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FIRECalc default portfolio
Old 06-21-2014, 11:56 AM   #1
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FIRECalc default portfolio

It's 75% equities?

What's the best way to enter 50/50?

Do you have to figure out the different classes of equities in your portfolio?

And how do you represent different types of bond funds and cash?
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Old 06-21-2014, 11:58 AM   #2
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The AA options available are all on the "Your Portfolio" tab.
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Old 06-21-2014, 12:02 PM   #3
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So just keep Total Market selected and then change 75 to 50 there?
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Old 06-21-2014, 12:04 PM   #4
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Presumably the AA should reflect the portfolio after you RE?

Changed it from 75 to 50 and it didn't change the results much, just lower average portfolio values.

That is, still 100% whether using 75% or 50% stocks.

Kind of curious because I'm trying 3.5% inflation and I had to raise the portfolio starting amount by $100k to go from 1 failed cycle in 40 years to 0 failed cycles.

And then lowering the stock percentage from 75 to 50% still resulted in 100% success.
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Old 06-21-2014, 12:07 PM   #5
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Quote:
Originally Posted by explanade View Post
Presumably the AA should reflect the portfolio after you RE?
Yes, that will give you a 50/50 AA

Quote:
Originally Posted by explanade View Post
Changed it from 75 to 50 and it didn't change the results much, just lower average portfolio values.
You probably won't see much change in failure rates unless you drop your equity allocation to under 35 or increase it to more than 80.
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Old 06-21-2014, 12:17 PM   #6
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Changed it from 75 to 50 and it didn't change the results much, just lower average portfolio values.
Exactly.
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Old 06-21-2014, 01:07 PM   #7
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Quote:
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...

Kind of curious because I'm trying 3.5% inflation ...
I wouldn't (and don't) 'try' any inflation number other than the historical ones. The double digit inflation of the 80's is what killed portfolios.

If you are trying to test your portfolio's resistance to failure, 3.5% inflation is a walk in the park with pretty girls on each arm, and a few walking in front to provide scenery. That doesn't tell you much about whether you could crawl up a steep muddy mountainside in a downpour, with big guys with big boots kicking you in the teeth and stepping on your fingers as you cling to roots to hang on.

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Old 06-21-2014, 01:12 PM   #8
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One important thing to look for when changing AA is the minimum value of all runs, or the worst case. You should look at the chart, not the numbers that FIRECalc reports.

Generally, a high-stock AA will have the best good cases, but also worse bad cases, in other words more uncertainty. Do you feel lucky?
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Old 06-21-2014, 01:16 PM   #9
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....
And then lowering the stock percentage from 75 to 50% still resulted in 100% success.
This called quantization. Pass/fail are binary, so you won't see an output change with small changes in input, unless your inputs are right on the edge of pass/fail.

Two 'solutions', one you already discovered:

1) Look at non-binary output, the average portfolio ending values. You have seen that they change in magnitude with the AA changes.

2) Probably more to your point - increase your spending until you get solidly in the 'fail' range (say 85%). Then you can see some more linear changes in output success % to changes in inputs.

IOW, you are probably in the 150% success rate range (if we could express it that way), so even something way worse still gets counted as "pass", even if it drops from a relative 150% down to 100%. They are both 'pass' - you get no added information. But dropping from 85% to 82% tells you something.

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Old 06-21-2014, 01:28 PM   #10
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...

Generally, a high-stock AA will have the best good cases, but also worse bad cases, in other words more uncertainty. Do you feel lucky?
I'm not so sure about that.

If you are looking at the negative end-of-portfolio values in FIRECalc, I believe they are misleading. Of course, negative portfolio values are a bit non-nonsensical anyhow, but I think they can be useful to get some relative idea of how bad things are.

The problem is, I suspect that FIRECalc continues to multiply the remaining portfolio times that year's market returns. So a -$100,000 in equities becomes -$130,000 if the market has a good year of PLUS 30% returns! It's as if you shorted the market.

So that could make high EQ AAs appear more negative if the market is turning around in those final years.

A special case should be made for portfolios below zero, just subtract spending from the negative balance and make an inflation adjustment - I think that would keep things fair for comparison purposes.

