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Can be dowloaded here: https://www.dropbox.com/s/cbzvg74iyeyfwt6/SPX-monthly-1950-2...

Thanks to Dave for the invite to dropbox.

Don't take as gospel anything the spreadsheet says. There are undoubtedly errors in it. This started out pretty simple and ended up pretty complex, as I added things like taxes, expenses, growing deposits & withdrawals, etc.

Point out any error you find and I'll correct it.

I'll be offline for a while, we're leaving tomorrow for Belize & Roatan.
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Thanks to Dave for the invite to dropbox.

Civil at last.
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Spreadsheet has been revised, extended and upgraded.

URL is
https://www.dropbox.com/s/cbzvg74iyeyfwt6/SPX-monthly-1950-2...

A particular worksheet of interest is "Rolling N yr" returns. It shows the average, minimum, maximum, and median returns for all rolling periods of 1, 5, 10, 15, 20, and 25 years. For S&P500 B&H, S&P500 SMA-timed, and IUL.

For shorter periods, the IUL method beats B&H as far as drawdowns (losses) -- that's the "min". That's the case up to periods of 15 years. At 15 years the minimum returns are equal. For periods of 20 & 25 years, B&H return is 50% more than the IUL return.

The average & median returns are another matter. The IUL method has half the returns of B&H. This is the case for all holding periods, even as short as 1 year.
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I'll check it out soon...

Meanwhile, what seems the more overguiding questions in this regard that are getting dangerously ignored are;

1. what are the odds of a significant drawdwon within 1, 5, or 10 years of a dollar coming in,
2. what are the odds of a significant cash-demand in life elsewhere during the same periods,
3. what are the lost opportunities if liquidity is unavailable during these periods.

Not sure that;s so easily illustratable without much more significant research... but that seems far more important than blind projections on a naked buy & hold versus protected hedge position. The entire point of the hedged position is to be liquid for the catastrophic disasters & massive opportunities.

Dave Donhoff
Leverage Planner
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1. what are the odds of a significant drawdwon within 1, 5, or 10 years of a dollar coming in,

Ummmmm.....these are retirement funds, not funds for drawing down before retirement. And for those (like me) who are anticipating retiring in the next few years, putting the amount that will be anticipated as the drawdown need for several years into a combination of cash/cash equivalents and dividend payers that will generate cash, and then rotating more investments into cash/cash generators when making withdrawals is a reasonable way of dollar cost averaging drawdowns. The portfolio probably won't maintain the growth rate that was obtained during the 'savings' period, but then again, it's supposed to be in 'drawdown' mode, not in 'growth' mode.

2. what are the odds of a significant cash-demand in life elsewhere during the same periods,

That's what emergency funds are for. You keep telling us that the people that IULs are best suited for are those who have fully funded retirement savings and emergency funds, and still have investment capital available. So, which is it? People with fully funded emergency funds should have little need for a significant cash-demand in life elsewhere that can't be handled by the emergency fund. If you are suggesting that emergency funds be rolled into IULs, resulting in paying fees on your emergency funds, which would then only be available to you in the form of a loan that interest would accrue on, that seems even less desirable than the risk of losing money to inflation risk because of the rates that safe, liquid accounts are paying.

3. what are the lost opportunities if liquidity is unavailable during these periods.

With fully funded retirement savings and emergency funds, why would liquidity be unavailable?

AJ
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Hi AJ,

1. what are the odds of a significant drawdwon within 1, 5, or 10 years of a dollar coming in,
Ummmmm.....these are retirement funds, not funds for drawing down before retirement.


Sorry... "drawdown" as in the markets... not spend-downs.

2. what are the odds of a significant cash-demand in life elsewhere during the same periods,
That's what emergency funds are for. You keep telling us that the people that IULs are best suited for are those who have fully funded retirement savings and emergency funds, and still have investment capital available.

Uhh... no... I've never set such restrictions. I think you're getting confused with somebody else.

IULs are good for the financial foundation levels of the risk pyramid, and are outstanding as pools for emergency reserves in themselves... except they gain with the market.

People with fully funded emergency funds should have little need for a significant cash-demand in life elsewhere that can't be handled by the emergency fund.
Even standard-practice emergency funds (3-6 months full living expenses, plus 6-12 months standby credit,) have their own limits. If you are in a position where you need more than that when the markets have collapsed, and your financial foundation has collapsed with the markets because you're in a naked position, you are simply screwed.

