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Re: Market Return (whatever THAT is)
Old 11-29-2004, 06:48 PM   #41
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Re: Market Return (whatever THAT is)

Quote:
What do you do in the 41st year?

My spouse claims to know my life expectancy. *Until she shares that with me (I don't want to know), I'm going to avoid spending principle.
I don't think Roger was claiming that anyone could predict life expectancy, nor was he promoting a spend-down to zero. I believe he was just putting forth a very simple formula which would produce a conservative withdrawal rate relative to FIRECalc (2% for 50 years, 2.5% for 40 years, 5% for 20 years, etc.). I'm sure he will correct me if I'm wrong.
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Re: Market Return
Old 11-30-2004, 04:29 AM   #42
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Re: Market Return

So, you are going to rely on the US government to calculate the inflation amount and give you what they think inflation was?

Hyperborea is right to point out that one of the risks of owning TIPS is that the government will misreport the inflation numbers. This is not a risk unique to TIPS, however. Most SWR studies call for the retiree to make adjustments in his spending level to reflect the effects of inflation. The "safe" take-out numbers presume that these adjustments will be made pursuant to government inflation numbers. In the event that the government inflation numbers indeed prove to be wrong, the numbers reported by the SWR studies will be wrong too.

Say that the government says we are experiencing 3 percent inflation, and the true inflation rate is 6 percent. In that event, the investor using SWR research will be increasing his spending by only 3 percent each year and with each year he will be purchasing fewer and fewer goods and services than the amount he needs to purchase to maintain his desired lifestyle. In the event that he begins to take a larger inflation adjustment to maintain his desired lifestyle, he will be taking a larger withdrawal than is permitted by the logic of the SWR studies.

I see the concern over government misreporting of inflation as a valid one. I question whether it is a reason for favoring stocks over TIPS.
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Re: Market Return
Old 11-30-2004, 04:42 AM   #43
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Re: Market Return

that's also a long way from stashing it in a bank account or putting it under your mattress.

I don't think that it is reasonable to assess the merits of stock investing at today's prices by making a comparison to the absurd option of "putting it under your mattress." When comparisons are made to asset classes that brain-alive early retirees would more likely elect for themselves, the comparison yields a very different result.

TIPS today provide a higher SWR than S&P stocks, if you use the approach to SWR analysis used by William Bernstein in "The Four Pillars of Investing" (Bernstein makes an adjustment for changes in valuation levels). Stocks are a sound investment for many aspiring early retirees. Like all other investment classes, however, stocks have their pros and cons.

Stocks generally do a good job of providing long-term growth potential. They are too volatile an investment class to offer a high SWR at times of high valuation, however. At times of high valuation, early retirees with a concern for safety should be checking out TIPS and trying to assemble the overall portfolio that best serves their need for a particular combination of growth and safety.
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Re: Market Return
Old 11-30-2004, 05:25 AM   #44
 
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Re: Market Return

Hey I took that "early stage Alzheimers test".
My granddaughter called me on the phone and when she told me who it was, I was able to spell her name
backwards with no difficulty. Guess I'm okay for now.
BTW, her name is Hannah

Re. stashing cash in your mattress, my Dad might as well be doing that. He lets it lay in his checking account
or buys 1 year CDs because he "might not be alive next year". Banks must really love these old people. No point in discussing any of this though.
Add money to politics and religion as touchy areas
to get into with your relatives (or anyone for that matter).

John Galt
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Spelling backwards
Old 11-30-2004, 08:00 AM   #45
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Spelling backwards

Quote:
I Don't get it...if you can't hear it, how are you supposed to spell it backwards? Does that mean all deaf people have Alzheimers? *???
Good question, but gimme a break.

It doesn't have anything to do with eardrums or cochlea but rather the way the brain cells recognize the noise as a word and then process it to turn phenomes into letters. They're not sure where the process breaks down but it's not just about looking at a printed word and copying it down in reverse.

Or maybe it has to be verbal because of the dyslexia issue!
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Re: Market Return
Old 12-01-2004, 02:14 AM   #46
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Re: Market Return

There's a thread in the SWR section titled "Scott Burns: Staying Safe in Retirement." The Scott Burns article refers to a September/October 2004 article by Financial Analysts Journal Editor Rob Arnott. Here's a link to a PDF copy of the Arnott article (it is the one titled "Sustainable Spending in a Lower Return World.")

http://www.aimrpubs.org/faj/home.html
***
Juicy Arnott Quote #1: ““Relative to current yields on TIPS, the risk premium on stocks is dismayingly small (probably less than 1 percent at this writing).”

Juicy Arnott Quote #2: “Now, consider the taxable investor. Historical real returns since WWII for a 60/40 balanced portfolio have averaged 3.3 percent. When we strip out the effects of falling yields and rising valuation levels, that return falls to 1.9 percent. Given today’s low yields, we cannot reasonably expect more. Because we are taxed on both our real return and the inflation component of our return, a reasonable expectation for the after-tax real return on a 60/40 portfolio is fairly close to zero.”

Juicy Arnott Quote #3: “The arithmetic for taxable investors is remarkably simple if the after-tax return on a portfolio is roughly zero. If a retiree wants to maintain a lifestyle costing $40,000 a year, adjusted for inflation, for a life expectancy of 25 years, he or she will need $1 million.”

The formula being used by Financial Analysts Journal Editor Arnott is not too far off from the formula proposed earlier in this thread by our own RogerR.
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Re: Market Return
Old 12-01-2004, 05:42 AM   #47
 
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Re: Market Return

I know very little about Rob Arnott, but can tell just from the "quotes" he is a pretty sharp guy. I think I begin to see my problem with Bob Brinker and Suze Orman
(other than my chronic galloping egomania )

These people are offering financial advice to the lower end of the IQ scale (regardless of their finances).
Bob and Suze may not be as clueless as they appear,
but have just tailored their nonsensical pontifications
to the reality TV crowd, i.e. folks who would not
recognize hucksterism if it fell in their soup.

John Galt
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