For those using the PP or GB in retirement

General Discussion on the Permanent Portfolio Strategy

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For those using the PP or GB in retirement

Post by Kevin K. » Mon Oct 18, 2021 9:50 am

Thought I'd take advantage of the hive mind here to get some thoughts from folks who are either already retired and using these portfolios or nearly so and planning to.

As we know a lot of the appeal of the PP has been its steady returns and low and shallow drawdowns in pretty all market conditions. Still it sure doesn't seem prudent to me to rely on the SWR and/or PWR percentages for these (or any other) portfolios shown on Portfolio Charts going forward, given the unprecedented situation we're in with no safe bonds of any duration offering a real return (iBonds excepted), baseline interest rates on even 30 year Treasuries so low that their ability to save one's bacon during the next market crash may be limited-to-non-existent, sky-high equity valuations and gold in the doldrums.

I guess the most prudent approach is to just look at the expected return of the underlying assets and withdraw that - in which case (for the PP) you'd be living on whatever you expect VTI and TLT to yield going forward. Any thoughts?
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Re: For those using the PP or GB in retirement

Post by pp4me » Mon Oct 18, 2021 10:04 am

I've been retired for 5 years and I'm now 72.

I use the GB but I'm sorry I can't answer your question about the SWR. My wife still works and I get almost $48k in SS so the only
withdrawals I've had to make were my two RMD's so far. I just take out the minimum of which nearly all of it goes to pay the taxes on my SS.

Ask me again a few years from now when my wife retires, but given our current spending habits I calculate we'll only need about a 2.5% withdrawal rate to maintain the current budget. So if things go well we'll probably take out more and it not, then we will probably take out less. I
suspect that's the way most people do it any way.
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Re: For those using the PP or GB in retirement

Post by dockinGA » Mon Oct 18, 2021 10:07 am

I am close to a potential 'early retirement', or at least a semi-retirement (I'll never be able to completely quit work but will eventually scale back considerably), and plan to use a combination of PP and GB. I likewise am concerned about the SWR historically not being realistic going forward, but I think there are a couple of key items that will help the historical SWR for the PP/GB at least be more feasible than for a traditional equity heavy portfolio:

1. Avoiding steep drawdowns - Since these portfolios have historically been much less likely to see massive drawdowns, this helps immensely with sequence of returns risk. This can allow the portfolio and your SWR to weather an early beatdown, and still be well positioned to benefit from the inevitable turnaround once that comes. With a riskier portfolio, when the turnaround finally comes you may only have ~50% of what you started with.
2. Kind of along those same lines, the historical returns for the PP have been remarkably consistent throughout nearly the past 50 years. That could change at any time of course, and at this point I can't see how the PP/GB maintains a stellar real rate of return going forward unless we get a bout of deflation. But, the fact remains that it's been consistent through a long period of time, with all kinds of different investing scenarios throughout that period of time. This time could certainly be different, but it does give me some confidence that even though things look bleak, the PP/GB may yet still find a way. When I first started investing in the PP 7+ years ago, things didn't look so great then either, but here we are and I've had a roughly 4.5% annualized real return, just like the PP has always had.
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Re: For those using the PP or GB in retirement

Post by mathjak107 » Mon Oct 18, 2021 10:39 am

I don’t post here anymore as I am not a pp user .
But I will add my 2 cents .

Every failure at 4% happened because the real return fell below 2.50% over the first 15 years of a 30 year retirement .

The failing years the 4% swr is based on are 1907 , 1929 ,1937 ,1965 and 1966 …

There is really little accurate history over those years for the pp because of golds changes over the years .

But that does not mean the math is different.

If we eliminated those failing years and started later on in history then a safe withdrawal rate for a 60/40 would be about 6-1/2%

So it is easy enough to monitor how you are doing over the years .


If you fell below a 2.50% real return average 5 years in a red flag should go up ….if 10 years in things are still below , pay cuts are in order
Just keep in mind that a swr holding has nothing to do with the balance left which can be all over the map .
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Re: For those using the PP or GB in retirement

Post by Kevin K. » Mon Oct 18, 2021 11:52 am

Thanks everyone for your thoughtful comments - and nice to see your name pop up again mathjak107!

Yeah I often recall J.M. Lawson aka "Medium Tex"'s wry comment about Treasury bonds being "the best horse at the glue factory." That's kind of how I feel about all of these super-defensive portfolios under the current circumstances.

I recently paid for a portfolio second opinion done by an FA who's a protégé of the well-known investment author Rick Ferri. I knew of course that he was a Boglehead through-and-through but the review ended up being worth the price anyway thanks to help with SS claiming, Medicare strategies, LTC insurance and other things. And he wasn't shy (which I actually appreciate) about dissing gold and offering an alternative portfolio recommendation. Since I have only modest savings and my wife and I combined will receive only about 35K in SS - and we have no children and thus no legacy goals - his suggestions were all geared towards not running out of money and worst-case scenarios.

