I am trying to simulate a market loss or crash as a % of financial wealth at a particular age.
Is this the correct to do this under Esplanner: Input a Special Expenditure in that year of market loss?
However, I am not sure as it will not create a decline in the financial assets which is what I am trying to model.
Appreciate any suggestions. Thanks.
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The Upside Investing feature may be a nice fit here. See: http://www.esplanner.com/upside-investing-0 for more information.
Regards,
Brian
thanks, I'm aware of upside investing. But for my purpose, it is a bit too rigid as it assumes you lose 100% in the stock market.
The question I am trying to answer is: how much can I afford to lose per year from now until retirement before being 'at risk' of underfunding for retirement.
'At risk' means I don't meet my retirement funding needs, say $x amount per year.
Any thoughts on how to model this?
I'm curious as to what you would do with the answer? Suppose you came up with a figure of $5K/yr?
If the answer is 5K/year, I would take that and divide it by my investment portfolio size.
I should arrive at average stock market/financial loss (in %) that my portfolio can take before retirement target is at risk. This is just a sanity check on how risky my portfolio is.
A recent article from PIMCO on target fund loss capacity piqued my interest.The financial consultants surveyed says they reckon the average loss rate for their client can't be more than 5% (for 0 year to retirement), and yet typical target fund likely loss per year seems to be 12%-22%. Pimco thinks the max loss/year is 6-12%. The number varies of course, according to how far you are from retirement. If I can 2nd opinion using esplanner, I would have a sanity check on who is likely to be right.
Had a thought about this in Esplanner terms: Current version does not allow us to model the investment return in negative numbers so I think it won't be so easy to model this.
Do you use the Monte Carlo feature? The Percentile Distribution of Living Standard gives a good view of the risk of your portfolio, if you can accurately model your portfolio using either canned assets or user defined assets.
yes i have, but MC is not suitable for this specific scenario of max loss till retirement.
You could try a combination of special expenditures to show the extra spending (loss) and special withdrawals under Retirement Accounts for the specific tax-sheltered assets in the same year which would force the loss to come (mostly) from those assets.
Taxes may be an issue, but you could set the expenditures to not be tax related and play around with the amounts to take taxes into effect.
I'm not sure how you'd do this for "regular" retirement assets unless you funded the Reserve Fund for year X and then (I think) have a special expenditure later in life to deplete the extra reserve fund assets.
I'm curious to know how these work for you.
Regards,
Brian
Also, under Upside Investing, you could set the % of assets in stocks to equal the amount you have in mind, then adjust the the upside investing real rate of return on "safe" (not stock) assets to cover all of your other remaining assets.
Sounds like you've already considered this though.
Regards,
Brian