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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 9:28 am    Post subject: TIPS Switching Surveys Reply with quote

Overview

These are the optimized results for switching allocations with stocks and TIPS with a 2% (real) interest rate.

I used the TIPS version of my latest modified Retire Early Safe Withdrawal Calculator, JanSz-Chips Deluxe V2.0B TIPS. It allows you to set four P/E10 thresholds and to adjust three out of five stock allocations. When P/E10 falls below the lowest threshold, the stock allocation is always 100%. When P/E10 is above the highest threshold (as it is today), the stock allocation is 0%. Earlier investigations had shown this result always to be true.

Optimization turned out to be much more difficult than I had anticipated and my progress was awkward. I am satisfied that I have come reasonably close to the true optimal values. I am satisfied that the highest Historical Database Rate of 5.2% is a consistent ceiling using simple P/E10 thresholds. I am satisfied that the best reason for using additional thresholds and allocations is to reduce the sensitivity of results to minor differences from the optimal values. That is, I expect that the optimal values in the future will be similar to those extracted from historical data, but not identical. My goal is to reduce the effects of errors because we are depending upon historical data.

Conditions

All results are for retirement periods starting in 1921-1980. All portfolios consisted of stocks as represented by the S&P500 index (with all dividends reinvested) and 2% TIPS. Expenses were 0.20%. Portfolios were re-balanced annually at zero cost.

The Historical Database Rates reported here are the highest withdrawal rate:
1) that would have produced a positive balance for an entire 30-year period,
2) but which would have had a negative or zero balance in at least one historical sequence (beginning in 1921-1980) when the withdrawal rate was increased by 0.1%.

Withdrawal rates are in terms of the portfolio's initial balance. All withdrawal rates are in increments of 0.1%. Withdrawal amounts were adjusted to match inflation. The interest from TIPS also matched inflation and they decreased during times of deflation. TIPS were treated as trading vehicles without any capital gains or losses and there was never any adjustment back to par at maturity. Inflation was measured according to the Consumer Price Index for Urban workers (CPI-U).

P/E10 is the current (real) price of the S&P500 index divided by the average of the previous ten years of (real) earnings. This indicator of valuation (P/E10) was developed and is reported by Professor Shiller of Yale.

Summary

The best Historical Database Rate was 5.2% in all cases. It was never possible to reach 5.3% without several failures.

The simplest approach uses two thresholds and one adjustable stock allocation (for a total of three). The best choices are P/E10 thresholds of 11 and 24 and stock allocations of 100%-30%-0%, respectively.

When there is more than one, the most important thresholds are the lowest thresholds.

The best choice with three thresholds and two adjustable allocations (for a total of four) is to use P/E10 thresholds of 9-13-24 with stock allocations of 100%-50%-30%-0%, respectively. [Results with 100%-60%-30%-0% allocations and P/E10 thresholds of 9-13-24 are almost identical. Using P/E10 thresholds of 9-12-24 is another a good choice.]

The best choice with four thresholds and three adjustable stock allocations (for a total of five) are 9-12-21-24 or 9-13-21-24 (with no preference) with 100%-50%-30%-20%-0%, respectively. There is relatively little sensitivity to changing the lowest adjustable allocation or the lower middle P/E10 threshold.

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 9:50 am    Post subject: Reply with quote

PART ONE

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

INITIAL SURVEY

Withdrawal Rate = 5.2%.
Thresholds = 8, 12, 16 and 20.
Allocations: 100%-75%-50%-25%-0%.

The allocation percentages of the adjustable thresholds were varied. The thresholds were 8-12-16-20.

Code:
Low Threshold   Medium   High   Failures
75%   50%    25%   10
75%   50%     0%   13
75%   50%    10%   12
75%   50%    20%   11
75%   50%    30%   10
75%   50%    40%   10
75%   50%    50%   12
75%   50%    60%   13
75%   50%    70%   12
75%   50%    80%   12
75%   50%    90%   12
75%   50%   100%   12
         
75%    50%   25%   10
75%     0%   25%   15
75%    10%   25%   14
75%    20%   25%   12
75%    30%   25%   11
75%    40%   25%   11
75%    50%   25%   10
75%    60%   25%   11
75%    70%   25%   14
75%    80%   25%   15
75%    90%   25%   15
75%   100%   25%   15
         
 75%    50%   25%   10
 0%     50%   25%   44
 10%    50%   25%   34
 20%    50%   25%   28
 30%    50%   25%   20
 40%    50%   25%   16
 50%    50%   25%   15
 60%    50%   25%   15
 70%    50%   25%   10
 80%    50%   25%   10
 90%    50%   25%    9
100%   50%   25%    9
         
 90%    50%   30%    9
100%   50%   30%    9
 90%    50%   40%   10
100%   50%   40%    9

The greatest sensitivity was for the lowest of the adjustable thresholds and favors an allocation of 90% or 100% whenever P/E10 is between 8 and 12.

SECOND SURVEY

This was a repeat of the initial survey but with thresholds at 9-13-17-21.

Code:
Low Threshold   Medium   High   Failures
75%   50%    25%   7
75%   50%     0%   9
75%   50%    10%   9
75%   50%    20%   7
75%   50%    30%   7
75%   50%    40%   3
75%   50%    50%   3
75%   50%    60%   2
75%   50%    70%   3
75%   50%    80%   3
75%   50%    90%   5
75%   50%   100%   8
         
75%    50%   25%    7
75%     0%   25%    5
75%    10%   25%    6
75%    20%   25%    6
75%    30%   25%    6
75%    40%   25%    7
75%    50%   25%    7
75%    60%   25%    7
75%    70%   25%    8
75%    80%   25%    9
75%    90%   25%   11
75%   100%   25%   13
         
 75%    50%   25%    7
 0%     50%   25%   27
 10%    50%   25%   22
 20%    50%   25%   15
 30%    50%   25%   11
 40%    50%   25%    7
 50%    50%   25%    7
 60%    50%   25%    7
 70%    50%   25%    7
 80%    50%   25%    7
 90%    50%   25%    7
100%   50%   25%    7
         
40%    0%   40%   1
40%    0%   60%   0
40%    0%   80%   1
40%   30%   40%   1
40%   30%   60%   1
40%   30%   80%   2
80%    0%   40%   2
80%    0%   60%   1
80%    0%   80%   1
80%   30%   40%   2
80%   30%   60%   2
80%   30%   80%   2

The allocation at the lowest of the adjustable thresholds has to be at least 40%. Below 40%, performance is poor. Allocations above 40% do not matter much.

