FYI: The Vanguard Group Inc., which has for years voiced skepticism about the fast rise of exotic index-investing strategies, has hired a top researcher away from one of the best-known promoters of smart beta, Research Affiliates.
Valley Forge, Pa.-based Vanguard, the largest mutual fund firm and the second-largest ETF manager, is bringing Research Affiliates analyst Denis B. Chaves to its quantitative equity group, according to the leader of that group, John Ameriks.
Regards,
Ted
http://www.investmentnews.com/article/20150908/FREE/150909935?template=printart

FYI: Focus on potential water shortages is part of investors’ interest in ‘sustainable’ investing.
Regards,
Ted
http://www.wsj.com/articles/water-the-new-screen-for-investment-risk-1441768915

Hi msf,
It is quite possible that we interpreted the Rethinking Retirement document differently or even that we went to a different reference from among those posted by ibartman.
I pulled the 3% number from the “whitepaper” link in ibartman’s original post. That click accessed the 14 page Rethinking Retirement report
On page10 of that document, the authors said: “These initial spending rates are specifically calibrated to include a 3% annual cost-of-living adjustment (COLA), rather than having spending adjust precisely with the realized inflation experienced over retirement.”
In doing any forecasting analyses, I always postulate a positive risk return premium for both stocks and bonds over inflation. Reasonable approximations are 6.5% and 1.5%, respectively. But these are easily adjusted when doing Monte Carlo simulations to suit your preferences.
The primary purpose of my post was to reintroduce Monte Carlo simulators to the MFO population. Any input numbers that I suggest or that Pfau and Dokken actually used are nice as a generic guideline or a departure point, but do not necessarily reflect the specifics that each investor needs for his personal portfolio. That’s why I consistently recommend that each investor become familiar and comfortable enough with the Monte Carlo tool to do his own analyses.
That comfort level comes with practice. With sufficient practice comes confidence in the assembled portfolio and whatever withdrawal rate is being planned. Since plans are never perfectly realized, revisions will be needed as a function of time, so the Monte Carlo tool needs to be revisited.
The specific quoted numbers are not important; the tool and the process are the essential ingredients to exploring the robustness of any portfolio, and an acceptable withdrawal rate that might need adjustments over time.
Best Wishes.

Pfau & Dokken also assumed that long-term bond returns would be perturbed modestly from its present low rate of return. But they also hypothesized that annual inflation rates would average 3%. That’s lower than the historical average, but is not consistent with the postulated depressed long-term bond annual rate of return.

We are reading the paper differently. They are treating both inflation rates and bond yields similarly, which to my ears sounds like each is starting at its respective current value and gradually regressing toward its historical mean:

With the correlated error terms, inflation is modeled as a first order autoregressive process starting from 1.58% inflation in 2013 and trending toward its historical average over time with its historical volatility. Bond yields are similarly modeled with a first order autoregression with an initial value of 1.88% (the 10-year Treasury rate in January 2015).

The difference, or error, to the extent there is one, is not in how the two data sets were treated, but in their starting points.
The 1.58% inflation rate is the 2013 annual inflation rate (for January - December 2013) as of January 1, 2014. Had the same Jan 1, 2014 date been used as the starting point for bond yields, the methodology would seem to have been okay. That rate was 2.86%. Instead, they chose to start the Treasury rates from a later date, Jan 1, 2015 (1.88%).
The 2.86% figure might have been considered a little high, as it was virtually the peak for 2013 (the actual monthly maximum was 2.90% on Dec 1, 2013). But the figure selected, 1.88%, was the lowest monthly figure since 2012. (Yields in 2013, 2014, and 2015 to date have all been at least as high as the Jan 1, 2014 yield.) It was not representative either.
So I don't believe they used historical average for inflation rates while perturbing (regressing) the current bond yield, which would be wrong, but it does appear that they fudged the starting yield on the bonds a bit.

