meeting your retirement goals with the pp

[Tyler]

But the PP has handled the worst the markets have thrown at it since 1972 much better than the 60-40 portfolio over the same timeframe.  I believe that's a strong indicator that it would similarly perform better in earlier economic conditions.  You cannot accept that without direct proof.  We just have different perspectives.  At some point we all have to make a decision that will help us sleep at night and roll with it -- to each his own.  I do believe there's more than one good path to retirement finances.

over  all rolling 30 year periods  you are saying the pp did better than 60/40  since 1972 ?  i would have to see that to believe it .  i would be very skeptical of that claim. .

I'm not claiming the PP beats 60-40 in end value over every period.  That's obviously not true.  My quote was referencing retirement, and I'm saying that with a 4% withdrawal rate, the worst 30-year period since 1972 for a 60/40 portfolio ended down 62%.  The worst 30-year period for the PP ended up 4%.  Which one do you feel is more "safe"?

[mathjak107]

as far as retirement scenario's you have to understand what a safe withdrawal rate is.

bill bengan used a 50/50 portfolio to run through every 30 year rolling period we ever had .  he used an s&p 500 type index and 5 year treasury's.

he then identified the absolute worst time frames  in history . the ones that if you retired in to would have picked your bones clean during just the first 15 years.

he then tried all different spending rates until he found one where you made it through the worst of the worst 30 years later and had money left.

the actual swr was 3.98% but it was rounded off to 4%.

there were zero failures.


another group of researchers decided to take it a step further . they decided to use not only 50/50 but every other allocation and then mix it with other draw rates.

the result was the trinity study.

they used not 5 year bonds but longer term 7-10 year corporate's  and their results for 50/50 had some failures .  they then graded all the other allocations by the number of failures and 90% was considered the bottom line of acceptable.  they also found the exact same worst time frames as bengan.

so if you are stress testing a portfolio you need to benchmark it against the entire worst time frame.  that time frame by the way is the group that retired in 1965 and 1966. they got slammed day 1.

so unless you can duplicate the entire time frame and not pieces you have no idea how your portfolio would have stood up , hense my reluctance to try something as radical as the pp.

yes , you can pull out pieces of that time frame and get good results but those results will be very different when run from day 1 back in 1965 with all the poor sequences , returns and inflation compounding..

you can't by pass the beginning and jump in  the 1970's and compare . you missed the beginning that made it so awful in the first place.

[mathjak107]

The point of the PP for this type of application is to reduce the yearly volatility so you can stick to your plan. If your goal is to make the maximum amount of money over 2-3 decades without looking at it or touching it or caring about volatility, then sure, I bet you could get everyone here to agree with you that a more stock-heavy portfolio would on average yield more. But that's not what most of us here are doing. This forum is heavily self-selected from among the ERE crowd precisely because it's such a good short accumulation early retirement portfolio. If there are any members of this forum in their 20s who anticipate working 3 more decades, please raise your hands! I haven't seen many. That's because the PP is an obviously inferior choice for the person who wants to maximize their potential upside over the course of decades.

Okay then!  Please come up with a formula for how much to increase the PP equity to per a given age so that it decreases down to 25% at retirement age.  I betcha that will work.

I don't think that risk tolerance is as much a function of age as many people think. 

I believe that a person's risk tolerance is more a function of his psychological makeup than his age.

omg that age based investing is a pet peeve of mine .  nothing could be worse.

telling a 25 year old to go 100% equity because he is young and have him bail and get scared off is awaful.

loading seniors up with bonds because of their age with no regard for where we are in the cycle is just wrong.

even a 65 year old has money he won't need to eat with for perhaps 30 years. no reason that can't be in equity's.

[mathjak107]

But the PP has handled the worst the markets have thrown at it since 1972 much better than the 60-40 portfolio over the same timeframe.  I believe that's a strong indicator that it would similarly perform better in earlier economic conditions.  You cannot accept that without direct proof.  We just have different perspectives.  At some point we all have to make a decision that will help us sleep at night and roll with it -- to each his own.  I do believe there's more than one good path to retirement finances.

over  all rolling 30 year periods  you are saying the pp did better than 60/40  since 1972 ?  i would have to see that to believe it .  i would be very skeptical of that claim. .

