Fun With Finominal!

I spent some time playing around with the portfolio evaluation tools available to the free tier at Finominal. I thought it would be a good way to circle back to some ideas we blogged about in the past and see how they stood up.

First up is a portfolio I saved a year ago (I have a folder of screenshots on my desktop) that I called RR 75/50. The idea with 75/50 is to capture 3/4 of the market going up but only half of the market going down. It's difficult to pull off of course but the math works if you can do it. 

"Imported portfolio" is what I put into their template.

The goal is not to keep up with equities it is to significantly smooth out the ride. If done correctly, it will lag on the way up and outperform on the way down. The weighting to gold is pretty high, more than I have IRL, but was not too much of a problem in gold's recent selloff.

This is the portfolio simplification tab. It misses the mark. Finominal suggests a benchmark and for this it suggested gold, just gold which makes no sense since the portfolio only has 15% in gold. The suggested simplified version has 4x the gold I started with. The result of their suggestion delivers a completely different outcome than what we're going for.

Next is a mashup of the Permanent Portfolio and a loose replication of the Cambria Trinity ETF.

I'm not sure of the exact date but it is close to two years that I wrote about it.

Finominal suggested that replacing it with iShares Momentum (MTUM) for simplification. Again a miss, this idea is far from 100% equities but I think if we look at enough of these there will be some interesting simplification suggestions.

I have a link for the next one, the Yieldy Put which is from a research report by Man from two years ago. We had two versions, the more realistic one was 30% ACWI, 20% TFLO, 25% AQMIX and 25% QLEIX. The other version had 25% in BTAL. The starting point for Yieldy Put was that bonds don't diversify the way they used to but that sized correctly, managed futures and long short can help fill the void left by bonds. 

I cheated. I split the long/short sleeve to put 12.5% each into QLEIX and BTAL. The portfolio is not an equity proxy. The S&P 500 left this one in the dust. It compounded about 300 basis points behind VBAIX for the entire backtest with just over half the volatility. However, since yields bottomed in late 2021, Yieldy Put has done much better.

This shouldn't be a surprise, Man derived the concept in reaction to bonds losing their utility as diversifiers. 

The last one for now is an All-Weather from Man Financial that I built with 50% HEQT, 16% AQMIX, 17% MERIX, 9% SHRIX and 8% RSIR. 

All-Weather is not intended to keep up with equities, it is more of a 75/50 type of idea, maybe even more mild than that. We can't compare it to 60/40 or Dalio via Finominal so we pivot back to testfol.io.

Portfolio's 1 and 2 are not identical but I think they are very close despite being conceived many months apart. 

Taking a broader perspective on most of these that we've built over the last few years, they mostly all take very similar paths toward a portfolio with plenty of opportunity for growth but with a decent amount of robustness not necessarily to make something truly all-weather but help soften the blow to the downside. My perception of truly all-weather is closer to an absolute return without a "normal" allocation to equities, maybe 20% instead of 40-60% in equities. 

Twenty years ago, it was obvious that funds would evolve to democratize access to increasingly sophisticated tools leading to increasingly sophisticated portfolios and that's what has happened. It certainly would be easy to misuse useful tools and some of the funds coming probably aren't that useful so I do think there is a lot of work required to learn how to use them correctly. 

The part about using Finominal, they have a couple of resources not available on the other sites we use. One of the useful things is they have a sort of AI apparently that assigns a benchmark based on the holdings. Comparing what we've built to hedge fund benchmarks and seeing the results supports the validity of what were trying to do/learn. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Why Use Four ETFs When You Could Use 17 Instead?

Invesco maintains a suite of ETF model portfolios. The holdings appear to the same for the most part, subject to asset allocation which ranges from 0% equities/100% bonds to 100% equities/0% bonds. Here is their 60/40.

You can see it is tweaked a little to make room for managed futures which is taken from the fixed income sleeve and there's a little cash. Below, we compare the Invesco 60/40 to the following;

Both are obviously much, much simpler but generally target the same asset allocation. I made one change to the Invesco 60/40, I swapped out ICLO and added client holding JAAA so we could get a longer backtest. 

They all look very similar. There are a couple of instances of differentiation for Portfolio 3, it tends to go down less than the other two probably thanks to avoiding duration. 

