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Post by yogibearbull on Dec 8, 2023 15:40:33 GMT
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Post by Mustang on Dec 8, 2023 16:58:31 GMT
Mustang ,...A comment on Mustang's table. I note his survival rate has this number for 75% stock allocation: 75% stock: 100% of portfolios (survive 25 years)...... 98%(survive 30 years) My comment is this is a reasonable risk for retirees seeking 30 years out. Like if you run out of money at year 29 (mostly due sequence of return experience), you were certainly long aware of it, and could take mitigating action before hand. Mitigating action, such as working three weeks for addl income in XMAS season; putting it into IRAs, and boosting the shortfall. I was planning to be a highway toll collector in Florida, if necessary, but I notice even they have been automated out! R48 I know several people who have retired and either still work or went back to work because of inflation. My brother retired at full retirement age and still drive a semi. Young retirees are able to do that. But a 30-year retirement typically takes the retiree to age 95. If it wasn't for my wife I would plan on a 15-20 year payout. But she is younger and has a longer life expectancy.
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Post by archer on Dec 8, 2023 17:24:34 GMT
Why not assess our PFs every year or so to test its longevity with the corrected time horizon? EG, at age 65 a 30 yr time horizon, and when you turn 80, check with a 15 yr horizon. I would apply guard rails to this to keep from excessive spending in good years. In bad years, the shortened time horizon would ease the impact of the reduced PF.
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Post by Deleted on Dec 8, 2023 17:39:30 GMT
retiredat48 , Fidelity Magellan was another fund that had its early heyday and then mediocrity. My main concern for PRWCX and TCAF is that Giroux isn't a young man. I expect he will likely retire before long. @yogi, I am not finding PRCFX anywhere, and am being referred to PRGFX. ? Giroux is 48-49 years old so still 10+ years to go atleast. Not something I would worry about.
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Post by Deleted on Dec 8, 2023 17:42:04 GMT
Too conservative for me but can be paired with tcaf like 50%-50% to give a decent allocation fund.
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Post by retiredat48 on Dec 8, 2023 18:04:31 GMT
retiredat48 , Fidelity Magellan was another fund that had its early heyday and then mediocrity. My main concern for PRWCX and TCAF is that Giroux isn't a young man. I expect he will likely retire before long. @yogi, I am not finding PRCFX anywhere, and am being referred to PRGFX. ? Giroux is 48-49 years old so still 10+ years to go atleast. Not something I would worry about. That's what my boss said about me at my age 48! Giroux has a bigger portfolio than I had. R48
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Post by retiredat48 on Dec 8, 2023 18:08:00 GMT
Why not assess our PFs every year or so to test its longevity with the corrected time horizon? EG, at age 65 a 30 yr time horizon, and when you turn 80, check with a 15 yr horizon. I would apply guard rails to this to keep from excessive spending in good years. In bad years, the shortened time horizon would ease the impact of the reduced PF. +1Have recommended this often. It is what I did. And if had an up-year, did not do any new calculations. Note: few years were a decline, December to December. I stopped calculating a decade ago. R48
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Post by Norbert on Dec 8, 2023 18:11:24 GMT
"The fund normally invests 30-50% of its net assets in common and preferred stocks."
PRCFX strategy statement at TRP. So, more conservative than PRCWX, but manager does have asset allocation flexibility.
Also, the bond sleeve is not just IG stuff like with Wellesley. It's got a multi-sector strategy, not unlike PIMIX. From the strategy statement:
"The fund normally invests 50-70% of its net assets in fixed income and other debt instruments, including corporate and government bonds, mortgage- and asset-backed securities, convertible bonds, and bank loans ..."
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Post by Mustang on Dec 8, 2023 18:31:03 GMT
Why not assess our PFs every year or so to test its longevity with the corrected time horizon? EG, at age 65 a 30 yr time horizon, and when you turn 80, check with a 15 yr horizon. I would apply guard rails to this to keep from excessive spending in good years. In bad years, the shortened time horizon would ease the impact of the reduced PF. +1Have recommended this often. It is what I did. And if had an up-year, did not do any new calculations. Note: few years were a decline, December to December. I stopped calculating a decade ago. R48 I agree. Periodic checks are necessary. I went with every five years. The 4% Rule and Morningstar pretty much agree. I used 5.5% for 25 years. For example, if starting with a 30 year payout then after five years the withdrawal should not be more than 5.5%. But, I don't intend to take full inflation increases. Annual increases will be CPI minus 1. www.kitces.com/blog/age-banding-by-basu-to-model-retirement-spending-needs-by-category/ Morningstar Morningstar Morningstar Pfau’s 2017 Payout Period 2021 Study 2022 Study 2023 Study Update 15-years 6.4% 6.6% 6.7% 6% 20-years 4.9% 5.2% 5.4% 5% 30-years 3.3% 3.8% 3.9% 4% 40-years 2.8% 3.2% 3.4% 3%
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Post by Deleted on Dec 8, 2023 20:18:21 GMT
Giroux is 48-49 years old so still 10+ years to go atleast. Not something I would worry about. That's what my boss said about me at my age 48! Giroux has a bigger portfolio than I had. R48 I posted in different thread too, retirement is not only about financial though financial security is the minimum needed. There are many billionaires still working in old age.
