A Rich Life

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

Wade Pfau: “If Valuation-Informed Indexing Consistently Outperforms Fixed and Lifecycle Strategies, Then the Proof Is In the Pudding. Given How Well Valuations Help to Explain Withdrawal Rates, I Think There Is a Lot of Potential for This Topic”

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Yesterday’s blog entry reported on an e-mail that I sent to academic researcher Wade Pfau on December 19, 2010. Wade sent his response the following day.

Wade said: “‘I’m excited about this, as depending on what you have already done, I think I can design a study using the Shiller data to provide historical simulations of VII strategies against fixed buy-and-hold strategies and also lifecycle strategies (declining allocation to stocks as one ages).  If VII consistently outperforms fixed and lifecycle strategies, then the proof is in the pudding so to speak.  Given how well valuations help to explain withdrawal rates, I think there is a lot of potential for this topic.”

He added that Monte Carlo simulations do not work in this area because “the assumptions built into their design will mean that valuations do not matter by definition.” He argued that this type of study can only be done with historical data and speculated that using Monte Carlo simulations may have thrown some researchers off the right track.

Wade also suggested that different types of investors might want to follow different allocation-change rules. “There are lots of possibilities,” he said.

My response is set forth below.

Wade:

All that sounds super.

You may want to take a look at the analysis/graphics set forth at this link:

http://www.financialwebring.org/forum/viewtopic.php?t=106998

This examination of how Valuation-Informed Indexing has performed historically was done by Norbert Schenkler, a part-time financial planner and co-owner of the Financial WebRing Forum. He is a long-time abusive poster at numerous boards but it appears to me that he was playing it straight in preparation of this analysis.

He says: “The evidence is pretty incontrovertible. Valuation-Informed Indexing is…everywhere superior to Buy-and-Hold over ten-year periods.” The one exception he finds is the late 1990s. But that is no longer an exception since the crash
(the analysis was prepared pre-crash).

John and I prepared a calculator called “The Investor’s Scenario Surfer” that permits a Monte Carlo testing of possible 30-year return sequences so that investors can compare how they would have done with VII vs. how they would have done with 80 percent reebalancing, 50 percent rebalancing and 20 percent rebalancing:

http://www.passionsaving.com/portfolio-allocation.html

The Monto Carlo used here is a bit different from what is usually used in that it contains filters that cause the results to show a valuations effect (going-forward returns are higher starting from low-valuation starting points).

I am not advocating either Monte Carlo or actual historical data. Some view the actual data as more real. But some others argue that 140 years of data is not enough to draw definitive conclusions. I personally like the filtered Monte Carlo approach. But it makes sense only for those who already buy into the idea that valuations affect long-term returns, so I think it could be argued that in a sense it begs the question. My aim here is just to let you know about what I know that has already been done so that you can review if before choosing your own path.

My experience with the Surfer is that VII produces the best 30-year results in about 90 percent of the return sequences generated. 80 percent rebalancing almost always places second, 50 percent almost always places third, and 20 percent rebalancing almost always places last.

There’s a pattern that applies in most runs that explains why VII usually ends up ahead. It sometimes takes only a few years for VII to go ahead and it sometimes takes many years. But this almost always happens at some point in a 30-year cycle (in every 30-year cycle in the real world, we have had one occasion when valuations were dangerous). Once VII goes ahead, it becomes impossible for 80 percent rebalancing to catch up because VII and Buy-and-Hold both call for high stock allocations at moderate and low valuations. And the compounding effect causes VII to go farther and farther ahead over time.

The thing that make the difference as to whether VII wins by a little or a lot is how early in the 30-year cycle it goes ahead. The dynamic here is that it is virtually a lock that sometime within a 30-year period valuations are going to become a big factor. And one big win due to valuations makes a huge difference at the end of 30 years after compounding is taken into effect. The numbers are counter-intuitive (as is always the case with compounding) and very impressive.

