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Re: Guyton-Klinger Withdrawal Decison Rules

G-K is certainly simple enough for me. I don't think I would find your system any simpler, and possibly I would find it more complex. A constant withdrawal approach is certainly simpler, but it produces such a different set of results that it really isn't comparable. Simplicity is not an important ...
by longinvest
Thu Mar 05, 2015 1:19 pm
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Guyton-Klinger Withdrawal Decison Rules

Longinvest-- G-K appears ideal for my purposes, and not very difficult to implement, especially once one has done it for a few years. (Your multi-handed plan seems more complex to me, e.g., constant withdrawal for some money, VPW for other money, CD ladders, etc.) But, different strokes is how it S...
by longinvest
Thu Mar 05, 2015 10:19 am
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Guyton-Klinger Withdrawal Decison Rules

Now, it would be interesting to look at the portfolio balance path and withdrawal path in nominal terms. Inflation is very volatile, yet it is mostly felt on longer time periods (therefore the money illusion that fools so many people). In the short term, most people simply adapt their spending patt...
by longinvest
Thu Mar 05, 2015 9:59 am
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Guyton-Klinger Withdrawal Decison Rules

Thank you all for these excellent posts--they are very helpful. Does the following seem like a fair summary? In regard to my original question, the consensus here is that Guyton-Klinger is a very acceptable set of decision rules that will tend to maximize the safe withdrawal rate, even permitting u...
by longinvest
Thu Mar 05, 2015 9:04 am
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Guyton-Klinger Withdrawal Decison Rules

It is my personal opinion that the most effective tool, for lowering withdrawal volatility, is the addition of bonds in a portfolio (VPW), instead of using smoothing methods (G-K). Most smoothing methods require markets to recover quickly enough, as they tend to hurt the portfolio in bad times by k...
by longinvest
Thu Mar 05, 2015 8:01 am
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Guyton-Klinger Withdrawal Decison Rules

Let me add that, in a worse than worst-historical scenario, G-K still carries a risk of premature depletion. VPW doesn't carry such risk, but it will lower withdrawals more-or-less proportionally to the loss in value of the portfolio; it can seem brutal, but that's still better than dropping withdr...
by longinvest
Thu Mar 05, 2015 7:23 am
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Guyton-Klinger Withdrawal Decison Rules

Thanks, Siamond. Your charts expose very clearly the trade-offs in volatility-of-withdrawals and spending-level of G-K and VPW. Let me add that, in a worse than worst-historical scenario, G-K still carries a risk of premature depletion. VPW doesn't carry such risk, but it will lower withdrawals more...
by longinvest
Wed Mar 04, 2015 9:22 pm
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Dollar cost averaging calculator

Here's a nice web site to backtest regular investments in a portfolio (when selecting the appropriate "Annual Adjustment"):
https://www.portfoliovisualizer.com/bac ... allocation

I think that it is partly based on the data compiled in wiki:Simba's backtesting spreadsheet.
by longinvest
Wed Mar 04, 2015 6:05 pm
 
Forum: Investing - Theory, News & General
Topic: Dollar cost averaging calculator
Replies: 7
Views: 623

Re: Guyton-Klinger Withdrawal Decison Rules

VPW is 100% safe, as it would not fail long before the other methods being discussed would fail. Nope. The 1966 VPW retiree fails after 9 years of retirement (technically year 5 was also a failure year by a couple hundered dollars) and continues to fail for the next 12 years. The 4% SWR fails after...
by longinvest
Wed Mar 04, 2015 5:42 pm
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: Guyton-Klinger Withdrawal Decison Rules

I've played around with the VPW spreadsheet, and I see minimum withdrawals that are as low as 64% of the initial withdrawal in the backtesting worksheet. That's a pretty large variation IMO. Are you saying that the withdrawals started at $48,000 and dropped to $30,720 (e.g. 64% of $48K)? That's bar...
by longinvest
Wed Mar 04, 2015 5:25 pm
 
Forum: Investing - Theory, News & General
Topic: Guyton-Klinger Withdrawal Decison Rules
Replies: 55
Views: 2627

Re: What is the risk of currency hedging? [International Bon

The OP question/critique is more about how the concept is carried out. Currency hedges produce some credit risk other than that of the bonds held, that's true, but it's pretty marginal. The fund would be dealing on a collateralized basis, holding cash or high grade bonds of the counterparty if the ...
by longinvest
Fri Feb 27, 2015 6:50 pm
 
Forum: Investing - Theory, News & General
Topic: What is the risk of currency hedging? [International Bonds]
Replies: 5
Views: 465

What is the risk of currency hedging? [International Bonds]

Vanguard's Total International Bond Index Fund (TIBM) uses currency hedging to protect its investors against currency variations. In my portfolio, the role of bonds is to provide stability. I can easily understand how using a domestic, market-weight, and all-maturities fund of investment-grade nomin...
by longinvest
Fri Feb 27, 2015 11:50 am
 
Forum: Investing - Theory, News & General
Topic: What is the risk of currency hedging? [International Bonds]
Replies: 5
Views: 465

Re: [favorite] Boglehead quotes

I think that this thread is about great (favorite) quotes created by forum members , not about all favorite quotes. Isn't Jack a forum member? Yes, he is, and I really love his quotes, but he wrote that in his books. I really thought that the initial intent of this thread was to collect original qu...
by longinvest
Tue Feb 24, 2015 3:29 pm
 
Forum: Investing - Theory, News & General
Topic: [favorite] Boglehead quotes
Replies: 42
Views: 3886

Re: [favorite] Boglehead quotes

I think that this thread is about great (favorite) quotes created by forum members, not about all favorite quotes.
by longinvest
Tue Feb 24, 2015 2:39 pm
 
Forum: Investing - Theory, News & General
Topic: [favorite] Boglehead quotes
Replies: 42
Views: 3886

Re: [favorite] Boglehead quotes

Old quote, partial credit to Zotty, and part to Epictetus:

"A simpler portfolio keeps smart people from doing stupid things"

Thanks go to fishndoc for remembering it: viewtopic.php?f=10&t=159204&p=2390793#p2390793
by longinvest
Tue Feb 24, 2015 2:00 pm
 
Forum: Investing - Theory, News & General
Topic: [favorite] Boglehead quotes
Replies: 42
Views: 3886

Re: Why Bonds With 20 Year Horizon?

Risk-adjusted returns remained an abstract concept for me until I found a different name for it: Sleep-adjusted returns. ;)
by longinvest
Tue Feb 24, 2015 1:52 pm
 
Forum: Investing - Theory, News & General
Topic: Why Bonds With 20 Year Horizon?
Replies: 26
Views: 2020

Re: Rebalancing vs. Timing the market

While many advocate the use of rebalancing bands (like +/-5%), I personally prefer calendar rebalancing for behavioral reasons. In order to use rebalancing bands, I would have to keep monitoring the value of my portfolio. With calendar rebalancing, I just need to monitor the value on the rebalancing...
by longinvest
Tue Feb 24, 2015 1:18 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing vs. Timing the market
Replies: 23
Views: 836

Re: Value investing doesn't even beat the S&P 500

Above my computer, I have posted a quote from a wise Boglehead, posted here many years ago (sorry, I don't have name to give credit): "A simpler portfolio keeps smart people from doing stupid things" A simple portfolio reduces the odds of investors making behavioral mistakes, which for mo...
by longinvest
Tue Feb 24, 2015 1:04 pm
 
Forum: Investing - Theory, News & General
Topic: Value investing doesn't even beat the S&P 500
Replies: 45
Views: 4327

Re: Risk--Again. The common stepping stone

When I start reasoning about something, I tend to go back to basics. So, let me try and see if this helps. In the following text, I informally use the following approximate meaning for the word risk (at a high level): the chance that future events break expectations. BONDS A bond is a promise (contr...
by longinvest
Sun Feb 22, 2015 2:21 pm
 
Forum: Investing - Theory, News & General
Topic: Risk--Again. The common stepping stone
Replies: 57
Views: 3258

