The Day the 4% Rule Died

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HootingSloth
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Re: The Day the 4% Rule Died

Post by HootingSloth »

HomerJ wrote: Thu Jun 23, 2022 10:39 pm
McQ wrote: Thu Jun 23, 2022 10:19 pm
nigel_ht wrote: Tue Jun 21, 2022 7:33 pm ...

Part of my job is peer reviewing journals. ...

Sweden in 1912. Still within that WWI timeframe. :oops:

Sweden's economy was deeply impacted by WWI when German subs targeted neutral shipping in 1917 (280 Swedish merchant ships were lost in the war) and by unrestricted Allied blockade starting in 1915 and allied embargoes of neutrals to keep Germany from getting food and war material. Sweden went from having an export surplus to dramatically less trade overall (both import and export). Trade as a percentage of GDP was halved after 1915 becoming more regional and less global. Given that about 30% of government revenue was from taxes on import/export, which cratered, and increased military spending (because there's a global war going on not too far away) and its not surprising that even neutral countries struggled. Poor harvests in 1917 and Allied blockades lead to food shortages in Sweden and there were large food riots. Toward the end of the war coal could no longer be imported from Germany so there were also fuel shortages on top of that.

So your 77 year old Swedish retiree was hungry and cold in 1917 because of the war and, if hale enough, was possibly protesting in the streets.

To recap...a country that depended a lot on foreign imports lost a sizable portion of their merchant marine (17% of their tonnage) to war, suffered from diminished trade because of blockade (from war) and had a famine/poor harvest.

Yep...that leads to a bad scenario including high sustained inflation. Neutrality mitigated a portion of repercussions of the war but WWI still had very large detrimental effects on Sweden. This isn't normal SORR...and not very applicable to the US.
Sorry again that the paper did not repay your effort to read.

But I found value in the detail you added about the vicissitudes suffered by Sweden around WW I. Do you have a source that I can cite? I may want to add some of those details if I revise the paper.

In the meantime, Sweden presents a particularly interesting case for this thread. Based on the Credit Suisse Global Investment Returns Yearbook 2022, for the balanced fund investor (50-50), Sweden recorded almost the very best returns since 1900 for any market in the world, a hair behind South Africa and measurably ahead of the US. [4.555 v 4.5% v. 4.35% annualized real].

And yet, the Swede who retired in 1912 with a 60-40 or 30-70 balanced mix ran out of money in 16 or 20 years respectively. (For the paper I applied the RMD schedule, 3.65% initially, adjusted for inflation—not 4%). It was the worst outcome of any of the edge cases I considered.

Moral: winning the race over 122 years does not imply a successful withdrawal course at every juncture. Were something like the projected returns in my spreadsheet to transpire in the US (I am not saying they will), then the US might one day be the inverse of Sweden 1900-2021, with all the great returns coming up front instead of later; and those historical returns not guaranteed of continuance, just as Sweden after 1922 was not condemned to limp along at the rear of the pack forever.

Pity none of us has a 122 year investing horizon.
Moral: World War on your doorstep means all bets are off.

Thanks for the insight.
I really do not think this is right. Sweden, like basically all of Europe, did have a rough going in 1916-1918, but it was better off than all of the non-neutral countries during that time frame. It also had very strong growth during the beginning of the War in 1914 and 1915 and was starting a nice recovery coming out of the War in 1919-1920. The real problem was that this recovery was cut short in 1921 by a very rough and basically unrelated financial crisis.

It seems like a great example of McQ's thesis. The problem is not necessarily having a big crash, which happens everywhere from time to time. The problem is having a big crash and then missing out on the rip roaring recovery, for whatever reason. Mostly it's just bad luck.

This is the problem of just writing off huge swaths of the relatively small amount of data we have, like ignoring all of Europe during the whole first half of the 20th century, which people constantly do. Lots of different kinds of unusual things can happen, and you won't learn about them if you assume the answer is just a war.
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Nowizard
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Re: The Day the 4% Rule Died

Post by Nowizard »

It will continue, just as there are people whose individual circumstances allow or require a greater or lesser 4% withdrawal. The general concept may change during certain time periods of market fluctuation or major, investment conceptual change, however, but it has never been absolute except under specific circumstances that do not apply to everyone, sometimes not even the same individual during differing time periods.

Tim
nigel_ht
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Re: The Day the 4% Rule Died

Post by nigel_ht »

McQ wrote: Thu Jun 23, 2022 10:19 pm
nigel_ht wrote: Tue Jun 21, 2022 7:33 pm ...

Part of my job is peer reviewing journals. ...

