I am using Mode 1 for my portfolio modeling (not the tool for Roth conversions). I have specified what I believe to be conservative Real Rates of Return based on historical information (multiple sources & AI). In addition, I specified my Growth Taxation parameters based on the last 3 years of data from my holdings.
Can someone else look these over and tell me if they seem reasonable? I always plan with maximum expense & minimum income so I'm usually pleasantly surprised by the real-world outcomes.
Thanks for your help!
Well, I never received any feedback on my values from the Forum. However, I met with Bill Hines (Emancipare) to review my Pralana implementation and adjusted these values after some research. The Rates of Return (real) are conservative but the Growth Taxation is dead-on (based on the my research). One thing Grady (Bill's colleague) pointed out was those Real RORs should be adjusted up or down based on the inflation assumptions I am using. Not applicable to all assets but should be considered.
For what it is worth, I have attached my updated values with a 3% inflation rate.
@thompson795 Comfort levels vary so much by individual, and the assumptions compound so dramatically over long time periods that these choices become more philosophical than empirical. My baseline is even more conservative, but I do model scenarios close to yours. As for the growth taxation, you seem to have funds that do not distribute qualified dividends? I have nothing that efficient. May I ask what you use in taxable?
@JLee I have a risk parity portfolio design consisting of 21% large-cap growth (VUG), 21% small-cap value (VIOV), 26% long-term US Treasuries (VGLT), 16% Gold (GLDM), 10% managed futures (DBMF), & up to 6% in Cash (MMFs). The 6% cash allocation varies - it is currently at 6% but I will spend it down to 2% in the next bear market by purchasing VUG & VIOV at a discount (still waiting for that correction ;)). We mechanically rebalance whenever the asset's allocation varies by more than 20% from the target. For example, if DBMF drops to 8% (20% less than 10% allocation target), I will sell the winners, starting with the highest asset above its target, and use the funds to buy more DBMF. I have used this design for years and only vary the 10% alternatives allocation & 6% cash allocation when I feel I would benefit. I only change my portfolio holdings when the holding to be replaced is at or near an all-time high to avoid selling at a loss - so I don't change often and don't take changes likely. The portfolio is designed to hold volatile assets with low correlations to provide low-volatility growth and minimize losses by selling the winners & buying the losers (sell high, buy low). When modeled using tools like Portfolio Charts, this portfolio provides a very high safe withdrawal rate.
We manage our tIRAs, Roths, HSAs, and a taxable account as a single portfolio. When rebalancing, here is the order of operation:
1. Fill the tIRAs with GLDM & DBMF. If any room left, fill remaining qualified accounts with VGLT.
2. Fill the Roths & HSAs with any remaining GLDM & DBMF. Then allocate as much VUG & VIOV as possible. Then fill up with VGLT if there is remaining space.
3. Everything left goes into the taxable account, including cash (MMFs).
Our assets are currently ~50% qualified, 25% tax-free, & 25% taxable.
Current allocations:
The tIRAs hold all GLDM & DBMF plus some VGLT.
The Roths & HSAs are full of VUG & VIOV.
The taxable has VUG, VIOV, VGLT, & all the cash.
Of course, these allocations will change as we spend down the different account types.
Probably TMI but I hope it answers your question.
@thompson795 Wow, thanks for all of that! I need to spend time understanding it better. You're a much more sophisticated investor than I am!