I STRONGLY agree with your point that there is more than one possible VII approach. This one is a little bit of a pet peeve of mine. People often ask me “What is the best allocation at today’s P/E10 level?” There is no one answer. Asking that question is like asking John Bogle “What is the one stock allocation that everyone should go with?” VII is different than Buy-and-Hold in that it posits that an investor must not go with the same allocation at all times. But it does not posit that
valuations are the only factor. So the investor still needs to take his financial goals, his age, and his risk tolerance into consideration.

RobCast #137 is titled “Nine VII Portfolio Allocation Strategies”:

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

Sorry to dump even more material on you. Please just look at what you think might be of use when you get a chance to do so. You will learn that expressing even limited interest in any of this stuff when I am in the room can be dangerous!

Rob

Wade Pfau: “I Like Your Term ‘Historical Surviving Withdrawal Rate’ As a More Accurate Description of What Traditional Studies Like Trinity Show”

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Yesterday’s blog entry set forth the text of an e-mail that I sent to academic researcher Wade Pfau on December 18, 2010. Wade responded later the same day.

He said that he agreed with my comment re the Business Week article that safe withdrawal rates can rise a good bit higher than 4 percent as well as drop a good bit below 4 percent. However, he argued that the SWR was likely to remain low for some time and thus maintained that “perhaps it is not a major oversight on the author’s part.”

Wade noted that I had moved from my work on SWRS to examining the effect of valuations on allocations and expected returns and said that he expected to do research in that area within the next year. He observed that “I do like your term ‘Historical Surviving Withdrawal Rate’ as a more accurate description of what traditional studies like Trinity show.” He noted that he remembered me using that term in my posts at the Vanguard Diehards board.

Finally, Wade observed that the thread he started on safe withdrawal rates generated far fewer posts than threads he started on two earlier research papers. “It’s interesting to see the difference,” he said.

The text of my response e-mail follows:

Wade:

Yes, all that is so. The initial SWR discussions were strange in that some reacted with great excitement and some with a great determination to shut down the discussions. My focus then turned to figuring out what was behind that. And that led to all sorts of explorations of all sorts of valuations-related topics.

I ultimately concluded that the confusion stems from the fact that Fama’s model (the Efficient Market Theory) starts from premises that are the opposite of those in Shiller’s model (Valuation-Informed Indexing — the title is mine but the core ideas are Shiller’s). I write a weekly column called “Valuation-Informed Indexing” at the ValueWalk.com site that aims to point out all the differences between the old model and the new model. The column is aimed at better-informed investors
(the type of people who practice Value Investing tend to be well informed, in my assessment) rather than at the typical middle-class investors to whom I direct most of my writings. I first wrote eight articles describing each of the four calculators that John and I developed together, and then added so far 20 weekly columns. Here is a link to the archives:

http://www.valuewalk.com/category/valuation-informed-indexing/

If I were going to pick out one column entry to illustrate the basic idea being explored, I think it would be this one (“Either Valuations Matter Not at All or They Matter A Great Deal Indeed”):

http://www.valuewalk.com/asset-allocation/ivaluationinformed-indexingibr-valuations-matter-matter-great-deal/

The best comment that has been made on my work was a comment by Columbia University Economist Rajiv Sethi, who said: “Rob Bennett makes the claim that market timing based on aggregate P/E ratios can be a far more effective strategy
than passive investing over long horizons (ten years or more). I am not in a position to evaluate this empirically but it is consistent with Shiller’s analysis and I can see how it could be true.”

That statement hits it on the head. It would be dogmatic for me to say that everyone must agree with me. I do NOT say that. What I say is that pretty much everything I say follows from what Shiller says in his book “Irrational Exuberance.” The subtitle of the book is: “The National Bestseller that REVOLUTIONIZED the Way We Think About the Market.” Shiller is making a declaration that he REJECTS the conventional model (the Efficient Market Theory, or Buy-and-Hold).

People have been trying to have it both ways now for 30 years. They advocate Buy-and-Hold and they also say that valuations matter. If valuations matter, Buy-and-Hold is dangerous. If the market is efficient, valuations don’t matter and Buy-and-Hold is the ideal strategy. It’s an either-or. I don’t mind people saying that they reject Shiller and thus they reject all that I say. That makes logical sense. But, if Shiller is right, there are all sorts of implications that follow from his revolutionary work. The strange thing is that, while Shiller’s work is well regarded, neither Shiller not anyone else has explored the strategic implications of his findings. Doing that has become my Life Project for the past eight years.

