Gone4Good
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Sep 9, 2005
- Messages
- 5,381
S&P 500 Return Calculator, with Dividend Reinvestment - Don't Quit Your Day Job...
But I assume that having retired at 38 you will likely live another 20 years.
Going back to 1900 I can not find any 20 years with negative inflation adjusted returns.
2% CD after inflation and taxes is pretty much 0% return if you are lucky. If equities earned only
2% they would still be better deal because they have favorable tax status.
Maybe this time it is different
Well, I certainly expect to live longer than 20 years. And I certainly don't expect to own a lot of CDs during most of that time. More than that, I hope I don't need to.
But right now CDs pay above market returns and have an incredibly valuable interest rate put option that I get for almost nothing. I know many folks here are wedded to a set and forget asset allocation (and that's fine) but in the rare instances when I can buy a security that guarantees me above market returns for less risk I like to jump on that.
I don't need to forecast 20-year negative real returns in equities to know that CDs are a good deal today. If in 2 years or even 2 days the market is offering up better options, I'll buy those instead.
It's also probably worth knowing that I'm not managing my finances to earn a hypothetical market return. I'm managing it to earn my withdrawal rate.
And when asset prices rise, my WR falls. Now after 7 years of good market returns, I don't need the same investment performance going forward as I did when I retired. So I need less risk.
It's also true that those 7 years of good market returns have lowered expected future returns on risky assets. So risk today yields less than when I retired.
So here's the punchline: if I need less risk than when I first retired, and if risk earns less today than it did then, what's the argument for wearing the same level of investment risk (or maintaining the same asset allocation) now as I had then?
I can't think of one.
Last edited: