No. of Recommendations: 16
Thanks for developing and posting this, Jim. A simple, elegant system.
Though the future is not the past, it's interesting to look at pushing Mr Buffett's system to its limit. For the last 20 years he has simply donated 5% of his current share count each July. (plus other smaller donations, but let's ignore those for the moment). As has been frequently reported, the market value of his shareholding has still risen despite the falling share count.
What's the limit?
If he had donated 7.5% of his shares each July instead of 5%, his portfolio would still be bigger in market value today, even after inflation. (only about 4% bigger, but still...)
Consider someone who used that 75% number but had sold those shares for income each July rather than giving them away. Their inflation-adjusted annual income would have been 6.0% - 9.2%* of the original real portfolio value, with the same inflation-adjusted portfolio value at the end. Simple average income 7.79%. That's in the rear view mirror; the future may be more modest.
Other than the trick of picking just the right percentage, you sure can't beat that scheme for simplicity.
Jim
* Note, I think the annual income could have been considerably more variable than that...it seems July has historically been a more predictable month that most in terms of valuation level, in fact the lowest variability of any month. The most variable were Feb,Mar,Apr, then May if you're wondering. I have no idea if that is entirely random, most likely so. But if I were to sell only once every year, I'd probably do it in July...if the pattern continues then it's a help, and if it's all random then it's as good as any!