I’d like to illustrate how someone following the VII model would respond to your finding that the predicted withdrawal rate in 2008 was 1.48 percent. Drip Guy obviously saw this as a BAD thing, almost a catastrophically bad thing. The Valuation-Informed Indexer does not see it that way. It is just a data point that provides guidance on how best to invest. A low SWR is neither a good thing nor a bad thing. It is a neutral reality.

In 2000, the SWR for TIPS was 5.8 percent. That is an amazing SWR for a risk-free asset class. All that retirees had to do was to move their money into TIPS and they could retire with great safety. The problem is that this option was rarely recommended because under the Buy-and-Hold Model it is a logical impossibility. Buy-and-Hold posits that the higher returns associated with stocks are the result of the greater risk associated with stocks. So a risk-free asset class can never be expected to provide higher long-term returns than stocks. VII rejects this way of thinking about things. So Valuation-Informed Indexers are free to consider asset classes offering far better value propositions than stocks and thereby to solve the problem presented when the SWR for stocks is very low.

The SWR for TIPS is obviously lower today. But an argument can be made that TIPS offer an even better deal today than they did in 2000. Why? Because the P/E10 for stocks is on its way to 7 or 8 (we have gone to 7 or 8 in the wake of every trip to 25 or above — bull markets always cause enough economic destruction to bring valuations to half of fair value). When the P/E10 for stocks is 7 or 8, the most likely annualized 10-year return for stocks is 15 percent real. So money put in TIPS today will not earn only the amount provided directly through ownership of TIPS. It will earn that amount for a few years and then it will earn the far higher return available for stocks selling at a P/E10 of 7 or 8. The long-term return on that money will be a combination of the amounts earned on the TIPS and the amounts earned on the stocks once the stocks are priced well. Again, the low SWR for stocks today presents no problem. That is a temporary reality than can easily be avoided by moving assets to asset classes offering a more appealing long-term value proposition.

You say that it’s not too big a deal that the article doesn’t mention that the SWR will someday go up much higher than 4 percent. I of course  am glad to see any article that points out that the SWR is sometimes a good bit lower than 4 percent. But I also think that the strategic point is a very important one. VII is a LONG-TERM investment strategy. All strategies are based on the idea that investors need to plan ahead. It is also an emotionally BALANCED strategy. It treats all price changes as having both positive and negative aspects. The same thing that causes low SWRs (high valuations) also causes crashes, which cause low valuations, which cause high SWRs. There is no such thing as a permanently low SWR. People don’t need to be concerned about low SWRs so long as they know how to respond strategically to take advantage of them in the long run.

The problem is that Buy-and-Hold does not permit consideration of the idea that super-safe asset classes can offer long-term returns far higher than those available from stocks. So long as an investor is working from that premise, all attractive options are closed to him at times of high valuations. Once we give up a belief in the EMT and in the Buy-and-Hold Model that follows from it, hundreds of doors open to us. My aim is to describe those opportunities to people.

Sorry for all the words. I hope that there is at least some useful stuff to be found in them. Please don’t feel any need to respond while you are away from the usual grind. If you have any questions or concerns or comments or added thoughts, I’d be thrilled to hear them at any time it is convenient for you to share them.

Rob

“We ‘Know’ All Sorts of Things About Investing Today That We Do Not Want to Acknowledge That We “Know. My Aim Is to Harvest This Unappreciated Knowledge.”

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Yesterday’s blog entry described an e-mail that I received on December 16, 2010, from academic researcher Wade Pfau. Set forth below are the words of my response.

Wade:

Thanks for your response.

All is forgiven from my end. All of the points you make in your response make sense to me. There is no question that this is explosive stuff and it is hard at times to say things perfectly. I of course struggle with that same issue. So long as there is good intent, things work their way to a good place. I can assure you that there is good intent on my end. I am reassured by the words of your response that there is good intent on your end.
Differences on fine points are of course not a problem. Those sorts of differences are to be expected and are healthy.