Re: Sequence of Returns Risk

I invite you to put "VPW" in the search box and learn about previous work on this subject.
by longinvest
Sun Feb 22, 2015 11:51 am
 
Forum: Investing - Theory, News & General
Topic: Sequence of Returns Risk
Replies: 9
Views: 740

Re: Risk of Rebalancing

I really hope that one of you chart geniuses out there actually runs these numbers. I would love to see what a BH approach would have looked like for a Japanese investor through the boom and malaise. You can thank bpp: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=23036&p=2380927#p2...
by longinvest
Sun Feb 22, 2015 10:59 am
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

Come to think of it, Sharpe's rebalancing scheme is equivalent to both rebalancing and not rebalancing. On one hand, it is like not rebalancing during sudden big market moves, but it is like rebalancing over the long term (it won't let stocks outgrow bonds in your portfolio if they don't in the mark...
by longinvest
Sat Feb 21, 2015 6:45 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

Countmein, I'm just trying to dispel the myth that rebalancing is riskier than not rebalancing. It is true that there exist other ways to set an AA, that would not necessarily involve rebalancing. For example, a very rich person could buy a liability matched TIPS ladder covering all anticipated liab...
by longinvest
Sat Feb 21, 2015 6:14 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

Vanguard's Target Retirement Income fund uses a 30/70 allocation. Most Target Retirement funds have a similar ending level for stocks. Vanguard Target Retirement 2015 is 50% stocks. Vanguard Target Retirement Income Fund (VTINX) https://personal.vanguard.com/us/funds/snapshot?FundId=0308&FundIn...
by longinvest
Sat Feb 21, 2015 3:45 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

I showed that one reduces "tail risk", when rebalancing, by selecting an appropriate AA in the first place. Now, the goal of an AA is to smooth the ride. But, I agree with you that it leads to a portfolio that is less exposed to the potential upside (but also potential short-term downside)...
by longinvest
Sat Feb 21, 2015 3:44 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

In general, the rebalanced portfolio approaches -100% loss while the unrebalanced portfolio approaches a total loss of only the equity side of the allocation. Again, this is self-evident. The speed/slope of the approach is quicker/steeper for higher equity allocations. So yes, you could show that i...
by longinvest
Sat Feb 21, 2015 3:03 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

This makes no sense. You are comparing a 20/80 portfolio with a 50/50. Try my apples-to-apples experiment above: 50/50 rebalanced every other year vs 50/50 not rebalanced and -10% pa equity returns for 30 years. Wrong! You say that the investor is ready to start with a 50/50 non-rebalanced portfoli...
by longinvest
Sat Feb 21, 2015 2:22 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

That's one scenario. There are others, e.g. long drawn out bear markets. And if you look at the distribution curve you'll see a small left tail that is there with rebalancing that isn't otherwise because rebalancing allows a broader range of outcomes including dire ones. Beautiful words inspiring f...
by longinvest
Sat Feb 21, 2015 12:53 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

The proper way to protect retirement funding is through using a sensible retirement plan, such as a basic layer of guaranteed income (e.g. delayed Social Security, pensions, and, only if necessary, inflation-adjusted single premium immediate annuities) and a withdrawal method with no sequence-of-ret...
by longinvest
Sat Feb 21, 2015 11:10 am
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

50/50 stock/cash portfolio in a 30 year bear market (-10% pa) loses about 80% total if rebalanced every two years. Not rebalanced will see about a 45% loss. Rebalanced portfolio approaches 100% loss with increasing equity allocations. Rebalancing introduces added left tail risk. As with most tail r...
by longinvest
Fri Feb 20, 2015 11:06 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

I think the interviewee is pointing out the fact that if 1- you hold a risky asset, 2- it doesn't have to exhibit RTM, 3- it has some chance of losing all or most of its value, then: a rebalancing plan introduces the risk of total ruin for the portfolio. You will be required to sell all other asset...
by longinvest
Fri Feb 20, 2015 6:07 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Risk of Rebalancing

