Suggestion: Sensitivity Analysis

[BigMoneyJim]

I've toyed with the idea of making a calculator. I'm a bit more serious about a rent vs. buy calculator since that is a more immediate question for me, and that would more or less require contrived future variances, and a rubber bezier curve is once concept I had in mind.

I'm moving the weekend of June 10, and after that I will be job hunting, visiting family and fixing up my mother's house. If I have the time and motivation I may start seeing what I can start...that is if dory36 doesn't beat me to it. He's on a tear lately!

I posted this partially to indicate my interest and partially to make this thread easier for me to find later. We'll see what happens in June.

 

[astromeria]

Sorry, couldn't resist....

INCHWORM

Inchworm, inchworm
Measuring the marigold
You and your arithmatic
You'll probably go far

Inchworm, inchworm
Measuring the marigold
Seems to me you'd stop and see
How beautiful they are

Two and two are four
Four and four are eight
Eight and eight are sixteen
Sixteen and sixteen are thirty-two

I can imagine Danny Kaye singing it, but I can't remember the context (a musical?). It was a popular song in the early 50s IIRC, at least around my house.

 

[laurence]

Ow, my head hurts! But I was left with an impression Wab touched on, why not just change the makeup of the portfolio wrt equities/bonds to see deltas in SWR and it's dependency on return? A bit tedious to get a rough sketch of a sensitivity analysis, but...

 

[wabmester]

I played with the new FIREcalc a bit.    Way too many parameters already.   I want freedom from choice.   Give me back the old version that just spit out "4%" no matter what I put in.   

 

[modlair]

Ow, my head hurts! But I was left with an impression Wab touched on, why not just change the makeup of the portfolio wrt equities/bonds to see deltas in SWR and it's dependency on return? A bit tedious to get a rough sketch of a sensitivity analysis, but...

Ooh, nice try. That had potential for a few minutes. But nope. The problem is the bond portion of the mix changes its rate as the equity portion changes its rate. And worst of all, you can make a case for them not being independent. As bond rates rise, maybe the stock market drops.

So if you try to emulate a future bias of stock market performance wrt the past by nudging your asset mix, you don't get the desired experiment. Not desired result; desired experiment. In other words, raising bond mix to emulate a worse future stock market return wrt the past is not valid.

I played with the new FIREcalc a bit. Way too many parameters already. I want freedom from choice. Give me back the old version that just spit out "4%" no matter what I put in.

Ha. Given the other thread this is really funny. We're tracking down why old firecalc results don't equal new firecalc results using the same inputs.

And I have bad news. Pretty much all results show the new firecalc decreasing your SWR and those sources of variance concretely explained so far point at the old firecalc being improperly optimistic.

Sigh.

 

[dory36]

And I have bad news.  Pretty much all results show the new firecalc decreasing your SWR and those sources of variance concretely explained so far point at the old firecalc being improperly optimistic.

Especially if you ignored the narrative with the old one...

 

[wabmester]

Ha.  Given the other thread this is really funny.  We're tracking down why old firecalc results don't equal new firecalc results using the same inputs. 

And I have bad news.  Pretty much all results show the new firecalc decreasing your SWR and those sources of variance concretely explained so far point at the old firecalc being improperly optimistic.

I was joking, but consider what we found in the other thread.   I was just doing a baseline sanity check, using exactly the same parameters, but used two different sources for long-term treasury bond data in the new FIREcalc.    Got two different SWRs.   One was 15% higher than the other.    And that was after eliminating every other possible unknown.

So, in the end, I prefer just sticking with a ballpark of 4% because the results you get from FIREcalc are only meaningful if the future plays out *exactly* the same way it did in the past.   And the chances of that happening are zero.

(And, sorry, it was my fault that there were two narratives in the other thread.   The two data sources dory36 was talking about are both part of the new FIREcalc.)

 

[dory36]

I played with the new FIREcalc a bit.    Way too many parameters already.   I want freedom from choice.   Give me back the old version that just spit out "4%" no matter what I put in.   

I have reserved this version for only special users.

Please visit http://firecalc.com/simple.php

But keep it to yourself!

 

[wabmester]

I like it! Reminds me of my old Unix days. Simple is beautiful.

 

[modlair]

I don't like it. It is improperly simple because of the definition of "normal". "Simple" should be defined as . . . the default for all parameters is what most people will find is correct for them.

Most people will collect some amount of Social Security. If "most" was 51% then okay, I'd be more comfortable with leaving it out. But it's not going to be 51%. It's more likely 90%. I suspect there is no SS inclusion in that simple approach so it is just not "simple" and SS has a big effect on SWR.

The way-too-often-quoted 4% SWR is wrong for most people. SS will move SWR upward.

 

[laurence]

rod, you forgot the smiley face.

 

[modlair]

Ha!

 

[Nia4914]

Resolution

Well, maybe not so great. 

The alternate suggestion explores the effect on success of varying SWR, which is sort of just automating what people do manually now.

I was interested in how sensitive a given SWR's success is to the future varying in performance wrt the past.

But now that I think about this, maybe we already have it?  If I think the future will be 2% worse than the past, is it legit to simply set the AER to 2.18?  And if more bullish then -1.82?  I checked, you can enter a negative AER.

Maybe this can be handled with just some text next to the fund expense 0.18 number.

"about" is wrong!