A Rich Life

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

“Your Retirement Is Not ‘Fully Funded’ If More Than Half of the Money in Your Account Consists of Irrational Exuberance”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“ I temporarily do not have a fully funded retirement but I have even more than $500 million if I just hang in there and complete the work that I need to do to keep us all from landing in the soup. Gee, I winder how I should play this one?”

You are no different than the guy waiting for his lottery tickets to pay off. It’s not going to happen. Are you just trying to make yourself feel better by making up these stories?

You don’t need to worry about those of us with fully funded retirement portfolios. Our only remaining challenges are related to growing inflation due to the fed and the typical healthcare issues. Both of those, we can manage.

Your retirement is not “fully funded” if more than half of the money in your account consists of irrational exuberance, Anonymous,

Rob

 

“The Entire History of the Stock Market Is One Big Success Story for Market Timing”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

If market timing works, why don’t you post success stories.  Perhaps you can start with your portfolio including your return rates.

The entire history of the stock market is one big success story for market timing, Anonymous. The peer-reviewed research that I co-authored with Wade Pfau shows that beyond any doubt whatsoever. Market timing is price discipline, Price discipline is always a good thing. It always reduces risk while increasing return. How could it possibly ever play out differently?

The reason why we have such a strong desire to believe that market timing might not always work is that believing that takes us to a magical land where irrational exuberance doesn’t hurt. We want to believe that we can get something for nothing by creating lots of irrational exuberance. Our common sense tells us that it is not so. The peer-reviewed research tells us that it is not so. But we really, really, really want to believe, so we come up with this thing where maybe everything is the opposite of what the research and common sense shows it to be and market timing isn’t really required. Um — yeah, sure, it’s not! Stocks for the long run! Stay the course! Tune out the noise!

Believing that market timing is not required is like believing that brakes are not required on an automobile. It’s a belief that always ends in tears. But I suppose that, if you were making mountains of money selling cars without brakes, you might be inclined to block people pointing out the realities of what cars without brakes do to people from being heard on the internet.

It’s a scam, Anonymous. I mean, come on.

Rob

Buy-and-Hold Goon to Rob: “The Data Set Used Only Had a Small Number of Periods That Started With Very High Stock Valuations and Even Those Valuations Did Not Reach the Level We Saw in 2000. So It Is Reasonable to Ask If We Could See 4% Fail for a 30-Year Period From 2000. It Is Also Reasonable to Ask What Sort of Lower Withdrawal Rate Might Be Needed If From Times of High Valuations.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“Can you please explain why Greaney has not to this day correscted the study?

Can you also please explain why everyone has not insisted that he do so?”

The problem is that the number you are looking for is a different number that the one calculated by Greaney and the other studies. They all come to about 4% because they all do basically the same calculation. “What inflation adjusted withdrawal rate survived all 30 year withdrawal periods in the past and what stock percentage did that portfolio have?”

The answer turned out to be 4% from a relatively high stock percentage.

Now the data set used only had a small number of periods that started with very high stock valuations and even those valuations did not reach the level we saw in 2000. So it is reasonable to ask if we could see 4% fail for a 30 year period from 2000. It is also reasonable to ask what sort of lower withdrawal rate might be needed if from times of high valuations.

However those are different questions than the one that Greaney, Trinity etc. answered.

a) If they really had made a mistake then it would be incumbent upon them to correct their numbers.
b) If however the case is that they got their number right but there is a different better number that people should use then it is the duty of the people proposing the different number to calculate that number (or range of numbers), document how and why they chose their calculation method and argue why their number(s) should be adopted.
You found it easier to simply make the incorrect claim that “intercst got the number wrong” rather than do the heavy lifting required by proposing a new and better number.

What you should have stated instead is
a) intercst got the number right
b) however it is NOT a number you should use to plan your retirement
c) here is a better way to calculate a withdrawal rate
d) and here are the reason why it is a better way

However that would have required a lot of difficult work by you or others who support your position, work that you seemed incapable of doing and work that you were not able to get anyone else with credibility to do for you.

Therefore you went with
a) “intercst got the number wrong”
b) “<b>intercst</b> got the number wrong”
C) “INTERCST GOT THE NUMBER WRONG”
D) “INTERCST GOT THE NUMBER WRONG!!!!!!!!!!!!!!!!!!!!”

and so on ad infinitum.

And it hasn’t worked
And it won’t work.

Of course I believe that Greaney calculated the SURVIVING withdrawal rate properly. I have been saying that since the first day. Greaney claimed that a 4 percent withdrawal rate is “100 percent safe” regardless of the valuation level that applies on the day the retirement begins. I do not agree. I believe that the safe withdrawal rate CHANGES with changes in valuations (because valuations affect long-term returns).

If I were to say that a 4 percent withdrawal is always “100 percent safe” I would be engaging in financial fraud. I do not believe that. A failed retirement is a serious life setback. So I am not willing to post dishonestly re this matter. Each investor has a right to hear both sides of the story and to decide for himself or herself which withdrawal rate to employ in his or her own retirement plan.

My sincere take.

My best and warmest wishes to you and yours.

Rob

Valuation-Informed Indexing #566: Each Day’s Stock Market Action Reaffirms a Belief in Buy-and-Hold

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I’ve posted Entry #566 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Each Day’s Stock Market Action Reaffirms a Belief in Buy-and-Hold.

Juicy Excerpt: One reason why bull markets can remain in place for a long time is that the investors who contribute to them are regularly reassured that their thinking about how stock investing works is reaffirmed on a daily basis. It is only price crashes that cause concerns about the effects of overvaluation and those are of course rare events.