Hi Guys,
The recent paper by Professors Pfau & Dokken on the erosion of the 4% retirement drawdown rule allows me to get out my old broken record that extols the virtues of Monte Carlo analysis.
I have done this so any times that MFO members must be tired of my pontifications on the subject. No matter, this is an important topic that should encourage those not mathematically inclined to use the Monte Carlo tool. Mathematical sophisticated is not required.
What is required is the persistence and the thought process to define some plausible what-if scenarios for the long term marketplace. You guys do this all the time when committing money to various financial products. The Monte Carlo tool will do the needed calculations. It is not necessary to look under the hood to comprehend the machinery. That only depends on your interest level.
For the purposes of exploring the various dimensions of this retirement withdrawal issue, I recommend the Monte Carlo code accessible on the Portfolio Visualizer website. Here is a direct Link to their version of a Monte Carlo simulator:
https://www.portfoliovisualizer.com/monte-carlo-simulation
I encourage you to visit this tool and play games with it. With just a little effort you can easily examine numerous scenarios that will permit you to develop a feel for which parameters are important and which are not. Have some fun.
The conclusions that Pfau & Dokken reached were basically preordained by the conservative assumptions that they made. The old 4% drawdown rule was doomed by their pessimistic assumptions. I actually agree with some of them, but not all. You must decide for yourself both the merits and shortcomings of them.
Understand that Pfau & Dokken postulated a 30 to 40 year portfolio survival requirement. They presumed a 95% portfolio survival criteria. You get to choose these based on your own situation. They assumed that the equity market is too high based on the current Shiller’s P/E10 ratio, and simultaneously projected an equity regression-to-the-mean.
Pfau & Dokken also assumed that long-term bond returns would be perturbed modestly from its present low rate of return. But they also hypothesized that annual inflation rates would average 3%. That’s lower than the historical average, but is not consistent with the postulated depressed long-term bond annual rate of return.
Since most retirement analyses make adjustments for the inflation rate, this is a critical paired set of inputs. I recommend you play what-if games with these parameters, especially the inflation rate. The Portfolio Visualizer tool allows this parameter to be easily changed. Just do it.
Pfau & Dokken are smart, experienced researchers. But recognize that their findings were predetermined by a set of conservative assumptions. It’s likely that you agree with some but take issue with others. The Portfolio Visualizer tool will allow you to measure the impact of this plethora of assumptions.
In the Simulation Model box of the code, I recommend you click to the “Parameterized Returns” which will permit you to input your estimate of annual “expected return” and “volatility” (standard deviation) for your portfolio. You can change these to explore how survival outcomes change. Also try different Inflation estimates to test their impact on portfolio survival rates. Enjoy.
I hope you find my post useful, but more importantly, I hope you visit and try the referenced Monte Carlo code.
Best Regards.

WHY 4% COULD FAIL
Sep 1, 2015 • Wade Pfau & Wade Dokken

The 4% rule isn't worth much. I posted this in another thread on how to estimate for retirement.
-------------------------------------------------------
Too many assumptions to go into there. Monte Carlo and others are like many rule of thumb (e.g. 4% rule) estimators - good for generalities but not good for the specific situations.
Generally, a bottoms up approach is better i.e. budget, net worth, pension, SS etc.
This is my 2015 budget own home, no debt, single person
Basic Living
House
2,117 RE Tax
2,556 HOA
489 Electric
928 Insurance
300 Misc Purchases
133 Mail Box
6,522 Subtotal House
Car
138 AAA
744 Routine Mtc.
1,164 Insurance
82 Registration
1,800 Gas
3,929 Subtotal Car
Personal Expenses
327 Income Taxes
1,200 Cash
360 Medical
340 Cell Phone
3,300 Food
600 Wine
59 Misc
396 Internet Access
300 Dining Out/Entertainment
4,029 Health Ins.
300 Clothes
- Driving Lic
11,211 Subtotal Personal Expenses
21,661 Total Basic Living
Incremental Living - 1
91 Travel Trailer Reg
492 Storage
Good Sam
583
Incremental Living - 2
6,256 Travel/Education/Etc
Misc Hobbies
6,256
6,839 Total Discretionary
28,500 Total Basic + Incremental
Let's assume I don't have any pension or SS, and no inflation for now. What do I need?
$114,000 in near cash for 4 years of expenses - this is ride out market (bond & stock downturns.
$407,143 earning 7% to get to 28,500/year expenses
$100,000 to 150,000 contingency money, if wanted, earning ???
$621,143 to 671,143 total excluding house
Does a person need all that money? Maybe not if the person will collect SS. The closer they are to collecting SS would affect that - e.g. if they are within 2 years they could have less money in near cash.
This is not meant to be a perfect example.
Now let's use Junkster's info on SS $1294 monthly - 15,528/yr
$28,500 Total Basic + Incremental
-$15,528 SS
$12,972 to be funded
$51,888 in near cash for 4 years of expenses - this is ride out market (bond & stock downturns.
$185,143 earning 7% to get to 12,972/year expenses to be funded
$100,000 to 150,000 contingency money, if wanted, earning ???
$337,031 to 357,031 total excluding house
Both of these examples are better than monte carlo and top down rule of thumb.
There are two reasons I can think of that the top down method is the most discussed:
1. Advisors use them to scare people into buying their services
2. Budgeting is boring and most don't people don't have one nor do most know where they spend their money.

