Gyroscopic Investing

mathjak107 wrote: ↑Thu Feb 09, 2023 9:54 am …just because a person may have a portfolio of non div payers why are you assuming they would be selling equities in a down market ?

Where did I write or imply this? My statement indicated that my family would not want to deal with investments at all. So if I have a portfolio of dividend stocks that puts cash into their account periodically then I can count on them not doing something silly like selling everything because of the hassle. If I had a wife or child who was really into investing and wanted to learn about it then my decision for a portfolio that will support them after I am gone might be completely different. I am 10 years older than my wife and am an older father so my investment decisions have to take into account that they may live long after me and I know their mindset around investing and finances. Dividends are perfect for them.

Bottom line is there is no difference when you pull money out either way .

Total return always is the guiding force as to how much you can take and there is no difference in down markets doing it via dividends or not .

You may prefer one way or another but to make a claim dividends are better because you aren’t selling is false .

You can think whatever you want mentally about it but that doesn’t. Change the facts or mechanics of it.

Sticking your head in the sand as you say below and ignoring the fact you are down does not change a thing .

Personally I would rather not have any equity value siphoned off in a down market and just rebalance from cash and bonds .

I think if most of us have a choice we rather raise our cash flow from what went down the least or what went up …

So forced liquidation of an asset is not such a good thing when living off this money .

This years rebalancing had the cash flow from selling off our short term bond funds and some gold ….we created our cash to fill the gap in cash flow and added to equities too , not sold them



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It took me a while to figure that out as well. I finally landed on just a portfolio of old-fashioned, conservative dividend stocks. For whatever reason I can sleep at night with my money in those knowing that they are churning out dividends for me each month so I can (sort of) ignore the price swings.
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mathjak107 wrote: ↑Thu Feb 09, 2023 10:17 am Bottom line is there is no difference when you pull money out either way .

Total return always is the guiding force as how much you can take and there is no difference in down markets doing it via dividends or not .

You may prefer one way or another but to make a claim dividends are better because you aren’t selling is false .

You can think whatever you want mentally about it but that doesn’t. Change the facts or mechanics of it.

Sticking your head in the sand as you say below and ignoring the fact you are down does not change a thing .

Personally I would rather not have any equity value siphoned off in a down market and just rebalance from cash and bonds .

I think if most of us have a choice we rather raise our cash flow from what went down the least or what went up …

So forced liquidation of an asset is not such a good thing when living off this money .

This years rebalancing had the cash flow from selling off our short term bond funds and some gold ….we created our cash to fill the gap in cash flow and added to equities too , not sold them

Thank you for your opinion. I will take it under advisement.

Smith1776 wrote: ↑Wed Feb 08, 2023 6:14 pm Oh boy.

HEY GUYS. Who do you think would win a fist fight between Peter Schiff and Harry Dent?????

With regard to the dividend issue, many would say that in the current times of stock manipulation via stock buybacks (legal yet again) a company that pays out dividends might be a better steward of shareholder value. I have both passive index funds in my HBPP & also individual dividend equities in my VP

I would say that the opposite has been demonstrated by the dividend payers

They can be very irresponsible with corporate money

if only that would be the case but corporate stupidity is not isolated because stocks pay dividends . these stocks can squander more money than their non div payer relatives .

case in point .

AT&T paid $100 billion to enter the cable business

AT&T thought it would be a good idea to diversify by paying $100 billion to take on cable company TCI. It was wrong! AT&T broke itself up a few years later and sold off the cable assets.

AT&T tried to elbow its way into the personal computer business with a hostile $7 billion takeover of NCR. It didn't work, and AT&T later spun the company back out at a $4 billion valuation.

Microsoft paid an estimated $500 million for mobile phone company Danger. It was supposed to be working on new phones for Microsoft, but most of the key employees left the company. The end result of the acquisition was the Kin, a social smartphone from Microsoft that totally bombed.

Cisco probably bought Pure Digital, the company that makes the Flip, right at the peak of its value in 2009. Since then high definition video cameras have been built into just about every smartphone making the Flip pretty much worthless in the long run. Which is probably why Cisco killed the $590 million acquisition .

