The original Floor-Leverage Rule for Retirement, as proposed by Scott and Watson, calls for two parallel investments. The first one is to establish a low risk Spending Floor Portfolio with 85% of one’s funds. The second, the Surplus Portfolio, is an investment of the remaining 15% in equities with 3× leverage. If the Surplus Portfolio exceeds 15% of the total portfolio value at annual rebalancing when withdrawals are made, it is adjusted to 15% of the total portfolio value with the excess being transferred to the Spending Floor Portfolio. The problem is that 3× leveraged stock portfolios can lose most of their value. For example, they lost 94% from 2000 to 2008, which would have wiped out almost 15% of retirement capital if one had followed the Original Floor-Leverage Rule. A better approach, and one that could avoid such losses, is to time one’s exposure to equities as put forward by our Improved Floor-Leverage Rule, which is a low-risk spending and investment strategy for retirees.
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Blog Archives
More Retirement Income with iM’s Improved Floor-Leverage Rule: 6.5% Safe Withdrawal Rate
Estimating Stock Market Returns to 2020 and Beyond: Update July 2014
July 7, 2014 About two years ago evidence was presented that a major bull market may have commenced in 2009. Additionally, a statistical analysis of the historic data of the S&P Composite presented in an Aug-2012 article and Jan-2014 update thereto supported this finding. Since August 2012 the S&P500 has now gained a real 40% to the end of June 2014. So what further gains can we expect, if any?
Minimum Volatility Stocks: Better Tax Efficient Returns also during Rising Markets
Minimum volatility ETFs should provide exposure to stocks with potentially less risk. They track indexes that try to capture the broad equity market with a reduced amount of volatility, seeking to benefit from what is known as low-volatility anomaly. Consequently they should show reduced losses during declining markets, but also reduced gains during rising markets. However, better returns with simultaneous tax efficiency can be obtained also during rising markets by selecting a number of the highest ranked stocks of a minimum volatility ETF and holding those positions for at least one year before new trades are initiated.
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Best10 June 9, 2014
Currently the portfolio holds 10 stocks, 6 of them winners, so far held for an average period of 31 days, and showing combined 2.44% average return to 6/9/2014
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Best10 June 2, 2014
Currently the portfolio holds 10 stocks, 7 of them winners, so far held for an average period of 27 days, and showing combined 0.42% average return to 6/2/2014
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Backtesting the MAC-System – How Long is Long Enough?
Most of us entrust our savings to financial organizations in the belief that this will provide us with better investment results than we could have achieved ourselves. These companies advocate a buy-and-hold strategy of bond- and stock funds, charge fees, and usually perform poorly. A convenient way to improve on buy-and-hold and to do better than financial organizations is to periodically switch one’s investment from stocks to bonds and vice versa as indicated by the Moving Average Crossover MAC-system.
iM Update* – May 23, 2014
The BVR-model avoids high beta bonds (long-bonds) and also intermediate duration bonds. The Bond Value Ratio is shown in Fig 4. The BVR is a bit lower than last week’s level. According to the model, only when BVR turns upward after having been lower than the lower offset-line should one consider long bonds again.
The yield curve model shows the generally steepening trend of the 10-year and 2-year Treasuries yield spread. Figure 5 charts (i10 – i2). The general trend is up, as one can see, although the yield curve has flattened recently. FLAT and STPP are ETNs. STPP profits from a steepening yield curve and FLAT increases in value when the yield curve flattens. This model confirms the direction of the BVR.
iM Update* – May 16, 2014
The BVR-model avoids high beta bonds (long-bonds) and also intermediate duration bonds. The Bond Value Ratio is shown in Fig 4. The BVR is near last week’s level. According to the model, only when BVR turns upward after having been lower than the lower offset-line should one consider long bonds again.
The yield curve model shows the generally steepening trend of the 10-year and 2-year Treasuries yield spread. Figure 5 charts (i10 – i2). The general trend is up, as one can see, although the yield curve has flattened recently. FLAT and STPP are ETNs. STPP profits from a steepening yield curve and FLAT increases in value when the yield curve flattens. This model confirms the direction of the BVR.