If you are suggesting that emergency funds be rolled into IULs, resulting in paying fees on your emergency funds, which would then only be available to you in the form of a loan that interest would accrue on, that seems even less desirable than the risk of losing money to inflation risk because of the rates that safe, liquid accounts are paying.
You have zero idea what you're saying here (or, more realistically, zero understanding of a well-fit IUL structure.)

IULs are good foundational accounts *after* your 3-6 months lifestyle cash reserves are established. Loan interest is equal or less than the net (after expense) market credit paid on the IUL cash principal.

The risks of losing principal in a naked S&P position is dramatically more expensive than the (non)costs of liquidity from an IUL.

3. what are the lost opportunities if liquidity is unavailable during these periods.
With fully funded retirement savings and emergency funds, why would liquidity be unavailable?

Because you are theoretically naked in a market that just halved your position. A 50% surrender charge in the S&P is heavier than anything in any IUL contract.

If you started with $100,000, and the market drops it to $50,000... the homerun opportunities are available at *THIS* point in time... but your ammunition is gone.

Dave Donhoff
Leverage Planner
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If you started with $100,000, and the market drops it to $50,000... the homerun opportunities are available at *THIS* point in time... but your ammunition is gone.

Unless your ammunition in your IUL is gone because you've taken loans for Jr. in college and a $30K car. Those items seem to be big selling points when I see discussions about the benefits of IUL - paying yourself interest instead of a bank.

BTW, what does the insurance pay interest on when you take a loan - the original balance or the lower one to account for the loan? For example, if you have $100K available in your IUL and you take a policy loan for $30K for a car, are you earning interest on $100K or $70K?

PSU
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Hi PSU,

If you started with $100,000, and the market drops it to $50,000... the homerun opportunities are available at *THIS* point in time... but your ammunition is gone.
Unless your ammunition in your IUL is gone because you've taken loans for Jr. in college and a $30K car.

Sure, but now you're talking about spend-downs, not market risks. There is no way to insure against your own consumption.

Those items seem to be big selling points when I see discussions about the benefits of IUL - paying yourself interest instead of a bank.
Interesting... I haven't observed this to be the case. The old "pay yourself the interest instead of the bank" has always been (in my observation) the circular logic argument of whole life pitchers. Every time I run into these folks I chop it right at the knees... (I'm not popular with the WL'ers...)

BTW, what does the insurance pay interest on when you take a loan - the original balance or the lower one to account for the loan? For example, if you have $100K available in your IUL and you take a policy loan for $30K for a car, are you earning interest on $100K or $70K?
You're not borrowing *out* your own money, you're borrowing against your principal which serves as the collateral. So, if you have $100,000 principal, and you borrow $30,000, you gain market growth calculated on the $100,00 principal, and accrue your interest costs on the $30,000 loan.

Dave Donhoff
Leverage Planner
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1. what are the odds of a significant drawdwon within 1, 5, or 10 years ...
"drawdown" as in the markets... not spend-downs.


Who cares? What you've described is not drawdown -- it's fluctuation in value. And it doesn't matter. What matters is the final value at the time you start taking money out.

what are the odds of a significant cash-demand in life elsewhere during the same periods,..what are the lost opportunities if liquidity is unavailable during these periods.
Doesn't matter. We are talking about accumulating money for retirement, not an account that is being used as a source of funds for non-retirement expenses.

Let me ask that of you. What *are* the odds of a significant cash-demand before you get to retirement? If low, then you shouldn't contort your retirement vehicle to cover these emergencies. If high, then you should address that by having an account devoted to these easily forseen expenses.

With fully funded retirement savings and emergency funds, why would liquidity be unavailable?
Because you are theoretically naked in a market that just halved your position. A 50% surrender charge in the S&P is heavier than anything in any IUL contract.

If you started with $100,000, and the market drops it to $50,000... the homerun opportunities are available at *THIS* point in time... but your ammunition is gone.


This is like living your life based on what would happen if you got squashed by a runaway gravel truck -- so you never leave the house so that it'll never happen.
Sure, a disaster *could* happen, but you don't make your plans as if it *will* happen. Low probability events are low probability. It's an error to treat them if they'll never happen, and also an error to treat them as is they are likely to happen.

You're obsessing about the chance that you put in all your money, AND immediately thereafter you unexpectedly need to take it all back out AND the market immediately crashed at the same time.
These are both low probability events, and the odds that BOTH will happen concurrently are extremely small. Probably smaller than the odds of encountering a runaway gravel truck.

