Yahoo "Finance Quiz"

*****:

For doG's sake, shut yer pie hole, boy! Nobody cares and most of us find this unbearable. If you must electronically masturbate, do it elsewhere.
 
However, I also have to say that I find your boy-george avatar somewhat disturbing  :)
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Boy-George:confused: Yipes! Not the look I was going for. It's actually Lara Croft, Tomb raider. I went with her since that other female superhero, Zena, was already taken.
 
*****:

For doG's sake, shut yer pie hole, boy!  Nobody cares and most of us find this unbearable.  If you must electronically masturbate, do it elsewhere.
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Well, if everyone can restrain from feeding the Troll, eventually his fun will stop and he will go away.
 
The future is unknowable, all we can do is use a reasonable method to get an estimate of what a SWR might be. SWR is better than WAG, but it can never be precise because of future uncertainity (principle). Perhaps more important is understanding our own selves in relation to investing and how to avoid "mistakes" (e.g. fear, greed, diversification, etc). How we invest has the greatest influence on a SWR, more so than is 2% (or 4%SWR) . SWR tells us that too high a withdrawal rate and were in trouble; too low and get a lowered living standard. What we have gained is the understanding that relying on a 11% market return average and taking out 8% will not work. As someone once said, " We measure with a micrometer, mark with a crayon and cut with an ax".

 
all we can do is use a reasonable method to get an estimate of what a SWR might be.

The question we are struggling with is: "Is it a reasonable method to presume that changes in valuation have no effect on long-term returns?"

The "Stocks for the Long Run" philosophy has been the dominant investing paradigm for the past 20 years. Under that paradigm, stocks are always the best investment class for the long-term investor. Thus, valuation changes are not viewed as a matter of great importance. Most investors accept that valuation changes have an effect on their long-term returns, but this does not cause them much concern because they believe almost as a matter of faith that things will work out over the long term and that stocks will ultimately be proven the best long-term investment.

In all likelihood, the first researcher who put together a conventional methodology study believed in the "Stocks for the Long Run" paradigm, and thus did not view it as necessary to incorporate the effects of changes in valuation into his analysis. Later researchers probably just relied on the methodology used in the first study in designing their own studies without giving the matter too much thought.

There is now a good bit of research discrediting the "Stocks for the Long Run" paradigm. It turns out that stocks are a superior long-term investment class at some valuation levels and a poor long-term investment class at others. Changes in valuation levels have a big effect on the long-term returns delivered by a stock investment, according to the historical data.

Here is a link to just one of the research papers coming to findings along these lines. The paper appeared in the February 2002 issue of the Journal of Financial Planning.

http://www.fpanet.org/journal/articles/2002_Issues/jfp0202-art10.cfm

Juicy Quote: "Our results indicate that the best estimate of future average returns is no longer the long-term average returns on stocks found, for instance, in the Ibbotson’s series of 10 to 12 percent a year. An investment advisor can obtain a more accurate measure of expected returns by making expected returns conditional on the current P/E ratio."
 
all we can do is use a reasonable method to get an estimate of what a SWR might be.

There is now a good bit of research discrediting the "Stocks for the Long Run" paradigm. It turns out that stocks are a superior long-term investment class at some valuation levels and a poor long-term investment class at others. Changes in valuation levels have a big effect on the long-term returns delivered by a stock investment, according to the historical data.

Here is a link to just one of the research papers coming to findings along these lines. The paper appeared in the February 2002 issue of the Journal of Financial Planning.

http://www.fpanet.org/journal/articles/2002_Issues/jfp0202-art10.cfm

Juicy Quote: "Our results indicate that the best estimate of future average returns is no longer the long-term average returns on stocks found, for instance, in the Ibbotson’s series of 10 to 12 percent a year. An investment advisor can obtain a more accurate measure of expected returns by making expected returns conditional on the current P/E ratio."
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Trevino and Robertson (the authors of the research study) are respected scholars in business and finance. It comes as no surprise that the study is beyond *****'s comprehension and that he would misunderstand the substance of their work just as he continually misquotes Bernstein.