There has been HUGE interest at that board in SWRs in the past. I believe that the reason why you did not see a response is that people there feel shame over how the board has handled this issue. Part of it is how they interacted with me and part of it is how they misled people re the issue (it is a reality that people were misled — the best interpretation that can be put on it is that the people putting forward the misleading stuff were suffering from cognitive dissonance).

The personality clash is with SOME Bogleheads, not all Bogleheads. There are some great people over there who would love to have me participate in the discussions held there. They are (understandably) afraid to speak up. When a segment of a board community fears stating its honest views, the board had lost its intellectual integrity; people are not hearing both sides. It doesn’t make me happy to say this. But it needs to be said.

I am grateful for you spelling out the cause of your concern by saying: “The thing that troubled me was how sure you were about your predictions.” I believe that there is a misunderstanding here. I am NOT dogmatic about the particular predictions. I do not believe that dogmatism re that aspect of the question is justified. I love it when someone like yourself puts forward a different reasonable take. That gets people thinking. We need more debate, and dogmatism will not get us that.

My guess is that the thing that I was being dogmatic about in the comments you have in mind was the idea that SOME adjustment must be made for valuations. I do see it as being irresponsible to make no adjustment for valuations whatsoever given the consequences that follow for retirees who place their confidence in SWR studies that get the numbers wrong. My view is that there is an INSANE level of dogmatism coming from some of the defenders of the Old School studies. If they could just acknowledge that there is more than one reasonable point of view, we could all be friends.

Anyway, I very much do NOT believe that dogmatism is justified re these matters. It does indeed sting for me to hear myself described as being dogmatic here because I have invested so much in the way of blood, sweat and tears into efforts to bring the dogmatism to an end and to get things pointed in a more positive direction.

There’s an awful lot of material at those links. I certainly don’t expect you to look at all of it. You probably would prefer to focus on materials that deal with substantive matters (most of those materials focus on the process questions). I will get some links on substantive matters to you within the next few days.

Still, you might want to spend a little bit of time looking at the links that focus on the process questions. I have spent an awful lot of time on the SWR matter and on related matters and I have come to believe that the full reality is that there ultimately is a great deal of overlap between the substance issues and the process issues. I am going to put forward one illustration of what I mean by this just to give you a sense of what I am getting at.

You mentioned that you were not aware of the SWR controversy until September of this year. That should not have been the case! Bill Bernstein does rough calculations in his book “The Four Pillars of Investing” showing that the SWR at the top of the bubble was somewhere near 2 percent. Unfortunately, even most people who have read the book are not aware of this because he wrote it up in such a way as to downplay the finding. And of course the finding was not front-page news in the major papers, as I very much believe it should have been.

There are all sorts of issues like this. We “know” all sorts of things about investing today that we do not want to acknowledge that we “know.” My aim is to harvest this unappreciated knowledge. I do not by any stretch of the imagination believe that I have all the answers. But I do believe strongly that we need to launch a debate. I had a reputation prior to my involvement in the SWR debate of being a “teddy bear” poster. I am likely one of the least confrontational people you know. My problem re this matter is that there are a good number who object violently even to the idea of having  a discussion. And discussion boards at which critically important issues may not be discussed rarely achieve their full potential.

I regret that you have had to sort through all this drama. But I will direct a phrase to you that you have used in reference to me. There is something in you that saw an issue of some importance when you happened across the thread on SWRs. YOU are really on to something in seeing the significance there (many smart people have failed to see it). I hope that perhaps I will be able to point you to some things that perhaps will spark further fruitful investigations.

No dogmatism. That’s out! The aim here is exploration of potentially exciting new realities. It’s been my goal since the first day to bring out the positive in all this (which in my assessment is so far-reaching that it is scary) and to leave the boring, time-wasting stuff behind. That’s what I’ll be trying to pull off in future communications.

Thanks again for responding to a challenging e-mail in a warm and honest and frank and encouraging way. That gives me some hope (combined with a few other recent developments) that this saga may be taking a bit of a turn in a life-affirming direction.

