Jim Richmond

Safe Portfolio Withdrawal Rates: Beyond The 4% Solution

Geoff,

Once again, I think we're generally in agreement on the points that you make about the risks of using of old historical data to predict the future.

I'd suggest one caveat for investors with respect to your final point (and I'm sure you'd agree with this). While increasing a portfolio's risk in an effort to increase its return is often advisable, the operation has to be done with care and with the help of tools like portfolio optimizers and Monte Carlo analysis. More risk only makes sense if you can be reasonably sure that the larger expected return isn't overwhelmed by a still larger standard deviation of returns.

One thing that Monte Carlo retirement planners can clearly demonstrate is that risk matters. High volatility in portfolio returns can kill an otherwise great long-term plan. The trick is to find the right balance between reward and risk, such that the goals of the retirement plan can be achieved with a workable level of risk.

Jim