I'm not claiming the PP beats 60-40 in end value over every period.  That's obviously not true.  My quote was referencing retirement, and I'm saying that with a 4% withdrawal rate, the worst 30-year period since 1972 for a 60/40 portfolio ended down 62%.  The worst 30-year period for the PP ended up 4%.  Which one do you feel is more "safe"?

read my comment about why you are measuring the wrong time frame and are not measuring "the worst " that any standard is based on. you are pulling pieces out of sequence which is a different time frame all together which by the way had no issues in the end.  you are not stress testing a thing against the worst case scenario

[Tyler]

We all understand SWRs and the various studies very well.  I think we've beaten that horse to death.  We just have different opinions on how much weight to give them without also acknowledging that there might be other good alternatives they did not even consider.  One is free to keep a study or a newsletter in their back pocket if that gives them more confidence in their choices, but that doesn't mean there aren't other paths to success. 

What our discussion has definitely shown me is that everyone calculates risk differently.  You see more risk in portfolios that can't be thoroughly backtested, while I see more risk in portfolios that are volatile and unpredictable.  Both perspectives are perfectly legitimate.  Everyone should invest in a way that matches their personality.

BTW -- I hope you don't feel the need to defend your investment plan.  I think you're doing great!  Step back, relax, have a beer, and enjoy your impending retirement!

[Tyler]

read my comment about why you are measuring the wrong time frame and are not measuring "the worst " that any standard is based on. you are pulling pieces out of sequence which is a different time frame all together which by the way had no issues in the end.  you are not stress testing a thing against the worst case scenario

I'm measuring the longest timeframe I can for the PP with the best data available.  That's the best anyone can do with any analysis.  One is free to come to their own conclusions. 

[mathjak107]

actually though the longer you go out the more predictable stocks were . they went from the most volatile asset to one that like night followed day could be pretty much counted on to provide a range of growth and to be up when you needed to refill cash for spending.

never have we even had a 15 year period you would have had to sell equity's at a loss. certainly looking out 25 years or more that possibility shrinks even less. i  doubt you can find a 25 year period or 30 year period equities were not up substantially.

so my point is while we like to say equities are unpredictable the truth is the longer you go out the smoother and more predictable they get.

[mathjak107]

read my comment about why you are measuring the wrong time frame and are not measuring "the worst " that any standard is based on. you are pulling pieces out of sequence which is a different time frame all together which by the way had no issues in the end.  you are not stress testing a thing against the worst case scenario

I'm measuring the longest timeframe I can for the PP with the best data available.  That's the best anyone can do with any analysis.  One is free to come to their own conclusions.

so in effect what you are coming up with is a "draw rate " for spending  , but what it isn't is a stress tested "safe withdrawal rate " that survived the worst time frame in history. the one  safe with drawal rates are based on .


big difference for someone basing a retirement on it  when you have no do overs, in my opinion of course.

[Tyler]

never have we even had a 15 year period you would have had to sell equity's at a loss. certainly looking out 25 years or more that possibility shrinks even less. i  doubt you can find a 25 year period or 30 year period equities were not up substantially.

so my point is while we like to say equities are unpredictable the truth is the longer you go out the smoother and more predictable they get.

There have been multiple periods of 20 years with negative real returns for stocks. 

Warning: PDF.

http://www.crestmontresearch.com/docs/S ... -11x17.pdf

As you've mentioned, the late 60's were brutal for stocks.  It's no wonder that the studies looking at stock-heavy portfolios failed starting in 1966.  Other more diverse portfolios likely had different low years -- I wish we could test every option for 100 years but we can't.  Eventually we all have to make an informed decision based on the best available data and get on with life.

BTW, averages get smoother in the longrun.  Volatility absolutely does not.  That's a pet peeve of mine. 