The result of the Invesco model is fine but as we look at various models with so many moving parts, the Invesco model has 17 funds plus the cash. There's pretty much no differentiation compared to just buying VBAIX. The point here isn't necessarily to go as simple as buying only VBAIX but if a much simpler portfolio with three, four or five holdings gets essentially the same result with essentially the same volatility and the essentially the same path, I'm not sure why anyone would choose the model with 17 funds versus four. 

If you want differentiation from VBAIX' path (I do) and think you can get it, then taking on a little more complexity is warranted, I believe this to be the case. If you don't want differentiation (perfectly valid) then this might make even less sense.

The prompt for this post was an email from Finominal that did a review of the 0/100 version of their model, so just fixed income which has most of the same fixed income holdings as the 60/40, just proportionately larger weightings. The one difference is they add a small weighting to PCY.

Has the portfolio been thoughtfully constructed?
No, as many of the funds exhibit high correlations, offering practically zero diversification benefits. For example, the iShares Core US Aggregate Bond ETF features a 0.97 correlation with the Invesco Total Return Bond ETF and also 0.97 with the Invesco Equal Weight 0-30 Year Treasury ETF. 

Sort of a scathing review but eight funds to have a 0.97 correlation to AGG? This isn't about my aversion to AGG, plenty of people are just fine with AGG-like exposure but eight funds to replicate it doesn't make sense to me. Finomial says the model can be replaced with two funds; 60% AGG/40% FLOT which is a long time client holding. 

We've done this same exercise quite a few times and differentiation doesn't seem to be a priority very often in this realm.  I asked Copilot about this a few weeks and it very cynically said, model providers aren't trying to differentiate. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Adapting With All-Weather

Meb Faber tweeted out a link to an old Bridgewater paper that is provocatively titled The Biggest Mistake In Investing. Their premise is that the capital asset pricing model (CAPM) is built on return assumptions that don't work out as investors expect. Too frequently, return comes from unexpected sources. 

An example of this that resonates with me is that in 2022, the two most important decisions might have been avoiding duration and including managed futures. In late 2021, you wouldn't have found too many people arguing for those two trades. Maybe that's not what they have in mind but that is good context for me to dissect their point. 

From there, according to Bridgewater,  the answer to solve CAPM's flaws is balancing risk because we can't reliably count on where we will get our return from. Balancing risk then would allow for capturing better returns because we'd have exposure to whatever the unexpected return engine ends up being. This is pretty much what risk parity is and how it works. 

Risk parity is associated with Ray Dalio and Bridgewater, Cliff Asness is also a proponent of risk parity. The Dalio version is also referred to as the All-Weather portfolio which is light on stocks, heavy on duration with a good dose of commodities. The paper we are referencing today is a slight tweak on Dalio's All-Weather if you look that up, the paper is more like 20% in equities, 55% in bonds with duration, 15% in TIPS and 10% in commodities. 

If you do look up the Dalio all-weather, you'll see adaptations that use very plain vanilla funds, especially where bonds are concerned and that it hasn't done well in quite awhile. The idea dates well back into the 40 year bull market for bonds. It worked well as interest rates kept going down. The regime for interest rates ended a few years ago but I believe the concept is still valid even if treasury bond ETFs are not the answer. 

All-Weather with alts on the left and Plain Vanilla All-Weather on the right.

I don't mention SRDAX very often, it is a Stoneridge fund that diversifies several strategies that have no strategic overlap with plain vanilla fixed income. QDSIX is a fund of AQR funds with very low volatility with fairly steady returns. SPMO is in my ownership universe (along with SRDAX). Twenty percent in equities is pretty low, using SPMO dials up the exposure along the lines of what we talked about earlier this week by being more volatile than market cap weighted. SPMO can have the effect of increasing exposure a little bit but is heavy in tech though so if something hideous happens to markets and it starts in the tech sector then SPMO will probably feel it pretty hard. 

Below, we compare them to AQRIX which used to be AQR Risk Parity but is still influenced by risk parity. RPAR is the risk parity ETF and of course plain vanilla 60/40.

The backtest goes back to before the bond market regime changed. All-Weather w/Alts was up a little in 2022 which is a big reason why it is so far ahead. Most other years it is pretty close to 60% SPY/40% AGG in terms of growth but with much less volatility.

