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Old 09-10-2010, 10:50 AM   #41
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Don't you wind up hurting aggregate return due to reverse dollar cost averaging when you sell as/when needed?
There is no way to know a prior. If one assumes that over the long term stocks will appreciate then you are increasing your aggregate return by waiting until the money is needed before pulling it out.

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Old 09-10-2010, 10:58 AM   #42
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Having some liquid and lower volatility assets in your allocation actually allows you to spend from the lower gain assets longer while higher gain assets can grow/recover. Keeping the portfolio risk balanced helps me sleep at night better than having x years of low return buffer.
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Old 09-10-2010, 12:25 PM   #43
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There is no way to know a prior. If one assumes that over the long term stocks will appreciate then you are increasing your aggregate return by waiting until the money is needed before pulling it out.
Thanks, that does make sense.

I suppose I can mitigate the reverse dollar cost averaging effect (selling assets for lower prices on average) by requiring the sale of each asset for expenses to improve the degree to which the portfolio conforms to its ideal asset allocation. That would force me to sell high.
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Old 09-10-2010, 01:11 PM   #44
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Thanks, that does make sense.

I suppose I can mitigate the reverse dollar cost averaging effect (selling assets for lower prices on average) by requiring the sale of each asset for expenses to improve the degree to which the portfolio conforms to its ideal asset allocation. That would force me to sell high.
Yes - most people using AA, rebalancing is part of the withdrawal. They take from whichever asset class has performed best over the year.

In taxable accounts many folks allow distributions to accumulate in cash over the year, take that, take whatever else is needed from funds that are above target allocation, and then rebalance what remains as needed.

Personally, I never worried about "the reverse dollar cost averaging effect". Probably because I maintain an AA.

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Old 09-10-2010, 01:41 PM   #45
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Thanks for the explanation, Audrey. I like that approach better than the bucket method I have read about.
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Old 09-11-2010, 04:09 PM   #46
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Do you have set rules for replenishment of the stash once depleted?
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You mean, as in "go get more"?

If the market has a down year then we don't replenish our cash stash.

If the market's down a second year then we don't replenish our cash stash. During the third year we pick the least-worst-performing equity and sell enough of that to cover our expenses.

When the market recovers beyond that year's expenses then we start replenishing the cash stash. We're just about there.

I'll add one more aspect to ClifP's excellent explanation of recession spending: consumer-durable bargains. We contracted extensive home-improvement work during the recession for a significant discount, when a couple years before we couldn't even get our phone calls returned. We used our dry powder on our home equity.
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