Outperformance

[samclem]

Quote:

Originally Posted by halo I'm just looking to see how much the equity outperformance I have experienced for the past 6 years may have increased the initial 95% "safe" withdrawal rate (to be annually inflation-adjusted) . . . (b) if it just matches the performance of S&P from this point to the end of the 30-year retirement period. (in other words, the first 6 years outperform only)

FIRECALC can answer this part of your question. Just run two FIRECALC cases:
1) with a starting value of your equities as they are now (after your six years of outperformance)
2) with a starting value of what your equities would have been worth if they'd instead been invested in the S&P 500 for the last 6 years.

Use your same asset mix in retirement in both cases, and your same desired withdrawal amount. The difference in survival rate will tell you the significance of your last 6 years of outperformance.

Some obeservations:
- You've outperformed this one index. There are an unlimited number of equity mixes that investors use that incorproate varing amounts of things that aren't in the S&P 500 --foreing stocks, small stocks, etc. Your equities almost surely underperformed some mixes of assets and even some available indexes.
- It's probably misleading any rate to express your performance as "outperforming by triple the performance of the S&P 500." It's not a useful way of expressing the relationship between two bundles of stocks (unless someone is putting together a sales brochure). It's more useful to express the difference between the two bundles of equities in terms of the the % difference in their growth rates. (e.g. "my stocks had an average growth rate of 6% per year, compared to the trhe S&Ps 2% annual rate). Expressing things as you've done is not useful: If the S&P returns -2% in a year and your stocks return +4%, by what multiple would you say you outperformed the S&P?
- Don't forget to include dividends when you are computing total return.

- The whole question is cause for worry.
-- You outperformance is extremely unlikely to persist at the present rate very long.
-- The voloatility of an investement that outperforms the S&P by even a few % per year is likely to be, umh, "breathtaking."
-- I worry that a sales pitch is either coming or has already been received somewhere in this whole thing.