I wouldn't count on a repeat of 2022 in terms of so much bond carnage in one year but I still do not thing bonds with duration is the place to be and the SRDAX/QDSIX combo will continue to differentiate from treasuries with duration. If I were to actually implement this, I would use individual TIPS not an ETF, I don't think ETFs capture the effect as well as individual issues. If you put 10% in broad commodities, at times there would be regret not having gold and if you put 10% in gold, at times there would be regret not having broad commodities. Also, IRL splitting 55% between two liquid alts is something I would never do, I'd carve that up into smaller slices into more alts; diversify your diversifiers. 

Back to the paper and this chart that was included.

Again, getting anything close to this sort of outperformance is not realistic with a heavy dose of treasuries with duration. The portfolio we created for this post did outperform 60/40 which may or may not be repeatable but getting a similar return as 60/40 with a lot less volatility (I believe lower volatility is repeatable) is plausible. We're using Dalio's/Bridgewater's process, we could nudge up the equities a little bit if there wasn't enough equity market upcapture and repeating for emphasis, 55% split between two alts is just to keep the blog post simpler.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

We Want More Vol And Less Leverage

The ReturnStacked guys sent an email about having updated their model portfolios. These are always interesting to look at and fun to play around with. One the models is called ReturnStacked 60/40. They do a lot of volatility targeting with their work and I believe this particular model targets a volatility around 12.

Testfol.io currently has ReturnStacked 60/40 at a vol of 11 versus just under 10 for plain vanilla 60/40. The model is leveraged. The entire point is to test their thesis about using leverage and to support their funds. 

Since all of their models are behind a sign in, it's probably not ok to get too specific with all the moving parts but the notional exposure of ReturnStacked 60/40 is 173% with 62.5% in equities, 50% in fixed income and 60% in alts, 3/4 of the alts exposure is managed futures. This is all pulled together with various multi-asset and levered funds. The model owns RSST so a portion of the domestic equity exposure (S&P 500) comes from this fund as well as a portion of the portfolio's managed futures allocation. In other words they look through to the funds' holding and add up the various exposures. Most of the fixed income exposure is very basic with AGG-like exposure and intermediate treasuries. 

Sort of related to our conversation the other day about portfolio efficiency I wanted to try to replicate ReturnStacked 60/40 not with leverage but by dialing up the volatility. 

The weight to SPMO is pretty close to the S&P 500 exposure when adjusted for volatility. EEM isn't quite as close of a proxy for the foreign exposure but not ridiculously off. MFTNX has twice the volatility as AQMIX and RISR has almost twice as much vol as AGG. ReturnStacked 60/40 does not have overt negative convexity like BTAL but I wanted to throw it in anyway. Systematic macro is missing from my version. HFGM from Unlimited targets 2x volatility for global macro but its track record would shorten our backtest considerably. 

Portfolio 2 above tries to target the same volatility as ReturnStacked 60/40 while Portfolio 3 tries to target about the return by reducing each holding by 50% and then adding 50% in T-bills. Portfolio 3 is an example of leveraging down. We get a similar growth rate with less exposure to risk assets. 

Below, we remove the ReturnStacked 60/40 to allow for a slightly longer backtest that takes in all of the 2022 event.

The drawdown chart hovers over the Tariff Panic of 2025 and you can see the levered down version has a small drop. In 2022 the Replication With Volatility No Leverage version was up 14.41%, the Same CAGR With Less Volatility version was up 7.91 while Plain Vanilla was down almost 17%. It is important to note though that while 2022 looks pretty good, both of our versions lagged Plain Vanilla in 2023 by about 1200 basis points. 

Today's post was a useful exercise in taking someone else's process to create something more useful for, in this case, my approach but in refining your own process, borrowing bits of process from others is a great technique. I draw different conclusions about using leverage than the ReturnStacked guys do but I believe these versions we built mimic what they built and while our versions certainly have drawbacks there is validity to the outputs. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Indispensable Tools For The Modern Allocator

WisdomTree has a short paper up titled Bonds Are Starting to Serve as an Effective Hedge Again. Ever since 2022 there have been many pundits and papers saying the same thing and that hasn't been the case. Sure, maybe now is the time that they are back to being an effective hedge, why not?

Included in the key takeaways is that real yields are above 2% (are they really though?). They note that if stock/bond correlations improve....if they improve would be a guess. The paper then goes on to support the WisdomTree Core Efficient Core Fund (NTSX) which leverages up such that a 67% allocation to the fund equals a 100% weighting to plain vanilla 60/40 like you'd get from VBAIX. It's return stacking before ReturnStacked. Any time I have looked at NTSX it has been very true to what it targets.