Rob

Wade Pfau: “I Was Trying to Pay Tribute to Your Accomplishments in What I Knew Would Be a Hostile Environment”

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Yesterday’s blog entry contained the text of an e-mail that I sent to academic researcher Wade Pfau on Dec. 16, 2010.

Wade sent me an e-mail in response saying that: “I’m sorry for offending you. I’ve removed that post from Bogleheads. I will think about adding a new post to start over later and to express your accomplishments differently.”

Wade told me that he did not view his post as defamatory. He said that he had read enough material at the Bogleheads board to know that I was not well liked “by them” and noted that I had been referred to at the board as a person who could not be named. He added that he tried to be respectful to me in his post. He argued that most of his comments about me were positive and explained that “I was just trying to give you credit for your contributions in the context of knowing that this will not be well received at Bogleheads.”

Wade maintained that the negatives he used in reference to me “I don’t think are so negative” because “I think you were really on to something.” However, he added that “the thing that troubled me was how sure you were about your predictions, and how you asserted the correctness of those predictions in the face of criticism.”

At that point, the e-mail turned to a specific point. John Walter Russell’s research showed that, at the top of the bull market, the safe withdrawal rate for a retirement portfolio with an 80 percent stock allocation was 1.6 percent real. Wade observed that: “That 1.6 is not a point estimate from the regression, but the lower bound of a confidence interval that has to be defined in a fuzzy way because correct confidence intervals cannot be estimated due to the overlapping observations problem.  That means there has to be some doubt about the correct number. ”

Wade concluded his e-mail by apologizing for offending me but suggested that I had overreacted. Overall, “I was trying to pay tribute to your accomplishments in what I knew would be a hostile environment.”

Finally, the e-mail states that “I think we are basically on the same side.” Wade said that he had not looked at the links set forth in my e-mail to him but that he hoped to do so soon.

Rob

Wade Pfau: “I Just Became Aware of Your Past Research in September…. I Always Find Your Writing to Be Very Interesting and Intriguing”

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I will over the next few weeks be putting forward here summaries (in the case of Wade’s end of the conversation) and full texts (in the case of my end of the conversation) of my e-mail correspondence with Wade Pfau, Associate Professor of Economics at the National Graduate Institute for Economic Studies.

Our communication (and friendship) began with a comment that Wade put to the blog on December 16, 2010. Wade on that day put a post to the Bogleheads Forum that was influenced by the work that I have been doing since May 2002 on safe withdrawal rates and on the Valuation-Informed Indexing model for understanding how stock investing works.

Wade wrote: ” I just became aware of your past research in September.  Since then, I’ve read archives from many Discussion Boards and websites, and I always find your writing to be very interesting and intriguing….” Wade described retirement research he had done and linked me to the research, saying “I do cite you and John Walter Russell in my paper as the earliest and strongest advocates of this approach.” He solicited my comments, noting that there was still time to make improvements to the research before submitting it to a professional journal (the version at the link was a draft version).

I responded by sending Wade an e-mail containing the following words:

Wade:

I was excited to see your comments re the safe withdrawal rate issue this morning. I also was happy to see you express a desire to discuss some of these issues in more depth. I think that would be wonderful. I would like to help in any way
possible. We have done extremely important work in the Retire Early and Indexing communities over the past eight years and we need to get more professional research done and to get the word out to people whose retirements are at grave risk of going bust due to the analytical errors made in the Old School SWR studies.

I was shocked and appalled to see the words you put to the Bogleheads.org board this morning. You said: “After reading through lots of historical message board threads and personal websites, I understand that this topic can be rather controversial, though I think much of that controversy was due to a personality clash between the main supporter of using market valuations (who remained rather dogmatic and sure of the absoluteness of his predictions) and everyone else. It seems that this person is no longer mentioned by name, though I do cite him in the paper and I do think he was on to something important, even if he did not always convey his message very well.”

The person you are referring to is obviously me. The words you use to describe me and the role that I have played in The Great Safe Withdrawal Rate Debate are 100 percent inappropriate. My guess is that you are merely repeating defamatory comments that you have heard from abusive individuals posting to discussion boards. It is not appropriate for you to do that. If you have not checked the truth of a claim, it is wrong for you to repeat it as if you had. By doing so, you give the impression to others that there may be some truth to the claim.

