Short Posts Starting from December 7, 2006

Updated: February 22, 2007.

Edited: Maintenance Stage Survey

The maintenance stage occurs after you have accumulated enough funds but before you make withdrawals.

I conducted a brief survey using three approaches: switching allocations in accordance with P/E10, maintaining a fixed 50%-50% allocation of stocks and TIPS and keeping everything in stocks. I made an excursion by introducing Latch and Hold.

Careful analysis shows that varying allocations is best. Latching onto bargains and holding them for several years is better than mindlessly cutting back as soon as prices rise.

Edited: Maintenance Stage Survey
Maintenance Stage Survey

Edited: Returns, Not Equity Premiums

The Stock-Return Predictor determines the real, annualized, total return of the S&P500 as a function of P/E10 (actually, 100E10/P).

This is superior to estimating nominal, annualized, total returns. This is vastly superior to estimating equity premiums.

Edited: Returns, Not Equity Premiums
Returns, Not Equity Premiums

Elements of Success

I have had a tremendous amount of success. Why me? Why weren’t all of my findings discovered years ago?

Elements of Success

Edited: Time Needed to Assure a Gain

We are assured that stocks will show a gain, eventually, even after adjusting for inflation.

How long do we have to wait? So far, the longest delay for the S&P500 has been 18 years. How about a confidence interval?

Edited: Time Needed to Assure a Gain
Time Needed to Assure a Gain

Time Needed Applications

The early 1990s sequences will be interesting. Even the 1993 sequence may end up with a long term loss. The outer confidence limit occurs in 2013.

The odds are 50%-50% that the January 2000 returns will show a net long term (real dollar) loss at some point between 2032 and 2036.

Time Needed Applications

Augmented Dividends Strategy

Even the most conservative retiree can design a portfolio to withdraw 3.5% of his original balance (plus inflation) far into the distant future. He can withdraw 4.0% of his original balance (plus inflation) comfortably at minimal risk.

Augmented Dividends Strategy

Guaranteed Augmented Dividends

You have read Augmented Dividends Strategy. I wrote:

“Even the most conservative retiree can design a portfolio to withdraw 3.5% of his original balance (plus inflation) far into the distant future. He can withdraw 4.0% of his original balance (plus inflation) comfortably at minimal risk.”

Satisfying the requirements may be easier than you think. You can lock in the first 5 to 10 years today, without risk.

Guaranteed Augmented Dividends

Edited Dividends and the Gordon Model

Dividend yields vary all over the place because prices vary. Prices depend upon current human perceptions. Dividend amounts are stable. Dividend amounts depend upon business activity.

A retiree can reasonably expect to see his initial dividend amount grow by 2.8% each year in addition to inflation.

Edited Dividends and the Gordon Model
Dividends and the Gordon Model

Retiree Needs

A retiree needs a steady income stream that grows faster than inflation. He needs an income stream that is isolated from the whims of the market. He needs income that lasts indefinitely.

Dividend based strategies satisfy this need.

Retiree Needs

S&P500 Dividend Growth

The best way to characterize S&P500 Dividend Growth is to make no adjustment for inflation. The best time period to use is post-1950. The best rate to use is from 4.8% to 5.0% per year.

S&P500 Dividend Growth

Income Stream Allocator Examples

I have run some numbers. They are impressive. Dividend strategies offer a tremendous potential.

Income Stream Allocator Examples

Dividend Based S&P500 Allocation

I am creating a baseline with my TIPS Income Stream Allocator B. Based on today’s S&P500 dividend yield, which is less than 2%, the best S&P500 stock allocation is zero.

Dividend Based S&P500 Allocation

Botched Early Retirement

Suppose that you retire early. Suppose that you botch your withdrawals. What does it take to get back on track?

Botched Early Retirement

Botched Early Retirement Special Example A-1

Suppose that you retire early using a dividend strategy. Suppose that your investments do much worse than you had expected. You require a continual income stream of 5.0% of your initial balance (plus inflation).

Going back to work for 5 years solves your problem.

UPDATE (February 16, 2007): Special Example A-2

Withdrawing 4.0% of the original balance (plus inflation) for the first seven years accomplishes the same goal. Download the details from the Allocators folder in my Yahoo Briefcase. It is a Microsoft Word document. It is the Special Example A-2 file.

Botched Early Retirement Special Example A-1

Dividend Baseline

Here is a baseline for dividend strategies.

It dramatically outperforms fixed allocation, liquidation strategies.

Dividend Baseline

Capturing the Investment Return

Dividend strategies are best. They allow you to capture the investment return.

Capturing the Investment Return
Capturing the Investment Return Follow Up