"The 4% Retirement Rule Is in Doubt. Will Your Nest Egg Last?" (social security, wife)

[k374]

Originally Posted by mathjak107

you would need to have drawn about 3.60% as a retiree in 1965 or 1966 which was the worst time frame on record since 1871. that is for a 30 year period.

there were 5 -30 year periods that fell below 4% which is why a 60/40 or 50/50 is about 95% as a success rate

1907 , 1929 ,1937 , 1965 ,1966

the thinking is that our current situation is worse, 1965 repeat but with near zero bond rates which is why I adjusted accordingly. So to clarify, what is being assumed based on current valuations and interest rates is a situation worse than all of history.

[mathjak107]

maybe not , have you looked at how bad the first 15 years of 1965 or 1966 were ?

they were the worst outcome to date

we are no wheres near that .


1966-stocks minus .13%--bonds 1.08%--rebalanced .64%-- inflation 5.38%

remember that is a 15 year average not a single year.

we would have to see that for 15 years to see worse . odds are less than 5%

which is why i say those that make these claims about low rates causing failures have no idea how bad the numbers the 4% swr are already actually based on are

[RationalExpectations]

Originally Posted by mathjak107

well for decades my fidelity contra and fidelity blue chip growth have beaten my index funds by a wide margin and that includes all expenses.

This has been studied to death. The contra funds expense ratio is just too expensive, and FCNTX is a poor choice for new money.

Even a simple 50/50 mix of the iShares S&P 500 Growth Index ETF (IVW) and the iShares Russell 1000 Growth Index ETF (IWF) replicates almost precisely the characteristics of the actively managed FCNTX (market cap characteristics, growth bias, domestic bias, momentum bias, balance sheet quality bias, beta, intra-day volatility, currency risk, sector risk, country risk, etc etc etc) at a much lower expense ratio of .18% and .19%, respectively, compared to the ridiculously high priced FCNTX at .89%.

Add in the superior tax characteristics of the ETFs (IVW, IWF) compared to the Mutual Fund (FCNTX) and it is a no-brainer.

Originally Posted by mathjak107

morningstar also found that if you were to stick to the top 20% of managed funds by capitalization your odds of beating indexing jump to a whopping 80% .

No, no, no. Just NO.

The Size Factor in modern portfolio management refers to the empirically verified phenomenon that mid-sized stocks (market cap of between $2 Billion & $10 Billion) and small-cap stocks (under $2 Billion) generally outperform large-cap stocks, which have a market cap of over $10 billion, over long periods of time.

https://www.investopedia.com/terms/f...actormodel.asp

Famed financial economist Eugene Fama won the Nobel Prize in Economics for his research into the determinants of equity returns. In their seminal paper, The Cross-Section of Expected Stock Returns, Fama & his long-time collaborator Ken French quantitatively & empirically developed "The Three Factor Model". In their study, they showed that small market cap stocks generate excess returns compared to large cap stocks, as do value stocks with high book-to-market ratios.

https://www.jstor.org/stable/2329112

Ever since the small-cap size premium was discovered, there has been quite a bit of research into other potential factors, leading to the more modern Fama-French Five Factor Model, which adds momentum and profitability:

https://papers.ssrn.com/sol3/papers....act_id=2287202

More recently, small cap stocks haven't shown the outperformance, leading to speculation that it is gone. That is, once people knew about it, everyone jumped in, bidding up the prices so that the outperformance is no longer shown.

In their paper, Size Matters, If You Control Your Junk https://papers.ssrn.com/sol3/papers....act_id=2553889, Cliff Asness, Andrea Frazzini, Ronen Israel, Tobias Moskowitz, and Lasse Pedersen, studied this in-depth:

The size premium has been challenged along many fronts: it has a weak historical record, varies significantly over time, in particular weakening after its discovery in the early 1980s, is concentrated among microcap stocks, predominantly resides in January, is not present for measures of size that do not rely on market prices, is weak internationally, and is subsumed by proxies for illiquidity.

We find, however, that these challenges are dismantled when controlling for the quality, or the inverse “junk”, of a firm. A significant [small cap} size premium emerges, which is stable through time, robust to the specification, more consistent across seasons and markets, not concentrated in microcaps, robust to non-price based measures of size, and not captured by an illiquidity premium. Controlling for quality/junk also explains interactions between size and other return characteristics such as value and momentum.

Originally Posted by mathjak107

most fund managers are very good at picking stocks

No, no, no. Just NO.

Fama & French studied this as well. In their paper "Luck Versus Skill in the Cross Section of Mutual Fund Returns", Fama & French empirically examine active fund managers ("stock pickers") over time, and determine that their performance is almost completely explained by dumb luck - both good luck and bad luck.