So FWIW here was the proposed portfolio and strategy: Go to 70% bonds (50% Intermediate Term Treasuries in the form of VGIT, 20% short-term TIPS in VTIP) and 30% equities (equally divided between Total Stock Market and Total International, in VTI and VXUS) immediately. Delay SS to 70 for both of us. Spend the VTIP first, withdrawing ~5% a year until reaching SS claiming age for me, ramping up the equities a few percent a year at first and ending up at 60% in equities (same funds the whole time) 40% in ITT's. In short, rising equity glide path to hedge sequence-of-returns risk. (SORR).

Needless to say, I thanked him for his non-investing advice and scolded him for urging me to replace my Acura with a Yugo:

https://www.portfoliovisualizer.com/bac ... tion7_3=20
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Re: For those using the PP or GB in retirement

Post by dualstow » Mon Oct 18, 2021 2:12 pm

Kevin K. wrote:
Mon Oct 18, 2021 11:52 am


I recently paid for a portfolio second opinion done by an FA who's a protégé of the well-known investment author Rick Ferri. I knew of course that he was a Boglehead through-and-through but the review ended up being worth the price anyway
I think about doing that sometimes. Maybe that Allan Roth guy.
RIP Marcello Gandini
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Re: For those using the PP or GB in retirement

Post by Kevin K. » Mon Oct 18, 2021 2:28 pm

Here’s the FA I used. Found him through Rick Ferri who offers the same thing but being a pretty famous writer is booked into 2022. I think many DIY folks who like me would never pay a % of assets or high fixed fee could benefit from hiring someone like Jon once just for an impartial double-check.

https://jonluskin.com/
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Re: For those using the PP or GB in retirement

Post by dualstow » Mon Oct 18, 2021 3:07 pm

Thanks. He’s got the one-time fee posted right on the site, which is a good sign. (Transparent).
And thank you for summarizing his suggestions. Even though they’re tailor-made for your situation, it’s helpful to see an example of this kind of advice.

There’s something special about receiving it from one source instead of 500 bogleheads because, while they can be helpful, you know some are just shooting from the hip. It is, after all, free advice.
RIP Marcello Gandini
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Re: For those using the PP or GB in retirement

Post by vnatale » Mon Oct 18, 2021 5:17 pm

dualstow wrote:
Mon Oct 18, 2021 2:12 pm

Kevin K. wrote:
Mon Oct 18, 2021 11:52 am



I recently paid for a portfolio second opinion done by an FA who's a protégé of the well-known investment author Rick Ferri. I knew of course that he was a Boglehead through-and-through but the review ended up being worth the price anyway

I think about doing that sometimes. Maybe that Allan Roth guy.


Have you been to his web site? Read his book? Wasn't it about The Second Grader? Read any interviews with him?

Know about his hourly fee? Last I knew I believe it was around $350 an hour.

I was thinking of recommending him to someone.

His basic goal with anyone is to get them into three Vanguard Index Funds - Total Stock Market, an overall Bond fund, and an overall International Fund.

All his work is cleaning up the mess people have intricated themselves into so as to eventually meet his goal.

That seems to be 99% of his work. That then sets you up. And, then you only come back to him when circumstances change or you need more assistance.

$350 an hour sounds expensive but over a five year period it's a lot less than an AUM fee of 1% on 1,000,0000, which ends up being a total of $50,000 over those five years. You can buy 150 hours at $350 per hour.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: For those using the PP or GB in retirement

Post by Kevin K. » Mon Oct 18, 2021 5:40 pm

vnatale wrote:
Mon Oct 18, 2021 5:17 pm
dualstow wrote:
Mon Oct 18, 2021 2:12 pm
Kevin K. wrote:
Mon Oct 18, 2021 11:52 am


I recently paid for a portfolio second opinion done by an FA who's a protégé of the well-known investment author Rick Ferri. I knew of course that he was a Boglehead through-and-through but the review ended up being worth the price anyway
I think about doing that sometimes. Maybe that Allan Roth guy.
Have you been to his web site? Read his book? Wasn't it about The Second Grader? Read any interviews with him?

Know about his hourly fee? Last I knew I believe it was around $350 an hour.

I was thinking of recommending him to someone.

His basic goal with anyone is to get them into three Vanguard Index Funds - Total Stock Market, an overall Bond fund, and an overall International Fund.

All his work is cleaning up the mess people have intricated themselves into so as to eventually meet his goal.

That seems to be 99% of his work. That then sets you up. And, then you only come back to him when circumstances change or you need more assistance.