I think the interviewee is pointing out the fact that if 1- you hold a risky asset, 2- it doesn't have to exhibit RTM, 3- it has some chance of losing all or most of its value, then: a rebalancing plan introduces the risk of total ruin for the portfolio. You will be required to sell all other asset...
by longinvest
Fri Feb 20, 2015 4:47 pm
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: Rebalancing, risks, and bear market implications

Yes, sounds like William Sharpe’s take . My understanding of Sharpe’s view is that when the market tumbles during a bear it's telling you there's more risk. Participants are demanding a higher expected return on their money to take that increased risk. So the price per share goes down. The market h...
by longinvest
Fri Feb 20, 2015 2:04 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing, risks, and bear market implications
Replies: 6
Views: 726

Re: Risk/Return Spectrum

I think that you forgot inflation.
by longinvest
Fri Feb 20, 2015 10:17 am
 
Forum: Investing - Theory, News & General
Topic: Risk/Return Spectrum
Replies: 19
Views: 1446

Re: Risk of Rebalancing

In or near retirement maybe a slightly different approach to rebalancing should be considered . Assume you are in the drawdown phase and have zero earning capacity. When the equity market plunges should you fully rebalance out of safer fixed income into equities and also drawdown from those same fi...
by longinvest
Fri Feb 20, 2015 9:55 am
 
Forum: Investing - Theory, News & General
Topic: Risk of Rebalancing
Replies: 63
Views: 3749

Re: 3-1/3% SWR = you can manage it by intuitive household bu

30x? Am I the only one around here planning to draw down principle in addition to returns? No, you're not the only one. I'm still far away from retirement, but I plan to spend my portfolio using the wiki:variable percentage withdrawal method. Of course, I don't know the exact moment when I will die...
by longinvest
Fri Feb 20, 2015 8:56 am
 
Forum: Investing - Theory, News & General
Topic: 3-1/3% SWR = you can manage it by intuitive household budget
Replies: 40
Views: 3539

Re: why stocks outperform other asset classes in the long ru

I thought that the argument about diversification vs concentration in smaller stocks (e.g. equal-weight) was put to rest a while ago. From https://www.bogleheads.org/forum/viewtopic.php?f=10&t=153866#p2307815: In a small town, there are two businesses: a big hypermarket spread over 9 locations a...
by longinvest
Sat Feb 14, 2015 1:20 pm
 
Forum: Investing - Theory, News & General
Topic: why stocks outperform other asset classes in the long run ?
Replies: 51
Views: 3367

Re: Is "Financial Independence" the new "Retirement?"

The ways of dealing with financial and psychological barriers include the following: - Do not increase spending as the means rise - Write The Number into your IPO and don't increase it, except for inflation - Set a retirement date and then deal with whatever you have at the time IPO? Do we need to ...
by longinvest
Fri Feb 13, 2015 10:18 am
 
Forum: Investing - Theory, News & General
Topic: Is "Financial Independence" the new "Retirement?"
Replies: 52
Views: 6741

Re: Wiki - For new investors: The Importance of Saving Early

I really like the improved graphs using a realistic inflation-adjusted 4% and inflation-adjusted contributions. Great work!
by longinvest
Thu Feb 12, 2015 7:19 am
 
Forum: Investing - Theory, News & General
Topic: Wiki - For new investors: The Importance of Saving Early
Replies: 27
Views: 2365

Re: An LMP/RP approach based on VPW (and derivatives)

I described the scenario with TIPS to follow the logic of the ARVA paper, but it really depends on your own preferences about fixed income investments, the LMP side could be any type of bonds in truth, if you're not overly nervous about inflation. As to TIPS volatility, it shouldn't be terribly imp...
by longinvest
Tue Feb 10, 2015 7:53 am
 
Forum: Investing - Theory, News & General
Topic: An LMP/RP approach based on VPW (and derivatives)
Replies: 9
Views: 703

