samedi 10 mars 2018

Japanese Debacle and decumulation strategies

Would a Vampire be big in Japan? They seems to love them over there, so I would say yes (guess)

Would a Vampire be rich in Japan? The 90's were devastating in term of real return. The next 20 years were bad also. The Safe Withdrawal rate method at either 3%-4% failed in just over 10 years time. In 1990, the Nikkei drop by 40% , it has yet to recover to its pre 1990 returns. Currently 1$ of Nikkei would be worth ,47cent if it had been invested in Nikkei. That's harsh .

The first thing to notice is that between 1985 to the end of 1989, the Nikkei triple in value. The S&P500 also triple in value before the crash of 1930 and 2000. However, the Nikkei never rebounced. More precisely in the next 5 years it drop (3x to 2x). Then drop so more (2x to 1.3x). Stagnate for a while and eventually decline to 0,7x.

It seems that at first sight, this scenario is doom for failure. SWR will most likely leads to ruin. ADD and VPW gets pounded and drop by 92% of earlier withdrawals. Considering the extensive lenght and strenght of the drop this is to be expected.

The classic strategy to reduce risk by going with bonds helps getting less poor. Still it required about 50% drop in withdrawal in both ADD and VPW.

Only the international mix save the investment strategy. But who is to say that it will not happen again on a global size or on any other specific wide segment of the economy.

The ADD strategy provides about 5 years worth of previous income instead of taking the hit. It's not bad all thing considering.

In the end, only the internationnaly well diversified japanese vampire may stayed rich. While in 25 years, Nikkei was able to do 0.45x, the S&P500 did 10x. A more than substantial difference.

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