How would my retirement outcome change depending on my portfolio?

If you have ever read one of Nick Murray’s many great books or his monthly newsletter, you will know he recommends an all equity portfolio – even in retirement. A phenomenal book by Nick Murray, The New Financial Advisor came out around 2000, in which of course as usual, he recommends an all-equity portfolio. Today I want to evaluate how this advice played out over the last 25 years, especially compared to the classic 60/40 portfolio (60% stocks, 40% bonds), whose origins are surprisingly mysterious. And what happens when alternative investments—like trend following, gold, and merger arbitrage—are included in a retiree’s drawdown strategy?

We will be looking at 4 retirees with various portfolios.

Picture a 65-year-old retiree who began retirement on January 1, 2000, with a $1 million portfolio. Each scenario assumes this retiree withdrew 4% of their starting balance per year, with withdrawals made monthly and fully adjusted for inflation throughout retirement.

In 2021, at the famous Berkshire Hathaway annual meeting, Warren Buffett proclaimed that buying the Vanguard S&P 500 ETF is the single best investment one can make. So, let’s start with Retiree A, who invested 100% of their portfolio in the S&P 500 on January 1, 2000.

Retiree A experienced a turbulent 25 years. The S&P 500 saw annualized volatility of about 19-20% and suffered two major drawdowns during the Dotcom Bubble and Global Financial Crisis. While the S&P has returned 7.88%, retire A’s Internal rate of return was 3.5%. This gap reflects downside of having a volatile portfolio you have to take distributions from in retirement. As a result, Retiree A’s portfolio is down to $204,000 today.

Next, Retiree B sought more diversification, adding global stocks to their equity portfolio. While still subject to the same high volatility and massive drawdowns as Retiree A, the international exposure slightly cushioned their results as their portfolio had an internal rate of return of 3.9%, leaving them with $353,000.

Retiree C preferred a more balanced approach. Favoring the diversification of global equities but aware of sequence-of-returns risk, they allocated 40% to bonds and rebalanced annually. This strategy delivered a much smoother ride with about 11% volatility and shallower drawdowns. So far their portfolio has an internal rate of return of 5.2% and their balance is now $948,000.

Finally, Retiree D went a step further, complementing global stocks and bonds with alternative assets such as trend following, gold, and merger arbitrage—assets with a low correlation to traditional markets. Recognizing the pitfalls of “rebalancing luck,” Retiree D adopted rebalancing bands to manage their exposures more dynamically. Over 25 years,

this resulted in smoother drawdowns and lower volatility, like Retiree C’s experience, but with even higher returns at 6%. Retiree D is the only one with more money than they started with: $1.46 million.

While Nick Murray and Warren Buffett make strong cases for the power of equities in building wealth, this analysis suggests an all-equity approach may not serve a retiree well. The key issue is sequence of returns risk—the danger that poor market returns early in retirement irreversibly damage a portfolio when withdrawals are ongoing. During the accumulation (saving) phase, maximizing return is usually optimal as volatility matters far less. But in retirement, a portfolio needs both growth and resilience.

When equities suffer, retirees with only stocks are forced to sell during downturns, which can erode capital irreparably. By incorporating bonds and alternative assets, retirees can draw from less-volatile portions of their portfolio when stocks are down, protecting principal and increasing the odds of portfolio’s survival through volatile markets.

Ultimately, for retirees relying on their portfolios, the most resilient approach combines stocks, bonds, and alternative investments. This diversified mix better navigates drawdowns, mitigates sequence-of-returns risk, and gives retirees the highest chance of maintaining—and even growing—their wealth throughout retirement.

Testfolio was used for all data

This is a link to the specific portfolios https://testfol.io/?s=4EHOeyEpgq9