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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Allen on January 26, 2014, 08:23:43 PM

Title: Doubting the stock market
Post by: Allen on January 26, 2014, 08:23:43 PM
I'm VERY risk tolerant, and I have seen my portfolio drop 30%+ twice in my investing life, while continuing to stay 100% invested in the stock market. 

However, I'm doubting the 4% rule going forward.  This obviously worked in the past, it SHOULD work in the future but the major difference between then (1871 to 1980) and now is the P/E of the stock market is historically above the average.  Also, with interest rates kept abnormally low with the massive $$$ being pumped in, it seems that stock are being kept artificially high.  This seems to make the stock market much more risky than normal.

Am I being reasonable?  I'm not sure what my alternatives would be.  Should I just keep pumping money in and dollar cost averaging and reinvesting dividends?
Title: Re: Doubting the stock market
Post by: bk1 on January 26, 2014, 08:54:19 PM
I struggle with this as well. I know historically what the stock market has done. However, never before have we been running this kind of debt totals as a country with no end in sight. Also, the fed buying up all this debt just doesn't seem right as they pretty much create the funds to buy the debt from nothing.

The whole stock market seems kind of like a big casino sometimes. You can bet this will go up, or bet that will go down. It seems like a game that we are almost forced to play.

At this point, I'm playing the game because although the game seems rigged, it's the only game in town.
Title: Re: Doubting the stock market
Post by: mom2_3Hs on January 26, 2014, 10:21:25 PM
What do you have in real estate?  We own a multi-unit home; we live in one part, and rent out part.  As long as you can keep stable tenants and don't get in an overvalued area, it seems like an inflation-resistant investment and less susceptible to the whims of the stock market.
Title: Re: Doubting the stock market
Post by: dmn on January 27, 2014, 02:24:33 AM
However, I'm doubting the 4% rule going forward.  This obviously worked in the past, it SHOULD work in the future but the major difference between then (1871 to 1980) and now is the P/E of the stock market is historically above the average.

In principle, that should result in lower-than-average future returns. In the current environment, I'd rather use a 3% withdrawal rate.

However, choosing the withdrawal rate only becomes important when deciding to retire - in the accumulation phase, you can just keep buying assets according to your asset allocation. Stocks are not clearly overvalued when compared to other assets - bond yields are also low, and in many areas rental yields from real estate are depressed as well.
Title: Re: Doubting the stock market
Post by: aclarridge on January 27, 2014, 09:05:58 AM
Yeah, other countries' stock markets have not kept pace with American indices historically. Things change. Americans may find themselves in a low growth environment compared to other countries in the future. I think the 4% rule is a general guideline and not to be followed so strictly - have a hobby that earns some money, get a skill that saves you money, and generally live on a bit less than 4% of your stash. MMM did a nice article on the levels of safety in his life.
Title: Re: Doubting the stock market
Post by: thepokercab on January 27, 2014, 09:10:42 AM
Quote
I think the 4% rule is a general guideline and not to be followed so strictly - have a hobby that earns some money, get a skill that saves you money, and generally live on a bit less than 4% of your stash. MMM did a nice article on the levels of safety in his life.

+1

Exactly how I think about the 4% rule.  A general bench mark, and a goal of mine to be sure, but not something that I would etch in stone in terms of my FIRE plan.

Here's that MMM post on safety margins:

http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/
Title: Re: Doubting the stock market
Post by: Allen on January 27, 2014, 11:31:45 AM
What do you have in real estate?  We own a multi-unit home; we live in one part, and rent out part.  As long as you can keep stable tenants and don't get in an overvalued area, it seems like an inflation-resistant investment and less susceptible to the whims of the stock market.

Real Estate is an area I'm not particularly comfortable with, I'm not particularly handy, I don't particularly understand construction or the market values, and because of my ignorance I mostly avoid it.  I have no real estate exposure other than my house.  This is a key area I want to learn more about.
Title: Re: Doubting the stock market
Post by: matchewed on January 27, 2014, 12:08:54 PM
You don't sound very risk tolerant. :) The moment you start losing sleep over your AA then you should revisit it and make sure it is right for you. If you're worried adjust something, increase your position in something that reduces that volatility you're worried about.

If you're okay with the volatility then just use a different SWR. 3% would be fairly conservative and just mean a slightly larger stash depending on your expenses. Or as others have stated you rely on your gumption and flexibility to make up that 1%.
Title: Re: Doubting the stock market
Post by: Allen on January 27, 2014, 01:36:35 PM
I'm risk tolerant about large swings and volatility and losing money.  My concern is that the future returns may no longer justify being on the ride at all as it has in the past. 

I'm not changing anything though, still 100% stocks / index funds and all monthly savings going into stocks.  Perhaps that is stupid?  I could probably use some help on a 'better' asset allocation.
Title: Re: Doubting the stock market
Post by: matchewed on January 27, 2014, 01:50:56 PM
Well if you don't feel that future returns aren't justifiable then why stay in stocks at all? If you feel comfortable for wealth generation then why are they no good for further wealth generation?

Also are you coming at this from your gut or your head? Sure even the head says that past performance is not indicative of future returns, but every investment has that same caveat, it is not unique to stocks.
Title: Re: Doubting the stock market
Post by: nawhite on January 27, 2014, 04:43:40 PM
One of the best active researchers about the safe withdrawal rate is Dr. Wade Pfau. He has a blog which has some really good gems explaining some of the intricacies of the "4% rule" and what impacts it. One of my favorites is a short post: http://wpfau.blogspot.com/2013/09/lifetime-sequence-of-returns-risk.html (the returns of the stock market the first year you retire matter more to your safe withdrawal rate than any other year)

He has a whole lot of peer-reviewed papers about the 4% rule and retiring in general. One of his recent "famous" ones is http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2201323

In that paper, he argues that while historically the 4% rule resulted in failure 6% of the time, today's lower return years could push that failure rate for the 4% rule up to 57% for new retirees.

Your mileage may vary. The trick as others have said is that its all about the safety margins. Look at your personal assets (both financial capital and human capital). Paid off houses can be huge "retirement-savers." So can rental real estate. So can family inheritances. So can Social Security. So can part time work. So can the fact that you can spend less in down years if you need to.

If you plan to retire for 30 years exactly and then die, and you wont have any other income sources in retirement, and you will spend the same amount (inflation adjusted) every single year of your retirement, THEN the 4% rule may not work for you anymore. Those were the assumptions of the original research which came up with the 4% rule and for most of Dr. Pfau's new research. If those assumptions don't apply to you (they don't for anyone who retires in America b/c of Social Security at least) then adjust your withdrawal rate accordingly.
Title: Re: Doubting the stock market
Post by: nawhite on January 27, 2014, 04:55:51 PM
Forgot to mention the most comprehensive explanation and history of the 4% rule anywhere: http://financialmentor.com/free-articles/retirement-planning/how-much-to-retire/are-safe-withdrawal-rates-really-safe

He comes to the conclusion that 4% is too high. I read all of his data and come to the conclusion that 4% is too low. For me its because even if I had 0% real returns in a savings account, 4% (plus a super cheap paid off house) lasts me 25 years. Within 25 years of retiring, most people will be able to start to collect Social Security. Social Security (even at 60% of what the calculators say I should get) is enough for me to "succeed" at retirement if I have a paid off house. It wouldn't be fun and I wouldn't be doing international travel, but when that is the absolute worst case scenario, I stop worrying.

Add to that the fact that I'll probably be working part time on fun things I want to do for many years and I can decrease my spending in years the stock market is down (or go back to work if it tanks the year I retire), and 4% seems awfully conservative to me.
Title: Re: Doubting the stock market
Post by: arebelspy on January 27, 2014, 05:24:59 PM
However, I'm doubting the 4% rule going forward.  This obviously worked in the past, it SHOULD work in the future but the major difference between then (1871 to 1980) and now is the P/E of the stock market is historically above the average.

Wasn't the P/E historically above its average about half the time? (I know, median versus mean, but approximately - you see my point.)

And then when you add in that 4% was just about the worst case historically here (and many other times supported a higher SWR)...

I don't see much cause for worry.  For a very long ER, I'd shoot for closer to 3%, but that's cause I'm quite conservative in many ways.

The stock market being "high" in relation to the 4% rule is not something to be concerned about though, IMO, once you understand where the 4% rule came from.
Title: Re: Doubting the stock market
Post by: mpbaker22 on January 28, 2014, 07:27:41 AM
The 4% rule is a very popular rule of thumb and I think it was first proposed by a financial planner back in 1994 using data back to 1969.  Back then interest rates were much higher than today (7ish percent I think).  It also assumed you were going to need to live off of your savings for 30 years.

It’s probably as good as any other rule of thumb but I wouldn’t stake my future retirement comfort on it.  First of all interest rates are much lower now so they can’t support a 4% withdrawal rate.  Second, the longer you need to live off the funds, the lower the withdrawal rate it can support.  Third, I see some people adding up living expenses, multiplying by 25 and using that as a target,  That’s fine as long as you don’t pay any income taxes on withdrawals.  If you do, you need to gross up your expenses for taxes before applying the multiplier. Forth, I don’t like the fact that there is no discussion about future inflation.  If inflation spikes (seems doubtful now but…) then you will have to increase withdrawal rates or suffer a decline in living standards.  Finally, don’t forget to consider big ticket purchases that don’t occur every year.  For example, if you buy a $50,000 car every 10 years, include $5,000 of expenses annually.

