Abstract
Decreased bond yields substantially increase the probability of portfolio depletion for investors using an initial 4% withdrawal rate. One way to increase the safe withdrawal rate of a portfolio is alter the composition of the portfolio without changing the portfolio’s overall risk level. I propose a portfolio construction solution that incorporates trend-following managed futures into portfolios. The resulting portfolio, consisting of 50% stocks, 40% bonds and 10% trend-following managed futures, allows an investor to increase “safe” initial withdrawal rates while still maintaining a similar risk profile to a traditional 50% stock and 50% bond portfolio.
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