Ahhhh. Thanks for sharing the math. Honestly I would call the statistical chance of 0.00031% to be inconsequential. That is worse than the odds of being hit by lightning. But again, I do respect what you have put together. This theoretical deep risk analysis.The math would beMy apologies so you did predict the statistical odds of those events occurring at 15% unless I misunderstood your post above. That is a lot of certainty. I postulate that it is closer to <1%, but I finally understand what you are attempting to do. You are setting the odds of portfolio failure if the future is significantly worse than the past and what withdrawal rate would be needed for its success. I can respect it even though I disagree with some of the assumptions used.
1 in 152 chance of grabbing the first year of the great recession, 0.85*0.85 chance of grabbing all 3 years of the great recession and 1 in 152 chance of then grabbing the Covid 19 year which is 0.0031% chance 1/152*0.85*0.85*1/152). More than 99% of these will be followed by nice positive history like sequences so the 30 year chain will have less than 0.000031% negative chains without stock recovery.
I would call 0.000031% less than rounding error when I am reporting failure rates to 0.01%.
I wanted to add. I see no reason why we can't have a future that is worse than the past. Sure, it could happen and that is why flexibility in spending is needed. Otherwise 4% would be just fine and our conversation is over. What I do not envision is that the Great Financial Crisis will be followed by Covid 19 and the economy reacted similarly as it has in the past. It just isn't going to happen. When you add such bad events together, of course you will have failure rates in the 0.01%. But those failures will never exist. They are inconsequential to anyone's reality just as I live my life not worrying about being hit by lightning.
Statistics: Posted by EnjoyIt — Tue Apr 09, 2024 2:48 pm — Replies 285 — Views 21008