One of my readers asked whether if I would invest in a Ray Dalio or GB portfolio as a 22 yo if I knew then what I know now. My answer is yes but you would need a clear understanding of what your goal is.
First run an accumulation simulation. If you run a 35 year career and save 45K/yr in a Dalio portfolio your range of expected returns are:
So you save 45K/yr from 25 to 60 (35 years) and have this range of likely outcomes inflation adjusted. Lets say you will retire at age 60 on an inflation adjusted 45K/yr retirement you would need to take out 108K/yr. (The 1985 dollar = 2.4 2020 dollars based on CPI for 35 years)
Next run the simulations for various market conditions (good to bad accumulations) I’ll run a 10% worse case simulation using a 35 year retirement and 108K WR
This means over the course of 70 years you made a net of 8.87M by saving 45K/yr for 35 years (in the 10% worse case market return), and then living on 108K/yr inflation adjusted for 35 years (in the 10% worse case market return). If during the course of the accumulation you don’t just max out your pretax, but take into account the last half tax consequence while saving you would have an even more robust retirement.
A $45K yearly savings at a 20% savings rate assumes a $225K/yr income. That’s likely optimistic so you would have to adjust and graduate your savings rate but none the less the point is a risk adjusted portfolio can generate a ton of money. The cost is during up years you don’t kill, but during down years you don’t get killed. The market dropped 7% over 3 days. My portfolio dropped about 2.6%. That means to get back to zero the market needs to make 14% while I only need make 5.2%.
“We will only prosper if we relentlessly search for nothing but the truth, otherwise the truth will find us through volatility”
I prefer my truth to appear in the least violent way possible.