Passive Multi Asset Funds

Linton

gm0 said:

As @Abermarle says if you take a 40+ year view of DC drawdown in retirement then the backtesting data and random returns simulations tell the tale.  If you have a *huge* pot vs income need then you can do anything - risk fully off - cashflow matched ladder of maturing gilts. Or risk on - 100% growth assets. Or anything else to taste. 

But for normal ratios of pot to income WR then 40%-70% growth assets (equities etc) is a very reasonable long term risk range if you are more interested in sustainability than a chance of larger legacy (albeit with an accompanying greater risk of retirement shortfall with a very bad sequence). <40 not enough returns for income.  Above 70-80 volatility spikes and sequences in the historic record start to show it can interfere with the % of success - even if "most" paths at >70% lead to (significantly) greater riches at death.  Asymmetric risk.  Running out is a problem. Dying with another unexpected 200k or more isn't.

If you have your other contingencies worked out then you can do whatever pleases you.

Pension freedoms are a remarkable construct.  But they do place a lot of responsibility on the individual.

Starting with the default values of cpi adjusted 4% of initial pot withdrawal a few trials with cfiresim appear to show that increasing % equity makes little diffence to the chance of failure: both 60/40 and 100/0 slow 95.12% success rate (6 fails out of 123).   75/25 shows 95.93.  Of course there are very much large increases in wealth at the end of the simulation as the % equity increaeses.  Whether there are 4,5 or 6 failures must be within error bounds.

The maximum success rate, 96.75% (4 fails out of 123) seems to be around 85/15-90/10

gm0

@Linton - I think this difference is probably down to methodology. 

The McClung test from which the idea came is very likely not to the same assumptions.  And very probably a test of one of his recommended approaches (a number of which have a floating equity % based on rules about asset sales so the initial percentage is what is referred to rather than a fixed annually rebalanced one.

Sadly I can't find the topic for the exact quote that I am remembering above in the permuted index or I would provide it and at 350 pages I am not going to go an page turn scan for it tonight.