Re: Wiki comments requested: The importance of asset allocat

What's a bear market ? :mrgreen: Quite a few commentators use the terms bull and bear as a way to describe the current market, making a prediction about the near future*. Not very Bogleheadish. * If one thought that the market was at its bottom, one wouldn't talk about a bear market but about a star...
by longinvest
Mon Feb 09, 2015 10:27 pm
 
Forum: Investing - Theory, News & General
Topic: Wiki comments requested: The importance of asset allocation
Replies: 208
Views: 10318

Re: An LMP/RP approach based on VPW (and derivatives)

Interesting. Are the TIPS bought as a fund or as a ladder? I would think that a TIPS fund with an average maturity of 15.5 years (=(1+2+...+30)/30), as replacement for a 30-year ladder, could display quite surprising volatility. Quite a few people are still puzzled by TIPS behavior during the 2008-2...
by longinvest
Mon Feb 09, 2015 10:18 pm
 
Forum: Investing - Theory, News & General
Topic: An LMP/RP approach based on VPW (and derivatives)
Replies: 9
Views: 703

Re: 4% rule with % of current value ceiling

We can debate if a 20k drop is manageable but the question remains why would you want to? Lets say it is just a matter of giving up luxuries like trips to Europe,home remodel and the like. Why give those up for your 15 prime retirement years so that you can have a big pile of case when your 90? Wou...
by longinvest
Fri Feb 06, 2015 12:04 pm
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858

Re: 4% rule with % of current value ceiling

MathWizard, you are right that one could have avoided all this uncertainty and got approximately $60K all along (= $20K S.S. + $40K inflation-adjusted SPIA). But, this implies a huge loss in liquidity (putting the entire $1M* in a SPIA which carries a small credit risk) and no chance of any bequest....
by longinvest
Fri Feb 06, 2015 11:41 am
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858

Re: 4% rule with % of current value ceiling

Let's not forget about the upside; had a retiree with an identical portfolio and Social Security pension retired in 1982, his withdrawals + Social Security would have gone from 68K up to 164K: http://i58.tinypic.com/169p4z6.png That's a huge opportunity to give away money to family and charity, and ...
by longinvest
Fri Feb 06, 2015 11:04 am
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858

Re: 4% rule with % of current value ceiling

Sure you only spend 1 year at 28. You do however spend another 10 under 34k. The 4% rule has a failure case where you run out of money. That isn't VPWs failure case. VPWs failure case is the portfolio drops enough where it no longer generates enough income to meet your needs. Obviously this is the ...
by longinvest
Fri Feb 06, 2015 10:54 am
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858

Re: 4% rule with % of current value ceiling

DFrank, It is difficult to calibrate a market-dependent withdrawal method to a specific spending pattern. But, combining a variable withdrawal method with a non-indexed pension or a non-indexed SPIA is likely to provide more money in earlier days. In the latest version of its spreadsheet, one can si...
by longinvest
Fri Feb 06, 2015 10:26 am
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858

Re: 4% rule with % of current value ceiling

Randomguy, The thing is that there is no escape from the 28K (or make that maybe 30K if you spent less in good years), if you want to preserve the portfolio and not expose it to the risk of premature depletion. So, what do you do? You limit yourself to 40K in order to have 2K more in the single 28K ...
by longinvest
Fri Feb 06, 2015 10:03 am
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858

Re: 4% rule with % of current value ceiling

If my primary concern was not to spend more in good years and only reduce spending in bad years, I would still use VPW and give away any excess withdrawal money above 4% to my heirs or to charity. This way, I would get to see the smiles of the recipients of my donations, instead of waiting to be in ...
by longinvest
Fri Feb 06, 2015 9:45 am
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858

Re: 4% rule with % of current value ceiling

There is a similar but more flexible approach: wiki:Variable Percentage Withdrawal (VPW).

Here's a thread discussing every detail of it: viewtopic.php?f=10&t=120430

[Edit:] Actually, you should already know about it; you've posted to that thread. :)
by longinvest
Fri Feb 06, 2015 9:11 am
 
Forum: Investing - Theory, News & General
Topic: 4% rule with % of current value ceiling
Replies: 27
Views: 1858
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