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.
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