The best allocation at the middle threshold was 0%. Performance degraded slowly as allocations were increased.

There was sensitivity at the highest thresholds. The best allocations ranged from 40% to 80%.

THIRD SURVEY

This was a repeat of the initial survey but with thresholds at 10-14-18-22.

Code:
Low Threshold   Medium   High   Failures
75%   50%    25%   10
75%   50%     0%    8
75%   50%    10%    8
75%   50%    20%   10
75%   50%    30%   11
75%   50%    40%   11
75%   50%    50%   12
75%   50%    60%   14
75%   50%    70%   12
75%   50%    80%   13
75%   50%    90%   12
75%   50%   100%   12
         
75%     50%   25%   10
75%      0%   25%   14
75%     10%   25%   14
75%     20%   25%   11
75%     30%   25%   11
75%     40%   25%   11
75%     50%   25%   10
75%     60%   25%   10
75%     70%   25%    8
75%     80%   25%    8
75%     90%   25%    7
75%    100%   25%    6
         
 75%    50%   25%   10
 0%     50%   25%   26
 10%    50%   25%   17
 20%    50%   25%   10
 30%    50%   25%    4
 40%    50%   25%    5
 50%    50%   25%    6
 60%    50%   25%    8
 70%    50%   25%   10
 80%    50%   25%   11
 90%    50%   25%   12
100%   50%   25%   15
         
30%    90%    0%   14
30%   100%    0%   14
30%    90%   10%   11
30%   100%   10%   12

The allocation at the lowest of the adjustable thresholds has to be at least 30%. Below 30%, performance is poor. Performance degrades gradually as allocations are increased above 30%.

The greatest sensitivities are associated with the lower two adjustable thresholds. They seem to interact. For example, 100%-30%-90%-10%-0% is inferior to 100%-30%-50%-25%-0% and 100%-75%-100%-25%-0%.

The best single condition so far is 100%-30%-50%-25%-0%. An alternative region of interest is about the condition 100%-75%-100%-25%-0%.

FOURTH SURVEY

This was a repeat of the initial survey but with thresholds at 11-15-19-23.

Code:
Low Threshold   Medium   High   Failures
75%   50%    25%   14
75%   50%     0%   15
75%   50%    10%   15
75%   50%    20%   15
75%   50%    30%   13
75%   50%    40%   12
75%   50%    50%   12
75%   50%    60%   11
75%   50%    70%    8
75%   50%    80%    7
75%   50%    90%    7
75%   50%   100%    8
         
75%    50%   25%   14
75%     0%   25%   12
75%    10%   25%   11
75%    20%   25%   11
75%    30%   25%   11
75%    40%   25%   12
75%    50%   25%   14
75%    60%   25%   15
75%    70%   25%   15
75%    80%   25%   15
75%    90%   25%   15
75%   100%   25%   14
         
 75%    50%   25%   14
 0%     50%   25%    4
 10%    50%   25%    1
 20%    50%   25%    1
 30%    50%   25%    3
 40%    50%   25%    5
 50%    50%   25%   10
 60%    50%   25%   11
 70%    50%   25%   11
 80%    50%   25%   15
 90%    50%   25%   15
100%   50%   25%   15
         
10%   10%   80%   6
10%   10%   90%   9
10%   20%   80%   6
10%   20%   90%   8
10%   30%   80%   6
10%   30%   90%   8
20%   10%   80%   5
20%   10%   90%   7
20%   20%   80%   4
20%   20%   90%   6
20%   30%   80%   5
20%   30%   90%   6

The greatest sensitivity is at the lowest adjustable threshold. In all cases that were examined in detail, a 20% allocation at that threshold was better than a 10% allocation.

There was very little sensitivity to the middle adjustable threshold among those conditions examined in detail. Among those conditions examined in detail, an 80% allocation was consistently better than a 90% allocation.

There was a qualitative change in the behavior at the highest adjustable threshold. Both of the first two cases favored using a low stock allocation. The third favored a very high stock allocation.

REMARKS ABOUT THESE INITIAL SURVEYS

There was a consistent sensitivity associated with the lowest adjustable threshold. The behavior changed as it was increased. It is as if each of the lowest threshold levels carries with it a minimal allocation. Above that minimal level, the stock allocation should drop, sometimes dramatically.

Because of the dramatic results seen in the second survey, I have fixed the lowest adjustable threshold at 9 with allocations ranging from 40% to 100%.

From the third and fourth survey, it is clear that very small allocations at thresholds of 10 and 11 are of interest.

Allocations still vary greatly as the highest adjustable threshold is increased to 23. In fact, at that threshold, the data favor a high allocation (80% in the fourth survey). Because of this and because there were very few years with a P/E10 of 24 or higher before the bubble, I have selected 24 as the highest adjustable threshold. I advise caution in regard to this setting. It can show the sensitivity related to specific years as opposed to more general effects.

These surveys would have been efficient if the thresholds and allocations did not interact, but they did. Some of the interactions are likely to be associated with specific years. We have to tread carefully since we cannot make general statements based on general trends. The sole exception is that it is a good idea to load up on stocks when they fall to bargain level prices (i.e., when the P/E10 is 8 or lower).

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 9:57 am    Post subject: Reply with quote

PART TWO

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

Starting conditions:
Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 21 and 24.
Allocations: 100%-Low%-Middle%-High%-0%.

SURVEY FIVE

The allocation percentages of the adjustable thresholds were varied. The thresholds were 9-12-21-24.

Code:
Low Threshold   Middle   High   Failures
100%   100%     0%   12
100%   100%    10%   12
100%   100%    20%   12
100%   100%    30%   11
100%   100%    40%   11
100%   100%    50%   11
100%   100%    60%   12
100%   100%    70%   13
100%   100%    80%   13
100%   100%    90%   14
100%   100%   100%   15
100%     0%   40%   12
100%    10%   40%   11
100%    20%   40%    8
100%    30%   40%    4
100%    40%   40%    5
100%    50%   40%    7
100%    60%   40%    7
100%    70%   40%    9
100%    80%   40%   11
100%    90%   40%   11
100%   100%   40%   11
30%    30%   40%   3
40%    30%   40%   1
50%    30%   40%   1
60%    30%   40%   1
70%    30%   40%   2
80%    30%   40%   4
90%    30%   40%   4
100%   30%   40%   4

This points us to using 40%-50%-60% allocations for the lowest adjustable threshold.

