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

PostPosted: Tue Oct 19, 2004 6:16 am    Post subject: Accumulation is Different Reply with quote

From Is the Raddr Methodology Analytically Valid? dated Fri Oct 01, 2004.
http://nofeeboards.com/boards/viewtopic.php?t=2986
http://nofeeboards.com/boards/viewtopic.php?p=24192#24192

hocus2004 wrote:
What makes this confusing is that SWR analysis has generally been designed to be applicable only to retirees. It is not appropriate for non-retirees to draw conclusions from SWR studies as to how to invest during the asset accumulation stage. Everyone understands this is so as a technical matter. The reality, however, is that many have improperly drawn inferences from SWR analyses as to how to invest during the accumulation stage. There are many posts in the archives showing this to be the case.

Proceeding on this theme, I have collected accumulation phase data.

In our Safe Withdrawal Rate studies, we normally look at the effect of steady withdrawals during the distribution phase of a retirement account. In this case, I am reporting the effect of dollar cost averaging during the accumulation phase. This is the exact opposite of what one does during retirement.

I started with an initial balance of $1000. I deposited $1000 per year in subsequent years.

We are already aware of the prospects of a retirement account when the balance is left untouched at 15 and 30 years. These results compare switching portfolio allocations with sticking with a 100% stock portfolio. I investigated using 2.0% TIPS, 2.0% ibonds and commercial paper as the component other than stocks.

I used my latest Deluxe Calculator V1.1A07, a modified version of the Retire Early Safe Withdrawal Calculator Version 1.61, dated 7 November 2002. I started with an initial balance of $1000. I deposited $1000 per year by setting the initial withdrawal rate to (100%), that is, minus 100%. I set the expenses to 0.00%. I adjusted the deposits to match inflation as measured by the CPI-U. I rebalanced all portfolios annually.

I used the optimal switching program from previous studies for the distribution phase. The P/E10 thresholds were 9-12-21-24 and the corresponding stock allocations were 100-50-30-20-0%. I set the interest rate for TIPS and ibonds at 2.0%.

I have attached tables with the detailed results. The annualized real returns are all based on the initial $1000. These are the rates that would cause a $1000 portfolio to grow to the calculated final balance in the appropriate number of years, N = 15 or 30.

30-Year Results

With rare exceptions, an investor was much better off sticking with 100% stocks. Even with the exceptions, any advantage in favor of switching was small. The worst case was 1952. The all-stock allocation had a final balance of $45231. Switching with 2% TIPS, 2% ibonds and commercial paper produced balances of $53121, $53044 and $51289, respectively. Balances with 100% stocks frequently exceeded $100000. The best cases were $215873 in 1932 and $202734 in 1970. With switching, there were only a handful of final balances above $100000.

Ibonds produced the best results with switching.

Final balances were almost entirely independent of the percentage earnings yield 100E10/P. R-squared values were less than 0.01.

With 2% TIPS the relationship between the final balances with switching and with 100% stocks in the modern era (1923-1972) was y = 0.1303x+59011. By looking at a graph of the data, I noticed the 1952 results (approximately) define the lowest values of x and y. This means that there is a general penalty with switching because of this and the fact that the slope is less than 1.0.

Switching improved the worst case results only a small amount while taking away the upside.

15-Year Results

The behavior at 15 years was different in many respects.

The 100% stock portfolio's final balances increased with the percentage earnings yield 100E10/P. The equation was y = 2794.7x+9956.9 and R-squared was 0.3279. My visual estimates of the confidence limits are plus $20000 and minus $15000 at lower levels of earnings yield and minus $25000 at high levels of earnings yield. The slope shows that there is a general penalty with switching since it is less than 1.0.

With 2% TIPS and switching, the equation was y = 460.18x+21200 and R-squared was 0.1132. My visual estimates of the confidence limits are plus $8000 and minus $5000.

A plot of switching results with 2% TIPS versus using 100% stocks produces the equation y = 0.0733x+22442 with an R-squared of 0.0685. My visual estimates of the confidence limits are plus and minus $7000. Switching is superior when the final balances are low. If the final balance without switching exceeds $30000 or so, switching severely limits returns.

In essence, switching produces a non-trivial improvement when overall stock returns are low, but with a serious penalty on the upside. The entire decade of the 1960s produced better results with switching than without. The decade from 1925-1934 favored switching as well.

The percentage earnings yields [at the very start of a historical sequence] during which switching produced better results was typically between 4% and 6% (i.e., P/E10s of 17 and above).

The 15-Year results favor switching at today's valuations, but not at valuations typically found in the historical record.

Have fun.

John R.


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

PostPosted: Tue Oct 19, 2004 6:23 am    Post subject: Reply with quote

30-Year Returns with 100% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52    131446    17.66
1872   6.90    138379    17.86
1873   6.54    133347    17.72
1874   7.19    111135    17.00
1875   7.35    128105    17.56
1876   7.52    133283    17.71
1877   9.43    140861    17.93
1878  10.31     96317    16.45
1879   9.35     88135    16.10
1880   6.54    104711    16.77
1881   5.41     88700    16.13
1882   6.37     96143    16.44
1883   6.54     95302    16.40
1884   6.94     86456    16.03
1885   7.63     71613    15.30
1886   5.99     80721    15.76
1887   5.71     70484    15.24
1888   6.49     52093    14.08
1889   6.33     49039    13.85
1890   5.81     44300    13.47
1891   6.49     41254    13.20
1892   5.26     42134    13.28
1893   5.65     63735    14.85
1894   6.37     57041    14.43
1895   6.06     64166    14.88
1896   6.02     76102    15.53
1897   5.88     77436    15.60
1898   5.21    100839    16.62
1899   4.37    121870    17.36
1900   5.35    126671    17.51
1901   4.76     97713    16.50
1902   4.48     59851    14.61
1903   4.93     67410    15.07
1904   6.29     91413    16.24
1905   5.41     79541    15.71
1906   4.98    109511    16.95
1907   5.81    145473    18.06
1908   8.40     94904    16.39
1909   6.76     97478    16.49
1910   6.90    114652    17.12
1911   7.14     94892    16.39
1912   7.25     70479    15.24
1913   7.63     78824    15.67
1914   8.62     91509    16.25
1915   9.62     99940    16.59
1916   8.00    116409    17.18
1917   9.09     79455    15.70
1918  15.15     73062    15.38
1919  16.39     74034    15.43
1920  16.67     94753    16.38


Code:
1921  19.61    117799    17.23
1922  15.87    109577    16.95
1923  12.20    107700    16.88
1924  12.35    103504    16.73
1925  10.31    131913    17.67
1926   8.85    162015    18.48
1927   7.58    154147    18.29
1928   5.32    130784    17.64
1929   3.69    166338    18.59
1930   4.48    183576    18.98
1931   5.99    190842    19.13
1932  10.75    215873    19.62
1933  11.49    171036    18.70
1934   7.69    181530    18.93
1935   8.70    198595    19.29
1936   5.85    196869    19.25
1937   4.63    170597    18.69
1938   7.41    188055    19.07
1939   6.41    184332    18.99
1940   6.10    147632    18.12
1941   7.19    130115    17.62
1942   9.90    138305    17.86
1943   9.80    147178    18.10
1944   9.01    103585    16.73
1945   8.33     68361    15.12
1946   6.41     70638    15.25
1947   8.70     75713    15.52
1948   9.62     64714    14.91
1949   9.80     63555    14.84
1950   9.35     53318    14.17
1951   8.40     55060    14.30
1952   8.00     45231    13.55
1953   7.69     51169    14.02
1954   8.33     55603    14.33
1955   6.25     52187    14.09
1956   5.46     57770    14.48
1957   5.99     70438    15.24
1958   7.25     65042    14.93
1959   5.56     68728    15.14
1960   5.46     76311    15.55
1961   5.41     69765    15.20
1962   4.72     84713    15.95
1963   5.18     85065    15.96
1964   4.63     89185    16.15
1965   4.29     84082    15.92
1966   4.15    105172    16.79
1967   4.90    125694    17.48
1968   4.65    150783    18.20
1969   4.72    184571    19.00
1970   5.85    202734    19.37
1971   6.06    182366    18.95
1972   5.78    148357    18.13

More follows.