This is what I do:  Gross up my annual living expenses by 10% to allow for big ticket purchases then by another 30% to account for taxes (about a 23% tax rate on dividends and capital gains). I take that and divide it by 4% to get my target retirement savings amount.  My logic for using a 4% discount rate is that the stock portfolio I own has a 4% dividend yield.  That allows any capital gains to offset inflation and pay for unforeseen expenses.  Net that works out to a 2.8% discount rate on my annual living expenses.  I think I’m being very conservative but I can sleep at night with this.

If you invest in a portfolio that includes bonds, I would multiply the 4% by the proportion of your portfolio in stocks.  For example if you have 60% in stocks your discount rate should be 2.4% (4% x 60%).  To me, bonds at best will keep up with inflation.  The capital losses on any long-term bond portfolio if rates go up will be hard to overcome.  I don’t own a single bond or bond like investment.

These are my thoughts.  Everyone should do their own work and analysis before deciding on how to define their retirement goals and portfolio investments.

no ... just no.

I think I'm done responding to these ridiculous posts.  Ridiculous parts in bold.

(http://2.bp.blogspot.com/_hSs34-d9qO4/S7lGccO9UJI/AAAAAAAAAGU/m4hjQ9kvFJ0/s400/beat_dead_horse2.jpg)
Title: Re: Doubting the stock market
Post by: iamlindoro on January 28, 2014, 07:33:14 AM
The 4% rule is a very popular rule of thumb and I think it was first proposed by a financial planner back in 1994 using data back to 1969.  Back then interest rates were much higher than today (7ish percent I think).  It also assumed you were going to need to live off of your savings for 30 years.

I don't mean to call you out, but literally everything about this is incorrect.  The study was done by finance professors, not financial planners, in 1998 (and updated in 2009), not 1994, using data going back to 1925.  It also has nothing to do with interest rates as it concerns itself only with stocks.

Basically, the 4% rule is as close to a sure thing as it gets in investment.  It's vetted against broad and recent data by objective parties.

http://en.wikipedia.org/wiki/Trinity_study
Title: Re: Doubting the stock market
Post by: mpbaker22 on January 28, 2014, 07:53:30 AM
The 4% rule is a very popular rule of thumb and I think it was first proposed by a financial planner back in 1994 using data back to 1969.  Back then interest rates were much higher than today (7ish percent I think).  It also assumed you were going to need to live off of your savings for 30 years.

I don't mean to call you out, but literally everything about this is incorrect.  The study was done by finance professors, not financial planners, in 1998 (and updated in 2009), not 1994, using data going back to 1925.  It also has nothing to do with interest rates as it concerns itself only with stocks.

Basically, the 4% rule is as close to a sure thing as it gets in investment.  It's vetted against broad and recent data by objective parties.

http://en.wikipedia.org/wiki/Trinity_study

Not to mention there have been literally hundreds of threads (plus the MMM article itself) where posters have mentioned that 4% is not that safe, but 3.5% and certainly 3%, are.
Title: Re: Doubting the stock market
Post by: jaivee on January 28, 2014, 08:11:08 AM
First of all, I don't understand why what I am saying is wrong.  You may disagree but as I clearly state "I think I'm being very conservative" and "these are my thoughts".  I think everyone is entitled to their own opinion.  Studies like these are interesting, but they are based on historical data and one thing I can guarantee is that history will never be exactly repeated.

When adding up living expenses, you have to include income taxes expected to paid on your investment portfolio because that is an actual expense that is unavoidable.  All the studies I've read about withdrawal rates all assumed that withdrawals were indexed to inflation so I don't understand how a spike in inflation would not be detrimental to this plan.  And bonds to me are good for reducing volatility but they are not going to provide any real rate of return for the foreseeable future.  If rates stay flat you'll collect your coupon, if rates go up the value of your bond goes down.  If you hold to maturity you get back the $100 principle which is great if you paid $100 for the bond, if you paid a premium (above face value) you lose.  I'd like to hear other opinions, I'm trying to learn here too.

Regarding whether or not the Trinity study concerned itself with just stocks or a mix please see the post you referred me to which states "The context is one of annual withdrawals from a retirement portfolio containing a mix of stocks and bonds."
Regarding my comment about who initially did the study please see http://en.wikipedia.org/wiki/William_Bengen and http://www.cnbc.com/id/101103023 I'm just posting what I'm reading. If it's wrong, sorry.
Title: Re: Doubting the stock market
Post by: arebelspy on January 28, 2014, 08:19:12 AM
First of all, I don't understand why what I am saying is wrong.

Because you clearly haven't read or understood the research around the Trinity study.

You state multiple incorrect things as facts.  (One example: your talk of inflation, as if that wasn't taken into account.  Another is that the Trinity study used a mix of 60/40 stocks/bonds and, since it was looking at historical data, the interest rate of 7% at the time of the study is completely irrelevant. It could have been 0%, or 100%, and not affected the study one bit because it was looking at historical data, not making predictions based on the current environment.)

What you are saying is wrong because you are saying incorrect things.

But you do say them with confidence.  ;)
Title: Re: Doubting the stock market
Post by: mpbaker22 on January 28, 2014, 09:17:50 AM
First of all, I don't understand why what I am saying is wrong.  You may disagree but as I clearly state "I think I'm being very conservative" and "these are my thoughts".  I think everyone is entitled to their own opinion.  Studies like these are interesting, but they are based on historical data and one thing I can guarantee is that history will never be exactly repeated.

When adding up living expenses, you have to include income taxes expected to paid on your investment portfolio because that is an actual expense that is unavoidable.  All the studies I've read about withdrawal rates all assumed that withdrawals were indexed to inflation so I don't understand how a spike in inflation would not be detrimental to this plan.  And bonds to me are good for reducing volatility but they are not going to provide any real rate of return for the foreseeable future.  If rates stay flat you'll collect your coupon, if rates go up the value of your bond goes down.  If you hold to maturity you get back the $100 principle which is great if you paid $100 for the bond, if you paid a premium (above face value) you lose.  I'd like to hear other opinions, I'm trying to learn here too.

Regarding whether or not the Trinity study concerned itself with just stocks or a mix please see the post you referred me to which states "The context is one of annual withdrawals from a retirement portfolio containing a mix of stocks and bonds."
Regarding my comment about who initially did the study please see http://en.wikipedia.org/wiki/William_Bengen and http://www.cnbc.com/id/101103023 I'm just posting what I'm reading. If it's wrong, sorry.

You are entitled to your own opinion, but not your own facts.  People on this board always bring up taxes when talking about SWRs.  Most people treat them as an expense.  Also, your estimate of tax brackets is completely unreasonable for most people on this board.  I don't understand where you got 23%, but capital gains taxes max out at 20% but that's only for someone making MORE than 400K/year.  Dividends are taxed at a much higher rate, but they don't even get above 20% until a family's income reaches over 60K.  In short, I reject your 23% assumption.

You mention inflation, which is ridiculous as ARebelSpy pointed out.

Your 10% rule is also ridiculous for those who have already planned for them.  I guess you just think we're all so stupid we can't actually plan for expenses?  I doubt there's a single person on here that is going to buy a $50,000 car ever, even after inflation.

Edited - as pointed out below, this was clearly incorrect.  In fact, I'll probably buy a car at $50,000 if inflation holds around 3% and I live to be 80+
Title: Re: Doubting the stock market
Post by: gecko10x on January 28, 2014, 10:44:55 AM
  I doubt there's a single person on here that is going to buy a $50,000 car ever, even after inflation.

While I agree with everything else you wrote, just thought I'd point out that $20k @ 3% inflation for 30 years is $50k. There are plenty of people on the board that buy new and drive 10+ years, so I don't think this is out of the realm of possibility.

