free4now
Thinks s/he gets paid by the post
- Joined
- Dec 28, 2005
- Messages
- 1,228
One thing that I don't see mentioned often is that the SWR studies don't apply if your investments underperform the market. They assume that you will earn returns just as good as the stock market, and if you don't, your SWR is lowered by approximately the amount that you underperform.
Most people (just like most mutual funds) do underperform the market. There are many reasons, but the most common reason is paying loads, costs, fees and other overhead. If you pay 1% extra per year in fees or costs, your SWR drops from 4% to 3%. If you pay 2% extra your SWR drops from 4% to 2%.
Another way that many people end up underperforming the market is by making emotional decisions, like pulling out of the market during a dip. In order for the SWR to apply to you personally, you have to know yourself well enough to be sure that you could stick to your investment plans even when the going to rough. There's no judgement here... many people sleep better pulling out of the stock market when it dips and those people should not count on the SWRs from these studies. Making such emotional decisions that seem rational at the time can easily knock out a large percentage of your capital at the moment when you need it most, lowering your SWR significantly.
Most people (just like most mutual funds) do underperform the market. There are many reasons, but the most common reason is paying loads, costs, fees and other overhead. If you pay 1% extra per year in fees or costs, your SWR drops from 4% to 3%. If you pay 2% extra your SWR drops from 4% to 2%.
Another way that many people end up underperforming the market is by making emotional decisions, like pulling out of the market during a dip. In order for the SWR to apply to you personally, you have to know yourself well enough to be sure that you could stick to your investment plans even when the going to rough. There's no judgement here... many people sleep better pulling out of the stock market when it dips and those people should not count on the SWRs from these studies. Making such emotional decisions that seem rational at the time can easily knock out a large percentage of your capital at the moment when you need it most, lowering your SWR significantly.