Berstein's when you've won the game why keep playing writings and a presentation elsewhere regarding investor professed risk tolerance and actual risk tolerance varying greatly depending on when investors are polled (i.e., reported risk tolerance and resulting behavior was much higher during up markets and correspondingly much lower during down markets) got me thinking about my own risk. If most investors underestimate their risk tolerance, particularly in times like 2008, what does that portend for my own behavior when the next bear comes clawing? So I decided to go back to ESP and analyze how, having "won the game", taking money off the casino table would affect my standard of living.
I've run both Monte Carlo and upside investing analysis in ESP. I use the "spend conservatively" option in Monte Carlo simulation, which assumes I'll always earn a zero return on investments. For upside investing, I use only 2% (current TIPS) return on safe investments. The analysis and reports were extremely helpful in making decisions.
What I really like is the net worth report, which shows what my NW would look like year by year until plan end if my investments earned nothing. I asked myself how I would feel if, 5, 10, 15, 20 years into retirement if my NW looked like what was reported. This helped me decide that I could reduce my equity exposure by 10% (from 50% to 40%) and still not negatively impact my suggested standard of living (which happens to be many thousand above my minimum expenses, including discretionary, anyway).
The trajectory and probability reports I also find very helpful with respect to displaying possible future scenarios of what can happen if I get lucky in the stock market casino (upside investing). Who knows? Maybe we're at the beginning of a great bull market and I'll get all those extra upside investing spending dollars? But what if we're not? For me, reducing equity exposure does in fact reduce my upside spending, but I'm more concerned with risk reduction than extra spending or leaving a large estate. Without ESP, I don't know where I could find the tools to conduct such a helpful analysis. I'm definitely glad I bought it.