5 key ideas from Winning the Loser’s Game by Charles Ellis

1. The allocation between equities and bonds depends on when you will retire:

Time to retirement       % in stocks       % in bonds
5 years 60 40
10 years 80 20
15 years 90 10
20 years 100 0

My view-point: Very aggressive and risky

2. If your investing horizon is longer than your living horizon, then the wiser, better decision is to invest 100% in equities.

My view-point: True, but you need to be really sure you are leaving it for the next generation

3. There are five major unknowns:

  • Rate of return on investments
  • Inflation
  • Spending
  • Taxes
  • Time

4. How to withdraw money during retirement:

  • 4% annual withdrawal of a three-year moving average of your portfolio
  • If u need to withdraw 5% then put a rolling 5 years expenditure in medium-term bonds and the rest in equity the year you retire.Each year convert 1 year spending from equities to bonds. If equity has good prospects- then 2 years spending in bonds. If equity has great prospects- then 3 years spending in bonds.
  • Only spend the cash income of a portfolio( dividends and interest)
  • If u spend 6% you will run out of money.

5. Long term returns of various asset classes

  • Stocks-4.5%
  • Bonds-1.5%
  • T-bills-1.25%

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