D
Dorus
Guest
The 4% SWR rule is based, as far as I know, on a data set of the S&P 500 index from 1871 to 2006.
So, it means that if you retire and invest in stock of companies within that index, you should be OK with 4% SWR.
Now my rhetorical question is: isn't the S&P 500 an arbitrary choice? Why limit our retirement strategy to that one index?
Indeed, maybe there are other equity indexes, such as an index tracking stocks in the European or Asian market space for example, which, if we had a table of their monthly price data (since 1871 or a suitable broad enough data range), would lead to a higher than 4% SWR.
For the sake of argument, perhaps investing in the index of European stocks would be a better strategy than investing in S&P 500 (could be worse too of course, I do not know what the reality is, I have not done the analysis).
So my point is, why would the S&P 500 happen to be, by sheer coincidence, the best data set to base our SWR on?
Are we limiting our "life quality" with an SWR of 4%, just because the body of research work leading to that "magical 4%" seems to be based solely on analysis of US S&P stock charts?
Could we get a better than 4% SWR by analysing the data sets for other types of (equity) asset classes?
So, it means that if you retire and invest in stock of companies within that index, you should be OK with 4% SWR.
Now my rhetorical question is: isn't the S&P 500 an arbitrary choice? Why limit our retirement strategy to that one index?
Indeed, maybe there are other equity indexes, such as an index tracking stocks in the European or Asian market space for example, which, if we had a table of their monthly price data (since 1871 or a suitable broad enough data range), would lead to a higher than 4% SWR.
For the sake of argument, perhaps investing in the index of European stocks would be a better strategy than investing in S&P 500 (could be worse too of course, I do not know what the reality is, I have not done the analysis).
So my point is, why would the S&P 500 happen to be, by sheer coincidence, the best data set to base our SWR on?
Are we limiting our "life quality" with an SWR of 4%, just because the body of research work leading to that "magical 4%" seems to be based solely on analysis of US S&P stock charts?
Could we get a better than 4% SWR by analysing the data sets for other types of (equity) asset classes?