accountingsucks
Recycles dryer sheets
- Joined
- Jan 28, 2006
- Messages
- 346
I'll admit the 10% correction was abit of an eye opener for me in terms of real $ loss. The best way proper A/A has been described is to determine your maximum tolerable loss and then work backwards from there.
So for me I have 1.2M in invested assets (well more like 1.13 after the correction). I have a 70/30 allocation. So on a 50% equity pullback, I would suffer a real $ loss of $420,000. Although that would royally suck; I have then asked myself, how much would that push back my retirement age range? For me I clear about 100K per year at work so my age of retirement would go from my proposed 50 (aiming for $2Mil) to 54. I then ask myself, can i live with that? The answer is yes and hence how I come up with a 70/30 split. Does this line of thinking make sense?
Now this assumes I can retain the same level of employment between ages of 50 and 54. It also assumes that future expected returns are not impacted by the pullback. I'm still wrapping my head around that one. I believe the market is essentially a giant discounted cash flow mechanism so that if we get a pullback that should mean returns on the morning of that pullback should be higher over my expected lifetime then at the peak of that pullback. I assume 5% nominal return for equities in my calculations. If we had a massive pullback like that presumably I could use a higher expected rate of return going forward which would reduce the 4 years calculated above??
So for me I have 1.2M in invested assets (well more like 1.13 after the correction). I have a 70/30 allocation. So on a 50% equity pullback, I would suffer a real $ loss of $420,000. Although that would royally suck; I have then asked myself, how much would that push back my retirement age range? For me I clear about 100K per year at work so my age of retirement would go from my proposed 50 (aiming for $2Mil) to 54. I then ask myself, can i live with that? The answer is yes and hence how I come up with a 70/30 split. Does this line of thinking make sense?
Now this assumes I can retain the same level of employment between ages of 50 and 54. It also assumes that future expected returns are not impacted by the pullback. I'm still wrapping my head around that one. I believe the market is essentially a giant discounted cash flow mechanism so that if we get a pullback that should mean returns on the morning of that pullback should be higher over my expected lifetime then at the peak of that pullback. I assume 5% nominal return for equities in my calculations. If we had a massive pullback like that presumably I could use a higher expected rate of return going forward which would reduce the 4 years calculated above??