Wellington Fund at the Start of The Great Depression

It’s Been A While Hasn’t It?

(As always please unsubscribe below if you no longer want to receive emails from me.)

Well, I’ve been busy as a Bee in a Bonnet!  My financial planning business didn’t fall off hardly at all, first and foremost.  Which, frankly, was/is shocking to me.  (Makes me wonder if the numbers we’ve been told about 40 million jobs lost are actually correct.)

The pain in my knee has also gone away and as such I’ve been out walking Pablo (aka King of All Scandlen’s) a lot, meaning I’ve done a ton of videos too. 

Lastly, I’ve been working on my forthcoming book, “Retire on The Wellington Fund”. 

I’m going to share with you a sneak preview of what that book will consist of, lots of graphs, with various commentaries, looking at past numbers. 

For instance the below shows what would have happened if you had $100k when you retired in 1930. You put 4 years of expenditures ($24k) in a non-interest bearing cash account and the rest, $74k, in the Wellington Fund and had 6% initial withdraws adjusted for inflation each year. 

 



 

 

 

 

 

 

 

You would have run out of money in 22 years. 

Yet if you would have done the EXACT same thing except started one year later, in 1931, the results would have been remarkably different:

 

 

 

 

 

 

 

 

 

 

Now check this out:

 

 

 

 

 

 

 

 

 

 

Here we’re doing the Barbell approach starting in 1930 but using only 5% initial distributions and adjusting for inflation.  See the difference???

We survived 30 years of retirement – and this was starting during the GREAT DEPRESSION WITH NO INTEREST ON THE CASH BUCKET EITHER!!!

So, while everyone is focusing on 4% they are leaving a lot of money to their estate when, in fact, they could have spent that money themselves partying like it’s 1999.

Oh, I hear ya,  BUT???  Yes, indeed, we’ll dive DEEP into the chaos that was the US high inflation years of the mid 60’s through the early 80’s.

It gets ugly then. No two ways around it.

BUTTTTT, is that likely to happen again?

Let’s look at the data. What countries signify what the US may be looking at in the future? (In my best Richard Dawson voice)”Survey Says… JAPAN!”

Japan right now has an inflation rate of .1%, not 1% mind you, but POINT 1%, with an annual GDP Growth rate of NEGATIVE 2.2%.  An unemployment rate of 2.6%, a Debt to GPD of 238% and a 10 year Government bond paying all of .02%.

Are we more like Japan or say Turkey which is kinda, sorta part of the EU and the “West”. Turkey has annualized GDP growth of 4.5%, 10 year government bond at 11.75%, inflation at 11.39%, unemployment at 13.2%,  but a government debt to GDP only at 33%.

Who does the Good Ole USofA align closer to, may I ask?  (Actually, can I still even call it the “Good” Ole USofA anymore? Seems a lot of people today are proudly saying America was never good. For the record, if this is your viewpoint, please unsubscribe now. I don’t want you here.

“Josh, why do you have to get political? ” I hear this on occasion.  Because America is the best country the world has ever seen and I’m tired of it being dragged through the mud by people who proudly align with evil that is Communists.  Someone, ANYONE needs to stick up for the country, scars and all!)

Soooo, if you think Turkey is more likely to be our fate, well, my book probably will frighten you because it’s gonna get ugly.

If you think we’re closer to the Japan model, well, seems to me living off a 4% rule is living wayyyy too frugally.  Don’t do that!

Much, much more to come with the book.

The Wellington Fund lost nearly half its value at the start of its illustrious career.

Would you have stuck with it?

Well, I hope so. Because if you started your retirement with $100,000 at the beginning of 1930 and invested 80% in the Wellington Fund and 20% in 10 year Treasury Bonds by the time 1960 rolled around you’d have $112,205 left in your portfolio. Oh, and by the way, that’s taking 5% out of your portfolio initially and adjusting for inflation each year thereafter.

You heard that right, that’s a 5% distribution rate and nowhere did you come even close to running out of money! Did I say you retired in the Great Depression??? I find this to be amazing. There are a couple lessons to be learned here which I’ll share with you at the end of this email.

80% Wellington Fund / 20% U.S. Bonds

The strategy was pretty simple too; Start with 80% in Wellington Fund, 20% in U.S. 10 Year Treasury Bonds. After the first year, take $5,000 from whichever was up most. Adjust your distribution amount each year with inflation and take it from, again, the account that did the best.

Rinse, wash, repeat.

By the year 1941 rolled around the bond side of the portfolio ran out of money. No worries, the Wellington Fund took it from there.

You may have heard that the 1930s were quite bad for stocks. Here is the Wellington Fund year by year. Notice the huge losses as the start of the decade, followed by some real nice gains only to be met by the buzzsaw of 1937. All in all, the 1930s are like New York City, if you can survive it, you can survive anything…

Wellington Fund Returns In The 1930’s

After the bonds were exhausted, the entirety of the distributions came from the Wellington Fund. However, because you were able to avoid the dreaded “sequence of return risk” in the beginning of your retirement by taking your annual distributions from the bonds, you did just fine.

This second column from the right shows the ending balance of the Wellington Fund by year end. The last column on the right shows the ending balance MINUS the distribution amount. Not too shabby, if I do say so myself.

Wellington Fund After Bonds


You started the GREAT DEPRESSION (!) with $100,000. You ended 30 years later with MORE than $100,000, starting with a 5% distribution rate.

Again, just amazing!

Okay, so what is ultimate the issue here? Well, having the bonds (or cash) to offset the huge declines in your stocks to start retirement is huge. No two ways around this. I sent you an email recently that if you took 5% initially and adjusted for inflation each year SOLELY from the Wellington Fund you’d have run out of money by 1958. So, sequence of returns DO matter.

Inflation During Great Depression

But you can’t overlook the fact that what cost you $5000 in 1930 only cost you $4,065 by the time 1940 rolled around. That deflation, i.e., the literal meaning of the Great Depression, turned out to be a saving grace for portfolio sustainability.

In fact, think about it like this. What have I ALWAYS been preaching about retirees spending? Does it go up, down, or sideways? Well, as I stated in my new book,

retiree spending typically goes down…and a lot too; Similar to what happened in the 1930s, where $5,000 in spending in 1930, adjusted for inflation, was around $4,000 ten years later.

Today, retiree spending declines not because deflationary pressure like the 1930s. But rather because people grow older and less eager to do the same things they did previously. The reason for spending decreases is irrelevant, of course, the critical point is that when folks withdraw less as the years go by, their portfolio has more staying power.

The more I think about this, the more surprised I am the 1930’s have been so neglected when it comes to retirement planning research. This decade has EVERYTHING a researcher wants, horrible negative returns to start the decade, with a 2008-like year near the end. The 1930’s look freakishly similar to the 2000’s, in fact.

Bond yields in the 2000’s were much higher than the 1930’s but so was inflation, basically a wash.  And if you could survive the one decade, you most likely were able to survive the other. But again, we look at the 1930’s as this calamity of untold proportions for investors. That simply is not true.

Now this realization has settled in for me, I know to use the 1930’s as a proxy for a retiree with declining spending needs. It is a wonderful thing to behold.

The Inflationary Monster Comes Next

However, the monster is still lurking. He will be born in 1966 and will devour many retirees over the next 16 years. He is my next challenge. If he can be slain, without complexity just by using the Wellington Fund and 10 Year Treasuries, I might just have to call this a career. Gotta go out on top, no???

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