I’ve posted Entry #78 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Using Accurate Safe Withdrawal Rate Numbers Helps Us Understand Stock Investing Risk.
Juicy Excerpt: Say that the SWR is always 4 percent. Does that sound like a low number or a high number?
It is a remarkably low number. The SWR calculations assume that the portfolio may be reduced to zero over the 30-year time-period. Thus, an asset class providing a zero return for 30 years running would provide a SWR of 3.3 percent. The 4 percent SWR reported in the Old School studies for stocks is only a little better than the SWR that would apply for an asset class offering a return of zero. And yet stocks provide an average long-term return of 6.5 percent real! Why is the SWR for stocks so low?