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Old 11-08-2015, 01:13 PM   #141
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Didn't Bogle also say while returns may be low, there are no alternatives to equities because other investments will return worse?

Also heard that the growth of the S&P since 2009 is unsustainable, so reversion to the mean. I don't know if that's what Bogle said or what one person interpreting Bogle's comments as.d
He said bonds will be worse. Per the interview quoted in the OP, he said that earnings of the S&P will grow, but not exceptional. The reversion to the mean he talked about was the P/E contraction, the same as Shiller has been warning about.

So, E grows but P/E ratio shrinks, and that makes the P growth of only 4%. Take out inflation from that 4%, and you are left with bitty gains.
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Old 11-08-2015, 01:13 PM   #142
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That's what Bogle said.

Life is unfair. Then we die.
All of that is probably true but when I take a peek at my account @ VG I see a total that is greater than it has ever been. LBYM conquers all. What a country!
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Old 11-08-2015, 01:15 PM   #143
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Right, bonds will be worse and cash will be worse too so you stay in the market.
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Old 11-08-2015, 01:17 PM   #144
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And that was what Bogle said too. Stay invested because it's the best you can do, but do not expect miracle. End of his message.

Shiller recently had the same advice to young investors thinking of ER.
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Old 11-08-2015, 01:32 PM   #145
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Twenty-five years of bad returns? It's not only different this time, it's unheard-of. This might just be that grand low point of legend and history nobody sees till 5 or 10 yrs after it happens. Twenty FIVE years? Interesting.
I am no expert -but isn't this what has happened in Japan?




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Old 11-08-2015, 02:31 PM   #146
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The Nikkei performance was indeed terrible. It was 39,000 back in Jan 1990, and now 25 years later it is at 19,266.

But Bogle never said it will be that bad for the US. Remember that his expectation was 4% return for the S&P including dividends. However, that is before inflation.
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Old 11-08-2015, 02:55 PM   #147
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And that was what Bogle said too. Stay invested because it's the best you can do, but do not expect miracle. End of his message.

Shiller recently had the same advice to young investors thinking of ER.
This is a video with advice from Shiller for his college students -

The investing golden age may be over: Robert Shiller | Watch the video - Yahoo Finance

Summary: If you are not unhappy now, keep living like a college student and save a big chunk of your income. You might not be getting very high investment returns going forward.
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Old 11-08-2015, 03:48 PM   #148
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The Nikkei performance was indeed terrible. It was 39,000 back in Jan 1990, and now 25 years later it is at 19,266.

But Bogle never said it will be that bad for the US. Remember that his expectation was 4% return for the S&P including dividends. However, that is before inflation.
Yes, my point was not that we would do as poorly as Japan, just that 25 years of bad returns is not without precedent. Does anyone know what the return rate would have been for a 50/50 Japan investor with dividends reinvested and rebalancing for the last 25 years?


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Old 11-08-2015, 04:40 PM   #149
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Yes, my point was not that we would do as poorly as Japan, just that 25 years of bad returns is not without precedent. Does anyone know what the return rate would have been for a 50/50 Japan investor with dividends reinvested and rebalancing for the last 25 years?
Yes, we wonder what Japanese investors have been doing, and particularly how Japanese retirees cope.

We have seen that Japanese stocks are lousy. But bonds can't be that great either, because they have had deflation. With deflation, money hidden in a mattress gains value with time. Indeed, just now my search on the Web found this link that says that Japanese people keep up to 41% in cash.

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All of that is probably true but when I take a peek at my account @ VG I see a total that is greater than it has ever been. LBYM conquers all. What a country!
Yes, LBYM trumps many difficulties. But after a life of saving, can we get some indulgence before leaving this world?

If I can just keep up with inflation, a WR of 3.33% will last me 30 years. Now, if we can get 1.5% return after inflation as Bogle expects, then 3.33% WR will last 39 years. Or with that 1.5% return, I can go up to a WR of 4.1% for 30 years.

And the above is without SS, or reduction in spending in later years taken into account. And I also do not expect to live for another 30 years.

So, all earlier jokes about boondocking in an RV aside, I don't think I will die broke. I just may not be able to leave much to my children, particularly as they may not have a chance to retire early as I did.

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This is a video with advice from Shiller for his college students -

The investing golden age may be over: Robert Shiller | Watch the video - Yahoo Finance

Summary: If you are not unhappy now, keep living like a college student and save a big chunk of your income. You might not be getting very high investment returns going forward.
Yes, that is quite a sober picture that Shiller painted.

I am thinking about sending this video to my 30 and 26 year old, but I don't think that they are thinking much about retirement at this point. Maybe I just should not splurge so much and leave them a bit to help them out after I croak.
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Old 11-08-2015, 05:32 PM   #150
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And bonds aren't predicted to do much better as well.


