No. of Recommendations: 6
See post #72810

I confess I didn't understand a lot of that post, but it didn't really show how the two strategies compare. Where are the actual calculations?

In that post you write
If S&P ‘all-in’ average return, with dividends, is 14%
S&P max drawdown is 53%

= 14% (1 – 53%)
= 14% (47%)
= 6.58%

This seems wrong. The average 14% return includes the drawdowns. You are counting them twice. Further by subtracting 53% of the returns from the annual average return, you are assuming the 53% drawdown happens every year.

If Account #A has a risk of 50%+ drawdowns, then it's risk-adjusted returns are its gross returns times 1-drawdown. At a 50% drawdown, the risk-adjusted returns are 50% of the gross returns. At a 25% drawdown the risk-adjusted returns are 75% of the gross returns.

This makes the same mistake. The drawdowns only happen occasionally. Averaged over many people, you get the 14% despite the drawdowns. Some will be unlucky and get less, others will be lucky and get more.

I still don't see a clear argument for why IULs beat S&P.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.