TheoLeo wrote: ↑
Wed Apr 25, 2018 12:43 pm
...Thats a cool tool! Thanks for sharing. What I conclude from playing with it for a while is that bonds are useless and Buffett is right with his 90/10
That's not how I see it.
In other words: The stock/bond allocation doesn´t meaningfully affect your SWR if you are going for a sensible failure probability.
how I see it.
For a 'sensible" failure probability, and "sensible" allocations (not 100% stocks, not 100% bonds), the allocation doesn't meaningfully affect the backtested SWR.
How you act
on that information involves a number of personal elements. The perennial debate is that, based on past history, the dispersion of returns from stocks has had about the same downside and a much higher upside than bonds. My favorite interpretation is that stocks have been like a kind of free lottery ticket that offer a really chance
at a very decent, small jackpot. The problem is that you can't count on
getting that jackpot. Therefore, regardless of what you actually choose to do, your retirement planning
has to be about the same.
Nobody wants to hear this. While they are saving for retirement, what people want is a magic way to do it without having to set aside as much every month. In retirement, what people want is a magic way to spend more based on the amount of savings they have. For reasons I don't understand, it seems to me that the investment industry prefers to sell stocks rather than bonds. At any rate, many people get the impression that a high stock allocation will allow them to safely save less during accumulation, and safely spend more during retirement.
There are two other personal parts to the equation. One is "nobody should ever sell during a stock market crash, nobody ever needs to sell during a stock market crash, and I, being a rational person, will never sell during a stock market crash. Therefore behavior during stock market crashes is not anything that should be considered in planning." A wealth manager who's written numerous investing books (often with the word "smartest" in their titles) acknowledged that he, himself, "panic-sold" during 2008-2009 and said that he in fact had himself done what he was, at the same time, telling his clients not to do. As nearly as I can tell, the lesson he took from this is "I shouldn't have done that."
The second is that we assume that our personal "utility function," our personal happiness, our personal balance of feelings of comfort and security in old age, will be maximized by maximizing the expected average of our "terminal wealth dispersion." That is, it really isn't going to bother us much to see our retirement savings cut in half, and having to pay the same bills with half as much money, if our analysis shows that in backtested scenarios we wouldn't have actually run out. We predict that our anxiety at losing money we don't actually need will be more than outweighed by our comfort at knowing that the statistical odds are that we will die richer than if we'd invested more conservatively.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.