Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“But we have a case where it caused the retirement account to be reduced to $1 at the end of 30 years”
Because that is how the study was designed. They set out to find what would last 30 years. If you want to find out what would last 30 years and have some left over at the end you can do that.
I understand that that is the way the study was designed.
The problem is that you are making a big deal out of the fact that 4 percent always survived. It BARELY survived in a tiny number of high valuation tests. That doesn’t suggest safety. It suggests a lot of risk.
Having a huge amount in the portfolio at the end would suggest safety (and you have that for retirements starting at low or moderate valuation levels). If you had hundreds of tests and it always at least barely survived, that would suggest that it will probably survive the next time as well and you could reasonably call that “safe.” But bare survival in a tiny number of tests does not suggest safety. It suggests just the opposite. It is showing that going with a 4 percent withdrawal for a retirement starting from an insanely high valuation level is as risky as all get-out.
It MIGHT barely survive one more time. You cannot say with certainty that it will fail. But you cannot say that it is safe, For something to survive on a tiny number of occasions does not make it safe. The concepts of “survival” and “safety” are not at all the same. These studies are exercises in semantic trickery. It is a national scandal that they have not all been corrected in the 20 years since the error in them was exposed.
Rob
Why don’t you ever post any case studies of people using VII?
I am the co-author of research published in a peer-reviewed journal showing that Valuation-Informed Indexing strategies have been providing far higher returns at greatly reduced risk than Buy-and-Hold strategies for as far back as we have good records of stock prices. Market timing ALWAYS works. Market timing is price discipline. It is impossible for the rational human mind to imagine any circumstances in which it would stop working.
If we had had Robert Shiller’s Nobel-prize-winning research available to us in 1870, we would today have millions of case studies showing how superior Valuation-Informed Indexing is to Buy-and-Hold. Unfortunately, humankind did not come to this planet with an instruction manual explaining how everything works. Shiller only published his Nobel-prize-winning research in 1981. How the heck are we supposed to have case studies showing the superiority of research-based strategies in days before the research on the most critical question (market timing) was even published? The demand for this is absurd.
People need to follow the strategy before there can be case studies on it. And people need to hear about the strategy before they can begin following it. The very first step in making the transition from Buy-and-Hold to Valuation-Informed Indexing is to open every discussion board and blog on the internet to honest posting re the past 40 years of peer-reviewed research in this field. That’s why I have been advocating that as a society we take that step going back to the morning of May 13, 2002.
My best wishes to you.
Rob
So no one is following VII. Why don’t you post your own results. We haven’t seen a financial update since 2005. The only thing we know is that you said you needed to go back to work due to depleted savings.
Say that there is a 1 in 100 chance that what I said in my famous post from the morning of May 13, 2002, — that the Greaney retirement study lacks a valuation adjustment — is accurate. I think that the odds are a lot better than 1 in 100. I would put it at a 99.99999 percent chance. But let’s say for purposes of discussion that it’s 1 in 100. If it is 1 in 100, we should be permitting honest posting re the peer-reviewed research at every site on the internet.
Greaney isn’t the only one who got retirement planning wrong. EVERY Buy-and-Holder got it wrong. Greaney’s mistake was that he didn’t appreciate the importance of market timing. He treated every retirement date as equal. If market timing didn’t work (that is, if the market were efficient), that would be correct. Stock investing risk would be stable, not variable. But of course that’s exactly what Shiller showed is not the case in his Nobel-prize-winning research.
Retirement planning matters. Given that all the Buy-and-Holders got it wrong (because Shiller’s Nobel-prize-winning research was not available in the days when the Buy-and-Hold strategy was being developed), we should be permitting honest posting re the last 40 years of peer-reviewed research at every site on the internet.
My sincere take.
Rob
Every buy and holder? Can you give us @ link to just one failed portfolio? At the same time, can you show even one successful person that has implemented VII?
Take a look at all of the stock portfolios that existed in 1929. They all fell by a huge amount. The collective losses were large enough to bring on a Great Depression, That should never happen.
Once we have a widespread understanding of the importance of market timing, it will never happen again. All investors went to act in their self-interest. Show them how much the value proposition of stocks drops when prices reach insanely dangerous levels and they will lower their stock allocation at such times. Which will bring prices back to reasonable levels.
There can never be an out-of-control bull market in a world in which honest posting re Shiller’s Nobel-price-winning research is permitted. Which means that there can never be a bear market. Which means that there would in all likelihood never be an economic crisis. I can live with that.
ALL Get Rich Quick/Buy-and-Hold portfolios are failures. Because failing to engage in market timing dramatically reduces long-term returns while dramatically increasing risk. Successful strategies do just the opposite. We should be permitting honest posting re the last 40 years of peer-reviewed research at every site.
My best wishes to you.
Rob