Sweden in 1912. Still within that WWI timeframe. :oops:

Sweden's economy was deeply impacted by WWI when German subs targeted neutral shipping in 1917 (280 Swedish merchant ships were lost in the war) and by unrestricted Allied blockade starting in 1915 and allied embargoes of neutrals to keep Germany from getting food and war material. Sweden went from having an export surplus to dramatically less trade overall (both import and export). Trade as a percentage of GDP was halved after 1915 becoming more regional and less global. Given that about 30% of government revenue was from taxes on import/export, which cratered, and increased military spending (because there's a global war going on not too far away) and its not surprising that even neutral countries struggled. Poor harvests in 1917 and Allied blockades lead to food shortages in Sweden and there were large food riots. Toward the end of the war coal could no longer be imported from Germany so there were also fuel shortages on top of that.

So your 77 year old Swedish retiree was hungry and cold in 1917 because of the war and, if hale enough, was possibly protesting in the streets.

To recap...a country that depended a lot on foreign imports lost a sizable portion of their merchant marine (17% of their tonnage) to war, suffered from diminished trade because of blockade (from war) and had a famine/poor harvest.

Yep...that leads to a bad scenario including high sustained inflation. Neutrality mitigated a portion of repercussions of the war but WWI still had very large detrimental effects on Sweden. This isn't normal SORR...and not very applicable to the US.
Sorry again that the paper did not repay your effort to read.
Oh no problem. [Disrespectful comment removed by admin LadyGeek]
But I found value in the detail you added about the vicissitudes suffered by Sweden around WW I. Do you have a source that I can cite? I may want to add some of those details if I revise the paper.
I’m afraid that I’m on travel and most of my primary sources are actually naval references like Conways anyway. I have several books on WWI naval campaigns…mostly dealing with Dogger Bank and Jutland but I recall reading about neutrals…enough for a quick Google to recall loss numbers. I’m sure someone with your level of research skill can find some suitable sources.
In the meantime, Sweden presents a particularly interesting case for this thread. Based on the Credit Suisse Global Investment Returns Yearbook 2022, for the balanced fund investor (50-50), Sweden recorded almost the very best returns since 1900 for any market in the world, a hair behind South Africa and measurably ahead of the US. [4.555 v 4.5% v. 4.35% annualized real].

And yet, the Swede who retired in 1912 with a 60-40 or 30-70 balanced mix ran out of money in 16 or 20 years respectively. (For the paper I applied the RMD schedule, 3.65% initially, adjusted for inflation—not 4%). It was the worst outcome of any of the edge cases I considered.

Moral: winning the race over 122 years does not imply a successful withdrawal course at every juncture. Were something like the projected returns in my spreadsheet to transpire in the US (I am not saying they will), then the US might one day be the inverse of Sweden 1900-2021, with all the great returns coming up front instead of later; and those historical returns not guaranteed of continuance, just as Sweden after 1922 was not condemned to limp along at the rear of the pack forever.

Pity none of us has a 122 year investing horizon.
Sweden might be a more relevant comparison if Gustavus Adolphus hadn’t died at Lutzen and was able to better secure Sweden as a great European power more deeply. Then again Charles XII did pretty well and Sweden fell by the wayside anyway.

So it’s not that interesting that a minor European power suffered in WW I even as a neutral.

Moral: As Homer pointed out…world wars means all bets are off…

And you like to avoid the point that the US Empire is harder to dismember than the British or French ones…
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Re: The Day the 4% Rule Died

Post by nigel_ht »

HootingSloth wrote: Fri Jun 24, 2022 9:05 am
It seems like a great example of McQ's thesis. The problem is not necessarily having a big crash, which happens everywhere from time to time. The problem is having a big crash and then missing out on the rip roaring recovery, for whatever reason. Mostly it's just bad luck.
Not a very well supported thesis I’m afraid.

It is possible that we might suffer in the same way but we are one of the best positioned countries to avoid this outcome.
This is the problem of just writing off huge swaths of the relatively small amount of data we have, like ignoring all of Europe during the whole first half of the 20th century, which people constantly do. Lots of different kinds of unusual things can happen, and you won't learn about them if you assume the answer is just a war.
Lol…it wasn’t “just a war” which is why that data is considered an “unfair” comparison. McQ even says so in his paper.

Bad things happen when millions die, empires are destroyed and cities bombed into ruin over course of two world wars…
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HomerJ
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Re: The Day the 4% Rule Died

Post by HomerJ »

There will be some researcher (Heck it might still be Wade Pfau) in 2052 who will show how 4% doesn't work because looking at all the countries in Europe, he found one that had a 0.5% SWR from 2022-2052.

