Terrific Graphic

[LC475]

I love this graphic:



I want to have a comparable one for the HBPP.  I started making one in Excel this morning, but have quickly realized the amount of work this would involve given the very low level of my Excel skills.  I can't even figure out how to automatically turn a column of total value figures ($10,000, 10,668, 10,098, 10,903, 12,267...) into a column of Compound Annual Growth Rates.

Any of you whizzes want to take a crack at it?

[rickb]

I agree a chart like this for the PP would be very cool and I've asked before (see http://gyroscopicinvesting.com/forum/pe ... /#msg93761) - but no takers yet.

Growth rate is easy (use the RRI function).  I think the more interesting things are adjusting for taxes, fees, and inflation - and then creating the array of colored squares.  I don't know if Excel has a chart type like this or not.  I use OpenOffice which does not.  Given the numbers, I think I could create an HTML page that would show the graphic (as a table of little colored squares).  Maybe I'll do this without adjusting for taxes, fees, and inflation.

[LC475]

Given the numbers

The numbers are easy to get from http://www.peaktotrough.com/hbpp.cgi .  For instance, starting in 1968:

10,000
10,668
10,098
10,903
12,267
14,364
16,488
18,285
19,483
21,879
22,774
25,734
34,592
39,961
37,851
46,876
48,162
50,289
60,643
72,509
76,232
79,269
92,332
95,362
105,347
109,179
123,599
119,699
145,793
154,743
168,108
193,418
199,709
203,696
203,911
213,448
237,393
251,320
273,556
306,051
346,435
354,870
373,696
428,849
484,616
512,445
494,063
534,992

Running a growth function on that would give you the top row in a chart like this.  Then, you repeat starting in 1969, then 1970, all the way down to finally the single percentage for 2013 which will give you the far right, bottom square.

I think I could create an HTML page that would show the graphic (as a table of little colored squares).  Maybe I'll do this without adjusting for taxes, fees, and inflation.

If you can do it, you totally should!  Other people will build on what you do, doing all the adjustments, and in the end we should have something very nice.

Even just a 48X48 table with a matrix of the numerical percentage values would be a huge first step.  Given that, I could create a colorful version.

[LC475]

I have pre-2013, so no RRI function, so I still can't figure out how to do the growth function.

[LC475]

I figured it out!  Wahoo!  No built-in function (that I can tell), but I can do it with a couple extra columns and an equation: 

= ((FinalValue/OriginalValue)^(1/n)) - 1

Here's the first row of values; just 47 to go.

10,000 10,000 1 0.00%
10,668 10,000 1 6.68%
10,098 10,000 2 0.49%
10,903 10,000 3 2.92%
12,267 10,000 4 5.24%
14,364 10,000 5 7.51%
16,488 10,000 6 8.69%
18,285 10,000 7 9.00%
19,483 10,000 8 8.69%
21,879 10,000 9 9.09%
22,774 10,000 10 8.58%
25,734 10,000 11 8.97%
34,592 10,000 12 10.90%
39,961 10,000 13 11.24%
37,851 10,000 14 9.97%
46,876 10,000 15 10.85%
48,162 10,000 16 10.32%
50,289 10,000 17 9.97%
60,643 10,000 18 10.53%
72,509 10,000 19 10.99%
76,232 10,000 20 10.69%
79,269 10,000 21 10.36%
92,332 10,000 22 10.63%
95,362 10,000 23 10.30%
105,347 10,000 24 10.31%
109,179 10,000 25 10.03%
123,599 10,000 26 10.15%
119,699 10,000 27 9.63%
145,793 10,000 28 10.04%
154,743 10,000 29 9.91%
168,108 10,000 30 9.86%
193,418 10,000 31 10.03%
199,709 10,000 32 9.81%
203,696 10,000 33 9.56%
203,911 10,000 34 9.27%
213,448 10,000 35 9.14%
237,393 10,000 36 9.20%
251,320 10,000 37 9.10%
273,556 10,000 38 9.10%
306,051 10,000 39 9.17%
346,435 10,000 40 9.27%
354,870 10,000 41 9.10%
373,696 10,000 42 9.00%
428,849 10,000 43 9.13%
484,616 10,000 44 9.22%
512,445 10,000 45 9.14%
494,063 10,000 46 8.85%
534,992 10,000 47 8.84%

[PP67]

Does PeaktoTrough generate real returns?

[Tyler]

Here's my attempt.  I used the same color coding as the original for direct comparison.



Lots of beige compared to the same period in the stock market version.  The PP just does its thing.

[Bean]

Thanks Tyler, graphs like this stop my itch to tinker.

[rickb]

Here's my attempt.  I used the same color coding as the original for direct comparison.

Lots of beige compared to the same period in the stock market version.  The PP just does its thing.

Very nice - however since the assumptions are significantly different (I'm thinking more about no taxes than no fees) it's really not comparable.

Can you do a version (with your assumptions) for 100% stock?  Or a 60/40 blend?

I'm almost at the point where I can do this myself.  Here's my version using P2T's data from 1970 - but not inflation adjusted, no fees, and no taxes (annual rebalancing).

This is the PP (25/25/25/25):


Whereas this is 100% stock:

[Tyler]

Well done!

Agreed on the varying assumptions.  FWIW, I generally don't like broad investment analysis that does account for taxes because I think that's even more misleading.  Taxes vary so greatly by individual situation that I prefer to account for them myself.  For example, in the original chart I'd be pretty shocked if they went so far as to account for varying tax laws across nearly a century of federal revisions.  And that's even before you account for individual tax returns. 

