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