SURVEY SIX

The allocation percentages of the adjustable thresholds were varied. The thresholds were 9-12-21-24.

Code:
Low Threshold   Middle   High   Failures
40%   30%     0%    3
40%   30%    10%    2
40%   30%    20%    0
40%   30%    30%    1
40%   30%    40%    1
40%   30%    50%    3
40%   30%    60%    5
40%   30%    70%    7
40%   30%    80%   10
40%   30%    90%   11
40%   30%   100%   13
50%     0%   40%   14
50%    10%   40%   12
50%    20%   40%    4
50%    30%   40%    1
50%    40%   40%    3
50%    50%   40%    5
50%    60%   40%    7
50%    70%   40%    9
50%    80%   40%   14
50%    90%   40%   16
50%   100%   40%   17
60%     0%   40%   12
60%    10%   40%   11
60%    20%   40%    5
60%    30%   40%    1
60%    40%   40%    2
60%    50%   40%    4
60%    60%   40%    6
60%    70%   40%    8
60%    80%   40%   12
60%    90%   40%   15
60%   100%   40%   15

This suggests using a 30% middle allocation and that the lowest allocation can be 40%-50%-60%.

SURVEY SEVEN

The allocation percentages of the adjustable thresholds were varied. The thresholds were 9-12-21-24.

Code:
Low Threshold   Middle   High   Failures
40%   30%     0%    3
40%   30%    10%    2
40%   30%    20%    0
40%   30%    30%    1
40%   30%    40%    1
40%   30%    50%    3
40%   30%    60%    5
40%   30%    70%    7
40%   30%    80%   10
40%   30%    90%   11
40%   30%   100%   13
50%   30%     0%    3
50%   30%    10%    3
50%   30%    20%    0
50%   30%    30%    0
50%   30%    40%    1
50%   30%    50%    3
50%   30%    60%    3
50%   30%    70%    6
50%   30%    80%    8
50%   30%    90%    9
50%   30%   100%   10
60%   30%     0%   3
60%   30%    10%   3
60%   30%    20%   3
60%   30%    30%   0
60%   30%    40%   1
60%   30%    50%   2
60%   30%    60%   3
60%   30%    70%   5
60%   30%    80%   7
60%   30%    90%   8
60%   30%   100%   9


SURVEY EIGHT

The withdrawal rates were varied. The thresholds were 9-12-21-24.

With a 5.2% withdrawal rate:

Code:
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0


With a 5.3% withdrawal rate:

Code:
40%   30%   20%   6
50%   30%   20%   6
50%   30%   30%   6
60%   30%   30%   7


These are the years that failed when the withdrawal rate was 5.3%:
40%-30%-20%: 1937, 1959-1960, 1962 and 1964-1965.
50%-30%-20%: 1959-1962 and 1964-1965.
50%-30%-30%: 1959-1960, 1962 and 1964-1966.
60%-30%-30%: 1959-1962 and 1964-1966.

REMARKS ABOUT THE PART TWO SURVEYS

The level of optimization is sufficient for the moment. It is now appropriate to examine alternatives to the thresholds of 12. That is, it is time to examine thresholds of 9-varies-21-24.

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 10:04 am    Post subject: Reply with quote

PART THREE

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

Starting point:
Withdrawal Rate = 5.2%.
Thresholds = 9, varies, 21 and 24.
Allocations: 100%-Low%-Middle%-High%-0%.

SURVEY NINE

When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions:

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0


When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions. Here, the thresholds are 9-9-21-24.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   2
50%   30%   20%   2
50%   30%   30%   3
60%   30%   30%   3


When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions. Here, the thresholds are 9-10-21-24.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   2
50%   30%   20%   2
50%   30%   30%   3
60%   30%   30%   3

When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions. Here, the thresholds are 9-11-21-24.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   1
50%   30%   20%   0
50%   30%   30%   1
60%   30%   30%   0


When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions. Here, the thresholds are 9-13-21-24.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0


When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions. Here, the thresholds are 9-14-21-24.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%    4
50%   30%   20%    7
50%   30%   30%    8
60%   30%   30%   11

From this, I conclude that the lower two thresholds should be 9 and 11 or 12 or13.

SURVEY TEN

When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions. Here, the withdrawal rate is 5.3%.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   6
50%   30%   20%   6
50%   30%   30%   6
60%   30%   30%   7


With a 5.3% withdrawal rate and thresholds of 9-11-21-24:

Code:
40%   30%   20%   5
50%   30%   20%   5
50%   30%   30%   5
60%   30%   30%   5


With a 5.3% withdrawal rate and thresholds of 9-13-21-24:

Code:
40%   30%   20%   5
50%   30%   20%   6
50%   30%   30%   6
60%   30%   30%   7


SURVEY ELEVEN

When the withdrawal rate is 5.2% and the thresholds are 9-12-21-24, the number of failures is zero under the following conditions:

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0


I once again look at the lowest of the adjustable thresholds: varies-12 or 13-21-24 with a 5.2% withdrawal rate.

The adjustable thresholds are 10-12-21-24 and the withdrawal rate is 5.2%.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   3
50%   30%   30%   0
60%   30%   30%   2


The adjustable thresholds are 11-12-21-24 and the withdrawal rate is 5.2%.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   3
50%   30%   30%   0
60%   30%   30%   2


When the withdrawal rate is 5.2% and the thresholds are 9-13-21-24, the number of failures is zero under the following conditions.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0


The adjustable thresholds are 10-13-21-24 and the withdrawal rate is 5.2%.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   3
50%   30%   30%   0
60%   30%   30%   2


The adjustable thresholds are 11-13-21-24 and the withdrawal rate is 5.2%.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   3
50%   30%   30%   0
60%   30%   30%   2


The adjustable thresholds are 12-13-21-24 and the withdrawal rate is 5.2%.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   5
50%   30%   20%   5
50%   30%   30%   4
60%   30%   30%   4


From these results, I conclude that the lower two adjustable thresholds should be 9-12 or 9-13. Allocations were optimized only for the 9-12 condition. These are not necessarily the best settings. These settings are reasonable close to the best.