[screwtape]

My way of making this a little less worrisome is to just not re-balance so frequently. When I first started out with the PP I stuck religiously to the 25% allocations but for the past couple of years I just check it in February and only re-balance if I exceed the bands. I was pretty close last year but let it ride for another year, so I'm probably over now but not bothering to check.  I figure if it wants to get stock heavy during a time of prosperity, why fight it, as long as it doesn't exceed a reasonable degree of risk.

Have you examined the effect of wider rebalancing bands at peak2through?

Of course not. Do I strike you as the kind of person who would do such a thing?

[MachineGhost]

bill bengan used a 50/50 portfolio to run through every 30 year rolling period we ever had .  he used an s&p 500 type index and 5 year treasury's.

he then identified the absolute worst time frames  in history . the ones that if you retired in to would have picked your bones clean during just the first 15 years.

he then tried all different spending rates until he found one where you made it through the worst of the worst 30 years later and had money left.

the actual swr was 3.98% but it was rounded off to 4%.

there were zero failures.

The logical inference here is that the GoGo Era had no easily obtainable gold to protect yourself from inflation.  So if a 5-year maturity (2.95 duration) was enough to more than compensate a whopping 50% of equity exposure except during times of inflation, it makes me wonder why we need a 17-year T-Bond duration for just 25% equity in the PP.  Is the increased T-Bond duration just justification to be able to have 25% in gold???  Something smells like a rat here.

In theory, there's no reason you couldn't start with 50% gold, 50% 5-year Treasuries in the PP and adjust it to allow gold and cash to be in the equation.  That will fix the GoGo flaw.

EDIT: But as I suspect, the increased equity and lower duration of the bonds is a POOR AND AD HOC way around the high inflation problem better served by gold.

[MachineGhost]

50/50 stocks and 5-year doesn't seem to live up to the hype.  This is why I don't trust financial advisors to ever do anything right, especially backtesting.  They are way too self-serving and biased.

Code: Select all

1957	1986	0.96%
1958	1987	1.19%
1959	1988	0.74%
1960	1989	1.20%
1961	1990	1.13%
1962	1991	1.36%
1963	1992	1.67%
1964	1993	1.56%
1965	1994	1.10%
1966	1995	1.79%

Code: Select all

1957	1971	3.59%
1958	1972	4.61%
1959	1973	2.34%
1960	1974	0.53%
1961	1975	1.60%
1962	1976	1.67%
1963	1977	1.39%
1964	1978	0.34%
1965	1979	-0.36%
1966	1980	-0.36%
1967	1981	-0.47%
1968	1982	0.30%
1969	1983	0.79%
1970	1984	1.90%
1971	1985	3.07%
1972	1986	-1.67%
1973	1987	-2.22%
1974	1988	-0.87%
1975	1989	1.88%
1976	1990	0.66%
1977	1991	1.05%
1978	1992	1.95%

[MachineGhost]

Of course not. Do I strike you as the kind of person who would do such a thing?

Don't you want to check your premises when real money is on the line?  Because wider bands lower the PP's return.  So may I suggest using it?  Its very simple and easy to use: http://www.peaktotrough.com/hbpp.cgi

[Tyler]

so in effect what you are coming up with is a "draw rate " for spending  , but what it isn't is a stress tested "safe withdrawal rate " that survived the worst time frame in history. the one  safe with drawal rates are based on .

You give me too little credit.   I understand the SWR methodologies quite well.  I've always been frustrated that the classic studies ignore all asset classes other than broad stocks and bonds.  No TIPS, no REITs, no commodities.  The originals even ignored international stocks and cash.  I find the base assumption that one can only trust assets that your great grandfather had access to silly, and simply apply the same thinking to broader and more diverse portfolios.  The tradeoff is that my data set is smaller because not everything has been around since the 1800s, and that scares some people off.  But the methodology is the same.

