes of Wellington and Wellesley.
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Old 12-23-2013, 05:27 PM   #23
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One thing (there are others) I was interested in is how others feel about stock/bond mutual fund performance over the last 10 years even with the recession. I took a stock of my mutual funds and they collectively performed at 8.2% for the last 10 years, even with big recession in the middle.

Then, other threads about "asset" suggest that many of us have increased their asset significantly after retirement, often with WR of 4% or less. It seems a mixed portfolio will return more than 4% over the long run even with inflation. I was wondering if 4% WR is on a too conservative side given this.

Of course, this is exactly what we tie ourselves up in knots on here. The 4% SWR is incredibly conservative if you can avoid the bottom 10% or so of historical outcomes. Only problem is that we don't know where we will fall on the scale for a retiree starting out now and depending on the path of returns in the next 30 or 40 years.
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Old 12-23-2013, 06:10 PM   #24
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Of course, this is exactly what we tie ourselves up in knots on here. The 4% SWR is incredibly conservative if you can avoid the bottom 10% or so of historical outcomes. Only problem is that we don't know where we will fall on the scale for a retiree starting out now and depending on the path of returns in the next 30 or 40 years.
Hey Brewer, Still retiring 12/31?
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Old 12-23-2013, 06:16 PM   #25
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So, what happened was that the 8% "long-term" performance included the go-go years of the 1990-2000 decade. The more recent performance is not so impressive, and then we need to correct for inflation.
Yes, I was looking at the same thing with the S&P 500. Up about 80% 2003 - 2013, but most of that performance has come in the last 3 years. About 15% return 12/03 to 12/07. So beware of averages they can hide a lot of details. Also this doesn't take into account the withdrawals during the flat period.

Here's a S&P calculator that shows return for a specified time period

S&P 500 Return Calculator
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Old 12-23-2013, 06:20 PM   #26
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Hey Brewer, Still retiring 12/31?
Currently on vacation until the end of the year. When I go back on 1/2 I will be giving 2 weeks' notice.
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Old 12-23-2013, 07:34 PM   #27
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Yes, what everyone else has said.

If I had a $1.3M portfolio, I'd be trying to figure out ways I could live on $30-40K/year in order to keep the withdrawals down so I could sleep comfortably, knowing I had a strategy that stood a great chance of surviving for the long term.
+1.
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Old 12-23-2013, 07:42 PM   #28
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If the OP follows his plan of a 6% AWR he will go broke in less than 18 years assuming that his portfolio expenses and taxes equal 1% of port.
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AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
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Old 12-23-2013, 08:04 PM   #29
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8% is real based on my mutual funds. Of course, one needs to pay long term capital gain tax when withdrawing.

The hypothetical situation had 3.5 years of cash to spend. So, one has 3.5 years of mutual fund returns (if any) to account for.
I think you're saying that the 8% is net after expenses, but not after taxes.

Note that I used "real" to mean "after inflation". You may be thinking "actual history".

I'm not sure how the second paragraph relates to the other issues.
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Old 12-23-2013, 08:05 PM   #30
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I looked a bit more at this VSMGX, and it appears to be reasonable for an indexing investor who wants a balanced MF with some foreign stock/bond exposure. It is a fund of funds, and invests in 4 index funds with roughly the following mixture at the present time.

Total US stock: 42%
Total Foreign stock: 18%
Total US bond: 32%
Total Foreign bond: 8%.

As a passive balanced fund, how does it compare to active balanced funds like Wellington with the same 60% stock AA, albeit with only 10% of that being foreign stocks?

I looked up Morningstar data, and computed the return from Dec 1994 to Dec 1999 of Wellington as 23.1%/yr, and from Dec 1999 to Dec 2013 as 5.78%. These numbers were better than VSMGX at 17.8% and 4.78% respectively. All returns are nominal, meaning not inflation adjusted.

So, while I hold only very little Wellington, I have to ask if the performance numbers above prove the skills of its MF manager, or do people still call it luck?
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Old 12-23-2013, 08:52 PM   #31
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So, while I hold only very little Wellington, I have to ask if the performance numbers above prove the skills of its MF manager, or do people still call it luck?
I believe Wellington is managed by a team, and has a track record going back to 1929 (8.25% over the last 84 years), so no hot shot manager who might leave.