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 10:17 am    Post subject: Reply with quote

PART FOUR

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

Starting point:
Both 9-12-21-24 and 9-13-21-04, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate.

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0

To be examined:
Withdrawal Rate = 5.2%.
Thresholds = 9, 12 or 13, varies and 24.
Allocations: 100%-Low-30%-High%-0%.

SURVEY TWELVE

Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 23 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   4
50%   30%    10%   4
50%   30%    20%   3
50%   30%    30%   0
50%   30%    40%   0
50%   30%    50%   0
50%   30%    60%   0
50%   30%    70%   0
50%   30%    80%   0
50%   30%    90%   0
50%   30%   100%   0


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 22 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   4
50%   30%    10%   4
50%   30%    20%   3
50%   30%    30%   0
50%   30%    40%   0
50%   30%    50%   0
50%   30%    60%   0
50%   30%    70%   0
50%   30%    80%   0
50%   30%    90%   0
50%   30%   100%   0


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 21 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%    3
50%   30%    10%    3
50%   30%    20%    0
50%   30%    30%    0
50%   30%    40%    1
50%   30%    50%    3
50%   30%    60%    3
50%   30%    70%    6
50%   30%    80%    8
50%   30%    90%    9
50%   30%   100%   10


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 20 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   7
50%   30%    10%   4
50%   30%    20%   4
50%   30%    30%   0
50%   30%    40%   1
50%   30%    50%   1
50%   30%    60%   1
50%   30%    70%   3
50%   30%    80%   5
50%   30%    90%   6
50%   30%   100%   7


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 19 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   9
50%   30%    10%   8
50%   30%    20%   6
50%   30%    30%   0
50%   30%    40%   1
50%   30%    50%   1
50%   30%    60%   1
50%   30%    70%   2
50%   30%    80%   5
50%   30%    90%   6
50%   30%   100%   7


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 18 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%    8
50%   30%    10%    5
50%   30%    20%    4
50%   30%    30%    0
50%   30%    40%    1
50%   30%    50%    4
50%   30%    60%    6
50%   30%    70%    7
50%   30%    80%    8
50%   30%    90%    9
50%   30%   100%   13


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 17 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   10
50%   30%    10%    9
50%   30%    20%    5
50%   30%    30%    0
50%   30%    40%    1
50%   30%    50%    4
50%   30%    60%    5
50%   30%    70%    6
50%   30%    80%    6
50%   30%    90%    6
50%   30%   100%    7


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 16 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   11
50%   30%    10%    7
50%   30%    20%    5
50%   30%    30%    0
50%   30%    40%    1
50%   30%    50%    1
50%   30%    60%    4
50%   30%    70%    6
50%   30%    80%    9
50%   30%    90%   10
50%   30%   100%   10


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 15 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   11
50%   30%    10%    9
50%   30%    20%    5
50%   30%    30%    0
50%   30%    40%    1
50%   30%    50%    1
50%   30%    60%    2
50%   30%    70%    7
50%   30%    80%    8
50%   30%    90%    8
50%   30%   100%   11


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 14 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   11
50%   30%    10%    9
50%   30%    20%    5
50%   30%    30%    0
50%   30%    40%    1
50%   30%    50%    1
50%   30%    60%    3
50%   30%    70%    8
50%   30%    80%    8
50%   30%    90%    9
50%   30%   100%   12


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 13 and 24.
Allocations: 100%-50%-30%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   30%     0%   12
50%   30%    10%    8
50%   30%    20%    5
50%   30%    30%    0
50%   30%    40%    3
50%   30%    50%    6
50%   30%    60%    9
50%   30%    70%   13
50%   30%    80%   17
50%   30%    90%   18
50%   30%   100%   21


SURVEY THIRTEEN

Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 23 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   5
50%   40%    10%   5
50%   40%    20%   5
50%   40%    30%   3
50%   40%    40%   3
50%   40%    50%   3
50%   40%    60%   2
50%   40%    70%   2
50%   40%    80%   2
50%   40%    90%   2
50%   40%   100%   2


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 22 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   5
50%   40%    10%   5
50%   40%    20%   5
50%   40%    30%   3
50%   40%    40%   3
50%   40%    50%   3
50%   40%    60%   2
50%   40%    70%   2
50%   40%    80%   2
50%   40%    90%   2
50%   40%   100%   3


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 21 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%    3
50%   40%    10%    2
50%   40%    20%    2
50%   40%    30%    2
50%   40%    40%    3
50%   40%    50%    4
50%   40%    60%    6
50%   40%    70%    8
50%   40%    80%    9
50%   40%    90%    9
50%   40%   100%   10


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 20 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   6
50%   40%    10%   4
50%   40%    20%   4
50%   40%    30%   4
50%   40%    40%   3
50%   40%    50%   4
50%   40%    60%   4
50%   40%    70%   6
50%   40%    80%   7
50%   40%    90%   7
50%   40%   100%   8


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 19 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   9
50%   40%    10%   8
50%   40%    20%   8
50%   40%    30%   4
50%   40%    40%   3
50%   40%    50%   4
50%   40%    60%   4
50%   40%    70%   6
50%   40%    80%   7
50%   40%    90%   7
50%   40%   100%   8


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 18 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%    8
50%   40%    10%    5
50%   40%    20%    4
50%   40%    30%    2
50%   40%    40%    3
50%   40%    50%    6
50%   40%    60%    6
50%   40%    70%    8
50%   40%    80%    9
50%   40%    90%   12
50%   40%   100%   14


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 17 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   9
50%   40%    10%   8
50%   40%    20%   6
50%   40%    30%   3
50%   40%    40%   3
50%   40%    50%   4
50%   40%    60%   6
50%   40%    70%   6
50%   40%    80%   7
50%   40%    90%   7
50%   40%   100%   9


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 16 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   10
50%   40%    10%    8
50%   40%    20%    6
50%   40%    30%    4
50%   40%    40%    3
50%   40%    50%    4
50%   40%    60%    6
50%   40%    70%    8
50%   40%    80%    9
50%   40%    90%   10
50%   40%   100%   11


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 15 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   11
50%   40%    10%    9
50%   40%    20%    7
50%   40%    30%    5
50%   40%    40%    3
50%   40%    50%    4
50%   40%    60%    6
50%   40%    70%    8
50%   40%    80%   10
50%   40%    90%   10
50%   40%   100%   11


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 14 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   11
50%   40%    10%    9
50%   40%    20%    6
50%   40%    30%    5
50%   40%    40%    3
50%   40%    50%    4
50%   40%    60%    6
50%   40%    70%    9
50%   40%    80%   10
50%   40%    90%   10
50%   40%   100%   11


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 13 and 24.
Allocations: 100%-50%-40%-High%-0%.

