I think if you read the "Trinity" study, you will find that many years ago now,through Monte Carlo testing, they decided that a 50:50 mix of equities and fixed income  had the highest probability of lasting 30 + years, with a good probability of success and being able to increase the initial W/D by the rate of inflation each year.

Dennis,

Go to smartmoney.com, type in a symbol and then go to returns and type in other symbols to compare.

I used the two vanguard total funds - stocks and bonds.  The 10 yr graph really shows the picture with the steadiness of the bonds and the decline in stocks.

10 yr total returns are only $3000 apart.  For 5 year returns, the stock return is double the bond return.

Roberta 

The basic premise in investing in retirement is to have growth and safety in the portfolio.

As the global market place changes, the investments need to be in markets that don't correlate.

Alpha and Beta are terms used to track correlation.  When comparing two investments it would be wise to measure how well they correlate.  Unfortunately, for funds the alpha and beta are used to track to an index, based for that fund style.  Comparing the alpha and beta for an emerging market fund with a US large caps is not meaningful or useful.

a web search for 'alpha' and 'correlation' did yield a hit for a site that tracks ETF across the global market.

This being said, the true ratio of % in stocks, bonds should include markets that don't correlate.  So a portfolio of 100% stocks, in the right mix would yield a higher return for less risk than one with bonds.

"If so, what a major difference btwn 40/60 vs the other mixes for past 5 yrs.."

Any difference, for ANY 5 year period, are insignificant, especially if you have no idea whether the next 5 years will be exactly like the previous 5 years.  My point is that retirement estimates typically consider much longer period of time, both in the past, but especially going forward.

For example, although Trinity (and other such Monte Carlo studies) show that the probability of success of being able to withdraw a real, inflation adjusted 5% from a portfolio was over 90% (almost regardless of the equity/debt split), and having that portfolio last 30 years, examination of the 30 year history of the stock and bond markets, starting in 1965, showed that ANY equity/debt split ran out of money before 1995.

That is, although the PREDICTED probabilty of failure, today, is ONLY 10%, the OBSERVED failure rate was 100%!

Put another way, will the next 30 years (2009 through 2039) be more like 1965 through 1995, or like 1978 through 2008, where any allocation worked?  This is a decision you (as well as all who retire this year) have to make, today, as you set your portfolio allocation, based on past performance.

"

"For example, although Trinity (and other such Monte Carlo studies) show that the probability of success of being able to withdraw a real, inflation adjusted 5% from a portfolio was over 90% (almost regardless of the equity/debt split), and having that portfolio last 30 years, examination of the 30 year history of the stock and bond markets, starting in 1965, showed that ANY equity/debt split ran out of money before 1995.

That is, although the PREDICTED probability of failure, today, is ONLY 10%, the OBSERVED failure rate was 100%!

Put another way, will the next 30 years (2009 through 2039) be more like 1965 through 1995, or like 1978 through 2008, where any allocation worked?  This is a decision you (as well as all who retire this year) have to make, today, as you set your portfolio allocation, based on past performance."

No one ever explains how the hundreds of thousands of folks who retired in 1965, 1966, 1967 survived.  Or why it took a study 20 years later to tell them they ran out of money.

Reality check;  Human beings are not like computers or spreadsheets and they don't just sit at the helm as the ship goes down.

If you can't afford some flexibility in your withdrawal, then you should probably keep working and save more.

best,

Bill

Imho, the most important issues are diversity among asset classes and efficiency of the investment vehicles chosen; the exact split between fixed income and equity is less important than having the right choices from both asset classes, supplemented by diverse sectors, styles and regions to best manage correlation and thus, risk through the inevitable future uncertainty.  There are low cost funds that do much of the selection process for the retiree.

There are also vast differences among these vehicles as to management and tax efficiency, transaction costs and slippage. Picking an inefficient investment company (MF, ETF, CEF, UIT, etc)  and fund sponsor can undo all other considerations over time.

Total return, rather than distribution "yield" should govern, since the latter can always be supplemented by the investor through the harvest of capital gains; the empirical  point about individuals muddling through despite theory is also an important one.

"No one ever explains how the hundreds of thousands of folks who retired in 1965, 1966, 1967 survived.  Or why it took a study 20 years later to tell them they ran out of money."

I think it's been stated many times on this forum that the majority of those who retired during the periods you site survived on pensions and social security rather than depending on a portfolio of stocks and bonds augmented by SS to fund their retirement. Those who did count on the markets for some of their retirement income did so in an equity environment where dividends were far stronger than they are today.

Billym 

 

 

Total return, rather than distribution "yield" should govern, since the latter can always be supplemented by the investor through the harvest of capital gains; the empirical  point about individuals muddling through despite theory is also an important one.

Sometimes, there are NO capital gains. Go back to 1966 and you find that owning stocks REDUCED the 30-year surviving withdrawal rate compared to owning commercial paper alone. 

Total return investors gloss over this point. When valuations are high, quite often there are capital losses to overcome, not capital gains to harvest.

Have fun.

John Walter Russell 

bilperk:

"

No one ever explains how the hundreds of thousands of folks who retired in 1965, 1966, 1967 survived. 

I can explain it - social security, medicare, medicaid, SSI, tapping the equity in their homes, and for many of them, living meagerly and/or being supported by their children.  For people who retired in the mid 1960's, many had at least 3 children who they looked to for help financially during retirement.

Unfortunately, many in the baby boom generation don't seem to feel they are responsible for taking care of their parents.  I can't tell you how many baby boomers with substantial incomes and assets that I know who are putting their parents in medicaid nursing homes when they could afford to pay for a place for their parents, it would just mean scaling back their lifestyle some.  Why should they when they can get medicaid to pay?

Bill,

"No one ever explains how the hundreds of thousands of folks who retired in 1965, 1966, 1967 survived."

Sure there's an explanation.  They didn't start with a withdrawal equal to 5% of the initial value of their portfolios, and INCREASE the number of dollars withdrawn, and spent, each year, by the rate of inflation.

IOW, they withdrew less then they thought the could withdraw, at the start of their retirement.  Those that didn't cut back, ran out of money.

I agree.  In the current environment, if you're not planning on limiting your expenses substantially and downsizing, you're probably not planning realistically.  Parents need help; children come back home to live or get divorced & need help; boy, it really mounts up.

Then.... comes a bad investment (we've al