Actually, I think the key 'math' involved is simple subtraction.

According to the authors, the arithmetic is anything but simple (which might explain why I can't explain it either):

"And generally, a 1% fee lowers the sustainable spending rate by 0.5% to 0.6%."

Hi Art,
As of my last instant Xray analysis ... I have about a five percent weighting to emerging markets. The two emerging markets funds that I currently own are THDAX & NEWFX; and, as of 09/08/2015 market close both funds are about 20% below their fifty two week high ... Ouch.

About 40% of the stocks in my core portfolio are foreign stocks (via mutual funds). About 36% of the foreign stocks are emerging/frontier markets stocks per M* data. (That equals about 15% of the stocks in my portfolio.) The core portfolio is essentially a buy and hold portfolio with infrequent trading. My thinking is that in the intermediate to long term EM/FM stocks have better growth potential than most other segments of my stock portfolio but are relatively somewhat undervalued. So, they get over weighted.
I don't have a tradeable sense about what might happen in the short term but currently plan to maintain about a 40% weighting for the EM/FM segment of my foreign stock holdings. If the market continues to punish that segment of my portfolio, I will be buying some more EM/FM stocks when the portfolio gets rebalanced if changes are made.

http://www.sec.gov/Archives/edgar/data/1498498/000119312515314419/d34943d497.htm
497 1 d34943d497.htm ASHMORE FUNDS
Filed pursuant to Rule 497(e)
File Nos. 333-169226 and 811-22468
ASHMORE FUNDS
Supplement dated September 8, 2015
to the Statutory Prospectus for Class A, Class C and Institutional Class Shares
of Ashmore Emerging Markets Currency Fund
On September 4, 2015 the Board of Trustees of Ashmore Funds approved a plan of liquidation (the “Plan of Liquidation”) for the Ashmore Emerging Markets Currency Fund (the “Fund”), with such liquidation scheduled to take place on or about October 9, 2015 (the “Liquidation Date”). On or before the Liquidation Date, the Fund will seek to convert substantially all of its portfolio securities and other assets to cash or cash equivalents. Therefore, the Fund may depart from its stated investment objectives and policies as it prepares to liquidate its assets and distribute them to shareholders. Any shares of the Fund outstanding on the Liquidation Date will be automatically redeemed on that date. As soon as practicable after the Liquidation Date, the Fund will distribute pro rata to the Fund’s shareholders of record as of the close of business on the Liquidation Date all of the remaining assets of the Fund, after paying, or setting aside the amount to pay, any expenses and liabilities of the Fund.
The Fund may make one or more distributions of income and/or net capital gains on or prior to the Liquidation Date in order to eliminate Fund-level taxes. For taxable shareholders, the automatic redemption on the Liquidation Date generally will be treated like other redemptions of shares generally – that is, as a sale that may result in a gain or loss to shareholders for U.S. federal income tax purposes.
Effective as of the close of business on September 8, 2015, Class A, Class C and Institutional Class Shares of the Fund will no longer be available for purchase by new or existing investors or be available for exchanges from the other series of Ashmore Funds, except for shares that may be purchased as a result of dividend reinvestments.
At any time prior to the Liquidation Date, shareholders may redeem their shares of the Fund pursuant to the procedures set forth under “How to Sell or Exchange Shares” in the Fund’s Prospectus. Effective September 8, 2015, or as soon as practicable thereafter, the Fund will waive any contingent deferred sales charges that may be applicable to the redemption of the Fund’s Class A or Class C Shares, respectively.
Shareholders may also exchange their shares for shares of a different series of Ashmore Funds, subject to any investment minimums and other restrictions on exchanges as described under “How to Sell or Exchange Shares” in the Fund’s Prospectus.
Investors Should Retain This Supplement for Future Reference

@little5bee- You'll find that BobC doesn't post all that often but when he does it's well worth a read. He's one of the old wise men of MFO. (Sorry about the "old", Bob.)