Code:
Low Threshold   Medium   High   Failures
50%   40%     0%   11
50%   40%    10%    8
50%   40%    20%    5
50%   40%    30%    0
50%   40%    40%    3
50%   40%    50%    6
50%   40%    60%    9
50%   40%    70%   13
50%   40%    80%   16
50%   40%    90%   18
50%   40%   100%   21


These data favor a 100%-50%-30%-30%-0% stock allocation, which is equivalent to eliminating one of the thresholds.

Have fun.

John R.


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JWR1945
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Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 10:30 am    Post subject: Reply with quote

PART FIVE

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

Starting point:
Both 9-12-21-24 and 9-13-21-04, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate.
Code:


Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0

To be examined at that time were:
Withdrawal Rate = 5.2%.
Thresholds = 9, 12 or 13, varies and 24.
Allocations: 100%-low-30%-High%-0%.

Examination of 9-12-varies-24 thresholds with 100%-50%-[30% or 40%]-varies-0% conditions suggested that one of the thresholds should be eliminated. In most circumstances, 100%-50%-30%-30%-0% was the best condition examined.

I now proceed to optimize three threshold and two adjustable stock allocations (for a total of four allocations). In what follows, the highest P/E10 threshold (at 30) is a dummy threshold because the allocation just below it is 0% and the allocation above it is 0% as well.

SURVEY FOURTEEN

Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 24 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   11
50%    20%   0%    5
50%    30%   0%    0
50%    40%   0%    3
50%    50%   0%    6
50%    60%   0%    9
50%    70%   0%   12
50%    80%   0%   15
50%    90%   0%   16
50%   100%   0%   20


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 23 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   11
50%    20%   0%    8
50%    30%   0%    4
50%    40%   0%    5
50%    50%   0%    8
50%    60%   0%   10
50%    70%   0%   13
50%    80%   0%   16
50%    90%   0%   17
50%   100%   0%   20


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 22 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   11
50%    20%   0%    8
50%    30%   0%    4
50%    40%   0%    5
50%    50%   0%    8
50%    60%   0%    8
50%    70%   0%   12
50%    80%   0%   16
50%    90%   0%   17
50%   100%   0%   19


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 21 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   11
50%    20%   0%    7
50%    30%   0%    3
50%    40%   0%    3
50%    50%   0%    3
50%    60%   0%    3
50%    70%   0%    5
50%    80%   0%   11
50%    90%   0%   12
50%   100%   0%   16


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 20 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   13
50%    20%   0%    9
50%    30%   0%    7
50%    40%   0%    6
50%    50%   0%    6
50%    60%   0%    7
50%    70%   0%   10
50%    80%   0%   12
50%    90%   0%   13
50%   100%   0%   16


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 19 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   13
50%    20%   0%   10
50%    30%   0%    9
50%    40%   0%    9
50%    50%   0%    9
50%    60%   0%   10
50%    70%   0%   13
50%    80%   0%   15
50%    90%   0%   16
50%   100%   0%   19


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 18 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   12
50%    20%   0%   12
50%    30%   0%    8
50%    40%   0%    8
50%    50%   0%    7
50%    60%   0%    6
50%    70%   0%    6
50%    80%   0%    8
50%    90%   0%    9
50%   100%   0%   12


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 17 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   13
50%    20%   0%   13
50%    30%   0%   10
50%    40%   0%    9
50%    50%   0%    9
50%    60%   0%    9
50%    70%   0%   10
50%    80%   0%   15
50%    90%   0%   17
50%   100%   0%   18


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 16 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   13
50%    20%   0%   13
50%    30%   0%   11
50%    40%   0%   10
50%    50%   0%    9
50%    60%   0%    8
50%    70%   0%    9
50%    80%   0%   10
50%    90%   0%   11
50%   100%   0%   13


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 15 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   14
50%    20%   0%   13
50%    30%   0%   11
50%    40%   0%   11
50%    50%   0%   10
50%    60%   0%   10
50%    70%   0%   11
50%    80%   0%   15
50%    90%   0%   15
50%   100%   0%   15


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 14 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   14
50%    20%   0%   13
50%    30%   0%   11
50%    40%   0%   11
50%    50%   0%   10
50%    60%   0%   10
50%    70%   0%   11
50%    80%   0%   13
50%    90%   0%   15
50%   100%   0%   14


Withdrawal Rate = 5.2%.
Thresholds = 9, 12, 13 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%   13
50%    10%   0%   13
50%    20%   0%   12
50%    30%   0%   12
50%    40%   0%   11
50%    50%   0%    9
50%    60%   0%    9
50%    70%   0%    9
50%    80%   0%    9
50%    90%   0%    9
50%   100%   0%    9


SURVEY FIFTEEN

Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 24 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%    8
50%    20%   0%    5
50%    30%   0%    0
50%    40%   0%    2
50%    50%   0%    6
50%    60%   0%    9
50%    70%   0%   12
50%    80%   0%   16
50%    90%   0%   18
50%   100%   0%   20


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 23 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%    8
50%    20%   0%    8
50%    30%   0%    4
50%    40%   0%    4
50%    50%   0%    8
50%    60%   0%   10
50%    70%   0%   13
50%    80%   0%   17
50%    90%   0%   19
50%   100%   0%   20


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 22 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%    8
50%    20%   0%    8
50%    30%   0%    4
50%    40%   0%    4
50%    50%   0%    8
50%    60%   0%    8
50%    70%   0%   12
50%    80%   0%   17
50%    90%   0%   19
50%   100%   0%   19


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 21 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%    8
50%    20%   0%    7
50%    30%   0%    3
50%    40%   0%    3
50%    50%   0%    3
50%    60%   0%    3
50%    70%   0%    5
50%    80%   0%   12
50%    90%   0%   14
50%   100%   0%   17


