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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Re: Talk me out of a Financial Advisor Date: 6/2/2013 5:08 PM
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Perhaps I'm not phrasing this correctly. Why are you subtracting the 1% from the SWR IF the return after that 1% is removed is higher than the portfolio used to determine the SWR is higher? This makes no sense to me.

The 4% SWR comes from backtests done on actual real-world returns. Of real-world data from 1926-1976 (Bengen) and 1925-1995 (Trinity).

You don't *know* that you can achieve "higher return, lower volatility". You hope you can, this guy says he can, but you don't know.

You can backtest with actual data, but you can't backtest the future.

The key question in any real-world decision you make is "what if I am wrong--what then?" If I am depending on higher return, low volatility and counting on that to allow me to take 5.5%....what if I am wrong? What then? I'll need to learn to love eating Alpo and sleeping in discarded refrigerator boxes.

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Back when we were getting ready to retire (early) in 2003-2005 we went to a number of FA dinner presentations. In talking with one of them, he said that he'd had several clients who retired in 2000-2001 in their 40's and 50's, thinking that the gains they made in the dot-com boom were the new normal. It's really, really hard to get a new high-paying job when you are 50-60 if you have to go back to work because the market unexpectedly lost half your money.

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The bit about "a 1% fee means your FA takes 25% of your 4% withdrawal" is true but trite.

But even if you can get 1% more return (after fees) at lower volatility, that doesn't mean you can bump your SWR from 4% to 5%.

The thing that kills you is the worst case volatility and drawdown. It's like a plane doing loops at an airshow. His average altitude may be several hundred feet high, but if he ever even so much as TOUCHES an altitude of 0 feet it's all over.

That 1% fee comes out no matter what. If comes out in years when you get 20% return, and it comes out in years when you get 50% loss.
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