Using the same methodology as the Bengen study (including the 5-year T-bonds) the safemax WR for a 60/40 portfolio since 1972 is 4.3%, not that far off from the historical worst case of 4%.  So rough times are not without modern precedent, although you are correct that it has been worse for stock-heavy portfolios in the past. Still, the PP has been incredibly consistent and not come anywhere near the same drawdowns as a 60/40 portfolio even through some very trying market patches.  See the charts on page 1. 

It's not luck or an accident or a sampling artifact.  The worst years for a stock-heavy portfolio will be very different from the worst ones for more diversified portfolios.  Looking at returns starting in 1929 or 1966 doesn't necessarily change anything just because those were the worst starting years for stocks -- remember, the PP has built-in firewalls and holds only 25% stocks.  That's exactly the point of the diversification philosophy behind it, and you either buy into it or you don't.  The PP was designed specifically to limit downside risk while providing good (but not huge) returns in all market conditions, so the stable performance should be no surprise.  That said, there certainly could be times in the past or the future where the PP would have or could set a new low point -- I don't dispute that at all.  Markets are unpredictable, and my goal is not to convert anyone away from their own nature and good sense. 

My only definitive claim is this:  I've studied this particular topic more than anyone else I'm aware of and am confident enough to make the PP my personal retirement portfolio of choice with no VP.  I'm happy to be the guinea pig, and will definitely update the forum with my progress through good times and bad.  Maybe you can do the same with your own retirement portfolio and we can compare notes.  Debating spreadsheets and studies into the ground is academic and circular (not to mention boring), but sharing real-life experiences will be a lot more fun and insightful.  That way others can learn from each of our experiences to help them decide which direction is best for them.  Or maybe they'll realize we're both stubborn and a little crazy and go a different direction entirely. 

Cheers!

[mathjak107]

50/50 stocks and 5-year doesn't seem to live up to the hype.  This is why I don't trust financial advisors to ever do anything right, especially backtesting.  They are way too self-serving and biased.

Code: Select all

1957	1986	0.96%
1958	1987	1.19%
1959	1988	0.74%
1960	1989	1.20%
1961	1990	1.13%
1962	1991	1.36%
1963	1992	1.67%
1964	1993	1.56%
1965	1994	1.10%
1966	1995	1.79%

Code: Select all

1957	1971	3.59%
1958	1972	4.61%
1959	1973	2.34%
1960	1974	0.53%
1961	1975	1.60%
1962	1976	1.67%
1963	1977	1.39%
1964	1978	0.34%
1965	1979	-0.36%
1966	1980	-0.36%
1967	1981	-0.47%
1968	1982	0.30%
1969	1983	0.79%
1970	1984	1.90%
1971	1985	3.07%
1972	1986	-1.67%
1973	1987	-2.22%
1974	1988	-0.87%
1975	1989	1.88%
1976	1990	0.66%
1977	1991	1.05%
1978	1992	1.95%

doesn't live up to ?  live up to what ?  it certainly shouldn't be for the accumulation stage . it is for the spending down stage.

not sure of the point you are trying to make.  spending down has little to do with average returns and everything to do with market sequences of gains and losses and their effect on a declining balance when spending at the same time..

these numbers are reflecting nothing  in that  respect which is what effects retirement outcomes the most.

the same exact average yearly returns but in different orders can have a 15 year  difference in the number of years your money can last and that is what the big to do is in stress testing against worst case outcomes.

want to know what the actual results were over the worst 30 year periods ever ?

suppose you were so unlucky to retire in one of those worst time framess ,what would your 30 year results look like :

1907 stocks returned 7.77% -- bonds 4.250-- rebalanced portfolio 7.02- - inflation 1.64--

1929 stocks 8.19% - - bonds 1.74%-- rebalanced portfolio 6.28-- inflation 1.69--

1937 stocks 10.12 - - bonds 2.13 - rebalanced portfolio -- 7.24 inflation-- 2.82

1966 stocks 10.23 - -bonds 7.85 -- rebalanced portfolio 9.56- - inflation 5.38

for comparison the 140 year average's were:

stocks 8.39--bonds 2.85%--rebalanced portfolio 6.17% inflation 2.23%

so what made those time frames the worst ? what made them the worst is the fact in every single retirement time frame the outcome of that 30 year period was determined not by what happened over the 30 years but the entire outcome was decided in the first 15 years.

so lets look at the first 15 years in those time frames determined to be the worst we ever had.

