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Old 04-13-2012, 03:57 PM   #21
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Here's an old post I made about a potential adjustment to make FIRECalc's data relevant to today's market valuations. At the time, 10-yr yields were 3.3% versus today's 1.98%, so this is still a little optimistic from today's perspective:

Originally Posted by Gone4Good View Post
Here's a thought on making an adjustment to FireCalc runs to reflect current valuations. The basic idea is to revalue your portfolio as if valuations were typical for the model's data set. That means a PE-10 for stocks of 16.4x compared to 23.4x today and a 10-year Interest rate of 4.7% compared to 3.3% today. To do that, simply reduce your equity balance by 30% and your fixed income balance by 11% and use the smaller portfolio for FireCalc runs.

So in the case of a $1MM portfolio split 60/40, the 'revalued' portfolio is reduced to $776K and a $40K annual withdrawal becomes a 5.2% draw assuming a portfolio valued right in the middle of FireCalc's data set.

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Old 04-13-2012, 05:31 PM   #22
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Originally Posted by Gone4Good View Post
Indeed. I think most economists agree that U.S. growth will be slower in the century ahead, then the one behind. The force of the baby-boomers is mostly spent, we can't add women to the workforce a second time, nor can we educate the masses again or build interstate highway systems, electrify the nation, etc.
Yeah, we can't do those things again, but I'm hoping/thinking that the next generation will do more than play video games, hehe. I have no idea what he next big thing will be, but I'm hopeful, and can't imagine there won't be one or more. Personally, I'd like to see super capacitors take off. So many cool things we could do with light weight, high energy density power sources. More than just the awesome RC planes I'd be building!

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Old 04-13-2012, 05:42 PM   #23
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Originally Posted by Gone4Good View Post
Indeed. I think most economists agree that U.S. growth will be slower in the century ahead, then the one behind. The force of the baby-boomers is mostly spent, we can't add women to the workforce a second time, nor can we educate the masses again or build interstate highway systems, electrify the nation, etc.
Ah, but you forget about the rapidly growing international middle class, including women, all needing to be employed, educated, etc. And somebody is going to need to go around and install the teleport pads and fusion charging stations. Not to mention the (currently) third world plumbing, roads, and power grids that need to be implemented. The U.S. may slow down, as empires do. But I don't care where my returns come from. I worship the god of diversification.
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Old 04-13-2012, 05:51 PM   #24
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From the executive study summary of safe withdrawl rates advocating 4% is only good for very conservative investors:
  • We find that the 4 percent retirement withdrawal rate strategy may only be appropriate for risk-averse clients with moderate guaranteed income sources
  • The ability to accept greater shortfall probabilities means that risk-tolerant investors will prefer a higher withdrawal rate and a riskier retirement portfolio
From this study.
The 4 percent withdrawal rate rule cannot be considered as safe for U.S. retirees in recent years when stock market valuations have been at historical highs and the dividend yield has been at historical lows. Despite the peak for PE10 in 2000, I find that sustainable withdrawal rates may continue to decline after 2000 as the continued falling dividend yields and bond yields offset falling earnings-valuation levels. The model predicts sustainable withdrawal rates falling below three percent since 1999, and even below two percent since 2003.
That with a straight face he can publish these two reports and claim they are studying 2 different topics is

But in relation to the Burns piece, what my co-authors and I are describing is that in some cases it can be okay to run of out money after all.
But this latest study if true would mean the failure rate is far higher than he concluded in his previous study invalidating it. The 57% error rate would be far worse. But yet that is the one developed for Financial Planners and this is just his blog. Amazing........
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Old 04-13-2012, 08:28 PM   #25
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Originally Posted by Hamlet View Post
I don't think it makes sense to compare dividend yields to the past without also taking into account stock buybacks. Buybacks have become a popular alternative way to return money to shareholders executives.
There, fixed it for you.
Originally Posted by 2B View Post
The only problem is that there is not a good correlation between buy backs and long term stock performance. The purchased shares seem to have a tendency to end up being awarded to management for their ability the increase the earnings per share (due primarily to the buy back). Earning fall and new goals are set only to be met with another buy back.
I know I have a problem with my cynicism but with everything going on in the world, I just can't seem to keep up.
Originally Posted by Hamlet View Post
I agree that stock buybacks are often ill-timed.
However, if the market as a whole is spending money on buybacks that they used to spend on dividends, it is going to increase capital gains and reduce dividend yields.
It's going to distort an attempt to measure historical valuations that are based on dividend yield.
Would the market suddenly be worth a massive amount more if every company in it redirected their stock buyback money to dividends?
Reducing a stock's total number of shares (the float) would be a good way to return $$ to shareholders, except that companies generally suck at their buyback timing.*

It's interesting to compare the number of buyback announcements with the actual shares outstanding of a stock. If companies actually followed through with their buyback authorizations, let alone stopped handing out options, they would have gone private years ago.

* I'm willing to grant an exception to Berkshire Hathaway. By declaring that they'll buy stock at 1.1x book value, they effectively put a floor on the value of their stock that makes it quite straightforward to earn money selling put options.

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Old 04-14-2012, 10:31 AM   #26
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Originally Posted by EvrClrx311 View Post
In regards to the doomsday predictions I tend to just hold to the idea that I've done better than average... in fact better than 95% at savings towards retirement. So if the ___ really hits the fan (dollar becomes worthless, or market drops indefinitely) and I'm forced into a lifestyle I didn't want or wasn't presented in any of the models... at least I'll take comfort knowing I'm still better prepared than the other 95%. I'll enjoy spam... while everyone else eats ramen

More of a psychological crutch... but stands for something at least. Right?

Paraphrased below...

Two guys are out in the wilderness. One says to the other, what will you do if we run into a bear? The other says, "RUN!". First guy says, "But you can't outrun a bear." To which the second guy replies, "I don't have to outrun the bear, I have to outrun you!".

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