I’ve posted Entry #337 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Mike Piper Explains Why Buy-and-Holders Are Reluctant to Follow the Research Supporting Valuation-Informed Indexing Strategies.
Juicy Excerpt: Mike explained that an instructor in a class on retirement planning that he recently took “was super enthusiastic about a recent piece of research that showed that, based on historical data, retirees’ ability to safely spend from their portfolios would be improved if they followed a set of rules in which they dramatically adjust their asset allocation each year based on current interest rates and price-to-earnings ratios.” Yes! That’s indeed what the 145 years of historical return data available to us today does indeed show. And it is a truly exciting discovery that is known by only a small number of today’s investors.
But Mike said that he feels qualms about following that sort of investing approach with his own money regardless of what the recent research shows. He notes that a strategy that works well historically cannot be tested in a large number of real-world simulations. Those planning retirements need to know whether their strategy will work well over a 30-year time-period (from age 65 to age 95). If you begin a test today, you won’t know for 30 years whether the strategy passes it or not and by then it will be too late for you to make use of what you learn from the test. And to adopt the new strategy you have to pass up the conventional strategy, accepting all the risks entailed in doing so. There are no do-overs in the retirement planning game.