No. of Recommendations: 1
This [portfolio management] rule is garbage. I was unable to come up with the steps that would do this one. So you think the rule is garbage just because you were not able to come up with the steps? Happy to help. Someone has already built the spreadsheet, so you don't need to built it yourself.
Go to
https://cfiresim.com/ and select
Guyton-Klinger in the
Spending Plan dropdown.
The PM rule is simple to understand. Extract the gains from the asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals. That cash account is there to withdraw from in case, in a future year, neither the stock portion nor the bond portion delivers a positive return.
So I decided that Mssrs. Guyton and Klinger just put that rule in for looks. Because nearly "everybody" thinks you need to have a cash bucket.The cash bucket is there for the reason I mentioned above, and it's also there to avoid sequence of returns risk. What if both stocks and bonds decline in the first couple of years of your retirement? To understand how sequence of returns risk can impact your portfolio, see
https://www.youtube.com/watch?v=3gvvuNG8f6c