1907--- stocks minus 1.47%---- bonds minus .39%-- rebalanced minus .70% ---inflation 1.64%

1929---stocks 1.07%---bonds 1.79%---rebalanced 2.29%--inflation 1.69%

1937---stocks -- 3.45%---bonds minus 3.07%-- rebalanced 1.23%--inflation 2.82%

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

it is those 15 year horrible time frames that the 4% safe withdrawal rate was born out of since you had to reduce from what could have been 6.50% as a swr down to just 4% to get through those worst of times.

while 6.50% to 4% does not sound like a lot 1 million at 4% is an initial draw rate of 40k , at 6.50% you could have had 65k . that is a whopping 60% more .

so what it boils down to is any time you fall below a 2% real return average over the first 15 years you run the danger of 4% not holding. but even a 1/2% cut in spending will make you whole again over the next 15 years or longer.


which is why i always say if you have little discretionary spending you can cut from then you should not be in equities in retirement .

so i am not quite sure what it is a 50/50 mix in retirement isn't living up to except the fact it has failed zero times at 4% inflation adjusted over every 30 year time frame and it has left more money than you started out with at the end of 30 years 90% of the time.

[mathjak107]

so in effect what you are coming up with is a "draw rate " for spending  , but what it isn't is a stress tested "safe withdrawal rate " that survived the worst time frame in history. the one  safe with drawal rates are based on .

You give me too little credit.   I understand the SWR methodologies quite well.  I've always been frustrated that the classic studies ignore all asset classes other than broad stocks and bonds.  No TIPS, no REITs, no commodities.  The originals even ignored international stocks and cash.  I find the base assumption that one can only trust assets that your great grandfather had access to silly, and simply apply the same thinking to broader and more diverse portfolios.  The tradeoff is that my data set is smaller because not everything has been around since the 1800s, and that scares some people off.  But the methodology is the same.

Using the same methodology as the Bengen study (including the 5-year T-bonds) the safemax WR for a 60/40 portfolio since 1972 is 4.3%, not that far off from the historical worst case of 4%.  So rough times are not without modern precedent, although you are correct that it has been worse for stock-heavy portfolios in the past. Still, the PP has been incredibly consistent and not come anywhere near the same drawdowns as a 60/40 portfolio even through some very trying market patches.  See the charts on page 1. 

It's not luck or an accident or a sampling artifact.  The worst years for a stock-heavy portfolio will be very different from the worst ones for more diversified portfolios.  Looking at returns starting in 1929 or 1966 doesn't necessarily change anything just because those were the worst starting years for stocks -- remember, the PP has built-in firewalls and holds only 25% stocks.  That's exactly the point of the diversification philosophy behind it, and you either buy into it or you don't.  The PP was designed specifically to limit downside risk while providing good (but not huge) returns in all market conditions, so the stable performance should be no surprise.  That said, there certainly could be times in the past or the future where the PP would have or could set a new low point -- I don't dispute that at all.  Markets are unpredictable, and my goal is not to convert anyone away from their own nature and good sense. 

My only definitive claim is this:  I've studied this particular topic more than anyone else I'm aware of and am confident enough to make the PP my personal retirement portfolio of choice with no VP.  I'm happy to be the guinea pig, and will definitely update the forum with my progress through good times and bad.  Maybe you can do the same with your own retirement portfolio and we can compare notes.  Debating spreadsheets and studies into the ground is academic and circular (not to mention boring), but sharing real-life experiences will be a lot more fun and insightful.  That way others can learn from each of our experiences to help them decide which direction is best for them.  Or maybe they'll realize we're both stubborn and a little crazy and go a different direction entirely. 