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 20 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%   10
50%    20%   0%    9
50%    30%   0%    7
50%    40%   0%    6
50%    50%   0%    6
50%    60%   0%    7
50%    70%   0%   10
50%    80%   0%   13
50%    90%   0%   15
50%   100%   0%   17


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 19 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%   10
50%    20%   0%   10
50%    30%   0%    9
50%    40%   0%    9
50%    50%   0%    9
50%    60%   0%   10
50%    70%   0%   13
50%    80%   0%   16
50%    90%   0%   18
50%   100%   0%   22


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 18 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%    9
50%    20%   0%    9
50%    30%   0%    8
50%    40%   0%    8
50%    50%   0%    7
50%    60%   0%    6
50%    70%   0%    7
50%    80%   0%    9
50%    90%   0%   10
50%   100%   0%   15


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 17 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%    9
50%    20%   0%   10
50%    30%   0%   10
50%    40%   0%    9
50%    50%   0%    9
50%    60%   0%    9
50%    70%   0%   12
50%    80%   0%   16
50%    90%   0%   17
50%   100%   0%   21


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 16 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%   10
50%    20%   0%   10
50%    30%   0%   11
50%    40%   0%   10
50%    50%   0%    9
50%    60%   0%    8
50%    70%   0%    9
50%    80%   0%   10
50%    90%   0%   11
50%   100%   0%   14


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 15 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%   10
50%    20%   0%   10
50%    30%   0%   11
50%    40%   0%   11
50%    50%   0%   10
50%    60%   0%   10
50%    70%   0%   11
50%    80%   0%   15
50%    90%   0%   15
50%   100%   0%   15


Withdrawal Rate = 5.2%.
Thresholds = 9, 13, 14 and 30.
Allocations: 100%-50%-varies-0%-0%.
Code:


Low Threshold   Medium   High   Failures
50%     0%   0%    9
50%    10%   0%   10
50%    20%   0%   10
50%    30%   0%   11
50%    40%   0%   11
50%    50%   0%   10
50%    60%   0%   10
50%    70%   0%   11
50%    80%   0%   13
50%    90%   0%   15
50%   100%   0%   14


REMARKS

The only allocation that produced zero failures was 100%-50%-30%-0%-0%. It did so when the thresholds were 9-12-24-30 and 9-13-24-30. [In this case the P/E10 threshold of 30 is meaningless since the allocation above it and the allocation just below are both 0%].

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 10:34 am    Post subject: Reply with quote

PART SIX

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

Starting point:
Both 9-12-21-24 and 9-13-21-24, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate.
Code:


Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0

To be examined at that time was:
Withdrawal Rate = 5.2%.
Thresholds = 9, 12 or 13, varies and 24.
Allocations: 100%-low-30%-High%-0%.

Examination of 9-12-varies-24 thresholds with 100%-50%-[30% or 40%]-varies-0% conditions suggested that one of the thresholds should be eliminated. In most circumstances, 100%-50%-30%-30%-0% was the best condition examined.

The only allocation that produced zero failures was 100%-50%-30%-0%-0%. It did so when the thresholds were 9-12-24-30 and 9-13-24-30. [In this case the P/E10 threshold of 30 is meaningless since the allocation above it and the allocation just below are both 0%.]

SURVEY SIXTEEN

These surveys look at thresholds of 9-12-24-30 and allocations of 100%-varies-varies-0%-0%. In effect, there are only three thresholds (9-12-24) and two adjustable allocations.
Code:


Low Threshold   Medium   High   Failures
30%    0%   0%   16
30%   10%   0%   12
30%   20%   0%    4
30%   30%   0%    3
30%   40%   0%    6
30%   50%   0%   12
         
40%    0%   0%   14
40%   10%   0%   11
40%   20%   0%    5
40%   30%   0%    1
40%   40%   0%    3
40%   50%   0%    7
         
50%    0%   0%   13
50%   10%   0%   11
50%   20%   0%    5
50%   30%   0%    0
50%   40%   0%    3
50%   50%   0%    6
         
60%    0%   0%   13
60%   10%   0%   11
60%   20%   0%    6
60%   30%   0%    0
60%   40%   0%    2
60%   50%   0%    6
         




SURVEY SEVENTEEN

These surveys look at thresholds of 9-13-24-30 and allocations of 100%-varies-varies-0%-0%. In effect, there are only three thresholds (9-13-24) and two adjustable allocations.
Code:


Low Threshold   Medium   High   Failures
30%    0%   0%   11
30%   10%   0%   8
30%   20%   0%   4
30%   30%   0%   3
30%   40%   0%   8
30%   50%   0%   14
         
40%    0%   0%   11
40%   10%   0%   8
40%   20%   0%   5
40%   30%   0%   1
40%   40%   0%   3
40%   50%   0%   7
         
50%    0%   0%   9
50%   10%   0%   8
50%   20%   0%   5
50%   30%   0%   0
50%   40%   0%   2
50%   50%   0%   6
         
60%    0%   0%   9
60%   10%   0%   8
60%   20%   0%   6
60%   30%   0%   0
60%   40%   0%   2
60%   50%   0%   6
 



These results favor a medium stock allocation of 30%. They favor a 50% or 60% allocation just above the low threshold.

SURVEY EIGHTEEN

Both 9-12-24-30 and 9-13-24-30, produce these results at a withdrawal rate of 5.2%.
Code:


Low Threshold   Medium   High   Failures
50%   30%   0%   0
60%   30%   0%   0


At 9-12-24-30, a withdrawal rate of 5.3% produces these results.
Code:


Low Threshold   Medium   High   Failures
50%   30%   0%   6
60%   30%   0%   7


At 9-13-24-30, a withdrawal rate of 5.3% produces these results.
Code:


Low Threshold   Medium   High   Failures
50%   30%   0%   6
60%   30%   0%   7


Both 9-12-21-24 and 9-13-21-24, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate.
Code:


Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0


None of these results is superior to 100%-30%-0% with P/E10 thresholds of 11 and 24.

