I’m always on the lookout for ways to improve the tools on Portfolio Charts, and Siamond really came through with his latest update to the Simba spreadsheet. Buried in the heaps of interesting returns data is something really cool — direct calculations for safe and perpetual spending rates for a given investing period. Based on an equation from a Morningstar white paper, they are particularly elegant compared to my old method and allow me to significantly improve the speed and stability of the Withdrawal Rates calculator. And by doing so they open up a great deal of additional data that was previously too laborious to manage.
Well I’m a sucker for new data, and in the process of updating the calculator mechanics behind the scenes I took the opportunity to revisit an old question I’ve been wrestling with for a while.
How do you calculate a 40-year withdrawal rate when the worst start date for a particular portfolio was less than 40 years ago?
Perhaps you’ve noticed the tag line for Portfolio Charts:
a picture is worth a thousand calculations
While obviously a play on words to a common phrase that figuratively captures the descriptive power of images, some may not be aware that in the context of the site it is actually quite literal. Lots and lots of calculations go into every image, and I thought it might be fun to illustrate just how deep the rabbit hole goes.
I once knew a guy who was really into woodworking. One of the more fascinating things about him was that he not only made his own furniture but also was quite proud of his collection of hand-made woodworking tools. I once asked him why he preferred those tools to mass-produced alternatives. Among several reasons, “They do what I want”.
Some casual investors may wonder why I spend so much time investigating things like modeling mid caps and figuring out how to measure the error of older international bond data in backtesting calculations. While I certainly find this kind of information intellectually interesting, I admit that it sometimes becomes a chore and I can see why most people steer clear. The upside to all the groundwork, however, is that it expands my collection of tools and allows me to do what I want — explore interesting portfolios previously off limits simply due to lack of data.
Like, for example, the 7Twelve Portfolio.
I don’t know about you, but in my neck of the woods the weather has been absolutely beautiful lately and unseasonably warm for a February day. The sunny days have made me start to think ahead to the garden in my back yard and how I might want to improve it this year. Some of that will require a bit of cleanup, and some is about finding new plants to complement what did well last year. I don’t naturally have a green thumb, but I’ve found that persistence is a virtue. Every year the garden is a little better than before.
In that same spirit, as part of the necessary site data cultivation effort I just finished updating the Stock Index Calculator with new data.
In the late first century, a Latin poet named Juvenal described something thought to be unlikely as “a rare bird in the lands and very much like a black swan”. At the time, black swans were thought to not exist at all and the idea was preposterous. The clever turn of phrase was both memorable and descriptive, and by the 16th century “black swan” was a common expression in London to describe the idea of impossibility. Of course there was a looming problem with this saying, and in 1697 Dutch explorers discovered that black swans really do exist in western Australia. What once was used to describe something impossible quickly changed meaning to connote ideas thought to be impossible that are later discovered to be real.
As a creative person inhabiting an engineer’s mind, I’m often a walking contradiction of organization. On the one hand, a messy desk does not bother me at all and I like having lots of information in front of me to draw from when I work. But on the other, eventually the collection of stuff reaches a critical mass where I can no longer find what I’m looking for, at which point I decide it’s time to clean up and organize. That tension between chaos and order is just part of how I think.
Along those lines, while I very intentionally keep Portfolio Charts simple and intuitive in the Assets, Portfolios, and Calculators I realize I’ve reached the point in the Commentary where the old system really isn’t doing the site justice and relevant posts are a bit too difficult to identify and track down. The logical next step would be to roll out a typical blog archive sorted by date or topic, but keeping with the spirit of designing the site primarily as a set of practical tools I’ve decided to build something a bit more comprehensive. As you may have already noticed up top, there’s now an entire new section called the Library.
I can’t claim to be much of a cook, and baking is one of those skills that even accomplished cooks can struggle with. But despite the heat, the effort, and the inevitable mess there’s something truly special about the smell of a freshly baked dessert as it first comes out of the oven. At that point the stress and frustration just melts away and it all seems worth it.
It took a lot of time and effort, but the Portfolios and Assets pages are now all fully updated. Get them while they’re still hot!
The New Year is officially underway. The holiday hangover is starting to wear off, resolutions have been made (and already broken), and bowl games are wrapping up. But most importantly, new 2016 data is available! I have actually been feverishly working for over a month now to prepare, and am proud to announce some exciting new updates to each and every calculator:
The magical week between Christmas and New Year’s Day is a common time of relaxation and reflection. It’s maybe a little more frantic on my end as I prepare for year-end market returns and some exciting accompanying updates I have in the works, but it’s always helpful to pause and take a moment to review the year that was.
There’s a decent chance that anyone who has considered retirement with some amount of self funding has heard of the concept of the safe withdrawal rate — the amount of money that one can safely spend every year without prematurely running out of money. First proposed by William Bengen in 1994, the math is pretty well established by now and many well-respected authors have written extensively on the subject dissecting it from different angles.
There’s also a pretty good chance that that the average person following a safe withdrawal rate does not actually understand how it works, and that lack of context can cause quite a bit of confusion. You see, the various studies and calculators that determine SWRs do so based on a myriad of very narrow assumptions, and breaking from those assumptions also breaks the conclusions. I’ve written quite a bit about the asset allocation assumption and the withdrawal method assumption, and I recently realized that I’m due for a discussion on another key assumption — how long do you plan to be retired?