An earlier blog entry described the background of my recent correspondence with Michael Kitces on safe withdrawal rates (SWRs). Set forth below is the text of an e-mail that Michael sent to me on November 25:
Thanks for your patience with me on the podcast title. This sounds like a fine solution. And I didn’t mean to undermine your point about experts and expertise – you’ve posed an interesting theory that would be a good discussion (a conversation for another time), but it’s certainly a reasonable premise to explore.
And indeed, I think some of the planning community is starting to open up to acknowledge more of the flaws of Passive Investing. In the “traditional” planner’s view, the greatest risk is to be out of the markets and miss the upside potential (an attitude clearly born of a profession that found much of its early growth right in the middle of the 1982-1999 era). I and some others are trying to change that dialogue, to acknowledge at a basic level that owning a market with incredibly high P/E ratios is ALSO a risky thing to do (arguably, more risky than being out of the markets). Not that this has to be done all-or-none (you’re in the markets or out), but that at a minimum we can make adjustments to better manage risk at the margins and it’s constructive to long-term wealth accumulation and preservation. Of course, the irony is that we may find ourselves back in an ultra-low valuation environment where buy and hold really DOES work pretty well before this is all over; in that case, we’ll just have to see if we can learn our lesson better in advance of the end of the next secular bull market. 🙂
With warm regards,