Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Vanguard publishes article on 4% retirement rule. What ban?
Where’s the discussion of the effect of the valuation level that applies on the day the retirement begins? That’s the error that caused the problem. She doesn’t even discuss that issue.
She says that the problem is that we are in a low-return environment today. The Old School studies took that into account. Greaney’s study too that into account. It is an insult to him and to all the authors of Old School SWR studies to say that they didn’t consider the possible that we might enter a time-period when returns would be lower. The entire point of all SWR studies is to identify the withdrawal rate that works in worst-case scenarios. Entering a bad return environment is obviously a bad-case scenario. So that is not the mistake that was made.
And she says that the studies failed to take the possibility of bad return sequences into account. Again, the Old School studies do that! It was the Old School SWR studies that taught us all the importance of considering return sequences. That was the gold in them. Before the Old School studies came out, people like Peter Lynch were saying that the SWR is 7 percent. The Old School studies put an end to that. It is a grossly unfair insult to the authors of the Old School studies to say that they did not consider the effect of returns sequences when they were the ones who achieved that huge breakthrough that advanced our knowledge of how retirement planning works in a very big way.
The elephant in the living room is valuations. There is 33 years of peer-reviewd research showing that the valuation level that applies on the day the retirement begins is the most important factor in determining the safe withdrawal rate. There is a Social Taboo against talking about this because 90 percent of the experts in this field have been ignoring this factor for 33 years after the peer-reviewed research showed that it is critical and in a not-small number of cases have engaged in financial fraud (a felony) to keep millions of middle-class investors from learning about the important of this factor.
I cannot change the history, Trebor. I love the Buy-and-Holders for their many positive contributions and I always will. Those contributions are real and important and are already written in the book and thus can never be negated. But the Buy-and-Holders are going to look very, very, very bad following the next crash when they try to once again explain away the realities staring millions of middle-class investors in the face.
Price matters when buying stocks just as much as it does when buying anything else. Ignore price and you get it all wrong. No matter how smart you are. No matter how much of a big shot you are.
That’s the future.
Either we acknowledge that as a society and stop with the death threats and demands for unjustified board bannings and tens of thousands of acts of defamation and threats to get academic researchers fired from their jobs or we all go down together. Those are the two options before us. We can enjoy the benefits of being the luckiest generation of investors that ever lived or we can see our economic system fail.
I am telling.
Not because I have some grudge against the Buy-and-Holders. Because I love them. Jack Bogle never wanted all his wonderful work to turn out this way. The woman who wrote this article never wanted her hard work to turn out this way. Not one person wanted this. Even Mel Linduaer and John Greaney never wanted this.
But here we are.
Every time another Buy-and-Holder tells another lie he or she makes it harder for all the others to acknowledge the mistake they made in 1981. The sooner you come clean, the shorter your prison sentence will be. Because the sooner you come clean, the sooner the millions of middle-class investors will be able to learn about the first true research-based investing strategy and the sooner we will be able to bring the Buy-and-Hold Crisis to an end.
Again, that’s my sincere take re these terribly important matters in any event.
My best and warmest wishes to you and yours and to all of my many good Buy-and-Hold friends.