Part of WisdomTree's argument is that now that there is some yield, four point whatever percent is yield, bonds can be a little more of a cushion, the 4.4% yield helps versus a yield of 1% +/- back in late 2021. That is accurate, the 4% yield (carry) helps the portfolio in a way that 1% yields don't. 

But bond math is still bond math. And longer term duration can be quite volatile. If the ten yen year treasury goes from 4.4% to 6.4%, people owning the actual paper would be sitting on a large price decline getting a below market yield. Anyone owning ETFs like UTEN or IEF would be in a similar but slightly worse position, the price on ETFs might never come back. I doubt that anyone who bought IEF five years ago at $117 will ever get back to even on a price basis, the fund is at $94 now. 

Read the article but that is not how I would think about whether to wade into bonds with duration, NTSX has AGG-like exposure so I have to believe they mean bonds with at least some duration. We've said this before, the question that I think should be asked is whether the yield provides adequate compensation for the volatility and the risk if rates go up more. The right level is up to the individual. Seven percent if it ever happens would do it for me for at least some exposure, maybe even 6% but not 5%. There are yields in the fours and fives right now with very little volatility and there are enough disparate strategies that idiosyncratic risks can be diversified away.

Pivot to a paper from TIFF Investment Management titled Why Now Is The Time to Invest In Hedge Funds. They say that hedge funds are an "indispensable tool for the modern allocator." TIFF positions hedge funds as a bond replacement noting better returns than bonds with a little less volatility. 

From 2000 on, hedge funds weren't so hot, relatively, but then the 40 year bull market in bonds ended. There are countless hedge fund strategies so if we read TIFF's context correctly, they are looking for and talking about hedge fund strategies that differentiate from equities and help offset normal equity volatility as opposed to a shop that goes balls to wall equities like Renaissance Technologies. 

TIFF is an institutional firm so they have access to hedge funds that you or I would not have access to. There are all sorts of mutual funds and ETFs that are somewhere in the hedge fund realm in terms of strategy and results. There are countless managed futures funds of course, plenty of macro this or macro that, arbitrage and so on that we look at all the time. 

If the TIFF article, and others like it, are compelling to you, there are ways to capture the effect they are talking about.

The table (symbols intentionally omitted) lists the attributes of four different mutual funds. They seem pretty hedge fundish to me. The learning curve is steep though. Systematic macro is going to have more moving parts than some other strategies. And as we always say, it is important to diversify your diversifiers and I would not load up on multiple funds from the same provider, they might put very similar trades into many of their funds which has the opposite effect of diversifying your diversifiers.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. 

Portfolio Efficiency

Peter Hecht from AQR sat for the Flirting With Models podcast. Hecht is the Co Head Of Portfolio Solutions at AQR and the conversation was about portable alpha/capital efficiency/return stacking. 

We've looked at this quite a few times. It's a fascinating concept, I track my interest back to my time at Fisher Investments in 2002 (repeat story coming). A couple of the smarter guys there geeked out over the fact that going short Nikkei futures with 2% of your portfolio and nothing else equaled the return of the S&P 500. It doesn't matter whether they were correct, I don't know, but the idea was mind blowing. 

Then something similar from before the GFC when Nassim Taleb talked about going all out for risk with 10% of the portfolio and then putting the other 90% in T-bills from around the world. The idea from Taleb was getting most of your return from a small slice of the portfolio while the vast majority of the assets are safe.

The word efficiency applies to both ideas. I think they both fit the bill of leveraging down as we've talked about it before. The history of portable alpha drew negative attention as fallout from the GFC when the common implementation was leveraging up equity exposure to buy more equities which ended very badly when the S&P cut in half. 

Today the conversation is about using leverage as a funding source for uncorrelated alternatives without selling stocks or bonds. Someone concerned about tracking error but wanting exposure to alternative strategies could leverage up to include something like managed futures. 10% into a levered fund like CTAP when combined with 50% SPY and 40% AGG would have 60% in equities (10% from CTAP and 50% from SPY), 10% in managed futures from CTAP and 40% in aggregate bonds from AGG. In this example, CTAP solves the "funding problem." Man Group has a similar fund and of course ReturnStacked's entire lineup is about solving funding problems. WisdomTree has also been a leader in the liquid, capitally efficient fund space. 

