Vanguard LS60 risks ?
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Maybe that would be a good reason for holding separate funds for different bond types, especially if high yield corporate bonds and government bonds are not correlated and sometimes move in opposite directions. Then you would benefit from rebalancing back to your original percentages with all other asset classes.
Guess that depends on one’s strategy and asset allocation. Junk bonds are in many ways similar to stocks. I have enough stocks and have no need for them. Even corporate bonds in general are questionable in my book because I ONLY use FI as a counterbalance to a major event rather than as a tool to achieve growth.
For me personally it’s one of the reasons to avoid VLS 60 but it’s a great product.0 -
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The Guyton-Klinger rules don't have a fixed pot of cash and specify that income in all years is to come from:Deleted_User wrote: »The strategy of having a fixed pot of cash rather than % allocation would be a great idea ONLY if one knew the future.
1. cash
2. if no more cash, bonds
3. if no more bonds, equities
They also say:
A. If anything had a positive return and is now at an overweight allocation, sell the overweight amount and put that in cash.
B. If equities are overweight, sell enough of them to get back to target weight, putting the proceeds in cash.
C. If fixed income is overweight, sell enough of them to get back the target weight, putting the proceeds in cash.
This stuff has the objective of surviving bad sequences of returns and the resulting safe withdrawal rates survived the great depression, periods of high inflation, a couple of world wars and an October 1929 start when those events happened during the retirement planning period. No rule banning the real world from delivering something worse and requiring additional action.
Some US work showed that Treasury bills beat bonds during low inflation times because the bond risk premium wasn't high enough to cover the capital losses in the rate recoveries.
The rules don't specify the asset class mixture that can be used, though the precalculated UK safe withdrawal rate that I use in posts here is 65% UK equities (implicitly large cap in effect) and 35% bonds. Not my personal preference for asset allocation but good enough for the purpose of introducing safe withdrawal rate research.0 -
This stuff has the objective of surviving bad sequences of returns and the resulting safe withdrawal rates survived the great depression, periods of high inflation, a couple of world wars and an October 1929 start when those events happened during the retirement planning period. No rule banning the real world from delivering something worse and requiring additional action.
I should point out that WW1 was well before 1929. Secondly that the USA economy grew around 8% annually during the period 1939-1945. Hardly surprising therefore the impact of WW2 was actually to boost activity in the US. Whereas you appear to suggesting that the impact was negative on the US economy.
No need to over-egg your views.0 -
Under the GK rules, if cash is not a fixed monetary amount, should cash be a fixed percentage/weighting in the portfolio?The Guyton-Klinger rules don't have a fixed pot of cash and specify that income in all years is to come from:
1. cash
2. if no more cash, bonds
3. if no more bonds, equities
They also say:
A. If anything had a positive return and is now at an overweight allocation, sell the overweight amount and put that in cash.
B. If equities are overweight, sell enough of them to get back to target weight, putting the proceeds in cash.
C. If fixed income is overweight, sell enough of them to get back the target weight, putting the proceeds in cash.
D. If cash is overweight (due to falls in equities and/or bonds) then buy enough equities and/or bonds to get back to target weightings.
If cash in a portfolio is to be kept to a fixed percentage/weighting like the other main asset classes, then I would have thought you would need to add a rule D to the above, as indicated by the red text I have added to the above?0 -
What point were you trying to make by writing that WW1 was before 1929? I wasn't giving a list in chronological order and 30 years starting in 1913 included both.Thrugelmir wrote: »I should point out that WW1 was well before 1929.
The UK worst case was a 1936 start, WW2 and its aftermath. The US 1968, high inflation at the start of retirement.Thrugelmir wrote: »Secondly that the USA economy grew around 8% annually during the period 1939-1945. Hardly surprising therefore the impact of WW2 was actually to boost activity in the US. Whereas you appear to suggesting that the impact was negative on the US economy.
The WW2 effects were worst for the Axis powers, then occupied countries and those with conflict in them. The US got an economic stimulus instead.0 -
There isn't a rule to reinvest cash. It's generated during good times by taking profits or in rebalancing then immediately fully or partly used for the income - A-C come before 1-3.Under the GK rules, if cash is not a fixed monetary amount, should cash be a fixed percentage/weighting in the portfolio?
