A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“I’m Interested in Seeing These Dialogues Move Forward”

by

An earlier blog entry described the background of my recent correspondence with Michael Kitces on safe withdrawal rates (SWRs). Set forth below is the text of an e-mail that Michael sent to me on November 24:

Rob,

I’ll have to see what I can do to try to listen to the Podcast. Life is hectic these days, and it’s tough to fit in a 70 minute podcast. 🙂 I don’t know what you cover in the podcast, but I do have to admit that the title sounds rather negative towards me. “My Conversations with Michael Kitces -The Experts Just Don’t Get It” would seem to imply that either I’m an expert who doesn’t get it, or that I’m not an expert, neither of which is exactly positive. Is this what you meant to convey? If not, would you consider adjusting the title to reflect a more constructive light on the conversation?

You can reach Bill Bengen by email at [e-mail address deleted] or via his website at www.billbengen.com.

As for the website discussions, I simply don’t have the time to participate actively in more message boards at this time. The number I try to keep up with as is feels a little mind-numbing when I track it. 🙂 Of course I’m interested in seeing these dialogues move forward, though, so I hope you’ll keep me posted on the progress. 

With warm regards,
– Michael

Podcast #41 — Bogle and Valuations

by

I’ve added Podcast #41 to the “RobCasts” section of the site. It’s called Bogle and Valuations.

Bogle recently pointed out that the market now values U.S. businesses at about $9 trillion less than it did just one year ago and that that’s crazy. He’s right. The market was not valuing things properly one year ago. That means that the market is not efficient. That means that Passive Investing cannot work.

“A Meeting Place for Financial Planners Looking for an Alternative to Passive Investing”

by

An earlier blog entry described the background of my recent correspondence with Michael Kitces on safe withdrawal rates (SWRs). Set forth below is the text of an e-mail that I sent to Michael on November 24:

Michael:

I hope things are going well with you.

I posted a Podcast today summarizing in audio form our e-mail correspondence. I don’t believe that there is anything shockingly new in it, but, since it includes your name in the title, I thought that I should let you know. Please let me know if you have any concerns, or if there are any points that you would like to add.

http://www.passionsaving.com/personal-finance-podcasts-page-five.html

Also, I am seeking to send William Bengen an e-mail asking him for his take re the issues that you and I discussed in our last e-mails (his views on the analytical validity or lack thereof of the Old School SWR studies, his criteria for knowing when to lower stock allocations, his thoughts on short-term timing, any
concerns he is feeling re the Passive Investing model). I was not able to find an e-mail address for him through use of a Google search, only a telephone number. I will try to reach him later today by telephone. But if you have an e-mail address handy, I would be grateful if you would be willing to share it.

Finally, I wanted to briefly repeat the message of my last e-mail. I am very interested in making my site a meeting place for financial planners who are looking for an alternative to the Passive Investing model and the Old School SWR studies. My sense is that you are not ready to participate in any active way at this time and I of course understand. However, it may be that interest in this idea (both on your part and on the part of others) will grow over time. I hope you will keep me in mind in days to come. I believe that we could do a lot of good and important work together to get things back on the right track in all sorts of ways.

Take care,

Rob

“For Purposes of Community-Building, It Is Dogmatism That Is the Enemy, Not Passive Investing”

by

I recently posted a Letter to the Editor to the www.Early-Retirement-Planning-Insights.com site. It is entitled A Note to Wayne re “the Jerks.”

Juicy Excerpt: Those of us who believe that valuations matter and that the markets are not instantly efficient also need to be accepting of the reality that there are many smart and good people who continue to this day to believe in the Passive Investing model. In an intellectual sense, Passive Investing is the enemy. For purposes of community-building, it is dogmatism that is the enemy, not Passive Investing. We all should always make an effort to extend the hand of friendship to Passive Investing enthusiasts. We can learn valuable things from these people. We have in the past and we will again in the future.

“Those…Investing in Equities [Hold] Securities Whose Future Earning Power Is Completely Unpredictable”

by

Tuesday’s blog entry set forth the text of an e-mail that I recently sent to Bill Bengen, a financial planner based in California who is a prominent Old School safe-withdrawal-rate researcher. Set forth below is Bill’s response, which was dated November 25, 2008:

Dear Rob:

I actually have been using in my practice results Michael Kitces published recently which relate withdrawal rates to the 10-year trailing S&P 500 index P/E. It filled a gap in my methods and makes a lot of sense. I always knew that starting valuations would affect initial withdrawal rates, but since 1994, when my first research was published, there was virtually no opportunity to utilize the concept, as the markets have been overvalued until very recently. Now, however, retirees will have the opportunity to employ much fuller withdrawal rates than was recently possible, possibly as high as 9% to 10%, depending on how severe a decline the stock market experiences.

I am not using market timing, as my decision to retreat to cash had little to do with any market indicators. Likewise, my re-entry to the market will not be conditioned on any indicators. I am totally unable to call market bottoms, so I don’t even try. I sold all client equities because I perceived an unusually high degree of risk in the economy and the financial system. I was unable to assess the degree of risk. If one can’t assess risk, one can’t manage it. I believe that those who are investing in equities now, or remain invested in them, are in possession of securities whose future earning power is completely unpredictable, owing to changes in American consumer behavior, and the effects of breakdowns in the credit and housing markets. We are entering a completely new world of finance, and I haven’t a clue yet where it will take us. I am waiting to attain a better understanding of likely outcomes before I dip my toe in the water again. I may miss quite a bit of a new bull market, but I missed 2/3 of the bear market (or more, possibly), so I can afford to be patient.

I will check out The Retirement Risk Evaluator when I get a chance. Thanks for bringing it to my attention.

Thanks for your kind words.

Bill Bengen