Rustward
Thinks s/he gets paid by the post
- Joined
- Apr 19, 2006
- Messages
- 1,684
To me, though, that's the blind spot of FireCalc. If you're looking every day and seeing your percentage go from 85% to 95%, you might decide that 95% is good enough to pull the plug. But what if you got to that 95% because of a huge market runup? Maybe that means that current market conditions are more similar to those 5% failure cases than they are to the success cases.
...
And maybe, just maybe, more people happen to run FireCalc and think of pulling the plug during bull markets when things look really good.
FireCalc input is a point-in-time snapshot of your situation while, in fact, portfolio values can change rapidly -- October '07 to now, for example.
A portfolio that might have resulted in a 95% success rate for a given withdrawl rate in October '07 might have have lost value to the point that the same withdrawl rate would result in a 75% success rate using October '08 portfolio values. The main variable here is the starting portfolio value. If you run FireCalc when the market is at a peak or in a valley you may be using a portfolio value that is at an extreme that may not be seen again for some time. The hard part is to know, on any given day, what the market will do in the future.
This seems to be one flaw with using point-in-time snapshots of portfolio values. I would suggest a way to overcome this if I could.