You know intercst better than I do, but I've never heard him say anything about the future with 100% certainty.Intercst says that his examination of the historical data provides him 100 percent certainty that I will not obtain a return of a penny above the return that would support a 2.3 percent withdrawal rate.
It's fixed in real terms. (I like semantic games too )
I don't like word games. Not when my money is at stake.
The U.S. government has made me a promise to pay me 3.5 percent above the rate of inflation on my TIPS investments. Intercst says that his examination of the historical data provides him 100 percent certainty that I will not obtain a return of a penny above the return that would support a 2.3 percent withdrawal rate.
He is wrong to say that. He is confusing people about what the historical data says when he says that.
earlyout said it better than I was going to. To summarize I'll say that I don't believe I can value the market better than most or time the market better than most, and from what I'm reading *****' strategy requires precisely these two things, not to mention the effort required to monitor the markets.Using PE's with subsequent wide swings in asset allocation is really timing the market. Although appealling in theory, the long term track record of market timers is not very good. Besides this there are many other variables, other than PE, that affect market values: e.g. interest rates, profit growth, etc. Add to this human nature (fear & greed) wouldn't it be difficult to stay out of market because of high PE's & continue to watch the market go up for 6 months, 1 year 2years, etc waiting for the PE's to adjust lower? Then get in only to watch the market go down.
I understand that it is something new. I understand that it is something different. That doesn't mean that there is anything wrong with it.
would you mind sharing with the forum some information on your personal portfolio makeup currently?
I have done that. I responded to the best of my ability to this exact question earlier in this thread. If there is some aspect of the answer that you do not understand, I am happy to try to help out. But I am not able to make out what it is that is causing you confusion.
You seem to want to know the precise percentage allocations for the TIPS, the ibonds, and the CDs. To get that, I would need to check in my investment binders. I don't see that any constructive purpose would be served by doing so.
It is quite the opposite to use Sir John Templeton's words to encourage people to buy at any price.
Cut-Throat, I'll give you a strawman number so we can move this along. If the Dow fell to about 7500 tomorrow, that would bring the P/E close to its historic average. All else being equal, I'd be a buyer at that level.A question for you - What would the Dow have to be roughly before you saw any value? - All I'm looking for is a very simple answer - Something like Dow 4000 or Dow 7000.
In the summary, I wrote:These are the optimized results for switching allocations with stocks and TIPS with a 2% (real) interest rate.
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Optimization turned out to be much more difficult than I had anticipated and my progress was awkward. I am satisfied that I have come reasonably close to the true optimal values. I am satisfied that the highest Historical Database Rate of 5.2% is a consistent ceiling using simple P/E10 thresholds. I am satisfied that the best reason for using additional thresholds and allocations is to reduce the sensitivity of results to minor differences from the optimal values. That is, I expect that the optimal values in the future will be similar to those extracted from historical data, but not identical. My goal is to reduce the effects of errors because we are depending upon historical data.
Here are the latest numbers from Yale Professor Robert J. Shiller's web site.The simplest approach uses two thresholds and one adjustable stock allocation (for a total of three). The best choices are P/E10 thresholds of 11 and 24 and stock allocations of 100%-30%-0%, respectively.
When there is more than one, the most important thresholds are the lowest thresholds.
The best choice with three thresholds and two adjustable allocations (for a total of four) is to use P/E10 thresholds of 9-13-24 ..Using P/E10 thresholds of 9-12-24 is another a good choice.
The best choice with four thresholds and three adjustable stock allocations (for a total of five) are 9-12-21-24 or 9-13-21-24 (with no preference) with 100%-50%-30%-20%-0%, respectively. There is relatively little sensitivity to changing the lowest adjustable allocation or the lower middle P/E10 threshold.
My figures are from Professor Shiller's website. E10 is the average of the previous 120 monthly values of real earnings. He does not present E10. He calculates P/E10. (You can look at the formula in Excel. He uses the AVERAGE function for the first calculation and a wonder tool called the fill handle to drag the equation down to apply to average to later groups of cells.) The price is the real price. Delays are caused because it is necessary to wait on the CPI.-- Where are you getting the most current E10 figure? How often is it updated?
-- And just to confirm, P/E10 is simply the S&P Index price (now 1122) divided by E10, correct?
You are correct and you are treating this the right way.-- And when it comes to implementation, your studies have shown that when the P/E10 is over 24, it's best to have zero exposure to stocks, correct? And with a P/E10 of 11 or less one could reasonably have 100% in stocks, correct?
I probably won't be making major allocation shifts, but I could use a good valuation tool and will likely increase my stock allocation at some point (currently at about 35%). Thanks for sharing your work.
The October issue of JFP has an article on SWR. The article suggests that the optimum stock allocation for retiree is between 50-75%. It warns of too little or too high stock allocation. It also gives some advice based upon the early years investment results (good, bad and ugly).