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Re: Desparately Trying To Understand SWR?
Old 08-21-2004, 12:13 PM   #21
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Re: Desparately Trying To Understand SWR?

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Here's what William Bernstein says about market timing

The article set forth at the link you provide is a good one, intercst. I hope that a good number of community members take the time to read it.

The description of my views set forth in your post are highly misleading. I have not put forward a "theory" that investors should avoid stocks at any particular times. I myself have not been invested in stocks since 1996, but I have said many times that that choice is not necessarily the right one for investors in other sorts of circumstances.

The "theory" that I have put forward is that, when one publishes a study of what the historical data says re SWRs, one incurs any obligation to report what the historical data says accurately. The historical data shows that changes in valuation levels affect long-term returns, and, thus, SWRs. Thus, I say that an analytically valid SWR methodology must show the effects of changes in valuation levels. The REHP study does not do that. My "theory" is that the number reported in the REHP study as the SWR for a high stock portfolio is wrong at the valuation levels that apply today.

My recommendation is that the study be corrected. There are two ways that could be done. An adjustment could be made for changes in valuation levels. If you added such an adjustment to the study's methodology, your study would report numbers in accord with those that have been reported by Bernstein and by JWR1945. The other way to correct the study would be to change the terminology, to make clear that your study was desgined to determine the historical surviving withdrawal rate (HSWR), and not the safe withdrawal rate (SWR).
Unfortunately ***** you continue to show a complete misunderstanding of the REHP study. The study accurately calculates portfolio withdrawals from 1871-2003 despite your claims of "missing data". It has been quoted in national newspapers and magazines from the Wall Street Journal to Newsweek.

I enjoy Hoco-Mania as much as the next person, but don't you find it the least bit strange that you're the only one who doesn't understand the study?

Do you ever wonder why your three-year long jihad against arithmetic has garnered so few converts?

intercst
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Re: Desparately Trying To Understand SWR?
Old 08-21-2004, 01:05 PM   #22
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Re: Desparately Trying To Understand SWR?

***** says ]The purpose of SWR analysis is not to tell you what to do. The purpose is to inform you about what has worked in the past, so that you can make better determinations of what to do for yourself.



The REHP study is SWR analysis of what would have worked in the past. It's like the Fox News channel--it reports, but you need to decide what to do with the data. So, tell me again how the REHP study is misleading?

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Re: Desparately Trying To Understand SWR?
Old 08-21-2004, 01:34 PM   #23
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Re: Desparately Trying To Understand SWR?

Do you ever wonder why your three-year long jihad against arithmetic has garnered so few converts?

Anyone who checks the Post Archives of the SWR Discussions will find that there were over 100 community members at the Motley Fool board who expressed an interest in reasoned debate of the flaws of the REHP study. There were scores of posters who said that it was the best on-topic discussion we had had in many months, prior to the time at which abusive posting practices were employed to shut it down. There have been a good number at this forum who have said similar things.

I put up the "What Bernstein Says" post on August 27, 2002. If you had any reasoned rebuttal to Bernstein's findings, you would have put it forward by now. The fact that you have not tells community members what they need to know about your willingness to shoot straight on this question.

Bernstein understands what the historical data says a whole bunch better than you do, intercst. When he says that your methodology is "highly misleading," he's saying that for a good reason. When he says that the SWR for a high-stock portfolio at the top of the bubble was 2 percent, he says that because that is what the historical data tells him it was. The SWR is whatever the historical data says it is.
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Re: Desparately Trying To Understand SWR?
Old 08-21-2004, 01:40 PM   #24
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Re: Desparately Trying To Understand SWR?

So tell me again how *the REHP study is misleading?

William Bernstein devoted an entire chapter of his book "The Four Pillars of Investing" addressing these issues. My advice to any community member seeking to understand why the REHP study reports a number so far off the mark of the one obtained by looking in an informed way at the historical data is to read Chapter Two of that book.
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Re: Desparately Trying To Understand SWR?
Old 08-21-2004, 01:51 PM   #25
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Re: Desparately Trying To Understand SWR?

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William Bernstein devoted an entire chapter of his book "The Four Pillars of Investing" addressing these issues. My advice to any community member seeking to understand why the REHP study reports a number so far off the mark of the one obtained by looking in an informed way at the historical data is to read Chapter Two of that book.
Nice non-answer.

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Old 08-21-2004, 02:17 PM   #26
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Nice non-answer.

There are two factors that affect SWRs. The first is the factor that Bernstein refers to as "Future Risk." This factor is addressed in the REHP study. The second is the factor that Bernstein refers to as "Expected Return." This factor is ignored in the REHP study.

Bernstein and intercst were looking at the same data. So they should have come to findings at least roughly similar. They did not. The Bernstein number is two full percentage points off from the one reported by intercst. Either Bernstein got the number wrong or interest got the number wrong.