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 10:42 am    Post subject: Reply with quote

PART SEVEN

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

Starting point:
Both 9-12-24-30 and 9-13-24-30, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate.
Code:


Low Threshold   Medium   High   Failures
50%   30%   0%   0
60%   30%   0%   0


Both 9-12-21-24 and 9-13-21-24, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate. Notice that the last two conditions are the same as those above, having thresholds of 9-12-24-30 and 9-13-24-30. [The threshold of 21 has no effect because the allocation just above it is the same.]
Code:


Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0

None of these results is superior to 100%-30%-0% with P/E10 thresholds of 11 and 24. It also has zero failures at a withdrawal rate of 5.2%.

SURVEY NINETEEN

All of these results are for allocations of 100%-30%-0% with P/E10 thresholds of 11 and 24. The withdrawal rate is 5.2%.
Code:


P/E10 Threshold   Middle Allocation   Failures
10   30%   3
11   30%   0
12   30%   4
13   30%   4

Code:


P/E10 Threshold   Middle Allocation   Failures
10   20%   11
11   20%    5
12   20%    8
13   20%    8

Code:


P/E10 Threshold   Middle Allocation   Failures
10   40%   3
11   40%   2
12   40%   5
13   40%   5


SURVEY TWENTY

All of these results are for allocations of 100%-30%-0% with a lower P/E10 threshold that varies and a higher threshold of 24. The withdrawal rate is 5.1%.
Code:


P/E10 Threshold   Middle Allocation   Failures
10   30%   1
11   30%   0
12   30%   0
13   30%   0

Code:


P/E10 Threshold   Middle Allocation   Failures
10   20%   5
11   20%   0
12   20%   5
13   20%   5

Code:


P/E10 Threshold   Middle Allocation   Failures
10   40%   1
11   40%   0
12   40%   2
13   40%   2


SURVEY TWENTY ONE

All of these results are for allocations of 100%-30%-0% with a lower P/E10 threshold that varies and a higher threshold of 24. The withdrawal rate is 5.0%.
Code:


P/E10 Threshold   Middle Allocation   Failures
10   30%    1
11   30%    0
12   30%    0
13   30%    0
14   30%   15

Code:


P/E10 Threshold   Middle Allocation   Failures
10   20%    4
11   20%    0
12   20%    0
13   20%    0
14   20%   14

Code:


P/E10 Threshold   Middle Allocation   Failures
10   40%    1
11   40%    0
12   40%    0
13   40%    0
14   40%   15


SURVEY TWENTY TWO

All of these results are for allocations of 100%-varies-30%-0%-0% and P/E10 thresholds of 9-varies-24-30. [That is, with 100%-varies-30%-0% and 9-varies-24.] The withdrawal rate is 5.1%.


Code:
P/E10 Threshold   Lower Allocation   Higher Allocation   Failures
10   40%   30%   1
11   40%   30%   1
12   40%   30%   1
13   40%   30%   0
14   40%   30%   0


Code:


P/E10 Threshold   Lower Allocation   Higher Allocation   Failures
10   50%   30%   1
11   50%   30%   0
12   50%   30%   0
13   50%   30%   0
14   50%   30%   4

Code:


P/E10 Threshold   Lower Allocation   Higher Allocation   Failures
10   60%   30%   1
11   60%   30%   0
12   60%   30%   0
13   60%   30%   0
14   60%   30%   9


SURVEY TWENTY THREE

All of these results are for allocations of 100%-varies-30%-0%-0% and P/E10 thresholds of 9-varies-24-30. [That is, with 100%-varies-30%-0% and 9-varies-24.] The withdrawal rate is 5.0%. Stocks should be purchased heavily whenever P/E10 is 11 or below. [A choice of 100% stocks is reasonable at these valuations.]
Code:


P/E10 Threshold   Lower Allocation   Higher Allocation   Failures
10   40%   30%   1
11   40%   30%   1
12   40%   30%   0
13   40%   30%   0
14   40%   30%   0

Code:


P/E10 Threshold   Lower Allocation   Higher Allocation   Failures
10   50%   30%   1
11   50%   30%   0
12   50%   30%   0
13   50%   30%   0
14   50%   30%   0

Code:


P/E10 Threshold   Lower Allocation   Higher Allocation   Failures
10   60%   30%   1
11   60%   30%   0
12   60%   30%   0
13   60%   30%   0
14   60%   30%   4


REMARKS

These results show some general sensitivities. The most important seems to be to cut allocations back to 30% above a P/E10 threshold of 13. [That is, use an allocation of 30% whenever P/E10 is between 13 and 24.]

There is some tolerance to having a 20% allocation or 40% allocation if there is a single adjustable threshold of 11. If using a single adjustable allocation, choose 100%-30%-0% with P/E10 thresholds of 11 and 24.

If using three thresholds and two adjustable allocations, the allocations should be 100%-low-30%-0% and the thresholds should be 9-low-24. The allocation just above the low threshold should be 50% or 60%, but 40% is tolerated reasonably well. The better choice is 50% because it has slightly more tolerance than 60%. The best choice for the low threshold is 13 because it has a little bit more tolerance than 12. The best results are the same at both low P/E10 thresholds (i.e., 12 and 13). Choosing any low P/E10 threshold from 11 to 13 is well tolerated.

The best choice with three thresholds and two adjustable thresholds is an allocation of 100%-50%-30%-0% with P/E10 thresholds of 9-13-24, respectively.

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Tue Mar 09, 2004 10:45 am    Post subject: Reply with quote

PART EIGHT

Baseline: 100%-30%-0% with P/E10 thresholds of 11 and 24 produces 0 failures at a withdrawal rate of 5.2% and 4 failures at 5.3%. The TIPS interest rate is set to 2.00%.

JanSz-Chips Deluxe V2.0B TIPS

Starting point:
Both 9-12-24-30 and 9-13-24-30, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate.

Code:
Low Threshold   Medium   High   Failures
50%   30%   0%   0
60%   30%   0%   0


Both 9-12-21-24 and 9-13-21-24, produce these results at a withdrawal rate of 5.2%. Both have many failures at a 5.3% withdrawal Rate. Notice that the last two conditions are the same as those above, having thresholds of 9-12-24-30 and 9-13-24-30. [The threshold of 21 has no effect when the allocations just above it is identical.]