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

PostPosted: Tue Oct 19, 2004 6:28 am    Post subject: Reply with quote

30-Year Returns with 2.0% TIPS and 9-12-21-24 / 100-50-30-20-0% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52      62,730    14.79
1872   6.90      63,133    14.82
1873   6.54      65,119    14.94
1874   7.19      62,507    14.78
1875   7.35      64,723    14.91
1876   7.52      62,387    14.77
1877   9.43      70,908    15.26
1878  10.31      60,911    14.68
1879   9.35      51,527    14.04
1880   6.54      63,552    14.84
1881   5.41      55,086    14.30
1882   6.37      59,881    14.62
1883   6.54      62,057    14.75
1884   6.94      61,425    14.71
1885   7.63      54,350    14.25
1886   5.99      57,634    14.47
1887   5.71      53,511    14.19
1888   6.49      49,019    13.85
1889   6.33      47,064    13.70
1890   5.81      43,270    13.38
1891   6.49      40,771    13.16
1892   5.26      42,539    13.32
1893   5.65      65,092    14.93
1894   6.37      58,752    14.54
1895   6.06      67,175    15.06
1896   6.02      74,834    15.47
1897   5.88      73,426    15.40
1898   5.21      80,217    15.74
1899   4.37      77,560    15.61
1900   5.35      89,937    16.18
1901   4.76      81,241    15.79
1902   4.48      67,255    15.06
1903   4.93      75,291    15.49
1904   6.29     101,616    16.65
1905   5.41      97,468    16.49
1906   4.98     112,655    17.06
1907   5.81     126,508    17.51
1908   8.40     110,370    16.98
1909   6.76     104,130    16.75
1910   6.90     120,022    17.30
1911   7.14     107,294    16.87
1912   7.25      91,685    16.25
1913   7.63      97,500    16.49
1914   8.62     103,881    16.74
1915   9.62     105,821    16.81
1916   8.00     108,367    16.90
1917   9.09      91,233    16.24
1918  15.15      85,996    16.01
1919  16.39      84,782    15.95
1920  16.67     101,136    16.64


Code:
1921  19.61     115,698    17.16
1922  15.87     102,284    16.68
1923  12.20      94,392    16.37
1924  12.35      91,602    16.25
1925  10.31      93,425    16.33
1926   8.85     100,315    16.60
1927   7.58      95,200    16.40
1928   5.32      88,022    16.10
1929   3.69      91,772    16.26
1930   4.48      96,118    16.44
1931   5.99      96,547    16.45
1932  10.75      97,282    16.48
1933  11.49      81,570    15.80
1934   7.69      79,069    15.68
1935   8.70      79,610    15.71
1936   5.85      76,798    15.57
1937   4.63      75,730    15.52
1938   7.41      77,846    15.62
1939   6.41      75,791    15.52
1940   6.10      70,260    15.23
1941   7.19      62,712    14.79
1942   9.90      64,221    14.88
1943   9.80      66,457    15.01
1944   9.01      59,735    14.61
1945   8.33      52,801    14.14
1946   6.41      56,299    14.38
1947   8.70      59,680    14.60
1948   9.62      57,906    14.49
1949   9.80      58,925    14.55
1950   9.35      52,070    14.08
1951   8.40      56,873    14.42
1952   8.00      53,121    14.16
1953   7.69      62,297    14.77
1954   8.33      69,690    15.20
1955   6.25      67,631    15.08
1956   5.46      70,391    15.23
1957   5.99      77,456    15.60
1958   7.25      75,766    15.52
1959   5.56      76,318    15.55
1960   5.46      77,526    15.61
1961   5.41      74,992    15.48
1962   4.72      78,428    15.65
1963   5.18      77,210    15.59
1964   4.63      77,483    15.60
1965   4.29      74,778    15.47
1966   4.15      78,410    15.65
1967   4.90      76,713    15.57
1968   4.65      74,539    15.46
1969   4.72      71,838    15.31
1970   5.85      70,928    15.26
1971   6.06      70,531    15.24
1972   5.78      68,525    15.13

Next come ibonds.


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

PostPosted: Tue Oct 19, 2004 6:34 am    Post subject: Reply with quote

30-Year Returns with 2.0% ibonds and 9-12-21-24 / 100-50-30-20-0% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52      85,505    15.98
1872   6.90      84,509    15.94
1873   6.54      85,397    15.98
1874   7.19      81,739    15.81
1875   7.35      82,790    15.86
1876   7.52      77,266    15.59
1877   9.43      85,978    16.01
1878  10.31      72,376    15.34
1879   9.35      60,355    14.65
1880   6.54      73,172    15.38
1881   5.41      64,858    14.92
1882   6.37      69,151    15.17
1883   6.54      70,705    15.25
1884   6.94      68,967    15.16
1885   7.63      60,269    14.64
1886   5.99      63,359    14.83
1887   5.71      58,404    14.52
1888   6.49      52,980    14.15
1889   6.33      50,350    13.95
1890   5.81      45,876    13.60
1891   6.49      42,858    13.34
1892   5.26      44,342    13.47
1893   5.65      67,303    15.06
1894   6.37      60,250    14.64
1895   6.06      68,704    15.14
1896   6.02      76,411    15.55
1897   5.88      74,949    15.48
1898   5.21      81,348    15.79
1899   4.37      78,175    15.64
1900   5.35      88,760    16.13
1901   4.76      83,673    15.90
1902   4.48      73,986    15.43
1903   4.93      86,165    16.01
1904   6.29     115,905    17.17
1905   5.41     110,952    17.00
1906   4.98     128,040    17.56
1907   5.81     143,404    18.00
1908   8.40     124,787    17.46
1909   6.76     116,953    17.20
1910   6.90     133,202    17.71
1911   7.14     118,626    17.26
1912   7.25     101,250    16.64
1913   7.63     107,465    16.87
1914   8.62     114,279    17.11
1915   9.62     116,181    17.18
1916   8.00     118,721    17.26
1917   9.09      99,729    16.58
1918  15.15      93,771    16.34
1919  16.39      92,148    16.27
1920  16.67     109,522    16.95


Code:
1921  19.61     124,751    17.45
1922  15.87     109,727    16.95
1923  12.20     100,670    16.62
1924  12.35      97,160    16.48
1925  10.31      97,726    16.50
1926   8.85     104,273    16.75
1927   7.58      98,357    16.53
1928   5.32      90,366    16.20
1929   3.69      93,565    16.33
1930   4.48      97,316    16.49
1931   5.99      96,720    16.46
1932  10.75      96,607    16.46
1933  11.49      80,678    15.76
1934   7.69      78,284    15.64
1935   8.70      78,877    15.67
1936   5.85      76,158    15.54
1937   4.63      75,158    15.49
1938   7.41      77,315    15.60
1939   6.41      75,346    15.50
1940   6.10      69,911    15.21
1941   7.19      62,412    14.77
1942   9.90      63,927    14.87
1943   9.80      66,169    15.00
1944   9.01      59,491    14.59
1945   8.33      52,601    14.12
1946   6.41      56,100    14.37
1947   8.70      59,485    14.59
1948   9.62      57,735    14.48
1949   9.80      58,771    14.54
1950   9.35      51,950    14.07
1951   8.40      56,767    14.41
1952   8.00      53,044    14.15
1953   7.69      62,231    14.76
1954   8.33      69,644    15.19
1955   6.25      67,631    15.08
1956   5.46      70,391    15.23
1957   5.99      77,456    15.60
1958   7.25      75,766    15.52
1959   5.56      76,318    15.55
1960   5.46      77,526    15.61
1961   5.41      74,992    15.48
1962   4.72      78,428    15.65
1963   5.18      77,210    15.59
1964   4.63      77,483    15.60
1965   4.29      74,778    15.47
1966   4.15      78,410    15.65
1967   4.90      76,713    15.57
1968   4.65      74,539    15.46
1969   4.72      71,838    15.31
1970   5.85      70,928    15.26
1971   6.06      70,531    15.24
1972   5.78      68,525    15.13

