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Re: 25 times income needs?
Old 08-19-2006, 04:21 PM  
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Re: 25 times income needs?

Quote:
Originally Posted by NYCGuy
. . . All of this long-term investment advice is admittedly based on an assumption that the future will essentially like the past, a controlling assumption that is usually forgottern as quickly as it is made.* . . .*
Not really. The assumption is that investing broadly in stocks and bonds in the future will not produce worse long-term results than the worst case that has happened over the past 130 years.

This is significantly different than assuming "the future will essentially be like the past". We are not counting on high or average historical returns -- only worst case. We are not counting on next year being typical of any year in the past or even next decade being typical of any decade in the past. We are hoping that the fundamental market pressures of a capitalist economy that produce stock returns, bond returns, and inflation are still similar to those of the past (ie. fear and greed). There are complex relationships between financial returns and inflation -- and between financial returns of the recent past and those of today. All of these complex correlations are implicitly included in the historical simulator. No other simulation approach offers this advantage.

Of course there is still no guarantee that the next 30 years won't be even worse than the 30 years immediately following the Great Depression or the decades following the mid-60's. But how do you plan for something outside the range of experience? Some people tout Monte Carlo simulation as an answer, but Monte Carlo programs depend on historical data to establish assumed returns distributions and fail completely to capture many of the correlations.

Historical simulation is not a predictor of the future. It is not a perfect guide into our retirement. It's just the best tool we have at the moment.

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Re: 25 times income needs?
Old 08-19-2006, 04:44 PM  
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Re: 25 times income needs?

One could hide in a fallout shelter with a pile of gold, MREs, and a chemical potty and wait till WWWIII is over I prefer to invest in a moderately conservative portfolio, withdraw 3.8%, and take my chances. I bet I have gold miners, chemical co's, potty manufacturers, and even MRE suppliers in my mutual funds.
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Re: 25 times income needs?
Old 08-19-2006, 05:26 PM  
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Re: 25 times income needs?

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Originally Posted by NYCGuy
So, to me watching for and trying to assess novel risks is more to the point than extrapolating well-understood results from the past, although that is also important. And integrating assessments of those risks into decision-making is not going to be by formula.
NYCGuy:

So, over the next 5-10 years, what do you see as the risks?

I've sort of mellowed over the past few months. But . . . on the international front I still see an escalating war or boom or boom-boom-boom event as an extreme event. I currently give that a low percentage possibility. Even if it happens say after 2008, for speculation purposes, I suspect we will just bunker up as a country and protect our borders more--maybe fine tune the defense system in event of further problems.

On the domestic front I still see a looming huge debt problem. I'm anticipating a muddle thru though at this point--no huge depression (low percentage probability), no huge inflation (low percentage probability). I still see a huge amount of fixing needed starting in the next few years. I'm hoping for/anticipating gradual and incremental change for the better. (But it will still probably get worse before getting better)

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Re: 25 times income needs?
Old 08-19-2006, 06:21 PM  
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Re: 25 times income needs?

Quote:
Originally Posted by Cute & Fuzzy Apocalypse
NYCGuy:*

So, over the next 5-10 years, what do you see as the risks?

I've sort of mellowed over the past few months.* But . . . on the international front I still see an escalating war or boom or boom-boom-boom event as an extreme event.* I currently give that a low percentage possibility.* Even if it happens say after 2008, for speculation purposes, I suspect we will just bunker up as a country and protect our borders more--maybe fine tune the defense system in event of further problems.*

On the domestic front I still see a looming huge debt problem.* I'm anticipating a muddle thru though at this point--no huge depression (low percentage probability), no huge inflation (low percentage probability).* I still see a huge amount of fixing needed starting in the next few years.* I'm hoping for/anticipating gradual and incremental change for the better.* (But it will still probably get worse before getting better)* *

Um, housing bubble fixed in your mind?
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Re: 25 times income needs?
Old 08-19-2006, 07:41 PM  
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Re: 25 times income needs?

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Heh, I wonder what a portfolio that contained TIPS and commodities would have done fr the 1966 retiree?
Much better than it would have done for the 1982 retiree I suspect.
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Re: 25 times income needs?
Old 08-19-2006, 08:34 PM  
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Re: 25 times income needs?

Well NY City Guy, I guess the middle of our lineup knocked you right out of the box.

Ha
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Re: 25 times income needs?
Old 08-20-2006, 09:13 AM  
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Re: 25 times income needs?

Quote:
Originally Posted by brewer12345
Um, housing bubble fixed in your mind?
Hardly, it's the $79 Trillion in US debt as reported in the Financial Times a while back.
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Re: 25 times income needs?
Old 08-20-2006, 10:29 AM  
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Re: 25 times income needs?

Quote:
Originally Posted by 3 Yrs to Go
So your point is to plan for the things that, by definition, can't be planned for?

I agree with you that the future may not be like the past and that the "SWR" concept is fatally flawed in its dependence on fairly short and narrowly defined historic data. But what is the alternative? The relevant question we're all trying to answer is "should I quit my job or continue working?" The threat of global pandemic, nuclear war, etc. doesn't really have a bearing on that decision. In fact, some might argue that they'd rather have a few years of retirement under their belt before Armageddon strikes than die while fruitlessly trying to accumulate enough resources to withstand the worst possibilities imaginable.
Oh, oh, one I banker going after another. This should serve as a (rather mild) preview of my future working condition if I'm good enough to get in.

Don't forget to have lots and lots of good but pointless sex for those few years.

Regarding Apoc's comment, I don't see how we can just shore up our borders and wait out any wars especially if the wars are in the Middle East. On what energy source are we going to power our economy if the flow of oil is disrupted?
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