$350 an hour sounds expensive but over a five year period it's a lot less than an AUM fee of 1% on 1,000,0000, which ends up being a total of $50,000 over those five years. You can buy 150 hours at $350 per hour.
All of the info is on Jon's website, which I provided the link to above. Rick Ferri is the one who originated this service; I learned about it on his site:

https://rickferri.com/investors/

Whether we're talking about Rick or Jon, the Portfolio Second Opinion is at a fixed fee of $925. You have a free 15 minute phone call to see if you and Rick (or Jon) are a good fit and to ask any basic questions not answered on their respective websites. If it's a go, you fill out a quite detailed form and upload financial documents and anything else you want considered to a secure Dropbox. Your FA then prepares a detailed report with recommendations and spends 2 hours on the phone with you going over it all and answering any other questions you have. So what you're getting for your $925 is more like 4-6 hours of their time - a bargain by current standards. You can also send a quick email for follow-up questions after digesting the report and that's included too. Implementation of their advice is up to you, and any follow-up consulting is at $450 an hour.

I'd never pay a % of AUM - not 1% to an elite FA like these guys, and not .30% for far lower-caliber advice from Vanguard's PAS. If I did want that kind of help - and I've benefitted from it in the past - I'd hire a set fee advisor like Evanson Asset Management that charges $3000-5000 a year (varies with # of accounts but NOT account size) and for that fee gives you not only expert advice but access to DFA funds and many other institutional funds, sophisticated retirement and SS calculators, quarterly macroeconomic and personal portfolio reports, etc along with holding you accountable for sticking to your IPS and acting as a firewall between you and market panic bad decisions - which seem to often be the most valuable part of an ongoing FA relationship.

Jon and Rick are both very upfront about generally recommending simple total market index fund portfolios but not just the ones you mention. Jon for example is not a fan of Total Bond Market (you can find his paper on why he much prefers Treasuries on his web site) and recommends more international on the equity side than any other Boglehead I've come across.
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Re: For those using the PP or GB in retirement

Post by seajay » Fri Oct 22, 2021 1:38 pm

mathjak107 wrote:
Mon Oct 18, 2021 10:39 am
I don’t post here anymore as I am not a pp user .
But I will add my 2 cents .

Every failure at 4% happened because the real return fell below 2.50% over the first 15 years of a 30 year retirement .

The failing years the 4% swr is based on are 1907 , 1929 ,1937 ,1965 and 1966 …

There is really little accurate history over those years for the pp because of golds changes over the years .

But that does not mean the math is different.

If we eliminated those failing years and started later on in history then a safe withdrawal rate for a 60/40 would be about 6-1/2%

So it is easy enough to monitor how you are doing over the years .


If you fell below a 2.50% real return average 5 years in a red flag should go up ….if 10 years in things are still below , pay cuts are in order
Just keep in mind that a swr holding has nothing to do with the balance left which can be all over the map .
Adding my 2 cents for-what-its-worth :

Pre 1933 when money was gold investors were reasonably served by just holding bonds. Buying treasury bills that paid interest bought back more ounces of gold at year end, twas like the state paying you for it to securely store your gold. 1800's and inflation broadly averaged 0% but in a volatile manner, such that bond yields were somewhat like the real yield. Stocks were for speculators - such as paying for a ship to sail east maybe never to return, maybe return with great wealth.

From 1933 investment gold was outlawed, silver as a alternative was a reasonable choice, however a barbell of 50/50 stock/precious-metal was a better choice, if stocks endured a bad decade or two typically PM did OK and vice-versa. Take the 1980 to 2000 years, pretty bad for gold, but good for stocks, 50/50 rebalancing saw ounces of gold in the safe being expanded at something like 10% annualized more ounces. Subsequently, gold prices soared whilst stocks performed less well, resulting in ounces of PM being sold to add more stock shares.

Relative valuations also matter. Starting in 1980 for instance when the Dow/Gold ratio was around 1.0 suggested to underweight PM, overweight stock. Late 1990's when the Dow/Gold was up at 40 levels suggested to be more PM-heavy/stock-light.

Was also broadly better to average in half at start of year, half at end of year, as that reduced the worst cases.

Pull all of that together and you can backtest to 1870 or earlier. Basically T-Bills up to 1933 excepting WW1 years where outcome doubts might have had you in PM. Conceptual 50/50 stock/PM but adjusted according to relative valuations (Dow/Gold ratio) along with averaging in over two time-points ... reduced risk/uplifted SWR (better worst case outcomes).

Since the 1950's cash (T-Bills) after 20% taxation have broadly tended to offset inflation (but in a irregular manner). Dissimilar to pre 1930's when they rewarded reasonable real rewards. A 50/50 stock/PM barbell combines in a similar manner to a STT/LTT barbell i.e. a central bullet that tends to yield rewards similar to when on the gold standard and bonds yielded real rewards.

Taxation risk should also be in mind. 10% inflation, 10% interest, 20% taxation = -2% real. Not a recommendation given its single stock risk factor but something like 50/50 BRK/Gold yields no regular income stream and as such is conceptually tax efficient. The 8.3% real as per that since 1986 link is on the relatively high side. Going back to 1934 and with relative value adjustments ...etc. the figure was more like 7.2% real. Going back further still to 1900 but where T-Bills were the holding up to 1933 and the figure was more around 6.4% real.