He won't mention that it was Ukraine until the footnotes.
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Trance
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Re: The Day the 4% Rule Died

Post by Trance »

My goal has always been to save away enough that I can live off the dividends alone, and don't actually have to sell any stock. I can't tell if this is ambitious or foolish though.
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FiveK
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Re: The Day the 4% Rule Died

Post by FiveK »

Trance wrote: Sat Jun 25, 2022 10:03 pm My goal has always been to save away enough that I can live off the dividends alone, and don't actually have to sell any stock. I can't tell if this is ambitious or foolish though.
The S&P 500 Dividend Yield has been running ~2%. Using that set of stocks as a proxy would imply a "2% rule".
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McQ
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Re: The Day the 4% Rule Died

Post by McQ »

FactualFran wrote: Mon Jun 27, 2022 8:57 pm
Marseille07 wrote: Mon Jun 27, 2022 1:57 pm That's kind of the idea. I actually don't hold bonds so there's no decision point between bonds / cash, just equities or cash depending on the AA.
Does your asset allocation (AA) include cash? If so, do you allow money to be moved from stocks to cash to maintain a target allocation to cash?

Consider starting a new topic, such as: Marseille07's non-withdrawal approach. The approach is not relevant to the topic: "The Day the 4% Rule Died".
Thank you, FactualFran. Thank you also for your insights into the Trinity study—those were on-topic comments by any measure.

As to FactualFran’s request: LadyGeek, can you make it so? And please advise if open thread was the wrong place for me to lodge this request.

Marseille07, you might retitle as "Soft vs. Hard Rebalancing," and credit HootingSloth, before making the topic your own by new contributions.
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LadyGeek
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Re: The Day the 4% Rule Died

Post by LadyGeek »

^^^ Done. I moved the discussion into a new thread. See: The Day the 4% Rule Died - Soft vs. Hard Rebalancing side discussion

To get a moderator's attention sooner, please report the post using the (Report this post) icon in the top-right corner of the post and explain what's wrong. Suggesting a new thread title is helpful (as was done here), thanks.
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Kenkat
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Re: The Day the 4% Rule Died

Post by Kenkat »

Long long time ago, I can still remember
How that 4% used to make me smile
And I knew if I had my chance
That I could make that money last
And maybe I’d be happy for a while

But February made me shiver
With every bond drop I'd deliver
Bad news on the doorstep
I couldn't take one more step

I can't remember if I cried
When I read the thoughts of the 3% side
But something touched me deep inside
The day that 4% died
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McQ
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Re: The Day the 4% Rule Died

Post by McQ »

Kenkat wrote: Tue Jun 28, 2022 9:29 am Long long time ago, I can still remember
How that 4% used to make me smile
And I knew if I had my chance
That I could make that money last
And maybe I’d be happy for a while

But February made me shiver
With every bond drop I'd deliver
Bad news on the doorstep
I couldn't take one more step

I can't remember if I cried
When I read the thoughts of the 3% side
But something touched me deep inside
The day that 4% died
You made my day, Kenkat! :sharebeer
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.
smitcat
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Re: The Day the 4% Rule Died

Post by smitcat »

FiveK wrote: Sat Jun 25, 2022 10:08 pm
Trance wrote: Sat Jun 25, 2022 10:03 pm My goal has always been to save away enough that I can live off the dividends alone, and don't actually have to sell any stock. I can't tell if this is ambitious or foolish though.
The S&P 500 Dividend Yield has been running ~2%. Using that set of stocks as a proxy would imply a "2% rule".
But....would it be inflation adjusted?
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LadyGeek
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Re: The Day the 4% Rule Died

Post by LadyGeek »

Kenkat wrote: Tue Jun 28, 2022 9:29 am Long long time ago, I can still remember
How that 4% used to make me smile
And I knew if I had my chance
That I could make that money last
And maybe I’d be happy for a while

But February made me shiver
With every bond drop I'd deliver
Bad news on the doorstep
I couldn't take one more step

I can't remember if I cried
When I read the thoughts of the 3% side
But something touched me deep inside
The day that 4% died
Excellent! :thumbsup In case anyone missed the reference, google "American Pie Don McLean". Also, kudos to McQ for the thread title.
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iamlucky13
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Re: The Day the 4% Rule Died

Post by iamlucky13 »

Well played.

I think I can help keep it going...
Kenkat wrote: Tue Jun 28, 2022 9:29 am Long long time ago, I can still remember
How that 4% used to make me smile
And I knew if I had my chance
That I could make that money last
And maybe I’d be happy for a while

But February made me shiver
With every bond drop I'd deliver
Bad news on the doorstep
I couldn't take one more step

I can't remember if I cried
When I read the thoughts of the 3% side
But something touched me deep inside
The day that 4% died
I started singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.

Now did you read the Trinity tome?
Is your allocation biased toward home?
If Jack Bogle tells you so?
Do you believe in Treasury Bills?
Can the Feds temper the market's thrills?
And can you teach me how to buy real low?

Well I know the bubble's growing thin
'Cause I saw the options being put in.
A selloff followed the news
Driven by supply chain blues.

I was a lonely crypto-mining buck
With a plan to time when I back up the truck
But I knew I was out of luck
The day that 4% died.

I started singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.