Switching with Commercial Paper comes next.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 6:38 am    Post subject: Reply with quote

30-Year Returns with Commercial Paper and 9-12-21-24 / 100-50-30-20-0% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52     106,462    16.84
1872   6.90     103,250    16.72
1873   6.54      97,563    16.50
1874   7.19      94,485    16.37
1875   7.35      94,050    16.35
1876   7.52      89,665    16.17
1877   9.43      98,226    16.52
1878  10.31      84,924    15.96
1879   9.35      69,677    15.20
1880   6.54      79,842    15.72
1881   5.41      71,800    15.31
1882   6.37      77,949    15.63
1883   6.54      76,422    15.55
1884   6.94      73,715    15.41
1885   7.63      63,885    14.86
1886   5.99      66,070    14.99
1887   5.71      56,471    14.39
1888   6.49      47,079    13.70
1889   6.33      44,554    13.49
1890   5.81      40,513    13.13
1891   6.49      37,873    12.88
1892   5.26      39,217    13.01
1893   5.65      59,702    14.60
1894   6.37      53,528    14.19
1895   6.06      61,201    14.70
1896   6.02      67,971    15.10
1897   5.88      68,297    15.12
1898   5.21      76,794    15.57
1899   4.37      76,889    15.57
1900   5.35      91,682    16.25
1901   4.76      88,046    16.10
1902   4.48      79,946    15.72
1903   4.93      93,966    16.35
1904   6.29     126,057    17.49
1905   5.41     117,052    17.20
1906   4.98     133,503    17.72
1907   5.81     146,747    18.09
1908   8.40     125,849    17.49
1909   6.76     118,977    17.27
1910   6.90     136,851    17.82
1911   7.14     119,511    17.29
1912   7.25      93,651    16.34
1913   7.63      96,158    16.44
1914   8.62     100,905    16.63
1915   9.62     101,583    16.65
1916   8.00     103,091    16.71
1917   9.09      76,780    15.57
1918  15.15      69,182    15.17
1919  16.39      67,529    15.08
1920  16.67      80,813    15.77


Code:
1921  19.61     89,108    16.14
1922  15.87     77,116    15.59
1923  12.20     70,985    15.27
1924  12.35     68,075    15.11
1925  10.31     69,435    15.18
1926   8.85     74,728    15.46
1927   7.58     70,103    15.22
1928   5.32     63,306    14.83
1929   3.69     66,149    15.00
1930   4.48     70,065    15.22
1931   5.99     70,243    15.23
1932  10.75     71,603    15.30
1933  11.49     60,984    14.69
1934   7.69     60,939    14.68
1935   8.70     63,310    14.83
1936   5.85     63,097    14.82
1937   4.63     63,385    14.83
1938   7.41     66,406    15.01
1939   6.41     66,521    15.02
1940   6.10     63,096    14.82
1941   7.19     56,601    14.40
1942   9.90     58,972    14.56
1943   9.80     63,058    14.81
1944   9.01     57,366    14.45
1945   8.33     49,113    13.86
1946   6.41     53,064    14.15
1947   8.70     56,688    14.41
1948   9.62     55,164    14.30
1949   9.80     56,244    14.38
1950   9.35     48,846    13.84
1951   8.40     53,681    14.20
1952   8.00     51,289    14.03
1953   7.69     60,220    14.64
1954   8.33     67,471    15.07
1955   6.25     66,362    15.01
1956   5.46     69,513    15.19
1957   5.99     77,477    15.60
1958   7.25     76,628    15.56
1959   5.56     78,343    15.65
1960   5.46     80,041    15.73
1961   5.41     76,948    15.58
1962   4.72     80,016    15.73
1963   5.18     77,744    15.62
1964   4.63     77,858    15.62
1965   4.29     76,002    15.53
1966   4.15     80,111    15.73
1967   4.90     78,921    15.68
1968   4.65     78,108    15.64
1969   4.72     76,322    15.55
1970   5.85     76,475    15.55
1971   6.06     75,261    15.49
1972   5.78     71,747    15.31

This completes the 30-year data.


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

PostPosted: Tue Oct 19, 2004 6:42 am    Post subject: Reply with quote

15-Year Returns with 100% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52    39583    27.79
1872   6.90    39679    27.81
1873   6.54    36678    27.14
1874   7.19    37276    27.28
1875   7.35    37609    27.36
1876   7.52    29865    25.41
1877   9.43    40634    28.01
1878  10.31    33953    26.49
1879   9.35    22268    22.98
1880   6.54    26819    24.52
1881   5.41    22644    23.12
1882   6.37    25020    23.94
1883   6.54    28839    25.12
1884   6.94    35083    26.77
1885   7.63    27476    24.72
1886   5.99    30051    25.47
1887   5.71    31358    25.82
1888   6.49    31917    25.97
1889   6.33    26462    24.41
1890   5.81    29583    25.33
1891   6.49    36504    27.10
1892   5.26    28773    25.10
1893   5.65    26513    24.42
1894   6.37    30571    25.61
1895   6.06    28307    24.97
1896   6.02    28477    25.02
1897   5.88    26277    24.35
1898   5.21    24552    23.79
1899   4.37    18852    21.63
1900   5.35    20088    22.14
1901   4.76    22703    23.14
1902   4.48    19641    21.96
1903   4.93    15481    20.04
1904   6.29    14350    19.43
1905   5.41    14430    19.48
1906   4.98    12248    18.18
1907   5.81    16052    20.33
1908   8.40    19648    21.96
1909   6.76    18068    21.28
1910   6.90    25955    24.25
1911   7.14    28875    25.13
1912   7.25    29573    25.33
1913   7.63    40999    28.09
1914   8.62    58459    31.16
1915   9.62    50204    29.83
1916   8.00    37075    27.23
1917   9.09    23054    23.27
1918  15.15    23431    23.40
1919  16.39    32588    26.15
1920  16.67    31039    25.74


Code:
1921  19.61    46528    29.18
1922  15.87    47523    29.36
1923  12.20    28523    25.03
1924  12.35    30850    25.68
1925  10.31    27675    24.78
1926   8.85    23966    23.59
1927   7.58    18442    21.45
1928   5.32    19123    21.74
1929   3.69    21574    22.72
1930   4.48    26507    24.42
1931   5.99    35976    26.98
1932  10.75    26562    24.44
1933  11.49    20860    22.45
1934   7.69    20446    22.29
1935   8.70    23792    23.53
1936   5.85    26839    24.52
1937   4.63    29889    25.42
1938   7.41    34026    26.51
1939   6.41    32478    26.12
1940   6.10    43974    28.69
1941   7.19    48811    29.59
1942   9.90    48900    29.60
1943   9.80    41876    28.27
1944   9.01    51589    30.07
1945   8.33    49723    29.75
1946   6.41    41198    28.13
1947   8.70    48898    29.60
1948   9.62    45706    29.02
1949   9.80    48914    29.61
1950   9.35    44518    28.80
1951   8.40    43168    28.53
1952   8.00    35662    26.91
1953   7.69    35119    26.78
1954   8.33    33810    26.46
1955   6.25    25222    24.01
1956   5.46    22891    23.21
1957   5.99    23548    23.44
1958   7.25    25629    24.14
1959   5.56    18211    21.35
1960   5.46    12678    18.45
1961   5.41    16136    20.37
1962   4.72    16392    20.50
1963   5.18    13989    19.23
1964   4.63    14665    19.61
1965   4.29    14827    19.69
1966   4.15    16349    20.48
1967   4.90    14330    19.42
1968   4.65    17513    21.03
1969   4.72    19713    21.99
1970   5.85    20641    22.36
1971   6.06    24889    23.90
1972   5.78    30957    25.71
1973   5.35    27047    24.59
1974   7.41    29412    25.29
1975  11.24    34841    26.71
1976   8.93    30632    25.63
1977   8.77    36427    27.09
1978  10.87    35377    26.84
1979  10.75    34193    26.55
1980  11.24    31554    25.87
1981  10.80    38635    27.58
1982  13.53    45684    29.02
1983  11.42    50045    29.80
1984  10.11    57646    31.03
1985  10.00    57906    31.07
1986   8.54    47921    29.43
1987   6.70    35623    26.90

