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Author: temsike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75793  
Subject: Retirement Port Behavior 2000-2010 Date: 12/31/2010 9:02 AM
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This is a look at a real retirement port's behavior and its benchmark after the wrenching bear markets of 2000 and 2008. All values are nominal (non-inflation adjusted).

If you want to see how this port would have performed with annual withdrawals, you need to add an AWR (e.g. 4%). To see how it would have performed in real, inflation adjusted numbers, you need to add an inflation rate (e.g. 3%).

Years: 2000-2010 CAGR: 6.1 SD: 22.6 Benchmark: VTI CAGR: 3.2 SD: 20.5

Comment: It took our port 5 years to re-cooperate its nominal value on Dec 30, 1999. From 2000-2005, AA was 90/0/10. Changed to 60/30/10 for 2006-2008. Changed to 70/25/5 for 2009. Changed to 60/30/10 for 2010. For 2011 AA will start at 60/30/10. It took VTI 7 years to re-cooperate its nominal value on Dec 30, 1999.

Years: 2008-2010 CAGR: 9.0 SD: 27.0 Benchmark: VTI CAGR: 3.1 SD: 28.8

Comment: It took our port 1 year to re-cooperate its nominal value on Dec 28, 2007. For 2008, AA 60/30/10. For 2009, AA 70/25/5. For 2010, AA 60/30/10. For 2011 AA will start at 60/30/10. Benchmark VTI still hasn't recovered its nominal value on Dec 28, 2007. It still needs to gain about 5% in 2011 to re-cover par on that date.
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Author: temsike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68038 of 75793
Subject: Re: Retirement Port Behavior 2000-2010 Date: 12/31/2010 9:16 AM
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I decided to run a scenario of where we would be had we decided to retire on Jan 1, 2000 with $1M. AWR = 4. Annual inflation rate = 3.

N (yrs) = 11. I/yr = -0.9%. PV = $1,000,000. PMT = $40,000. FV = $484,612.

Anybody who decided to retire on January 1, 2000 with $1M will have 48.4% of their (real) portfolio's value today. That's pretty scary.

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Author: temsike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68039 of 75793
Subject: Re: Retirement Port Behavior 2000-2010 Date: 12/31/2010 9:26 AM
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Ignore previous post. I counted the AWR twice. Once in PMT and also I deducted it from I/yr.

N (yrs) = 11. I/yr = 3.1%. PV = $1,000,000. PMT = $40,000. FV = $868,172.

Anybody who decided to retire on January 1, 2000 with $1M will have 86.8% of their (real) portfolio's value today. That's not scary at all.

Conclusion: the 4% AWR rule works even retiring in the worst year possible in the last 30 years.

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Author: tjscott0 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68041 of 75793
Subject: Re: Retirement Port Behavior 2000-2010 Date: 12/31/2010 10:54 AM
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Let's hope we don't have a period of stagflation like in the 1970's.

Let's take a look at a 15 year slice of US data from January 1969 to January 1984.

S&P 500 true CAGR return=.-83%*
$1.00 grew to .89*
total inflation= 186.24%**

The stock market traded sideway & the dollar was worth only 35 cent in 1969 value.***

Price of gold 1969=$41.28****
Price of gold 1984=$424.00****
price of gold taking inflation into account $424x.35=$148.40
a 359% return

Price of silver 1969=$1.81*****
Price of silver 1984=$9.12*****
price of silver taking inflation into account $9.12x.35=$3.19
a 176% return

In that period of time one would be better off holding gold &/or silver.
The future? Beats me.

Ladies & gentlemen, Place yer bets.

*http://www.moneychimp.com/features/market_cagr.htm
**http://www.inflationdata.com/inflation/Inflation_Calculators...
***http://www.dollartimes.com/calculators/inflation.htm
****http://www.nma.org/pdf/gold/his_gold_prices.pdf
*****http://goldmastersusa.com/silver_historical_prices.asp

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Author: temsike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68042 of 75793
Subject: Re: Retirement Port Behavior 2000-2010 Date: 12/31/2010 11:03 AM
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I did the calculations longhand using year by year returns. The portfolio value I get on Dec 30 2010 is 47.4% of the initial portfolio value of $100 (in US$ of 2000).

So for an initial port of $1M. After 11 years of 4% AWR using a 3% annual inflation rate, we'd have $474,000 today (in year 2000 US dollars).

Somehow the first calculation is the accurate one. This is pretty scary indeed!

In nominal terms, we'd have $657,000 left today.

I used an initial portfolio value of $100 on Jan 1, 2000. I then subtracted $4.

I then multiplied that number by the REAL return of the portfolio per year.

Rinse and repeat 11 times.

Real returns of retirement port (Inflation @ 3%):

2000: -29
2001: -2
2002: -22
2003: 43
2004: 10
2005: 2
2006: 11
2007: 3
2008: -30
2009: 36
2010: 12

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Author: temsike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68043 of 75793
Subject: Re: Retirement Port Behavior 2000-2010 Date: 12/31/2010 11:15 AM
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If we would have retired on Jan 1 2008, we would have $918,000 today (in US$ of 2008) or $1,000,000 in today's nominal dollars.

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