-ERD50
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Old 06-21-2014, 01:30 PM   #11
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How do you select "historical" inflation?

The choices are PPI, CPI or some number. Assuming you think inflation is going to be hotter than CPI ...
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Old 06-21-2014, 01:32 PM   #12
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This called quantization. Pass/fail are binary, so you won't see an output change with small changes in input, unless your inputs are right on the edge of pass/fail.

Two 'solutions', one you already discovered:

1) Look at non-binary output, the average portfolio ending values. You have seen that they change in magnitude with the AA changes.

2) Probably more to your point - increase your spending until you get solidly in the 'fail' range (say 85%). Then you can see some more linear changes in output success % to changes in inputs.

IOW, you are probably in the 150% success rate range (if we could express it that way), so even something way worse still gets counted as "pass", even if it drops from a relative 150% down to 100%. They are both 'pass' - you get no added information. But dropping from 85% to 82% tells you something.

-ERD50
For 1) you're talking about the spreadsheet output?

And for 2) you're looking for more negative ending portfolio values to see how spending changes the results.

Makes sense, spending is the one easiest to control, assuming you padded it with a lot of discretionary items that you can cut back on?
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Old 06-21-2014, 01:35 PM   #13
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Originally Posted by ERD50 View Post
I'm not so sure about that.

If you are looking at the negative end-of-portfolio values in FIRECalc, I believe they are misleading. Of course, negative portfolio values are a bit non-nonsensical anyhow, but I think they can be useful to get some relative idea of how bad things are.
No, I do not look at cases where the portfolio value goes negative, only ones where it was skimming the zero line like an Exocet or Harpoon missile.

And the greater dispersion only shows up at higher WRs, if my memory serves.
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Old 06-21-2014, 01:42 PM   #14
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...

Generally, a high-stock AA will have the best good cases, but also worse bad cases, in other words more uncertainty. Do you feel lucky?
OK, came back with two quick runs, using a 3% WR (30K/1M) to avoid the negative portfolio potential problem.

@ 75/25: 0.55M low; 2.6M avg; 6.6M high
@ 25/75: 0.25M low; 1.1M avg; 4.0M high

So the lower AA gave lower lows, lower averages, and lower highs.

It's not so easy to get interim dip info with FIRECalc, you can only eye up the chart, but even zooming and using a ruler to scale, the dips look to be higher (that is, less bad - above ~ $500K) with the higher AA in this case.

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Old 06-21-2014, 02:05 PM   #15
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It is true that very low stock AA will not do that well.

What I was describing was for stock AA of greater than 50%, and also at a higher WR.

Here are 3 cases starting at $1M, and WR of 3.5%.

90% stock, $-5,215 to $7,429,349, with an average of $2,764,220.

60% stock, $144,278 to $5,036,085, with an average of $1,739,851.

50% stock, $165,501 to $4,604,384, with an average of $1,446,783.
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Old 06-21-2014, 02:37 PM   #16
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It is true that very low stock AA will not do that well.

What I was describing was for stock AA of greater than 50%, and also at a higher WR.

Here are 3 cases starting at $1M, and WR of 3.5%.

90% stock, $-5,215 to $7,429,349, with an average of $2,764,220.

60% stock, $144,278 to $5,036,085, with an average of $1,739,851.

50% stock, $165,501 to $4,604,384, with an average of $1,446,783.
OK, I extended that down to 40/60AA and got a little higher lows (ending portfolio low of ~ $175K), and it got worse with lower AA, so somewhere ~ 40-50 stock AA seems like a 'sweet spot' for smoothing dips, at least for a 3.5% WR and this data set.

-ERD50
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Old 06-21-2014, 02:42 PM   #17
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Yes.

Now, keep the equity AA around 50%, and bring in more value stocks (use the more detailed mixed portfolio option). You will love the results.
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Old 06-21-2014, 02:45 PM   #18
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Now, keep the equity AA around 50%, and bring in more value stocks (use the more detailed mixed portfolio option). You will love the results.
Wellington.
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Old 06-21-2014, 02:45 PM   #19
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Not Wellesley?
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Old 06-21-2014, 02:47 PM   #20
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Maybe a little of both...
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