In researching for a video for 2021 I revisited the data for the Classic 60/40 strategy as presented in this video and noticed a mistake. In the video I mention that based on the data someone utilizing the strategy would've achieved financial independence in 69 of the 93 scenarios using a 50% savings rate. This group of FI accumulations metrics is incorrect as are the average Time to FI that are related to them. Below are the correct metrics: 15% Savings Rate Achieved FI: 5/93 (5%) AVG Time to FI: 88 Yrs 30% Savings Rate Achieved FI: 35/93 (38%) AVG Time to FI: 27 Yrs 50% Savings Rate Achieved FI: 75/93 (81%) AVG Time to FI: 14 Yrs 70% Savings Rate Achieved FI: 86/93 (92%) AVG Time to FI: 11 Yrs The cause of this error was I forgot to update the minimum 30-year safe withdrawal rate figure to reflect what we saw from the Classic 60/40 strategy before running the financial independence accumulation simulation. As a result, the savings goal required to reach FI was off and therefore so were the accumulation metrics. I have added notes for myself in the spreadsheet to ensure that this does not happen for videos in this series uploaded in 2021. Thankfully, after re-running the simulations it appears that all other figures (i.e. the return, crash, and even the withdrawal portion of the financial independence metrics) appear to be accurate as stated in the video.
@@michael2275 that's not entirely true as bonds play an important part in a portfolio to reduce Volatility and drawdown. When equities take a dive bonds tend to go up or at least only go down a small amount. If yields go down the price of your capital invested in bonds will go up , and vice versa.
The only problem with this is the usual one that plagues 60/40 discussions and analysis -- namely, the failure to define what is actually inside the "total bond portfolio". There is no established definition for this and most such portfolios do not in fact capture all types of bonds. Moreover, since bonds do not have a capitalization, there is also no non-arbitrary method of allocation towards each type of bond. Thus, all "total bond portfolios" are in fact "arbitrarily chosen bond portfolios". In fact, corporate bonds are positively correlated with stocks and treasuries are negatively correlated. So you will get substantially different results depending on which you choose and different results depending on the duration of the bonds chosen as well.
And to add to that...the current situation with bonds differs greatly from a large chunk of the past, so backtests might not be applicable at all to current investment decisions.
It's definitely been a pretty turbulent year, that's for sure! Glad you found an allocation that you can feel comfortable with especially during turbulent times :)
Hi, enjoy your videos, and appreciate that you avoid politics, BUT: we are told all the time "the market hates uncertainty". It was on the basis of that conventional wisdom that I basically moved partly to cash in Nov. 2016 and completely in March 2020. During the past 4 years it is unarguable (regardless of your politics) that the chief executive and the administration have been unpredictable, unconventional and volatile, and yet markets surge. A virtually unprecedented crisis Covid hits, but after a brief dip, markets surge again (with no end in sight). What gives?
Interesting, could you look at the outcome of a portfolio consisting of 65% Stocks and 35% gold compared to the portfolios in this video? Maybe I missed it, but was the 60/40 portfolio rebalanced annually or some other time span?
I think most people use "bands", in other words if the ratio goes more than 5 or 10 percent outside of the 60/40 ratio, the over-allocated side is sold to buy more of the under-allocated side. The nice thing about the 60/40 is that most 401k type plans can implement it with incredible ease and you can just let the custodian rebalance it for you, usually at no additional charge (beyond the fact the fees you're already paying for a 401k are often quite stiff). That's how I do mine.
I have $6,000 in a 90% stock Roth IRA which I'll keep investing for the next 33+ years. I have $5,000 in a 85% bond account for 5 year plan. (And $8K in a cash reserve account).
Unpopular opinion but I haven't really enjoyed this series. I think it's far too broad and the conclusion at the end of most of the videos is... inconclusive. My brain just turns off listening to dozens of figures from over the last 100 years. Love most of your content, this series just isn't it for me. I think you at excel at taking smaller/more personal finance concepts and then explaining/applying them. I did like the video because I support the channel though.
Thanks for sharing your views on the series! I'm sorry to hear that you haven't found it as engaging as the smaller-scale content on the channel. You're right in that the ultimate conclusion is mostly being left up to the viewer and thus can sound fairly noncommittal. That's part of the nature of investing, there is no single right answer or objective best allocation for everyone. My hope was that in seeing the differences that can be made by shifting one's asset allocation in varying economic and market conditions (i.e. adding bonds to smooth the ride of a heavily stock portfolio without losing too much returns over the long run or how combining different assets can limit the "luck" factor of returns over time [by lowering start date sensitivity], etc.) it might help guide people in a direction that was better suited to their overall investing goals, whatever they may be even if they don't ultimately go with any of the specific portfolios we examine. I'm glad to hear that you are still enjoying most of the other content and appreciate your support! I hope that they can continue to be enjoyable for you going forward even if you decide to pass on these portfolio analysis videos going forward.
