Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
So you haven’t brought in an income for the last 25+ years just so that you can continue to repeat your Greaney line…….to which Evidence answered yet again last week.
He didn’t answer. Evidence has acknowledged that the Greaney study lacks a valuation adjustment. That’s what I believe as well.
Our only difference is that I say that the study needs to be corrected and Evidence does not say that. I have asked him on numerous occasions whether he believes that Shiller’s Nobel-prize-winning research showing that valuations affect long-term returns is legitimate research. On one or two occasions he said: “Sure.” But he has not as of today advanced a statement saying that the study needs to be corrected.
I believe that there should not be one dissenting voice re that one. People use retirement studies to plan retirements. I have seen it happen. There were people at the Mptley Fool board using the Greaney study to plan their retirement on nearly a daily basis.This is serious stuff.
Rob
Here is the simple formula for a secure retirement:
1. Maximize your income
2. Save as much as you can (20% minimum)
3. Avoid debt
4. Invest in low cost funds
5. Stick with a 60/40 or 70/30 portfolio depending on your risk tolerance
6. Always maintain an adequate emergency fund for unexpected expenses and/or gaps in employment
That is it.
The only one that I object to is #5. Both 60/40 and 70/30 are perfectly reasonable as an AVERAGE allocation (my personal inclination would be to favor 70/30). But, given the 43 years of peer-reviewed research showing that valuations affect long-term returns, an investor who fails to adjust his stock allocation in response to big valuation shifts is permitting his risk profile to go wildly off the mark. An investor who goes with 60 percent stocks at times of moderate valuations need to be at 90 percent stocks when valuations are insanely low and at 30 percent stocks when valuations are insanely high.
That one change is the difference between Buy-and-Hold and Valuation-Informed Indexing. Learning that we need to make that change is the biggest advance in our understanding of how stock investing works in the history of personal finance. We should be telling everyone about the importance of always, always, always practicing valuation-based market timing. Once we get the vast majority of investors on board, I think it would be entirely realistic to believe that we would never need to endure another bull market. Which means that we would never need to endure another bear market or another economic collapse. I can live with that, you know.
My best wishes.
Rob
“But he has not as of today advanced a statement saying that the study needs to be corrected.”
Greaney’s study (and other similar studies, Trinity etc) does not need to be corrected. It set out to calculate the inflation adjusted withdrawal rate that survived over various time periods in the past. It discovered (as did the other studies) that 4% survived all 30 year periods in the past.
If you want to have an estimate of what withdrawal rate might survive in the future, you will have to carry out that research yourself or get someone else to do it for you.
I obviously don’t have any objection to Greaney saying that 4 percent survived all 30-year periods in the past. That’s is an accurate claim.
I objected to his claim that a 4 percent withdrawal is safe. There’s 43 years of peer-reviewed research showing that it is not possible to calculate the safe withdrawal rate accurately without taking the valuation level that applies on the day the retirement begins into consideration. Greaney’s study does not do this. I intend to continue to say that the Greaney study lacks a valuation adjustment.
Do you think it would have been better if I had kept it zipped re the error in the Greaney retirement study?
Rob
“I intend to continue to say that the Greaney study lacks a valuation adjustment.”
We know that.
Because there is a lot of evidence that you are good at repeating that.
But there is also a lot of evidence that you are not good at articulating a reason why it should contain a valuation adjustment.
You continue to say that because it is easy.
It is more difficult to explain why it should contain an adjustment.
And it is much more difficult to conduct a study that predicts what future withdrawal rates will survive.
JFK said “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard”
The hocus equivalent would be “I choose to repeat the same things over and over again because it is easy”
Okay, Evidence.
I do wish you all good things, in any event.
Rob
And it is much more difficult to conduct a study that predicts what future withdrawal rates will survive.
I don’t think that it is possible to predict what withdrawal rates will survive. The best that you can do is to assign probabilities to various different possibilities, based on what has happened in the past. When the CAPE value is 8, the safe withdrawal rate is 9.0 and the odds of a plan calling for a 4 percent withdrawal surviving are very, very high. When the CAPE value is 44, the safe withdrawal rate is 1.6 and the odds of a plan calling for a 4 percent withdrawal surviving are not at all good.
I’ve already co-authored a calculator that gives the odds at the various CAPE levels. Had we opened every site to honest posting re the last 43 years of peer-reviewed research on the afternoon of May 13, 2002, we could have spent the last 22 years developing the Valuation-Informed Indexing concept and deepened and broadened our understanding of these issues in scores of amazing ways. Motley Fool called it “learning together.” All of the boards and blogs have the published rules that they have because they want to facilitate that process to the benefit of each and every one of us. The nasty Goon stuff takes things in the opposite direction and thereby holds us all back.
My sincere take.
Rob