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04-11-2012, 09:22 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by btbw2380
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This is so obviously true, and clearly known forever by anyone who comes to the retirement question with an understanding of finance and business, rather than financial advising.
What counts is the underlying, look-through productivity of the assets, and free cash flows and profitable asset conversions represented by these.
But the "retirement community" will never learn this until some guru has blessed it to them.
Not my problem, but a recurring source of puzzlement.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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04-11-2012, 09:45 AM
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#3
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Good article. Note that he acknowledges our prescience:
Quote:
For at least a decade, this issue has been debated ad nauseam at personal finance discussion boards, but it was Michael Kitces’ May 2008 issue of The Kitces Report that brought the issue to wider attention.
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I'll add that the US workforce grew faster in the 20th century than it will in the 21st, and that has some impact on expected stock returns.
Also, for a new retiree looking at bond returns, does it make sense to simply consider a bond ladder? Even if you're in a fund, the ladder is the best predictor or what you'll earn.
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04-12-2012, 10:53 PM
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#4
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Dryer sheet aficionado
Join Date: Oct 2010
Posts: 30
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Lordy, I am at heart a pessimist, but that chart shows predicted SWR at around 2%! That's *half* of what trinity supports.
From everything I've read 3% is the lower bounds for longer time periods and poorer returns.
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04-12-2012, 11:20 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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This thead got the play I expected. "Don't bring me bad news, I'm a good news guy."
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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04-13-2012, 12:06 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Nov 2009
Location: SF East Bay
Posts: 4,342
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This post by Wade Pfau was discussed in another thread very recently*, but now I can't find it in order to provide the link. I remember looking at the graph and thinking pretty much the same thing as mortal, i.e. "Holy cow - his model predicts that for very recent retirees, the MWR is a little under 2%!"
I thought I was doing OK with my 2.5% WR...........
*As in yesterday, I think.
__________________
Contentedly ER, with 3 furry friends (now, sadly, 1).
Planning my escape to the wide open spaces in my campervan (with my remaining kitty, of course!)
On a mission to become the world's second most boring man.
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04-13-2012, 03:38 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,985
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1%, 2%, 4%....7%. Who knows. It's enough to drive you batty. When I get home form the airport I think I'll tear up the goals posted on the fridge, erase the timer to retirement on the computer and simply keep working. I'd probably drive my wife nuts if I retired anyway.
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Took SS at 62 and hope I live long enough to regret the decision.
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04-13-2012, 05:30 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Aug 2006
Posts: 1,558
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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.
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04-13-2012, 06:30 AM
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#9
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gone traveling
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
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"The future is what matters"
Sure; without it, you're probably dead ...
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04-13-2012, 07:26 AM
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#10
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Recycles dryer sheets
Join Date: Jul 2007
Posts: 60
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It seems that limiting ones investment exposure to a "60/40 asset allocation of large-capitalization stocks and 10-year government bonds" is less than ideal. I suspect that a more diversified set of holdings would perform better.
__________________
Stupid is as stupid does. - Forrest Gump
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04-13-2012, 09:42 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,809
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Comments on Pfau's figure 4:
1) His confidence intervals really open up as he gets to current years
2) The 10 year earnings yield (used in PE10) has had a much higher standard deviation then historically. That is because we had some earnings collapse periods in recent years.
Here is a chart showing the PE10 and note the wild swings in real earnings (solid blue) and much higher standard deviation of 10 year earnings (yellow line).
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04-13-2012, 09:52 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2009
Posts: 5,308
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Interesting article. BTW, note the author's comment in the comments:
Quote:
Also the comments drew comparisons between this article and the Scott Burns recent column that is discussed on another thread leading to the author's new column where he discussed future withdrawal rates and the Burns column:
Pensions, Retirement Planning, and Economics Blog: Lower Future Returns and Safe Withdrawal Rates
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04-13-2012, 09:58 AM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Location: No fixed abode
Posts: 8,765
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While trying not to upset Ha's cranky expectations of our responses here, I would like to point out that in the comments to the blog post Wade admits that there are anomalies in the chart regarding the MWR starting 2009. What he's posted here is data, and a possible interpretation of it. But there's more to be considered. Personally, I'm already retired and have no intention fo going back to work. If my WR is too high, I'll have to cut spending. If it's way too high, I'll have to work somewhere despite my best intentions. The future is all that matters, but we can't actually predict it. So I'm going to keep muddling through as best I can.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
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04-13-2012, 10:58 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 4,337
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Quote:
Originally Posted by Hamlet
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.
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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.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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04-13-2012, 11:10 AM
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#15
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Full time employment: Posting here.
Join Date: Feb 2012
Posts: 648
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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?
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04-13-2012, 11:25 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Nov 2009
Location: SF East Bay
Posts: 4,342
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I tend to think the same way you do, EvrClrx311 (I'm not sure if your name means what I think it does, but I met Art Alexakis briefly once, if that means anything to you.)
I'm on a 2.5% WR with the hope that I'll be able to increase that a little as I get older, and then when SS kicks in, things will be looking better still. If Wade's model turns out to be accurate, and 2% is the MWR for very recent retireees, then by the time I can claim SS, I'll still be living the same basic lifestyle instead of living it up a little. Not a complete disaster, just not the outcome I'm hoping for. If it's my worst case, I won't be terribly happy, but I can live with it.
__________________
Contentedly ER, with 3 furry friends (now, sadly, 1).
Planning my escape to the wide open spaces in my campervan (with my remaining kitty, of course!)
On a mission to become the world's second most boring man.
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04-13-2012, 12:07 PM
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#17
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Dryer sheet aficionado
Join Date: Mar 2011
Posts: 28
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To me, just more data to consider - as if we didn't have enough. The predictive value of the past though seems much more likely to be useful if we run scenarios based on similiar circumstances that exist today. This has probably been discussed as well (I'm new here, and by the way, the most useful forum I've run across) but general inflation rates used are convenient, but not very useful. Our own personal inflation rates will vary a great deal from "that basket" used to calculate numbers in the aggregate depending on the items we use, or don't use, most. Nothing more useful than using our own personal numbers.
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04-13-2012, 12:12 PM
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#18
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Full time employment: Posting here.
Join Date: Feb 2012
Posts: 648
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Quote:
Originally Posted by Major Tom
I tend to think the same way you do, EvrClrx311 (I'm not sure if your name means what I think it does, but I met Art Alexakis briefly once, if that means anything to you.)
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Very cool!
(and yes it does)
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04-13-2012, 03:00 PM
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#19
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Thinks s/he gets paid by the post
Join Date: Aug 2006
Posts: 1,558
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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?
Quote:
Originally Posted by 2B
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.
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04-13-2012, 03:36 PM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Quote:
Originally Posted by Independent
I'll add that the US workforce grew faster in the 20th century than it will in the 21st, and that has some impact on expected stock returns.
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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.
Slower than historic domestic economic growth and investment valuations in the upper decile suggest we're likely looking at one of the bottom lines on a typical FIRECalc spaghetti graph, or perhaps even worse.
It's certainly not the economic and financial backdrop where we should worry about how we're going to spend the vast fortunes we'll accumulate drawing 4% real from our portfolios.
__________________
Retired early, traveling perpetually.
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