As you stated we cannot tell the future so I used past quantitative data to build my (retiree) financial plan and set my AA. As such for me personally the risk is how (and how much) the future will deviate from the past, and how effective I can deal with these deviations - mainly via scenario planning in the long run, and 2.5-3 years of budgeted expenses in cash/equivalent for the short run.
For instance I may use 7% as an average annual return for my 60/40 portfolio, but I also evaluated the scenarios where it's 2% for 30 years (I guess in theory it could be even below that but I have not carefully looked at it). I also evaluated scenarios where my expenses increased significantly for whatever reasons, and where FIT increases significantly. The scenarios that I looked I generally viewed as low probability scenarios, but I accept that my financial plan is generally inadequate.
For instance I may use 7% as an average annual return for my 60/40 portfolio, but I also evaluated the scenarios where it's 2% for 30 years (I guess in theory it could be even below that but I have not carefully looked at it). I also evaluated scenarios where my expenses increased significantly for whatever reasons, and where FIT increases significantly. The scenarios that I looked I generally viewed as low probability scenarios, but I accept that my financial plan is generally inadequate.
Statistics: Posted by DSBH — Thu Aug 01, 2024 10:22 am — Replies 32 — Views 1529