JWR1945 has been studying the data on a full-time basis for two years now. His findings back up Bernstein.
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Let's all stop feeding the troll, guys.
Old 08-22-2004, 01:30 AM   #27
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Let's all stop feeding the troll, guys.

The question was asked & answered. Move on or take it to PMs.

Dory, maybe it's time for that "Ignore" list that M* has so ably implemented.
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Re: Desparately Trying To Understand SWR?
Old 08-22-2004, 05:30 AM   #28
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Re: Desparately Trying To Understand SWR?

*****:

"JWR1945's research shows that the SWR for an 80 percent stock portfolio in January 2000 was 1.6 percent. "

That's a ridiculous claim. *No one knows what the SWR for the future is. *Maybe it is totally groundless statements like this that have caused you to have no credibility on this issue. *The "research" over at NFB's SWR research board is the product of endless datamining, exclusion of time periods that don't fit the hypothesis, *faulty statistics, etc. * IMO it's worthless. *I've already debunked some of it here:

http://nofeeboards.com/boards/viewto...itching+beware
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Re: Desparately Trying To Understand SWR?
Old 08-22-2004, 10:10 AM   #29
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Re: Desparately Trying To Understand SWR?

Dont waste your time Raddr. ***** and his alter ego's already think they can predict the future.

Further, I'd propose that ***** really has no interest in SWR's or in anything else constructive. If he did, what human would persist to write these droves of drivel in the face of virtually consistent disgust from readers?

I propose that what we need isnt an ignore function, but that we simply ignore the troll. He seems to go away nicely if nobody responds to his foolishness. Feel free to respond to newbies who actually try to engage him in a discussion with a brief note of warning.

But my advice is that going forward, we do not feed that which lives below the bridge.
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Re: Desparately Trying To Understand SWR?
Old 08-22-2004, 10:52 AM   #30
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Re: Desparately Trying To Understand SWR?

Hi TH,

Yeah, you're right. I only responded because I don't want any impressionable newbies out there to actually think he knows what he's talking about as far as being able to predict the future SWR and also to point out the junk science that has been spewed out over at the SWR "Research" Board at NFB.
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Re: Desparately Trying To Understand SWR?
Old 08-22-2004, 12:19 PM   #31
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Re: Desparately Trying To Understand SWR?

Frustrating, I know. But the responses are what it lives off of. I doubt any newbie worth his or her salt is going to pay any attention to this stuff, not to mention most people dont have the attention span to read it and try to figure out if there's anything actually worthwhile in it.

Glad to see you on this boat though Raddr...hope you stick around.
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Re: Desparately Trying To Understand SWR?
Old 08-22-2004, 12:43 PM   #32
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Re: Desparately Trying To Understand SWR?

My advice to any community member seeking to educate himself or herself as to the genuine issues in play in the Great SWR Debate is to review this thread:

http://early-retirement.org/cgi-bin/...num=1080235218

AMT (on Page 9): "Oh my! *I'm awe struck by the depth of these discussions. *Very glad to be learning from you folks."

Yes, it is possible to have discussions about SWRs from which aspiring early retirees take away something useful.
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Re: Desparately Trying To Understand SWR?
Old 08-24-2004, 05:55 AM   #33
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Re: Desparately Trying To Understand SWR?

I have stayed away from the SWR discussions partly because they are kind of boring and partly because I don't understand all that is being said. However, my husband and I are discussing when I should retire. The current plan is for me to work part time next year and see how that goes. He is nervous about me totally calling it quits because in his opinion, the stock market is way over valued and we are still in a bubble that one way or another will burst. Our other worry is the potential that health insurance costs will continue to seriously outpace inflation. Nevertheless, if I retired today, we would have enough for us to easily live on at a 3% withdrawl rate with plenty of padding for emergencies. FireCalc gives us a 100% chance of success.

About 1/3 of our investments are not liquid but in real estate partnerships. The rest is in cash, (lots of cash right now) in the stock market and bonds. So if my husband is right and there is a 30% drop in the market, and the market doesn't get back to current levels for 10 years, how can you calculate a safe withdrawl rate? If my husband is wrong, then having sold a lot of his stock and holding cash was a mistake and at some point something has to be done with the cash or we lose ground to inflation. He absolutely is uninterested in mutual funds given his view that there is a bubble but is investigating hedge funds.

Any thoughts on all this?

Martha



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Re: Desparately Trying To Understand SWR?
Old 08-24-2004, 06:13 AM   #34
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Re: Desparately Trying To Understand SWR?

Your take out is what the Norwegian widow says it is - dividends/interest, da SEC yield of what you own, the real estate is the cash you end up with after you sell - hopefully you can guess correctly.

IMHO - or not so humble - SWR is bull crap. Your portfolio is what's important.

Now - a good data set with a withdrawal rate as one of the tests, can give you feel/insight as to how you 'might' want to adjust your portfolio - but never, never take it out of context.