Start of 2021 and the Dow/Gold was at 16.3 which my relative valuation method suggests a 31% PM weighting. For that I use a simple stochastic with 1.0 lower, 50 upper i.e. (current - lower ) / ( upper - lower ) = ( 16.3 - 1 ) / ( 50 - 1 ) = 0.31 or 31% PM (gold), and hence 69% stock. Back in 1980 when Dow/Gold was 1.0 that would have indicated 0% PM. In 2000 when the Dow/Gold was at 40 that indicated 80% PM, 20% gold.

A revision to the SWR method you can make is to uplift the SWR value each year by inflation or to 4% of the ongoing portfolio value, whichever is the higher. More usually that will tend to see actual income rise in advance of inflation over time. Also if you shorten down the number of years the SWR can also be increased. For a 70 year old 20 years is perhaps being optimistic, and if they own their own home that might be sold to fund later life care home costs such that even running out of capital at 90 might not be a issue.

Personally however I'm more into the 2% to 2.5% camp. Good pensions pretty much cover living expenses, liquid capital rewards are more for the extras. As a ET (alien) for me a third each in domestic T-Bills (short dated treasuries), US stock, gold is three way currency and asset diversification. Similar to what Jacob Fugger is said to have advocated (dividing equally between land (home), stocks, gold and loans). Likely that will still see wealth expansion after withdrawals to leave a comfortable legacy for heirs or (more likely) greater gifting during my actual remaining lifetime.
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Re: For those using the PP or GB in retirement

Post by I Shrugged » Fri Oct 22, 2021 3:36 pm

4% SWR backtests well for a period that had interest rates considerably higher than today’s. And there is no reason to think we are going to see those higher rates for years.
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Re: For those using the PP or GB in retirement

Post by mathjak107 » Sat Oct 23, 2021 4:37 am

It wasn’t returns that killed off those failing years , it was the sequences of those returns and real returns…

safe withdrawal rates are based not on average returns but "worst case scenario" returns (at least, the worst we've seen in history)

In fact if you look at the 30 year returns for all the failures the 4% swr is based on they were pretty normal .

But they were all killed off in the first 15 years by poor sequencing and poor real returns …even the biggest bull market in history coming along in the second half of their retirement couldn’t save them as to much was drawn down early on.

The worst possible time frames for a retiree were those retiring in 1907 ,1929 ,1937 , 1965, 1966

See kitces charts for the results



https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/
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Re: For those using the PP or GB in retirement

Post by seajay » Sat Oct 23, 2021 8:06 am

For the method I outlined earlier and from 1900 ...

Image

4% was more a PWR, and in one case you ended with over seven times the inflation adjusted start date portfolio value after 4% SWR withdrawals (a additional 6,7% annualized real on top).

BUT that did direct towards around a 75/25 stock/Precious Metal broad average (since 1933).

Fundamentally stocks are leveraged, of the order $30T cap versus $9T for corporate bond cap. Leverage broadly just scales volatility, not rewards, so its reasonable to deleverage i.e. allocate $30 to stocks, $9 to corporate bonds, which with rounding is close to 75/25 stock/bond proportions. Corporate bonds pay higher premiums reflective of their default rate, so 10 year Treasury might be substituted in instead. Or even gold (or silver).

Mix in some averaging such as two timepoint entry to avoid loading fully in at the worst possible start date, and some relative valuation ... and overall rewards at least historically were satisfactory (good chance of your money outliving you).

Silver was used in the above on the grounds of the US outlawing investment gold between 1940's and 1970's. Outside of that and where investment gold was permitted it worked to similar effect.

To reiterate that is based on the assumption that pre 1933 when on the gold standard investors might have preferred to hold just bonds (T-Bills/whatever), but where during WW1 years the investor might have rotated into silver. From 1933 the relative Dow/Gold ratio directed the amount of PM to start each year with (relative valuation).
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Re: For those using the PP or GB in retirement

Post by mathjak107 » Sat Oct 23, 2021 8:11 am

the issue with using 30 years is 30 year returns were good in the failed time frames .

but the 15 year caused them to fail


what caused the failures were real returns being poor the first 15 years because of inflation

30 year

1907 stocks returned 7.77% -- bonds 4.250-- rebalanced portfolio 7.02- - inflation 1.64--

1929 stocks 8.19% - - bonds 1.74%-- rebalanced portfolio 6.28-- inflation 1.69--

1937 stocks 10.12 - - bonds 2.13 - rebalanced portfolio -- 7.24 inflation-- 2.82

1966 stocks 10.23 - -bonds 7.85 -- rebalanced portfolio 9.56- - inflation 5.38

for comparison the 140 year average's were: stocks 8.39--bonds 2.85%--rebalanced portfolio 6.17% inflation 2.23%

so clearly 30 year returns are almost typical
..


so what made those time frames the worst ? what made them the worst is the fact in every single retirement time frame the outcome of that 30 year period was determined not by what happened over the 30 years but the entire outcome was decided in the first 15 years.
..


so lets look at the first 15 years in those time frames determined to be the worst we ever had.
..