So there is bad leverage and good leverage. Bad means just adding equity beta on top of equity beta where good leverage is adding uncorrelated betas on top of equity beta as a means of adding uncorrelated alts or alts with low correlation. That is a takeaway from the podcast not me weighing in. 

One way to manage the leverage and keep it as good leverage is to just add up and net out the betas. Here's an example with SPY and client/personal holding BTAL.

So that's a good amount of leverage over a reasonably long period. You can see the betas are almost the identical with the 120/30 having a noticeably better growth rate. It's not a great example but it works...sort of. It is more volatile and there aren't any defensive attributes but the reliability of BTAL allowed for leveraging up. 

There was a lot of the podcast devoted to equity long/short. BTAL is an example of short biased long/short, there's also market neutral like merger arbitrage and long biased like QLEIX. If I understood correctly, using portable alpha (leverage) to add market neutral is the most common use of portable alpha that AQR sees but it's not necessarily the most effective use for portable alpha. Hecht thought that multi-strategy is the best way to go because it allows for easily diversifying your diversifiers. He added that if whatever multi-strat you're using isn't quite getting it done, increase the managed futures exposure. 

A quick sidebar, Hecht noted that over the long term, longer than any of the current mutual funds have been around, managed futures as pretty much equaled 60/40. Claude, is that right? The TLDR from Claude was the on a risk adjusted basis (not nominal returns) it's close but that the paths are wildly divergent. 

Peter and Corey talked about how to size a portable alpha strategy in client accounts and the answer boiled down to right up to the point that the advisor would panic. I've never heard an answer like that in any sort of investment related setting. It seems both very honest and flippant at the same time but I really got a kick out of it. 

The idea of "portfolio efficiency," pretty sure that is the term I used 20 years ago on the first iteration of my blog, plays a role in my portfolio process. It's about understanding where return is likely to come from among the holdings. In a normal bull market, more of the portfolio's growth will come from tech instead of staples or utilities for example. One aspect to how I use alts is that they dynamically protect more of the portfolio in a falling market which is a form of efficiency that helps pursue the goal of greatly reducing downside capture. 

I built out a capitally efficient model for this post that uses just a little leverage with an approach we haven't used before (I don't think). It is a variation on leveraging down. I am not a fan adding a lot of leverage.

WTLS is WisdomTree Efficient Long/Short US Equity Fund. It is 90% S&P 500 and 90% long biased equity long/short. QNZIX is 50% domestic equity and 50% managed futures. The others are one we regularly use for blogging purposes. The leverage of this mix is modest. The notional equity exposure is 53%. There's modest managed futures and the fixed income sleeve avoids duration. 

Portfolio 2 adds 5% BTAL and takes 5% away from BKLN. This adds a little negative convexity and slightly reduces credit risk if there is ever a credit event. 

The backtest is very short due to WTLS' inception. Most of the outperformance comes from going down a lot less when the Iran War started. SCHD has done much better than market cap weighting this year which has also helped. Copilot tried to backtest it (theoretical of course) and the version without BTAL would have been down 10% in 2022, maybe, and the version with BTAL would have been down 9.5%, maybe. I do believe the volatility numbers are little more useful than the CAGR numbers and the standard deviation is also quite a bit lower.

No portfolio can always be best and with a longer period to look at, that would be the case here but it does bring in attributes that I think are important for navigating a full stock market cycle.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. 

Is AI Ready To Build Your Retirement Plan?

The Wall Street Journal looked at a few ways to tweak the 4% rule for retirement withdrawals. The article acknowledged that William Bengen has since dialed up the number to 4.7% but has said 5% is just fine. There was also a note about Morningstar adjusting the number every year based on some sort of assessment of current conditions. The last few years their estimate has been in the threes, proving too conservative as markets rocketed higher. 

WSJ's ideas included copying the RMD table (that's not how they described it), mapping out non-discretionary spending (medication and groceries for example) and discretionary spending (hobbies and travel). If someone is actually living on 4% and they can attribute 2.5% to non-discretionary then they'd be able to cut back on the discretionary spending when called for like in a serious drawdown. 

The comments are worth reading, there was a lot of sentiment that overlaps with what we've looked at before, notably that growth in the portfolio will account for inflation, also that the types of suggestions in the article overcomplicate the task. Our answer to overcomplication has always been to just take 1% out of your balance every quarter. Yes, it requires some flexibility but setting aside some number of months worth of expenses in cash can reduce the need for flexibility. 

