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Three Things: September 8, 2019

September 08, 2019
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Here are the most recent Three Things that stood out to me this week: Global Diversification, Poetry (yea, poetry), and retirement distribution rates.




 Thing #1: 

Article: A Tale of Two Decades


Over the last several years I’ve had to defend the viability of international stocks on several occasions —which is okay. Nothing always looks good and sometimes investors can emphasize factors that may take years to materialize into attractive returns (I’m looking at YOU, Value Stocks). This article from Dimensional does a good job at putting global returns into focus. 

This piece observes the last 20 years of market returns within the context of two decades: 2000-2009 and 2010-2019. These decades tell two very different stories for stocks. 

In particular, although the S&P 500 index had average annual returns of approximately 10% leading up to the 2000s, the first decade of the new millennium is commonly referred to as “The Lost Decade” because annualized returns for the S&P 500 during this decade were -0.95%. However, global stocks fared better than US stocks during that same period (See below). 


The opposite was true over the last 10 years (2010 - 2019); US stocks have been the best performers and global stocks have not been as productive (below). 

Key Takeaway: 

In recent years it may be tempting to consider concentrating in US Stocks based on recent performance. However, we must remain disciplined while taking a long term approach. 

Being diversified means always we’ll always dislike some part of the portfolio. Over the full 20 year period, a globally diversified portfolio looked attractive compared to one concentrated in either US Stocks or Ex-US Stocks. 

*See important disclosures in the article. 

Link to article: 

Thing #2

Poem: The Dash

Linda Ellis

I read of a man who stood to speak at the funeral of a friend. 

He referred to the dates on the tombstone from the beginning… to the end.

He noted that first came the date of birth and spoke of the following date with tears, 

but he said what mattered most of all was the dash between those years.

For that dash represents all the time they spent alive on earth 

and now only those who loved them know what that little line is worth.

For it matters not, how much we own, the cars… the house… the cash. 

What matters is how we live and love and how we spend our dash.

So think about this long and hard; are there things you’d like to change? 

For you never know how much time is left that still can be rearranged.

To be less quick to anger and show appreciation more 

and love the people in our lives like we’ve never loved before.

If we treat each other with respect and more often wear a smile… 

remembering that this special dash might only last a little while.

So when your eulogy is being read, with your life’s actions to rehash, 

would you be proud of the things they say about how you lived your dash?

Key Takeaway: 

Every once in a while we get a painful reminder to live life to the fullest while prioritizing what matters most. Perhaps this poem can serve as a reminder without us needing to endure the pain. 


This is what we try to emphasize when building financial plans and investment strategies: the ability to live richly while supporting the things we care about. 

Link to Poem:

Thing: #3 

Article: What’s the Ideal Annual Withdrawal Rate?

Craig Israelson, 

For most of us, we save and invest today so we can buy things we need in the future. Sometimes that thing we need is college tuition for our kids, or sometimes it’s a new house or car. Almost ALL the time it’s to replace our income when we retire. When replacing income, the challenge is determining what regular withdrawal rate is sustainable in retirement. This article digs into just that. 

The article assumes a hypothetical $1,000,000 60/40 stock/bond portfolio over every 25 year period between 1961-2018 and tests that portfolio at various withdrawal rates (in the matrix below). 


Key Takeaway: 

There is a lot to consider when adopting a lifetime income strategy: taxes, legacy goals, and heightened expenses due to cost of care, to name a few. Clearly there is a greater likelihood of funds lasting if the withdrawal rate is low. But, more importantly, the flexibility of the withdrawal rate is critical. If distributions can be flexible, then distributions in ‘bad’ times can perhaps be dialed down to limit the portfolio’s rate of depletion (because the opportunity cost of selling and distributing after a decline is significant). 

Additionally, in the table above, the ending value of the portfolio (in the right three columns) is the hypothetical value left to an estate if the owner of this portfolio lives to 95. It’s worth noting that lifetime annuities (which are quite close to a ‘bad word’ in my office) would mean the annuity company keeps this amount at death. Remember, insurance companies aren’t going to design financial products that cause them to lose money. They often accept investors’ hard earned savings, promise an annual rate of distribution, charge fees along the way, and then keep the remainder at death. We don’t know exactly how those insurance companies invest, but this hypothetical 60/40 strategy would bode very well for them even if the annuitant lived until 95 and was paid a significant distribution rate (even the average ending value on a 10% withdrawal rate portfolio is $943,823 that they’d keep). 

I prefer to craft portfolio distribution strategies with better potential estate plan outcomes, more withdrawal flexibility, and lower costs than typical annuity and life insurance products. 

Link to Article:

That’s all for this week!