Would it be possible to do the same thing beginning with each down market? 2000, 2008 etc. i know schd would not e an option but vanguard may have an option to choose from. Aye add XLP to the test. Great work by the way.
Hi Blair, it would certainly be possible and it actually sounds like a great follow up to the original analysis. Let me add this to the pipeline of tests.
I can tell you off the bat that the 4% rule really struggles if you start it during a bad market period. I’ve ran extensive tests solely on the 4% rule but haven’t compared them to a dividend stream aside from what I shared in this post.
My guess is that the dividend stream would be even better than the 4% rule in both scenarios (2000 & 2008). I expect that starting the test in 2000 will have a significantly worse outcome because you’ll run into the 2008 financial crisis as well after you come out of the dot com bubble. Let me put this together and we will see how the numbers actually look.
Oddly enough I just retired last week. Looking to find a program to backtest different ideas. Yes, I kinda like playing with those type things. However, one thing I have done right before retiring is looking for stocks that did well or not bad in the 2000 and 2008 time periods. I’ve slowly ( prob 15% of my portfolio) changed over to a few of them, but they are out there. Some are borderline, but here are a few. ROL, CHD, RSG, AZO, ROST, EME, CHE, ADP and GWW. And of course one has to see if the companies are “still” good. I have another list where they only have 1 down year off 30% during the 2000 and 2008 time periods. I say all of that to say this. That’s a lot of d___ work. Which made be now think, should I just do a few good ETF’s and go fishing. That’s when I saw your backtest of an ETF and I thought, that’s a hell of a lot easier. You make less money over the years, but also may loose less. Which is why I would love to see a few ETF’s that start before 2000 and pretend that would be possibly the worse scenario for me if 2025 or 2026 turned out like that for me. But SCHD and others dont go back that far. I’ve found a few ETF’S that do such as XLV etc. So now I’m looking for a program to play. Only found Portfolio Visualizer at this time but not sure if the program will do it before I pay for it. Either way. You have some of the best content out there. You do a great job.
Congratulations are in order! I wish you a long, healthy and peaceful retirement!
There are a handful of recession proof industries and companies that seem to weather market crashes better than others. But every market crash is a bit unique and seems to impact different sectors and industries in a different way. You pointed out a handful of stable companies that span a few industries which is always a safer play to not park your capital in a single corner of the market.
Being more involved in your portfolio certainly does not resonate with everyone. There's no right or wrong approach between investing in individual stocks or a basket of ETFs/index funds, so long as your portfolio is meeting your objectives you may not care about the opportunity cost of the alternative method of investing.
I'd say take some time and really think about how involved you'd like to be with your portfolio. Now that you're retired you have more spare time but do you really want to spend a few hours each month maintaining a robust portfolio or would you rather adopt a set it a forget it portfolio while you go about doing other things. Its also a little easier to experience a market crash with ETFs and index funds opposed to individual stocks. Being less involved during market crashes will likely prevent you from making any rash decisions that may compound your losses.
As for backtesting I use Portfolio Visualizer quite extensively. Their latest update condensed the Free Tier to only analyze the last 10 years. Before the update you could go back to 1985 which was fantastic. I presume that option is still available in the premium plan. Their platform is very robust. In addition to running backtests you can also run monte carlo simulations and efficient frontier analysis which may be beyond the scope of your understanding at the moment, but they are quite simple tools to use once you get the hang of it.
I would recommend that you try out testfol.io first, its a free tool that will backtest an asset allocation all the way to the 1960's (don't quote me on this but it does go very far back in time). It is a much simpler platform than Portfolio Visualizer and the analysis is not quite as robust. I don't believe testfol.io will show you dividend income and growth, but maybe it will suffice for what you're looking to backtest. And its completely free and a good place to start before you shell out money for a subscription.
Thank you for the kind words! Hopefully I continue to provide insightful content!
You're welcome. I was quite surprised with how well SCHD handled itself in the "4% rule" test, granted the past decade has seen exceptional returns from the market. I do believe even under normal market conditions SCHD would likely generate a very reliable stream of income, making it a good alternative option to a more typical retirement asset allocation.
Thanks Dave. I had a conversation recently with a friend about his retirement and this topic came up, so I thought it would be a useful exercise to look into.
Would it be possible to do the same thing beginning with each down market? 2000, 2008 etc. i know schd would not e an option but vanguard may have an option to choose from. Aye add XLP to the test. Great work by the way.