Now for ten years Tesla's been on their own,
While Detroit looked on with a casual tone,
But that's not how it used to be.
When the jester sang for the SEC
In a post about private financing
And a voice that blamed the oil industry.

Oh and while the feds were looking down,
The jester bought Twitter's whole town.
The transaction was adjourned.
By posting a sick burn.

And while Putin read a book of Marx
Ukraine's grain from foreign ports embarked
And UN sanctions hit their mark
The day that 4% died.

We were singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.

Helter skelter in the summer swelter
Fuel hedges offered little shelter
Gas at record highs and rising fast.
Interest rates climbed at last, home owners could not refinance
With the jester on the sidelines in a cast.

Now 1st quarter results hinted of gloom
While the execs tried to cheer the room.
We all heard profits announced,
But was this a dead cat bounce?

Cause bond prices went down across the field
As the feds moved to adjust the yield.
Do you recall what was revealed
The day that 4% died?

We started singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.
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Kenkat
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Re: The Day the 4% Rule Died

Post by Kenkat »

iamlucky13 wrote: Tue Jun 28, 2022 7:25 pm I think I can help keep it going...
Very very nice! :sharebeer
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FiveK
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Re: The Day the 4% Rule Died

Post by FiveK »

smitcat wrote: Tue Jun 28, 2022 6:40 pm
FiveK wrote: Sat Jun 25, 2022 10:08 pm
Trance wrote: Sat Jun 25, 2022 10:03 pm My goal has always been to save away enough that I can live off the dividends alone, and don't actually have to sell any stock. I can't tell if this is ambitious or foolish though.
The S&P 500 Dividend Yield has been running ~2%. Using that set of stocks as a proxy would imply a "2% rule".
But....would it be inflation adjusted?
Yes, to the extent dividends keep pace with inflation, and no to the extent they don't.
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McQ
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Re: The Day the 4% Rule Died

Post by McQ »

iamlucky13 wrote: Tue Jun 28, 2022 7:25 pm ...
I started singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.

Now did you read the Trinity tome?
Is your allocation biased toward home?
If Jack Bogle tells you so?
Do you believe in Treasury Bills?
Can the Feds temper the market's thrills?
And can you teach me how to buy real low?

Well I know the bubble's growing thin
'Cause I saw the options being put in.
A selloff followed the news
Driven by supply chain blues.

I was a lonely crypto-mining buck
With a plan to time when I back up the truck
But I knew I was out of luck
The day that 4% died.

I started singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.

Now for ten years Tesla's been on their own,
While Detroit looked on with a casual tone,
But that's not how it used to be.
When the jester sang for the SEC
In a post about private financing
And a voice that blamed the oil industry.

Oh and while the feds were looking down,
The jester bought Twitter's whole town.
The transaction was adjourned.
By posting a sick burn.

And while Putin read a book of Marx
Ukraine's grain from foreign ports embarked
And UN sanctions hit their mark
The day that 4% died.

We were singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.

Helter skelter in the summer swelter
Fuel hedges offered little shelter
Gas at record highs and rising fast.
Interest rates climbed at last, home owners could not refinance
With the jester on the sidelines in a cast.

Now 1st quarter results hinted of gloom
While the execs tried to cheer the room.
We all heard profits announced,
But was this a dead cat bounce?

Cause bond prices went down across the field
As the feds moved to adjust the yield.
Do you recall what was revealed
The day that 4% died?

We started singing, I-Bonds, why didn't I buy
When the rates were not quite as great but my powder was dry?
Them good old boys were bidding real estate high,
Singing, "This'll be when Bengen's rule dies."
This will be when Bengen's rule dies.
Wow.
I used to entertain the notion that I could be somewhat creative in my writing style, but after reading your post, iamlucky13 ... that illusion has been shattered.
:sharebeer
Any plans for a Youtube video? Verse by verse in TikTok maybe?
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LadyGeek
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Re: The Day the 4% Rule Died

Post by LadyGeek »

Nice, but let's get back to the topic at-hand... :wink:
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Re: The Day the 4% Rule Died

Post by iamlucky13 »

McQ wrote: Tue Jun 28, 2022 10:14 pm I used to entertain the notion that I could be somewhat creative in my writing style, but after reading your post, iamlucky13 ... that illusion has been shattered.
:sharebeer
Any plans for a Youtube video? Verse by verse in TikTok maybe?
Frankly, I have to give credit to the Bogleheads at large. After kenkat got the gears turning, I pulled up a copy of the original lyrics to stare at for a bit, and various thread topics just seem to fall into the places of the original.

But I don't think most folks in the TikTok crowd would really get it without hanging around this discussion board for a while...
LadyGeek wrote: Wed Jun 29, 2022 5:38 am Nice, but let's get back to the topic at-hand...
Copy that. Thanks for indulging us for a bit. :D
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