Cheers!

there was not enough history and no standardized index's  tracking other asset classes to use them  in historical back testing going back as much as 146 years.  there was also no way to test every possible combination  of asset and investment type to even try to do it . so investments had to be kept as simple as the index's that could be constructed.  there were no reits , tips etc avail to mom and pop back then.

[mathjak107]

so in effect what you are coming up with is a "draw rate " for spending  , but what it isn't is a stress tested "safe withdrawal rate " that survived the worst time frame in history. the one  safe with drawal rates are based on .

You give me too little credit.   I understand the SWR methodologies quite well.  I've always been frustrated that the classic studies ignore all asset classes other than broad stocks and bonds.  No TIPS, no REITs, no commodities.  The originals even ignored international stocks and cash.  I find the base assumption that one can only trust assets that your great grandfather had access to silly, and simply apply the same thinking to broader and more diverse portfolios.  The tradeoff is that my data set is smaller because not everything has been around since the 1800s, and that scares some people off.  But the methodology is the same.

Using the same methodology as the Bengen study (including the 5-year T-bonds) the safemax WR for a 60/40 portfolio since 1972 is 4.3%, not that far off from the historical worst case of 4%.  So rough times are not without modern precedent, although you are correct that it has been worse for stock-heavy portfolios in the past. Still, the PP has been incredibly consistent and not come anywhere near the same drawdowns as a 60/40 portfolio even through some very trying market patches.  See the charts on page 1. 

It's not luck or an accident or a sampling artifact.  The worst years for a stock-heavy portfolio will be very different from the worst ones for more diversified portfolios.  Looking at returns starting in 1929 or 1966 doesn't necessarily change anything just because those were the worst starting years for stocks -- remember, the PP has built-in firewalls and holds only 25% stocks.  That's exactly the point of the diversification philosophy behind it, and you either buy into it or you don't.  The PP was designed specifically to limit downside risk while providing good (but not huge) returns in all market conditions, so the stable performance should be no surprise.  That said, there certainly could be times in the past or the future where the PP would have or could set a new low point -- I don't dispute that at all.  Markets are unpredictable, and my goal is not to convert anyone away from their own nature and good sense. 

My only definitive claim is this:  I've studied this particular topic more than anyone else I'm aware of and am confident enough to make the PP my personal retirement portfolio of choice with no VP.  I'm happy to be the guinea pig, and will definitely update the forum with my progress through good times and bad.  Maybe you can do the same with your own retirement portfolio and we can compare notes.  Debating spreadsheets and studies into the ground is academic and circular (not to mention boring), but sharing real-life experiences will be a lot more fun and insightful.  That way others can learn from each of our experiences to help them decide which direction is best for them.  Or maybe they'll realize we're both stubborn and a little crazy and go a different direction entirely. 

Cheers!

i agree , eventually as they say the proof will be in the pudding.

i just have zero confidence that the pp has enough equities for a high success rate while spending down  . especially in the face of gold which has been a falling weight  and interest rates poised to rise as a trend as opposed to the 40 year fall the pp has seen pretty much except for a few bumps.

not my cup of tea for retirement ,    i much prefer an actively  managed portfolio that adjusts to the changing world over time.

it wouldn't be my cup of tea for accumulating assets either as growth as you saw over long accumulation periods  has been quite pale compared to even a 60/40 conservative mix. the difference potentially between a regular growth portfolio can be 7 figures.

i much prefer what has been already proven to work over and over for 146 years with few exceptions.
 
for someone fearful the next calamity is around the corner or who has  little pucker factor the pp works well as a consolation prize  in the accumulation stage . but whom ever uses it has to realize they can fall way short of savings goals in exchange for that protection that gives them that warm and fuzzy feeling.
insurance has a cost and it can be a very high one .

you can add much greater security and success to a conventional mix by adding insurance products.

especially if you are younger and need life insurance too.

the combination of a cheap immediate annuity as an income base and the whole life policy for your wife or heirs has beaten buying term and investing the difference 67% of every scenario run.