This is the first of the 15-year tables.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 6:45 am    Post subject: Reply with quote

15-Year Returns with 2.0% TIPS and 9-12-21-24 / 100-50-30-20-0% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52    24959    23.92
1872   6.90    24642    23.82
1873   6.54    24910    23.91
1874   7.19    25233    24.01
1875   7.35    24909    23.91
1876   7.52    22090    22.92
1877   9.43    26969    24.56
1878  10.31    24466    23.76
1879   9.35    17681    21.11
1880   6.54    21692    22.77
1881   5.41    18892    21.64
1882   6.37    20636    22.36
1883   6.54    22436    23.04
1884   6.94    24389    23.73
1885   7.63    22013    22.89
1886   5.99    22168    22.95
1887   5.71    21775    22.80
1888   6.49    23271    23.34
1889   6.33    22036    22.90
1890   5.81    21815    22.81
1891   6.49    24558    23.79
1892   5.26    20905    22.47
1893   5.65    23507    23.43
1894   6.37    24412    23.74
1895   6.06    22935    23.23
1896   6.02    23470    23.41
1897   5.88    21964    22.87
1898   5.21    21631    22.75
1899   4.37    18152    21.32
1900   5.35    20240    22.20
1901   4.76    21252    22.60
1902   4.48    19387    21.85
1903   4.93    18548    21.49
1904   6.29    16947    20.76
1905   5.41    17148    20.86
1906   4.98    14429    19.48
1907   5.81    18515    21.48
1908   8.40    22173    22.95
1909   6.76    20431    22.28
1910   6.90    29004    25.17
1911   7.14    29549    25.32
1912   7.25    28494    25.02
1913   7.63    32199    26.04
1914   8.62    35931    26.97
1915   9.62    34331    26.58
1916   8.00    29431    25.29
1917   9.09    24344    23.72
1918  15.15    24132    23.64
1919  16.39    33745    26.44
1920  16.67    35387    26.84


Code:
1921  19.61    44905    28.87
1922  15.87    39672    27.81
1923  12.20    32687    26.17
1924  12.35    32677    26.17
1925  10.31    29334    25.26
1926   8.85    28100    24.91
1927   7.58    25067    23.96
1928   5.32    24907    23.90
1929   3.69    25558    24.12
1930   4.48    28248    24.95
1931   5.99    32602    26.15
1932  10.75    29000    25.17
1933  11.49    23656    23.48
1934   7.69    22325    23.00
1935   8.70    23889    23.56
1936   5.85    25029    23.95
1937   4.63    26304    24.36
1938   7.41    27255    24.65
1939   6.41    26370    24.38
1940   6.10    28418    25.00
1941   7.19    27269    24.66
1942   9.90    27243    24.65
1943   9.80    26212    24.33
1944   9.01    27692    24.78
1945   8.33    26872    24.53
1946   6.41    22716    23.15
1947   8.70    24590    23.80
1948   9.62    25268    24.02
1949   9.80    26120    24.30
1950   9.35    23362    23.38
1951   8.40    23314    23.36
1952   8.00    23273    23.35
1953   7.69    23060    23.27
1954   8.33    22971    23.24
1955   6.25    21339    22.63
1956   5.46    20377    22.26
1957   5.99    20425    22.28
1958   7.25    21198    22.58
1959   5.56    19334    21.83
1960   5.46    17452    21.00
1961   5.41    22055    22.90
1962   4.72    21968    22.87
1963   5.18    20045    22.12
1964   4.63    20343    22.24
1965   4.29    20091    22.14
1966   4.15    21527    22.71
1967   4.90    19754    22.00
1968   4.65    23457    23.41
1969   4.72    25602    24.13
1970   5.85    25604    24.13
1971   6.06    27795    24.81
1972   5.78    30411    25.57
1973   5.35    27480    24.72
1974   7.41    27054    24.59
1975  11.24    28418    25.00
1976   8.93    26469    24.41
1977   8.77    27191    24.63
1978  10.87    26048    24.28
1979  10.75    24466    23.76
1980  11.24    23562    23.45
1981  10.80    24846    23.88
1982  13.53    24818    23.88
1983  11.42    23153    23.30
1984  10.11    22276    22.99
1985  10.00    21573    22.72
1986   8.54    21320    22.63
1987   6.70    20277    22.22

This is the 2% TIPS data. Next comes ibonds.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 6:49 am    Post subject: Reply with quote

15-Year Returns with 2.0% ibonds and 9-12-21-24 / 100-50-30-20-0% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52    31429    25.84
1872   6.90    30051    25.47
1873   6.54    29737    25.38
1874   7.19    29988    25.45
1875   7.35    29476    25.30
1876   7.52    25575    24.12
1877   9.43    31401    25.83
1878  10.31    27754    24.80
1879   9.35    21531    22.71
1880   6.54    26279    24.35
1881   5.41    22462    23.05
1882   6.37    24262    23.69
1883   6.54    25887    24.22
1884   6.94    27572    24.75
1885   7.63    24448    23.75
1886   5.99    24419    23.74
1887   5.71    23761    23.52
1888   6.49    25071    23.96
1889   6.33    23856    23.55
1890   5.81    23320    23.36
1891   6.49    25618    24.14
1892   5.26    21557    22.72
1893   5.65    24015    23.60
1894   6.37    24646    23.82
1895   6.06    23086    23.28
1896   6.02    24421    23.74
1897   5.88    22642    23.12
1898   5.21    22249    22.98
1899   4.37    18631    21.53
1900   5.35    20719    22.39
1901   4.76    21698    22.77
1902   4.48    19751    22.00
1903   4.93    18845    21.62
1904   6.29    17164    20.87
1905   5.41    17346    20.95
1906   4.98    14586    19.56
1907   5.81    18677    21.55
1908   8.40    22323    23.00
1909   6.76    20526    22.32
1910   6.90    29073    25.19
1911   7.14    29530    25.32
1912   7.25    28534    25.03
1913   7.63    32079    26.01
1914   8.62    35628    26.90
1915   9.62    33399    26.35
1916   8.00    29930    25.43
1917   9.09    26452    24.40
1918  15.15    27266    24.65
1919  16.39    37971    27.44
1920  16.67    39644    27.80


