NW-Bound
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jul 3, 2008
- Messages
- 35,712
Three brother retire within a six-year time period. Each puts $1,000,000 into an S&P index fund and withdraws $5,000/month. No adjustments for inflation.
Brother 1 retires Jan 1, 1997.
Brother 2 retires three years later, Jan 1, 2000.
Brother 3 retires another three years later, Jan 1, 2003.
Fast forward to mid-2010:
Brothers 1 & 3 have portfolios valued at over $1,000,000 each.
Brother 2's portfolio is under $250,000.
As others have pointed out, Brother 2 never had as much money as Brothers 1 and 3.
Let's see.
Jan 1, 1997 - S&P500 was at 741
Jan 1, 2000 - S&P500 was at 1455
Jan 1, 2003 - S&P500 was at 909
Today, Nov 15, 2010 - S&P500 is at 1200
So, one can see that in the tremendous bull run from 1997 to 2000, Brother 1 would have seen his portfolio nearly double to $2M, if he was fully invested in the market. In 2000, at the same time that Brother 2 started to retire and draw $40K on a $1M portfolio, Brother 1 draw the same $40K on a $2M portfolio.
Fast forward to today, Brother 2 is in big trouble, while Brother 1 still has $1M. That's not surprising at all, except Brother 1 would be reminiscing of the $2M portfolio he used to have in 2000. Well, if Brother 1 was able to [-]time the market[/-] rebalance appropriately, he would still have something more than $1M.
Now, consider the possibility of another brother, called Brother 4. This brother worked part-time, so as not to draw down his stash at all. He watched the market and made some [-]trades[/-] rebalance moves, which although far from perfectly timed did help some. And this Brother 4 now has more than the other 3 brothers, although he bought a 2nd home and a motorhome.
Should this Brother 4 quit his part-time work now?