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How Sharpe Ratio Affects Retirement Funds

I made a simulator to help us visualize how  investment portfolio values change based on different Sharpe Ratio in this blog post. 

Now, I want to if how much the Sharpe ratio can affect our retirement portfolio from which we withdraw.

What about retire with just government bonds?

Suppose I hold 30 year US Treasury Bonds with a yield of 4%. The face value of the bonds is $1,000,000, I can receive $1,000,000 X 4% = $40,000 every year to cover my daily expenses for 30 years without any risk. This retirement portfolio has no value flucturation and I will not worry about any stock market turmol. 

Usually, bonds have just enough returns to cover inflation, so all-bond portfolio may not be the bset for retirement.

How about with a balanced portfolio?

With a balanced portfolio, the return should be better than a 100% bond one. But a portfolio mixed with stocks may flucturate in price, which may cause problems if the flucturation is too big.

Measuring Flucturation 

Finnally, let's jump back what we are originally caring about, Sharpe ratio. The bigger the flucturation, the lower the sharpe ratio. Now I want to include withdrawing rate in this app to see if a more flucturate portfolio runs out of value faster.    

Portfoio 1

Mean Return: %
Return Standard deviaiton: %
Withdraw Rate: %
Sharpe Ratio: 0.5

Portfoio 2

Mean Return: %
Return Standard deviaiton: %
Withdraw Rate: %
Sharpe Ratio: 0.25


I would say the higher the standard deviation, the lower the Sharper ratio may cause the retirement fund to run out more easily than those with higher Sharpe ratio.

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