r/KellyLetter

Mostly likely will hit 30% rule for the first time this quarter. Already down 20% since the highest closed quarter price. 😎

Since a lot of people here are sitting in drawdowns and doing the "will it come back" math, a piece of data worth having: what an actual worst-case start date did to a real retiree, followed all the way through.

The year 2000 cohort. $2M, 80/20, 4% plus inflation. By 2026 they technically survive with about $1.54M nominal, which is 39% of their starting purchasing power, and they spent 317 of 319 months below their starting balance. The killer was the order of returns... two deep bears inside the first nine years, withdrawals converting temporary losses into permanent ones the entire time.

The reason I bring it here specifically: a plan with no exit rule has to live through whatever sequence arrives. When I ran the faithful 9Sig rules through the dot-com window earlier this year, the sleeve printed a 99.7% drawdown before the math recovered on paper, and paper recovery assumes a holder who watches that and doesn't flinch for years. The 2000 cohort data says even a diversified 80/20 holder spends a quarter century underwater in the bad sequence. A concentrated levered sleeve without an exit lives the same story with the volume turned all the way up.

Full cohort numbers, extended past the usual 2023 cutoff, are here: https://bestfolio.app/blog/year-2000-retiree-replayed (my site, and I analyze 9Sig from the outside, not as a subscriber).

Not saying sell anything. Saying know which sequence your plan can't survive, before the market asks.

For those of you running 9sig, I'm kinda curious why do we hold AGG as the bond pit? I'm running 9sig at Fidelity and heavily tempted to ditch AGG and keep the "bond pit" money in their default cash/MM fund with dividends reinvested. One less ETF to hold. AGG might squeeze out an additional 0.5-1% return, but at the cost of interest rate and duration risk. I don't really see the advantage, maybe someone else has a different perspective to share.