Geoff Considine

Asset Allocation: Finding Your Risk Level

Hi Neil:

You are, of course, perfectly correct that you can substantially increase portfolio survivability if you have a plan to reduce your income draw if your portfolio declines. QPP actually has this capability--there is a tool to reduce your draw when your portfolio declines. Alternatively, you can plan for the worst case by using a flat draw (inflation adjusted) that represents your lowest required income and see how that improves things. In real applications, you are likely to run QPP once a year to see how things are doing. You can plan based on a single draw but if your portfolio is down, survival rates will suggest lowing your draw for a while. I do not expect people to try to model their real behavior--although that could be interesting. The goal of QPP is to provide people with fairly simple but realistic tools. The estimate of an ideal risk level for "John" helps him to determine how aggressive to be to maximize his portfolio survival. Real life will intercede and complicate things, but I feel that the final model portfolio is a much better approximation of where John's portfolio should be than the oiriginal model portfolio.

I am loathe to overcomplicate the tools because many investors see the tools that I have as too complex already:)

thanks for the comment.