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It’s been my privilege to meet and correspond with William P. Bengen, whose name many will recognize for his pioneering research on safe withdrawal rates (SWRs). In one of our discussions, Bengen noted that the following questions had not been well explored: Is there an optimal number of asset classes for a retirement portfolio, and which are most impactful? Are there diminishing returns to adding more asset classes and, if so, at what point do they reach zero?

Intrigued, I decided to use the “Big Picture” client education software to examine the impact of portfolio diversification on historical SWRs and other retirement outcomes. The striking results may help advisors persuade retirees to review their asset allocation strategy.


My research builds on the work of Bengen, who in 1994 published his pivotal study, Determining Withdrawal Rates Using Historical Data. The originality of his work sprang from the use of rolling retirement periods. He showed us how the retiree’s portfolio had fared, under various spending levels and equity weightings, in every investment landscape that retirees faced, starting January 1, 1926. By accounting for the worst historical retirement periods, Bengen quantified sustainable spending in a way that past performance averages, by definition, could not.

Bengen focused initially on bond and large-cap stock portfolios, but later measured how the addition of other asset classes, such as small-cap stocks, affected safe withdrawal rates. He also began to use data that was quarterly, rather than yearly, in frequency, thus boosting his sample size of rolling periods. Bengen’s conclusions continue to enlighten and inform today’s financial planner.

I complement Bengen’s research by accounting for the effects of further portfolio diversification on SWRs. The Big Picture software allows advisors to build hypothetical portfolios using up to 11 major asset classes, and instantly back-test their strategy over hundreds of rolling retirement periods. It illustrates for clients how dramatically diversification has impacted SWRs over the past nine decades.