1907--- stocks minus 1.47%---- bonds minus .39%-- rebalanced minus .70% ---inflation 1.64%
.

1929---stocks 1.07%---bonds 1.79%---rebalanced 2.29%--inflation 1.69%
.

1937---stocks -- 3.45%---bonds minus 3.07%-- rebalanced 1.23%--inflation 2.82%
.

1966-stocks minus .13%--bonds 1.08%--rebalanced .64%-- inflation 5.38% it is those 15 year horrible time frames that the 4% safe withdrawal rate was born out of since you had to reduce from what could have been 6.50% as a swr down to just 4% to get through those worst of times.
Last edited by mathjak107 on Sat Oct 23, 2021 8:36 am, edited 2 times in total.
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Re: For those using the PP or GB in retirement

Post by seajay » Sat Oct 23, 2021 8:25 am

mathjak107 wrote:
Sat Oct 23, 2021 8:11 am
the issue with using 30 years is 30 year returns were good in the failed time frames .

but the 15 year caused them to fail
The method I use to calculate is to adjust each years figures to real gains/losses, and then for each start year deduct the SWR value from the preceding years value and multiply by the portfolios real gain factor for the year, i.e a though the withdrawals each year were made at the start of the year. The final value at the end of 30 years is then that start years 30 year SWR outcome and as such would capture cases where that run would have failed.

Yes in some cases the deepest down level was deeper than what the 30 year end values reflect, 43% of the inflation adjusted start date value for instance instead of 56% across all 30 year end dates. And yes the cause of failures is typically due to earlier years poor sequence of returns.

Consider for instance if the 10 year total real return (accumulation) runs at -4%, when you're also drawing 4%, which would see a progression

1
0.922
0.846
0.774
0.705
0.638
0.574
0.513
0.454
0.397
0.343

i.e. the portfolio value would be down to 34% of its inflation adjusted start date level, at which time a original 4% SWR would be around 12% of the ongoing portfolio value i.e. likely unsustainable.

Reducing the risk of earlier SORR i.e. preferably achieving at least 0% real total returns reduces that risk and the likes of the PP/GB tend to do a reasonable job in that respect. As can just starting with 50/50 stock/gold, and not rebalancing, as if stocks have a bad decade so gold might have a good decade and vice-versa and where when just left to run stocks or gold might relatively quickly see its weighting relatively decline whilst the weighting in the better performing asset does well and more than offsets the losses of the other asset.
Last edited by seajay on Sat Oct 23, 2021 8:31 am, edited 1 time in total.
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Re: For those using the PP or GB in retirement

Post by mathjak107 » Sat Oct 23, 2021 8:29 am

i posted kitces numbers above

it took an average of 2.50% real returns the first 15 years in order to have 4% hold . you may have a buck left but it was considered successful
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Re: For those using the PP or GB in retirement

Post by D1984 » Sat Oct 23, 2021 9:54 am

mathjak107 wrote:
Sat Oct 23, 2021 4:37 am
It wasn’t returns that killed off those failing years , it was the sequences of those returns and real returns…

safe withdrawal rates are based not on average returns but "worst case scenario" returns (at least, the worst we've seen in history)

In fact if you look at the 30 year returns for all the failures the 4% swr is based on they were pretty normal .

But they were all killed off in the first 15 years by poor sequencing and poor real returns …even the biggest bull market in history coming along in the second half of their retirement couldn’t save them as to much was drawn down early on.

The worst possible time frames for a retiree were those retiring in 1907 ,1929 ,1937 , 1965, 1966

See kitces charts for the results



https://www.kitces.com/blog/what-return ... ased-upon/
Three worrying issues I forsee:

One, Mr. Kitces appears to assume (in calculating his "worst real return possibility' for the next 15 years) a bond return of basically zero real after inflation. There were actually various 15-year periods (starting circa 1963 or '64 and going into late 1969) when US bonds (intermediate-term Treasuries) returned anywhere from roughly MINUS 2.76% real CAGR to around 0% real CAGR; there were also a few periods starting in 1904/05/06/07 and ending in the high inflation of the late nineteen-teens and very early 1920s that had 15-year real CAGRs as low as minus 2.9%. Do I think it is particularly likely that bonds will return a negative real CAGR over the next 15-years? No. Do I at least think it is within the realm of possibility? Absolutely.

