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According to the Trinity Study, A portfolio consisting of stocks and bonds survived about 95% percent of all 30 year periods between 1926 and 1995, when 4% of the total portfolio value was withdrawn at the beginning of each year.
Inspired by these findings, I want to backtest the following 2 scenarios:
- Selling 0.02% of all holdings each day and withdrawing the cash
- Withdrawing 0.02% of cash each day without selling anything, i.e. boworring against the holdings.
How can these two scenarios be implemented, based on the attached algorithm?
Vladimir
I analyzed three scenarios with this permanent portfolio strategy:
Withdraw = 0.0001/day, borrow = 0; buffer = 0.05;
Withdraw = 0, borrow = 0, buffer = 0;
Withdraw = 0, borrow = 0.0001/day; buffer = 0.05;
In my opinion, it is wiser to regularly borrow a tiny amount of money and make it work than to withdraw the same amount of money.
Correct me if I am wrong.
Vladimir
QC
Pictures attached to the previous post for some reason did not appear.
Jared Broad
Sorry Vlad we're aware of that bug will fix it Mon-Tuesday. Hard push this last week to deploy the market so a few things slipped.
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Filib Uster
"In my opinion, it is wiser to regularly borrow a tiny amount of money and make it work than to withdraw the same amount of money."
That may well be, but the study I mentioned specifically researched the sustainability of retirement plans, based on the withdrawal of a certain percentage - and that is what I want to backtest.
Vladimir
The one important variable is missing in this discussion.
The age of retirement plan participant.
If the age of retirement plan participant less than 50 he can make the contribution
to traditional IRA $6000/year.
If the age of retirement plan participant between 50 and 72 he can make the contribution
to traditional IRA $7000/year.
After age 72 retirement plan participant can not make the contribution to traditional IRA
but has to withdraw annually required minimum distribution (RMD)
RMD = Account Balance / Life Expectancy Factor (around 4% at age 72)
So to increase the RMD retirement plan participant has to make Account Balance
at the age of 72 as it is possible big by contributing and not withdrawing.
After the age of 72 retirement plan participant must just follow the IRS rules.
Filib Uster
Once again, thanks for the contribution Vladimir - but you are missing the point. I am mostly interested in how a withdrawal plan can be implemented based on the algorithm in the initial post.
Vladimir
Filib Uster ,
I think Derek Melchin answered your question here, you just need to put real RMD
figures in dollars based on life expectancy ratio and account balance from links in my post above.
Filib Uster
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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