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Founded in 1929, Wellington™ Fund is Vanguard’s oldest mutual fund and the nation’s oldest balanced fund. It offers exposure to stocks (about two-thirds of the portfolio) and bonds (one-third). Another key attribute is broad diversification—the fund invests in about 100 stocks and 500 bonds across all economic sectors. This is important because one or two holdings should not have a sizeable impact on the fund. Investors with a long-term time horizon who want growth and are willing to accept stock market volatility may wish to consider this as a core holding in their portfolio.
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Old 12-23-2013, 08:59 PM   #32
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I believe Wellington is managed by a team, and has a track record going back to 1929 (8.25% over the last 84 years), so no hot shot manager who might leave.
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Old 12-23-2013, 09:04 PM   #33
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I looked a bit more at this VSMGX, and it appears to be reasonable for an indexing investor who wants a balanced MF with some foreign stock/bond exposure. It is a fund of funds, and invests in 4 index funds with roughly the following mixture at the present time.

Total US stock: 42%
Total Foreign stock: 18%
Total US bond: 32%
Total Foreign bond: 8%.

As a passive balanced fund, how does it compare to active balanced funds like Wellington with the same 60% stock AA, albeit with only 10% of that being foreign stocks?

I looked up Morningstar data, and computed the return from Dec 1994 to Dec 1999 of Wellington as 23.1%/yr, and from Dec 1999 to Dec 2013 as 5.78%. These numbers were better than VSMGX at 17.8% and 4.78% respectively. All returns are nominal, meaning not inflation adjusted.

So, while I hold only very little Wellington, I have to ask if the performance numbers above prove the skills of its MF manager, or do people still call it luck?
I have met a few of the Wellington people professionally an I would say that they uniformly struck me as (conservatively) among the sharpest 25% of their profession. Could it be luck? Perhaps. I am inclined to think they have a good process that results in modestly above market returns over time.
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Old 12-23-2013, 09:31 PM   #34
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The above question of mine was a rhetorical one, as market efficiency theorists would insist that any outperformance is due to luck. They would argue that if any fund beat the market, then people would flock to the fund and it would end up being the entire market and could no longer outperform it.

Well, that has not happened with Wellington or Wellesley. Why? It's because they do not stomp the market every year, and I am sure that they do not try to. For example, this year both Wellington and Wellesley did not do well relative to the market or their peers because of their bond holdings. People who bought into these funds within the last year or two expecting outperformance will be disappointed, and may leave.

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Could it be luck? Perhaps. I am inclined to think they have a good process that results in modestly above market returns over time.
Yes, the keys are "modest", and "over time". Swinging for the fence like many MF managers back in 2000 backfired badly.
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Old 12-23-2013, 10:23 PM   #35
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Currently on vacation until the end of the year. When I go back on 1/2 I will be giving 2 weeks' notice.
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Old 12-23-2013, 11:02 PM   #36
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I think OP was planning on withdrawing an initial $80k and not adjusting for inflation going forward. In that case, it'll probably work, at least in terms of portfolio survivability. After 20 - 25 years of inflation, there may be some lifestyle adjustments to make however.......
True. Assumption there was that as we get older, we spend less. So, I didn't bother to make the adjustment. For most us, pension and/or SS kicks in at some point.
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Old 12-23-2013, 11:27 PM   #37
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I think you're saying that the 8% is net after expenses, but not after taxes.

Note that I used "real" to mean "after inflation". You may be thinking "actual history".

I'm not sure how the second paragraph relates to the other issues.
Yes, 8% net after expense but not after taxes.

$300k is set aside for the 1st 3.5 years of expense at $80k/year. This gives the $1M portfolio a 3.5 year head start. Anyway, it is an aggressive strategy but there are many mutual funds which outperformed 8%/year for many years.
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Old 12-24-2013, 06:30 AM   #38
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Currently on vacation until the end of the year. When I go back on 1/2 I will be giving 2 weeks' notice.
How exciting for you. Finally!
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Old 12-24-2013, 09:24 AM   #39
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Currently on vacation until the end of the year. When I go back on 1/2 I will be giving 2 weeks' notice.
Congrats. 2014 s/b a fun year.
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Old 12-24-2013, 09:26 AM   #40
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Congrats. 2014 s/b a fun year.
Thanks. For now I am just pretending to be on vacation. Still have to get through the messy business of quitting and making my exit.
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