Searching for the Perfect Portfolio – Part 3

search3In the previous two posts I have checked the performance of 3 different portfolios from 2003/2004 up until today. I wanted to know how did the 2008/2009 financial market crash has impacted the early retirement plan of our imaginative friends. These examples already allow us to make some conclusions, nevertheless I am still searching for the perfect portfolio. Let’s see what part 3 will show us!

This story starts in 2007. Our 3 new friends (Mark, Scott and Bill) are in the same position as the previous six people. If you haven’t read the first two parts (Part 1, Part 2), I recommend doing so, as there I explain the investment and withdrawal principles applied under each scenario. This time I have chosen 2007 as the starting date, as I wanted to check what would’ve happened if the financial crisis hit these portfolios during the middle of the final five years before the planned early retirement date (in our case 2012). Let’s see the chart of this period!


As you can see this time Bill has won the race with his 100% investment grade corporate bond portfolio. The roughly 2.5 years that have passed after the market bottom was not enough for either Mark (with the 60-40 portfolio) or Scott (sitting in 100% VTI) to overtake him. They have both managed though to get out from the market crash and end up with a relatively nice portfolio value (although still far from the 1 million dream).

What has happened after they retired?


Well, it turns out than Bill’s advantage was only temporary. By the end of 2013 both Mark and Scott have overtaken him, reached the 1 million threshold and by now both of their portfolio value is around USD 1.1 million. Considering the fact that since their retirement they haven’t added a single cent to it (in fact they used all the dividends plus even withdrawn 3% per year), this is pretty impressive…

But you can’t buy a loaf of bread solely by showing your portfolio value at the counter; let’s see how much was the monthly amount that they could use!


First let’s compare the 3 stock portfolios. You can look at this chart from two different ways: compare the years, or the number of years after retirement. From the first aspect Scott doesn’t do really well comparing to Steve and Stacey. This is mainly due to the fact that he couldn’t accumulate enough number of shares during his last 5 years. This of course will also mean less dividends for him in the future. At the same time the trend is the same for all 3 portfolios: continuously increasing monthly income. This is no surprise considering the stock market increase of the recent years.


The comparison of the 3 bond people might look strange first, but there is a reasonable explanation. Bill has more monthly income during these four years because during 2009-2011 he was still in the wealth accumulation phase while Bob and Babette have already started to live off their portfolios. Nevertheless the trend is clear: continuously declining monthly income for everyone (starting from a high base). This suggests that the same withdrawal principles shouldn’t be applied for bonds as for stocks. More focus should be put on the dividend income of the bond funds, while the principal should be bothered less. Of course there are specific market conditions when this view shall not applied, but let’s talk about it in a later post…

You can find the other parts of the Searching for the Perfect Portfolio series under the below links:


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