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Re: The Safe Water Reservoir: (SWR): An analogy?
Old 04-03-2005, 05:49 PM   #41
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Re: The Safe Water Reservoir: (SWR): An analogy?

You are right -- perfect soup for me, a 40-something early retiree with a hand in a few income-generating sidelines, but not perfect for everybody.

Still, would you mind sharing your mom's recipe for clam chowder? Always interested-- had a great one tonight with sherry in it that had a real kick!


ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
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Re: The Safe Water Reservoir: (SWR): An analogy?
Old 04-08-2005, 07:13 AM   #42
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Re: The Safe Water Reservoir: (SWR): An analogy?


Petey, Zorba;
Not sure if you guys have ever looked at getting a mean variance optimizer and running lots of studies to find 'efficient frontier' for blends of assets you find in the range you could stomach, but it may be worthwhile. *I did this with my DFA advisor a few years back, and we kept running different tweaks until we got a perfect soup.

Only other thing about any of these historical studies is they get skewed by history so the outstanding asset classes show up being overly big in explaining the success of recent portfolios, leading everyone to pile into possibly inflated asset classes. * You could try to solve this by using really long historical series, but then you run into the problem that there are simply no long historical series for many of the more interesting (less correlated) asset classes. *Sort of a pickle.

But Zorba ( I know you are not the troll) you are tight to be asking pointed questions about asset allocation, both for return, for volatility and for standing up to an SWR.

My intuition is that, if expected return is the same, *lower volatility portfolios stand up to the steady withdrawals better than high-volatility ones (anybody know different please let me know). *Got to also have an expected return *of at least SWR + inflation + fees. *This thing can't work with an all-bond portfolio yielding 5%.

Also, if it were possible to have an extra 1% of headway, it makes steering easier (in a boat, and I think in a long run SWR). *In other words, don't plan to just land at stationary-in-real-terms targets, since the future is long, living standards rise, inflation could notch up, who knows what kind of bad stuff can happen. *If you have an extra hpercent or so on your side, it can cover a lot of errors in the assumptions going forward.

My portfolio historically (20 years) returns 9.5% with Standard Deviaition around 7%. *60% SP500, 40% Treasuries returned *8.5% with S.D. of 9.2%, not a lot worse, and a heckuvalot easier to manage. *For me, slicing it up (16 asset classes, fees under .4%) is fun and frankly makes me feel safer to have eggs more spread around, but you could probably do as well from the SWR survival p.o.v., at least within the limits of peering into the fog of the future, with a pretty simple diversification strategy.. *

Here is a portfolio and that comes pretty close to matching the asset allocation I use, all available out of Vanguard , 8 funds plus a money market:

30.0% * * *VWELX * * *Vanguard Wellington
4.0% * * *VMMXX * * *Vanguard Prime MM
5.0% * * *VGSIX * * *Vanguard REIT Index
20.0% * * *VBIIX * * *VG Intmdt. Bond Index
11.0% * * *BEGBX * * *Am Cent Foreign Bond
8.5% * * *VTMSX * * *Vanguard TM Small
5.5% * * *VGTSX * * *Vanguard Total Intl Index
10.0% * * *VINEX * * *Vanguard International Explorer
6.0% * * *VEIEX * * *Vanguard Emerging Markets Idx

Lacks just four other asset classes I own:
High Yield, Commodities, (easy to get with funds), private equity and market neutral hedge fund (harder to get without fees or legwork)

Haven't run all the numbers, but I think it would come in, in terms of yield and volatility, somewhere around 9% average return, and 8% standard deviation, with enough diversification to let you sleep well, low enough volatiliity to safely support a 4-4.5% swr, fees around .35%. *Rebalance once a year, *spend your time out fishing or figuring out what you like to do with your life and then doing it.


I'd be interested to see your 16 asset class setup!

Agree with your comments.

All the best,

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Re: The Safe Water Reservoir: (SWR): An analogy?
Old 04-08-2005, 04:28 PM   #43
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Re: The Safe Water Reservoir: (SWR): An analogy?

Here it is, the slicer's dream. Sorry I can't figure out how to get columns to line up.

US Large Value Tilt 12.0%
US Small Value Tilt 8.5%
Int'l Small 10.0%
Emerging Mkt 6.5%
Int'l Large 5.0%
US Government Bonds 4.0%
ST Corp /Money Mkt 4.0%
Med Term Int'l Bonds 12.0%
Med Term US Bonds 10.0%
GNMA Bonds 5.0%
High Yield Bonds 3.5%
Oil and Gas 3.5%
Market Neutral Hedge Fund 2.0%
Commodities 4.0%
Commercial Real Estate 5.0%
Private Equity/ Venture Capital 5.0%

This is the one that earns 9.5% before fees during the last 18 years, and has Standard Deviation of 7.16% and a beta of .28%, which does make sleeping at night pretty easy.

Getting Private Equity and Market Neutral are not so easy, but there are ways. I've just seen something in WSJ about a handful of public venture capital and private equity funds which might help. All the big institutions love the asset class.

Market Neutral has high fees, especially if you get one of the Funds of Funds (e.g. Rydex), but is small enough that you could probably ignore it unless you want to play in an actual hedge fund. I found one that seems good, but it was through friends who lowered the minimum etc. etc.

You could also call this asset allocation the Chicken Portfolio -- nothing is big enough that I ever have to worry . But it is not without risk -- small, international, developing, high yield etc -- the return comes because you take on risk. But you manage it and thus keep volatility at an acceptable level.
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
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Re: The Safe Water Reservoir: (SWR): An analogy?
Old 04-08-2005, 05:22 PM   #44
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Re: The Safe Water Reservoir: (SWR): An analogy?


Thats quite a slice & dice. How close to that can you get with Vanguard funds or any one family of funds? I expect my wife will move her 403b funds to Vanguard next year and I was just thinking of the 2025 Target fund as a single destination but slice & dice can work if it does not bring too many fund fees.
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Re: The Safe Water Reservoir: (SWR): An analogy?
Old 04-08-2005, 08:05 PM   #45
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Re: The Safe Water Reservoir: (SWR): An analogy?

Yakers, I think you can come pretty close with Vanguard: use the 8-fund plus MM from the earlier post, and maybe add GNMA, High Yield Bonds along with a PIMCO Real Assets - Commodities fund (I think Vanguard gets people into PCRIX now which is the institutional one, and it has much better fees than QRAAX.) for 4% each, pulling a few percent away from each of the biggest fund allocations.

At that point, you are awfully close. I actually tried to allocate out the 8-fund into all these asset classes in a spreadsheet if you are interested send me an email at my regular address and I'll send you the attachment. (Private Message function won't let us send attachments))

ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
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