I’ve posted Entry #453 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Difficulty in Persuading Investors That Valuations Matter Is That They Matter So Much.
Juicy Excerpt: But once we look at the numbers and see how much valuations matter, an exception becomes very much required. At the top of the bubble, the odds that a retirement using a 4 percent withdrawal would survive 30 years was only 30 percent. If those numbers are accurate, our failure as a society to insist that retirement studies report numbers properly will have caused millions of failed retirements once stock prices return to fair-value levels or lower in the wake of the next price crash. If we were to acknowledge that, we would have to make changes to how we design retirement planning studies.
And we don’t want to!
Not for any intellectual reason. For the purely emotional reason that, for so long as prices remain high, our portfolio statements show that we are all closer to retirement than we really are for so long as we can maintain the illusion that valuations do not matter. The day that we accept that Shiller’s research is legitimate is the day that we are required to acknowledge that we all are a lot farther behind in our efforts to finance our retirements than we want to believe we are. Fudging the numbers is the only alternative to acknowledging the realities. So we insist that just about everyone who works in this field fudge the numbers.
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