The juiciest quote in the article is the authors' conclusions in the last paragraph.

What does this mean for financial planners? First, do not use current P/E ratios to predict short-term returns. Second, financial planners should adjust their long-term expected returns to reflect the reality of current market conditions. If current P/E ratios are high, expect lower long-term average returns and if current P/E ratios are low, then expect higher long-term average returns. Finally, if P/E ratios are at historically high levels, expect long-term average returns on stocks to be low but above those of long-term T-bonds and T-bills. So the best advice to give investors when P/E ratios are high could well be to expect lower returns but still stay with stocks.

</snip>

I see nothing in the article that supports the ***** theory that retirement withdrawals are enhanced by jumping in and out of stocks based on PE ratios.

There's also nothing in the article that supports *****'s current asset allocation of 100% fixed income. Indeed the authors say "expect long-term average returns on stocks to be low but above those of long-term T-bonds and T-bills."

intercst
 
It comes as no surprise that the study is beyond *****'s comprehension...

just as he continually misquotes Bernstein....
 
I see nothing in the article that supports the ***** theory....

There's also nothing in the article that supports *****'s current asset allocation of 100% fixed income.

Why so angry?
 
It comes as no surprise that the study is beyond *****'s comprehension...

just as he continually misquotes Bernstein....
 
I see nothing in the article that supports the ***** theory....

There's also nothing in the article that supports *****'s current asset allocation of 100% fixed income.

Why so angry?
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Why do you assume that the charitable folks who correct the misstatements and misrepresentations in your posts are angry?

intercst
 
Finally, if P/E ratios are at historically high levels, expect long-term average returns on stocks to be low but above those of long-term T-bonds and T-bills.  So the best advice to give investors when P/E ratios are high could well be to expect lower returns but still stay with stocks.
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If the long-term forward returns from stocks were, say, 1% higher than treasuries, I think that would be a strong argument for 100% treasury portfolios for retirees.

Who needs the volatility with such a low risk premium?
 
Why do you assume that the charitable folks who correct the misstatements and misrepresentations in your posts are angry?

I'm not invested 100 percent in fixed-income assets. You know that.

My personal guess is that you are not really angry, but that you are pretending to be as a debating tactic. I think it would help normalize the SWR discussions if you would stop doing so.

Everyone wins if we put that stuff behind us--you, me, the entire Retire Early community. Please give the idea some serious thought.
 
Once a SWR is decided upon there have been a number of withdrawal strategies that have been proposed. For one, galeno had proposed and used a mechanical withdrawal strategy, like F! 25%, stocks 75%, with 2 years living expenses in MMF, 2 yr expenses in CD maturing in 1 y, 2 yr expenses in maturing in 2 yr. Adjust his portfoilio at year end by replenshing his FI amount. There have been others as well that have adjusted there withdrawal stategy based upon personal risk assessement.

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.

no one is against adjusting a portfolio % asset allocation based upon the individuals risk tolerance, which may well change based upon personal or market conditions. The danger in PE timing is that we are fooled into believing we know what will happen, become overconfident, and start dismissing asset allocation and diversification as prudent fundamental investing tools.
 
Why do you assume that the charitable folks who correct the misstatements and misrepresentations in your posts are angry?

I'm not invested 100 percent in fixed-income assets. You know that.
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Oh really? I guess your reply in #129 on this thread was a misstatement, too.

My three asset classes are (1) TIPS; (2) ibonds; and (3) CDs. I have significant amounts invested in each of these three asset classes.

Come on, *****. If you can't keep your misrepresentations straight, how do you expect to convince others that you are credible?

intercst
 
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.

no one is against adjusting a portfolio % asset allocation based upon the individuals risk tolerance, which may well change based upon personal  or market conditions. The danger in PE timing is that we are fooled into believing we know what will happen, become overconfident, and start dismissing asset allocation and diversification as prudent fundamental investing tools.                  
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Excellent observation!