Code:
Low Threshold   Medium   High   Failures
40%   30%   20%   0
50%   30%   20%   0
50%   30%   30%   0
60%   30%   30%   0

None of these results is superior to 100%-30%-0% with P/E10 thresholds of 11 and 24. It also has zero failures at a withdrawal rate of 5.2%.

These are the previous results:
1) If using a single adjustable allocation, choose 100%-30%-0% with P/E10 thresholds of 11 and 24.
2) The best choice with three thresholds and two adjustable thresholds is an allocation of 100%-50%-30%-0% with P/E10 thresholds of 9-13-24, respectively. [Results with 100%-60%-30%-0% allocations and P/E10 thresholds of 9-13-24 are almost identical. In addition, using P/E10 thresholds of 9-12-24 is also a good choice.]
3) In all cases examined, the best Historical Database Rate remains at 5.2%. There are multiple failures at 5.3%.

SURVEY TWENTY FOUR

All of these results are for allocations of 100%-varies-30%-20%-0% and P/E10 thresholds of 9-varies-21-24. The withdrawal rate is 5.2%.

Code:
                 P/E10 Threshold   Low Allocation   Failures
10   30%   2
11   30%   2
12   30%   2
13   30%   2
14   30%   2

In this table, the low Allocation and the middle allocation are the same. That is why the low adjustable P/E10 threshold has no effect.

Code:
P/E10 Threshold   Low Allocation   Failures
10   40%   2
11   40%   1
12   40%   0
13   40%   0
14   40%   4


Code:
P/E10 Threshold   Low Allocation   Failures
10   50%   2
11   50%   0
12   50%   0
13   50%   0
14   50%   7


Code:
P/E10 Threshold   Low Allocation   Failures
10   60%    2
11   60%    0
12   60%    3
13   60%    3
14   60%   10


SURVEY TWENTY FIVE

All of these results are for allocations of 100%-varies-30%-20%-0% and P/E10 thresholds of 9-varies-21-24. The withdrawal rate is 5.3%.

Code:
P/E10 Threshold   Low Allocation   Failures
10   40%   7
11   40%   5
12   40%   6
13   40%   5
14   40%   7


Code:
P/E10 Threshold   Low Allocation   Failures
10   50%    7
11   50%    5
12   50%    6
13   50%    6
14   50%   10


Code:
P/E10 Threshold   Low Allocation   Failures
10   60%    7
11   60%    4
12   60%    6
13   60%    6
14   60%   11


Once again, we find that we cannot increase the Historical Database Rate above 5.2%.

SURVEY TWENTY SIX

All of these results are for allocations of 100%-varies-30%-20%-0% and P/E10 thresholds of 9-varies-21-24. The withdrawal rate is 5.1%.

Code:
P/E10 Threshold   Low Allocation   Failures
10   40%   1
11   40%   0
12   40%   0
13   40%   0
14   40%   0


Code:
P/E10 Threshold   Low Allocation   Failures
10   50%   1
11   50%   0
12   50%   0
13   50%   0
14   50%   4


Code:
P/E10 Threshold   Low Allocation   Failures
10   60%   1
11   60%   0
12   60%   0
13   60%   0
14   60%   7


Code:
P/E10 Threshold   Low Allocation   Failures
10-14 (no effect up to 21)   30%   1


REMARKS

The full up condition shows very little sensitivity. The best allocation choice is 100%-50%-30%-20%-0%. Other choices are almost as good, especially 100%-40%-30%-20%-0% and 100%-60%-30%-20%-0%.

The P/E10 thresholds should be 9-12-21-24 or 9-13-21-24 (and 9-11-21-24 is almost as good). I was not able to identify a reasonable tie breaker.

OVERALL SUMMARY

The best Historical Database Rate was 5.2% in all cases. It was never possible to reach 5.3% without several failures.

From previous investigations I have found that the best stock allocation when P/E10 is below its lowest threshold is 100%. Above the highest P/E10 threshold, it is 0%. These values have been built into my latest versions of the (modified Retire Early Safe Withdrawal) Calculator.

The simplest approach uses two thresholds and one adjustable stock allocation (for a total of three). The best choices are P/E10 thresholds of 11 and 24 and stock allocations of 100%-30%-0%, respectively.

When there is more than one, the most important thresholds are the lowest thresholds.

The best choice with three thresholds and two adjustable allocations (for a total of four) is to use P/E10 thresholds of 9-13-24 with stock allocations of 100%-50%-30%-0%, respectively. [Results with 100%-60%-30%-0% allocations and P/E10 thresholds of 9-13-24 are almost identical. Using P/E10 thresholds of 9-12-24 is another a good choice.]

The best choice with four thresholds and three adjustable stock allocations (for a total of five) are 9-12-21-24 or 9-13-21-24 (with no preference) with 100%-50%-30%-20%-0%, respectively. There is relatively little sensitivity to changing the lowest adjustable allocation or the lower middle P/E10 threshold.

Have fun.

John R.


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BenSolar
*** Veteran


Joined: 25 Nov 2002
Posts: 242
Location: Western NC

PostPosted: Tue Mar 09, 2004 12:17 pm    Post subject: Reply with quote

Wow, John! Shocked

That is a lot of work! :Up

Interesting how low an allocation to stocks is 'optimal' when valuation is in the middle.

Regards,



_________________
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Wed Mar 10, 2004 5:44 am    Post subject: Reply with quote

Thank you, BenSolar.

It is tempting to say that the best stock allocation during retirement is 30% to 40% (with TIPS and commercial paper, respectively) if you just add a touch of common sense. Those are the best allocations under typical circumstances, when P/E10 is 14 to 15. As for common sense, it makes sense to reduce or eliminate your stock holdings when valuations are sky high and to load up on stocks when they are at bargain prices.

Such an approach overlooks questions as to what constitutes a level of severe overvaluation and what is required for stocks to become bargains. The research on this board produces numbers and puts matters into their historical context.

Related research into cause and effect identifies those characteristics that result in portfolio failure. rkmacdonald summarized it very well in the early days of this site. You must avoid heavy selling when prices are low. That kind of insight leads you to look into the nature of your income stream and how you handle it. It expands your outlook far beyond the limitations imposed by data availability. It allows you to include additional asset classes, albeit imperfectly. It focuses your attention on such things as dividends and their stability. It causes you to reflect upon how much you are willing to allow your annual income to fluctuate in order to gain a higher degree of safety.

Have fun.

John R.


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