It’s 2020. Are You Broke Yet? Not Hardly

Couch Potato Portfolio Cash Results

Some years are worse than others. You may have noticed.

With any luck, most of us will live to talk about this one. We’ll probably celebrate remaining solvent, too.

But what if you had picked a truly miserable time to retire? Would you have anything to celebrate today?

To answer that question, I picked the worst long-term investment period in recent history. That would be this century.

Retiring in 2000

I used the portfoliovisualizer website to figure the results of investing from January 2000 to the end of March 2020.

As you may recall, 2000 was not an opportune time to invest.

I also assumed that you committed to either of the two basic Couch Potato portfolios and that you started with a 4 percent withdrawal and then adjusted that dollar figure for inflation each year. Starting with $100,000, your first withdrawal after a year would have been a bit over $4,000.

Did you go broke?

Nope.

So, in spite of:

— retiring just as the Internet bust was starting,

— getting run over by the 2008-2009 financial crisis,

— and ending with the corona virus crash through the end of March.

In spite of all that, you wouldn’t be broke.

Neither would you have become fabulously rich. But that isn’t the goal of Couch Potato investing. The goal is to do better than the vast majority of managed portfolios by being simple and having dramatically lower costs.

How much is that in dollars?

Here are the dollar results. Invested in the most basic Couch Potato portfolio allocation, 50 percent total U.S. stock market and 50 percent total U.S. bond market, $100,000 provided a rising income and ended March at $103,349. During the period, your annual income would have risen by about 50 percent, finishing at just over $6,000.

Invested in the Margarita portfolio, a mixture of 33 percent total U.S. stock market, 33 percent international developed stock market and 34 percent total U.S. bond market, you wouldn’t have done as well, ending the period with $74,186. But you would have enjoyed the same income during the period.

But what about that loss in the Margarita portfolio? Does it mean failure?

Things change in twenty years

I don’t think so. Had you and a spouse been age 65 in 2000, the life expectancy tables tell me there is a 31 percent chance that neither of you would be alive to notice. There would also be a 61 percent chance that only one of you would still be around and your expenses would have declined some. Indeed, there is only a 19 percent chance that both of you are still alive.

It’s important to remember how bad this period has been. In the table below, you can see the results for running the same exercise for periods from five to 30 years. Note that the basic Couch Potato delivered income and held its value in every time period. The Margarita portfolio lost value in two time periods. It trailed the Couch Potato portfolio in every time period. As I pointed out in my Simplicity Manifesto last year, the markets haven’t been kind to broad diversification for a long time.

Cash Results for Couch Potato Portfolios

This table shows the ending cash value for two basic Couch Potato portfolios for the period ending 3/31/2020. This adds three months to the basic time periods being measured.  It is based on asset class returns, not actual mutual fund returns but will be very close to the results achieved in the least expensive index funds. The survivorship percentage figures are for B(oth), E(ither) or N(either). Single men and women will have a survivor percentage that is lower than the Either figure. Here’s an example: Starting from the year 1999 there is a 19% chance both (B) are still alive, a 69% chance one is alive (E) and a 31% chance neither (N) is alive.
Start Year   Couch Potato Margarita Survivors %  (B/E/N)
1989   $575,959 $297,124 1 /16/84
1994   $309,476 $225,372 5 /42/58
1999   $120,178 $109,138 19/69/31
2000   $103,349 $ 74,186 23/74/26
2005   $134,061 $118,663 40/87/13
2010   $149,113 $127,076 63/96/ 4
2015   $105,299 $ 98,300 84/99/ 1
Sources: www.portfoliovisualizer.com, Kitces life expectancy calculator

One note of caution: How much your portfolio is worth at the end of any time period is very sensitive to how much you withdraw each year.

A more conventional performance measurement

Some readers may find these figures disappointing, forgetting that an inflation-adjusted income was taken each year. If the same investments had been made and accumulated, over the five years ending March 31 the annualized returns would have been 4.80 percent and 3.13 percent for the Couch Potato portfolio and the Margarita portfolio, respectively.

How does that compare with top-rated professionally managed competition?  Rather well.

Over the same period, Morningstar data shows that Fidelity Puritan fund (ticker: FPURX, Morningstar rated five stars) returned 4.43 percent annualized and ranked in the top 9 percent of competing balanced funds. Dodge and Cox Balanced fund (ticker: DODBX, Morningstar rated four stars) returned 2.11 percent annualized and ranked just below the median at the 51st percentile.

It’s Miller Time

So, when you are tempted to do something clever or to pay someone else to be clever, let me make this suggestion: Grab a beer and open a bag of pretzels.


Related columns:

Scott Burns, “The Longevity of the Couch Potato Portfolio,” 2/9/2019 https://scottburns.com/the-longevity-of-the-couch-potato-portfolio/

Scott Burns, “The Simplicity Manifesto,” 3/31/2019 https://scottburns.com/the-simplicity-manifesto/

Sources and References:

Portfoliovisualizer website: www.portfoliovisualizer.com

Michael Kitces life expectancy calculator, a download from his website  https://www.kitces.com/joint-life-expectancy-and-mortality-calculator/


This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.


Photo: Scott Burns, Sunrise at Found Oaks, March 2020

(c) Scott Burns, 2020