The point of this post is to use one alternative way to visualize the interior of the distributions in Figure 2 of the last post
All of the assumptions are the same as in the link. After a reader question: the returns and spend are real but clearly not realistic. I haven't thought about that realism much yet. The reader pointed out the low risk option in real life would be less likely a 0 allocation to the HR strawman and more likely a TIPS ladder or an annuity or something.
All true but then the goal of much of the blog was not so much realism as understanding shapes and flow in general. I.e. not a practical guide for anyone on, say, social security or 401ks, just assuaging my own curiosity.
In the last post, figure 2 looked like this
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| Figure 2 from last post |
which is an illustration of the distribution of years of portfolio longevity for each of 11 portfolios going from lower risk to higher. The visualization provides some general intuition. I then looked at some random stats in the left and right tails. After that post I was wondering about a more formal examination of the interior of each distribution -- still denominated in years -- by looking at percentiles over some interval. In the case of this post I selected 10th through 90th as one (arbitrary still but a little more comprehensive; note typo on chart btw) way to "see."
So, for each portfolio, and for each percentile 10 to 80, I figured out "years" and since years are discrete I did a little interpolation to smooth out the analysis. When I run this chart thing in R, I get this:
Interpretation? It's just the interior of the prev chart. The question is still about policy:
- avoid short lived portfolios based on risk tolerance and some arbitrary level of judgement?
- stretch for long lived portfolios based on risk tolerance?
I can't even answer that for myself yet. But for human horizons it depends on too many other things not addressed here (wealth fundedness, spend policy, etc). Maybe another post...
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