Second of two presentations for the Milwaukee Bogleheads group, taken from the work of Jim C. Otar, Unveiling the Retirement Myth. The topic today is on the asset allocation and withdrawal rates for personal portfolios. This presentation is of greatest interest to those 40 to retired. An expertise level of Graduate will get the most from the presentation: some study of investment strategies.
1. MUTUAL FUNDS:
LUCK AND
MAKING YOUR MONEY LAST
AS LONG AS YOU DO
Robert Schramm
Milwaukee Bogleheads
January 6, 2015
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Ages: 40 to retired Graduate level expertise
6. Reverse Dollar Cost Averaging
• Cyclical trends can cause reverse
dollar averaging
• To minimize the effects of RDCA include
cash or money market accounts
o Do not withdraw from any fluctuating investment
o Frequent rebalancing can cause significant
damage: optimize rebalancing.
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8. Minimize Effects of RDCA
1. Keep two years withdrawals in money market
account.
2. Three years of withdrawals in a short term bond
fund.
RDCA = Reverse Dollar Cost Averaging
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10. Minimize Effects of RDCA
3. To rebalance from equities to fixed: top off money
market, then short term bonds, then other bonds.
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11. Minimize Effects of RDCA
4. If rebalancing from fixed income to equities, flow
money from
Long Term Bonds
to Money Market,
then Short term
bonds,
then equities.
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12. Minimize Effects of RDCA
5. If there is cash inflow into the portfolio, (dividends,
interest or other cash deposits):
a. Add to the Money Market first
b. Do not reinvest them until the money market fund
and short term bonds are topped off and full.
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13. Minimize Effects of RDCA
6. Do not rebalance the equity-fixed income holdings
too often.
a. If the withdrawal rate is 5% or less, it’s better to
rebalance once every 4 years at the end of the US
presidential election year.
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16. • Total Stocks 70%
• TI 30%
• Total Bond/IB 50%
• TIPS 50%
• STOCKS
• Large Cap 40%
• Small Cap 20%
• REIT 10%
• Devlp mkt 20%
• Emerging mkt 10%
• BONDS
• Total Bond mkt 60%
• TIPS 20%
• HY 20%
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17. Simple Optimization
• If you do not need money from your portfolio:
o 50% Equity, 50% fixed income
• If you need small periodic income, 4% or less:
o 40% equity, 60% fixed Income.
• If you need larger periodic income, over 4%:
o 35% equities, 65% fixed income
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18. 3 Significant Financial
Risk Factors for a Retiree
• Longevity risk: Living “too long”
• Market Risk: quantifies the probability of portfolio
depletion.
• Inflation risk: the ability to maintain purchasing
power.
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21. Warning Signs of
Diminishing Luck
1. Current market P/E > 12.5%
2. The 4th year Checkup 4>1 20 yr
3. Withdrawals exceed the Sustainable Withdrawal
Rate. 15-20 yr
4. Final Warning: Withdrawals exceed 10% of portfolio
value. 8-18 yr
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25. Helpful Books
• http://www.retirementoptimizer.com/ Jim Otar’s
site for his book and sample his retirement program
• http://www.ifa.com/12steps/foreword/ Mark
Hebner’s INDEX FUNDS on his website
• http://doiop.com/Smartest Smartest Investment
Book You’ll Ever Read by Daniel Solin
• http://doiop.com/Ferri All About Asset Allocation by
Richard Ferri
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26. Milwaukee Bogleheads®
• A DIY investment group, followers of John Bogle's
Index investing strategies, the Milwaukee local
chapter of Bogleheads.
• This presentation was made January 6, 2015 by Bob
Schramm of our chapter.
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27. Disclaimer
• All examples are for illustration purposes only and
are not investment recommendations.
• The views expressed in the presentation, are those
of the presenter, commenters, guests and
participants and may not reflect the views of the
Bogleheads organization.
• Use your discretion in using examples presented
here for your own investment purposes.
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Editor's Notes
Sequence of returns affects your portfolio early. Inflation takes its biggest bite later in the distribution.
