I’ve posted Entry #511 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Biggest Mistake That People Make Regarding the CAPE Metric.
Juicy Excerpt: The title of Shiller’s book on stock investing is “Irrational Exuberance.” That title suggests something shocking. It suggests that a portion of the money in our stock portfolios is not backed by economic realities, that a portion of that money represents nothing more than a passing emotional mood. What CAPE does is to reveal what portion of an investor’s portfolio is real and what portion is not. That permits him or her to plan his or her financial future more effectively than those investors who believe in the Buy-and-Hold idea that it is economic developments that cause stock price changes.
Kitces and Bengen remind us once again that Rob Bennett is wrong on SWRs.
https://www.kitces.com/blog/bill-bengen-4-percent-rule-safe-withdrawal-rates-historical-returns-research-book/#disqus_thread
This is research based investing.
Here’s a quote from the article:
“I have a strict test based on valuation. I don’t know if you’ve seen some of the charts that John Husband has produced which show basically that if you got out of the market at certain valuation levels and went to treasuries, you would find that the market will return to those lower valuations. So I use that as a basis and I have a schedule of the allocation in stocks against, let’s say, a particular Shiller CAPE level. Right now, on a quite low level and probably around under 15% equities, given this environment.”
That ain’t what Greaney was saying in 2002, The world is moving in the right direction.
We are all in a process of learning. The way to learn more and more and more is to open every discussion board and blog on the internet to honest posting re the last 39 years of peer-reviewed research in this field. I said that on the morning of May 13, 2002, and I say it again today. If you need to engage in criminal behavior to keep people from learning about an error in your retirement study, that’s a retirement study that very, very, very much needs to be corrected.
My sincere take.
Rob
You missed this part:
Michael: And so, what do you think about as the number in the environment today?
Bill: I think somewhere in 4.75%, 5% is probably going to be okay.
You need to stop your fraudulent and criminal behavior, Rob. Your board needs to be opened up to honest posting and you have been blocking that.
Greaney wasn’t saying that a 4 percent safe withdrawal rate can always be achieved in some way. He was saying that someone going with an 80 percent stock allocation always has a 4 percent safe withdrawal rate. That’s wildly wrong. At the top of the bubble, the safe withdrawal rate for someone going with an 80 percent stock allocation was 1.6 percent. It was possible at that time to get a 5.8 safe withdrawal rate going with 100 percent TIPS. A high safe withdrawal rate was certainly available to investors. But Greaney was not telling people how to get there. He was encouraging them to go with a high stocks/low safe withdrawal rate portfolio.
Investors always need to compare what they can do with different asset classes. That’s how you choose a good stock allocation. You look at the pros and cons of different allocations and choose the one that is best for you. The problem with Buy-and-Hold is that it discourages people from doing that. If an investor isn’t going to engage in market timing, why should he make a comparison of the merits of different asset classes? Say that getting your asset allocation right is 70 percent of the stock investing game. Once you adopt a Buy-and-Hold strategy, you have forsaken all the benefits of doing well with that 70 percent of the game. Buy-and-Holders don’t engage in market timing. So there is no reason for them to perform the comparison that an investor needs to perform to invest successfully for the long term.
My sincere take.
Rob