Withdrawal experiment – Month 13 – January 2016

Whoa!  We are at the end of January already, 2016 is chugging along at quite a pace.  With the month finishing on Sunday I decided to get ahead of myself by updating the numbers for this on Friday with a couple of beers.  Then I broke everything.  A Saturday morning  rattling through the numbers and everything was working again.  Blimey, this setting up a fake portfolio thing can be quite the (self inflicted) task.

So here it is, a day early.  I’m just thinking of you all really, rolling in from Saturday night drinks, firing up the laptop and looking for something to read and graphs to look at.    

The standard recap

Back to the beginning.  We are now 13 months into the experiment where Mr Z in Parallel Universe Number 1 pulled the trigger on early retirement.  This is a completely fictitious portfolio and just a little experiment, hopefully giving some insight on what it would actually be like through the ups and downs of living off an investment portfolio.  Nothing real.  So calm yourself down.

At the start of this experiment the fund was £625,000 split 75% to equity and 25% to cash and bonds.  That should be enough to withdraw £25k a year (and increase this annually along with inflation) if the 4% Safe Withdrawal Rate is to be trusted.

Each month I assume that the alternative Mr Z has spent every penny of the prior months drawdown, so no cash is left.  And he will do this whatever the financial weather, there will be no buckling down the spending hatches if the markets go a bit Norman Bates or spooging a bit more cash in the good times.

In reality you would cut back when the markets are down, you may have some months where you do a little bit of work and get a little bit of side income, you might not spend the full withdrawal amount, etc

The allocation between ETFs, Funds and cash is very simple.  This isn’t supposed to be a test of asset allocation, the ‘4% rule’ or any kind of detailed back testing.  Think of it more as a thought experiment, would you be able to trust your strategy when things turn south?  Chopping and changing strategies, constantly trading, only ever seems to be bad for portfolios in the long run…but we all have to deal with our curious nature and tendencies to meddle in things.  

Initial Position at 31/01/2016

First lets have a wee look at where the portfolio would be without any withdrawals, just market movements then.  And my oh my, January has been a hectic month hasn’t it;

Jan-16 pre wthdrawal

So January does show some chunky reductions in equity holdings.  But look at that, bonds doing their thing and not correlating with equity returns and in fact showing a nice increase in the month.  Given the hysteria that the media was trying to whip us into an £8k drop (approx 1.3%) doesn’t seem so bad.


A quiet start to the year on the income front;

– £218 income from the U.K. Government Bond UCITS ETF

– £38 in interest on a Cash ISA.

Dividends or interest are assumed to be paid into the cash account before we look at any withdrawal.


Mechanical rules are followed to simplify things, based on the initial asset allocation of 75% Equity and 25% Bonds&Cash.

Distributions will be taken first as income in the month and then any remaining withdrawal will be taken by selling capital, aiming to re-balance towards the 75:25 allocation with any dealing costs picked up by poor Mr Z himself.  This should then skim off any parts of the portfolio that are doing well and hopefully give any flagging parts of the portfolio catch up while avoiding drawing on capital unnecessarily.

Doing this every month, rather than quarterly or annually, might not be the best option.  It exposes the intrepid Mr Z entirely to the volatility of the markets and the closing price on one fixed day at the end of the month.  Still, that’s how we started this.

At the end of January we are overweight compared to our targeted 20% bond allocation, not surprising given they increased whilst the equity holdings tanked.

This results in 76 units from the UK Gov’t Bond ETF being sold (at £21.82 per unit) and the remaining being the dividends and interest, taken from cash.  This tops us up to the new £2,106 monthly withdrawal, having been increased from £2,083 at the start of January to account for inflation.

Following withdrawal the portfolio looks like;

Jan 2016 after withdrawal

Oh-me-oh-my a new graph. 😉  The blue line shows the position of the investments/cash after withdrawals, sitting at just over £604k.  That’s £21k down from our starting position.  The red line is some new numbers I pulled together, it shows the position of the fund if no withdrawals had taken place.  It’s sitting at £629k, a total return of 0.6% since November 2014.  Nice.  But that’s a return due to dividends and interest.  Even against a back drop of bad returns, the power of dividends and interest is still a mighty one.