I was able to crank out my chart relatively quickly by repurposing a PP spreadsheet I already had.  Running a similar one with 100% stocks will take a bit of time I'm not sure I have at the moment.  But it looks like you're basically there already.  All I did was take the annual CPI inflation data, run the exact same CAGR calculations, and subtract inflation from the returns every year.

[rickb]

Here's inflation adjusted versions for the PP and 100% stock using P2T's data and inflation data from http://www.usinflationcalculator.com/in ... tes/.  No taxes and no fees.  The PP chart is similar but not identical to Tyler's (different data sources?).

PP:


100% stock:

[Tyler]

Awesome.  Nicely done.  FWIW, the small differences could be from the fact that mine used the rebalancing bands while yours rebalanced annually.  And perhaps some data source differences as well.  But they're close enough to get the point across. 

I love how the PP levels out to the historical norm solid real returns after just a few years, while the stock market is more of a crapshoot based on when you invest.  And how multi-year negative real returns for the PP are exceedingly rare.  It's a well-tuned machine.

[LC475]

You guys are sensational!

[buddtholomew]

Why is the block for 2014 in the PP chart red and green for stocks?

[rickb]

Why is the block for 2014 in the PP chart red and green for stocks?

Sorry - all the year labels are off by 1 row.

[rickb]

Here's another version representing the same data (with the year labels fixed).  Apologies to those of you who are red/green colorblind, but in this version the color intensity varies essentially continuously according to the magnitude of the CAGR - i.e. there aren't just 5 discrete colors but rather a continuous range of colors.  There's a discrete red/green shift at 3% CAGR, but other than that the "brightness" of the red or green reflects the magnitude of the CAGR.

PP (inflation adjusted, but no fees and no taxes):


100% stock:

[gizmo_rat]

Thanks TPG - Helps me remember why I went the PP route.

[PP67]

These are terrific graphs...  I did have a couple of thoughts... If I am reading it correctly, it would appear that 75% of the time (18 out of 24 20yr periods), one would have been better off going with a pure 100% stock play.  If so, I would think volatility would have been much more a psychological problem than a investment problem in the accumulation phase. If you could stomach it, the returns might have been worth it...  It is interesting that all the times the stock play would have been lower than the PP occurs in the latest time periods.

As one transitions out of the accumulation phase and gets to the drawdown phase of retirement, I would suspect that drawdowns/volatility would be much more an issue in terms of real dollars available to spend. 

I wonder how the charts would look if one say had $1MM at the beginning of a 20 year retirement and spent $40,000/yr (4% withdrawal)...  That might be very insightful...

[Pointedstick]

These are terrific graphs...  I did have a couple of thoughts... If I am reading it correctly, it would appear that 75% of the time (18 out of 24 20yr periods), one would have been better off going with a pure 100% stock play.  If so, I would think volatility would have been much more a psychological problem than a investment problem in the accumulation phase.

Sort of. Let's not forget that that time period encompassed an enormous bull market in stocks. We can't know how the PP would have performed when gold was still a government-manipulated monetary metal rather than a freely-tradeable commodity, but there were substantial periods of time in American history before that happened where stocks were in the shitter for long periods of time, as the original graphic demonstrates.

[Tyler]

As one transitions out of the accumulation phase and gets to the drawdown phase of retirement, I would suspect that drawdowns/volatility would be much more an issue in terms of real dollars available to spend. 

I wonder how the charts would look if one say had $1MM at the beginning of a 20 year retirement and spent $40,000/yr (4% withdrawal)...  That might be very insightful...

You might browse the following thread for some discussion & charts along these lines:

http://gyroscopicinvesting.com/forum/pe ... /#msg94825

[buddtholomew]

What is the purpose of comparing 100% stocks to the PP? I don't know anyone that has invested 100% in equities over a 20-year time frame. A more representative comparison would include stocks and bonds. I suspect the heat map would more closely resemble the PP with respect to real returns.

[barrett]

PP67, Tyler is being modest. He posted two awesome charts on that thread he is referring to which show "10-year rolling maximum portfolio-preserving withdrawal rates." I have printed those out and stuck them in my investment file so that if I kick the bucket, my wife and whoever is helping her sort out what the hell I am doing with our money will 'get it.'

[Tyler]

This shows the CAGRs of the PP in retirement using a 4%WR.  Positive values mean that your inflation-adjusted portfolio grows in retirement, while negative values mean it shrinks during retirement.  All money is withdrawn from cash, and the portfolio is rebalanced using the 15-35% bands.



FWIW, the two negative 10-year returns are both less than -0.3% annually.  From my previous research referenced by Barrett, reducing your WR to 3.8% will bump those positive as well. 

[rickb]

What is the purpose of comparing 100% stocks to the PP? I don't know anyone that has invested 100% in equities over a 20-year time frame. A more representative comparison would include stocks and bonds. I suspect the heat map would more closely resemble the PP with respect to real returns.

The original chart that started this thread was a 100% stock chart.  It's actually unrealistic in several ways, for example nobody invests by plunking down $10,000 once and letting it sit for 20 years.  TennPaGa's chart is more realistic on this score.

In any event, here's a 60/40 stocks/10yr treasuries chart.  As before, data from P2T's site, annual rebalancing, dividends reinvested, inflation adjusted, no fees, no taxes.  Pretty much exactly like the 100% stock version, but the colors are a little more muted (so the highs aren't as high and the lows aren't as low).

[Tyler]

This is the exact same data as my last graph, only with the color scale recalibrated to be a little more helpful.  I figure tracking inflation within +/- 1% likely falls within the statistical noise.  So red means your overall inflation-adjusted portfolio is shrinking in retirement, green means it is growing, and beige means it is treading water tracking inflation (a fine place to be after expenses).