Retirement Trainers and Accumulation
My Retirement Trainers help you improve your skill during accumulation.
Background
I have previously demonstrated that you can improve your retirement investing skills using my Simplified Retirement Trainer A.
I learned quickly how to beat all of the pre-defined withdrawal algorithms in my Super SVTVR Calculator L. I outperformed all fixed allocation approaches by a wide margin.
During retirement, the key is paying attention to valuations. It is OK to put as much as 20% into stocks when P/E10 is above 20. Most of the time, it is better to be out of stocks entirely. Put 20% to 50% into stocks when P/E10 is between 15 and 20. Put 50% to 80% into stocks when P/E10 is between 10 and 20. Put even more into stocks when P/E10 is below 10.
I have placed spreadsheets showing my actions into my Yahoo Briefcase in my Retirement Trainers folder.
Yahoo Briefcase
Refer to my Notes starting September 16, 2006 for more details. Read what I said in My Retirement Trainers Work! and Demonstration a1 to a8.
Notes Starting September 16, 2006
Accumulation Results
I dollar cost averaged $5000 into a portfolio for 30 years. I started with an initial balance of $0. I varied allocations in accordance with P/E10.
NOTE: All of my numbers are in real dollars. That is, they are adjusted for inflation.
NOTE: Deposits are negative withdrawals.
In general, I have found that it is a good idea to dollar cost average entirely into stocks unless valuations are high (P/E10=20+). It is better to invest entirely in TIPS under such circumstances. Only when nearing retirement has it made sense to seek an intermediate allocation.
Runs a1 to a8 on my Simplified Retirement Trainer A start with today’s valuations P/E10=27.2 and today's TIPS interest rate of 2.2% while in a long lasting (secular) Bear Market.
Here are the results of runs a1 to a8 when dollar cost averaging entirely into stocks.
Dollar Cost Averaging into 100% Stocks
a1 $497218 a2 $796149 a3 $565313 a4 $470566 a5 $502360 a6 $736770 a7 $353582 a8 $389387
Here are the results of runs a1 to a8 when I varied allocations in accordance with P/E10.
Dollar Cost Averaging with Variable Allocations
a1 $628085 a2 $916362 a3 $566726 a4 $489726 a5 $750677 a6 $480086 a7 $481236 a8 $443426
Here are the results when dollar cost averaging entirely into TIPS.
Dollar Cost Averaging entirely into TIPS
In all cases: $213923
Analysis
When investing for 30 years, it is better to invest in stocks at least part of the time.
It is better to vary allocations in accordance with P/E10. Only in one sequence out of eight was the final balance higher when putting everything into stocks. This was sequence a6. The final balances were $736770 and $480086.
The lowest balance when varying allocations was $443426 with sequence a8. The lowest balance when dollar cost averaging entirely into stocks was $353582 with sequence a7.
All time periods were 30 years.
You can download my results from my Retirement Trainers folder in my Yahoo Briefcase. It is the Accumulation a1 to a8 file.
Yahoo Briefcase
Keep in mind that this was my first attempt. With practice, you should be able to do better.
Have fun.
John Walter Russell September 18, 2006
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