What's a couch potato investor supposed to do?
23 red on the roulette wheel at your favorite gambling casino ?

One or two large corrections followed by recoveries plus dividends might work, as has done so for the last century or so , but OTOH, we are in uncharted waters IMO, and no guarantees. 4% not the 7-8 expected is likely.

Some nimble hedge funds and a few individual investors (very few) will be able to profit from inevitable future recessions. Some will loose everything trying.

The municipal pension fund I am drawing from expects 7.75 % and still is has not fully recovered from tens of billions in losses from the last recession. They are in denial. When the actuary firms used by my city say otherwise, the city leaders pressure the pension board to find a new actuary ( seen this twice) The employee contribution rose from 6% of base pay to 11% of base pay during my 13 years working at the joint . Even with that, it will not be sufficient to sustain in a 4% return environment IMO.
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Old 11-08-2015, 06:33 PM   #151
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Here is a related article form the WSJ -

Say Goodbye to the 4% Rule for Retirement - WSJ

"If you had retired Jan. 1, 2000, with an initial 4% withdrawal rate and a portfolio of 55% stocks and 45% bonds rebalanced each month, with the first year's withdrawal amount increased by 3% a year for inflation, your portfolio would have fallen by a third through 2010, according to investment firm T. Rowe Price Group. And you would be left with only a 29% chance of making it through three decades, the firm estimates."
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Old 11-08-2015, 07:23 PM   #152
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Here is a related article form the WSJ -

Say Goodbye to the 4% Rule for Retirement - WSJ

"If you had retired Jan. 1, 2000, with an initial 4% withdrawal rate and a portfolio of 55% stocks and 45% bonds rebalanced each month, with the first year's withdrawal amount increased by 3% a year for inflation, your portfolio would have fallen by a third through 2010, according to investment firm T. Rowe Price Group. And you would be left with only a 29% chance of making it through three decades, the firm estimates."
Through 2010. But the article is from 2013 and look what the market did from 2010 to 2015...it went way up. I am curious what formula they used to estimate the 29% chance. Did they have other decades of dot com and mortgage crashes to compare against?
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Old 11-08-2015, 08:24 PM   #153
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Here is a related article form the WSJ -

Say Goodbye to the 4% Rule for Retirement - WSJ

"If you had retired Jan. 1, 2000, with an initial 4% withdrawal rate and a portfolio of 55% stocks and 45% bonds rebalanced each month, with the first year's withdrawal amount increased by 3% a year for inflation, your portfolio would have fallen by a third through 2010, according to investment firm T. Rowe Price Group. And you would be left with only a 29% chance of making it through three decades, the firm estimates."
Why a steady 3% inflation? Some of those years (maybe many) had much lower inflation and at least one year was slightly negative.

But along the same lines, someone else (rddr or something like that) has done a similar study and gotten the same results: Year 2000 retiree ain't gonna make it.

I don't understand the hand wringing from these people (except that scare articles sell ...?) In the past 1906, 1937, 1966, 1967 and maybe another have failed the 4% regimen. 2000 while not good and quite possibly a failure, is just another data point among the 4 or 5 that have already flopped.

OK, so we have ONE MORE fail sequence. The 4% rule is no more dead because of 2000 than it was because of 1966. I think it's the principle of recency at play.

It might be dead going forward due to low dividend payouts, chronically high PEs or something else nobody has seen yet, but you can't tell just from 2000.
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Old 11-08-2015, 08:33 PM   #154
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Through 2010. But the article is from 2013 and look what the market did from 2010 to 2015...it went way up. I am curious what formula they used to estimate the 29% chance. Did they have other decades of dot com and mortgage crashes to compare against?
I don't know what formula they used. The Betterment CEO (not an unbiased source as he is shilling his own SWR methodology) is saying something similar in a more recent article because rates are currently so low compared to when the 4% rule was developed (5 year Treasuries in 2002 were 4.5%, today 2%):

The 4% retirement rule is broken ... and here's why

They could all be wrong about the future. Economic prediction often are, but the change in Treasury rates is a fact, as well as Shiller's current PE ratios for stocks.
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Old 11-08-2015, 08:45 PM   #155
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Here is a related article form the WSJ -

Say Goodbye to the 4% Rule for Retirement - WSJ

"If you had retired Jan. 1, 2000, with an initial 4% withdrawal rate and a portfolio of 55% stocks and 45% bonds rebalanced each month, with the first year's withdrawal amount increased by 3% a year for inflation, your portfolio would have fallen by a third through 2010, according to investment firm T. Rowe Price Group. And you would be left with only a 29% chance of making it through three decades, the firm estimates."
....