I will provide here some links to help you come to a better understanding of the background of the Campaign of Terror that was led by Mel Lindauer (co-author of the book “The Bogleheads Guide to Investing”) and John Greaney (the author of the Old School SWR study posted at the www.RetireEarlyHomePage.com site) in an effort to shut down honest discussion of the SWR matter at all boards and blogs on the internet.

1) My bio is here:

http://knol.google.com/k/rob-bennett/rob-bennett/1y5zzbysw7pgd/4

2) This is a link to the home page of my blog. Down the left-hand side of the page, you will see 85 comments by both big-name experts and ordinary people who have become aware of my work and are appreciative of the insights they have picked up:

http://arichlife.passionsaving.com/

3) Here is a link to an article at my site titled “Investing Discussion Board Ban Honest Posting on Valuation!” It sets forth 101 comments by community members who have expressed a desire that honest posting be permitted at the Vanguard Diehards board (this is the board where the community that now meets at Bogleheads.org met before Mel Lindauer became incensed at Morningstar’s refusal to ban honest posting on the SWR topic and encouraged community members to form a new site where he could enact a ban on his own):

http://www.passionsaving.com/investing-discussion-boards.html

4) This is a link to a similar article quoting comments made by community members at an earlier stage of the debate, when the discussions were being held at the Motley Fool site:

http://www.passionsaving.com/community-comments-on-the-great-safe-withdrawal-rate-debate.html

5) This is a link to the site owned by John Greaney, the author of one of the discredited studies and one of the leaders of the Campaign of Terror against our board communities. Greaney was the first person to make death threats against community members who dared to “cross” him by posting honestly on the SWR matter. When hundreds of community members at the Vanguard Diehards board expressed a desire that honest posting be permitted, Lindauer invited Greaney and his Goon Squad to that board as part of his effort to intimidate and smear those posting honestly:

http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?board=HOCO

6) Here is a link to the text of an e-mail that I sent to Rep. Frank Wolf seeking his help with the problems raised by the internet sewer rats who have put forward posts in “defense” of Lindauer and Greaney:

http://www.passionsaving.com/internet-harassment.html

7) Here is a link to RobCast #190, titled “Lawsuits.” This podcast discusses my plans to bring lawsuits (and to encourage lawsuits by other parties who have suffered financially) against those who have aided or defended or supported the efforts of the internet sewer rats to block the desires of the thousands of my fellow community members who have expressed a desire that honest posting be permitted on the internet on SWRs and on many other important valuation-related investment topics.

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

I am very excited about the possibility of working with you on constructive projects. I think you will understand after reviewing these materials why I have precisely zero willingness to get involved in any way, shape or form in efforts to employ defamation, deception, intimidation, harassment, smear campaigns and threats of physical violence to block honest posting on SWRs and other important valuation-related topics on internet discussion boards and blogs. I am confident that you agree that such sick ugliness has no place in discussions of important investment topics.

I would be grateful if, after reviewing these materials, you would let me know how you plan to proceed re this matter.

Rob

What’s the Best Age At Which to Experience a Stock Crash? and Seven Other Guest Blog Entries

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Set forth below are links to eight Guest Blog Entries I’ve written on the Valuation-Informed Indexing investing strategy:

1) What’s the Best Age at Which to Experience a Stock Crash?, at Barbara Friedberg Personal Finance;

2) A Better and Safer Way to Invest in Stocks, at the Foolish Blogging Network;

3) Playing Dominion vs. Playing the Market, at Free From Broke;

4) Stocks Are Not Risky for Those Willing to Tune Out the Wall Street Mumbo Jumbo; at Everyday Tips and Thoughts;

5) The Biggest Unknown Risk of Stock Investing, at Invest It Wisely;

6) The CAPE: How to Beat Stocks with a 50/50 Portfolio, at Invest It Wisely (I did not write this one. I was excited to see someone else writing about the VII concept);

7) Does the Trend Matter, at Advisor Perspectives (Again, I did not write this one. Again, it is exciting to see the ideas we began exploring ten years ago beginning to spread through the financial planning community);

8 ) Timing the Market Using Stock Valuations, at Mint.com (This is a nice survey of my work and the work of Wade Pfau and Michael Kitces);

 

Beyond Buy-and-Hold #70 — Why I Don’t Pull Punches in My Discussions With Buy-and-Holders

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I’ve posted Entry #70 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called Why I Don’t Pull Punches in My Discussions With Buy-and-Holders.

