TITLE

Does international Diversification Increase the Sustainable Withdrawal Rates from Retirement Portfolios?

AUTHOR(S)
Cooley, Philip L.; Hubbard, Carl M.; Walz, Daniel T.
PUB. DATE
January 2003
SOURCE
Journal of Financial Planning;Jan2003, Vol. 16 Issue 1, p74
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This article examines the effect of international equity diversification on the sustainability of a range of withdrawal rates from retirement portfolios with varying U.S. and international stock/bond asset allocations. Sustainability of a withdrawal rate is measured by portfolio success rates--that is, the percentage of 1,000 simulated portfolios of a rebalanced asset allocation that completed 15-, 20-, 25- and 30-year payout periods with positive values. The results of the simulations of fixed monthly withdrawals suggest that retirees who prefer portfolios of at least 50 percent equities benefit modestly from including EAFE stocks at 25 percent of the market value of their portfolios in spite of the inferior performance of the EAFE Index in the 1990s. It is clear from the analysis and from previous literature that international diversification has not been a panacea that can be relied on to offset U.S. bear markets. Although the return/risk impact of international stocks on U.S. portfolios has changed over the past 30 years, the research suggests that retirees with portfolios composed of 50 percent equities or greater would benefit only modestly in the long run from international diversification.
ACCESSION #
8841362

 

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