The Three Percent Rule?

GMO hosted a web event about managing sequence of return risk. I was not able to sit in on it but they sent out a summary afterwards. Not sure if this link will work but you can try if you want. One thing that jumped out to me was the following:

 

The success rate at a 4% withdrawal rate is right in line with data from other sources and generally held assumptions about the 4% rule. What I find interesting is the history of 3% which if I'm reading correctly, has never failed. A couple of years ago, Wade Pfau drew some attention saying the 4% rule was no more, that the new number should be 2.4%. I was writing at The Maven back then and while I don't have a link to share, I have to think I called BS on that. With a 2.4% withdrawal rate, earning zero percent, your money would last for 41.6 years. Hopefully, we can all do a little better than zero percent. 

If you've saved close to enough by the time you retire, so like you thought you needed $850,000 and you're at $810,00, then a conservative approach would be to manage the difference between 3% and 4% or using $850,000 you are managing for $8500, the difference between $25,500 and $34,000. Can you qualitatively assess your spending needs, current market conditions and the state of your portfolio to realize things are going well, I can take the full $34,000 or maybe we have a stretch like 2022 and you understand, hey, I should probably only take $25,500 this year. Does your lifestyle have the flexibility for that or can you make up the $8500 somewhere else? How can you add that flexibility to your life if you don't have it already?

A quick pivot to a new (to me) idea for a broad-based, equity index factor ETF. Factors are things like momentum, low volatility, buy backs, even value and of course earlier this year funds started trading that track the night anomaly where buying at the close and selling at the open outperforms buy and hold. 

Willie Delwichie Tweeted out that all of the S&P 500's gains since 2000 have come when the VIX was above 28.5 and provided a chart. I had a hard time understanding his chart. Per Yahoo Finance, in 2021, the S&P 500 was up 28% and it looks like VIX spent very little time above 28.5, like maybe less than a month. 

Willie says it's accurate though. Either it's not accurate (less likely) or there's something I don't understand yet (more likely). With VIX above 28.5 you go long the S&P 500 and when VIX is below that level hold cash or T-bills. I retweeted Willie and said someone should make a factor ETF out of this idea. Stay tuned.