General Topics starting from April 17, 2007

Updated: May 29, 2007.

Expanded Allocator Insights B

I tried a variety of allocations to determine the value of fine grain optimization. It is not much.

Expanded Allocator Insights B

Expanded Allocator Insights C

This time, I examined mortgages.

Once again, the BEST combination consisted of the extremes: one investment with a high initial income and the other with the fastest growth rate at a lower initial yield.

Expanded Allocator Insights C

Building on Success

Combining intermediate term timing based on valuations (i.e., delayed purchases) with an income blend approach lifts the continuing withdrawal rate to 6.1% (plus inflation).

Building on Success

Expanded Allocator Insights D

This time, I examined inflation. It doesn’t cause nearly so much damage as I had expected.

Expanded Allocator Insights D

Expanded Allocator Insights E

I continue to investigate the effect of inflation when managing income streams. It is not nearly as bad as one might fear.

Expanded Allocator Insights E

Today’s Alternatives

In February, I spoke of the Many Alternatives available to a retiree. Now he has even more.

Today’s Alternatives

Taken At Face Value: Upside

Once again, I have taken the Morningstar Dividend Investor newsletter at face value. Last time, I was conservative. This time, I assume that they meet the upside of their growth levels.

Taken At Face Value: Upside
Edited: Taken At Face Value: Upside

May 2007 Highlights

We continue to make outstanding progress. It is hard to see how we can lift the bar much higher.

May 2007 Highlights

Automatic Rebalancing Examples

If you have ever doubted the folly of automatic rebalancing, look at these retirement portfolio examples.

Automatic Rebalancing Examples

Early Retirement with a Delayed Pension

This shows what happens if you have a pension (or Social Security) ten years after you retire. Your continuing withdrawal rate will be around 6.6% to 7.4% of your original balance (plus inflation).

Early Retirement with a Delayed Pension

Price Drops

Today’s holder of the S&P500 index can expect his balance to fall to 60.5% of its current purchasing power within the next decade even with dividends reinvested. The likely range of outcomes is between 45.5% and 75.5%.

Price Drops

Price Peaks

Today’s holder of the S&P500 index can expect his balance to remain below 228.8% of its current purchasing power throughout the next decade even with dividends reinvested. The likely range of outcomes is below 153.5%. The most likely outcome is a loss throughout the entire decade.

Price Peaks

Subtle Observation about Dividend Capture

The probability distribution of the income stream from dividend capture is largely independent of price fluctuations.

Subtle Observation about Dividend Capture

Building On a 45-Year Retirement

Previously, I showed how to reach Year 45 with a traditional approach using my calculators. You could withdraw 4.5% of your original balance (plus inflation).

This time, I paid closer attention to the human element. I introduced Benjamin Graham’s constraint. I kept both stock and bond allocations between 25% and 75%. You can withdraw 4.2% (plus inflation).

Building On a 45-Year Retirement
Edited: Building On a 45-Year Retirement

Starting at 5%

In Today’s Alternatives, I recommended starting at a 5% withdrawal rate as a matter of caution. Here is how an early retiree might go about it.

Starting at 5%

Starting at 5% with Risk

This is a variant of Starting at 5%. I changed the tradeoff between risk and reward.

Starting at 5% with Risk