We enter Year Five of The Great Safe Withdrawal Rate Debate at 10:40 AM (Eastern Time) on Saturday. Here are three topics that I hope we will see explored in more depth during the next 12 months of our community discussions:
1) We know that middle-class participation in the stock market increases in Bull Markets and diminishes in Bear Markets. Thus, many middle-class investors never see in real life the juicy returns promised on paper to long-term buy-and-hold investors. To what extent can the effect of this reality be measured statistically? Is the true safe withdrawal rate for those who go with high stock allocations at times of high valuations a good bit lower than even the numbers being reported by analyses that make adjustments for valuations (but not for sales of stocks made after prices drop)?;
2) When middle-class investors sell, what group of investors is it that is doing the buying? Is there a small group of wealthy, valuation-informed investors that buys up the shares no longer wanted by middle-class investors who went with excessively high stock allocations at times of high prices? Do corporations buy back shares that they issued at higher price levels, increasing the value of the shares held by investors who do not sell?; and
3) How valid are concerns that those following the Valuation-Informed Indexing approach may “miss out” on the strong returns generally available to stock investors by lowering their stock allocations at times of high valuations? Does there come a point at which an investor would have been better off having maintained his higher stock allocation even after taking into account the substantial losses he suffers by doing so when valuations return to moderate levels?