it  beat it both in income and amount left to heirs .

using spia's instead of bonds has been shown to add a big benefit too since spia's even now spin off far more income than cash and bonds will.

a 65 year old man even at these rates can get a 6.71% draw rate.

that preserves a lot of equity's that might other wise have to be liquidated to add to cash and bond cash flow which can mean a whole lot less spending down of equity's with the much larger cash flow of the spia..

it can actually be a better deal if you are married buying a single annuity that only covers the man and buy a life insurance policy for the wife instead of a joint annuity. that life insurance money is tax fee while a joint annuity is not.  big edge to the single premium life insurance policy vs the single premium annuity for the surviving spouse..

the wife can always buy more income down the road with the  life insurance money.

actually we all may be wrong .

the best retirement plan may be a single premium annuity that is your guaranteed pay check , life insurance for the spouse and throw all that portfolio money in to wellesley income and call it a day.


oh man that sounds tempting.

.

just my opinion of course.

[Pointedstick]

for someone fearful the next calamity is around the corner or who has  little pucker factor the pp works well as a consolation prize  in the accumulation stage . but whom ever uses it has to realize they can fall way short of savings goals in exchange for that protection that gives them that warm and fuzzy feeling.

I think that one's savings goal is a function of their saving rate, not the performance of their investment portfolio.

[mathjak107]

IT can be both. 

if you know your saving rate is on the low side you  may have to invest with higher equity allocations or risk getting to the age you hoped to retire and find you fell way short.

I know as I got closer I was able to cut back my aggressiveness the last 7 years since I was close to winning the game so I didn't need to keep playing as much..

as they say a penny saved is a penny earned .  but it wil always be a penny unless you invest it. how you invest it determines what that penny's potential to grow can be.

[Tyler]

i much prefer an actively  managed portfolio that adjusts to the changing world over time.

i much prefer what has been already proven to work over and over for 146 years with few exceptions.

actually we all may be wrong... oh man that sounds tempting.
 

This seems contradictory to me.  But in the spirit of sharing direct experiences, I relate to the cognitive dissonance.

You mentioned elsewhere you're feeling nervous with your imminent retirement.  I've been there so I get it.  My best advice has nothing to do with portfolio construction.  The best thing you can do right now is to take a deep breath and do nothing at all financially for the rest of the year.  You've done a great job with investments up until now and have a ton of savings.  You can afford to step away and there's no risk at all to simply staying the course for a while. 

Retirement is a big change that wreaks havoc on both emotion and reason.  Take the time to focus on life outside of work and finances.  I made the decision when I pulled the career ripcord not to make any big changes (portfolio, moving, getting a dog, etc) for at least 6 months.  In retrospect that's one of the best decisions I've ever made, as it took at least 6 months for the fog to wear off.  When I read some of the things I wrote just before I retired the anxiety is palpable, and I'm thankful I had the restraint not to act on my impulses.

By the end of the year you should feel great and will be in a good mindset to start doing things like tweaking the portfolio again.  Until then, just sit tight and focus on your fun new life.  You've earned it!

[mathjak107]

to tell you the truth in the 27 years I have been doing it there was never a day ,a month or a year there was not something out there ready to take us down.

there was always an event or something lurking and  I can never rember a time there wasn't.

did I mention how good the insurances and Wellesley looked  /    ha ha ha 

[MachineGhost]

so i am not quite sure what it is a 50/50 mix in retirement isn't living up to except the fact it has failed zero times at 4% inflation adjusted over every 30 year time frame and it has left more money than you started out with at the end of 30 years 90% of the time.

Okay I see, so the 2% real first 15 years only matters when you actually retire if you want to make it for 30 years at 4% SWR.  Accumulation stage is irrelevant insofar as you don't undershoot the capital you actually need to retire.

So as I suspected, increased equity and decreased bond duration ala 50/50 is merely the hack to deal with high inflation in absence of legal gold.  So the PP should perform great going forward because the gold will counteract any bond damage and the cash lowers the effective duration.  If bond yields go up on economic growth, then equity will participate.

