When it comes to wealth accumulation, many are a fan of Harry Browne’s Permanent Portfolio. Recently I wrote about it here.
This post was originally posted here. The writer, Kyith is a veteran community member and blogger on InvestingNote, with username known as Kyith and 700+ followers.
One of the main take away from my article yesterday on how do you make $500,000 last for 60 years by withdrawing an initial amount of 5% of the portfolio was that high volatility is not very desirable when it comes to spending down our wealth.
So naturally, the permanent portfolio comes to mind a portfolio that is made up of components very uncorrelated that reduce the overall volatility.
If we revisit the table of portfolios recommended by famous experts the PERM and Risk P have the lowest standard deviation, lowest maximum draw down (MaxDD), good risk adjusted returns (Sharpe).
So how would they do in Timeline App?
I try to fix as much of the variables as yesterday’s base case, with only modification to the portfolio allocation:
1. I have a wealth of $500,000 that I wish to live off of
2. I want to see if I can start off spending $25,000 for the first year of my financial independence. This is 5% of my initial wealth of $500,000 (we call this an initial withdrawal rate of 5% versus the 4% withdrawal rate)
3. For subsequent years, I increase and decrease the $25,000/yr based on the inflation rate. If inflation is +4%, it will be the previous years’ spending x (1-0.04) and if inflation is -2%, then it is previous years’ spending x (1-(-0.02)). I will maintain my purchasing power (inflation adjusted)
Read More Read More