Juicy Excerpt: But my goal is to bury Buy-and-Hold 30 feet in the ground, where it can do no further harm to humans and other living things. I would like to see all of the experts in this field endorsing Valuation-Informed Indexing, which I view as the investing strategy of the future. I look forward to the day when The Stock-Selling Industry is spending hundreds of millions of dollars promoting investing strategies that work.

What are the chances that those things are going to happen if I stop speaking out strongly in opposition to Buy-and-Hold or do so less frequently? I think it is safe to say that the chances are pretty darn small. If I follow the advice of my Buy-and-Hold friends, I will be more popular. But I will also be ineffectual! I will not achieve my goals. I can see how that sounds good from their point of view but I am not able to see how it could be seen as a good thing from mine.

Wade Pfau: “Your Comment About Mr. Bengen Causing Failed Retirements Is Too Harsh”

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Set forth below is the text of a comment that Wade Pfau posted to a recent blog entry here:

Hi Rob,

I know you like getting to the point, but I think your comment about Mr. Bengen causing failed retirements is too harsh. Just a couple of things to keep in mind:

1. As you know, he was the one to point out that 7% is not safe because of sequence of returns risk. In that regard, he made a very positive contribution by bringing expectations down from 7% to 4%.

2. He notes that 4% is the worst-case scenario from history. Though he puts more faith in the idea that history already provided some bad situations (Great Depression, Great Stagnation) and so we are unlikely to get an outcome even worse, I am comfortable with the way that he does highlight 4% as the SAFEMAX. I like this approach better than the probability tables in the Trinity study.

3. It still isn’t obvious that 2000-era or more recent retirees will have withdrawal rates below 4%. It is likely, but not guaranteed, so in that regard your comment is too strong.

4. Mr. Bengen is keeping an open mind about valuations. I think there is still some confusion since Michael Kitces 2008 article didn’t recognize that high valuations could cause even lower withdrawal rates (that is something he corrected in a later blog post). Financial planners seem to be most familiar with Michael’s article and not his follow-up. But Mr. Bengen is recognizing that there is something going on here and he is still working through it.

5. Researchers shouldn’t be blamed if they didn’t think of everything when producing their research. He made a great contribution, and others are extending his work. He is keeping an open mind and not dismissing these extensions.

Best wishes and happy holidays.

ITNR #77 — The Sarah Palin of Personal Finance

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I’ve posted #77 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called The Sarah Palin of Personal Finance.

Juicy Excerpt: People have come to dislike Palin not because of what Democrats say about her but because of what her fellow Republicans say about her. It has often been other community members who believe that valuations matter who have attacked me most viciously. These posters know that they are in the minority and don’t want to do anything to cause the majority to turn on them. So they try to disassociate themselves from my “extremism” in every way possible.

ITNR #74 — The Reviews Are In: My Investing Ideas Are “Catastrophically Unproductive”!

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I’ve posted Entry #74 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called The Reviews Are In: My Investing Ideas Are “Catastrophically Unproductive”!

Juicy Excerpt: Scott said some amazing things in e-mail correspondence with me in the days that followed. While he had written in the column that “a newer school of thought believes that the safe withdrawal rate depends on how stocks are priced at the time you begin making withdrawals,” I think it would be fair to say that he adopted a huffy tone in his future conversations with the fellow who founded the New School and who has for nine years now been the lead promoter of the New School findings and the leading voice calling for correction of the discredited Old School studies.

Scott’s take on Rob Bennett was well summed up in the comment he made in an e-mail to me saying: “You go about it in a manner that is catastrophically unproductive by adding missionary zeal that inflates your importance and demeans others. The whole ideas that there is a New School of safe withdrawal rates reeks of personal aggrandizement.”