What I'd like to see now is what the portfolio durations were during those worst 15-year periods, because we have extreme durations at present that I believe are historically unprecedented.  You can't make a blanket statement that 50/50 is going to survive your retirement when you never had a simultaneous 50-year duration in stocks and a 17-year duration in T-Bonds before (or whatever it would be for 5-year Notes at current low rates).  The PP should not go past those historical portfolio duration if it wants a chance of surviving before all the evidence is fully in.

[MachineGhost]

The above chart is showing Intermediate bonds,  I thought only 5-year T-Notes passed the 90% test? 

BTW, 90% is not good enough.  2 standard deviations is 95%.  The gap is huge enough to drive a Mack truck through when using Monte Carlo analysis.  Do you really want to risk being in that losing 10%?

With a 3% SWR the vanilla PP should be fine at close to 3 standard deviations (99%).  Problem solved.

[MachineGhost]

i just have zero confidence that the pp has enough equities for a high success rate while spending down  . especially in the face of gold which has been a falling weight  and interest rates poised to rise as a trend as opposed to the 40 year fall the pp has seen pretty much except for a few bumps.

But here's the thing.  If LT rates go up because of economic growth (i.e. people want to lend money above the rate of inflation to get a real return), then equities will go up.  But if LT rates go up due to higher inflation expectations, then gold will benefit.  If LT rates go up because of Fed-induced illiquidity, then all assets will go down in nominal terms while cash goes up in real purchasing power terms (this year).  Three different scenarios that only the PP has all covered.  So how can you lose?

The fourth possibility I see is that of the GoGo 60's which ruined all portfolios not just the PP.  The GoGo 60's had an unusual environment of the economy roaring, increasing inflation and stocks underperforming.  Since gold was impractical for most to buy, there was nothing to offset the increase in LT rates, whether it was from economic growth, higher inflation or both.

And you say not to worry about remote scenarios?  Well, you're acting as if the fourth possibility could occur.  Before you bet the farm on a 50/50 portfolio, you better figure out if the portfolio duration now matches what it would have been in the GoGo 60's.

[moda0306]

i just have zero confidence that the pp has enough equities for a high success rate while spending down  . especially in the face of gold which has been a falling weight  and interest rates poised to rise as a trend as opposed to the 40 year fall the pp has seen pretty much except for a few bumps.

But here's the thing.  If LT rates go up because of economic growth (i.e. people want to lend money above the rate of inflation to get a real return), then equities will go up.  But if LT rates go up due to higher inflation expectations, then gold will benefit.  If LT rates go up because of Fed-induced illiquidity, then all assets will go down in nominal terms while cash goes up in real purchasing power terms (this year).  Three different scenarios that only the PP has all covered.  So how can you lose?

The fourth possibility I see is that of the GoGo 60's which ruined all portfolios not just the PP.  The GoGo 60's had an unusual environment of the economy roaring but stocks absolutely stinking.  Since gold was impractical for most, there was nothing to offset the increase in LT rates, whether it was from economic growth, higher inflation or both.

And you say not to worry about remote scenarios?  Well, you're acting as if the fourth possibility could occur.  Before you bet the farm on a 50/50 portfolio, you better figure out if the portfolio duration now matches what it would have been in the GoGo 60's.

I wasn't alive during the 1960's, but if I was, even with the growth of GDP, I think I would have thought the world was ending:

Vietnam
JFK Assassination
Medgar Evers Assassination
Cuban Missile Crisis
General Cold War Red Scare stuff
Robert Kennedy Assassination
Malcom X Assassination
MLK Assassination
Civil Rights Movement
South's reaction to said movement
Anti-war protests
Race Riots
Sex, Drugs and Rock n Roll

Am I missing some stuff?  I'm sure I am.  Business may have been booming, but the stock market pricing is a lot of expectation of the future, and the future wasn't looking too bright.