Code:
1921  19.61    50071    29.81
1922  15.87    44003    28.70
1923  12.20    36026    26.99
1924  12.35    35650    26.90
1925  10.31    31485    25.86
1926   8.85    29917    25.43
1927   7.58    26465    24.41
1928   5.32    26064    24.28
1929   3.69    26489    24.41
1930   4.48    28993    25.17
1931   5.99    32971    26.24
1932  10.75    28970    25.16
1933  11.49    23496    23.42
1934   7.69    22199    22.96
1935   8.70    23789    23.53
1936   5.85    24950    23.92
1937   4.63    26243    24.34
1938   7.41    27213    24.64
1939   6.41    26358    24.37
1940   6.10    28223    24.94
1941   7.19    27088    24.60
1942   9.90    27069    24.59
1943   9.80    26053    24.28
1944   9.01    27532    24.74
1945   8.33    26726    24.49
1946   6.41    22600    23.10
1947   8.70    24473    23.76
1948   9.62    25158    23.99
1949   9.80    26019    24.27
1950   9.35    23280    23.35
1951   8.40    23247    23.34
1952   8.00    23220    23.33
1953   7.69    23021    23.26
1954   8.33    22948    23.23
1955   6.25    21339    22.63
1956   5.46    20377    22.26
1957   5.99    20425    22.28
1958   7.25    21198    22.58
1959   5.56    19334    21.83
1960   5.46    17452    21.00
1961   5.41    22055    22.90
1962   4.72    21968    22.87
1963   5.18    20045    22.12
1964   4.63    20343    22.24
1965   4.29    20091    22.14
1966   4.15    21527    22.71
1967   4.90    19754    22.00
1968   4.65    23457    23.41
1969   4.72    25602    24.13
1970   5.85    25604    24.13
1971   6.06    27795    24.81
1972   5.78    30411    25.57
1973   5.35    27480    24.72
1974   7.41    27054    24.59
1975  11.24    28418    25.00
1976   8.93    26469    24.41
1977   8.77    27191    24.63
1978  10.87    26048    24.28
1979  10.75    24466    23.76
1980  11.24    23562    23.45
1981  10.80    24846    23.88
1982  13.53    24818    23.88
1983  11.42    23153    23.30
1984  10.11    22276    22.99
1985  10.00    21573    22.72
1986   8.54    21320    22.63
1987   6.70    20277    22.22

Next comes commercial paper.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 6:52 am    Post subject: Reply with quote

15-Year Returns with Commercial Paper and 9-12-21-24 / 100-50-30-20-0% Stocks

Year, Percentage Earnings Yield 100E10/P, Final Balance, Annualized Real Return relative to $1000

Code:
1871   7.52    37081    27.24
1872   6.90    36127    27.02
1873   6.54    34533    26.63
1874   7.19    35176    26.79
1875   7.35    35200    26.80
1876   7.52    30327    25.54
1877   9.43    37643    27.36
1878  10.31    32489    26.12
1879   9.35    25532    24.11
1880   6.54    31535    25.87
1881   5.41    26833    24.52
1882   6.37    29170    25.22
1883   6.54    30044    25.46
1884   6.94    31249    25.79
1885   7.63    24511    23.77
1886   5.99    24841    23.88
1887   5.71    23923    23.57
1888   6.49    23943    23.58
1889   6.33    23299    23.35
1890   5.81    22601    23.10
1891   6.49    25629    24.14
1892   5.26    21430    22.67
1893   5.65    24785    23.86
1894   6.37    25157    23.99
1895   6.06    22445    23.05
1896   6.02    24453    23.75
1897   5.88    23382    23.38
1898   5.21    22528    23.08
1899   4.37    19006    21.69
1900   5.35    21398    22.66
1901   4.76    22149    22.94
1902   4.48    18835    21.62
1903   4.93    16667    20.63
1904   6.29    15220    19.90
1905   5.41    15476    20.04
1906   4.98    13077    18.70
1907   5.81    16887    20.74
1908   8.40    20299    22.23
1909   6.76    18865    21.63
1910   6.90    27032    24.58
1911   7.14    27438    24.71
1912   7.25    27200    24.63
1913   7.63    31792    25.94
1914   8.62    36848    27.18
1915   9.62    36181    27.03
1916   8.00    33296    26.33
1917   9.09    30452    25.58
1918  15.15    31793    25.94
1919  16.39    43999    28.70
1920  16.67    44246    28.74


Code:
1921  19.61    54902    30.61
1922  15.87    46875    29.24
1923  12.20    37449    27.32
1924  12.35    36864    27.19
1925  10.31    32322    26.08
1926   8.85    29755    25.38
1927   7.58    23844    23.55
1928   5.32    22399    23.03
1929   3.69    22287    22.99
1930   4.48    24069    23.62
1931   5.99    27209    24.64
1932  10.75    21293    22.62
1933  11.49    16798    20.69
1934   7.69    16295    20.45
1935   8.70    18089    21.29
1936   5.85    18888    21.64
1937   4.63    20053    22.13
1938   7.41    21333    22.63
1939   6.41    20986    22.50
1940   6.10    23280    23.35
1941   7.19    23007    23.25
1942   9.90    23521    23.43
1943   9.80    22747    23.16
1944   9.01    24651    23.82
1945   8.33    24645    23.82
1946   6.41    21118    22.55
1947   8.70    23547    23.44
1948   9.62    24532    23.78
1949   9.80    25584    24.13
1950   9.35    23234    23.33
1951   8.40    23622    23.47
1952   8.00    23651    23.48
1953   7.69    23504    23.43
1954   8.33    23696    23.49
1955   6.25    22113    22.93
1956   5.46    20850    22.44
1957   5.99    20802    22.43
1958   7.25    21890    22.84
1959   5.56    19818    22.03
1960   5.46    17030    20.80
1961   5.41    21523    22.70
1962   4.72    21222    22.59
1963   5.18    19256    21.80
1964   4.63    19504    21.90
1965   4.29    18887    21.64
1966   4.15    20290    22.22
1967   4.90    19050    21.71
1968   4.65    22683    23.13
1969   4.72    24818    23.88
1970   5.85    25223    24.01
1971   6.06    27664    24.77
1972   5.78    30723    25.65
1973   5.35    28090    24.90
1974   7.41    28187    24.93
1975  11.24    29985    25.45
1976   8.93    27753    24.80
1977   8.77    28367    24.98
1978  10.87    26808    24.51
1979  10.75    25102    23.97
1980  11.24    24439    23.75
1981  10.80    25762    24.18
1982  13.53    25715    24.17
1983  11.42    24292    23.70
1984  10.11    23551    23.44
1985  10.00    22964    23.24
1986   8.54    22280    22.99
1987   6.70    20658    22.37

That's it.

Have fun.

John R.


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Mike
*** Veteran


Joined: 06 Jul 2003
Posts: 278

PostPosted: Tue Oct 19, 2004 9:33 am    Post subject: Reply with quote

Quote:
Switching improved the worst case results only a small amount while taking away the upside.

That's interesting. Since most studies key on accumulation and dollar cost averaging over long periods of time, they appear to be giving the young the correct advice.

It is retirees who need to avoid the big loss early in their retirement.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 4:50 pm    Post subject: Reply with quote

PART 2:

Since switching helps in times of high valuations, I investigated some additional accumulation approaches. In the first, I invested $1000 per year into 100% stocks for 15 years and then I left the account untouched [i.e., I reinvested all dividends] for another 15 years.

The worst case in the modern era (1923-1972) with this approach occurred in the 1967 historical sequence. The final balance was $12594.

In the second, I invested $1000 per year into switching with 2.0% TIPS [and stock allocations of 100-50-30-20-0% and P/E10 thresholds of 9-12-21-24] for 15 years. Then I invested the entire balance into stocks for another 15 years, leaving it untouched and reinvesting all dividends.

The worst case in the modern era (1923-1972) with this approach also occurred in the 1967 historical sequence. The final balance was $17361.

This particular comparison favors switching. Looking at the rest of the data in the modern era, switching initially provides a small improvement (less than $20000) in the final balance about half of the time. It costs a large reduction (about $40000 to $160000) in a fourth of the conditions.

The years 1959-1971 favored switching. The years 1936-1958 favored stick with 100% stocks. The years 1940-1954 strongly favored switching.

Finally, out of desperation and also to be thorough, I reversed the sequence of events. I made the $1000 per year deposits into an all-stock account for 15 years. I followed that by changing to switching with 2.0% TIPS (and with 9-12-21-24 for the P/E10 thresholds and 100-50-30-20-0% stock allocations) for the final 15 years, but without making any additional deposits.

This time I hit pay dirt. The worst case balance after 30 years was $36284 in 1963. Compare that with the previous final balances of $12594 and $17361 (both in 1967). The upside was limited once again, this time to $82912 in 1942 for the 1923-1972 era. The improved balances under worst case conditions justify sacrificing some of the upside.

Have fun.

John R.