Some comparisons

Let’s have a quick gander at where we would be with some alternate fund choices;

Jan 16 - alternative investment comparison

The darker blue line is the experimental portfolio.  The purple line is the most aggressive allocation, with 100% in equities (the 100% equity LifeStrategy fund).

The straight red line is just cash, earning interest and slowly running down, guaranteed to be exhausted at some point.

The green is 100% invested in a government bond ETF.

The light blue line is the Vanguard All-World High Yield ETF, which might have seemed like an attractive choice to use during your drawdown phase.

These portfolios are splitting apart again, following the recent volatility.  The test portfolio and all in the LifeStrategy100 fund are trundling along in a similar fashion,  whilst if we were 100% in the All-World High Dividend Yield ETF we’d be in the worst position out of the examples shown.  The recent volatility has made the bond prices jump up, so that is leading the charge at the moment!

A summary of all the past months are here.


If you made the mistake of reading the financial press in January, you might have thought that 99% of the value of the world was about to be wiped off.  RBS were telling people to SELL EVERYTHING, Money Week was calling for the FTSE100 to be scrapped and various other horror stories.  Things did get slightly better as we rolled towards the end of the month.

There was an article at Monevator around checking your portfolio when the markets are turbulent, with the Accumulator wondering what his limit might be to send him into a wild trading frenzy.  I commented on the article that I have been looking at my portfolio with a certain detachment to it all.  This isn’t really because I am some steely eyed (and handsome) investor.  Far from it, it’s down to the fact that I am still firmly in the accumulation phase.  Having to drawdown from my funds is a distant future task, and a decrease on a small portfolio is far easier to stomach.  Whilst my pension is building up nicely, drawing down from that is even further into the future, so seeing it decrease by a few thousand pounds is almost meaningless.  Pretty sure by the time I can touch it we will all be living on comets anyway.

I’m off to practice my steely gaze and chisel my jawline.

Mr Z

5 thoughts on “Withdrawal experiment – Month 13 – January 2016

  1. Getting Fired

    Love this experiment. Having invested into the Vanguard All-World High Yield ETF and LS 100 almost exclusively I’m seeing a big swing at the minute. Down 4-5% across all my investments from the start of this journey. But I’m also in accumulation phase and so my mindset is that this is the January sales.

    I’ve a very little cash reserve, so I think I’ll get 5% in cash before deciding what my next investment might be.

    1. Mr Zombie Post author

      Hi Getting Fired,

      We are the other way to you, with a cash reserve that feels ‘too big’. Slowly working it out the system towards a position with less cash and that I am more comfortable with. It’s tempting to do it all at once sometimes…

  2. Retirement Investing Today

    “I commented on the article that I have been looking at my portfolio with a certain detachment to it all. … it’s down to the fact that I am still firmly in the accumulation phase. ”
    I think it’s more than that Mr Z. I think it also comes from investment maturity and acknowledgement that sometimes the market gets ahead of itself, sometimes it gets way over valued compared to its fundamentals and sometimes it just goes into mad panic. The detachment comes from knowing that occurs more often than one might originally think.

    It’s interesting to prepare a volatility chart and plot it as you proceed on your FIRE journey. As the journey continues and the wealth accumulates the ‘volatility’ in £ terms gets bigger as well as the frequency of significant moves when compared to say annual spending. It’s just maths of course but until you see it for yourself you don’t quite appreciate it. If you spend £10k a year and you have £10k invested then the market has to fall by 100% to ‘lose’ a year of spending (unlikely), if you have £100k then it has to fall by 10% (happens reasonably frequently) but if you have £1M then it only has to move by 1% (very frequently).

    1. Mr Zombie Post author

      “The detachment comes from knowing that occurs more often than one might originally think.” Yeah I can believe this. And like you mentioned here and in your post, that goes hand in hand with building a detachment between market movements and your expenses. Completely separate really, but both monetary and so comparable. And if we’re not careful, that comparison could drive some irrational behaviour…

  3. weenie

    Hi Mr Z

    As mentioned before, I’m not counting on using an SWR but this experiment continues to interest me as I intend to invest more in ETFs as time goes by (more so when I switch my ISA in April). How badly All-World High Dividend Yield ETF is doing continues to surprise me though.


Leave a Reply

Your email address will not be published. Required fields are marked *