Dividends/interest are real $ - all else is calculation.
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Re: Desparately Trying To Understand SWR?
Old 08-24-2004, 06:29 AM   #35
 
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Re: Desparately Trying To Understand SWR?

unclemick, you are starting to sound a little like me.
That's pretty scary

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Re: Desparately Trying To Understand SWR?
Old 08-24-2004, 06:59 AM   #36
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Re: Desparately Trying To Understand SWR?

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I have stayed away from the SWR discussions partly because they are kind of boring and partly because I don't understand all that is being said. *However, my husband and I are discussing when I should retire. *The current plan is for me to work part time next year and see how that goes. *He is nervous about me *totally calling it quits because in his opinion, the stock market is way over valued and we are still in a bubble that one way or another will burst. Our other worry is the potential that health insurance costs will continue to seriously outpace inflation. Nevertheless, if I retired today, we would have enough for us to easily live on at a 3% withdrawl rate with plenty of padding for emergencies. *FireCalc gives us a 100% chance of success.

About 1/3 of our investments are not liquid but in real estate partnerships. *The rest is in cash, (lots of cash right now) *in the stock market and bonds. *So if my husband is right and there is a 30% drop in the market, and the market doesn't get back to current levels for 10 years, how can you calculate a safe withdrawl rate? *If my husband is wrong, then having *sold a lot of his stock and holding cash *was a mistake and at some point something has to be done with the cash or we lose ground to inflation. *He absolutely is uninterested in mutual funds given his view that there is a bubble but is investigating hedge funds. *

Any thoughts on all this? *

Martha
The 4% inflation-adjusted withdrawal rate that you read about on this board is based on a study of stock market returns from 1871-2002, over 130 years of data.

During that time there have been countless instances where the stock market has dropped over 30%. The market even suffered a more than 85% drop from 1929-1932 during the Great Depression. Someone taking a 4% withdrawal from a portfolio of stocks and fixed income securities survived it all.

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Re: Desparately Trying To Understand SWR? justifie
Old 08-24-2004, 08:13 AM   #37
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Re: Desparately Trying To Understand SWR? justifie

So if my husband is right and there is a 30% drop in the market, and the market doesn't get back to current levels for 10 years, how can you calculate a safe withdrawal rate?

Your husband is absolutely justified in his concern re current valuation levels. Changes in valuation levels have in the past always had a critical effect on the determination of long-term returns (and, thus, SWRs).

You might be able to put your husband's mind a bit at ease re your plan if you could tell him that you have taken valuations into account. You might want to consider also posting your question at the SWR Research Group board (at NoFeeBoards.com). The SWR methodology discussed at that board includes an adjustment for changes in valuation levels.

The SWR for an 80 percent S&P portfolio at today's valuation levels is about 2.5 percent. That number will go up when valuations go down. In all likelihood we will be seeing SWRs for stocks of 4 percent or even higher in the not-too-distant future. Since you have a good bit in cash today, you are in a position to take advantage of those higher SWRs when they become available. My guess is that through careful construction of a plan you can come up with something that satisfies both you and your husband.
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Re: Desparately Trying To Understand SWR?
Old 08-24-2004, 08:21 AM   #38
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Re: Desparately Trying To Understand SWR?

Martha,

As intrcst points out, the 4% estimate of safe initial withdrawal rate comes from considering all historical data back to 1871 and finding the worst case. The initial withdrawal rate that survives that case (for a 30+ year retirement) is approximately 4%. By definition, this analysis considers valuation of the markets and their relationship to returns in both the stock an bond markets as well as to inflation.

Not everyone who posts on this board understands how historical simulators work. Be careful and ask questions if you are getting inconsistent information that you don't understand.

One thing that makes your own case fall outside of the situation considered by FIRECALC is that you are apparently heavily invested in real estate. Real estate performance in not considered in the historical simulation.
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Re: Desparately Trying To Understand SWR?
Old 08-24-2004, 08:40 AM   #39
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Re: Desparately Trying To Understand SWR?

I have treated the real estate somewhat like bonds. The real estate partnerships currently yield cash returns from a high of 12% to a low of 0%. There is lots of pass through depreciation so the cash they pay out ends up tax free (until of course the property is sold). Half of our estimated retirement income could come from the real estate investments.

I am Norwegian, but not yet a widow, so we'll have to see about the dividend paying stocks. I know my spouse has some, but they never have been a big part of the portfolio.

So what are hedge funds and how do they reduce risk? Or do they?
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Re: Desparately Trying To Understand SWR?
Old 08-24-2004, 09:08 AM   #40
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Re: Desparately Trying To Understand SWR?

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So what are hedge funds and how do they reduce risk? * Or do they?
Hedge funds are basically small unregulated mutual funds that charge EXORBITANT fees. * They have a certain mystique because only "accredited investors" can invest. * (The SEC figures that if your net worth is north of $1M, you know what you're doing. * Ha!)

They tend to deal in slightly exotic securities, like options, convertibles, arbitrage, etc. * *But, AFAIK, there is no data that supports the idea that they out-perform mutual funds or actually perform a useful "hedge" function.
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