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Post by archer on Dec 8, 2023 20:51:39 GMT
retiredat48 , Fidelity Magellan was another fund that had its early heyday and then mediocrity. My main concern for PRWCX and TCAF is that Giroux isn't a young man. I expect he will likely retire before long. @yogi, I am not finding PRCFX anywhere, and am being referred to PRGFX. ? Giroux is 48-49 years old so still 10+ years to go atleast. Not something I would worry about. You are probably right. I would guess that fund managers who like their jobs tend to have later than average retirement ages. I assume Giroux likes his work or he would have retired already. Buffet, Munger, Bogle, Soros, Lynch (no longer managing but still working in Finance at 79). I'm sure there are many others, maybe only to be outdone by rock stars as far as working to the end.
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Post by steadyeddy on Dec 8, 2023 21:59:25 GMT
Mustang, yogibearbull, Is there merit in considering PIMIX as one of the horses in this race? It only incepted in 2007 so data would be limited for comparison.
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Post by archer on Dec 8, 2023 22:49:16 GMT
Not including funds as new as PIMIX seems pretty limiting.
I used the Fidelity screener and was sure to include funds that had a 10 year track record. I came up with 2 bond funds, LCTIX (intermediate core Plus) and ICMUX (multi sector). Both have been in the top few % of category for 1,3,5,10 years, and the average SD is 4.68% which seems like an OK ballast to stocks. Average return is 4.52% since 2011. You could throw PIMIX in with it, but to know advantage that I see. PIMIX has had mediocre returns for the past 5 years.
I'd go for 60% TCAF, and 20% each ICMUX and LCTIX for a PF that I wouldn't change other than to rebalance.
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Post by saratoga on Dec 10, 2023 0:14:52 GMT
Combining prcfx and tcaf should approximate prwcx. Simpler still, you can purchase prwcx at t. Rowe Price if you invest $250k at trp.
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Post by Mustang on Dec 10, 2023 0:31:12 GMT
I played around with PV and here's my 2 cents with what caught my eye when I ran a scenario of a retiree with $1m beginning in 2007 withdrawing $40k annually inflation adjusted. It took 14 years (2007-20) of inflation to grow the withdrawal by $10k or a 25% increase. PRWCX grew 115%, even with withdrawals, in that time period. It only took 3 years (2021-23) to grow it by a second $10k or a 20% increase. PRWCX grew 13%. Using a 3% avg going forward it will take 5 more years to grow it by another $10k (16%). In the next 5 years PRWCX will grow? We all better thank our lucky stars we had 14 years of low inflation and an SP500 that returned 212%. I agree that we have been lucky. Far luckier than a 1968 retiree. 12/31/1967 SP500 875.56. Retiree withdraws $40,000 on 1/1/1968. 20 years later to have the same purchasing power he withdraws $13,968, a 340% increase. On 12/31/1987 the SP500 was 658.72. It had been up and down but that was a decrease of 25%. During that time the SP500 went up to 941.84 (May 1968) and down to 359.36 (May 1982). It did go back up to 886.83 in August 1987. It isn't any wonder portfolios ran dry.
If the Fed needs to raise rate again I hope they do. They have to get inflation under control in spite of government spending. ( Deficit spending 2020 and 2021 was $5.9 trillion. I suspect that is why their was a jump upward in 2020.)
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Post by Mustang on Dec 10, 2023 2:33:10 GMT
Richardsok and archer had posted contenders to beat VFINX. $10,000. 5% initial withdrawal. Jan 2008 start. The first chart has their numbers. Richardsok $19,540 (portfolio 1), Archer $21,299 (portfolio 2), and VFINX $17,695. Portfolio 2 had a solid lead until March 2020 then it was a neck and neck race to the finish with portfolio 2 finishing first. The index was last. www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=1E6r9oBoRuZRG9eQ8fNgVYKeeping everything else the same I changed the initial withdrawal to 4%. As expected all portfolios did better but some benefited more than others. Like before portfolio 1 leads until March 2020 then its nose to nose until August 2021 when portfolio 2 take the lead. Portfolio 1 keeps falling back until the index fund catches it. Finish, Portfolio 2 $25,068, Index $22,556, and portfolio 1 $22,438. www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=4T6nYTcuZXvvhpLLrcvXyFI was a little surprised that a small change in the withdrawal made the finishing order different.