After Google bought DoubleClick, Microsoft tried to keep up by buying ad company aQuantive for $6 billion. The acquisition never really worked out. The aQuantive executives left two years after the deal closed and the technology was discarded.
..
AOL-Time Warner is obviously the worst

i can go on and on

mathjak107,

I noticed above you said you rebalanced out of short-term bonds and gold recently. Do you have a fixed percentage (or range) of gold that you keep in your portfolio? Or does your target gold percentage vary based on some factor(s)?

Just curious to get your perspective on this. I like to check my thinking against other people's. No worries if I'm asking questions you don't want to answer for whatever reason. Thanks.

Gold flys cover for all 3 portfolios and is about 15%…

Like the pp I keep it about 25% of my income model but if I look at all 3 as a whole it’s about 15%, so spread out it is a lot smaller position ….

Gold is like the added outsider as it really isn’t in any of them ..I just added it along for the ride as diversification

So the only portion in which you have gold is the income model?

I try to keep my gold at 15-20% myself. I agree with you it's a great diversifier and insurance asset, especially if you hold some physical. I just recently upped my physical amount, and I feel very good about that.

I no longer want to own physical gold ..I did it once and it was to much of a headache storing it ..I use it strictly as a trading vehicle

jalanlong wrote: ↑Thu Feb 09, 2023 10:14 am

mathjak107 wrote: ↑Thu Feb 09, 2023 9:54 am …just because a person may have a portfolio of non div payers why are you assuming they would be selling equities in a down market ?

Where did I write or imply this? My statement indicated that my family would not want to deal with investments at all. So if I have a portfolio of dividend stocks that puts cash into their account periodically then I can count on them not doing something silly like selling everything because of the hassle. If I had a wife or child who was really into investing and wanted to learn about it then my decision for a portfolio that will support them after I am gone might be completely different. I am 10 years older than my wife and am an older father so my investment decisions have to take into account that they may live long after me and I know their mindset around investing and finances. Dividends are perfect for them.

I prefer DIY dividends over that of actual dividends. SWR style.
67/33 SCV/gold target asset allocation (accumulation SCV fund).
Log in a week or so before the end of month, if the ongoing balance has two times the gold value being greater than the stock value then draw SWR value from gold, otherwise draw it from stocks. Login again a couple of days before the end of month and transfer the sale proceeds to your regular bank account. A nice consistent regular monthly inflation adjusted 'wage'.
Each months withdrawal should be near the same $$$ amount as the previous month, except if a new year, when you uplift it by inflation.
Start with a 5% SWR, and consider it as a inflation linked annuity, likely will sustain for 30 years, might fall a few years short, more often they'll be multiples more of the inflation adjusted start date portfolio value available at the end of 30 years.
Dividends ... too variable/irregular. Knowing you have $10K each month/whatever dropping into your bank account at around the end of each month (after having prepared that each month as above) and where once/year that increases by inflation ... is nicer IMO than having irregular amounts of dividends dropping into your spending account. Kids play to manage, pay prep and pay transfer days activities/process are short/easy ... soon assimilated.

Why 67/33 SCV/gold, because its a Martingale type choice. If 67 stock value halves to 33 whilst 33 gold value doubles to 66, then rebalancing has you double up on the number of shares being held after prices had halved. Not that any rebalancing is required in the above, simply directing SWR withdrawals is enough rebalancing in itself. SCV's historic volatility has more compared to golds historic volatility, more so than TSM.

a 5% draw has failed to many times already to be a starting point...it is not considered a safe withdrawal rate at below 90%

FIRECalc looked at the 122 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 122 cycles. The lowest and highest portfolio balance at the end of your retirement was $-1,227,732 to $3,226,422, with an average at the end of $497,584. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 50 cycles failed, for a success rate of 59.0%.

Adding some cash to Seajays allocation, say 50% SCV, 25% Gold (2:1 ratio) and 25% Cash gives *drumroll* 6.1% SWR.

Not the case .

We have discussed this here over and over .the term safe withdrawal rate is based on very specific dates .

The last date was 1965/1966 that was a worst case scenario .


If one stress tests after 1966 it is not being compared against what the term means …Monte Carlo simulation tries to find even even worst case outcomes ..

But so far in practice the worst dates to retire was 1907 , 1929, 1937, 1965 and 1966 .

All other dates were no where near as severe for withdrawals

Kitces found if we dropped the dates above a draw rate could be 6-1/2% ..but 4% is a safe withdrawal rate since it includes the worst of times they are based on .

