Portfolio Visualizer withdrawal question

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stocknoob4111
Posts: 3509
Joined: Sun Jan 07, 2018 11:52 am

Portfolio Visualizer withdrawal question

Post by stocknoob4111 »

In Portfolio Visualizer when you have annual cashflows, at what point in the year do they occur? I always assumed it was on Jan 1 of the year, however it seems like it happens at the end of the year looking at the cashflows. If so does it occur on Dec 31 after the return for that date is taken into account?

Example - a Portfolio starting value in 1999 of $700,000 with Inflation adjusted annual withdrawals of $30,000.

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Also, is the dividend re-invested quarterly and then pulled out at the end of the year or are they accumulated? Is there any documentation to their withdrawal methodology?
FactualFran
Posts: 2776
Joined: Sat Feb 21, 2015 1:29 pm

Re: Portfolio Visualizer withdrawal question

Post by FactualFran »

stocknoob4111 wrote: Thu Apr 15, 2021 8:47 am Also, is the dividend re-invested quarterly and then pulled out at the end of the year or are they accumulated? Is there any documentation to their withdrawal methodology?
According to the Portfolio Backtesting subsection of the Methodology section of https://www.portfoliovisualizer.com/faq
The portfolio backtesting tool uses total return data for the specified mutual funds, ETFs and stocks, and assumes by default that all dividends and capital gains distributions are reinvested.
In other words, when an investment pays a dividend, the dividend amount is used to buy shares of the investment when the dividend occurred.

I did not find details of the withdrawal methodology. As you posted: "it seems like it happens at the end of the year".
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio Visualizer withdrawal question

Post by dbr »

stocknoob4111 wrote: Thu Apr 15, 2021 8:47 am In Portfolio Visualizer when you have annual cashflows, at what point in the year do they occur? I always assumed it was on Jan 1 of the year, however it seems like it happens at the end of the year looking at the cashflows. If so does it occur on Dec 31 after the return for that date is taken into account?

Example - a Portfolio starting value in 1999 of $700,000 with Inflation adjusted annual withdrawals of $30,000.

Image

Also, is the dividend re-invested quarterly and then pulled out at the end of the year or are they accumulated? Is there any documentation to their withdrawal methodology?
The numbers look awfully close to reinvest all distributions and withdraw $30,379 at the end of the year. I get an ending balance of $770,281 that way. It might be the return has been rounded off a little bit in the report or some other small approximation somewhere.

So, as a practical matter if you want to withdraw money at some other time than the end of the year, which includes that you spend dividends rather than reinvest, then the arithmetic has to be done in greater detail. Also, if the return is not the same in different periods of time at the end of each one of which there is a withdrawal by spending a dividend or selling shares and withdrawing money, then the arithmetic has to account for that and the return expressed as an annual return is not exactly meaningful.
Topic Author
stocknoob4111
Posts: 3509
Joined: Sun Jan 07, 2018 11:52 am

Re: Portfolio Visualizer withdrawal question

Post by stocknoob4111 »

Thanks! it does look like the withdrawals are done at the end of the year so i'm guessing it's just a hypothetical end of Dec 31 which practically can't be done in real life anyway.

I plan to let dividends accumulate and withdraw the balance it would be nice if PV allowed to backtest this option but unfortunately for some reason if you choose Cash Flows it requires you to reinvest dividends.
FactualFran
Posts: 2776
Joined: Sat Feb 21, 2015 1:29 pm

Re: Portfolio Visualizer withdrawal question

Post by FactualFran »

stocknoob4111 wrote: Thu Apr 15, 2021 7:44 pm Thanks! it does look like the withdrawals are done at the end of the year so i'm guessing it's just a hypothetical end of Dec 31 which practically can't be done in real life anyway.
The withdrawals can be done in real life with open-end mutual funds. A sell order submitted on the last business day of a year prior to closing gets executed as of the end of that day. If the last business day of a year is prior to Dec. 31, then the non-business days immediately before Dec. 31 have no effect on the total return for the year or the balance of a fund account.

What can't be done in real life exactly as in the calculation done by Portfolio Visualizer is the inflation adjustment. The inflation rate for a year used by Portfolio Visualizer depends on the value of the CPI-U for December. However, that value is reported after the end of the year. What can be done in real life is to use CPI-U values up to and including the one for November.
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