Edit: Fixed
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Post by fishingrod on Dec 10, 2023 8:06:03 GMT
Thanks for all this work. It has opened my eyes further to SOR risk.
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Post by yogibearbull on Dec 10, 2023 12:50:38 GMT
Mustang , fishingrod , to add to the SOR risk observations, I added 2 more cases: 5% w/COLA 4% w/COLA No Withdrawals SWRM Portfolio 1 #2 #3* #3 #2 (6.686%) Portfolio 2 #1 #1 #2 #1 (6.764%) Portfolio 3 #3 #2* #1 #3 (5.627%) There is a dramatic shift in ordering without any withdrawals. Portfolio #3 (SP500) does the best; it also has the highest volatility. SWRM is the initial % withdrawal with COLA that will also leave inflation-adjusted principal at the end; it eliminates the period-effect that is high because the run time is only about 15 years. Then, Portfolio #2 ( archer) is the best; it also has the lowest volatility. Portfolio 3 (SP500) is the worst - its high volatility is a liability under withdrawals. Portfolio 1 ( richardsok) is in the middle. For 15 year run, the period-effect is strong as one can withdraw 6.67% w/o COLA and with 0% returns (cash under the mattress). *For 4% w/COLA, while the ordering is as indicated, one may also say that Portfolio 1 and Portfolio 3 are tied. Portfolio 1 also has high volatility, although not as high as for Portfolio 3.
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Post by fishingrod on Dec 10, 2023 13:25:51 GMT
Mustang , yogibearbull , Do we know when Portfolio Visualizer is assuming these annual withdrawals are being taken from the portfolios?
Found it.
"Inflation adjusted annual withdrawal of $400 was applied at the end of each period. This is reflected in the CAGR and maximum drawdown shown above."
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Post by Mustang on Dec 10, 2023 13:44:42 GMT
The inflation adjustment is also applied to the first withdrawal. To compensate for this the first withdrawal needs to be deducted from the beginning balance or we could just assume the first year's living expenses are already in another account. The latter makes things simpler.
If using a monthly withdrawals PV also assumes the annual withdrawal is taken put into a separate cash account and withdrawn monthly with any interest on cash ignored.
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Post by retiredat48 on Dec 10, 2023 15:43:55 GMT
Giroux is 48-49 years old so still 10+ years to go atleast. Not something I would worry about. You are probably right. I would guess that fund managers who like their jobs tend to have later than average retirement ages. I assume Giroux likes his work or he would have retired already. Buffet, Munger, Bogle, Soros, Lynch (no longer managing but still working in Finance at 79). I'm sure there are many others, maybe only to be outdone by rock stars as far as working to the end. Trouble is, it's the bad performance run that results in "retirement." Like Bill Miller. No way he would retire during year 16 when he set record beating S&P500 for 15 straight years. then came the horrible performance; then came retirement. So investor needs to be aware if TRPrice or any fund goes bad, sometimes long term managers call it quits. BTW Miller has a huge land/ estate near me in FL, where he owns a polo team with other billionaires, and actually plays polo. I occasionally have dinner at his outside barbeque, where his backyard is a polo field (equal in area to nine football fields); edit to add: google article: Investor Bill Miller Gives $50 Million to Department of Physics and Astronomy/JohnsHopkins Important things to know! R48
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Post by archer on Dec 10, 2023 16:02:28 GMT
You are probably right. I would guess that fund managers who like their jobs tend to have later than average retirement ages. I assume Giroux likes his work or he would have retired already. Buffet, Munger, Bogle, Soros, Lynch (no longer managing but still working in Finance at 79). I'm sure there are many others, maybe only to be outdone by rock stars as far as working to the end. Trouble is, it's the bad performance run that results in "retirement." Like Bill Miller. No way he would retire during year 16 when he set record beating S&P500 for 15 straight years. then came the horrible performance; then came retirement. So investor needs to be aware if TRPrice or any fund goes bad, sometimes long term managers call it quits. BTW Miller has a huge land/ estate near me in FL, where he owns a polo team with other billionaires, and actually plays polo. I occasionally have dinner at his outside barbeque, where his backyard is a polo field (equal in area to nine football fields); Important things to know! R48 I find it interesting that PRWCX really shines in back testing due to its performance from 2000-2003, but Giroux didn't become manager until 2006. I still view him as an excellent manager, but shorter back testing (2003 onward) against other funds the gap is less. Past 4 years, he is neck to neck with FBALX, but with less volatility, so he still has an edge.
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Post by howaya on Dec 11, 2023 12:15:55 GMT
I find it interesting that PRWCX really shines in back testing due to its performance from 2000-2003, but Giroux didn't become manager until 2006. I still view him as an excellent manager, but shorter back testing (2003 onward) against other funds the gap is less. Past 4 years, he is neck to neck with FBALX, but with less volatility, so he still has an edge. Thanks for this. It helps to mitigate some of my fund envy!
