Price-Only Historical Database Rates
Posted: Sat Dec 27, 2003 3:11 pm
I have given some thought to JanSz's approach and the dangers associated with high stock allocations when valuations are high. I have made a series of runs with my latest version of my calculator, which I have named JanSz-Chips Special Versions. You can read about my latest changes in Living off the Dividends dated Friday, Dec 26, 2003 at 6:36 pm CST.
http://nofeeboards.com/boards/viewtopic.php?t=1911
I wrote these words.
JanSz has come up with an approach that has one withdraw 2% of a portfolio's current balance plus one-half of the capital gains that have taken place over the previous six years. If there ar no gains, the withdrawal remains at 2%.
Reflecting upon JanSz's approach, his algorithm sounds very much like living off one's dividends plus a percentage of long-term capital gains. The S&P 500 index yields less than 2% these days. Our own research points strongly to the dangers of withdrawing much more than the initial dividend yield when valuations are high.
The traditional time-tested approach to retirement finances is to live off of one's dividends, leaving the principal untouched. therealchips advocates this approach. It has served him well.
I have attached series of tables of Price-Only Historical Database Rates. That is, dividends are stripped away from the calculation. I used a calculator version that included all of my modifications. But you can reproduce this entire data set using no more than the basic Retire Early Safe Withdrawal [Rate] Calculator, Version 1.61, dated 7 November 2002, and the Living off the Dividends modifications.
You do not have to use anything more sophisticated than the data analysis summaries that come with the basic calculators (in columns S and Z and rows 10 through 144). If the balance after thirty years (as seen in column Z) is positive, the portfolio survived. If not, it failed. You vary the Initial Withdrawal Rate (i.e., you withdraw a constant percentage of the portfolio's initial balance plus adjustments to match inflation) to determine when a portfolio would have survived.
Interpreting the Results
All of the rates are determined only by price changes. All of the withdrawals are based upon the portfolio's initial balance. An actual investor would receive money from dividends in addition to these amounts. Dividend amounts would decrease as his balance decreases.
Keep in mind that a 100% ibond portfolio at a zero percent real interest rate would throw off 3.33% for 30 years (or more if there is deflation). Any interest that an actual 100% ibond portfolio would generate would produce an income stream similar to stock dividends.
There were 13 years out of 60 in the 1921-1980 interval in which the Price-Only Historical Database Rates were less than 3.3% (and there were 4 years in which they were equal to 3.3%). In all of the years in which P/E10 was higher than 20, the Historical Database Rates were less than 3.2%. There were ten such years.
All of this points us toward conserving our portfolios along the lines suggested in our investigations of switching.
Have fun.
John R.
http://nofeeboards.com/boards/viewtopic.php?t=1911
I wrote these words.
JanSz has come up with an approach that has one withdraw 2% of a portfolio's current balance plus one-half of the capital gains that have taken place over the previous six years. If there ar no gains, the withdrawal remains at 2%.
Reflecting upon JanSz's approach, his algorithm sounds very much like living off one's dividends plus a percentage of long-term capital gains. The S&P 500 index yields less than 2% these days. Our own research points strongly to the dangers of withdrawing much more than the initial dividend yield when valuations are high.
The traditional time-tested approach to retirement finances is to live off of one's dividends, leaving the principal untouched. therealchips advocates this approach. It has served him well.
I have attached series of tables of Price-Only Historical Database Rates. That is, dividends are stripped away from the calculation. I used a calculator version that included all of my modifications. But you can reproduce this entire data set using no more than the basic Retire Early Safe Withdrawal [Rate] Calculator, Version 1.61, dated 7 November 2002, and the Living off the Dividends modifications.
You do not have to use anything more sophisticated than the data analysis summaries that come with the basic calculators (in columns S and Z and rows 10 through 144). If the balance after thirty years (as seen in column Z) is positive, the portfolio survived. If not, it failed. You vary the Initial Withdrawal Rate (i.e., you withdraw a constant percentage of the portfolio's initial balance plus adjustments to match inflation) to determine when a portfolio would have survived.
Interpreting the Results
All of the rates are determined only by price changes. All of the withdrawals are based upon the portfolio's initial balance. An actual investor would receive money from dividends in addition to these amounts. Dividend amounts would decrease as his balance decreases.
Keep in mind that a 100% ibond portfolio at a zero percent real interest rate would throw off 3.33% for 30 years (or more if there is deflation). Any interest that an actual 100% ibond portfolio would generate would produce an income stream similar to stock dividends.
There were 13 years out of 60 in the 1921-1980 interval in which the Price-Only Historical Database Rates were less than 3.3% (and there were 4 years in which they were equal to 3.3%). In all of the years in which P/E10 was higher than 20, the Historical Database Rates were less than 3.2%. There were ten such years.
All of this points us toward conserving our portfolios along the lines suggested in our investigations of switching.
Have fun.
John R.