Phenomenal read. I finished your new book in one sitting and plan to recommend it to my friends. A couple questions: 1)How significant is the difference in asset allocation within the stock portion of the portfolio to safemax results? You make a compelling case that inflation regime is primary with returns secondary. I’m trying to appreciate how meaningful adoption of the “standard configuration” portfolio truly is. There were only small differences to SafeMax rates from incremental changes in the overall stock vs. bond allocation within the 55 to 60%+/- range, so my assumption is the impact of deviation from the 11% standard configuration allocations would be even less. Is this not the case? Please explain. 2) Many of us are looking for portfolio simplicity with Bogleheads, for instance, wed to the 3-fund portfolio. Allocating 11% to 5 separate stock holdings introduces greater complexity. What’s the simplest, low cost, low-maintainence way to implement this allocation, for instance, with specific Vanguard funds? How should rebalancing within these 5 holdings be done as compared to your rebalancing guidance for the overall stock/bond allocation?

Thanks, again, for your book and lifetime of work!   M.

 

Dear M.,

Thanks for your note and your excellent questions. Let me respond to them in order:

1. There is some sensitivity of SAFEMAX to asset allocation. I’ve developed a tool which I plan to post to my website this week which you can use to “Play around” with asset allocations and determine the effects on SAFEMAX. It’ll called the “SYHTHETIC CWR GENERATOR.” If you recall, my original SAFEMAX was 4.15%, but adding four stock classes elevated that to 4.7%. I would imagine if all the stock investments were concentrated in international stocks, which have returned only about 8% over the last 100 years vs, the 10% to 12% returns of US stocks, SAFEMAX would have been much lower. Note that the “plateau” in SAFEMAX between about 45% to 75% stocks applies only to the worst-case 10/31/1968 retiree. The results, as I show in my book, can vary drastically from retiree to retiree. In some cases, a 95% allocation to stocks would have been optimum. This would apply to those lucky enough to retire into the early stages of a major stock bull market.
2. Simplicity in investing is a virtue, in my opinion.  I believe that diversification is the key. If you can obtain proper diversification with three high-quality stock funds, why not do so? My only concern is that with such few funds, you may lack exposure to asset classes such as gold, commodities, REITS, Bitcoin, emerging markets, alternative investments, etc. I would rather have a few more funds than worry about having insufficient diversification.

Best regards,

Bill Bengen