So the above is just a draw rate not by definition a safe withdrawal rate

I strongly suggest the kitces video for understanding this fact . It should be required watching for anyone who wants to understand just what the term means

https://www.youtube.com/watch?v=7sUl_04g-CQ

mathjak107 wrote: ↑Fri Feb 10, 2023 4:16 pm
I strongly suggest the kitces video for understanding this fact . It should be required watching for anyone who wants to understand just what the term means

https://www.youtube.com/watch?v=7sUl_04g-CQ

Thanks Mathjak, you've persuaded me to watch Kitces!

I would imagine then it would still be safer choosing a portfolio with a high (I use the term loosely) SWR, and drop it back a couple of percent ?

I would start at no more then 4% ….then see how things go over time

Year end gold prices in British Pounds, and Pound/US dollar FX rates. Calculate US dollar gold price from those, and the yearly changes, and drop those yearly change figures into Simba's backtest spreadsheets Data worksheet for gold, and then in the Analysis worksheet set a start date of 1934 for 67 SCV, 33 gold and in the lower charts within that worksheet you'll see that only had a single 30 year 6% SWR failure start year of 1937.

1934 as a start year as that was the year following physical gold becoming illegal to hold in the US, but not elsewhere such as London. Prior to the 1930's gold was money and investors were more inclined to just hold bonds, as inflation broadly averaged 0% and bonds (lending your gold such as gold Sovereign Pound coins in the UK that one Pound (paper) notes could be converted to sovereigns in banks)) paid interest - that was like a real rate of return.

If instead of lumping into retirement, you averaged in over two timepoints, a year apart, then the worst case 1937 would have been diluted down. a.k.a don't lump all in at a single point in time, but perhaps start your retirement portfolio 6 months before you actually retire, and transition fully into that retirement pot 6 months after you've actually retired.

So 67/33 SCV/Gold 30 year 6% SWR has historically had a high success rate both in the UK and US.

PV MC indicates a 90% success rate. For failures the portfolio still did sustain many years and in the worst cases there would have been some pre-warning in early years that the portfolio value was declining and possibly likely to fail at sustaining a 6% SWR, where reducing your withdrawals in reflection of that would have been more inclined to succeed overall (at sustaining income over a total of 30 years).

I don't know how to use FireCalc, but suspect its somewhat like PV MC where it may be less inclined to factor in the likes of multi-year inverse correlations such as between stocks and gold. The circumstances that might see stocks halve - such as high inflation, faltering domestic currency, domestic geopolitical risks ..etc. are inclined to see the price of gold rise in domestic currency terms. When you apply a Martingale type 'betting sequence' you can be ahead even with 50/50 coin flip outcomes. The main risk of Martingale for gamblers is that of two many repeated losing flips in a row, where their bankroll becomes exhausted and they can't double up their prior stake on the next play. With 67/33 SCV/gold however you in effect have a infinite bankroll. 66 stock value halves to 33, 33 gold doubles to 66, rebalancing back to 67/33 has you double up on the number of shares being held in the post-rebalanced 67/33 SCV/gold portfolio. Not that its as clear cut/linear as that, or such regular large moves, but more micro and progressive/transitionary when applied to 67/33 SCV/gold and periodic withdrawals.

One option might be to apply a 6% SWR, but don't spend all of that, invest/save some. In which case the circumstances that induced a SWR failure (averaging-out) often can prove to have been good for those accumulating (averaging-in). But if you use the same asset allocation to average-into then in practice you don't make any such trades (its just using the same asset allocation but with a lower SWR). So basically judgemental. If things aren't looking great (as the average case outcomes even after 6% SWR saw multiples more of the inflation adjusted start date portfolio value still available at the end of 30 years), then revise your withdrawals downwards (cut back on spending/save some).

But that is more for those that are interested in investing. For heirs that just want simplicity/ease, then set them up with a lower SWR value figure, 4% or 5% of the initial amount, and draw monthly income as I defined in a prior post. For that paper (ETF) gold is simpler, having both SCV and gold ETF's in the same brokerage account. For others physical gold can be superior as can applying more dynamics (such as a higher SWR with potential judgemental reductions - that the disinterested would be far less inclined to apply/manage). For the disinterested SWR can like a inflation adjusted regular income type annuity, with relatively simple management (withdrawals) and without having 'spent' the money (potential sizeable pot still remaining at the end of 30 years rather than having spent the money in order to buy a regular inflation adjusted income).

