For every month during the period of interest, with the assumption that the portfolio was initiated at the last trading day of the prior month, and held till the end of the period, the CAGR of the portfolio was computed.
The fund portfolio was rebalanced to be equal weight at the end of every year. For years prior to 2002 (the date of inception of FPHAX) only the other two funds were used.
From the figure it is clear that no matter which month the portfolios were initiated in, the CAGR of the funds portfolio was higher than that of JNJ, very often by significant amounts.
]]>For every month during the period of interest, with the assumption that the portfolio was initiated at the last trading day of the prior month, and held till the end of the period, the CAGR of the portfolio was computed.
The fund portfolio was rebalanced to be equal weight at the end of every year. For years prior to 2002 (the date of inception of FPHAX) only the other two funds were used.
From the figure it is clear that no matter which month the portfolios were initiated in, the CAGR of the funds portfolio was higher than that of JNJ, very often by significant amounts.
]]>1. Withdraw 4% of the portfolio value on January 1 of the year of retirement.
2. In subsequent years, at the beginning of the year, prior to rebalancing the portfolio if necessary, withdraw the previous year's withdrawal amount incremented by the previous year's inflation rate.
The portfolios considered are:
1. SP500 with dividends (VFINX).
2. Mid cap value (FDVLX)
3. 30% VFINX, 30% FDVLX, 40% Aggregate Bond Fund (VBMFX)
4. 30% VFINX, 30% FDVLX, 20% VBMFX, 20% Long Term Treasury Fund (VUSTX)
5. 60% FDVLX 40% VUSTX
The first figure depicts the compound annual growth rate (Net CAGR) of the portfolio net of withdrawals computed for the period starting in the year of retirement thru 2014. Note that except for the VFINX, Net CAGR is always positive. Thus, although the VFINX portfolio would have sustained the withdrawal schedule, for retirement beginning in some of the years around 2000, the portfolio value at the end of 2014 would have been lower than its starting value. For every other portfolio, if the retirement commenced in any year starting in 1987-2014, at the end of 2014 the portfolio value would be higher than the starting value.
In the following figure are shown the maximum excess (beginning of the year) drawdowns for various portfolios. This quantity is defined to be the difference between the initial starting value of the portfolio and its lowest value at the time of withdrawal in any of the subsequent years, less 4%, as at best 4% will be the drawdown of the portfolio at the beginning of retirement. Clearly the excess drawdowns of the all equity portfolios will be unacceptable for most retirees. However, for the 60/40 portfolios, the excess drawdowns appear to be a good measure of what can be expected from well constructed portfolios. (For example, the portfolio of JNJ, MCD, CL, KO and PG with the same withdrawal schedule would have had the maximum excess drawdown of about 24%, similar to the 20% for the 60/40 portfolios.). (click to enlarge).
I
]]>1. Withdraw 4% of the portfolio value on January 1 of the year of retirement.
2. In subsequent years, at the beginning of the year, prior to rebalancing the portfolio if necessary, withdraw the previous year's withdrawal amount incremented by the previous year's inflation rate.
The portfolios considered are:
1. SP500 with dividends (VFINX).
2. Mid cap value (FDVLX)
3. 30% VFINX, 30% FDVLX, 40% Aggregate Bond Fund (VBMFX)
4. 30% VFINX, 30% FDVLX, 20% VBMFX, 20% Long Term Treasury Fund (VUSTX)
5. 60% FDVLX 40% VUSTX
The first figure depicts the compound annual growth rate (Net CAGR) of the portfolio net of withdrawals computed for the period starting in the year of retirement thru 2014. Note that except for the VFINX, Net CAGR is always positive. Thus, although the VFINX portfolio would have sustained the withdrawal schedule, for retirement beginning in some of the years around 2000, the portfolio value at the end of 2014 would have been lower than its starting value. For every other portfolio, if the retirement commenced in any year starting in 1987-2014, at the end of 2014 the portfolio value would be higher than the starting value.
