Portfolio Income - Portfolio Visualizer

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socialforums2019
Posts: 284
Joined: Sun Aug 25, 2019 10:12 am

Portfolio Income - Portfolio Visualizer

Post by socialforums2019 »

Been playing around with the portfolio visualizer to run through a few AA scenarios and had a general question. Are the portfolio returns taking into consideration the portfolio income? I've been trying to run a portfolio setup where we will use a portion of the portfolio income (dividends/distributions) and then reinvest the rest, but the option is to only reinvest all of it.
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JoMoney
Posts: 11763
Joined: Tue Jul 23, 2013 5:31 am

Re: Portfolio Income - Portfolio Visualizer

Post by JoMoney »

It sounds like you've already found the option to "Reinvest Dividends" (or not).
If you choose to not reinvest the dividends, it's all of them, and it doesn't allow you contribute or withdraw any other cash flows in that simulation.
You could just select to reinvest the dividends and then setup a specific periodic withdrawal amount, and whatever you don't withdraw will get reinvested. It won't allow you to vary the withdrawals at all (accept for inflation adjustment), but perhaps you can just come up with some 'average' to use for your simulation... it is after all just a back-test/simulation of the past, it doesn't provide you any kind of accuracy about the future.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
dbr
Posts: 36362
Joined: Sun Mar 04, 2007 9:50 am

Re: Portfolio Income - Portfolio Visualizer

Post by dbr »

This illustrates that it is generally simpler to understand what is happening if one pays no attention to dividends and simply specifies withdrawals as an independent variable. There is no special reason spending has to be the dividends, much less a certain fraction of the dividends. In any case withdrawing the dividends or a fraction of them is no different from any other scheme to take withdrawals in similar amounts. Note that just setting withdrawals at some amount does not mean that the mechanics for taking the withdrawal cannot be that you distribute the dividends to your checking account and then either withdraw more by selling shares or turn around and reinvest something. Managing cash flow and modelling what your portfolio does are two completely separate things.

I admit portfolio models are limited in exactly what algorithms are allowed for setting withdrawals. Another model that does have an explicit algorithm for adjusting withdrawals to conditions is the Variable Percentage Withdrawal Model in the Wiki. Even FireCalc has some options for making adjustments to the withdrawal algorithm.
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