Re: SWR should not be constant over a Retirement L
Professor Shiller did the heavy lifting when he created P/E10. [P/E10 is the price of the S&P500 index divided by the average of the most recent 10 years of earnings.] He got the idea to use the average of ten years of earnings from Benjamin Graham's writings. He has posted his research at his site.
http://www.econ.yale.edu/~shiller/
The kind of timing that I am talking about is the kind that Warren Buffett and Sir John Templeton have engaged in. You buy when there is value. You don't buy when everything is overpriced. Warren Buffett has stated recently that he cannot find anything worth buying these days. He is not happy about that. But he is willing to wait.
I have posted much, but not all, of my research on the SWR Group Research discussion board at
www.nofeeboards.com. Almost everything that I have done uses the historical sequence method that FIRECalc and the Retire Early Safe Withdrawal Calculator use. In fact, I routinely use those calculators. [One finding that really surprised me was that
www.retireearlyhomepage.com misreported the effects of switching in accordance with P/E10.]
There are many details. But if you are looking for a short-term frequent trading kind of activity you will have to exclude me. I am talking in terms of one or two allocation changes per decade. In addition, my focus has been upon Safe Withdrawal Rates, which necessarily looks over a long time period.
My example with Merck was not to make a specific portfolio recommendation. It was to point out that you have many more options available than those that are built into Safe Withdrawal Rate calculators. There are broad-based indexes that are reasonably safe but which throw off higher dividends than the S&P500 does at this moment. In addition, there are REITS, which I know relatively little about, but which have been around for only a short time.
For retirement purposes, people are seldom interested in the best average returns alone. They are usually looking for an income floor that is reasonably well assured plus some growth, but not at great risk.
Yes, I have read William Bernstein's
The Four Pillars of Investing.
[Bernstein's single, consistent error is that he acts as if accepting higher risk guarantees a higher return. The proper way to state things is that you should never accept any risk with receiving adequate compensation.]
The reason that almost all money managers fail to keep up with the market is their expenses. I consider a long-term advantage of 1% as excellent and 2% to be rare and outstanding. If active managers kept all mutual fund fees well below 0.5%, I think that they could give low cost index funds a run for their money. [WARNING: hidden trading costs add to expenses. Buying or selling in large volumes affects prices.]
I posted brief overview of my research earlier in this post.
http://64.37.106.236/cgi-bin/yabb/YaBB.pl?board=news;action=display;num=1078877131
The historical record shows that a total return (for the S&P500 index with dividends reinvested) that matches inflation a decade from now is highly unlikely based on today's valuations. In fact, a total return in real dollars two decades from now is unlikely to be as high as 2% above inflation. The market has very little predictability in the short-term, but it has quite a bit in the long-term. There are always dramatic moves in the market, whether as bear market rallies or as bull market corrections.
Have fun.
John R.
