During the BH conference, I learned that endowments are taking a totally different approach to their sustainable withdrawals.
Instead of SWR method, which is taking a certain percentage and adding an inflation adjustment every year, the claim was that endowments would look at the average portfolio value over the last 5 years, and withdraw 5% of that (no inflation adjustment). This seems to be a modified variation of the VPW withdrawal strategy, but seems like a reasonable middle ground:
1. While there is no explicit inflation adjustment, there is an implicit inflation adjustment because stocks usually outpace inflation.
2. As with VPW, the risk of running out of money is unlikely, as you are taking a fixed percentage off the portfolio (almost), so you can do this in perpetuity.
3. VPW main issue is fluctuations as the portfolio size changes, by taking the time-averaged value, you are smoothing out the big market movements, creating a more stable withdrawal amount year-after-year.
What am I missing? Why is this method not being researched more?
Instead of SWR method, which is taking a certain percentage and adding an inflation adjustment every year, the claim was that endowments would look at the average portfolio value over the last 5 years, and withdraw 5% of that (no inflation adjustment). This seems to be a modified variation of the VPW withdrawal strategy, but seems like a reasonable middle ground:
1. While there is no explicit inflation adjustment, there is an implicit inflation adjustment because stocks usually outpace inflation.
2. As with VPW, the risk of running out of money is unlikely, as you are taking a fixed percentage off the portfolio (almost), so you can do this in perpetuity.
3. VPW main issue is fluctuations as the portfolio size changes, by taking the time-averaged value, you are smoothing out the big market movements, creating a more stable withdrawal amount year-after-year.
What am I missing? Why is this method not being researched more?
Statistics: Posted by gwu11 — Sun Nov 03, 2024 2:10 am — Replies 1 — Views 59