No. of Recommendations: 2
Thanks, Jim. Good plan. Base the withdrawal on the value of the shares you own rather than the price. Over time the price will vary around value, occasionally by a lot, as in the 1998-2000 stretch you cite, but the value will be more stable than the price.
Yes, that's the idea.
There is a small hidden disadvantage, of course. (isn't there always?)
For any SWR type scheme at all, there is a trade-off between steadiness of income and getting a good average valuation level for what you're selling. Since you're selling a relatively stable dollar amount, you're selling somewhat fewer shares when prices are high and somewhat more shares when prices are low. This definitely isn't enough to make the plan not work, but the unavoidable trade-off is that selling more shares when they're expensive (and fewer when cheap) is very effective for that extra percentage point of long run return, but it makes the income extra variable. Sometimes a steady KISS is just fine.
Hence the comment that it works particularly well if you occasionally say "I don't need that much money this quarter" and sell fewer. And particularly particularly if that just happens to be a quarter that the share price is really low : )
Jim
