Yesterday’s blog entry reported on an e-mail that I sent to Academic Researcher Wade Pfau on December 10, 2011. Wade sent two responses the following day.
In response to my comments re his chart on true wealth accumulation numbers, he said: “This is generally how I was interpreting it as well, which I probably picked up from you before. The main idea is that you shouldn’t be too excited with great wealth accumulations if they happened due to unusually high valuations, and low wealth accumulations shouldn’t be as scary if valuations are also quite low. So yes, if the blue line drops below the red line (which happens when PE10 falls below it’s historical median), people shouldn’t feel as bad about it. This is more or less the story I am trying to tell with safe savings rates as well.”
In response to my comments re the defensive tone in his most recent valuations paper, he said: “I understand your concerns about the defensive tone. But I do have the concerns about the caveats. And also, I think it could be more persuasive to present the results this way, because the results really do speak for themselves: a valuation-based asset allocation supports generally supports higher withdrawal rates and lower required savings rates than the corresponding fixed allocation.
There are a lot of people who will automatically close their mind to this because they think of it as market timing, and I hope my way of presenting it can help to bring them around a bit.”
Wade asked whether I had seen an article by Michael Kitces in the December 2011 issue of the Journal of Financial Planning. He said: “He presents the results speaking with much more certainty than I did about valuations. Though my Fisher and Statman paper was more forceful about the point than this current paper. We’ll see how the reviews go with my new paper. Depending on what the referees say, I may have a chance to make it less defensive. ”
Wade also provided a link to a blog post in which he discussed valuations-adjusted withdrawal rates: