Good catch. I'd forgotten (or maybe never noticed) that the static allocation could contain different assets from the dynamic allocation.TN_Boy wrote: ↑Mon Aug 08, 2022 9:33 am As I noted above, there IS a place in portfolio visualizer to do the exact test required. It's harder to find and you need a login. This is the link:
https://www.portfoliovisualizer.com/bac ... allocation
For settings, click on "Compared Portfolio" then select static allocation and you can define a portfolio. But as I said, you have to create a login (14 day free trial!) to actually upload an allocation history and run a backtest.
I was able to roughly replicate my earlier finding for this particular time period using PV after all, so thank you.
The static allocation in this test is 50% VFINX, 25% VFITX, 25% VFISX.
The dynamic allocation is 50% VFINX and moves from 50% VUSTX on 1/1/1992 to 50% CASH on 1/1/2021. Portfolios start with $100k and have $6,200 inflation adjusted withdrawals annually.
As you observe, keeping the duration of the static allocation's bond fund as close to the 7.5 year mark as possible will reduce the differential. But I don't think this is what most investors are doing in practice.
For one thing, the duration of total bond fund has historically been much shorter than it is currently. For another, I frequently observe investors using TBM as a "core bond fund" but matching it with significant cash-like allocations (e.g. a "bucket" for 2-5 years of expenses).
However, I certainly agree that with 50%+ stocks a static bond duration of 7-8 years throughout retirement is a totally reasonable approach.