Tadpole
Thinks s/he gets paid by the post
- Joined
- Jul 9, 2004
- Messages
- 1,435
I love to hate my weekly newsletters from John Mauldin. I am sure that many others here have already seen this but I decided to post this table from the recent "Outside the Box" which featured a discussion by Ed Easterling of Crestmont Research entitled "Destitute At 80: Retiring In Secular Cycles". The premise of the article is that lower success rates for SWR are achieved when the P/E ratios are as high as they are today. Has anyone tried to match the economic cycle of today to a set of similar periods from the past (if possible to do this match)? Does the set of 5% failures in a 95% SWR success influence you? Do you buy this argument?
http://www.investorsinsight.com/otb_va_print.aspx?EditionID=469
http://www.investorsinsight.com/otb_va_print.aspx?EditionID=469
When P/Es started at relatively high levels, it had a major impact on future success. When P/Es started at relatively lower levels, returns always were sufficient for 4% withdrawals.
As Figure 1 reflects, the level of valuation (P/E) has a direct impact on success and ending capital. The implication for today's investor is that the likelihood of financial success in retirement is considerably less than most pundits are advocating. Twenty years from now, if the response is "who knew?", it won't be much comfort for retirees in the employment line at Wal-Mart. This is especially true since a rational understanding of history and the drivers of longer-term stock market returns can help today's retiree to avoid that "surprise." I assure you that these are not fear-driven statements, but rather insights that are based upon history and the financial principle that valuation is a major determinant of future returns.