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

PostPosted: Tue Oct 19, 2004 4:58 pm    Post subject: Reply with quote

15 years of investing $1000 per year into 100% stocks and then leaving the balance in 100% stocks for another 15 years without making any additional deposits.

Year, 100E10/P, Balance at the end of 15 years, Final Balance (at year 30).

Code:
1871   7.52    39583    174602
1872   6.90    39679    172158
1873   6.54    36678    139626
1874   7.19    37276    149016
1875   7.35    37609    149917
1876   7.52    29865     98525
1877   9.43    40634    193349
1878  10.31    33953    137763
1879   9.35    22268     67059
1880   6.54    26819     71585
1881   5.41    22644     46983
1882   6.37    25020     58931
1883   6.54    28839     74559
1884   6.94    35083    110638
1885   7.63    27476     77581
1886   5.99    30051     79293
1887   5.71    31358     86195
1888   6.49    31917     90776
1889   6.33    26462     61356
1890   5.81    29583     77698
1891   6.49    36504    125281
1892   5.26    28773     76099
1893   5.65    26513     56806
1894   6.37    30571     90913
1895   6.06    28307     81647
1896   6.02    28477     82642
1897   5.88    26277     75177
1898   5.21    24552     60488
1899   4.37    18852     34537
1900   5.35    20088     38945
1901   4.76    22703     44941
1902   4.48    19641     32353
1903   4.93    15481     18321
1904   6.29    14350     19007
1905   5.41    14430     15245
1906   4.98    12248      9560
1907   5.81    16052     15878
1908   8.40    19648     31299
1909   6.76    18068     22224
1910   6.90    25955     38196
1911   7.14    28875     49093
1912   7.25    29573     54626
1913   7.63    40999    103766
1914   8.62    58459    231922
1915   9.62    50204    194404
1916   8.00    37075     97826
1917   9.09    23054     43114
1918  15.15    23431     63357
1919  16.39    32588    133616
1920  16.67    31039    113077


Code:
1921  19.61    46528    285390
1922  15.87    47523    307183
1923  12.20    28523    101654
1924  12.35    30850    125085
1925  10.31    27675     93509
1926   8.85    23966     61203
1927   7.58    18442     34428
1928   5.32    19123     28806
1929   3.69    21574     26334
1930   4.48    26507     40865
1931   5.99    35976     86924
1932  10.75    26562     70788
1933  11.49    20860     50804
1934   7.69    20446     36126
1935   8.70    23792     55680
1936   5.85    26839     51436
1937   4.63    29889     50959
1938   7.41    34026     92729
1939   6.41    32478     77514
1940   6.10    43974    146283
1941   7.19    48811    227563
1942   9.90    48900    284326
1943   9.80    41876    201876
1944   9.01    51589    285072
1945   8.33    49723    252261
1946   6.41    41198    162509
1947   8.70    48898    301260
1948   9.62    45706    289374
1949   9.80    48914    338822
1950   9.35    44518    296128
1951   8.40    43168    255471
1952   8.00    35662    166697
1953   7.69    35119    161793
1954   8.33    33810    161681
1955   6.25    25222     71980
1956   5.46    22891     52078
1957   5.99    23548     56804
1958   7.25    25629     76427
1959   5.56    18211     30807
1960   5.46    12678     14505
1961   5.41    16136     22751
1962   4.72    16392     20719
1963   5.18    13989     15857
1964   4.63    14665     14834
1965   4.29    14827     13385
1966   4.15    16349     15059
1967   4.90    14330     12594
1968   4.65    17513     17000
1969   4.72    19713     20782
1970   5.85    20641     26074
1971   6.06    24889     37312
1972   5.78    30957     54195

Have fun.

John R.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 5:03 pm    Post subject: Reply with quote

15 years of investing $1000 per year with 2.0% TIPS and 9-12-21-24 / 100-50-30-20-0% stocks and then investing the balance into 100% stocks for another 15 years without making any additional deposits.

Year, 100E10/P, Balance at the end of 15 years, Final Balance (at year 30).

Code:
1871   7.52    24959    110093
1872   6.90    24642    106917
1873   6.54    24910     94827
1874   7.19    25233    100870
1875   7.35    24909     99291
1876   7.52    22090     72874
1877   9.43    26969    128327
1878  10.31    24466     99270
1879   9.35    17681     53244
1880   6.54    21692     57900
1881   5.41    18892     39199
1882   6.37    20636     48606
1883   6.54    22436     58004
1884   6.94    24389     76913
1885   7.63    22013     62158
1886   5.99    22168     58494
1887   5.71    21775     59855
1888   6.49    23271     66184
1889   6.33    22036     51095
1890   5.81    21815     57296
1891   6.49    24558     84283
1892   5.26    20905     55289
1893   5.65    23507     50365
1894   6.37    24412     72599
1895   6.06    22935     66153
1896   6.02    23470     68112
1897   5.88    21964     62837
1898   5.21    21631     53292
1899   4.37    18152     33255
1900   5.35    20240     39241
1901   4.76    21252     42068
1902   4.48    19387     31935
1903   4.93    18548     21951
1904   6.29    16947     22446
1905   5.41    17148     18116
1906   4.98    14429     11262
1907   5.81    18515     18314
1908   8.40    22173     35322
1909   6.76    20431     25130
1910   6.90    29004     42683
1911   7.14    29549     50240
1912   7.25    28494     52633
1913   7.63    32199     81493
1914   8.62    35931    142547
1915   9.62    34331    132941
1916   8.00    29431     77657
1917   9.09    24344     45526
1918  15.15    24132     65251
1919  16.39    33745    138359
1920  16.67    35387    128916


Code:
1921  19.61    44905    275435
1922  15.87    39672    256432
1923  12.20    32687    116494
1924  12.35    32677    132496
1925  10.31    29334     99115
1926   8.85    28100     71760
1927   7.58    25067     46796
1928   5.32    24907     37519
1929   3.69    25558     31198
1930   4.48    28248     43548
1931   5.99    32602     78771
1932  10.75    29000     77286
1933  11.49    23656     57614
1934   7.69    22325     39447
1935   8.70    23889     55907
1936   5.85    25029     47968
1937   4.63    26304     44847
1938   7.41    27255     74274
1939   6.41    26370     62936
1940   6.10    28418     94535
1941   7.19    27269    127133
1942   9.90    27243    158401
1943   9.80    26212    126364
1944   9.01    27692    153022
1945   8.33    26872    136332
1946   6.41    22716     89605
1947   8.70    24590    151498
1948   9.62    25268    159979
1949   9.80    26120    180933
1950   9.35    23362    155399
1951   8.40    23314    137975
1952   8.00    23273    108785
1953   7.69    23060    106235
1954   8.33    22971    109850
1955   6.25    21339     60899
1956   5.46    20377     46360
1957   5.99    20425     49269
1958   7.25    21198     63213
1959   5.56    19334     32707
1960   5.46    17452     19967
1961   5.41    22055     31096
1962   4.72    21968     27767
1963   5.18    20045     22723
1964   4.63    20343     20577
1965   4.29    20091     18137
1966   4.15    21527     19828
1967   4.90    19754     17361
1968   4.65    23457     22770
1969   4.72    25602     26989
1970   5.85    25604     32343
1971   6.06    27795     41669
1972   5.78    30411     53239

Have fun.

John R.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 5:11 pm    Post subject: Reply with quote

Year, 100E10/P, Difference in favor of switching during first 15 years (from the previous two tables).

