I’ve posted Entry #358 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Valuations Correlation Is Stronger for Safe Withdrawal Rates Than for Long-Term Returns.
Juicy Excerpt: The particular year in which the change from a secular bear market to a secular bull market takes place does not matter as much when it is the safe withdrawal rates that are being examined. When one is calculating safe withdrawal rates , one is not seeking to identify the return in any one particular year but how loss years and gain years interact to determine whether a given portfolio amount will produce enough income to survive 30 years of a specified withdrawal amount or not.
The correlations for returns are weakened by the fact that it is always one year for which the correlation is being tested. In some historical return patterns, that will be a year in which the effect of the starting-point valuation level was strong and, in other historical return patterns, that will be a year in which the effect of the starting-point valuation level was weak (depending on whether the secular bear market had been transformed into a secular bull market yet or not). So the overall historical record shows a mixed result — a correlation that is very strong in some cases but not quite as strong in others (even though the correlation was equally strong in those cases, only for different years).