Is SWR lower for international stock holders?

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alibaba123
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Is SWR lower for international stock holders?

Post by alibaba123 » Wed May 15, 2019 10:19 am

I am 100% in VWRD (FTSE All-World UCITS ETF)

I chose this fund because i am not a US citizen and therefore i would be better off buying an Ireland domiciled etf.

I've seen many posts about SWRs, in particular the perpetual 3% SWR which should last forever based on past historical data (which is all we have). However my understanding is that these studies account for the equity portion being held in S&P or Total US Stocks, in other words solely the US market. My understanding is that historically, the US market has been one of the better performers. Furthermore, for those of us who hold international etfs our expense ratios tend to be higher (mine is 0.25%).

So my question is, what about those of us who hold the world market cap? Is SWR lower (i'm particularly interested in the perpetual SWR for 100% stocks) and if so, by how much?

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vineviz
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Re: Is SWR lower for international stock holders?

Post by vineviz » Wed May 15, 2019 10:24 am

Historically, the SWR was higher for a globally diversified portfolio than for a US-only portfolio.

I expect this will be true in the future as well, but you won’t know your own SWR until after you die.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

wesgreen
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Re: Is SWR lower for international stock holders?

Post by wesgreen » Wed May 15, 2019 7:55 pm

There's been lots of advice on international investing given on this forum over many years, contradicting Mr.Bogle, and the historical record. I would recommend looking up the numbers yourself. I suspect the answer you'll come up with is "yes". You might want to invest in international anyway, for your own reasons. Personally, I very much regret following Vanguard's advice on this. I've noticed that whenever I've strayed from Mr. Bogle's advice (which I think is meant for US - based investors), it has cost me dearly.

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BeBH65
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Re: Is SWR lower for international stock holders?

Post by BeBH65 » Thu May 16, 2019 5:11 am

Search for the research of Pfau, the relevant Vanguard Paper, the articles "investing in the world" of Siamond on the Bogleheads blog https://finpage.blog/,...
Last edited by BeBH65 on Fri May 17, 2019 2:34 pm, edited 1 time in total.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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nisiprius
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Re: Is SWR lower for international stock holders?

Post by nisiprius » Thu May 16, 2019 5:30 am

SWR is a prediction. Predictions are extremely unreliable for all financial data. I don't think it is remotely possible to answer your question in a meaningful way and you shouldn't try. One of the influential early SWR studies contained this important comment:
The word planning is emphasized because of the great uncertainties in the stock and bond markets. Mid-course corrections likely will be required, with the actual dollar amounts withdrawn adjusted downward or upward relative to the plan. The investor needs to keep in mind that selection of a withdrawal rate is not a matter of contract but rather a matter of planning.
4% is just a rough rule-of-thumb planning number. Nobody can possibly say whether the right number for a particular portfolio going forward is going to be 4.15% or 3.85% or whatever. Just don't plan on 7%, as writers in the mid-1990s said you could, and be ready to make adjustments if you are really spending the full 4%.

I emailed Professor Philip L. Cooley, senior author of the paper, Cooley, Philip L., Carl M. Hubbard and Daniel T. Walz (1998) "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable," AAII Journal February 1998, Volume XX, No. 2.

I had made this comment and I asked him what he thought about it:
What the "4% SWR" means is not that you can treat a portfolio as if it were a guaranteed annuity.

I think all the authors meant is that if it is late 2008 and your stocks halve in value, you don't need to halve your spending instantly. It's OK to cross your fingers and continue spending according to the 4%-then-COLAed plan, even though it means dipping into capital, and it's OK to go on doing that for a while. They also meant to warn people against the much higher withdrawal rates that had been formerly recommended by people using simple amortization calculations that didn't take account of the "order-of-returns" effect.
He replied:
Philip L. Cooley wrote:You have hit the nail on the head!

I've tried to explain that thought to journalists but they don't seem to get it. You've got it.

Stay flexible my friend!, which is the advice we should give to retirees.

Philip L. Cooley, Ph.D.
Prassel Distinguished Professor of Business
Trinity University
Last edited by nisiprius on Fri May 17, 2019 3:22 pm, edited 1 time in total.
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Ferdinand2014
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Re: Is SWR lower for international stock holders?

Post by Ferdinand2014 » Thu May 16, 2019 6:28 am

alibaba123 wrote:
Wed May 15, 2019 10:19 am
I am 100% in VWRD (FTSE All-World UCITS ETF)

I chose this fund because i am not a US citizen and therefore i would be better off buying an Ireland domiciled etf.

I've seen many posts about SWRs, in particular the perpetual 3% SWR which should last forever based on past historical data (which is all we have). However my understanding is that these studies account for the equity portion being held in S&P or Total US Stocks, in other words solely the US market. My understanding is that historically, the US market has been one of the better performers. Furthermore, for those of us who hold international etfs our expense ratios tend to be higher (mine is 0.25%).