i liked it, when modelling chances you gotta do it this way. if you are not into that just take what experts say on this matter. in the end its the same and understanding it does not realy matter
In researching for a video for 2021 I revisited the data for the Classic 60/40 strategy as presented in this video and noticed a mistake. In the video I mention that based on the data someone utilizing the strategy would've achieved financial independence in 69 of the 93 scenarios using a 50% savings rate. This group of FI accumulations metrics is incorrect as are the average Time to FI that are related to them. Below are the correct metrics:
15% Savings Rate
Achieved FI: 5/93 (5%)
AVG Time to FI: 88 Yrs
30% Savings Rate
Achieved FI: 35/93 (38%)
AVG Time to FI: 27 Yrs
50% Savings Rate
Achieved FI: 75/93 (81%)
AVG Time to FI: 14 Yrs
70% Savings Rate
Achieved FI: 86/93 (92%)
AVG Time to FI: 11 Yrs
The cause of this error was I forgot to update the minimum 30-year safe withdrawal rate figure to reflect what we saw from the Classic 60/40 strategy before running the financial independence accumulation simulation. As a result, the savings goal required to reach FI was off and therefore so were the accumulation metrics. I have added notes for myself in the spreadsheet to ensure that this does not happen for videos in this series uploaded in 2021. Thankfully, after re-running the simulations it appears that all other figures (i.e. the return, crash, and even the withdrawal portion of the financial independence metrics) appear to be accurate as stated in the video.
Great summary! Fantastic analysis as always. Keep up the great content!
Thanks, will do!
Thanks. This was a great analysis.
Glad you liked it, Raj!
@@michael2275 that's not entirely true as bonds play an important part in a portfolio to reduce Volatility and drawdown. When equities take a dive bonds tend to go up or at least only go down a small amount. If yields go down the price of your capital invested in bonds will go up , and vice versa.
The only problem with this is the usual one that plagues 60/40 discussions and analysis -- namely, the failure to define what is actually inside the "total bond portfolio". There is no established definition for this and most such portfolios do not in fact capture all types of bonds. Moreover, since bonds do not have a capitalization, there is also no non-arbitrary method of allocation towards each type of bond. Thus, all "total bond portfolios" are in fact "arbitrarily chosen bond portfolios".
In fact, corporate bonds are positively correlated with stocks and treasuries are negatively correlated. So you will get substantially different results depending on which you choose and different results depending on the duration of the bonds chosen as well.
And to add to that...the current situation with bonds differs greatly from a large chunk of the past, so backtests might not be applicable at all to current investment decisions.
Basically we are screwed, with state pension age going up and defined contribution company pension schemes, instead of defined benefit pension schemes
I think this would be my asset allocation if my passive income stopped and I were getting ready to draw down in full retirement.
Days like today make me happy I’ve gone with the 70/30 in favor of bonds portfolio. This market is going to get very very painful
It's definitely been a pretty turbulent year, that's for sure! Glad you found an allocation that you can feel comfortable with especially during turbulent times :)
Hi, enjoy your videos, and appreciate that you avoid politics, BUT: we are told all the time "the market hates uncertainty". It was on the basis of that conventional wisdom that I basically moved partly to cash in Nov. 2016 and completely in March 2020. During the past 4 years it is unarguable (regardless of your politics) that the chief executive and the administration have been unpredictable, unconventional and volatile, and yet markets surge. A virtually unprecedented crisis Covid hits, but after a brief dip, markets surge again (with no end in sight). What gives?
You shouldn't try to time the market. This was a very expensive lesson.
Interesting, could you look at the outcome of a portfolio consisting of 65% Stocks and 35% gold compared to the portfolios in this video?
Maybe I missed it, but was the 60/40 portfolio rebalanced annually or some other time span?
I think most people use "bands", in other words if the ratio goes more than 5 or 10 percent outside of the 60/40 ratio, the over-allocated side is sold to buy more of the under-allocated side.
The nice thing about the 60/40 is that most 401k type plans can implement it with incredible ease and you can just let the custodian rebalance it for you, usually at no additional charge (beyond the fact the fees you're already paying for a 401k are often quite stiff). That's how I do mine.
@@knottheory79220 Ok, thx for the reply. 401k's aren't available in my country though ;)
Isn't it exchanged rather than sold?
see this channel: belangp
@@matrixview hehe..yeah, got him subbed, would be interesting to see if others come up with the same results though ;)
I have $6,000 in a 90% stock Roth IRA which I'll keep investing for the next 33+ years. I have $5,000 in a 85% bond account for 5 year plan. (And $8K in a cash reserve account).
Unpopular opinion but I haven't really enjoyed this series. I think it's far too broad and the conclusion at the end of most of the videos is... inconclusive. My brain just turns off listening to dozens of figures from over the last 100 years. Love most of your content, this series just isn't it for me. I think you at excel at taking smaller/more personal finance concepts and then explaining/applying them. I did like the video because I support the channel though.
Thanks for sharing your views on the series! I'm sorry to hear that you haven't found it as engaging as the smaller-scale content on the channel. You're right in that the ultimate conclusion is mostly being left up to the viewer and thus can sound fairly noncommittal. That's part of the nature of investing, there is no single right answer or objective best allocation for everyone. My hope was that in seeing the differences that can be made by shifting one's asset allocation in varying economic and market conditions (i.e. adding bonds to smooth the ride of a heavily stock portfolio without losing too much returns over the long run or how combining different assets can limit the "luck" factor of returns over time [by lowering start date sensitivity], etc.) it might help guide people in a direction that was better suited to their overall investing goals, whatever they may be even if they don't ultimately go with any of the specific portfolios we examine.
I'm glad to hear that you are still enjoying most of the other content and appreciate your support! I hope that they can continue to be enjoyable for you going forward even if you decide to pass on these portfolio analysis videos going forward.
i liked it, when modelling chances you gotta do it this way. if you are not into that just take what experts say on this matter.
in the end its the same and understanding it does not realy matter