Code:
1871   7.52    (64509)
1872   6.90    (65241)
1873   6.54    (44799)
1874   7.19    (48146)
1875   7.35    (50626)
1876   7.52    (25651)
1877   9.43    (65022)
1878  10.31    (38493)
1879   9.35    (13815)
1880   6.54    (13685)
1881   5.41     (7785)
1882   6.37    (10325)
1883   6.54    (16554)
1884   6.94    (33725)
1885   7.63    (15424)
1886   5.99    (20799)
1887   5.71    (26340)
1888   6.49    (24592)
1889   6.33    (10261)
1890   5.81    (20401)
1891   6.49    (40997)
1892   5.26    (20810)
1893   5.65     (6440)
1894   6.37    (18314)
1895   6.06    (15495)
1896   6.02    (14530)
1897   5.88    (12340)
1898   5.21     (7196)
1899   4.37     (1282)
1900   5.35        295
1901   4.76     (2873)
1902   4.48      (418)
1903   4.93      3630
1904   6.29      3440
1905   5.41      2871
1906   4.98      1702
1907   5.81      2436
1908   8.40      4023
1909   6.76      2907
1910   6.90      4487
1911   7.14      1146
1912   7.25     (1993)
1913   7.63    (22273)
1914   8.62    (89375)
1915   9.62    (61463)
1916   8.00    (20169)
1917   9.09      2412
1918  15.15      1894
1919  16.39      4743
1920  16.67     15839


Code:
1921  19.61     (9954)
1922  15.87    (50751)
1923  12.20     14840
1924  12.35      7411
1925  10.31      5606
1926   8.85     10557
1927   7.58     12367
1928   5.32      8713
1929   3.69      4863
1930   4.48      2684
1931   5.99     (8153)
1932  10.75      6497
1933  11.49      6810
1934   7.69      3320
1935   8.70       227
1936   5.85     (3468)
1937   4.63     (6111)
1938   7.41    (18455)
1939   6.41    (14578)
1940   6.10    (51749)
1941   7.19    (100430)
1942   9.90    (125924)
1943   9.80    (75512)
1944   9.01    (132050)
1945   8.33    (115929)
1946   6.41    (72904)
1947   8.70    (149762)
1948   9.62    (129395)
1949   9.80    (157889)
1950   9.35    (140729)
1951   8.40    (117496)
1952   8.00    (57912)
1953   7.69    (55558)
1954   8.33    (51831)
1955   6.25    (11082)
1956   5.46     (5718)
1957   5.99     (7535)
1958   7.25    (13214)
1959   5.56      1900
1960   5.46      5461
1961   5.41      8345
1962   4.72      7047
1963   5.18      6866
1964   4.63      5743
1965   4.29      4752
1966   4.15      4769
1967   4.90      4767
1968   4.65      5769
1969   4.72      6208
1970   5.85      6269
1971   6.06      4358
1972   5.78     (956)

Have fun.

John R.


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JWR1945
***** Legend


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

PostPosted: Tue Oct 19, 2004 5:15 pm    Post subject: Reply with quote

15 years of investing $1000 per year into 100% stocks and then investing the balance for another 15 years with 2.0% TIPS and 9-12-21-24 / 100-50-30-20-0% stocks, but without making any additional deposits.

Year, Balance at the end of 15 years, Final Balance (at year 30).

Code:
1871   39583    67523
1872   39679    68587
1873   36678    64242
1874   37276    61527
1875   37609    64714
1876   29865    55791
1877   40634    69896
1878   33953    55159
1879   22268    42386
1880   26819    50571
1881   22644    42777
1882   25020    47058
1883   28839    51774
1884   35083    57392
1885   27476    44338
1886   30051    50964
1887   31358    50256
1888   31917    43631
1889   26462    36432
1890   29583    37674
1891   36504    38479
1892   28773    37023
1893   26513    45964
1894   30571    46222
1895   28307    52086
1896   28477    56734
1897   26277    54922
1898   24552    56929
1899   18852    50724
1900   20088    56240
1901   22703    55119
1902   19641    43678
1903   15481    40717
1904   14350    57234
1905   14430    55914
1906   12248    67143
1907   16052    79077
1908   19648    72169
1909   18068    69021
1910   25955    81397
1911   28875    80410
1912   29573    73564
1913   40999    96325
1914   58459    131465
1915   50204    120617
1916   37075    106575
1917   23054    67794
1918   23431    65929
1919   32588    64570
1920   31039    69127


Code:
1921   46528    92454
1922   47523    92979
1923   28523    61396
1924   30850    63696
1925   27675    63994
1926   23966    61565
1927   18442    50406
1928   19123    48652
1929   21574    55787
1930   26507    64996
1931   35976    76704
1932   26562    64291
1933   20860    52055
1934   20446    51888
1935   23792    57047
1936   26839    59239
1937   29889    62044
1938   34026    70304
1939   32478    67626
1940   43974    78791
1941   48811    81274
1942   48900    82912
1943   41876    75661
1944   51589    78509
1945   49723    68100
1946   41198    70670
1947   48898    81568
1948   45706    71175
1949   48914    73983
1950   44518    65777
1951   43168    68701
1952   35662    52473
1953   35119    60715
1954   33810    65303
1955   25222    50684
1956   22891    50236
1957   23548    57023
1958   25629    58751
1959   18211    46338
1960   12678    36875
1961   16136    36350
1962   16392    39003
1963   13989    36284
1964   14665    38070
1965   14827    38192
1966   16349    41816
1967   14330    39641
1968   17513    40107
1969   19713    40118
1970   20641    41625
1971   24889    46025
1972   30957    50709

The time to preserve capital via switching is when you have capital to preserve.

Have fun.

John R.


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Mike
*** Veteran


Joined: 06 Jul 2003
Posts: 278

PostPosted: Wed Oct 20, 2004 6:28 am    Post subject: Reply with quote

Quote:
The time to preserve capital via switching is when you have capital to preserve.

This makes sense. The S&P is dangerous to capital right now.


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hocus2004
Moderator


Joined: 10 Jun 2004
Posts: 752

PostPosted: Thu Oct 21, 2004 1:20 am    Post subject: Reply with quote

"It is retirees who need to avoid the big loss early in their retirement."

This is a reasonable summary of our findings of the past few weeks. But it is my strongly held view that those in the asset accumulation stage also very much need to come to a better understanding of the message of the historical data than most community members possess today.

A common trait of most aspiring early retirees is that they possess a keener appreciation of the compounding returns phenmenon than the average person. To retire early, you need to save effectively. To save effectively, you need to "get" the importance of compounding returns. If it were not for compounding returns, much of what we are trying to accomplish with our Retire Early (or FIRE, or Passon Saving) strategies would not be possible.

I think that what we are seeing with the threads that have developed over the past few weeks is the power of Compounding in Reverse. When you are forced to sell a small amount of stocks in the early years of a 30-year returns sequence, you don't lose the small long-term income stream you would intuitively expect to lose from such a development. You lose far more than that. The Stock Selling Penalty is severe. The Stock Selling Penalty is a monster that stalks Retire Early dreams. It is a monster that we see close up only when our dreams are transformed into nightmares. We need to develop defenses against this monster BEFORE we reach the nightmare phase. In the nightmare, we try to run and it feels like our feet are in quicksand. It is only when we are still in the dream phase that we can effectively protect ourselves from the Monster.

It is NOT only retirees who need to protect themselves. The problem is most acute for retirees. Retirees are most vulnerable to the Monster because when they overinvest in overvalued stock they place themselves in circumstances in which they must sell stocks to cover living expenses. It is not quite that bad for those in the accumulation stage. But it is bad enough.

Those in the accumulation stage are going to sell too, the historical data (what little of it we have bearing on this point) tells us. Why? Not because they are so dumb that they do not understand that selling stocks when prices are down is a bad idea. Everyone over the age of 7 gets this point. The problem is that, even in the accumulation stage, investors want their nest eggs to grow. That's a universal desire. Most investors are able to watch small drops in the size of their portolios without too much alarm. Large drops in the size of the overall portfolo are a different thing. Large drops translate into significantly diminished levels of financial independence. Those sorts of drops cause selling of the asset class responsible for the large drops in portfolio value. This has always been true in the past. There is no reason to believe that it will not remain true in the future.