What is MOST probable to happen is that you put in $20,000 and it's been growing for 10 years, and then a dot-com crash occurs and your S&P account drops from $109,000 to $60,000. And you suddenly have an urgent need for $100,000.
But your risk-adverse neighbor cleverly put his money in an IUL and his never-decreasing account is worth $42,000.
Your cut-in-half account has more money than his IUL account.

You keep shifting time-spans. These accounts sre intended to be long-term accounts, yet you keep emphasizing the short-term volatility. NEITHER a S&P500 B&H nor an IUL is appropriate for short-term investment needs.
Found in an IUL-FAQ: "IUL is a long term investment strategy, so not appropriate for short term needs. Just like short term investments don’t look good in the long term, long term investments don’t perform as well in the short term."
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If you started with $100,000, and the market drops it to $50,000... the homerun opportunities are available at *THIS* point in time... but your ammunition is gone.
You aren't suggesting day-trading with your retirement account, are you? ;-)
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Doesn't matter. We are talking about accumulating money for retirement, not an account that is being used as a source of funds for non-retirement expenses.

You may be thinking that way but Dave isn't. He suggests replacing 401ks, IRAs and even college savings accounts with IUL. IUL avoids twisty restrictions and requirements on how much can be used, for what, by when. The IUL simply grows & spends tax free, on whatever you want, whenever you want, as little as you want, or as much as you want to the limit of what you've got. The other day he dismissed consumer risk. All those twisty restrictions and requirements put penalties on the person if they use the funds for things other than intended. I'm sure Dave only recommends to this clients that they not use their IULs for all kinds of spending even though that is the sales pitch and not one of his clients ever used up all of his/her retirement accounts for frivolous spending.

But yes, Dave does suggest that the account be used for more than retirement expenses. Hopefully his clients can be disciplined and not for example overspend on college expenses and thereby not have liquidity for significant cash-demand in life elsewhere.

PSU
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This is like living your life based on what would happen if you got squashed by a runaway gravel truck -- so you never leave the house so that it'll never happen.

Well, even that wouldn't work all the time.....

http://www.vcstar.com/news/2010/aug/24/santa-barbara-fire-of...

A runaway truck hauling tons of gravel flew off an embankment Tuesday after its brakes failed and crushed a home, killing a man, woman and child, authorities said.

The truck careened from State Highway 154, barreled across a street and hit two parked cars before plunging down a driveway, over the embankment and onto the house, Santa Barbara County fire Capt. David Sadecki said.


AJ
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If the gravel truck doesn't get him, the heart attack from the stress from worrying about the gravel truck will.
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A runaway truck hauling tons of gravel flew off an embankment Tuesday after its brakes failed and crushed a home, killing a man, woman and child, authorities said.


Wow. I thought the far West Chicago suburbs were the only place these things happened.

Thanks to the glaciers, Illinois around Chicago has huge deposits of high-quality gravel. The streets in the older suburbs are from the 1920's, so they are narrow and hug rivers, bridges, hills, etc.

Just about every car has gravel dings in their windshields, from all the gravel trucks. A standard truckload is around 13 tons of gravel. In the 20 years we lived in Algonquin, twice there was a turnover accident at one particular city-street intersection with a tight turn to get onto the bridge. Gravel flows like water, so when a truck overturns, the entire load just FLOWS over whatever is under it. 14 tons on gravel dumped onto a car waiting for the light to change distributes that weight pretty evenly -- crushing it pretty flat.
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Rayvt,

In the 20 years we lived in Algonquin, twice there was a turnover accident at one particular city-street intersection with a tight turn to get onto the bridge.

I know what you mean. The intersection in front of our house has a lot of accidents/roll-overs. It is a T intersection with the traffic approaching the stop sign on a downhill with a slow right curve. The truckers do not seem to want to believe all the big, shiny retro-reflective signs.

Numerous cars, pickup trucks, a dump truck full of gravel pulling a tractor on a trailer and a 6,000 gallon vacuum truck filled with salt water have either rolled over or run straight through the intersection(to where there is no road).

Actually, the next intersection east is probably the best for strange accidents. A bunch of crotch rockets were headed out of the canyon back toward town. We got the call for the accident. When we arrived, the motorcycle was 8 feet above ground in a mesquite tree. The rider was another 50 feet beyond in a field. Missed the turn.

Gene
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