![]() ![]() The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. It is usually quoted as a percentage of the peak value. Is that really the problem that you would like to solve?Īlso, usually the problem to solve goes in the reverse, to wit: what initial investment (and optional annual contribution, fixed or variable) is required in order to fund a withdrawal phase of n years after an accumulation phase of k years, given an average investment growth rate and (optionally) an average inflation rate applied to withdrawals.Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. Are you interested?Īlso, usually the problem to solve goes in the reverse, to wit: what initial investment (and optional annual contribution, fixed or variable) is required in order to fund a withdrawal phase of n years after an accumulation phase of k years, given an average investment growth rate and (optionally) an average inflation rate applied to withdrawals. ![]() I might be able to develop a "closed-form" formula to calculate "nper", given an investment growth rate and a withdrawal inflation rate. Of course, the funds last until the year before. So, I would make the following changes to my previous example, given an average inflation rate in E2 (in order to minimize the changes to previous cell references).Ĭopy A9:C9 into A10:C10 until the ending balance in column C is negative. However, your withdrawal requirement is affected by inflation, assuming that it largely funds expenses. But if the average inflation rate is 2%, the average inflation-adjusted required growth rate is not simply 6%. A 4% investment return is worth less a year from now due to inflation. If I did apply inflation to the average required growth rate, I would "add", not subtract. ![]() There is a difference between average investment growth rate, which is market-driven, and average required growth rate. ![]() Average investment returns are not affected by inflation.Īside. I would not apply in inflation rate to the investment growth or growth rate. So, the number of years for the withdrawal phase is simply: (Of course, the remaining balance at the end of the withdrawal phase is.) Interestingly, the NPER calculation is not affected by either the initial balance or the length of the accumulation phase. Note the type=1, since I assume that annual withdrawals are at the beginning of each year. With a fixed withdrawal amount, you can use NPER to calculate the number of years for the withdrawal phase, to wit (in E1): Given your changes, the following might be helpful. ![]()
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