So my question is, what about those of us who hold the world market cap? Is SWR lower (i'm particularly interested in the perpetual SWR for 100% stocks) and if so, by how much?
The below article discusses SWR with 21 countries and the U.S. over a 115 year period. It reviews the SWR using the bucket approach and a rebalancing approach. It uses 4%, not the 3% you ask, but it still gives a relative difference. Looking at the data, it demonstrates an all U.S. portfolio over the past 115 years had a significantly lower failure rate. That being said, the future may be different. I think it is important to be flexible and adjust as you go along. The perpetual frustration with economic theory and studies is we can only rely on the past for our data. We will only know the best SWR and portfolio mix after we are 6 feet under.

https://poseidon01.ssrn.com/delivery.ph ... 90&EXT=pdf

Compare exhibit 2 (all US) to exhibit 3 (cross section of 21 countries). The failure rate for a cross sectional 21 country, 86-30 year rolling periods at 4% withdrawal rate was 30.7% vs 0% for U.S. with the rebalance approach using a 60/40 allocation.

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Re: Is SWR lower for international stock holders?

Post by AlohaJoe » Thu May 16, 2019 6:43 am

alibaba123 wrote:
Wed May 15, 2019 10:19 am
I chose this fund because i am not a US citizen
The SWR will depend on where you live. Since it depends on your local inflation and your local exchange rates.

But in general, no SWRs are not lower for international stock holders. In general, they are higher.
In total, global diversification resulted in higher withdrawal rates in 66.4% of the historical cases across countries.
In terms of the worst-case SAFEMAXs, global diversification did improve outcomes in 15 of the 20 countries. Japan enjoyed the largest gains, as the SAFEMAX rose from 0.25% with a domestic portfolio to 2.2% with a global portfolio. Finland, as well, enjoyed an increase in the worst-case scenario from 1.34% to 3.08%. The five countries with reduced SAFEMAXs had consistently strong-performing domestic markets. Four of the five (Denmark, U.S., Canada and South Africa) were ranked in the top five for the SAFEMAX with domestic assets.
However, keep in mind that international safe withdrawal rates are, in general, a pretty terrible guideline for the future. For the most part international safe withdrawal rates are based on "this country was involved in WW1 and WW2 and had tens of millions of citizens die". If you look at "what year was the lowest withdrawal rate, the SWR, set" you'll see:

Denmark - 1939 (WW2)
South Africa - 1937 (WW2)
Netherlands - 1941 (WW2)
Sweden - 1914 (WW1)
Norway - 1912 (WW1)
Belgium - 1911 (WW1)
Finland - 1917 (WW1)
France - 1943 (WW2)
Italy - 1942 (WW2)
Germany - 1911 (WW1)
Austria - 1914 (WW1)
Japan - 1937 (WW2)

You can also see this by looking at "cumulative real returns" of European equities from 1900-2015. It is the blue line in the chart below.

Image

Notice how it is basically flat for the entire first half of the century as two mass wars kill generations, destroy cities, and bankrupt economies? And then once peace is in place, growth is comparable to the US.

It is always challenging to draw lessons from the historical past because the world around us keeps changing.

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Re: Is SWR lower for international stock holders?

Post by AlohaJoe » Thu May 16, 2019 6:44 am

Ferdinand2014 wrote:
Thu May 16, 2019 6:28 am
Looking at the data, it demonstrates an all U.S. portfolio over the past 115 years had a significantly lower failure rate.
It demonstrates than an all-US portfolio was better for an American investor. The OP said they are not American, so that result isn't meaningful for the OP.

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Re: Is SWR lower for international stock holders?

Post by Ferdinand2014 » Thu May 16, 2019 8:30 am

AlohaJoe wrote:
Thu May 16, 2019 6:44 am
Ferdinand2014 wrote:
Thu May 16, 2019 6:28 am
Looking at the data, it demonstrates an all U.S. portfolio over the past 115 years had a significantly lower failure rate.
It demonstrates than an all-US portfolio was better for an American investor. The OP said they are not American, so that result isn't meaningful for the OP.
Can you point out in the study where the cross sectional 21 country data was specifically for a U.S. investor? I can't seem to find it. Or he doesn't say? It was my impression that the cross sectional data took into account local inflation rates and averaged them? Thanks.

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BeBH65
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Re: Is SWR lower for international stock holders?

Post by BeBH65 » Fri May 17, 2019 2:33 pm

BeBH65 wrote:
Thu May 16, 2019 5:11 am
Search for the research of Pfau, the relevant Vanguard Paper, the articles "investing in the world" of Siamond on the Bogleheads blog https://finpage.blog/,...
PFAU : does-international-diversification-improve-safe-withdrawal-rates and 4%-rule-work-around-world/
Portfolio charts: withdrawal-rates-faq and your-home-country-is-inseparable-from-your-withdrawal-rate/
The articles "investing in the world" of Siamond on the Bogleheads blog: https://finpage.blog/2017/03/18/investing-in-the-world-part-1/, especiqlly this table.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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