Just nit-picking though ;-)
Title: Re: Doubting the stock market
Post by: jaivee on January 28, 2014, 11:41:45 AM
arebelspy:   Thanks for your comments.  I have to respect the fact that you are a Global Moderator and a Senior Mustachian with 6394 posts.  I am happy for the opportunity to add to my 3 posts.  I have read the Trinity Study.  While I am not saying that it’s not possible that I don’t understand it (there are many things that I don’t understand which is why I am happy to be engaged in this great forum), I think the fact that I am a Chartered Financial Analyst with a BA in Economics and 20 years of finance industry experience makes my opinion and interpretation of these studies at least a little bit credible.  As for my statement of facts: my opening paragraph says “I think”.my closing paragraph says “these are my thoughts”.  The things I state as facts:  “interest rates are much lower now so they can’t support a 4% withdrawal rate” – I regret that one.  I should have said they are less likely to support a 4% withdrawal rate.  That is obvious so sorry for that one.  If inflation spikes (seems doubtful now but…) then you will have to increase your withdrawal rate or suffer a decline in living standards” I think this is a fact, maybe your definition of inflation spike differs from mine.  The Trinity authors even touch on this: “We found that all but 1 of the 18 failing portfolios spanned the high-inflation years of the late 1970s. As the withdrawals were adjusted upward as a result of high inflation and low financial market returns, the portfolios were depleted and failed. Thus, as in the analysis of 7 percent fixed withdrawals, extraordinary economic and financial circumstances explain the failures of the 5 percent inflation-adjusted withdrawals from 50 percent stock and 50 percent bond portfolios. As equivalent circumstances develop, clients have little choice but to reduce planned withdrawals in order to preserve their portfolios.” I also said “The capital losses on any long-term portfolio if rates go up will be hard to overcome.” That’s math but I guess I should have said “I think it will be hard to overcome”.  Finally I said what I did to arrive at my own withdrawal rate – that’s my own process that I used to come up with a withdrawal rate looking forward that I think is reasonable for me, not based on a study of the past.  Your point about the 7% interest rates at the time of the study is very valid.  I didn’t express myself clearly.  The 30 year periods that the revised Trinity study looks at began in 1926 and the last 30 year period began in 1981.  For most of that period the US was on the gold standard so I think inflation and interest rates were pretty tame.  In the 70’s when the gold standard was abandoned, inflation and interest rates spiked.  That is also the period where the Trinity study saw portfolios failing.  After the spike, I think in the early 80s bond yields fell from mid-teens to where we are today around 2-3%.  This drop in yields provided a huge boost to both bond returns and equity returns.  Something that I don’t think can happen going forward given our starting point today.  I think we are all trying to use their historical analysis to try to make a prediction about whether or not our nest egg can support our lifestyle in the future.  So I’m saying use their results with caution.  Again – I came up with my own way to figure out my own withdrawal rate based on what I think will happen going forward, and I shared it with the forum.
Mpbaker22: Thank you as well, I see that you are also a Senior Mustachian.  I am not saying that no one treats them as an expense.  That post I initiall put up was actually part of an email I sent my brother in response to a question he sent me on this topic. He hadn’t included taxes in his calculations.  I understand that you and many people on this forum are more knowledgeable of this process, but I have seen some spreadsheets that didn’t account for taxes.  I was just bringing it up in the hopes that others wouldn’t make that mistake.  My tax bracket is based on my actual taxes paid.  I’m in Canada, maybe that explains the discrepancy.  I’ve already talked about inflation above. Referring to this article by the Trinity authors http://www.fpanet.org/journal/CurrentIssue/TableofContents/PortfolioSuccessRates/  .  My comment about a $50k car was not meant to suggest that people should buy $50k cars or that they will ever buy a $50k car.  It was just an example of a large expenditure.  I could have said a $10k roof replacement or a $20k car.  The item wasn’t the point the point was the unexpected expenditure.  The large expenditures suggestion is probably stupid for someone like you who is very knowledgeable but again, it’s similar to my comment about taxes.  Just meant it as a word of caution, not meant to insult the intelligence of anyone on this forum.  My comment about a $50k car was not meant to suggest that people should buy $50k cars or that they will ever buy a $50k car.  It was just an example of a large expenditure.  I could have said a $10k roof replacement or a $20k car.  The item wasn’t the point the point was the unexpected expenditure.
Title: Re: Doubting the stock market
Post by: Poorman on January 28, 2014, 11:42:08 AM
However, I'm doubting the 4% rule going forward.  This obviously worked in the past, it SHOULD work in the future but the major difference between then (1871 to 1980) and now is the P/E of the stock market is historically above the average.

Wasn't the P/E historically above its average about half the time? (I know, median versus mean, but approximately - you see my point.)


By some measurements, the P/E for stocks is grossly out of line with historical averages.  The Shiller PE, which normalizes for business cycles, shows that the only years stocks have been valued higher are 1929, 1999-2000, and the 3-4 years prior to the financial collapse in 2008.

http://www.gurufocus.com/shiller-PE.php

Shiller created this measurement to gauge the implied return of the S&P going forward.  At today's valuation, it implies a return of 1.4%.
Title: Re: Doubting the stock market
Post by: daverobev on January 28, 2014, 12:27:33 PM
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arebelspy:   Thanks for your comments.  I have to respect the fact that you are a Global Moderator and a Senior Mustachian with 6394 posts.  I am happy for the opportunity to add to my 3 posts.  I have read the Trinity Study.  While I am not saying that it’s not possible that I don’t understand it (there are many things that I don’t understand which is why I am happy to be engaged in this great forum), I think the fact that I am a Chartered Financial Analyst with a BA in Economics and 20 years of finance industry experience makes my opinion and interpretation of these studies at least a little bit credible.  As for my statement of facts: my opening paragraph says “I think”.my closing paragraph says “these are my thoughts”.  The things I state as facts:  “interest rates are much lower now so they can’t support a 4% withdrawal rate” – I regret that one.  I should have said they are less likely to support a 4% withdrawal rate.  That is obvious so sorry for that one.  If inflation spikes (seems doubtful now but…) then you will have to increase your withdrawal rate or suffer a decline in living standards” I think this is a fact, maybe your definition of inflation spike differs from mine.  The Trinity authors even touch on this: “We found that all but 1 of the 18 failing portfolios spanned the high-inflation years of the late 1970s. As the withdrawals were adjusted upward as a result of high inflation and low financial market returns, the portfolios were depleted and failed. Thus, as in the analysis of 7 percent fixed withdrawals, extraordinary economic and financial circumstances explain the failures of the 5 percent inflation-adjusted withdrawals from 50 percent stock and 50 percent bond portfolios. As equivalent circumstances develop, clients have little choice but to reduce planned withdrawals in order to preserve their portfolios.” I also said “The capital losses on any long-term portfolio if rates go up will be hard to overcome.” That’s math but I guess I should have said “I think it will be hard to overcome”.  Finally I said what I did to arrive at my own withdrawal rate – that’s my own process that I used to come up with a withdrawal rate looking forward that I think is reasonable for me, not based on a study of the past.  Your point about the 7% interest rates at the time of the study is very valid.  I didn’t express myself clearly.  The 30 year periods that the revised Trinity study looks at began in 1926 and the last 30 year period began in 1981.  For most of that period the US was on the gold standard so I think inflation and interest rates were pretty tame.  In the 70’s when the gold standard was abandoned, inflation and interest rates spiked.  That is also the period where the Trinity study saw portfolios failing.  After the spike, I think in the early 80s bond yields fell from mid-teens to where we are today around 2-3%.  This drop in yields provided a huge boost to both bond returns and equity returns.  Something that I don’t think can happen going forward given our starting point today.  I think we are all trying to use their historical analysis to try to make a prediction about whether or not our nest egg can support our lifestyle in the future.  So I’m saying use their results with caution.  Again – I came up with my own way to figure out my own withdrawal rate based on what I think will happen going forward, and I shared it with the forum.
Mpbaker22: Thank you as well, I see that you are also a Senior Mustachian.  I am not saying that no one treats them as an expense.  That post I initiall put up was actually part of an email I sent my brother in response to a question he sent me on this topic. He hadn’t included taxes in his calculations.  I understand that you and many people on this forum are more knowledgeable of this process, but I have seen some spreadsheets that didn’t account for taxes.  I was just bringing it up in the hopes that others wouldn’t make that mistake.  My tax bracket is based on my actual taxes paid.  I’m in Canada, maybe that explains the discrepancy.  I’ve already talked about inflation above. Referring to this article by the Trinity authors http://www.fpanet.org/journal/CurrentIssue/TableofContents/PortfolioSuccessRates/  .  My comment about a $50k car was not meant to suggest that people should buy $50k cars or that they will ever buy a $50k car.  It was just an example of a large expenditure.  I could have said a $10k roof replacement or a $20k car.  The item wasn’t the point the point was the unexpected expenditure.  The large expenditures suggestion is probably stupid for someone like you who is very knowledgeable but again, it’s similar to my comment about taxes.  Just meant it as a word of caution, not meant to insult the intelligence of anyone on this forum.  My comment about a $50k car was not meant to suggest that people should buy $50k cars or that they will ever buy a $50k car.  It was just an example of a large expenditure.  I could have said a $10k roof replacement or a $20k car.  The item wasn’t the point the point was the unexpected expenditure.
Title: Re: Doubting the stock market
Post by: alm0stk00l on January 28, 2014, 01:20:48 PM
@daverobev
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a
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:)
Title: Re: Doubting the stock market
Post by: mpbaker22 on January 28, 2014, 01:29:24 PM
I apologize for my attitude.

That being said, it's extremely frustrating when the issue of SWRs is challenged in 10000 threads every week, with the same challenges and the same replies.  As my picture above indicated, the inflation issue in particular, has been beaten to death many many times.
Title: Re: Doubting the stock market
Post by: Jamesqf on January 28, 2014, 01:46:04 PM
Within 25 years of retiring, most people will be able to start to collect Social Security. Social Security (even at 60% of what the calculators say I should get) is enough for me to "succeed" at retirement...

One caution here: those calculators could be assuming that you are going to be working up to SS retirement age.  Since benefits are computed based on the 35 highest-earning years (indexed for inflation), putting in 10 or 20 ER years with zero earnings (subject to SS tax) could shrink the ultimate benefit quite a bit.
Title: Re: Doubting the stock market
Post by: arebelspy on January 28, 2014, 02:02:06 PM
As my picture above indicated, the inflation issue in particular, has been beaten to death many many times.

Indeed.  And while I tried to make it clear that this is taken into account, it's still mentioned again in the wall of text above.

Quote
If inflation spikes (seems doubtful now but…) then you will have to increase your withdrawal rate or suffer a decline in living standards” I think this is a fact, maybe your definition of inflation spike differs from mine.

Yes, if inflation occurs, one will have to increase their spending.  However that has happened in the past (in fact the number one cause of failure in FIRECalc/cFIREsim is inflation, not market crashes) and thus is already taken into account in the worst case 4% SWR scenario (which does increase with inflation).  In other words, a person in the past who started with a 4% SWR and increased with inflation, and was hit with large inflation, was fine.

Yes, the 4% SWR increases with inflation.