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Post by richardsok on Dec 11, 2023 14:09:21 GMT
It occurs to me that we could be using a poor time bracket for our back testing if we test from "year x" to present. The market is exceptionally high right now and could be giving almost any equity bucket in our imaginary portfolios a misleading glow.
I could argue that the next market crisis we face might be the worst of our lifetimes. We are already $34trillion in debt. How much more liquidity can we flood the next bear market without bringing on a renewed dollar/inflationary calamity?
We could do well, I think, by considering the bear market resiliency of our imaginary retirement portfolios. SPY lost some 26% in value during the Covid Crash (peak to trough). It similarly lost a colossal 46% during the 2008 meltdown (how quickly we forget!)
Although I don't believe the two are mutually exclusionary, I think, in testing retirement portfolios, the critical question is not just "how much do we thrive?" during great bull markets, but also "How to survive?" in market crashes.
Back testing in times of market peaks might not tell us what we really need to know.
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Post by yogibearbull on Dec 11, 2023 14:33:27 GMT
richardsok, good points. Posters, including I, have used a variety of test periods. In historical testing, it is important to use stressful test periods or long periods that contain various cycles within them (e.g. 01/1999-now or 01/2000-now). Then, these can be useful vs randomized Monte Carlo trials that I am not too fond of. The current market may be frothy only for the Magnificent 7 or 8. The small-cap universe R2000 is a disaster with 40% of companies unprofitable. Some details on stress testing periods are found in the link below and elsewhere. ybbpersonalfinance.proboards.com/post/1266/thread
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Post by racqueteer on Dec 11, 2023 15:21:07 GMT
My personal concern about backtesting, and one I've at least alluded to in the past, is that the value of the information derived depends on whether or not the data is 'normal' and can therefore be anticipated to repeat that same general pattern. Including any kind of outlier in the data makes any conclusion(s) suspect. I'm not sure of how much help the data is actually going to be in our current situation; at least in predicting future activity. It's been years since I've seen the market behave in a manner I'd expect! I know I've kind of been reduced to simply following the market inclinations however unreasonable they might seem. Every time I've tried to be logical, it has bitten me in the ...
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Post by archer on Dec 11, 2023 16:26:25 GMT
I we are to backest for periods that don't include our current run up of equities, perhaps use 2000-2011. But, how to find the sensible balance of being prepared for the big bear vs the bull? Using 2000-2011 I see that VWINX and VWELX both grew with a 4% withdrawal, but ended 2011 with VWINX in the lead which it held pretty much until mid 2020. Moving the start date just 2 years before or after makes a big difference. Prolonged periods like the above have happened 3 times going back to the '29 crash, and have occured about every 30 years. Link to graph
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Post by retiredat48 on Dec 11, 2023 16:47:51 GMT
Recent posts raise good points...especially regarding that stocks may have a terrible next decade.
So what is one to do? The classic reply is: This is why you have a balanced asset-allocated portfolio. It is generally true that if stocks have a bear market, bonds rally--go up. Thus a 60/40 portfolio has 40% fixed income side increasing in value during the stock decline.
And if instead of a stock decline due, for example, as R asks with the large fed debt, we actually get high inflation, the stock side protects against this in the long run with pricing power.
One does not need to "make a bet" as to the direction of the stock market. You want to win, either way--either outcome.
And if you have a portfolio that generally "has enough", one can use an allocation they are comfortable with, for a percentage of their portfolio, and invest the remainder in strategic hedging, up to even good speculation. This is often called "Core and Explore" investing, which many posters around here use. The core is your asset allocated portfolio; the explore is anything else...like 13% yield CEFs!...or gold miner stock funds...or sector Energy Funds.
R48
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Post by archer on Dec 11, 2023 17:19:39 GMT
retiredat48, I agree stocks hedge against inflation as long as the Fed doesn't raise interest rates. Both stocks and bonds are adverse to rising rates.
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Post by retiredat48 on Dec 12, 2023 15:05:22 GMT
archer ,...I actually do not view the fed rate increases this past year as "rising rates". Rather more like "getting back to typical or normal rates." Getting rid of "negative interest rates", the world just got rid of a 3000 year all-time low in interest rates! That was the distortion for a decade. A decent rule of thumb to where rates should be is: Add 2% to the current inflation rate...ie a REAL positive return. Further, people keep ignoring that a rise in rates means billions more in earned interest by folks such as senior citizens with money in banks and CDs etc. Spendable money...good for business. Edit to add: Remember, investors are not hurt by rising rates if they follow the bond rule of thumb. Which briefly is, your total CAGR return will approximate the current bond yield rate, if you hold asset to its DURATION, REGARDLESS OF THE DIRECTION OF INTEREST RATES. R48
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