Two, that article was written in late summer of 2012. At the time, the S&P 500 CAPE ratio was around 21.4. As of today (mid-Oct 2021) it stands at just above 38.6. CAPE ratios are notoriously poor predictors of returns very near-term (i.e in the roughly 1 year to 6 years in the future range) but not too shabby when it comes to predicting returns in the intermediate-term (9 to 15 years in the future range). The last time we had a CAPE anywhere near what it was today was roughly the period January 1999 to October or November of 2000. Real CAGRs on US stocks over the next 15 years for that period of starting dates ranged (starting in Jan 1999 to Dec 2014, then Feb 1999 to Jan 2014, then Mar 1999 to Feb 2014, and so on until you reach the period starting in November 2000 and ending October 2015) from around 1.29% to 3.20%. In addition (at least for the retirement cohorts that didn't start in early or mid-1999 but started anywhere from late 1999 to mid-2000) the retiree also got slapped with an almost 3-year long series of negative stock returns early on which can't have helped the SWR. It is probably true that a retiree starting in 1999 or 2000 with a 65/35 or 60/40 portfolio will (almost certainly) do OK when his/her 30-year SWR period ends in 2028 or 2029 but that has a lot to do with bonds providing a real CAGR of just under 3% for the 15 year period starting in 1999 or 2000.....anyone want to place a bet that bonds will return 2.9 or 3 percent real over the next 15 year starting in late 2021?

Three, US stocks were expensive in 1999 and 2000 but a lot of that was due to the fact that the large-cap tech stocks with little/no earnings or profits per share at the time (Amazon, Ebay, Yahoo, Qualcomm, AOL, and the like) and sky-high PEs dominated any market-cap weighted index and thus dominated the PE of the S&P 500 or the US TSM. Plenty of sectors of US stocks circa 1999 through most of 2000 were anywhere from "just about average to slightly cheap" (midcaps, smallcaps, healthcare stocks, etc....there were even large-cap stocks--mostly industrial and energy stocks--that at the time went somewhat unloved and ignored because they weren't "sexy" and "high-tech" and/or didn't have "dot-com" in their names) to "mouthwateringly screamingly once-in-a-lifetime cheap" (SCV, gold miners, utilities, REITs, community banks, mortgage lenders); it was only the large-cap and mega-cap tech highfliers (and to a somewhat lesser extent the "brand name" companies that everyone invested in because everyone had heard of them and knew what they did...think Wal-Mart, GE, Coca-Cola, Ford, McDonald's, etc) that were stupidly expensive in 1999-2000. Nowadays? There's nowhere much left to hide in US equities that's truly cheap; almost all US stocks have elevated valuations (in direct contrast to the "two-tier" market as above that prevailed in 1999-mid 2000....or even to the similar two-tier market of 1971-early 1973 where the Nifty Fifty traded at ridiculous valuations whereas most other US stocks languished or at least didn't gain nearly as much as the Nifty Fifty "one-decision" stocks). I am not predicting this, mind you, but I wouldn't be entirely surprised if US stocks for the roughly next 13-16 years do in fact put in a 1% to 2% real CAGR (or less).
Last edited by D1984 on Sat Oct 23, 2021 11:51 am, edited 2 times in total.
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Re: For those using the PP or GB in retirement

Post by mathjak107 » Sat Oct 23, 2021 10:10 am

all irrelevent since the math is the math as to what is needed for 4% swr to hold.

that is a 2-1/2% real return min the first 15 years .

it does not matter how you want to get to it
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Re: For those using the PP or GB in retirement

Post by D1984 » Sat Oct 23, 2021 10:25 am

mathjak107 wrote:
Sat Oct 23, 2021 10:10 am
all irrelevent since the math is the math as to what is needed for 4% swr to hold.

that is a 2-1/2% real return min the first 15 years .

it does not matter how you want to get to it
ELI5.

If US stocks return, say 1.4% real annually on average (CAGR) for the next 15 years and bonds return, say, 0.3% real annually for that same next 15 years (which would leave a 65/35 returning around 1.01 or 1.02% real) how does that get a retiree to earning 2.5% real minimum CAGR for the first 15 years. As far as I can tell, it doesn't.
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Re: For those using the PP or GB in retirement

Post by Kevin K. » Sat Oct 23, 2021 10:38 am

D1984 wrote:
Sat Oct 23, 2021 9:54 am
mathjak107 wrote:
Sat Oct 23, 2021 4:37 am
It wasn’t returns that killed off those failing years , it was the sequences of those returns and real returns…

safe withdrawal rates are based not on average returns but "worst case scenario" returns (at least, the worst we've seen in history)

In fact if you look at the 30 year returns for all the failures the 4% swr is based on they were pretty normal .

But they were all killed off in the first 15 years by poor sequencing and poor real returns …even the biggest bull market in history coming along in the second half of their retirement couldn’t save them as to much was drawn down early on.

The worst possible time frames for a retiree were those retiring in 1907 ,1929 ,1937 , 1965, 1966

See kitces charts for the results



https://www.kitces.com/blog/what-return ... ased-upon/
Three worrying issues I forsee:

One, Mr. Kitces appears to assume (in calculating his "worst real return possibility' for the next 15 years) a bond return of basically zero real after inflation. There were actually various 15-year periods (starting circa 1963 or '64 and going into late 1969) when US bonds (intermediate-term Treasuries) returned anywhere from roughly MINUS 2.76% real CAGR to around 0% real CAGR; there were also a few periods starting in 1904/05/06 and ending in the high inflation of the late nineteen-teens and very early 1920s that had 15-year real CAGRs as low as minus 2.9%. Do I think it is particularly likely that bonds will return a negative real CAGR over the next 15-years? No. Do I at least think it is within the realm of possibility? Absolutely.