I hear ya on getting frustrated at the repetition, mpbaker.  :)

People need to read and understand the study itself, not make assumptions about what a 4% SWR is.
Title: Re: Doubting the stock market
Post by: EscapeVelocity2020 on January 29, 2014, 08:03:01 AM
Not sure if you guys have seen this recent paper "Asset Valuations and Safe Portfolio Withdrawal Rates", with Pfau as one of the authors:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2286146

One point of note, Pfau's trying to address a weakness to earlier SWR research (also inherent in FIRECalc): 

Assuming that future real returns on assets will equal the real returns experienced by investors in the past ignores current state information. This is particularly important if, as in the current period, there is a unique state where real bond yields are negative for durations of 10 years or less and stock valuations are much higher than the historical average. It is possible, however, to use state information from the past to estimate expected distributions of possible returns from market conditions that most closely resemble those that exist today in order to estimate the expected path of future returns. Rather than assuming the future will look like the average of all historic periods, we can instead assume that the future will resemble historic periods where asset valuations were most similar to those we see today.

Of course, no-one knows that this time it is different - but it's interesting reading.
Title: Re: Doubting the stock market
Post by: arebelspy on January 29, 2014, 08:45:48 AM
Not sure if you guys have seen this recent paper "Asset Valuations and Safe Portfolio Withdrawal Rates", with Pfau as one of the authors:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2286146

One point of note, Pfau's trying to address a weakness to earlier SWR research (also inherent in FIRECalc): 

Assuming that future real returns on assets will equal the real returns experienced by investors in the past ignores current state information. This is particularly important if, as in the current period, there is a unique state where real bond yields are negative for durations of 10 years or less and stock valuations are much higher than the historical average. It is possible, however, to use state information from the past to estimate expected distributions of possible returns from market conditions that most closely resemble those that exist today in order to estimate the expected path of future returns. Rather than assuming the future will look like the average of all historic periods, we can instead assume that the future will resemble historic periods where asset valuations were most similar to those we see today.

Of course, no-one knows that this time it is different - but it's interesting reading.

(Emphasis mine.)

But that's not what the 4% Rule/FIRECalc/cFIREsim (http://www.cfiresim.com) does.  It doesn't assume the future will look like the average; it assumes the future will be no worse than the worst time in that period.

In other words, the 4% rule isn't an average historical scenario, but the worst historical case.

And yes, I read Pfau regularly, and generally agree with him (including the article you mentioned).  But I needed to correct that misconception you stated, as too many people just plain don't understand the 4% rule and uncorrected statements like that perpetuate those misunderstandings.
Title: Re: Doubting the stock market
Post by: mpbaker22 on January 29, 2014, 09:06:45 AM
Not sure if you guys have seen this recent paper "Asset Valuations and Safe Portfolio Withdrawal Rates", with Pfau as one of the authors:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2286146

One point of note, Pfau's trying to address a weakness to earlier SWR research (also inherent in FIRECalc): 

Assuming that future real returns on assets will equal the real returns experienced by investors in the past ignores current state information. This is particularly important if, as in the current period, there is a unique state where real bond yields are negative for durations of 10 years or less and stock valuations are much higher than the historical average. It is possible, however, to use state information from the past to estimate expected distributions of possible returns from market conditions that most closely resemble those that exist today in order to estimate the expected path of future returns. Rather than assuming the future will look like the average of all historic periods, we can instead assume that the future will resemble historic periods where asset valuations were most similar to those we see today.

Of course, no-one knows that this time it is different - but it's interesting reading.

(Emphasis mine.)

But that's not what the 4% Rule/FIRECalc/cFIREsim (http://www.cfiresim.com) does.  It doesn't assume the future will look like the average; it assumes the future will be no worse than the worst time in that period.

In other words, the 4% rule isn't an average historical scenario, but the worst historical case.

And yes, I read Pfau regularly, and generally agree with him (including the article you mentioned).  But I needed to correct that misconception you stated, as too many people just plain don't understand the 4% rule and uncorrected statements like that perpetuate those misunderstandings.

Hmm.  My understanding, which I posted in another thread already today, is that the 4% rule is designed to only fail in 5% (or some such number)of cases.  You could then look at only points where the market was up 30% in the previous year, (or only points where the P/E was above value x, the indicator you choose doesn't matter).  Then you could do odds of failure given that the market is currently at point x, I.E. p(x|y) (http://en.wikipedia.org/wiki/Conditional_probability). 
However, now you only have 18 periods of length 1-year to look at, instead of 80.  One instance of failure only affects 80 1.25%, but it affects 18 by 5.5%.  I.E. the variance in this study is much higher, and the confidence intervals are also higher, because you're working with less data.
Title: Re: Doubting the stock market
Post by: arebelspy on January 29, 2014, 09:24:13 AM
Correct.  4% has a 95% success rate.  Sites like FIRECalc or cFIREsim can help you narrow that further if you'd like a more precise (not necessarily accurate) number.

And yes, what you're describing is what Pfau did in the paper EV linked, and found that 4% was only safe about 48% of the time in those scenarios.  But there is the higher variance, as you point out.

Retiring after a market crash is naturally much safer than after a market peak.
Title: Re: Doubting the stock market
Post by: EscapeVelocity2020 on January 29, 2014, 09:39:09 AM
Sorry Reb, I was quoting directly from the paper so maybe it looks out of context.  The quote is about what the paper is trying to do, not necessarily what FIRECalc does.  I understand your frustration about misunderstanding the Trinity Study and FIRECalc is very transparent about what it does on the FIRECalc homepage.  I put my original bold on the idea that Pfau proposes that we are in a unique period of low bond yield and high CAPE, that's what I meant to emphasize.

mpbaker22 - the paper also emphasizes that bond yields have only been this low once before at the end of WWII (then spiked up to 14% in the 1980's).  I think that it is this combination of high CAPE and low yield that is of interest to people debating the validity of 4%. CAPE was 16.9 for the starting period of 1940-49 (accompanied by an annualized 8.5% return) vs. 42.5 for the 2000-2009 period (with a -0.91% annualized return over that period).

I ended by saying that no-one knows that this time it will be different from any other period in history (in which case we are potentially following a line FIRECalc will not spit out), but we could just as well be re-living the retirement of our grandparents or our parents (which were also very different).  I like that Pfau is trying to make a more educated guess than what the original study intended (focusing in static portfolios and shortfall, with little attention to magnitude / timing of the shortfall).  This is of interest to us that are trying to figure out, in earnest, if I'm comfortable leaving a relatively good job right now since I think I have enough or if I wait and potentially expend valuable healthy years of my life only to hand over a big inheritance (which is not necessarily my goal). 
Title: Re: Doubting the stock market
Post by: kyleaaa on January 29, 2014, 11:09:55 AM
The 4% rule included many periods where stock valuations are higher than they are today. In short, 4% is the WORST CASE SCENARIO number. The actual safe withdrawal rate for most of modern stock market history has actually been much more than 4%. It all depends on where things stand the day you retire. Market returns the first year or two of your retirement will determine 90% of whether or not your portfolio will hold up over time. If, after a few years of bad returns, you are still young enough to go back to work for a few years, it really isn't going to be a problem for you. It's the 70 year olds who are screwed in that scenario. Mustachians will be fine.

That said, the 4% rule is explicitly only useful for 30 year retirements. That's part of the fine print. If you intend to be retired for more than 30 years, the 4% number is pretty meaningless. 3% is the generally accepted number for indefinite retirements.
Title: Re: Doubting the stock market
Post by: Poorman on January 29, 2014, 11:24:09 AM
The 4% rule included many periods where stock valuations are higher than they are today. In short, 4% is the WORST CASE SCENARIO number. The actual safe withdrawal rate for most of modern stock market history has actually been much more than 4%. It all depends on where things stand the day you retire. Market returns the first year or two of your retirement will determine 90% of whether or not your portfolio will hold up over time. If, after a few years of bad returns, you are still young enough to go back to work for a few years, it really isn't going to be a problem for you. It's the 70 year olds who are screwed in that scenario. Mustachians will be fine.

That said, the 4% rule is explicitly only useful for 30 year retirements. That's part of the fine print. If you intend to be retired for more than 30 years, the 4% number is pretty meaningless. 3% is the generally accepted number for indefinite retirements.

You might want to check that.  The CAPE measurement has only been higher 3 other times in the past 130 years.  Each time was before a significant crash.
Title: Re: Doubting the stock market
Post by: mpbaker22 on January 29, 2014, 11:28:49 AM
The 4% rule included many periods where stock valuations are higher than they are today. In short, 4% is the WORST CASE SCENARIO number. The actual safe withdrawal rate for most of modern stock market history has actually been much more than 4%. It all depends on where things stand the day you retire. Market returns the first year or two of your retirement will determine 90% of whether or not your portfolio will hold up over time. If, after a few years of bad returns, you are still young enough to go back to work for a few years, it really isn't going to be a problem for you. It's the 70 year olds who are screwed in that scenario. Mustachians will be fine.

That said, the 4% rule is explicitly only useful for 30 year retirements. That's part of the fine print. If you intend to be retired for more than 30 years, the 4% number is pretty meaningless. 3% is the generally accepted number for indefinite retirements.

No, a worst case scenario would be to actually put money into the account every year.  Your stocks could all go to $0 with a probability of 10^-x as x goes to infinity.  The 4% rules says you'll run out of money 5% of the time. 
If there are 1000 scenarios, that means 50 of them fail.  Additionally, a few percent of them come moderately close to failure.  If you wanted to do 60 years (30years twice), the probability of failure would be 5% + 5% times the withdrawal rate of those in the first scenario.  Obviously that's much more complicated, but just generically, I'd bet it'd be 6-7%. 
Or you could look at a 3% withdrawal rate.  Over 30 years, that might have .1% chance of failure.  But it might have 5% chance of resulting in lower than starting balance.  You could then look at those 50 outcomes and apply the 30 year rule to them at whatever that withdrawal rate is.  Then, you could calculate your new chance of failure.


