I’ve posted Entry #142 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Bad Retirement Studies Are Like Dirty Restrooms — They Are a Sign of More Bad Stuff That You Cannot See.
Juicy Excerpt: Most of the experts use the claim that their strategies are backed by research as a marketing gimmick. it sounds good to say that advice is rooted in research. It makes investors feel comfortable to hear those kinds of promises. But honoring the promises would tie the hands of the experts. When you take research seriously, there are things you cannot say that from a marketing standpoint you might very much want to say. The 10-year delay in correction of the retirement studies shows us that, when there is a conflict between marketing imperatives and the need to be true to the research, most investing professionals put marketing concerns first, second, third and fourth.
The reality is that today’s experts are not taking valuations into consideration in ANY of their calculations. It’s not just the safe withdrawal rate studies that present a problem. The only reason why the problem became visible in the retirement area is that the retirement studies require identification of a worst-case scenario, a single point on the spectrum of possible return scenarios. When you have one number to look at, it is possible to say whether the number is accurate or not.
Once we saw that the retirement numbers were not accurate, we should have reacted not by minimizing the problem but by wondering whether it might be indicative of a much deeper and broader problem than the one that had became obvious. I suspect that the reason why we have feigned unconcern for some time is that on some level of consciousness we suspect how deep the problem goes and we are worried about what it will mean to come to terms with it.