There are a handful of active managers whose performance exceeds the expectation of luck - but they don't appear to be "stock pickers" in the historic sense. They are algorithmic & high frequency traders who might buy & then sell the same stock thousands of times each second.

Perhaps the best of these is the secretive hedge fund Renaissance Technologies, led by famed mathematician Jim Simmons. Unfortunately, mere mortals cannot place money into RenTech's funds.

Originally Posted by mathjak107

but small funds get eroded by expenses ..the bigger the fund the less all costs destroy the funds beta

No, no, no. Just NO.

Fund expenses have absolutely zero impact on the calculation of the fund's Beta. The size of the fund has absolutely zero impact on the calculation of the fund's Beta.

[mathjak107]

i can dispute every point there with my own data and articles but i wont waste both our time since you are going to support your view and i will support my own view and performance.

actually old money is no different then new money in any fund .

each day we are buying in at that days price so to speak and going forward is the same gain or loss whether new or old on yesterday’s balance .

me continuing to keep 500k in contra going forward is-no different than someone putting their 500k in today .

so time once again will show if contra is still a good deal but that logic you used is pretty flawed about new money being different than older money.

i have contra in my ira and tax wise it is no different than my index funds so that is another poor assumption that everyone is taxed on distributions

go look at all the time frames the last 15 years for contra vs a total market fund and tell us which did better.

contra is a go anywhere fund including private equity and you can only match it to other funds until it changes and no longer matches

by the way back in 1997 i was interviewed by the wall street journal about the closing of fidelity contra to new money .

i felt they got way to big and performance would likely suffer from being to big ..after all study after study showed funds had worse performance as they grew .

boy was i wrong about contra , glad i kept it all these years despite my feelings and these supposed studies

[mathjak107]

what contra holds varies all the time , it can be more energy at times or more tech at another . it can be large growth stocks at one time and smaller growth companies another time .

it is a go anywhere fund including private equity so while you THINK you found a match that is only true until its not .

will danoff has free reign unlike other fund managers to weight or go anywhere he likes

this is including all expenses

ytd contra. 27.50, total market fund 25.25

3 yr. contra 28.50 , total market 22.71

5 yr. contra 23.39 , total market 18.55

10 yr contra 18.43. , total market 16.65

15 year contra 12.83 , total market 10.77

[ddeemo]

Originally Posted by mathjak107

the difference here is that we dont need past performance to play out as we are based on the worst of times . monte carlo simulations demonstrate this to be true .

so the point is it isnt that easy to actually see 4% fail since it already is based on the nastiest of times . even monte carlo simulations have not come up with worse outcomes then the ones we had .

if anything when we speak of past performance we talk in terms of more average to best of times.

you can do monte carlo simulations in firecalc , there is a tab . i ran it in my post below .

outcomes are about the same as the standard actual data based calculation .the computor was actually able to run 221 simulations over the same 30 years .

which is interesting that even a computer tryimg to come up with worst outcomes then we had cant really come up with worse

You missed my point - it was that both are valid ways to evaluate and 4% rule works reasonably well using both methods - one is not intuitively or theoretically better than the other. Monte Carlo simulations do have one big drawback, they are only as good as their programs and assumptions. Past performance has one big drawback, history is not necessarily the future. For me, I would and do use both, can't hurt getting a second opinion.

[mathjak107]

once i got passed my first year in retirement i no longer used the 4% swr constant dollar method .

i use bob clyatts 95/5 which firecalc even has a tab for .

it uses actual real time balances each year … no robotic spending year after year like that silly constant dollar method that pretends we are robots in how we spend 4% inflation adjusted

[ddeemo]

Originally Posted by mathjak107

once i got passed my first year in retirement i no longer used the 4% swr constant dollar method .

i use bob clyatts 95/5 which firecalc even has a tab for .

it uses actual real time balances each year … no robotic spending year after year like that silly constant dollar method that pretends we are robots in how we spend 4% inflation adjusted

Yes, i am more in line with that method for actual withdrawal if needed - currently we draw little from investments - kind of ironic, mostly draw to cover taxes, pensions are covering most costs.

[Perryinva]

I can’t believe this topic got 160 posts. It’s been done like 100 times! And there was nothing remotely new here, and not many new people in the thread either. Everybody that knows anything about it, talks about, but no one basically follows it. It is the most general rule of thumb there is. Especially since “success” simply means not running out of money. So a couple that dies with $1.98 left is successful. And so is a couple with $1.98 million. How freaking general is that?

There are probably 10 things off the top of my head that I can think of that are more important to a successful retirement, financially, than the 4% rule of thumb.

[leastprime]

^ not a good illustration.
Dying with 1.98 is only a success if the previous month you were able to spend/use $6,000 (you chose your minimal monthly cost of living).