Stock are a wonderful asset class. This is well demonstrated by the data that has been put forward in recent weeks. Even at valuation levels as high as those that apply today, it is possible to obtain a not-bad 30-year return so long as you limit your stock allocation to a level low enough that large drops in stock prices will not cause you to lower your stock allocation. Those not-bad returns are not available to investors who insist who going with extreme stock allocations at times of extreme valuation, however. In a fantasy land, perhaps they are available. If you want to pretend that you will not sell any stocks even if you experience the big price drops that the historical data says are likely coming, then you can put forward numbers showing that after 30 years you will be not so terribly bad off. In the real world, it has never worked like that. I doubt very much that it is going to work like that this go-around either.

The way it works is, those who invest prudently (in line with what the historical data suggests is appropriate) generally do fine with stocks in the long term. Those who invest imprudently (a 74 percent S&P allocation is for most imprudent at these valuation levels, to say the least) generally do not do so fine. We should be using the historical data to develop prudent investment recommendations for fellow aspiring early retirees. That is our board mission.

The Stock Selling Penalty is a most severe penalty. Everyone understands that it is a bad idea to sell stocks when prices are down. Very few comprehend just how bad an idea it is. The data conveys a counter-intuitive message. You don't hurt your chances of a successful early retirement a little bit by overinvesting in overvalued stocks. You just about destroy your chances by that one bad move. The Stock Selling Penalty is the Monster that stalks Retire Early dreams.

I think that what we are seeing is a sort-of Compounding in Reverse. Compounding provides benefits so great that it is hard for the average person to grasp how great an opportunity compounding presents. Compounding in Reverse causes losses so great that it is hard for the average aspiring early retiree to grasp how great the danger is in ignoring what the historical data reveals on this point. If stocks perform in the future in ways at all similar to how they have always performed in the past, a lot of community members we have come to know well over the course of the past five years are going to be returning to the workplace or remaining in it years longer than they expected. That's the bottom-line reality being conveyed to us by our many in-depth examinations of the historical data.

The story has been told in clear and dramatic terms in recent days on this board. It is clear that many have not yet gotten the message. Perhaps, as UncleMick suggests, most never will. If people cannot hear the message, there is nothing that we can do but accept the reality. But if there is something that we can do to break through the emotional resistance to hearing what the historical data really says, we should do it.

My suggestion is that we try to think up some ways of showing in compelling terms just how great a risk one takes in following investment strategies that leave one vulnerable to the effects of the Stock Selling Penalty. We have all seen the charts that show how, if you invest a specified number of dollars in Year X, you end up with Y number of dollars in Year Z. Is it possible to put together something along those lines to show the devastating effect of the Stock Selling Penalty? If you overinvest in overvalued stocks to the point where it casues you to experience the Stock Sellling Penalty, how many dollars of accumulated capital are you down at the end of the 30-year returns sequence for each dollar that you took out of stocks when prices dropped?

The Stock Selling Penalty is the single biggest risk associated with stock investing. SWR analysis is a risk assessment tool. It should be possible to make use of this tool to paint a compelling picture of the consequences of overinvestment in overvalued stocks.

I understand that the consequences are worse for retirees than for those in the accumulation stage. I agree that it is most urgent that we get the message out to retirees. I do not think that the potential consequences for those in the accumulation stage are any small thing, however. My view is that some draw the distinction between retirees and accumulators in terms more stark than what they are in the real world. Many retirees add to their stock holdings from time to time, either from earnings from work they do in retirement or through the cashing in of non-stock investments. Many accumulators sell stocks when price drops cause their accumulated capital to diminsh quickly and dramatically. There are important differences between retirees and accumulators. But I believe that some have exagerrated the differences. I think that it is artificial to act as if there is a big black line that we cross on the day we hand in our resignations. We always need to keep the distinction in mind, but I think that we also need to keep in mind that there are a good number of circumstances in which the distinction is more artificial than real.

(I will be away from the computer on Friday, Saturday, and Sunday. It may be a few days before I am able to respond to any posts put forward in response to this one.)


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Mike
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Joined: 06 Jul 2003
Posts: 278

PostPosted: Thu Oct 21, 2004 9:02 am    Post subject: Reply with quote

Quote:
Stock are a wonderful asset class.

US stocks were a wonderful asset class during the 19th and 20th centuries, a time of rapid population growth. There is no historical proof that stocks will be just as wonderful during the 21st century, when demographic trends suggest that population growth will stop.


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JWR1945
***** Legend


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

PostPosted: Thu Oct 21, 2004 11:04 am    Post subject: Reply with quote

hocus2004 wrote:
My suggestion is that we try to think up some ways of showing in compelling terms just how great a risk one takes in following investment strategies that leave one vulnerable to the effects of the Stock Selling Penalty. We have all seen the charts that show how, if you invest a specified number of dollars in Year X, you end up with Y number of dollars in Year Z. Is it possible to put together something along those lines to show the devastating effect of the Stock Selling Penalty? If you overinvest in overvalued stocks to the point where it causes you to experience the Stock Selling Penalty, how many dollars of accumulated capital are you down at the end of the 30-year returns sequence for each dollar that you took out of stocks when prices dropped?

Please come up with some guesses as to what might be nice to know. In the simplest cases, we would just show how frequently a sudden drop in prices occur. That has been done in the past, of course, but with limited effect in the presence of the strong bull market.

Now start modifying something like this to include the effects of making deposits (or withdrawals) for several years. If one's portfolio has grown nicely in the first five or six years, I would expect him to mentally count on only a fraction of the rise, the rest being play money. If the market drops dramatically within two or three years, I would expect him to feel the emotion pain of the entire loss.

I want better ideas than what I have come up with so far.

Please put forward some suggestions even if they are incomplete or fuzzy. In some cases our calculators can add value. In the simplest case, we would just read numbers from Professor Shiller's data.

Quote:
I understand that the consequences are worse for retirees than for those in the accumulation stage. I agree that it is most urgent that we get the message out to retirees. I do not think that the potential consequences for those in the accumulation stage are any small thing, however. My view is that some draw the distinction between retirees and accumulators in terms more stark than what they are in the real world.

I think that the distinction is the brightest in terms of how much money one has. The latter part of accumulation and the early part of distribution both require careful attention to the preservation of capital. The earliest years of accumulation are a learning process. The later stages of distribution may be less important because a portfolio has grown beyond what is needed or because the portfolio has shrunk so much as to limit one's options.

Have fun.

John R.


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

PostPosted: Mon Oct 25, 2004 6:20 am    Post subject: Reply with quote

hocus2004 wrote:
This is a reasonable summary of our findings of the past few weeks. But it is my strongly held view that those in the asset accumulation stage also very much need to come to a better understanding of the message of the historical data than most community members possess today.

Perhaps something like this but modified for the accumulation stage is what you are after:

I set up my Deluxe Calculator 1.1A07 for switching of allocations between stocks and 2.0% TIPS with 0.20% expenses and an initial withdrawal rate of 4.0%. I set the P/E10 thresholds to 3-5-20-80. In essence, this eliminates all allocations except the third and the fourth. [The computer automatically sets the lowest allocation to 100% and the highest allocation to 0%. The two allocations that remain are the second and third of what you can vary. They are in cell locations F20 and I20.]

When I set the programmable allocations in cells B20, F20 and I20 to 20%-20%-20%, there were no failures within 30 years between 1921-1980. There were no failures when I set the allocations to 30%-30%-30%. There were no failures when I set the allocations to 70%-70%-70%. There was one failure within 30 years between 1921-1980 when I set the allocations to 80%-80%-80%.

[Remember, only the second and third of these percentages affect the calculations.]

I introduced reverse switching. I assumed an investor would maintain low allocations when P/E10 levels were below 20 and high allocations when P/E10 levels were above 20. This means that the investor is getting in at the top and out at the bottom.

When the allocations were 20%-20%-80%, which means that the allocation was 20% when P/E10 was below 20 and 80% when it was above 20, there were 7 failures within 30 years for 1921-1980. When the allocations were 30%-30%-70%, which means that the allocation was 30% when P/E10 was below 20 and 70% when it was above 20, there were 2 failures within 30 years for 1921.

Have fun.

John R.


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