Just skimmed the article but the bottom line seems to be that 35 years (for a 65 year old couple) is now considered to be a conservative estimate. Meaning, more and more are expected to live past 95. I simply don't see that and feel we all overestimate how long we will live. My mom is 95 and has but one lady friend older than her and she knows zero males over 95. And trust me, being the social butterfly my mom is and has been, she has known many a people in her days.
As for the 4% or whatever withdrawal rate, doesn't the size of one's nest egg count for something? Meaning, a debt free couple with a $3,000,000 nest egg who lives half way frugally could just live off their principal and not worry about the whims of the stock and bond markets. I realize I live in a low cost/income area of the U.S but in my region a single debt free retiree gets by just fine on $36,000 annually and a couple $42,000.

Yes, this part I get, but my question was the whatif endpoint = zero and period = 35y max, and cash only? Which you partly, perhaps wholly answered.
I suppose if inflation ever got really bad again a mil drawn down $20k/y would disappear in less time.
I could dive into a calculator and attempt to figure out the decline table.
Right, ice floe at 97, if there are any ice floes then.

That's an argument for putting it all into TIPS. Ladder them so that you can live off of the meager coupons and periodic principal (at staggered maturities). With nominal interest near zero, this is essentially your mattress, but with inflation protection.
All of which is an argument that 3.3% should be the floor for any 30 year strategy. Or 2.85% for your 35 years. (Draw 1/30th or 1/35th of principal with the rest getting 0% nominal plus inflation adjustments.)
The problem with this strategy is that there's no possibility of the portfolio lasting longer than 30 (or 35) years. Most investment strategies are designed to last at least N years, and usually longer. So you'd better depart on schedule or before.

Please give opinion on effect of I bonds when and if
interest rates rise. They are about 25% of my investments
at 82 year of age
Regards
circa33

The short version:
talked a bit about the piece on a family's first fund and the notion of slow, steady, manageable gains. Highlighted the James Balanced: Golden Rainbow profile that Charles did and TIAA-CREF Lifestyle Conservative piece of mine.
in the "hold it or fold it" segment (viewer requests about individual funds):
Akre: great fund, distinct biases, a manager who's younger than Buffett but ...
Driehaus Emerging Growth: great fund but I'd look at their Emerging Small Cap Growth first. Two reasons - more interesting asset class and the presence of an options hedge that has reduced its volatility below the large cap fund's.
Vanguard Selected Value: it delivers what Litman Gregory promises, a collection of distinctive outside managers whose styles are complementary. Really nice risk-return profile, low expenses.
Manor Growth: meh. Seems risk-conscious, okay returns, nothing to write home about, nothing to flee.
Mentioned after the break: Diamond Hill Small Cap. They're in the red zone for closure. Over $1.6 billion with a strategy capacity in the $1.5-2.0 billion range. I have no inside information or special insight here but ...
David

Find an allocation that meets your risk tolerance and long-term goals, keep cash needed from the portfolio in the next 5 years in CDs, cash or short-term bonds, then turn off the financial channels & don't listen to talk radio (both of which are a waste of time that could be spent doing something positive). And remember that the vast majority of people have NO money to worry about.

This seems very strange, but I have a math question for everyone smarter than I in that area:
Once you are down to the 2% and lower SWR, is it not the case that you might as well put it all under the mattress and take out what you need till it's gone, given life expectancies? In other words, say you really can live on 20k, 2% of a million, plus some inflation, and are say 62 (trying to be worst-case or stupidest-case here). 20k a year, okay, inflated appropriately. How many years does 20k last divided into a million even if you allow for inflation? Is it less than 35? I suppose it must be. Okay, put it all into bonds.

Why would anyone ever do 10% bonds at age 35?

What would your recommendation be?

Pure robots are definitely faster - the data are "untouched by human hands".
The impression I get of mass marketed portfolio management services (e.g. Fidelity Portfolio Advisory Services) is that they have a few different portfolios (possibly comprised of a gazillion funds, likely built with "robotic" assistance), and they match you to the closest portfolio. For their 1% fee or so, they provide some handholding ("stay the course"), and talk to you.
Vanguard provides a financial plan, and I'm confident uses the "robotic" tools to allocate investments based on longer discussions with you, and what your needs and time frames are. A bit less cookie cutter. John Markoff talks about AI vs IA (intelligence augmentation); Vanguard would appear to be taking the latter approach.
He was on CSPAN a week ago, talking more generally about robots replacing humans:
http://www.c-span.org/video/?327812-5/washington-journal-john-markoff-robots-manufacturing