Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
— Greaney said that a 4 percent withdrawal IS “100 percent safe.”
Why did you put the word IS outside the quotation marks?
To emphasize the conflict between what Greaney said and what Bernstein said.
If Greaney said “there’s a chance that a 4 percent withdrawal will work out, even at these crazy prices –that has worked out for retirements beginning at crazy price levels in the past,” I would endorse the statement. When he instead says falsely that a 4 percent withdrawal is 100 percent safe at all times, he is taking the valuations question off the table. The Bennett/Pfau research shows that the valuation level that applies on the day the retirement begins is the most important factor affecting retirement safety. So we all should very, very much want to see that issue remaining on the table.
We should be discussing stock valuations everywhere and at all times. If we were always focused on the effect of high stock valuations, we never again would see a CAPE value of 35, the CAPE value that applies today. So we never again would experience the ocean of human misery that inevitably follows a time when we permit the CAPE value to rise to insane highs. The enemy of stock investors is irrational exuberance. And the greatest friend of irrational exuberance is investor complacency re stock valuations. Greaney’s false claim that a 4 percent withdrawal is always 100 percent safe encouraged complacency about valuations among investors who were using that withdrawal rate or thinking of using it. I was there. I saw this. So I eventually worked up the courage to point out the false claim.
I offer no apologies. I believe that, if we were all thinking clearly, there would be zero controversy over the question of whether the authors of retirement studies should make an effort to get the numbers right. The problem is that we are NOT today thinking clearly. The CAPE value that applies today shows that. Most of us are guilty of irrational exuberance. The only thing that could possibly change that would be to open every site to honest posting re the last 43 years of peer-reviewed research. So that’s what I have been proposing as a fix to this mess going back to the afternoon of May 13, 2002.
Rob
Nothing is certain, we’re all working on probabilities. What are the odds an asteroid destroys the world as we know it and ruins my retirement plans?
The amount of irrational exuberance present in the stock price at a given time greatly influence the probability that investors will see poor outcomes. If valuations affect long-term returns, then valuations affect risk. The safe withdrawal rate is a risk-assessment tool. So it is a logical impossibility that the safe withdrawal rates is the same number at all valuation levels.
Asteroid hits are unlikely events, Price crashes at times when valuations are at insanely dangerous levels are common events. The CAPE was 33 in 1929, when a 30-year retirement plan with a 4 Percent withdrawal barely survived. In ordinary circumstances, a 4 Percent withdrawal would permit huge gains in portfolio value over 30 years. Why did a 4 percent withdrawal barely survive? Because valuations were so insane at the beginning of that retirement.
The fact that 4 percent barely survived is not telling you that a 4 percent withdrawal is “100 percent safe.” It is telling you that it is high risk. Try it again and it might well fail. Try it at a time of moderate valuations and you will see your portfolio value skyrocket. But try it again at a time of insane valuations and it might well fail. Valuations are by far the most important factor in assessing retirement safety. So it is not possible to assess retirement safety reasonably without taking valuations into consideration. You need to give some consideration to the most important factor.
Rob
4% withdrawal rate has always worked. Meanwhile, someone with no money in retirement savings by the time they are in their 60’s is always a failure.
As such, should we be worried about a bunch of rich millionaires, or should we be worried about people that are broke in their retirement years?
You should be worried about getting the numbers right in retirement studies. People use retirement studies to plan retirements.
It’s not all about turning a quick buck.
My sincere take.
Rob
I have well over $7 million in my investment accounts. You have $0. Tell me who got the numbers right.
By the way, it took me almost 40 years to build up my investments. You, on the other hand, have bet your entire future on expecting a windfall payment. Tell me again about about who is looking to turn a quick buck.
You could have 7 billion in your accounts and the Greaney retirement study still would not contain a valuation adjustment. I mean, come on.
The $500 million that I expect to collect in settlement of my legal claims is not a “windfall.” It’s money that I earned through my journalism work. It’s a pretty darn incredible reality that today’s reality is that one person can refuse to correct an error in his retirement study for 22 years and that the person who pointed out the error can be banned from every large internet site. Bringing that reality to the attention of millions of people and getting the problems that made it a reality fixed is a big deal for everyone who lives in the United States today. If doing that is not worth a large multiple of $500 million, I have a hard time imaging what would be worth a large multiple of $500 million.
I have asked the following question on many occasions and have never received a reasonable response. Would it have been better if I had kept it zipped re the error in the Greaney retirement study? The question answers itself.
I am not looking to turn a quick buck. I have been doing hard and important work for 22 years now. I naturally expect to be compensated appropriately. If getting the numbers right in retirement studies was not a big deal, Greaney would never have advanced a single abusive post, much less any of the criminal stuff. Evidence-Based Investing said it best. “Nobody” truly believes that Greaney included a valuation adjustment in his study, “including Greaney himself.”
Rob
No one even claims that Greaney included a valuation adjustment in his study.
I agree with you that no one has ever claimed that. Thank God for small favors.
But Greaney has not corrected the error in 22 years. That’s the source of conflict.
The Bennett/Pfau study shows that practicing price discipline (valuation-based market timing) when buying stocks is 70 percent of what it takes to achieve long-term investing success. Given the valuation-based market timing is 70 percent of the story, 70 percent of the efforts of those in the investment advice field should be directed at insuring that investors practice price discipline. It’s hard work. The entire history of the market shows that investors love the Get Rich Quick/Buy-and-Hold garbage. We are naturally inclined to turn stock investing into a roller-coaster ride, bull markets followed by bear market. The last 43 years of peer-reviewed research points us to a better way. But we can’t get there if we cant even talk about the problem, the Get Rich Quick urge that causes us to believe that there might be an alternate universe where everything works the opposite of how it works here on Planet Earth and valuation-based market timing is not always 100 percent required for every investor.
People at the old Motley Fool board were talking about the Greaney study daily. Some of them became friends of mine. What kind of friend was I being when I failed to point out the error in the study? What kind of person does that?
I did it for three years. I sure cannot imagine circumstances in which I would ever again be able to rationalize that sort of behavior. You do you. I am going to do me. I sincerely believe that the Greaney study lacks a valuation adjustment. Just like Evidence.
Rob
“I agree with you that no one has ever claimed that.”
But that won’t stop you endlessly repeating that the study doesn’t contain a valuation adjustment despite the fact no one thinks it does.
What you won’t do is articulate a convincing argument as to why you think it should contain an adjustment because that would take analysis and thought.
Simply repeating that Greaney’s study doesn’t contain a valuation adjustment is so much easier.
I think I have worked out why you do it. You are wrong about virtually every investing topic you discuss. One of the few things you got right is that there is no valuation adjustment in the studies. Therefore you keep repeating it because you think that if no-one can contradict you you must be doing something right.
It is like someone repeatedly saying that the world is round and thinking they are great because no-one proved them wrong.
Um….
Rob
Um? Really? This has been brought to your attention thousands of times and you pretend like it hasn’t.
People have tried having a normal conversation with you, but you can’t even do that. Instead, it is just about you creating a fake story because everything else has failed for you.
I’m just bad. Do you not see that?
Rob