I believe ***** has been out of the stock market since 1995 or 1996. He's still waiting for somebody to 'ring the bell' and tell him that stocks are 'appropriately valued.'

Meanwhile, those that maintained a balanced allocation between equities and fixed income assets from 1995-2004 are much richer today and enjoying a more comfortable retirement. Here's a link illustrating how various retirement investing approaches have fared over that time period.

http://www.retireearlyhomepage.com/reallife04.html

intercst
 
Come on, *****. If you can't keep your misrepresentations straight, how do you expect to convince others that you are credible?

It would be a good thing in my view if a fellow commumnity member would put forward an appropriate response to this comment.

In any event, I pass.
 
Come on, *****. If you can't keep your misrepresentations straight, how do you expect to convince others that you are credible?

It would be a good thing in my view if a fellow commumnity member would put forward an appropriate response to this comment.

In any event, I pass.
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Wouldn't it make more sense for you to directly respond to this comment?

*****: I'm not invested 100 percent in fixed-income assets. You know that.

intercst: Oh really? I guess your reply in #129 on this thread was a misstatement, too.

<<<*****: My three asset classes are (1) TIPS; (2) ibonds; and (3) CDs. I have significant amounts invested in each of these three asset classes. >>>

</snip>

intercst
 
Wouldn't it make more sense for you to directly respond to this comment?

You're a trip and a half, my old friend.

I'm going to leave it at that.
 
I have to say I'm a little confused as well. In another thread you say you are completely out of the stock market.

Is there some terminology issue at work here, because I thought cd's and bonds were all considered 'fixed income'?!?
 
Is there some terminology issue at work here, because I thought cd's and bonds were all considered 'fixed income

TIPS and ibonds are inflation-adjusted investments. The amount of income they pay is not fixed.

The REHP study compares investing in stocks with investing in fixed-income assets, and concludes that the "optimal" investment is a portfolio of 74 percent stocks. It is this finding that supports the intercst claim that a choice to allocate less than 74 percent of one's portfolio to stocks causes a delay in one's retirement.

A reasoned SWR analysis shows the opposite to be the case. I am not stuck with the 2.3 percent SWR that the REHP study shows applies to fixed-income assets. JWR1945 has done an analysis showing that the SWR for TIPS when they were paying a 4.1 percent real return was 5.85 percent. My return is not quite that good, but I am getting an SWR of well above 4 percent from both my TIPS and my ibonds.

My CDs are fixed-income assets. But in the years that I have owned them, I have obtained returns that support an SWR well in excess of 2.3 percent. The historical data indicates that the SWR on stocks will likely be heading upward in the not-too-distant future. When the SWR on stocks reaches a level that is consistent with my 4 percent take-out number, I will be shifting my CD money to stocks.

My overall SWR is higher than 4 percent. The SWR for stocks at the time I "retired" (August 2000) was somewhere in the neighborhood of 2 percent. I more than doubled my SWR by investing in asset classes other than stocks. A 74 percent stock allocation was not optimal for me at the time of my retirement.
 
TIPS and ibonds are inflation-adjusted investments. The amount of income they pay is not fixed.
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It's fixed in real terms. (I like semantic games too :))
 
***** writes,

My overall SWR is higher than 4 percent. The SWR for stocks at the time I "retired" (August 2000) was somewhere in the neighborhood of 2 percent. I more than doubled my SWR by investing in asset classes other than stocks. A 74 percent stock allocation was not optimal for me at the time of my retirement.

No one is going to know the 30-year SWR for someone retiring in August 2000 until August 2030.

intercst
 
*****-pocus,

Until you answer the very simple question that I asked you earlier, everyone will continue to see you as the Troll that you are and will quit feeding you.

IOW - If you play straight, everyone will play straight with you. If you don't, I predict that your time on this forum will be very short.
 
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.

The historical data says that stocks are an amazing investment at low valuation levels, a great investment at moderate valuation levels, a not-entirely-bad investment at high valuation levels, and a generally poor investment at extremely high valuation levels. That is the historical data talking, not me. All that I have done is to report what the historical data actually says.
 
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