Two, that article was written in late summer of 2012. At the time, the S&P 500 CAPE ratio was around 21.4. As of today (mid-Oct 2021) it stands at just above 38.6. CAPE ratios are notoriously poor predictors of returns very near-term (i.e in the roughly 1 year to 6 years in the future range) but not too shabby when it comes to predicting returns in the intermediate-term (9 to 15 years in the future range). The last time we had a CAPE anywhere near what it was today was roughly the period January 1999 to October or November of 2000. Real CAGRs on US stocks over the next 15 years for that period of starting dates ranged (starting in Jan 1999 to Dec 2014, then Feb 1999 to Jan 2014, then Mar 1999 to Feb 2014, and so on until you reach the period starting in November 2000 and ending October 2015) from around 1.29% to 3.20%. In addition (at least for the retirement cohorts that didn't start in early or mid-1999 but started anywhere from late 1999 to mid-2000) the retiree also got slapped with an almost 3-year long series of negative stock returns early on which can't have helped the SWR. It is probably true that a retiree starting in 1999 or 2000 with a 65/35 or 60/40 portfolio will (almost certainly) do OK when his/her 30-year SWR period ends in 2028 or 2029 but that has a lot to do with bonds providing a real CAGR of just under 3% for the 15 year period starting in 1999 or 2000.....anyone want to place a bet that bonds will return 2.9 or 3 percent real over the next 15 year starting in late 2021?

Three, US stocks were expensive in 1999 and 2000 but a lot of that was due to the fact that the large-cap tech stocks with little/no earnings or profits per share at the time (Amazon, Ebay, Yahoo, Qualcomm, AOL, and the like) and sky-high PEs dominated any market-cap weighted index and thus dominated the PE of the S&P 500 or the US TSM. Plenty of sectors of US stocks circa 1999 through most of 2000 were anywhere from "just about average to slightly cheap" (midcaps, smallcaps, healthcare stocks, etc....there were even large-cap large-cap stocks--mostly industrial and energy stocks--that at the time went somewhat unloved and ignored because they weren't "sexy" and "high-tech" and/or didn't have "dot-com" in their names) to "mouthwateringly screamingly once-in-a-lifetime cheap" (SCV, gold miners, utilities, REITs, community banks, mortgage lenders); it was only the large-cap and mega-cap tech highfliers (and to a somewhat lesser extent the "brand name" companies that everyone invested in because everyone had heard of them and knew what they did...think Wal-Mart, GE, Coca-Cola, Ford, McDonald's, etc) that were stupidly expensive in 1999-2000. Nowadays? There's nowhere much left to hide in US equities that's truly cheap; almost all US stocks have elevated valuations (in direct contrast to the "two-tier" market as above that prevailed in 1999-mid 2000....or even to the similar two-tier market of 1971-early 1973 where the Nifty Fifty traded at ridiculous valuations whereas most other US stocks languished or at least didn't gain nearly as much as the Nifty Fifty "one-decision" stocks). I am not predicting this, mind you, but I wouldn't be entirely surprised if US stocks for the roughly next 13-16 years do in fact put in a 1% to 2% real CAGR (or less).
Excellent post!

John Greaney, who started and still runs one of the first - if not THE first - websites devoted to Early Retirement - periodically reviews the performance of a bunch of lazy portfolios including the PP in the context of living off of them in retirement. He ER'd in 1994 so that's generally his time frame but since he knows that 2000 was a particularly awful year to end up retiring he runs the numbers from there as well in some of his updates. His comments:

"What if you retired in January 2000?

If you happened to retire in January 2000, the last nineteen years haven't been pleasant. Only the Warren Buffett portfolio has a value appreciably exceeding its $100,000 starting balance. The 100% fixed income portfolio is underwater while the MPT portfolio, Larry Swedroe Portfolio, Harry Browne Portfolio, and Harry Dent Portfolio are all 16% to 34% in the black. The other two portfolios both show losses. The worst performer was the 75% S&P500/25% fixed income portfolio which is now closing in on one-half of its starting value . In hindsight, buying the 30-year TIPS in 2000 wouldn't have been a bad idea. You'd have a 4% inflation-adjusted yield and the $100,000 bond would be worth over $130,000 as of year end 2019 -- only Berkshire Hathaway beat that by a significant margin. The chart below illustrates this performance.