In practice you'll soon know if 6% SWR is at risk of failure, as typically a bad-run in the first few/handful of years will be a big red flag. In other cases you may become more confident if those first few/handful of years result in a good-run.

1934 still missed the worst outcomes in 1907 , 1929 so again not an apples to apples comparison as bengen defined it as including 1929 and capturing the wild up years first by starting in 1926 .

There is a reason both bengen and also the trinity study started at 1926

Kitces recommends starting at 4% as a beginning .

If three years in you are up 50% where you started then take a 10% raise plus inflation adjusting …look again in 3 years ..wash and repeat as long as you are still 50% above where you started .

There really is no good way to back test gold since it had such a crazy history and unique events . Lots of assets can not be really stressed tested.

But forget what was … in order for 4% to hold , we need a 2% real return over the first 15 years of a 30 year retirement …

We really need more to have a cushion though

Using PV and manually running each start year for 1972 to 1993, 67/33 SCV/Gold, 6% inflation adjusted (30 year) SWR, initial allocation $1M, and recording the final real (after inflation) portfolio values (approximated/rounded) ...

1972 2001 8M
1973 2002 6M
1974 2003 8.8M
1975 2004 12M
1976 2005 10M
1977 2006 8.2M
1978 2007 7.6M
1979 2008 5.1M
1980 2009 2.7M
1981 2010 3M
1982 2011 4.4M
1983 2012 3.1M
1984 2013 2.3M
1985 2014 3.6M
1986 2015 2M
1987 2016 1.6M
1988 2017 2.1M
1989 2018 1.6M
1990 2019 1.8M
1991 2020 4.5M
1992 2021 3.3M
1993 2022 2.3M

In the worst cases, starting 1987 and 1989, you ended with 1.6 times your inflation adjusted start date portfolio value amount after 30 years of 6% SWR (6% of the start date portfolio amount, increased by inflation each year).

Going back to pre 1930's and investors were more inclined to just hold bonds, money was gold, lend that gold in return for interest (more gold), where that interest was like a real rate of return, relatively consistent and reasonable. Holding gold would have been no different to a British investor holding Sovereign Pound (gold) coins in their pocket, similar to a present day portfolio holding US dollars in pocket, when instead that might be deposited for interest (or otherwise invested). For pre-1930's 'bond' era's and yes SWR was lower, but so also was year on year volatility massively lower for the typical (bond) investor compared to present day investors portfolio volatility levels. Investors/savers could more reliably plan/estimate, and didn't need to accumulate as much in order to account for high volatility.

That era, where gold was money and in effect the state/banks paid you for them to securely store your gold (interest) - are gone. Nowadays the state and banks pay little for deposits as they don't really need those deposits anymore, they can print/create money themselves. State can print/spend and in so doing de-value all other notes in circulation (inflation is a form of wealth taxation), banks can just credit a borrowers account with the 'money' - out of thin air. It's only natural under such circumstances for interest rates to be low, maybe even negative. The historic indications since that transition (1930's) is that even with the price of gold remaining much the same for many sequential years (1930's to 1960's) that SCV/gold 67/33 still worked out OK at supporting a 6% SWR in the large majority of cases. A additional benefit is that unlike bond interest that may be taxed, gold pays no interest/dividends so side steps a potential regular taxation risk factor.

A consistent 1.3% annualized real is enough to sustain a 30 year 4% SWR (nowt remaining at the end). A ideal portfolio will achieve consistent real gains with a positive slope equal or greater than 1.3%. Something like that chart I posted earlier fits that bill



Whilst the PP tends to have low NOMINAL yearly volatility (low bad year outcome, at least as it did up to before 2022), more relevant is REAL gain progression/smoothness/consistency.

Progressions might see gains from price appreciation, or prices may just move sideways - broadly flat, but with volatility. Or prices could drop, and maybe only recover back to former levels. A good choice of asset allocation will yield a positive outcome across each of those situations. If prices rise then 67/33 SCV/Gold is inclined to do OK. If prices zigzag broadly sideways then a Martingale type strategy can still come out ahead even though you end up with overall 50/50 equal counts of heads/tails outcome. It can even come out ahead when there were more tails than heads and you were backing heads.

stake 1, tails
stake 2, tails
stake 4, tails
stake 8, heads. Receive 16 back after having staked 15 in total, +1 up.