If cash in a portfolio is to be kept to a fixed percentage/weighting like the other main asset classes, then I would have thought you would need to add a rule D to the above, as indicated by the red text I have added to the above?
Guyton suggested 0% as the appropriate cash weighting in an interview:
"Jon: People talk about, you know, how much money do you have in cash? How many years’ worth or whatever, I think that’s silly. I frankly don’t see any difference between having a bunch of money in the money market and having…you know, as long as some of your fixed income is allocated to a high-quality bond holding with around a duration of one, I think, you know, there’s no difference.
...
Michael: ... from a practical perspective, when people are spending 4% or 5% a year, if you hold 3 years of spending in cash, you have a 15% cash allocation. And if you hold 15% in cash for life, you just end out with less money because that’s a lot of cash to hold for life for a multi-decade timeframe.
Jon: Well, it is, and it really hurts if it’s only the remaining 85% that you allocate 60/40. And furthermore, you know, the way most likely that portfolio has got somewhere in the neighborhood of a 2% overall yield between the interest that the bonds are paying and the dividends the stocks are throwing off. So you’ve got 2%, you know, coming in every year, so 3 years for 5% does not require 15%, it only requires 9, even if that’s what you wanted to do.
But anyway, to get back, so, you know, we will raise cash every three months, every three to six months. For that, we’ll rebalance portfolios every three to six months. You know, we have tolerance levels for, you know, if a sub-asset class like U.S. large value or emerging markets gets enough out of whack then, you know, we do that."
Since cash would be counted as part of the bonds cut, first use the cash to fulfil C then reinvest the rest of the cash inside bonds. But only for cash deliberately held. The cash from A-C isn't part of the asset allocation and isn't expected to stick around for long.0 -
What point were you trying to make by writing that WW1 was before 1929? I wasn't giving a list in chronological order and 30 years starting in 1913 included both.
The UK worst case was a 1936 start, WW2 and its aftermath. The US 1968, high inflation at the start of retirement.
The WW2 effects were worst for the Axis powers, then occupied countries and those with conflict in them. The US got an economic stimulus instead.
The point is that you were historically inaccurate. That's all. Even your response appears to ramble in parts with little relevance to G-K. As the data is what it is.
The bottom line is that the research data used is based on the US markets alone. Nothing else. Therefore should be considered in that context.0 -
I mentioned the great depression [after 1929] "a couple of world wars" [one each before and after 1929] and 1929 so it obviously wasn't a date ordered list.
You've falsely asserted that the research data is based on US markets alone before, and been corrected by me before. The UK safe withdrawal rates are based on UK market data, with the Guyton-Klinger or other specified rules. The UK worst case is based on UK market data. Please stop making your false assertions that it's just using US data.0 -
I mentioned the great depression [after 1929] "a couple of world wars" [one each before and after 1929] and 1929 so it obviously wasn't a date ordered list.
You've falsely asserted that the research data is based on US markets alone before, and been corrected by me before. The UK safe withdrawal rates are based on UK market data, with the Guyton-Klinger or other specified rules. The UK worst case is based on UK market data. Please stop making your false assertions that it's just using US data.
1. Discussion started when Linton referred to a “cash buffer” approach. I interpreted that as a fixed amount in cash, which you use to draw from in bad times. Perhaps he can clarify, but if he actually meant a variable percentage withdrawal method, such as Guyton-Klinger, he could have said “Guyton-Klinger”.
2. The article you linked does talk about SWR of 4%% based on US and SWR of 3.7% based on 100 years of UK data. When it moves on to US researchers and their method, it is not at all clear that 5.5% is based on UK data. Are you sure?
3. In a way it’s irrelevant whether the data are UK or US. Who is to say that the future behaviour of stocks in Britain won’t resemble some other country, like Sweden which had its stocks boom during WW2 and completely collapsed after WW2?
The key point is that they are using bad times during a 100 year period to tell us “all will be fine over the next 40 years”. 40 years is a long time and a high proportion of 100. I would have been more comfortable if we had 1000 years worth of data.0
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