In the following figure are shown the maximum excess (beginning of the year) drawdowns for various portfolios. This quantity is defined to be the difference between the initial starting value of the portfolio and its lowest value at the time of withdrawal in any of the subsequent years, less 4%, as at best 4% will be the drawdown of the portfolio at the beginning of retirement. Clearly the excess drawdowns of the all equity portfolios will be unacceptable for most retirees. However, for the 60/40 portfolios, the excess drawdowns appear to be a good measure of what can be expected from well constructed portfolios. (For example, the portfolio of JNJ, MCD, CL, KO and PG with the same withdrawal schedule would have had the maximum excess drawdown of about 24%, similar to the 20% for the 60/40 portfolios.). (click to enlarge).
I
]]>Obviously the future performance of the portfolio relative to SPY may be entirely different, but the results suggest that this basket may prove to be a good long term investment, a conclusion that is also supported by the various performance metrics shown below.
CAGR (%) | MaxDD (%) | Sharpe | Sortino | Volatility (%) | |
---|---|---|---|---|---|
Eq. Wt. | 14.3 | 33.2 | 0.91 | 1.69 | 12.6 |
Risk Parity | 16.2 | 34.8 | 1.04 | 1.85 | 12.7 |
VFINX | 9.9 | 50.9 | 0.54 | 0.88 | 14.5 |
BRK-A | 15.7 | 44.5 | 0.68 | 1.36 | 20.6 |
This is the allocation for the annually rebalanced portfolio according to a modified risk parity method for the current year 2015 (YTD return : 4.4%, 2014 return : 27.7%)
FBIOX 13.3%
FRESX 24.4%
TLT 43.8%
FDFAX 16.9%
FSCSX 1.6%
]]>Obviously the future performance of the portfolio relative to SPY may be entirely different, but the results suggest that this basket may prove to be a good long term investment, a conclusion that is also supported by the various performance metrics shown below.
CAGR (%) | MaxDD (%) | Sharpe | Sortino | Volatility (%) | |
---|---|---|---|---|---|
Eq. Wt. | 14.3 | 33.2 | 0.91 | 1.69 | 12.6 |
Risk Parity | 16.2 | 34.8 | 1.04 | 1.85 | 12.7 |
VFINX | 9.9 | 50.9 | 0.54 | 0.88 | 14.5 |
BRK-A | 15.7 | 44.5 | 0.68 | 1.36 | 20.6 |
This is the allocation for the annually rebalanced portfolio according to a modified risk parity method for the current year 2015 (YTD return : 4.4%, 2014 return : 27.7%)
FBIOX 13.3%
FRESX 24.4%
TLT 43.8%
FDFAX 16.9%
FSCSX 1.6%
]]>A recent article on SA by a fundamental analyst par excellence provides a good example (http://seekingalpha.com/article/2470375-yield-on-cost-a-vitally-important-consideration-for-retired-investors ). The case study described in this article considers a portfolio that was initiated with $3M at the beginning of 2006. Even after annual withdrawals that increased every year as the dividends accrued from the twenty stocks of the portfolio, it ends up with $5.6M at the end of 2013, thus weathering the intervening shocks in the market with admirable and rarely matched success.
I have compared the the performance of this all stock portfolio with that of various portfolios based the Naïve Graham allocation strategy (http://seekingalpha.com/instablog/709762-varan/2990923-naive-graham-passive-investing-according-to-the-master ) . The following are the relevant details for each portfolio:
Year | Amount withdrawn |
2006 | $88,845 |
2007 | $105,108 |
2008 | $116,076 |
2009 | $124,513 |
2010 | $134,035 |
2011 | $147,111 |
2012 | $161,281 |
2013 | $174,271 |
It might be noted that the timing of the withdrawals may affect the results, but the withdrawal at the beginning of the year probably biases the results against the allocation portfolios.
The amount left in the portfolios at the end of 2013 is given in the following table:
Portfolio | Value at EOY 2013 |
VTI/TLT | $6.5M |
IJJ/TLT | $5.8M |
IJS/TLT | $5.9M |
iShares Value | $5.7M |
iShares Gowth | $6.5M |
Fidelity Value | $6.3M |
Fidelity Growth | $6.7M |
All Stock | $5.5M |
For the iShares Growth portfolio, the following ETFs were used in addition to TLT: IVW, IJK and IJT. For the Fidelity Growth portfolio, I used the following funds: FBGRX, FMCSX and FCPGX. For the other portfolios the same funds were used as in the original post on Naïve Graham referenced above.
