IFA Withdrawal Request Timing?

jamesd

Deleted_User said:

Right. And frankly, a newly minted retiree needs quite a bit of intestinal fortitude to sell bonds to just rebalance in a major downturn - at the very time when all the newspapers and talking heads are discussing  if an imminent apocalypse will happen this year or next.  

That might be easier if Guyton's sequence of returns risk reduction method had been in use and equities previously sold to get bonds or cash. Still challenging, though.

jamesd

Audaxer said:

I'm not sure whether a fixed allocation multi asset fund like VLS60, or portfolio of a separate global equities fund and a separate global bonds fund would give the best outcome? If the separate funds were rebalanced back to the original 60:40 allocation after each withdrawal, presumably it would be simpler to hold the one fixed allocation multi asset fund like VLS60?

If you use multi-asset you'll end up selling equities when they are down unless you do have at least some split holdings. Not really what you want to be doing

Prism

jamesd said:

Audaxer said:

I'm not sure whether a fixed allocation multi asset fund like VLS60, or portfolio of a separate global equities fund and a separate global bonds fund would give the best outcome? If the separate funds were rebalanced back to the original 60:40 allocation after each withdrawal, presumably it would be simpler to hold the one fixed allocation multi asset fund like VLS60?

If you use multi-asset you'll end up selling equities when they are down unless you do have at least some split holdings. Not really what you want to be doing

From what I have read there is not a lot of difference between Guyton-Klinger decision rules and an annual rebalance as far as maximum sustainable withdrawal rates are concerned. The Guyton-Klinger does have a tiny edge but maybe not enough to rule out a simple withdrawal and rebalance for those that prefer a multi asset approach. McClung did a side by side example in his book and the two approaches are almost overlaid on a graph of MSWR.

jamesd

McClung didn't do any comparison using Guyton-Klinger. He picked just part of it and used that portion. The difference isn't small: 5.5% initially for a 40 year Guyton-Klinger plan vs 3.7% for 30 year 4% rule, both UK investments before costs.

Prism

jamesd said:

McClung didn't do any comparison using Guyton-Klinger. He picked just part of it and used that portion. The difference isn't small: 5.5% initially for a 40 year Guyton-Klinger plan vs 3.7% for 30 year 4% rule, both UK investments before costs.

I wasn't referring to the withdrawal rate part of the decision rules, just rebalancing. That is one area where McClung includes Guyton-Klinger and a bunch of other rebalancing strategies and compares them to the standard fixed allocation annual rebalance. The conclusion is that standard annual rebalancing is fine and Guyton-Klinger's keeping excess returns in cash is a tiny bit better but not much different. He claims that Klinger in 2007 also states that it is not significantly better - I haven't read that paper myself. Again, I'm not talking about the full withdrawal rate rules here - just should you rebalance each year.

So my thoughts were that if someone wanted to use a variable withdrawal strategy such as Guyton-Klinger decision rules but keep their investments in a single multi-asset range then it would still work almost as well.

Linton

jamesd said:

Audaxer said:

I'm not sure whether a fixed allocation multi asset fund like VLS60, or portfolio of a separate global equities fund and a separate global bonds fund would give the best outcome? If the separate funds were rebalanced back to the original 60:40 allocation after each withdrawal, presumably it would be simpler to hold the one fixed allocation multi asset fund like VLS60?

If you use multi-asset you'll end up selling equities when they are down unless you do have at least some split holdings. Not really what you want to be doing

This isnt actually true.  Take a simple example.  £60K equity + £40K bond.  The price of equity drops 50% whilst bonds remain constant.  You withdraw £4K/year:

Initial £60K equity £40K bond
After drop by £30K: £70K- rebalance to £42K Equity £28K bond
Take £4K - total £66K: rebalance to  £39600 equity £26400 bond.
So overall you have effectively spent £13600 of your bonds, £4k to you and £9600 to buying equity at its new very low price.

garmeg

Do we know how often the likes of VLS 60/40 does its rebalancing.

Is it daily, weekly, monthly or something else?

Prism

garmeg said:

Do we know how often the likes of VLS 60/40 does its rebalancing.

Is it daily, weekly, monthly or something else?

They call it continuously but acknowledge the costs of doing it every day. It seems to be a management decision rather than an automatic process.

I am not sure if anyone has ever done a comparison of manual annual rebalancing vs multi asset rebalancing. My gut tells me the annual rebalance would perform slightly better, partly down to lower transaction costs and partly down to helping with a bit of a momentum play.

garmeg

Prism said:

garmeg said:

Do we know how often the likes of VLS 60/40 does its rebalancing.

Is it daily, weekly, monthly or something else?

They call it continuously but acknowledge the costs of doing it every day. It seems to be a management decision rather than an automatic process.

I am not sure if anyone has ever done a comparison of manual annual rebalancing vs multi asset rebalancing. My gut tells me the annual rebalance would perform slightly better, partly down to lower transaction costs and partly down to helping with a bit of a momentum play.

Thanks. Useful. Seems a shame it has such a high UK bias (when compared to its world market capitalisation percentage).

May be a reasonable choice regardless.

Has anyone compared VLS 80/20 versus 80% pot in VLS100 plus using the remaining 20% of your pot to buy a level annuity (as a proxy for bonds)?

Thrugelmir

garmeg said:

Do we know how often the likes of VLS 60/40 does its rebalancing.

Is it daily, weekly, monthly or something else?

To a degree Vanguard can manage the balance by funds flow, i.e. new money, unit redemptions and reinvestment of income. Operating in parameters that allow for flexibility.