audreyh1
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Interesting Kitces interview at M* where he discusses the predictive capability of Shiller CAPE and points out that 15 years has the best predictive capability which happens to correspond to that initial period which can make or break portfolio survival.
You can read the transcript if you don't want to watch the video
Preparing for Lower Long-Term Returns
You can read the transcript if you don't want to watch the video
Preparing for Lower Long-Term Returns
So, we find out that Shiller P/E ratios are actually quite good at predicting things like 15-year real returns in equities--which ironically tells you very little about how to invest your portfolio right now. But it tells you a whole lot when you are trying to make decisions like how much can I safely spend from my portfolio, how much risk do I want to take overall in the next decade, and do I even have enough money to retire? Those sorts of questions are greatly impacted by market valuation.
We really find it's that eight to 15-year time period where it's really powerful, which matters a lot for, say, retirees thinking about sequence-of-return risk and accumulators who might be in their 40s or 50s and could be 10 or 15 years away from retirement and are trying to figure out whether the market is likely to cooperate with their portfolio growth and getting them to the finish line. But you have to be careful not to either focus too short or too long.