]]>A recent article on SA by a fundamental analyst par excellence provides a good example (http://seekingalpha.com/article/2470375-yield-on-cost-a-vitally-important-consideration-for-retired-investors ). The case study described in this article considers a portfolio that was initiated with $3M at the beginning of 2006. Even after annual withdrawals that increased every year as the dividends accrued from the twenty stocks of the portfolio, it ends up with $5.6M at the end of 2013, thus weathering the intervening shocks in the market with admirable and rarely matched success.
I have compared the the performance of this all stock portfolio with that of various portfolios based the Naïve Graham allocation strategy (http://seekingalpha.com/instablog/709762-varan/2990923-naive-graham-passive-investing-according-to-the-master ) . The following are the relevant details for each portfolio:
Year | Amount withdrawn |
2006 | $88,845 |
2007 | $105,108 |
2008 | $116,076 |
2009 | $124,513 |
2010 | $134,035 |
2011 | $147,111 |
2012 | $161,281 |
2013 | $174,271 |
It might be noted that the timing of the withdrawals may affect the results, but the withdrawal at the beginning of the year probably biases the results against the allocation portfolios.
The amount left in the portfolios at the end of 2013 is given in the following table:
Portfolio | Value at EOY 2013 |
VTI/TLT | $6.5M |
IJJ/TLT | $5.8M |
IJS/TLT | $5.9M |
iShares Value | $5.7M |
iShares Gowth | $6.5M |
Fidelity Value | $6.3M |
Fidelity Growth | $6.7M |
All Stock | $5.5M |
For the iShares Growth portfolio, the following ETFs were used in addition to TLT: IVW, IJK and IJT. For the Fidelity Growth portfolio, I used the following funds: FBGRX, FMCSX and FCPGX. For the other portfolios the same funds were used as in the original post on Naïve Graham referenced above.
]]>RS-GMR-ETF: IJJ, IEV, ILF, EPP, EEM, TLT
RS-GMR-LETF: MVV, IEV, ILF, EPP, EEM, TLT
RS-GMR-MF: FDVLX, FIEUX, FEMKX, FLATX, FPBFX, VUSTX
Period | CAGR | Sharpe (Sortino) | Max. Drawdown | Min. Annual Return | |
RS-GMR-ETF | 2003-2014 | 28.6% | 1.3 (2.8) | 17.2% | 6.5% |
RS-GMR-LETF | 2007-2014 | 31.5% | 1.12 (2.11) | 22.4% | 4.1% |
RS-GMR-MF | 1991-2014 | 20.7% | 0.97 (1.93) | 24.6% | -24.6% |
YTD Returns
RS-GMR-ETF 13.1%
RS-GMR-LETF 4.1%
RS-GMR-MF 14.1%
For August 2014, both of the ETF strategies are going to be invested in EEM.
The following figures display some results for the RS-GMR-ETF and the RS-GMR-MF baskets.
Disclosure: The author is long EEM.
Additional disclosure: This is not investment advice in any form.
]]>RS-GMR-ETF: IJJ, IEV, ILF, EPP, EEM, TLT
RS-GMR-LETF: MVV, IEV, ILF, EPP, EEM, TLT
RS-GMR-MF: FDVLX, FIEUX, FEMKX, FLATX, FPBFX, VUSTX
Period | CAGR | Sharpe (Sortino) | Max. Drawdown | Min. Annual Return | |
RS-GMR-ETF | 2003-2014 | 28.6% | 1.3 (2.8) | 17.2% | 6.5% |
RS-GMR-LETF | 2007-2014 | 31.5% | 1.12 (2.11) | 22.4% | 4.1% |
RS-GMR-MF | 1991-2014 | 20.7% | 0.97 (1.93) | 24.6% | -24.6% |
YTD Returns
RS-GMR-ETF 13.1%
RS-GMR-LETF 4.1%
RS-GMR-MF 14.1%
For August 2014, both of the ETF strategies are going to be invested in EEM.
The following figures display some results for the RS-GMR-ETF and the RS-GMR-MF baskets.
Disclosure: The author is long EEM.
Additional disclosure: This is not investment advice in any form.
]]>