In short, the 3% is just a piece-of-mind number.  The trinity study did look at various lengths of times and various withdrawal rates.  Based on the trinity study, a 3% withdrawal rate will maintain a positive balance ~100% of the time after 30 years.  Since someone retiring at 35 might need 60 years, they should look at that time frame.  The study didn't do 60 years, but I'm guessing success rate is still around 99%
Title: Re: Doubting the stock market
Post by: goodlife on January 29, 2014, 11:43:17 AM

[/quote]

(Emphasis mine.)

But that's not what the 4% Rule/FIRECalc/cFIREsim (http://www.cfiresim.com) does.  It doesn't assume the future will look like the average; it assumes the future will be no worse than the worst time in that period.

In other words, the 4% rule isn't an average historical scenario, but the worst historical case.

And yes, I read Pfau regularly, and generally agree with him (including the article you mentioned).  But I needed to correct that misconception you stated, as too many people just plain don't understand the 4% rule and uncorrected statements like that perpetuate those misunderstandings.
[/quote]

I applaud your optimism. I guess I am less optimistic and would certainly challenge that assumption. I hope this forum and all of us included will still be around in 30-50 years time and we can see how things panned out!
Title: Re: Doubting the stock market
Post by: EscapeVelocity2020 on January 29, 2014, 12:36:39 PM
Why do people keep missing the point of the paper, I guess no-one has had time to read it.  4% SWR was generated during a history which has not seen a whole lot of sub-3% bond environments, especially when compounded with high Market valuation.  Please don't get complacent that 4% SWR is a magic bullet guaranteeing 30 years of COLA'ed success 95% of the time going forward.  To highlight, the paper states:

Across the 132 different years with available data there are only 7 periods where the CAPE was above 20 and the yield on 10 year bonds was below 3.3% (1898, 1900, 1901, 1936, 2010, 2011, and 2012). Of these 7 periods only 4 occurred long enough ago so that we can test the sustainability of a retirement income strategy. We could, for example, use January 1937 as a proxy for what could happen, but this implicitly assumes a World War would commence roughly three years into the period. If we further restrict our bond yield to below 2.5% we only have two periods, 2011 and 2012, therefore we are definitely in relatively uncharted territory in terms of the potential implications of the impact for retirees.

Now, to cut to the conclusion, under current CAPE ~22 and bond yield of 2.0%, at an 80% equity allocation, a 4% SWR has a 55% probability of success, which is much lower than the original 95% the Trinity Study predicted.  Even more informative is Table 3 (copied): to get to an 80% success rate over a longer, 40 year retirement period SWR is predicted to be 2.1% (yikes!)

All I'm highlighting is, even Pfau is concerned that maybe the 4% rule is being misused in light of new research.
Title: Re: Doubting the stock market
Post by: Poorman on January 29, 2014, 01:17:28 PM
Why do people keep missing the point of the paper, I guess no-one has had time to read it.  4% SWR was generated during a history which has not seen a whole lot of sub-3% bond environments, especially when compounded with high Market valuation.  Please don't get complacent that 4% SWR is a magic bullet guaranteeing 30 years of COLA'ed success 95% of the time going forward.  To highlight, the paper states:

Across the 132 different years with available data there are only 7 periods where the CAPE was above 20 and the yield on 10 year bonds was below 3.3% (1898, 1900, 1901, 1936, 2010, 2011, and 2012). Of these 7 periods only 4 occurred long enough ago so that we can test the sustainability of a retirement income strategy. We could, for example, use January 1937 as a proxy for what could happen, but this implicitly assumes a World War would commence roughly three years into the period. If we further restrict our bond yield to below 2.5% we only have two periods, 2011 and 2012, therefore we are definitely in relatively uncharted territory in terms of the potential implications of the impact for retirees.

Now, to cut to the conclusion, under current CAPE ~22 and bond yield of 2.0%, at an 80% equity allocation, a 4% SWR has a 55% probability of success, which is much lower than the original 95% the Trinity Study predicted.  Even more informative is Table 3 (copied): to get to an 80% success rate over a longer, 40 year retirement period SWR is predicted to be 2.1% (yikes!)

All I'm highlighting is, even Pfau is concerned that maybe the 4% rule is being misused in light of new research.

You should consider starting a new thread with this.  I don't think the importance of this research can be overstated.  Too many on this board are banking on 4% as a "sure" thing.
Title: Re: Doubting the stock market
Post by: kyleaaa on January 29, 2014, 01:33:11 PM
The 4% rule included many periods where stock valuations are higher than they are today. In short, 4% is the WORST CASE SCENARIO number. The actual safe withdrawal rate for most of modern stock market history has actually been much more than 4%. It all depends on where things stand the day you retire. Market returns the first year or two of your retirement will determine 90% of whether or not your portfolio will hold up over time. If, after a few years of bad returns, you are still young enough to go back to work for a few years, it really isn't going to be a problem for you. It's the 70 year olds who are screwed in that scenario. Mustachians will be fine.

That said, the 4% rule is explicitly only useful for 30 year retirements. That's part of the fine print. If you intend to be retired for more than 30 years, the 4% number is pretty meaningless. 3% is the generally accepted number for indefinite retirements.

No, a worst case scenario would be to actually put money into the account every year.  Your stocks could all go to $0 with a probability of 10^-x as x goes to infinity.  The 4% rules says you'll run out of money 5% of the time. 
If there are 1000 scenarios, that means 50 of them fail.  Additionally, a few percent of them come moderately close to failure.  If you wanted to do 60 years (30years twice), the probability of failure would be 5% + 5% times the withdrawal rate of those in the first scenario.  Obviously that's much more complicated, but just generically, I'd bet it'd be 6-7%. 
Or you could look at a 3% withdrawal rate.  Over 30 years, that might have .1% chance of failure.  But it might have 5% chance of resulting in lower than starting balance.  You could then look at those 50 outcomes and apply the 30 year rule to them at whatever that withdrawal rate is.  Then, you could calculate your new chance of failure.


In short, the 3% is just a piece-of-mind number.  The trinity study did look at various lengths of times and various withdrawal rates.  Based on the trinity study, a 3% withdrawal rate will maintain a positive balance ~100% of the time after 30 years.  Since someone retiring at 35 might need 60 years, they should look at that time frame.  The study didn't do 60 years, but I'm guessing success rate is still around 99%

You are missing the point. Everybody knows the Trinity study fixated on a 5% failure rate for the 4% number. That's common knowledge. I was correct in saying 4% represents the worst case scenario IN THE CONTEXT OF THE TRINITY STUDY. I swear, some people seem to take delight in intentionally taking things out of context. You are disagreeing with a statement I never made.
Title: Re: Doubting the stock market
Post by: kyleaaa on January 29, 2014, 01:34:46 PM
The 4% rule included many periods where stock valuations are higher than they are today. In short, 4% is the WORST CASE SCENARIO number. The actual safe withdrawal rate for most of modern stock market history has actually been much more than 4%. It all depends on where things stand the day you retire. Market returns the first year or two of your retirement will determine 90% of whether or not your portfolio will hold up over time. If, after a few years of bad returns, you are still young enough to go back to work for a few years, it really isn't going to be a problem for you. It's the 70 year olds who are screwed in that scenario. Mustachians will be fine.

That said, the 4% rule is explicitly only useful for 30 year retirements. That's part of the fine print. If you intend to be retired for more than 30 years, the 4% number is pretty meaningless. 3% is the generally accepted number for indefinite retirements.

You might want to check that.  The CAPE measurement has only been higher 3 other times in the past 130 years.  Each time was before a significant crash.

But regular old P/E ratios are well, well below historical highs and all the research shows PE10 isn't any better at predicting future returns than regular old PE. Conclusion: no reasonable conclusion is possible.
Title: Re: Doubting the stock market
Post by: Poorman on January 29, 2014, 01:54:55 PM
The regular old P/E is also high by pre-1990 historical standards.  It's only when you include the insane valuations of the 1990's and early 2000,s that today's regular P/E looks sane.  The P/E or P/E10 aren't predictive, but they do show a measurement of value and buying at the times when P/E is near historical lows has always yielded the best results.  Today is not one of those times.
Title: Re: Doubting the stock market
Post by: Eric on January 29, 2014, 02:10:56 PM
Why do people keep missing the point of the paper, I guess no-one has had time to read it.  4% SWR was generated during a history which has not seen a whole lot of sub-3% bond environments, especially when compounded with high Market valuation.  Please don't get complacent that 4% SWR is a magic bullet guaranteeing 30 years of COLA'ed success 95% of the time going forward.  To highlight, the paper states:

Across the 132 different years with available data there are only 7 periods where the CAPE was above 20 and the yield on 10 year bonds was below 3.3% (1898, 1900, 1901, 1936, 2010, 2011, and 2012). Of these 7 periods only 4 occurred long enough ago so that we can test the sustainability of a retirement income strategy. We could, for example, use January 1937 as a proxy for what could happen, but this implicitly assumes a World War would commence roughly three years into the period. If we further restrict our bond yield to below 2.5% we only have two periods, 2011 and 2012, therefore we are definitely in relatively uncharted territory in terms of the potential implications of the impact for retirees.

