Telly
Thinks s/he gets paid by the post
- Joined
- Feb 22, 2003
- Messages
- 2,395
I may not be the brightest bulb in the financial chandelier, but I came away with a different read than some of the responses here.
I think the authors well covered the increasing stock-tilt of the portfolio if for example the Bonds-First withdrawal method is used.
The investor will have to have discipline, both not to get scared, change methodology and sell off in a down-market, and also not get crazy and start spending money like water if the portfolio starts to look huge at some point in the future. It all relates back to sticking to the original inflation-adjusted withdrawal percentage, and sticking to the method.
It seems to me that if one has a 60/40 portfolio, for example, and funds retirement with the Bonds first, there will be many years for the stocks to grow unhindered by withdrawals. So many $ in stocks, that when it comes to selling some off for each later year of retirement, even if the stocks take a market hit, the pool of stock is so large that there are many $-worth left to keep growing in the future. They say this same thing in the study.
I think it is an interesting concept, and I like seeing alternative research, rather than the same-old same-old. It wasn't so many years ago that the pundits and correct-thinkers of the day were advising withdrawals of 7 or 8% were fine!!!
That is true ONLY for Table 1, the Bootstrap Simulation. Table 3, the results of the Temporal (Historical) Order are quite different!From the tables in the paper, the "some cases" in the statement
Quote:
In fact, in some cases, rebalancing increases the number of shortfalls.
are not cases you would be practicing anyways (high withdrawal rates, low percentage allocated to equities.
In those cases with equities >= 40% of assets and withdrawal rate 5% or less, rebalancing ALWAYS had the lowest failure rate (see Table 1).
Ditto my comment above. See Table 3. I personally put more weight to the Temporal (Historical) Order simulation. The Bootstrap Simulation uses real returns for a year, but the return "year" is selected by random number. So the Bootstrapping Simulation can create extremely brutal sequences of yearly returns, if I am understanding that methodology correctly.The table were sure interesting. I noticed that at (my present) 60% stocks, the failure rate after thirty years at 5% withdrawal rate was only 20% for a rebalanced portfolio, and also only 20% for a portfolio that wasn't rebalanced but had bonds withdrawn first.
Hmm. Well, gee. I'm always so skeptical.
I don't see that the goal of the study was specifically to maximize returns over time, but rather to see if rebalancing indeed had a marked positive effect on not depleting the fund over the specified 30 year period. They DO say that the resultant residual, if one exists, will be much greater by NOT rebalancing. But I did not think that that was the thrust of the study.Wow, this is amazing research! Let me make sure I get this correct.
so we know that in the past that equities have outperformed other asset classes. so if we leave the equities in place and draw other asset classes when we know the equities outperformed then the portfolio will last longer? Man, I hope they didn't get paid too much to figure this out!
Rebalancing is primarily about reducing the standard deviations of returns, not maximizing them. If maximizing returns were the only goal we would invest 100% of the portfolio in the asset class with the highest expected return.
I think the authors well covered the increasing stock-tilt of the portfolio if for example the Bonds-First withdrawal method is used.
The investor will have to have discipline, both not to get scared, change methodology and sell off in a down-market, and also not get crazy and start spending money like water if the portfolio starts to look huge at some point in the future. It all relates back to sticking to the original inflation-adjusted withdrawal percentage, and sticking to the method.
It seems to me that if one has a 60/40 portfolio, for example, and funds retirement with the Bonds first, there will be many years for the stocks to grow unhindered by withdrawals. So many $ in stocks, that when it comes to selling some off for each later year of retirement, even if the stocks take a market hit, the pool of stock is so large that there are many $-worth left to keep growing in the future. They say this same thing in the study.
I think it is an interesting concept, and I like seeing alternative research, rather than the same-old same-old. It wasn't so many years ago that the pundits and correct-thinkers of the day were advising withdrawals of 7 or 8% were fine!!!