Stocks Bonds Bills Conservative 40.00% 40.00% 20.00% Semiconservative 50.00 33.75 16.25 Moderate 60.00 27.50 12.50 Semiaggressive 70.00 21.25 8.75 Aggressive 80.00 15.00 5.00 in cash. We will also identify three points on the continuum between conservative and aggressive. We will use a 20-year holding period and consider the results that would have been achieved in each of the 673 20-year holding periods based on monthly data from 1926 to 2001. We will assume monthly rebalancing so that the target asset class weights are maintained. In practice, this might be difficult to achieve without adverse tax consequences, but we will nevertheless maintain our assumed tax rates of 30 percent on bonds and bills and 20 percent on stocks. We will begin with the assumption of no spending draining wealth from the portfolio. We will assume a $1,000,000 initial value. Table 30.7 shows the distribution of nominal pretax wealth accumulated in these 20-year periods. Table 30.8 shows the distribution of real, after-tax wealth accumulation. The "terminal minimum" is the lowest ending value that was observed in any 20-year period. The "interim minimum" is the lowest point to which principal sank at any point within any of the 20-year periods. A conservative investor never saw nominal principal sink below 84 percent of the original amount. The aggressive investor had situations in which the nominal principal value had fallen to about 65 percent of the original amount. This chapter is being written in late 2002 when stock prices are in the third year of a bear market. A number of investors who had identified themselves as aggressive and liked stocks because of their long-term expected excess returns are suddenly becoming less aggressive. One risk of adopting an aggressive posture is that you do not have the tolerance for interim volatility, and you will switch to a TABLE 30.7 Nominal Pretax Ending Wealth $1 million starting value; 20-year holding periods; no spending from portfolio Conservative Semiconservative Moderate Semiaggressive Aggressive         Observed   Expected       Amount Annualized Maximum Minimum Minimum 4,006,457 7.19% 11,292,739 1,894,950 842,612 4,489,137 7.80 13,359,046 1,895,414 792,248 5,026,733 8.41 15,736,158 1,864,478 743,423 5,625,130 9.02 18,456,735 1,803,537 697,157 6,290,803 9.63 21,553,998 1,715,355 653,340 Source: Nominal and inflation data from Ibbotson Associates.