“About 10 Percent of the Population of Investors Has Evidenced a GREAT Appreciation for Correct Answers. But the Other 90 Percent Either Tolerates Incorrect Answers or Endorses Them Enthusiastically.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“What I say is that the Greaney retirement study lacks an adjustment for the valuation level that applies on the day the retirement begins.”

Everyone agrees.

No-one has ever claimed that the Greaney retirement study contains a valuation adjustment.

I am glad to hear that everyone agrees that the Greaney retirement study lacks a valuation adjustment, Evidence.

Can you please explain why Greaney has not to this day correscted the study?

Can you also please explain why everyone has not insisted that he do so?

People use retirement studies to plan retirements, do they not? It is important to use the right numbers in retirement planning, is it not?

After 19 years of this, I know that you are not going to give a straight answer. I ask anyway because it would be super helpful if you did. Those two questions are the entire deal. In every field of human endeavor other than the investing advice filed, experts make an effort to give correct answers and the people asking the questions appreciate that effort. I think it would be fair to say that we have not seen much appreciation for correct answers in this field over the past 19 years. There have been exceptions. About 10 percent of the population of investors has evidenced a GREAT appreciation for correct answers. But the other 90 percent either tolerates incorrect answers or endorses them enthusiastically. I believe that we all need to work together to see this change. I think that we need to apply the same cultural norms that work so well in all other fields of human endeavor in the investment advice realm as well.

That is my sincere take.

I naturally wish you all good things.

Rob

 

Buy-and-Hold Goon to Rob: “It is a BIG Nothing and You Haven’t Helped One Single Person. All You Have Done Is waste Very Valuable Time That You Can Never Get Back.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“I can’t buy a house today with the $500 million settlement payment that I expect to receive in the days following the next price crash. But I will be able to buy lots of houses then. And I will have the satisfaction of knowing that I helped millions of people live richer and betters lives than they ever imagined was possible in the Buy-and-Hold Era. That ain’t nothing.”

It is a BIG nothing and you haven’t help one single person. All you have done is wasting very valuable time that you can never get back.

Okay, Anonymous.

I do wish you all the best that this life has to offer a person regardless of what investment strategy you elect to follow, in any event.

Rob

“If You Were Confident That the Irrational-Exuberance Money Was Real, You Wouldn’t Get So Angry When I Bring Up Shiller’s Nobel-Prize-Winning Research. If You Were Confident, You Would Be Calm and Happy to Invite Questions and to Engage in Friendly and Respectful Conversations With Those Holding Other Points of View.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

“ How much of the growth was real and how much was irrational exuberance? ”

It is obviously very real. I can do whatever I want with the $6.5 million. For example, I can go buy a $6.5 million house. How real is your $500 million? Can you buy a house with it?

I don’t think that irrational exuberance is real, Anonymous. It TEMPORARILY has the appearance of being real. I’ll give you that. That’s what makes it so dangerous. If you fall into the trap of thinking that irrational exuberance is real, you will not be able to plan effectively because you will not know how much real and lasting money you have.

I can’t buy a house today with the $500 million settlement payment that I expect to receive in the days following the next price crash. But I will be able to buy lots of houses then. And I will have the satisfaction of knowing that I helped millions of people live richer and betters lives than they ever imagined was possible in the Buy-and-Hold Era. That ain’t nothing.

If you were confident that the irrational-exuberance money was real, you wouldn’t get so angry when I bring up Shiller’s Nobel-prize-winning research. If you were confident, you would be calm and happy to invite questions and to engage in friendly and respectful conversations with those holding other points of view.

My best wishes.

Rob

“If Shiller Is Right and You Fail to Take Irrational Exuberance Into Consideration, You Cannot Get Anything About Stock Investing Right. It’s a Logical Impossibility.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

You have said the same thing for the last 10 years, yet my portfolio has grown substantially.  Just think if I was stupid enough to take your adVice.  I would be broke like you.

How much of the growth was real and how much was irrational exuberance? Shiller’s huge contribution was to show that you need to make that calculation to know where you stand.

The only difference between us is that I believe in always taking irrational exuberance into consideration and you do not. That one difference affects every decision you make as a stock investor. If Shiller is right and you fail to take irrational exuberance into consideration, you cannot get anything about stock investing right. It’s a logical impossibility.

Fair enough?

Rob

“If You Adjust that $6.5 Million Number for the Effect of Irrational Exuberance, It Would Be About $3 Million. You Would Be a Lot Better Off With $3 Million Living in a Nation That Is Not Going Through its Second Great Depression Than You Will Be With 1.5 Million (Stock Valuations Usually Fall to One-Half of Fair Value at the End of a Bull/Bear Cycle) in a Nation Going Through its Second Great Depression.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

<i>I now have about $6.5 million thanks to Buy and Hold. You have almost depleted your savings and need to go back to work. Which one of us is in danger?</i>

The entire country is in danger in the event that stocks continue to perform in the future at least somewhat as they always have in the past. If it turns out that Shiller’s Nobel-prize-winning research is legitimate research, we will be seeing millions of failed retirement and hundreds of thousands of businesses going under and millions of people thrown out of their jobs. Another Buy-and-Hold crisis helps no one. It hurts us all.

If you adjust that $6.5 million number for the effect of irrational exuberance, it would be about $3 million. You would be a lot better off with $3 million living in a nation that is not going through its Second Great Depression than you will be with 1.5 million (stock valuations usually fall to one-half of fair value at the end of a bull/bear cycle) in a nation going through its Second Great Depression. Going full Get Rich Quick/Buy-and-Hold helps no one.

Rob