Now, to cut to the conclusion, under current CAPE ~22 and bond yield of 2.0%, at an 80% equity allocation, a 4% SWR has a 55% probability of success, which is much lower than the original 95% the Trinity Study predicted.  Even more informative is Table 3 (copied): to get to an 80% success rate over a longer, 40 year retirement period SWR is predicted to be 2.1% (yikes!)

All I'm highlighting is, even Pfau is concerned that maybe the 4% rule is being misused in light of new research.

You should consider starting a new thread with this.  I don't think the importance of this research can be overstated.  Too many on this board are banking on 4% as a "sure" thing.

I'm not quite sure this is all that new or groundbreaking.  I can't speak for everyone, but I thought it was widely understood that if the market has a large drop right after you retire, then the chances are that you'll have to make some adjustments (lower w/d rate, earn income, lower spending, etc) in order to make your money last.  They even show in Figure 1 how important the timing is.  And that's the pretty much the point of the article.  Stating that CAPE is high is guessing that the market is likely to return lower than average returns (i.e. market drops likely) and since bond yields are low, they're unlikely to pick up the slack.  However, they also state that this is generally an unprecedented time period as these two things aren't normally happening concurrently.

Quote
Across the 132 different years with available data there are only 7 periods where the CAPE was above 20 and the yield on 10 year bonds was below 3.3% (1898, 1900, 1901, 1936, 2010, 2011, and 2012). Of these 7 periods only 4 occurred long enough ago so that we can test the sustainability of a retirement income strategy. We could, for example, use January 1937 as a proxy for what could happen, but this implicitly assumes a World War would commence roughly three years into the period. If we further restrict our bond yield to below 2.5% we only have two periods, 2011 and 2012, therefore we are definitely in relatively uncharted territory in terms of the potential implications of the impact for retirees.

So I'm not sure how you read this and decide that the 4% rule of thumb is lacking anymore than you would read it and decide that it is.
Title: Re: Doubting the stock market
Post by: EscapeVelocity2020 on January 29, 2014, 02:26:49 PM
You should consider starting a new thread with this.  I don't think the importance of this research can be overstated.  Too many on this board are banking on 4% as a "sure" thing.
Thanks for the encouragement Poorman.  I have linked to the research and maybe inadvertantly hijacked the thread, but I'm a little nervous to start a new thread judging by how touchy this 4% number is :)  I think I'll leave it where it is.  I have my own thoughts on my own blog (EscapeVelocity2020.com).

I'm not quite sure this is all that new or groundbreaking.  I can't speak for everyone, but I thought it was widely understood that if the market has a large drop right after you retire, then the chances are that you'll have to make some adjustments (lower w/d rate, earn income, lower spending, etc) in order to make your money last.  They even show in Figure 1 how important the timing is.  And that's the pretty much the point of the article.  Stating that CAPE is high is guessing that the market is likely to return lower than average returns (i.e. market drops likely) and since bond yields are low, they're unlikely to pick up the slack.  However, they also state that this is generally an unprecedented time period as these two things aren't normally happening concurrently.

So I'm not sure how you read this and decide that the 4% rule of thumb is lacking anymore than you would read it and decide that it is.
It's not groundbreaking per se, but it opened up my eyes that retiring on 4% today for 40 years is only about a 50-50 bet.  I read the paper and came to the conclusion that the 4% rule of thumb is lacking, but that was my reaction and not yours I suppose. 
Title: Re: Doubting the stock market
Post by: Eric on January 29, 2014, 02:35:07 PM
It's not groundbreaking per se, but it opened up my eyes that retiring on 4% today for 40 years is only about a 50-50 bet.  I read the paper and came to the conclusion that the 4% rule of thumb is lacking, but that was my reaction and not yours I suppose.

Here's where they kind of lost me though.  They state that we're in unprecedented times.  Then they still use historic bond returns to calculate future bond returns.  Same with stocks and CAPE.  However, aren't these linked?^  I'm no expert, but it's my speculation that stocks are high because bonds yields are so low and only likely to go lower when interest rates creep up.  Also remember that CAPE can decrease by either prices coming down or earnings going up.  Obviously only one of those is bad for the investor.

^I see the chart where they say that they haven't been linked in the past, but again, this period is not like (m)any in the past.
Title: Re: Doubting the stock market
Post by: mpbaker22 on January 29, 2014, 02:56:36 PM
The 4% rule included many periods where stock valuations are higher than they are today. In short, 4% is the WORST CASE SCENARIO number. The actual safe withdrawal rate for most of modern stock market history has actually been much more than 4%. It all depends on where things stand the day you retire. Market returns the first year or two of your retirement will determine 90% of whether or not your portfolio will hold up over time. If, after a few years of bad returns, you are still young enough to go back to work for a few years, it really isn't going to be a problem for you. It's the 70 year olds who are screwed in that scenario. Mustachians will be fine.

That said, the 4% rule is explicitly only useful for 30 year retirements. That's part of the fine print. If you intend to be retired for more than 30 years, the 4% number is pretty meaningless. 3% is the generally accepted number for indefinite retirements.

No, a worst case scenario would be to actually put money into the account every year.  Your stocks could all go to $0 with a probability of 10^-x as x goes to infinity.  The 4% rules says you'll run out of money 5% of the time. 
If there are 1000 scenarios, that means 50 of them fail.  Additionally, a few percent of them come moderately close to failure.  If you wanted to do 60 years (30years twice), the probability of failure would be 5% + 5% times the withdrawal rate of those in the first scenario.  Obviously that's much more complicated, but just generically, I'd bet it'd be 6-7%. 
Or you could look at a 3% withdrawal rate.  Over 30 years, that might have .1% chance of failure.  But it might have 5% chance of resulting in lower than starting balance.  You could then look at those 50 outcomes and apply the 30 year rule to them at whatever that withdrawal rate is.  Then, you could calculate your new chance of failure.


In short, the 3% is just a piece-of-mind number.  The trinity study did look at various lengths of times and various withdrawal rates.  Based on the trinity study, a 3% withdrawal rate will maintain a positive balance ~100% of the time after 30 years.  Since someone retiring at 35 might need 60 years, they should look at that time frame.  The study didn't do 60 years, but I'm guessing success rate is still around 99%

You are missing the point. Everybody knows the Trinity study fixated on a 5% failure rate for the 4% number. That's common knowledge. I was correct in saying 4% represents the worst case scenario IN THE CONTEXT OF THE TRINITY STUDY. I swear, some people seem to take delight in intentionally taking things out of context. You are disagreeing with a statement I never made.

What are you talking about?  Do you know what the phrase worst case scenario means?  Do you know what SWR means?

You're saying that you could withdraw more than 4% in a lot of cases.  Yes, that's true, except you don't know which case you're in until quite a few years down the road.  For that reason, 4% is somewhat risky, because you'll fail 5% of the time.  So, no, 4% is not a worst case number.  It's a 95th percentile case number.
Title: Re: Doubting the stock market
Post by: EscapeVelocity2020 on January 29, 2014, 03:13:57 PM
Here's where they kind of lost me though.  They state that we're in unprecedented times.  Then they still use historic bond returns to calculate future bond returns.  Same with stocks and CAPE.  However, aren't these linked?^  I'm no expert, but it's my speculation that stocks are high because bonds yields are so low and only likely to go lower when interest rates creep up.  Also remember that CAPE can decrease by either prices coming down or earnings going up.  Obviously only one of those is bad for the investor.

^I see the chart where they say that they haven't been linked in the past, but again, this period is not like (m)any in the past.
I agree that de-linking is a debatable area of the paper, but the authors have pointed out that 2011 and 2012 are the closest analogies with representative historical data similar to today's environment, which doesn't give much retirement confidence interval!  They describe the de-linking and forecasting models, as to how they have gone about using the historic bond yield and stock return models to follow each historically, but individually.  I can't think of a better way they could have done it. 
Although low bond rates should generally correlate with high P/E (rational investors are supposed to expect a 'yield' from purchasing an index, or E/P, to be similar to what they would get risk free from a 30-year government bond), but this correlation is sometimes positive and sometimes negative.  There is too much noise around earnings growth and Fed policy to give anyone a clear picture of how these interact concurrently.  But we are currently at a point where the market is paying roughly twice as much for a company's earnings than what they would get risk free from Uncle Sam.  It seems most likely that bond rates will move up, and P/E stay the same or move down, but P/E is certainly the faster moving of the two, which adds a whole other layer of complexity of risk.
Title: Re: Doubting the stock market
Post by: chucklesmcgee on January 29, 2014, 03:37:41 PM
Yes, that's true, except you don't know which case you're in until quite a few years down the road.  For that reason, 4% is somewhat risky, because you'll fail 5% of the time.  So, no, 4% is not a worst case number.  It's a 95th percentile case number.

That's all assuming stock market returns fall somewhere within historical norms, which is exactly the assumption OP is criticizing. There is no sort of absolute rule or formal logic which says stock market returns must match anything close to what they have during the last ~100 something years. This time period has seen the US rise to the dominant global super power with extraordinary growth in population, standard of living, efficiency and economic output. There's no guarantee that the next 100 years will continue to see that unprecedented growth or prosperity. Stock market returns are not generated by randomly pulling a number out of a normal distribution, but we treat it like it's so when we perform these simulations. The market could well generate returns well below or above historic returns and these models offer no probability of this occurring.

