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However that time frame is not one of the worst and it is not even one the 4% swr is based on
I started at 1973 because between 1966-1972 the market actually performed decent (10% aggregate nominal) and inflation was rather low (between 2.9% in 1966 to a high of 5.7% in 1970 falling back to 3.2% in 1972)
Inflation only started skyrocketing in 1973, to 6.2%.
So, i'm starting from the point of real carnage and then chopping off all the good stuff that happened after 1982. This is worse than the 1966-95 cycle because this cycle includes 1982-1995 which was a blockbuster run.
The argument I hear is that the 70s could return but don't count on the 17 year blockbuster run that started 1982 to happen again... that is from the pessimistic crowd, so trying to backtest for that and see how it turns out.
Quote:
Originally Posted by mathjak107
No reason to reinvent the wheel ..
They use those worst case dates for a reason as nothing has been worse for retirees
yeah, I know that is what happened historically but as I said above, the argument is that 1982-1999 was an anomaly and it may not repeat - instead we continue to have crashes.
The argument I hear is that the 70s could return but don't count on the 17 year blockbuster run that started 1982 to happen again... that is from the pessimistic crowd, so trying to backtest for that and see how it turns out.
yeah, I know that is what happened historically but as I said above, the argument is that 1982-1999 was an anomaly and it may not repeat - instead we continue to have crashes.
So I concatenated 2 datasets 1973-81 + 2007-2019
Irrelevant, the 1966 group had already failed by the time the bull got here …
That is why you can’t just pull time frames out ..there is spending down going on .
So what had to be spent caused every failure to be written in stone by the 15th year which is 1981.
The bull was too little too late …but the same thing played out in every failure at 4% .
By the 15th year the game was over.
It isn’t about returns as much as it is sequences of returns.
As moshe milevsky demonstrated , the exact same return can fail 15 years sooner just based on the sequence of gains and losses.
My suggestion is stick with what we know and is the industry standards for a reason
so are you saying that if we back test for 1966-95 we have a fairly high level of confidence that we will not run out of money?
Yes, I understand that nothing is 100% guaranteed but if we are shooting for 95% chance of success and running our portfolio and withdrawals from 1966-95 leaves us a good balance in 1995 should we stop worrying about running of money?
I was initially doing backtests based on the 1966 dataset but then hearing all these naysayers thought I should stress test even more.
So most don’t recognize just how bad that 4% swr is based on ….
No it isn’t guaranteed we can’t have worse but odds are better then 90% against it.
It’s easy to monitor as mathematically you need at least a 2% real return the first 15 years to hold
yeah, that is what Kitces says, I was listening to his podcast on Bigger Pockets (are 4% naysayers bad at math) and he was making the point that the knowledge that you're not going on a good course is going to be available a country mile away from the precipice and you'll make adjustments, it's not like you're going to simply step on the gas and do a "Thelma and Louise" off the precipice anyways...LOL!
Thanks for posting the Kitces video. Hands down, this is the best video of this type I’ve ever seen. Very informative. It’s interesting he’s not a fan of using buckets.
Thanks for posting the Kitces video. Hands down, this is the best video of this type I’ve ever seen. Very informative. It’s interesting he’s not a fan of using buckets.
He has done so much numbers crunching on buckets over the years and articles .
They are mental things not financial .
Think about it logically..rebalancing stocks and bonds to creat cash is really not different then rebalancing the cash and bonds when you use buckets and the cash is running low and you need to refill .
Typically bonds beat cash returns when equal time frames are compared so it’s no surprise that buckets can lag slightly with no real advantage
Even creating cash form 100% equities has not been a problem .
Without the weight of cash and bonds the up years , which are 2/3’s of the time has balances that are that much higher .. they cushion selling in the down years
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