I don't understand the hand wringing from these people (except that scare articles sell ...?) In the past 1906, 1937, 1966, 1967 and maybe another have failed the 4% regimen. 2000 while not good and quite possibly a failure, is just another data point among the 4 or 5 that have already flopped.

OK, so we have ONE MORE fail sequence. The 4% rule is no more dead because of 2000 than it was because of 1966. I think it's the principle of recency at play.

It might be dead going forward due to low dividend payouts, chronically high PEs or something else nobody has seen yet, but you can't tell just from 2000.
Agreed. Their assumptions seem pretty fuzzy.

Look at this - I ran a 3.5% WR (35,000 from 1,000,000 portfolio for easy math) for 30 years in FIRECalc, and it has 100% success.

Now trim the time frame down to 10 years. The drop in these same 100% historically successful retirements was:
The lowest and highest portfolio balance at the end of your retirement was $413,411
That's ~ a 59% drop, and it still provided a 100% historically successful 30 year retirement - so what's the big deal about a 33.3% drop?

-ERD50
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Old 11-08-2015, 09:08 PM   #156
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Agreed. Their assumptions seem pretty fuzzy.

Look at this - I ran a 3.5% WR (35,000 from 1,000,000 portfolio for easy math) for 30 years in FIRECalc, and it has 100% success.

Now trim the time frame down to 10 years. The drop in these same 100% historically successful retirements was:
The lowest and highest portfolio balance at the end of your retirement was $413,411
That's ~ a 59% drop, and it still provided a 100% historically successful 30 year retirement - so what's the big deal about a 33.3% drop?

-ERD50
Good point. These people like to point out that 4% rule is dead but they don't indicate what is safe. I think one of these writers has said something like 3% is the new 4% but his assumption was a 1% management fee!

You got a 100% safe with 3.5%. A long time ago I got 3.3%. If I am not mistaken, Bengen found that 3.5% was a "forever withdrawl rate."

So, now all that needs to be discerned is where 2000 is on the spectrum of failures. Is it worse than 1906, 1966...? Maybe 3.5% would be just swell?
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Old 11-08-2015, 09:43 PM   #157
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Good point. These people like to point out that 4% rule is dead but they don't indicate what is safe. I think one of these writers has said something like 3% is the new 4% but his assumption was a 1% management fee!

You got a 100% safe with 3.5%. A long time ago I got 3.3%. If I am not mistaken, Bengen found that 3.5% was a "forever withdrawl rate."

So, now all that needs to be discerned is where 2000 is on the spectrum of failures. Is it worse than 1906, 1966...? Maybe 3.5% would be just swell?
Under what range of AAs would a 3.5% withdrawal rate be considered 100% safe? Also, and I apologize ahead of time, is the 3.5% withdrawal rate based on the initial portfolio value, or is the 3.5% rate based on the yearly balance?
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Old 11-08-2015, 09:53 PM   #158
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Why a steady 3% inflation? Some of those years (maybe many) had much lower inflation and at least one year was slightly negative.
That's what I've been wondering. Similarly, must one's personal inflation rate be necessarily 3%? The "Your Money or Your Life" book was pretty persuasive that retirees can control most of their inflation rate through substitution effects, e.g. if banana prices are up, buy apples. That's the point about living in the nice RV in New Mexico and even the healthcare wild card could be managed somewhat through international options. So, if one's personal inflation can be managed to be closer to 1% but the models generally assume steady 3%, then market returns of, say, 5% versus 7% would seem to be a steady state. I guess I, too, am trying to quibble with the WSJ article because, from what I read on this board, folks have a great many lifestyle levers to pull well short of portfolio failure and going back to w*rk.


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Old 11-08-2015, 09:54 PM   #159
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TIPS get you 30 years at a 3% SWR if your spending is low enough that taxes are not a factor. Imagine never ever worrying about stocks OR bonds. The only thing you would need to worry about is a collapse of government.
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Old 11-08-2015, 10:21 PM   #160
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Under what range of AAs would a 3.5% withdrawal rate be considered 100% safe? Also, and I apologize ahead of time, is the 3.5% withdrawal rate based on the initial portfolio value, or is the 3.5% rate based on the yearly balance?
Sorry but I no longer have that Bengen study I mentioned. It was done probably early 2000's though.

The 3.5% was as per normal. Initial portfolio value upped for inflation. And "forever" meant 70 years for purposes of the study. He assumed you'd have to work part of your life to get the money in the first place, and you're only going to live so long. I don't recall anything special or noteworthy about allocations so unless I dreamed this whole thing he must have used pretty off-the-rack AAs. 60/40 etc

I forget the details and techniques he used to project 70 years out but I believe he did try to compensate for the fact there are not a lot rolling 70 periods of market history.
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