Hi Blair, it would certainly be possible and it actually sounds like a great follow up to the original analysis. Let me add this to the pipeline of tests.
I can tell you off the bat that the 4% rule really struggles if you start it during a bad market period. I’ve ran extensive tests solely on the 4% rule but haven’t compared them to a dividend stream aside from what I shared in this post.
My guess is that the dividend stream would be even better than the 4% rule in both scenarios (2000 & 2008). I expect that starting the test in 2000 will have a significantly worse outcome because you’ll run into the 2008 financial crisis as well after you come out of the dot com bubble. Let me put this together and we will see how the numbers actually look.
Oddly enough I just retired last week. Looking to find a program to backtest different ideas. Yes, I kinda like playing with those type things. However, one thing I have done right before retiring is looking for stocks that did well or not bad in the 2000 and 2008 time periods. I’ve slowly ( prob 15% of my portfolio) changed over to a few of them, but they are out there. Some are borderline, but here are a few. ROL, CHD, RSG, AZO, ROST, EME, CHE, ADP and GWW. And of course one has to see if the companies are “still” good. I have another list where they only have 1 down year off 30% during the 2000 and 2008 time periods. I say all of that to say this. That’s a lot of d___ work. Which made be now think, should I just do a few good ETF’s and go fishing. That’s when I saw your backtest of an ETF and I thought, that’s a hell of a lot easier. You make less money over the years, but also may loose less. Which is why I would love to see a few ETF’s that start before 2000 and pretend that would be possibly the worse scenario for me if 2025 or 2026 turned out like that for me. But SCHD and others dont go back that far. I’ve found a few ETF’S that do such as XLV etc. So now I’m looking for a program to play. Only found Portfolio Visualizer at this time but not sure if the program will do it before I pay for it. Either way. You have some of the best content out there. You do a great job.
Congratulations are in order! I wish you a long, healthy and peaceful retirement!
There are a handful of recession proof industries and companies that seem to weather market crashes better than others. But every market crash is a bit unique and seems to impact different sectors and industries in a different way. You pointed out a handful of stable companies that span a few industries which is always a safer play to not park your capital in a single corner of the market.
Being more involved in your portfolio certainly does not resonate with everyone. There's no right or wrong approach between investing in individual stocks or a basket of ETFs/index funds, so long as your portfolio is meeting your objectives you may not care about the opportunity cost of the alternative method of investing.
I'd say take some time and really think about how involved you'd like to be with your portfolio. Now that you're retired you have more spare time but do you really want to spend a few hours each month maintaining a robust portfolio or would you rather adopt a set it a forget it portfolio while you go about doing other things. Its also a little easier to experience a market crash with ETFs and index funds opposed to individual stocks. Being less involved during market crashes will likely prevent you from making any rash decisions that may compound your losses.
As for backtesting I use Portfolio Visualizer quite extensively. Their latest update condensed the Free Tier to only analyze the last 10 years. Before the update you could go back to 1985 which was fantastic. I presume that option is still available in the premium plan. Their platform is very robust. In addition to running backtests you can also run monte carlo simulations and efficient frontier analysis which may be beyond the scope of your understanding at the moment, but they are quite simple tools to use once you get the hang of it.
I would recommend that you try out testfol.io first, its a free tool that will backtest an asset allocation all the way to the 1960's (don't quote me on this but it does go very far back in time). It is a much simpler platform than Portfolio Visualizer and the analysis is not quite as robust. I don't believe testfol.io will show you dividend income and growth, but maybe it will suffice for what you're looking to backtest. And its completely free and a good place to start before you shell out money for a subscription.
Thank you for the kind words! Hopefully I continue to provide insightful content!
Thanks for sharing. I had not considered SCHD.
You're welcome. I was quite surprised with how well SCHD handled itself in the "4% rule" test, granted the past decade has seen exceptional returns from the market. I do believe even under normal market conditions SCHD would likely generate a very reliable stream of income, making it a good alternative option to a more typical retirement asset allocation.
Very well researched. Thank you for the article.
Thanks Dave. I had a conversation recently with a friend about his retirement and this topic came up, so I thought it would be a useful exercise to look into.
We all get great ideas from those around us :-)
Very interesting, just compare the VOO/BND chart of 10+ years to see that 100% is the wisest choice today.