Unlikely for that to occur with stocks, repeatedly halving (66/33 stock/gold, 66 stocks halves to 33, 33 gold doubles to 66, rebalance back to 67/33 = twice as many shares being held than before). Nor is it as clean/clear-cut as that, but the fundamental concept still holds.

4% SWR is based on the worst case peak start date, trough end date 30 year period. Averaging in and out helps reduce that risk (uplifts SWR). In the median/average cases actual SWR were significantly better than 4%. Is a extremely cautious choice compared to the average case where you might have had substantially more spending available to you, or not needed to have accumulated so much for retirement.

Kitces recommends at least 2% since you can end the 30th year with a buck with lower returns and they pass .

So I prefer to monitor in real time shooting for at least 2% .

Also every failure looked fine over 30 years ..however they all spend down to far trying to meet spending within the first 15 year and even the best bull markets coming like the 1980s couldn’t save the 1965/1966 group .

, the first 15 years determined the entire outcome in every case
So it isn’t about what happens over the 30 years

30 year outcomes , are fairly decent , really nothing out of the ordinary

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 draw rate down to just 4% to get through those worst of times.

Stocks and bonds whilst they can inversely correlate over shorter periods (year or so), do tend to correlate mid/longer term. Gold tends to have no/low correlation to stocks shorter term, inversely correlate mid/longer term, and tends to do so to greater magnitudes than the likes of mid/short term bonds. As such the 15 year (mid) term outcome from the likes of 67/33 SCV/Gold tends to reduce the risk of both stock and bond real term losses supplemented with drawing income drag-downs. Which in turn uplifts SWR.

For example UK data for 15 year SWR and 4.75% worst case since 1932 ended with 66% of the inflation adjusted start date portfolio value still available. For 10 years ending with at least 66% real still intact = 6% SWR. Basically relatively consistent real gains, such that combined real drawdowns (poor portfolio/assets outcome combined with withdrawals) weren't severe enough to become 'critical'.

For US data, 67/33 SCV/Gold 15 year 5% SWR and the worst cases ended with the inflation adjusted start date amount still (mostly in worst cases) intact. The exception was a 1937 start date, that ended 15 years of 5% SWR with 50% (real) still available. But where either side of that start year (1936 (94%) and 1938 (144%)) both had 100% i.e. averaging in would have been more inclined to still have 75% i.e. relatively strongly placed.

Gold today is a very different animal …

Prior to the ETFs gold was not a main stream investment for the public ….. it was the play area of doomsayers , speculators and Central banks .


The last two decades have seen very different performance and interaction with gold as it was able to be bought and sold and machine traded


The last two decades or even a bit longer have seen equities and gold beat equities and bonds over almost all time frames .

So trying to predict what gold would have done is likely an exercise in futility ….

There were no reits , no foreign stocks , no commodities , etc back then to examine either .

We really have no reason to look in the rear view mirror …we know what we need for just 4% to hold and whether it’s safe to increase so the past is irrelevant when you can monitor in real time


All we needed the past for was a reference point for moving forward

Gold continues to be a non-fiat global currency that the US dollar aspires to peg to, but that periodically has and likely will continue fail to do so reliably. Chances are that as/when divergence occurs that they will move in opposite directions. Yellen has been attempting to at least in part align US dollar with gold since 2013, following prior financial crisis type decoupling (print/spending). Failure to do so could lead to a flight from dollars. That alignment could continue for years, even decades, gold doing little, maybe even declining as strong faith in US dollars prevails. But sooner or later another decoupling will occur, always has, always will. It is at such times that portfolio 'insurance' pays. If 66 stock value halves to 33, 33 gold values doubles to 66, conceptually a 67/33 stock/gold investor could opt to go all-in, sell their gold to buy stock shares and triple up on the number of shares being held. But that's a timing call, stocks could continue to halve yet again. Simple restoration to 67/33, doubling up of the number of shares held, whilst still holding a third in gold ... is the more neutral/defensive choice.

Whilst the 'drag' cost of 'paying' for insurance (holding gold), broadly tends to be relatively light. Little different to the drag if bonds were held instead of gold.

Gold got crushed by the dollar .

Looking at gold in India it is up something like 68% since 2020 in their currency.


I strongly recommend watching the kitces video if anyone has an interest in safe withdrawal rates