What to conclude from these results? There's a reason Warren Buffett is regarded as the most successful stock market investor of all time. But even someone with a fairly pedestrian 60% S&P500/40% fixed income portfolio, who retired in 2000 at the market top, still has more than 80% of his starting value after 18 years of inflation-adjusted withdrawals, the bursting of the stock market and housing bubbles, and the economic collapse in the waning days of the Bush Admininstration. Pretty amazing."

https://retireearlyhomepage.com/reallife20.html

To your comments D1984 I agree that unlike in 2000 there don't seem to be major categories of the U.S. equity market that are undervalued. I suppose it's arguable and international and subsets thereof (e.g. int'l. small/value/EM) are; at the very least a global cap weighted approach to equities seems like it should be the default. And (IMHO) forget the old 4% (inflation-adjusted) SWR guideline unless you want to spend your golden years living in a shopping cart under a bridge.
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Re: For those using the PP or GB in retirement

Post by mathjak107 » Sat Oct 23, 2021 12:13 pm

D1984 wrote:
Sat Oct 23, 2021 10:25 am
mathjak107 wrote:
Sat Oct 23, 2021 10:10 am
all irrelevent since the math is the math as to what is needed for 4% swr to hold.

that is a 2-1/2% real return min the first 15 years .

it does not matter how you want to get to it
ELI5.

If US stocks return, say 1.4% real annually on average (CAGR) for the next 15 years and bonds return, say, 0.3% real annually for that same next 15 years (which would leave a 65/35 returning around 1.01 or 1.02% real) how does that get a retiree to earning 2.5% real minimum CAGR for the first 15 years. As far as I can tell, it doesn't.
thats correct ... no where is a 2.50% real return guaranteed . a 4% swr is based on actual historical worst case outcomes WE HAVE HAD .

to date those dates were the worst cases but that does not mean we cant make up even worse situations or even have them ..
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Re: For those using the PP or GB in retirement

Post by seajay » Sat Oct 23, 2021 12:41 pm

mathjak107 wrote:
Sat Oct 23, 2021 12:13 pm
D1984 wrote:
Sat Oct 23, 2021 10:25 am
mathjak107 wrote:
Sat Oct 23, 2021 10:10 am
all irrelevent since the math is the math as to what is needed for 4% swr to hold.

that is a 2-1/2% real return min the first 15 years .

it does not matter how you want to get to it
ELI5.

If US stocks return, say 1.4% real annually on average (CAGR) for the next 15 years and bonds return, say, 0.3% real annually for that same next 15 years (which would leave a 65/35 returning around 1.01 or 1.02% real) how does that get a retiree to earning 2.5% real minimum CAGR for the first 15 years. As far as I can tell, it doesn't.
thats correct ... no where is a 2.50% real return guaranteed . a 4% swr is based on actual historical worst case outcomes WE HAVE HAD .

to date those dates were the worst cases but that does not mean we cant make up even worse situations or even have them ..
A consistent 1.31% real for 30 years would see a 30 year 4% SWR having been successful, which includes the first 15 years. Even 0% real gets you to 25 years, which for a 65 year old is still more inclined to outlive them.
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Re: For those using the PP or GB in retirement

Post by mathjak107 » Sat Oct 23, 2021 12:49 pm

this is not true because the sequence of your gains and losses is the biggest factor when spending down .

just based on sequence there can be a 15 year difference in how long the money lasts with the same average return
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Re: For those using the PP or GB in retirement

Post by murphy_p_t » Sat Oct 23, 2021 12:53 pm

seajay wrote:
Sat Oct 23, 2021 8:06 am
For the method I outlined earlier and from 1900 ...

Image

4% was more a PWR, and in one case you ended with over seven times the inflation adjusted start date portfolio value after 4% SWR withdrawals (a additional 6,7% annualized real on top).

BUT that did direct towards around a 75/25 stock/Precious Metal broad average (since 1933).

Fundamentally stocks are leveraged, of the order $30T cap versus $9T for corporate bond cap. Leverage broadly just scales volatility, not rewards, so its reasonable to deleverage i.e. allocate $30 to stocks, $9 to corporate bonds, which with rounding is close to 75/25 stock/bond proportions. Corporate bonds pay higher premiums reflective of their default rate, so 10 year Treasury might be substituted in instead. Or even gold (or silver).

Mix in some averaging such as two timepoint entry to avoid loading fully in at the worst possible start date, and some relative valuation ... and overall rewards at least historically were satisfactory (good chance of your money outliving you).

Silver was used in the above on the grounds of the US outlawing investment gold between 1940's and 1970's. Outside of that and where investment gold was permitted it worked to similar effect.

To reiterate that is based on the assumption that pre 1933 when on the gold standard investors might have preferred to hold just bonds (T-Bills/whatever), but where during WW1 years the investor might have rotated into silver. From 1933 the relative Dow/Gold ratio directed the amount of PM to start each year with (relative valuation).
Seajay... Very interesting concept. I was recently thinking of deviating from the pp in a direction like this.

Can you include a chart showing percent PM versus year?

Also, what are the units in your first chart?
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