# Jon Chevreau summary on Decumulation Investment Strategy paper by Yamada & Tretiakova



## milhouse (Nov 16, 2016)

*Jon Chevreau summary on Decumulation Investment Strategy paper by Yamada & Tretiakova*

Jon Chevreau wrote an article summarizing key points in a Decumulation Investment Strategy paper written by Mark Yamada and Ioulia Tretiakova of PUR Investing on MoneySense's website. Jonathan posts a link to the actual paper archived in the Journal of Retirement but it looks like it's $99 to download. 

Based on his summary, the concepts sound pretty interesting as they seem to be taking a more dynamic approach to portfolio management and income generation during one's decumulation phase called Dynamic Constant Risk (DCR). The key points I took from his summary are as follows (please feel free to correct me if you feel I've mis-interpreted some of the points:

Max 60% stock to 40% bond asset mix. 60% equities based on a general max level that those 65+ years old would be comfortable with.
Increase equity allocation to the higher end when market volatility falls. Decrease equity allocation when market volatility rises. 
Increase equity allocation to the higher end also if you below target in preventing depletion of your nest egg and reduce equity allocation when you are on target. 
Spending/Income pulled from the portfolio is increased when markets are doing well and decreased when they under perform. 

I'm very curious to see the how asset allocation and spending/income moves in concert with all the variables in the above list. I've also posted a question on Jonathan's site asking what's being used to gauge market volatility. 

They reference off of Bengen's 4% rule and other strategies and seem to suggest 40%-51% better withdrawal rates than those using this DCR strategy.


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## My Own Advisor (Sep 24, 2012)

Interesting but this concept has been around for decades - no? VPW.
"Another key mechanism in their strategy involves variable spending rules that link “spending” (income generated by the portfolio) to the performance of the portfolio. So, they boost income generation when markets are doing well, and cut it when markets underperform."

http://www.financialwisdomforum.org/forum/viewtopic.php?t=117200

Based on my learnings from this forum, and other very smart people, it seems to me the most successful retirees/investors who never worry about money tend to focus on an income goal from their portfolio vs. figuring out how to maximize returns in any market climate. This way they don't have to worry about "boosting retirement income".

There is nothing to "boost" when your income needs are already safely met. 

Thoughts from the great forum?


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## kcowan (Jul 1, 2010)

My Own Advisor said:


> There is nothing to "boost" when your income needs are already safely met.
> 
> Thoughts from the great forum?


Yes I think this a market timing spin combined with VPW. No problem but definitely old news.


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## RBull (Jan 20, 2013)

I agree MOA and kcowan. 

VPW combined with a market timing/asset allocation spin.


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## AltaRed (Jun 8, 2009)

Besides the FWF thread mentioned by MOA for those not motivated to go through it, finiki has a whole section dedicated to Variable Percentage Withdrawal it http://www.finiki.org/wiki/Variable_percentage_withdrawal 

The added spin with DCR assumes one can vary asset allocation with accuracy, i.e. market timing. Most will not get that part right and the added complication for perhaps a bit of extra juice doesn't seem to me to be a worthwhile risk/reward endeavour.


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## milhouse (Nov 16, 2016)

Appreciate all the comments.

My view of it is that yes, part this strategy is a VPW and another part is a bit market timing (with the AA adjustments based on volatility). However, I think the secret sauce is how the whole of all the pieces interact with each other rather than viewing each of the pieces individually. It's kind of hard to tell though without reading the actual paper. 
I also don't think the equity adjustments' primary goal is to maximize returns but rather to limit sequence of return risk and as a means to prevent going to zero. And there's obviously different ways to tackle these risk but I don't think there's a definitive right answer. 

However, I do align with AltaRed in that it's probably pretty debatable if the extra juice really warrants the effort and risks while creating additional places to make mistakes.


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## AltaRed (Jun 8, 2009)

milhouse said:


> I also don't think the equity adjustments' primary goal is to maximize returns but rather to limit sequence of return risk and as a means to prevent going to zero. And there's obviously different ways to tackle these risk but I don't think there's a definitive right answer.


Indeed there are various methods. Standard re-balancing either proactively annually or bi-annually...... or by disproportionately withdrawing from the asset class that is doing well, are two simple methods that don't get into technical VIG, i.e volatility, machinations. Re-balancing using any of those methods plus using the VPW factors for that specific asset allocation at the beginning of each year is essentially the same thing. It's all about taking profits from your winning AA to fund cash flow needs.


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## steve41 (Apr 18, 2009)

I don't make a distinction between pre and post retirement. When more money is coming in the door, you save, when not enough comes is you de-save. What about when you receive a windfall (inheritance or selling the family cabin)... it is a lifetime cash flow exercize.


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## AltaRed (Jun 8, 2009)

it is a cash flow exercise, but sequence of returns risk is a lot more damaging in withdrawal mode post-retirement.


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## kcowan (Jul 1, 2010)

Those of us who retired before 2007 know all about sequence of returns. Those of us who bet on the markets made out just fine and those that panicked did not. I also had a windfall gain by buying a snowbird condo in 2007. Made out on the FX as well as the property value and the reduction in stock equity. Talk about blind luck! 

But as my Dad used to say: "It is better to be lucky than smart". He also said that you will get better luck the harder your work and the more calculated risks you take.


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## ian (Jun 18, 2016)

I believe that there is as much common sense to this as there is market savvy, financial smarts. It always pays to diversify your investments in order to reduce risk. 

I think that it is always better to buy when everyone else is selling. The absolute worst time to unload your equities is when everyone else is is panic selling. When you think about it this is the exact time to buy or to average down. 

Having experienced very favourable sequence of returns I would not like to be on the opposite side of that when commencing my retirement.


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