That is, what he calls the Portfolio Management Decision Rule.
#1) Following years in which an equity asset class had a positive return that produced a weighting in excess of its target allocation, the excess allocation was "sold" and the proceeds invested in cash to meet future withdrawal requirements.
#2) Portfolio withdrawals were funded each year on January 1 in the following order: (1) cash from rebalancing any overweighted equity asset classes from the prior year-end, (2) cash from rebalancing any overweighted fixed income assets from the prior year-end, (3) withdrawals from remaining cash, ....
I can't make head or tails of this.
In #1, is this "cash" the same as the cash asset class which has a 10% allocation? Or is it a savings account that is outside the portfolio? I suspect the latter---if it's the former then wouldn't the rebalancing automatically take care of this?
In #2, I assume that item 3 refers to both the 10% cash asset and the cash that has accumulated in the side account, right?
After you've done #1, you've gotten rid of the excess in the equity asset account, so there is no longer any "overweighting" to be rebalanced in #2 item 1. So what does this mean?
The only way I can understand these is to rephrase it as:
1) Sell the excess (over the target allocation) of the equity asset classes. If that is more than the withdrawal amount, then put the excess in a side savings account to use for future shortfalls. If that's not enough then proceed with the next things to draw down. When you get to the cash withdrawal, tap the side savings account as necessary.
2) Rebalance the asset classes, but ignore the side cash account.
Am I understanding it right?
#1) Following years in which an equity asset class had a positive return that produced a weighting in excess of its target allocation, the excess allocation was "sold" and the proceeds invested in cash to meet future withdrawal requirements.
#2) Portfolio withdrawals were funded each year on January 1 in the following order: (1) cash from rebalancing any overweighted equity asset classes from the prior year-end, (2) cash from rebalancing any overweighted fixed income assets from the prior year-end, (3) withdrawals from remaining cash, ....
I can't make head or tails of this.
In #1, is this "cash" the same as the cash asset class which has a 10% allocation? Or is it a savings account that is outside the portfolio? I suspect the latter---if it's the former then wouldn't the rebalancing automatically take care of this?
In #2, I assume that item 3 refers to both the 10% cash asset and the cash that has accumulated in the side account, right?
After you've done #1, you've gotten rid of the excess in the equity asset account, so there is no longer any "overweighting" to be rebalanced in #2 item 1. So what does this mean?
The only way I can understand these is to rephrase it as:
1) Sell the excess (over the target allocation) of the equity asset classes. If that is more than the withdrawal amount, then put the excess in a side savings account to use for future shortfalls. If that's not enough then proceed with the next things to draw down. When you get to the cash withdrawal, tap the side savings account as necessary.
2) Rebalance the asset classes, but ignore the side cash account.
Am I understanding it right?