Abstract
Decreased real bond yields substantially increase failure rates for portfolios with an initial 4% withdrawal rate. One way to increase the safe withdrawal rate of a portfolio is to decrease the allocation to bonds and to increase the allocation to stocks. Unfortunately, increasing the allocation to stocks dramatically changes the risk profile of the portfolio. I propose that a solution to this conundrum is to use a low volatility stock portfolio as the primary asset class in the portfolio. A portfolio constructed primarily of low volatility stocks allows an investor to decrease the allocation to lower yielding bonds while still maintaining a similar risk profile to a traditional 50% stock and 50% bond portfolio.
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