A related idea we talk less about is the more likely scenario that people will have several different types of accounts; some combo of taxable accounts, traditional IRA, Roths and HSAs. In this scenario, it might make more sense to deplete an entire account and then move on to the next one. 

"The book" says to pull from those accounts in the order I put them in above but there are exceptions. The example I always use is buying a car. Assuming you don't want to go into debt for the car, If the car costs $40,000 but it is paid for from a traditional IRA, then accounting for the taxes, it will cost more like $50,000. Pay for the car from the Roth and it will cost $40,000. 

Lately, we've been talking about bridge strategies, depleting some piece of money over the course of a few years to get to some financial milestone like maybe starting Social Security or having to take RMDs. I've written more about this lately because I think it's how my wife and I will probably frame out our financial plan as we get older. 

I am hesitant to use the word retirement, I can't see choosing to give up my day job but as I get older, I should plan for my income from portfolio management to go down. Most clients are quite a bit older than me so there are some inevitabilities there. We have a pretty good income stream from our Airbnb rental but at some point we might want to dial that down to spend less time on it. Less time would mean less revenue. 

Over the next ten years, income from portfolio management plus the stipend from Del E. Webb plus the rental income should exceed our expenses. If everything goes as hoped for with Social Security then we'd both take it in nine years-10 months with the total covering our fixed expenses and then some. If it gets cut by 22% (low probability outcome but not something to ignore either) it wouldn't be a catastrophe but something we'd have to reckon with. 

Ten years from now, we might want to sell the rental cabin or sooner or maybe later but for now ten years makes sense to think about. The proceeds from the cabin could be a bridge to delaying RMDs (I mean spending the money, there's no avoiding taking them out of your IRA). We've talked about living in the rental for a couple of years to avoid paying the capital gains tax (I don't believe we'd get out of paying back the recapture). If something goes wrong, we could live there to meet the capital gains burden. 

If we did sell what is now the rental cabin, we'd still want to have Prescott house we live in and the Tucson house and split time between the two. Eventually we'd have to sell the Prescott house we now live in. If things go well then maybe that would be when I am 85-90? These proceeds could be a bridge until the end without ever relying on the IRA for covering expenses.

I asked Grok to age me 30 years, like when we might leave Prescott. That's not 90. It said it thinks I'm in my mid-40's to early 50's. I will take that, thankyouverymuch.

Why would I want to never rely on the IRA for expenses? Thinking about all this allowed me to identify a hot button for me which is if I ever need some sort of serious care, that I be able to receive that at home. My wife framed it a little differently, we have a casita at the Tucson house that some sort of care provider could live in which sounds good but would take work for find the right person for that. 

If you're still with me, I plugged this narrative, and strategy plus a few more details I'm not sharing here into Copilot to evaluate what I have in mind. There was a lot of back forth with Copilot. I found that letting it start very simply and then adding inputs to bring Copilot to a point where it understood our situation was the way to go. When I finally had all the inputs and details entered and felt like Copilot did understand, I asked it for a qualitative assessment of our plan. 

It gave feedback as a well as a simple list of the positives along with ideas of what the vulnerabilities might be. This was good, it was helpful. I then said to spreadsheet it out with base case and worst case scenarios, it also threw in a "conservative" case scenario and a summary.

The spreadsheet got a lot of things wrong. Really a lot. It assumed we sell the Prescott house that we live in when I turn 67, not much older. There were instances where it did assume account balances would compound and others where it didn't to that calculation. It omitted the Del E. Webb stipend for quite a few years, it ignored my base case for taking SS at 70 in all three assumptions. 

I did not spend the time trying to correct the spreadsheet errors. That the spreadsheet was so far off surprised me because the qualitative feedback was correct. 

Having a qualitative exchange was helpful for me, hopefully it comes across that I've put a lot of time into thinking about our aging strategy, I think that is a crucial part of the process. The more effort you put into your planning, the better your chance for a successful outcome. 

If you engage on various socials, threads especially, you might see spammy posts about using AI for financial planning. AI is making progress but not there yet. It would probably take a long time to correct all the spreadsheet errors. A year from now, I'm sure the outputs will be much better. It will happen, but not quite yet. I should note, I did not put any confidential information into AI. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.