Nevertheless, these simulations probably provide the best guess as to how a portfolio will perform, but keep in mind it's only a guess, and percentiles are all based on this assumption.
Title: Re: Doubting the stock market
Post by: arebelspy on January 29, 2014, 03:58:00 PM
EscapeVelocity, I appreciate your posts.  Thank you.

To me, anyone rigidly withdrawing a certain number, whether it's 2% or 4%, is acting foolishly.  A withdrawal plan ought to be flexible.
Title: Re: Doubting the stock market
Post by: Shor on January 29, 2014, 04:35:11 PM
Not only should your withdrawal plan be flexible to account for unexpected market conditions, but an early retiree would be well-advised to keep their entire retirement flexible.

Whether that means pursuing a side-gig, or re-entering the workforce. It's not ideal, sure, but you are retiring early early, and a lot can happen over the next 50 years, including outlasting your well-planned retirement fund.

I think some people are still a bit stuck on retirement being focused entirely on productivity dropping to 0. The much more likely route of success is that productivity goes towards that one hobby or interest you really want to pursue, turn it in to a side gig and now your withdrawal is supplemented by your side-gig income. Yes you had retired planning to draw down 4% but now you have 2% coming from the main-sidegig and a nice fat 2% withdraw for a year or two (or forever). Suddenly your chances are looking a bit better with more money in the stash and less coming out of it.

Or maybe we're all just going to retire as internet warrior hermit monks..
Title: Re: Doubting the stock market
Post by: thepokercab on January 29, 2014, 04:56:36 PM
Quote
I think some people are still a bit stuck on retirement being focused entirely on productivity dropping to 0. The much more likely route of success is that productivity goes towards that one hobby or interest you really want to pursue, turn it in to a side gig and now your withdrawal is supplemented by your side-gig income. Yes you had retired planning to draw down 4% but now you have 2% coming from the main-sidegig and a nice fat 2% withdraw for a year or two (or forever). Suddenly your chances are looking a bit better with more money in the stash and less coming out of it.

Or maybe we're all just going to retire as internet warrior hermit monks..

This for sure.  The 4% rule is a nice baseline, but the corollary to this is needing to have a safety margin.  Working a few more years full time, having side gigs, being able to adapt your lifestyle to economic conditions, maybe having a rental property, whatever it may be.  I've found this discussion interesting from an academic perspective, but in practice, i doubt many people are looking to to hit exactly 25 times their living expenses in investments, drop off the grid spending all their time playing X-Box and then hope that their money lasts them forever all while never adjusting their living expenses, or adding one additional dollar to the situation. 

Title: Re: Doubting the stock market
Post by: tooqk4u22 on January 30, 2014, 03:15:06 PM
The regular old P/E is also high by pre-1990 historical standards.  It's only when you include the insane valuations of the 1990's and early 2000,s that today's regular P/E looks sane.

The current PE is about 19 and the current CAPE is about 25.

Avg. of last 100 years is 16 and 16.5.

Avg of last 50 years is 18.7 and 17.1.

Avg of last 50 years excluding highest and lowest 10% is 19.8 and 19.

For me the last 100 years is not relevent as the financial world (access, leverage, etc) has changed so dramatically - you could argue this about 50 as well but that is enough to have an adequate sample.  Point is current PEs are not that out of whack when compared on a 50 basis but the CAPE is out of whack. 

Title: Re: Doubting the stock market
Post by: tooqk4u22 on January 30, 2014, 03:22:22 PM
What are you talking about?  Do you know what the phrase worst case scenario means?  Do you know what SWR means?


I think a good analysis would be to look at the scenarios/data sets for those years (the 5% of the time that they failed) and compare those points in time with today and see if there are any consistencies - maybe somebody has done this already. If there similarities across the failure scenarios and with today then that would be a big red flag - but if there none or vary few then it boils down to being highly and random and not having the ability to time/control/affect the outcome.

It might also better to run this data for the near failure periods (10%?) as the trinity study is for a 30 year retirement, not 40, 50, or 60 so those near failure periods may in fact be failure periods 5 years later.


Title: Re: Doubting the stock market
Post by: tooqk4u22 on January 30, 2014, 03:38:36 PM
Now, to cut to the conclusion, under current CAPE ~22 and bond yield of 2.0%, at an 80% equity allocation, a 4% SWR has a 55% probability of success, which is much lower than the original 95% the Trinity Study predicted.  Even more informative is Table 3 (copied): to get to an 80% success rate over a longer, 40 year retirement period SWR is predicted to be 2.1% (yikes!)

All I'm highlighting is, even Pfau is concerned that maybe the 4% rule is being misused in light of new research.

Escape - Good posts, I like the details and numbers.  To me this is an approriate way to discuss the validiity of the SWR and leans to my prior post of evaluating the times that it failed. One thing though is now bond rates are in the high 2% (10year US treasury) also longer bond or corporates with higher rates would presumably change the outcomes.

Maybe this this should be new thread topic - instead of a lot of it feelings (I feel that it works or won't blah blah blah) or blind love of the rule (countless studies and people have accepted and therefore I will to blah blah blah) lets dig deeper into substantiating it. 

Although I admit that it may need to be done by someone who has the time.
Title: Re: Doubting the stock market
Post by: sheepstache on January 30, 2014, 04:09:29 PM
What are you talking about?  Do you know what the phrase worst case scenario means?  Do you know what SWR means?


I think a good analysis would be to look at the scenarios/data sets for those years (the 5% of the time that they failed) and compare those points in time with today and see if there are any consistencies - maybe somebody has done this already. If there similarities across the failure scenarios and with today then that would be a big red flag - but if there none or vary few then it boils down to being highly and random and not having the ability to time/control/affect the outcome.

It might also better to run this data for the near failure periods (10%?) as the trinity study is for a 30 year retirement, not 40, 50, or 60 so those near failure periods may in fact be failure periods 5 years later.

I think--not to go further in a philosophical discussion because I take your point in your next post--that the likelihood of such conditions persisting is also taken into account.  The study is saying "The principle failed in n number of years."  And you're saying "The principle fails under conditions x."  But essentially the study is saying, "Conditions x occur in n number of years." 
Title: Re: Doubting the stock market
Post by: Jamesqf on January 30, 2014, 08:47:54 PM
I think some people are still a bit stuck on retirement being focused entirely on productivity dropping to 0.

Well, yes, people are stuck on that definition of reirement, because that's the definition of retirement.  The other is a career change.
Title: Re: Doubting the stock market
Post by: InmanRoshi on January 30, 2014, 10:03:08 PM
I think it's a bit of a fool's errand to think of new ways that "This time, it's different".    Not that it isn't different, but in that it's always different.   At any moment in time, there are/were/will be  unique global factors pushing and pulling on the market.   I don't necessarily know that past market eras were inherently more advantageous to invest in equities than they will be in future markets.    One could make a case that the market is currently overly-inflated thanks to QE, and one could also make the case that in previous decades the world economy was previously overly-deflated from the fact that huge swaths of the world's populace  were living in the economic stone ages.        There wasn't anything inherently wonderful about the overall world economy during the Cold War era when billions upon billions of people, just in China and India alone,  were living under communism or in rudimentary economies and contributing very little to wealth creation or consumer spending.   The current economies of India and China alone are still just a fraction of what they'll be by 2050.   That's a lot of potential Coca Cola drinkers that weren't there in past decades. 

The only thing I do know is that if you want to publish a book and get on TV making financial predictions, the  worst thing to do is claim that the market is going to follow the modest gains of historical averages.   Thus, I try to not listen to people on TV or selling books.   Every year Jim Rogers goes on Fox Business or CNBC  and predicts that the entire US/Fed house of cards is going to collapse, and to pull all of your capital out of stocks.   Law of averages says he's going to be right one year and the market is going to take a beating, and everyone is going to have him on TV every five minutes to discuss how he's a financial Nostradamus.  But if you would have listened to him last year, you would have missed out on a year where the S&P 500   returned ~30%.
Title: Re: Doubting the stock market
Post by: AtlStash on February 01, 2014, 01:24:37 PM
There are no sure things in life. Anyone that sets withdrawal at 4% and never looks back is asking for trouble. This is especially true if you spend all of your 4%. Spending 100% of your 4% is just as irresponsible as spending 100% of your current salary.
Title: Re: Doubting the stock market
Post by: Left on February 01, 2014, 03:25:13 PM
hm about the 4% rule... not that I have a problem with it, but from the papers I've been reading on it lately, the 4% rule is applied to 50/50 stock/bond mix... how does it hold up to an 80/20 ratio or anything other than 50/50? I haven't found any studies on this but I don't really know what to search for except safe withdrawal rate and 4%
Title: Re: Doubting the stock market
Post by: Eric on February 01, 2014, 06:12:47 PM
hm about the 4% rule... not that I have a problem with it, but from the papers I've been reading on it lately, the 4% rule is applied to 50/50 stock/bond mix... how does it hold up to an 80/20 ratio or anything other than 50/50? I haven't found any studies on this but I don't really know what to search for except safe withdrawal rate and 4%

Here's a link to the updated Trinity Study.  It's where the 4% "rule" originally came from.

http://www.fpanet.org/journal/CurrentIssue/TableofContents/PortfolioSuccessRates/
Title: Re: Doubting the stock market
Post by: EscapeVelocity2020 on February 01, 2014, 06:15:47 PM
I think some people are still a bit stuck on retirement being focused entirely on productivity dropping to 0.

