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No Principal Loss Scenario:
Old 10-06-2019, 08:40 AM   #1
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No Principal Loss Scenario:

I put together a spreadsheet that uses 2018 and YTD 2019 monthly performance to see how much "outside" funds I would need to have a specific monthly income while trying to maintain a no loss portfolio value of $1 million. As you can see, the first year ended below target due to early withdrawals and late portfolio losses, so the start of the next year had to "make up" to get back to the target. Just an exercise:
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Old 10-06-2019, 09:09 AM   #2
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...Just an exercise:
in futility.

Unless you are in FDIC insured accounts and have a relatively low withdrawal rate.

The reality if you have a balanced portfolio is that the balance will bounce around some... most years it will grow more than your withdrawals and some bad years it may actually decline.... the sooner you get used to that elementary fact of life and accept it then the better off you will be.
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Old 10-06-2019, 09:39 AM   #3
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I do understand that. As I stated, was just looking to..... never mind. I was just bored. Interested in looking at a period of time and seeing what income would hold portfolio steady.
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Old 10-06-2019, 09:49 AM   #4
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It's an interesting exercise even if it only proves that most of us need to to take some reasonable amount of risk to give us the highest probability of having a successful FIRE.
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Old 10-06-2019, 10:15 AM   #5
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It's an interesting exercise even if it only proves that most of us need to to take some reasonable amount of risk to give us the highest probability of having a successful FIRE.
Yeah, as @pb4 implicitly points out, a strategy of no principal loss is probably also a strategy of no principal gain.

And this whole "principal" thing has always been a puzzle to me. I can see the psychological attraction, but how do you decide what is "principal?" In a portfolio that throws off some dividends and is in a rising market, is the market appreciation part of principal? The dividends reduce the value of the portfolio, so aren't they principal? In a falling market are the dividends a return of principal? I only know what is principal in @pb4's CD-only portfolio, where it is segregated and its value is fixed.

I suppose the answer is that principal is in the eye of the beholder.
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Old 10-06-2019, 10:52 AM   #6
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I would view principal as what I invested... aka basis (even in tax-deferred accounts)... unless one keeps meticulous records few of us know what that amount is.

For example, over they years you have invested 500k that has grown to be $1m (be it from interest or dividends reinvested or unrealized appreciation)... or could even be $500k in a CD that has grown over the years.... for most here it is very unlikely that you will ever dip into principal.

Too many posters seem to have an unhealthy fear of their portfolio declining... unless they have a WR more than 4% and a spot of bad times even a decline in value is unlikely not to mention ever dipping into principal.

We retired at the right time... our portfolio is 125% of what it was when we retired despite 8 years of withdrawals plus withdrawals to buy a winter condo, a truck and rebuild our one-car garage to a two-car garage with bonus loft that were all paid in cash... add in the value of those withdrawals and our portfolio is 140% of what it was when we retired.
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Old 10-06-2019, 10:53 AM   #7
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I suppose the answer is that principal is in the eye of the beholder.
Agreed. All of those things are true, and important to a degree. One could make a MASSIVE spreadsheet capturing ALL of the potentials. In this case (very simplistic to a fault) I was just thinking of holding the "balance" to no loss, even ignoring inflation loss.
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Old 10-06-2019, 10:54 AM   #8
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Old 10-06-2019, 10:58 AM   #9
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No such thing as a free lunch.
I didn't think I was looking for one. Just having a little fun on a Sunday morning.
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Old 10-06-2019, 11:03 AM   #10
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... For example, over they years you have invested 500k that has grown to be $1m (be it from interest or dividends reinvested or unrealized appreciation)... or could even be $500k in a CD that has grown over the years.... for most here it is very unlikely that you will ever dip into principal. ...
So I'm slow this AM. Is "principal" the $500K or the $1M?
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Old 10-06-2019, 11:08 AM   #11
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So I'm slow this AM. Is "principal" the $500K or the $1M?
$500k... what was invested... the rest is growth through reinvested interest or dividends or unrealized appreciation.
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Old 10-06-2019, 11:10 AM   #12
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I would view principal as what I invested... aka basis (even in tax-deferred accounts)... unless one keeps meticulous records few of us know what that amount is.

For example, over they years you have invested 500k that has grown to be $1m (be it from interest or dividends reinvested or unrealized appreciation)... or could even be $500k in a CD that has grown over the years.... for most here it is very unlikely that you will ever dip into principal.

Too many posters seem to have an unhealthy fear of their portfolio declining... unless they have a WR more than 4% and a spot of bad times even a decline in value is unlikely not to mention ever dipping into principal.

We retired at the right time... our portfolio is 125% of what it was when we retired despite 8 years of withdrawals plus withdrawals to buy a winter condo, a truck and rebuild our one-car garage to a two-car garage with bonus loft that were all paid in cash... add in the value of those withdrawals and our portfolio is 140% of what it was when we retired.
We retired in Aug 2017. We have Int'l stock, plus took on NASDAQ and Small Cap midway through 2018. 55/37/8 AA, but had 20% cash in 2017.
So after withdrawals, unlike many other posters on this site, we are only up 2% currently on the portfolio.
We have never been up more than 4% or lower than 8%.
Our composite WR% is/will be 2.84% through Dec 2019.

So not nervous or anything, but don't have that growth built in the first few years that many posters have on this site.
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Old 10-06-2019, 11:26 AM   #13
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We, too, have been very lucky. Net worth, which is pretty much all our portfolio, is 132% of what it was at the end of 2007 when DW retired. That is after withdrawals, which I am too lazy to calculate, but we've bought two new cars and probably spent at least $100K on travel. Luck is marvelous substitute for skill.
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Old 10-06-2019, 01:11 PM   #14
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The reason I could not do this or even want to know is that you expect to just not remove money in a month with losses. That would not work out well if you did not keep a cushion of expenses outside the portfolio.
I expect my portfolio to absorb the pain-not me.
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