New version 0.3 of the FI Simulator released

Interest Rates are rising fast. So it’s about time for a new version of the FI Simulator that is able to handle bonds as well. I will present all the new functions in detail in the next weeks. Here is already a brief list of new functions and changes:

1. Basis for all new functions are new market data, namely historical bond prices, which I have now integrated. On the one hand, these are bond prices from the U.S. (Provided monthly by Robert Shiller in the same sheet as his stock market data and the CAPE values) as well as a historical index of German government bonds from 1870 to 1959 constructed by Waldemar Fast (source: W. Fast “Die Performance deutscher Staatsanleihen - Konstruktion eines historischen Rentenindex ab Ultimo 1870 bis Ultimo 1959”). I have interpolated his annual time series to monthly data and linked it to the current REX performance index of the German stock exchange, so that we can now use continuous and hopefully consistent German stock and bond prices from 1870 or 1871 until the end of 2022 for our analyses, in addition to the American Shiller data.
2. A fixed asset allocation of a 100% pure stock portfolio as previously assumed in the simulator is therefore no longer necessary. Instead, a different asset allocation can now be entered in the “Asset Allocation and Stock/Bond/Inflation Data Settings” tab, which even allows a mixed portfolio of American and German stocks and bonds. Furthermore, a different asset allocation can be used for the savings phase and the withdrawal phase. A rule of thumb says that in the savings phase an “aggressive” asset allocation with 100% equities makes sense, while in the withdrawal phase a certain percentage of bonds could be desirable depending on the risk appetite. This rule of thumb can now be tested directly in the simulator.
3. As announced in my last blog post, it is now also possible to specify a home currency in the “Asset Allocation” tab. All stock and bond data will be converted into this home currency for the analysis. Accordingly, historical exchange rates from 1871 onwards have also been integrated into the tool. These are a little bit tricky for some areas, e.g. shortly after the end of the 2nd World War before the introduction of the D-Mark there was no possibility to exchange foreign currencies at all. In those cases interpolated exchange rates are used.
4. In addition, inflation data can now be used either from the USA or alternatively from Germany. A German investor who owns a pure US S&P 500 stock portfolio, for example, would then make a 100% asset allocation to the US S&P 500 stocks, but select “DE_EUR” as the home currency and “DE” as the inflation, since the local currency with the local price increases is relevant for him or her.
5. Contrary to my statement in the article FI Simulator 2 - Inflation it is now also possible to select a constant inflation rate of 2%,3% or 4% per year. Even if these constant inflation rates are not always consistent with the development of the nominal stock and bond data, this function may help to make FI calculations for a country with e.g. historically higher inflation rates.
6. The CAPE filter still allows to exclude periods in the analysis where the Shiller CAPE value is too large. However, only the CAPE values of the American stock market are used here. For a portfolio with German stocks and bonds, one probably has to take its results with some caution.
7. The tab “Optimization with cash glidepath” has now been replaced by a much improved function “Optimization of asset allocation”. I had deliberately not written a blog entry on the cash glidepath so far, since the interest rate turnaround was already foreseeable and thus a more general function that also takes bonds into account seemed necessary. With the full integration of bond data, this is now possible. In this tab, withdrawal rates for alternative asset allocations can be calculated systematically. All pensions, cash flows and other settings are still taken into account in order to be consistent with the prediction of the portfolio development as well as the calucation of exact withdrawal rates from the other tabs, only the asset allocation is systematically varied.

I will present all the new features in detail in the coming weeks in the form of further case studies or with a focus on very specific historical anomalies.

Two remarks in conclusion: I have tried to make analysis-files created with the previous version 0.2 loadable. Afterwards these are now saved compatible with version 0.3. If there are any problems with this import, please drop me a hint. In addition, I have further optimized and rearranged the entire code base, i.e. there are many changes under the hood as well, which are not directly visible. So there is of course the risk that errors or deviations to the previous version have crept in. If anyone notices anything unusual here, I would also be very grateful for a hint, ideally together with a corresponding analysis file (anonymized and freed from critical financial data). Many thanks in advance!

I hope you will like the new features and I already look forward to further feedback and suggestions. If you want to be notified about new posts, please use your favorite RSS reader and subscribe to this blog using the RSS link in the main navigation bar or through this link.