Sunday, May 14, 2023 1:52:24 PM
AIM Dow/Gold ratio
Starting from 1925, apply AIM once yearly to the Dow/Gold ratio, AIM settings of 10% SAFE, 5% of cash value minimum trade size. From that we identify years where a trade occurred and what level of %cash that adjusted to.
Use that as a paper AIM, where %cash indicates how much gold weighting to hold, and when to rebalance to that revised gold weighting i.e. in years when AIM actually made a trade.
Applied to the Total Stock Market (TSM = similar to S&P500) and gold, where gold was T-Bills pre 1934 (as gold was money back then, and you could deposit that money in return for interest), and the outcome was pretty good, averaged 44% gold, but at times held as little as 0% gold, at other times around 80% gold. Broadly yielded total returns that compared to TSM
and did a reasonable job of scaling up/down gold weighting in reflection of changes in the Dow/Gold ratio
and was relatively safer in the sense of enduring lower drawdowns
In terms of 30 year 4% SWR outcomes, at times when 100% TSM struggled, AIM did better and vice-versa
A reasonable choice therefore might have been to run two portfolios, one for TSM, the other for dow/gold ratio AIM, initially 50/50 weighted into both, and then just left to run separately. In which case the final combined outcome was decent, 4% SWR never ending with less than the inflation adjusted start date portfolio value still available at the end of 30 years. The following chart shows the multiple of inflation adjusted start date value that remained at the end of 30 years, so a value of 1.0 = 100%, 2.0 = twice a much (in inflation adjusted terms) ...etc. In the best case you ended with 8 times more in inflation adjusted terms than what you started with 30 years earlier after 30 years of 4% SWR withdrawals. Great cases are great, but for most its the worst case outcomes that are the main concern and diversifying to dilute down the worst case risk worked out well when that diversification involved initial 50/50 weightings into TSM and AIM
Some retirees use a 4% SWR guide as the amount that they might draw, and where typically that is measured over 30 year periods and where the worst case left nothing remaining at the end. The above however is indicative that you could have applied a 4% SWR with in effect 2% being provided by AIM of Dow/Gold, and the other 2% from TSM, and always having ended with your portfolio value still intact.
SWR of 4% is to initially draw 4% of the portfolio value as income in the first year, and then adjusted that $$$ amount by inflation as the amount drawn as income in subsequent years, so a regular inflation adjusted income.
Clive
Starting from 1925, apply AIM once yearly to the Dow/Gold ratio, AIM settings of 10% SAFE, 5% of cash value minimum trade size. From that we identify years where a trade occurred and what level of %cash that adjusted to.
Use that as a paper AIM, where %cash indicates how much gold weighting to hold, and when to rebalance to that revised gold weighting i.e. in years when AIM actually made a trade.
Applied to the Total Stock Market (TSM = similar to S&P500) and gold, where gold was T-Bills pre 1934 (as gold was money back then, and you could deposit that money in return for interest), and the outcome was pretty good, averaged 44% gold, but at times held as little as 0% gold, at other times around 80% gold. Broadly yielded total returns that compared to TSM
and did a reasonable job of scaling up/down gold weighting in reflection of changes in the Dow/Gold ratio
and was relatively safer in the sense of enduring lower drawdowns
In terms of 30 year 4% SWR outcomes, at times when 100% TSM struggled, AIM did better and vice-versa
A reasonable choice therefore might have been to run two portfolios, one for TSM, the other for dow/gold ratio AIM, initially 50/50 weighted into both, and then just left to run separately. In which case the final combined outcome was decent, 4% SWR never ending with less than the inflation adjusted start date portfolio value still available at the end of 30 years. The following chart shows the multiple of inflation adjusted start date value that remained at the end of 30 years, so a value of 1.0 = 100%, 2.0 = twice a much (in inflation adjusted terms) ...etc. In the best case you ended with 8 times more in inflation adjusted terms than what you started with 30 years earlier after 30 years of 4% SWR withdrawals. Great cases are great, but for most its the worst case outcomes that are the main concern and diversifying to dilute down the worst case risk worked out well when that diversification involved initial 50/50 weightings into TSM and AIM
Some retirees use a 4% SWR guide as the amount that they might draw, and where typically that is measured over 30 year periods and where the worst case left nothing remaining at the end. The above however is indicative that you could have applied a 4% SWR with in effect 2% being provided by AIM of Dow/Gold, and the other 2% from TSM, and always having ended with your portfolio value still intact.
SWR of 4% is to initially draw 4% of the portfolio value as income in the first year, and then adjusted that $$$ amount by inflation as the amount drawn as income in subsequent years, so a regular inflation adjusted income.
Clive
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