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Sold up today - house purchase

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
Eboli
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Re: Sold up today - house purchase

#441977

Postby Eboli » September 13th, 2021, 7:45 pm

I wonder at what rate of risk of death 1nvest would refrain from crossing his nearest major road?

If I recall rightly there is only one instance of a loss over 20 years in the 20th century for all of the 120 possible periods (assuming a shift monthly) - though my memory is not what it was. The expense of being cautious increases exponentially for every year you add to the length of the investment. 30 years is far too long IMHO.

Whether it is of any relevance I have been once (2007) north of 60% of total portfolio in my cash substitute.

Eb

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Re: Sold up today - house purchase

#442136

Postby 1nvest » September 14th, 2021, 12:51 pm

Eboli wrote:I wonder at what rate of risk of death 1nvest would refrain from crossing his nearest major road?

If I recall rightly there is only one instance of a loss over 20 years in the 20th century for all of the 120 possible periods (assuming a shift monthly) - though my memory is not what it was. The expense of being cautious increases exponentially for every year you add to the length of the investment. 30 years is far too long IMHO.

Whether it is of any relevance I have been once (2007) north of 60% of total portfolio in my cash substitute.

Eb

I count 4, based on yearly granularity (UK stock total returns), 1969 start year for instance, where a 4% SWR, just about covered 20 years before all being spent/exhausted. And they're gross figures, historically even basic rate taxpayers costs/taxes were relatively high at times (more so when stress was high/prices had declined. inflation had spiked). Factor in costs/taxes and the failure rate would have subjectively been higher. As a approximation assuming you had to earn a 5% for a 4% net SWR then the yearly granularity rate rises to a 16% failure rate level. IMO that's a conservative/under estimate, a more realistic figure indicates a 28% chance of ending before 20 years with nowt remaining. In the 1969 case exhaustion occurred after just 11 years.

A factor is relative valuations at the start, and recent low interest rates/inflation sees a greater risk compared to if interest rates/inflation were relatively high. Perhaps a 33% risk of failure type figure. Does holding some cash buffer help? Maybe, maybe not. Subjectively could be even worse. That also assumes good behaviour, on average historically private investors have expressed bad behaviour, buying high, capitulating low, profit chasing to end up with worse outcomes etc. broadly assumed to be around a 2% yearly cost and where some would have been better off had they simply held their money in cash deposit accounts. And that also includes survivoship bias, measured relative to indexes that still exists or that have evolved. I don't have long term FT30 stock index data for instance but suspect that would have yielded even worse outcomes despite being the popular choice in its day.

At a 33% risk of being killed crossing a local main road I'd be inclined to look for alternatives such as a footpath bridge. Better insurance/protection, especially as that insurance might be relatively low cost, maybe even zero cost. Diversification is said to be a free-lunch.


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