#560244
Postby 1nvest » January 9th, 2023, 11:02 am
Barclays Equity Gilt Study 2016 data ... FT All Share Index
Year end 1972 dividend yield was 3.61%
Page 81 Total Return price index data, gross income reinvested
1972 1922
1973 1382
1974 680
Page 75 Price only Index
1972 901
1973 619
1974 276
Page 73 Cost of Living Index
1972 766.2
1973 912.8
1974 1149
In real (after inflation) terms I calculate that to be a -75.8% decline in share prices, -65% decline in dividend value across the combined 1973 and 1974 years.
Taxation under stressful times tends to rise. When the economy suffers so government spending suffers and taxes are inclined to rise. Page 83 indicates 32% basic rate taxation in both of those years, that the above total return figures being gross income reinvested excludes.
Yes you might cherry pick survivors and/or individual cases (stocks/funds) that did better, or worse. The broad index is a indicator of general average outcome, that indicates that both capital and dividend values dropped considerably, in excess of -75% declines in both in net of taxation terms.
With SWR the easier way to calculate that is to adjusted total returns to real, and just discount the SWR % value from that each year. I calculate that at the end of 1974 a 4% SWR would have seen £1M of 1973 start year portfolio value down to £187,600 value in real terms, with 1975 year spending already dropped into a cash account.
1975 inflation was running at near 25% levels, such that 16% inflation at the end of 1974 would have left the SWR value that had been dropped into a cash account at the start of the year running somewhat short of actually covering spending, stocks however did rebound some (a lot, but not enough to offset ongoing declines), so additional shares might have been sold to in-fill that spending shortfall. Many in drawdown/spending mode at that time however capitulated, similar to how Groucho Marx capitulated after the Wall Street Crash years, "sell .. to preserve what little of their retirement pot remained". But I guess when inflation is running at near 25% levels there's not much in the way of alternatives, and for those that did sell they may well have run out of money, all £1M initial value spent after just a handful of years.
Great for accumulators however. As after such massive declines and adding additional money/saving subsequent rewards were great, played out over the following decades when stocks/bonds returns were considerably above average. The tendency being that for those that were sunk by the declines - their advice more often is to avoid stocks. Whereas for those that benefited from the 1980's onward great gains their advice is more often to load heavily into stocks. A broader opinion often being to go between the two, 50/50 stock/bonds.
Historically going back over 120 years, measuring 30 year SWR outcomes and in around 35% of cases conservative asset allocations actually beat all-stock. In another third of cases all-stock won by around the same margin, i.e. in around two-thirds of cases all-stock and conservative (say 50/50 stock/bonds) broadly averaged similar outcomes. It's the third great stock outcomes that distort the overall average, start years typically following large declines such as 1973/1974 where fantastic rewards can be evident. But that's a 'average' distortion, that the average investor wont encounter. All stock rides both the declines and rebounds, broadly washes. Those however that opt for a conservative asset allocation - but that move all-in after large declines, do capture some of the benefits.
Fundamentally for most investors, a conservative asset allocation and reserving the option to go all-in after large declines is a better stance than being all-stock from the offset, excepting if loading into all-stock aligns with being at/near large declines/lows.
How money is drawn is irrelevant, be that via dividends (other people defining when and how much is paid out) or whether via DIY dividends, selling down some of total returns by the amounts/times that you choose for yourself. A difference however is that with DIY dividends its other investors who fund the dividend - in buying the shares that you sell. For stocks that pay dividends, they come out of the firms own capital. BRK for instance pays no dividends by policy, Buffett just says to sell shares to the amount and times of your own choosing. When investors do that it has zero impact upon BRK, other than just some name changes within its share register. If BRK paid the same dividend out to all investors, then its base value/capital would be reduced by the total amount of dividends paid out.
