One issue with the historical analysis that is done at the bottom of the Variable Annuity Calculator is that it assumes you can mimic the behavior of the asset categories by buying and selling specific securities. For assets such as the S&P 500 and US Treasury Bonds, this is probably a safe assumption by using an index fund or ETF. However, for assets such as Gold and Real Estate that may or may not be the case. On this page, we will select specific ETFs (Exchange Traded Funds) for each asset category and see exactly how they have behaved with the DoubleBucket™ Method. Since ETFs have only been available in recent history, this study will only go back to 2005. Certainly, we need to take these results with a grain of salt due to the short history. However, if we find that the behavior here is similar to the Variable Annuity Calculator then this will reinforce our confidence in the DoubleBucket Method in general. Plus, we think it's important to see how the system works in practice. We call this the Live Performance because it is an actual application of the DoubleBucket Method with realistic trade results.
You may want to open up the report files for reference as you read through the analysis below. The first report shows the withdrawals and remaining principal for each month of the span for both the DoubleBucket Method and the 4% Rule. The second report includes the trades that were made to re-balance the assets for the DB Method. Re-balancing was done every 6 months.
We looked at all spans starting from 2005 to 2012, with each span running up to the end of 2020. A 40 year annuity table − from our standard Annuity Calculator − was used to determine asset allocations and withdrawal rates. Obviously, we don't have enough history to complete the spans, but still there is enough data to make it interesting. We found that the spans starting before the Great Recession of 2008/2009 behaved similarly (i.e. they all suffered) and so too with the spans starting after that time period (i.e., they all did well). We don't feel that the spans after 2009 are too interesting for 2 reasons: 1) The spans are too short, and 2) markets in general have performed well since then so any method should do well (and that's what was observed). However, analyzing the results prior to 2008 we feel is significant to see how the DoubleBucket Method performed through the Great Recession. Since the spans starting in 2005, 2006, 2007, & 2008 are all similar, we've only attached the span starting in 2005 which we feel is representative. Plus, it has the longest run. Note that the 4% Rule uses an asset mix of 50% stocks & 50% US mid-term bonds, while the DoubleBucket Method uses the standard 40yr annuity table from our Annuity Calculator.
In looking at the performance of various assets during the Great Recession, the 9 month period from May 2008 through February 2009 was especially stark. Stocks in general were down around 45% and real estate was down over 60%. US 10 Year Bonds, Gold, & Cash were somewhat of a saving grace, but only partially. Considering that our "Best" asset mixes for the various time buckets are somewhat heavy with stocks and real estate, this was an extremely challenging period for the DoubleBucket Method. The monthly withdrawal rate in 2008 was $5525, and then dropped down to $4168 in 2009. That was a 24% reduction in income. That may seem unacceptable but in comparison to the 4% Rule, it is still favorable. The 4% Rule withdrawal was only $3800 in 2009. Also, over the entire span (from 2005 t0 2020) the average withdrawal of the DB Method was 45% better than the 4% Rule, $5758 vs. $3961.
This was one of the worst spans in modern history, and we hope an anomaly
The $5525 withdrawal rate in 2008 is a suggested max, not an absolute so the reduction in income could have been less than 24% going into 2009.
The DoubleBucket Method can never run out of money, whereas with the 4% Rule may have been in question in 2009.
The DoubleBucket Method and the 4% Rule use quite different asset allocations, and probably is a significant factor in the difference between the 2 methods. While the 4% Rule uses what is thought to be a conservative 50/50 mix of stocks & bonds, there are probably better choices.
In summary, while this was a very challenging period the DoubleBucket Method survived and did quite well in comparison to the 4% Rule. While admittedly this is not an exhaustive study and the time frame was rather short, one important thing to note is that the results are similar to what we see when using the Annuity Calculator over this same period. What this indicates is that the ETFs we've chosen to track each asset category seem to do a pretty good job.
Here are links to the 2 reports for the details of this study:
The ETFs we used are in the table below. Also, we've shown how each ETF performed during the critical period from May 2008 through February of 2009.
Performance from 5/2008 to 2/2009
10 Year US Bonds
Real Estate (REITs)