The models were simple and I used them to guide me in how much to keep in cash. There are many assumptions and holes and I did not intend to publish them. They could also be refined somewhat. I look at them as a "back of the envelope" calculations, somewhat better than guesswork. That said I am happy to share the outcomes so long as no one takes them too seriously.
The scenarios are based on a $1M or $2M capital base; either 95% in the market or 50% in the market and 50% cash; at 30% fall and a 15% fall, the fund is drawing a pension of $50,000pa indexed. The model is based on re-entry to the market after 12 months with either a 5% or 10% return. The question I asked was, how long does it take to recover the balance before the fall. There were no further contributions. This is an important difference between drawing a pension and in accumulation stage.
Incidentally, re 30% fall, between 2007 and 2009, there was a fall of just over 50%.
$1M
Column 1
Column 2
Column 3
Column 4
0
Market exposure
Fall
Return
Time
1
95%
30%
10%
15yrs
2
50%
30%
10%
8yrs
3
95%
30%
5%
never
4
50%
30%
5%
7yrs
5
95%
15%
10%
8yrs
6
50%
15%
10%
5yrs
7
95%
15%
5%
never
8
50%
15%
5%
4yrs
$2M
Column 1
Column 2
Column 3
Column 4
0
Market exposure
Fall
Return
Time
1
95%
30%
10%
7yrs
2
50%
30%
10%
4yrs
3
95%
30%
5%
8yrs
4
50%
30%
5%
5yrs
5
95%
15%
10%
4yrs
6
50%
15%
10%
2yrs
7
95%
15%
5%
4yrs
8
50%
15%
5%
3yrs
For what it is worth, this was the outcome that helped me decide (along with other market and macro-economic factors) to increase my cash holdings. But what would I know, I am just a nerd who likes playing with spreadsheets. That is my disclaimer .
.