Well, yes, people are stuck on that definition of reirement, because that's the definition of retirement.  The other is a career change.
Thanks James.  I fully intend to retire early without depending on an income-producing hobby or part-time job, otherwise I would be considering it as a career change.  If I wanted a career change, I could have done that years ago when I was semi-FI.  My main plan is to pursue volunteering and charity work, domestic, and international travel, exercise and read, and possibly pursue courses in Economics.  I do not plan on buying RE or keeping up a regular job, I would prefer to work just as long as it takes to hit whatever magical number my lifespan requires to provide an inflation adjusted 40,000 a year lifestyle.  I could just as easily work 5-10 more years and save up a second million (assuming the markets cooperate over that time).  I'm going to be disappointed if I retire, hit a bear market 5 years in, not have an appreciable income from bonds, and end up living off of 20,000 a year for 5 years waiting for my portfolio to recover.  I'll also be disappointed if I'm 70 years old, have millions of extra dollars that I'll never spend, and have essentially 'wasted' that 5-10 extra years working.  As they say, no-one is on their deathbed bragging they had worked a few more years than they needed to.
I am at a point where I have all of the pieces in place to make a decision, and suddenly realize how difficult it is.  I'm blogging about it as I work through if I am retiring too early, but also justifying to myself that early retirement can be  an optimal and efficient decision (because of RMD's, taxes, ACA, etc. which become inefficient if you didn't need a huge portfolio to meet your spending). 
When people say, meh, this 4% rule is as good as it gets and I'll just go back to work if the market tanks, I wonder what those people would do if they met their net worth goals and were deciding today if they should retire early.  I'm guessing they just plan to worry about this later.  Will we all have 'one more year syndrome'?  With all of the research I'm doing, early retirement is a growing but still fairly new trend.  It turns out that most people still have retirement happen to them, there's a clear moment (death in the family, health issue, IPO windfall, etc.).  Most people don't have a good job and are waltzing along, but decide they have 'enough' and make the decision themself to retire...  I do think that professionals in the generations ahead will have more and more opportunities to pursue early retirement if they choose, and that this 4% rule will be very important to understand.  For now, I think we're in a bridge period where 30 and 40 year old early retirees have just about a workable 4% SWR, but do a career change downshift (to landlord, blogging, etc.).  That's cool too, but it isn't my plan. 
Title: Re: Doubting the stock market
Post by: bk1 on February 01, 2014, 07:16:17 PM
I have my doubts about the stock market. It seems like a rigged game sometimes. However, if the game is rigged sometimes the only thing you can do is play along. That is my strategy for this year anyway. Less in cash, more in stock market investment.

I had been thinking I would try to accumulate cash then look at real estate investing like rental properties etc. I just don't know how to get started in that area. That seems more real to me that stock market investing.

When you really look at the stock market, it seems like it's Las Vegas. You can bet for/against but it's the house that comes out ahead.
Title: Re: Doubting the stock market
Post by: dadof4 on February 03, 2014, 11:14:09 AM
When you really look at the stock market, it seems like it's Las Vegas. You can bet for/against but it's the house that comes out ahead.
The question then becomes, when investing are YOU the house, or the patsy?

Historically speaking, on average you will come out ahead in the stock market - which is exactly how the house makes money in Vegas.
Title: Re: Doubting the stock market
Post by: req897 on February 03, 2014, 11:30:56 AM
I struggle with this as well. I know historically what the stock market has done. However, never before have we been running this kind of debt totals as a country with no end in sight. Also, the fed buying up all this debt just doesn't seem right as they pretty much create the funds to buy the debt from nothing.

The whole stock market seems kind of like a big casino sometimes. You can bet this will go up, or bet that will go down. It seems like a game that we are almost forced to play.

At this point, I'm playing the game because although the game seems rigged, it's the only game in town.

You're pretty much correct. The stock market is a giant gamble that goes through boom and bust cycles along with our economy. We're in a boom right now, and we're nearing the peak. The Fed has already started reducing Quantitative Easing and our markets have did not do as well in January as a result. This of course makes sense. QE is the main reason, along with 0% interest rates, our boom appeared after the '08 crash. By continuously injecting more money into the economy, money becomes available for more loans and more financial trades. With less money, we can't have as many loans or trade as much in the markets, which directly reflects the stock market not doing as well last month.

When you see the fed begin to raise interest rates, get ready for our next recession. My prediction is '16 if we're lucky, '15 if we're not, right in time for Obama to be leaving office and the next president to be able to campaign on promising change. We have had 25 recessions according to wiki since '29, and in each case you will see the fed manipulating interest rates within the year prior to the market going down. This happens without fail.

These boom and bust cycles have one primary lasting affect, making the middle/lower class poorer while making the rich richer. After each recession after all is the best time to invest, prices are at a low point, but only the rich have enough money to invest much. The rich are also more aware of when the bust is about to happen and tend to withdraw their money from the market before the bust, shielding themselves from the losses that the majority endure.

Oh but this is just one part of it. The stock market is vastly manipulated by the major banks and prominent financial advisers. Advisers for example can greatly affect the stock market by their spreading of fear/hope, i.e. their influence on the public's speculation. You are playing their game, you are just an ant compared to the tank they use to steer the market how they want, when they want.

This is why I like the forex market much more. Banks and advisers cannot manipulate the market nearly as easily as it is a global market and trades several times the amount of volume than our rather small stock market. Forex is decentralized and while it is of course still speculative, no group of financial institutions can make huge changes in the market the way they can in the stock market.
Title: Re: Doubting the stock market
Post by: Jamesqf on February 03, 2014, 11:53:07 AM
As they say, no-one is on their deathbed bragging they had worked a few more years than they needed to.

I don't know about that.  I think that if you bothered to look, you'd find lots of people who work more years than they need to, simply because they enjoy their work and/or like to be productive.  Indeed, I'm arguably one of them.  Thing is, instead of having to work the daily 8-5 (or sometimes 8-midnight if you're in software) grind doing boring stuff, we use our increasing FI to do stuff we like, on our own schedule.
Title: Re: Doubting the stock market
Post by: AccidentalMiser on February 03, 2014, 12:25:03 PM
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That's some funny shit, man!  I about fell out of my chair! 
Title: Re: Doubting the stock market
Post by: arebelspy on February 03, 2014, 01:11:39 PM
When you really look at the stock market, it seems like it's Las Vegas. You can bet for/against but it's the house that comes out ahead.
The question then becomes, when investing are YOU the house, or the patsy?

Historically speaking, on average you will come out ahead in the stock market - which is exactly how the house makes money in Vegas.

This.  You become the house when you buy and hold.

I struggle with this as well. I know historically what the stock market has done. However, never before have we been running this kind of debt totals as a country with no end in sight. Also, the fed buying up all this debt just doesn't seem right as they pretty much create the funds to buy the debt from nothing.

The whole stock market seems kind of like a big casino sometimes. You can bet this will go up, or bet that will go down. It seems like a game that we are almost forced to play.

At this point, I'm playing the game because although the game seems rigged, it's the only game in town.

You're pretty much correct. The stock market is a giant gamble that goes through boom and bust cycles along with our economy. We're in a boom right now, and we're nearing the peak.

In the short term, the stock market is like gambling.  The house (market) or the player (you) can win.  Or lose.  It's pretty random and it's gambling.

In the long run, in gambling, the house wins, as they have a mathematical edge and it eventually plays out.  If you're the casino, you may lose in the short run.  But wait.  You'll win in the end.

In the stock market, when you buy stocks, you may lose in the short run.  But wait.  You'll win in the end (because those stocks will go up, as they're based on ownership of the companies).

Be the house by buying and holding and letting your long term mathematical edge win.  Don't try to gamble and win in the short run.
Title: Re: Doubting the stock market
Post by: EscapeVelocity2020 on February 04, 2014, 07:26:55 AM
As they say, no-one is on their deathbed bragging they had worked a few more years than they needed to.

I don't know about that.  I think that if you bothered to look, you'd find lots of people who work more years than they need to, simply because they enjoy their work and/or like to be productive.  Indeed, I'm arguably one of them.  Thing is, instead of having to work the daily 8-5 (or sometimes 8-midnight if you're in software) grind doing boring stuff, we use our increasing FI to do stuff we like, on our own schedule.

Right again.  I did a horrible job of paraphrasing the top 5 regrets that a palliative care nurse (Bonnie Ware) said people expressed on their deathbed.  So yes, there are plenty of people that don't regret working more or harder than they felt they needed to, it's just one of the common regrets people had expressed, along with: not living a life true to oneself, not having the courage to express one's feelings, losing touch with friends, and not allowing oneself to be happier.   
http://www.care2.com/greenliving/top-5-regrets-people-have-on-their-deathbed.html

Title: Re: Doubting the stock market
Post by: bk1 on February 07, 2014, 09:19:08 PM
I agree with what you guys are saying with if you look at history, you may lose in the short term in the stock market but long term gains are certain.

I just don't know any more given the way things like the federal reserve printing money to buy up US debt etc is going on. There just isn't a historical comparison for that. At least not one that looks good. It just seems so arbitrary when there is a hint of the fed reducing their buying of debt then stocks go down. How does that make a company suddenly worth less?
Title: Re: Doubting the stock market
Post by: soccerluvof4 on February 08, 2014, 05:54:17 AM
As they say, no-one is on their deathbed bragging they had worked a few more years than they needed to.

I don't know about that.  I think that if you bothered to look, you'd find lots of people who work more years than they need to, simply because they enjoy their work and/or like to be productive.  Indeed, I'm arguably one of them.  Thing is, instead of having to work the daily 8-5 (or sometimes 8-midnight if you're in software) grind doing boring stuff, we use our increasing FI to do stuff we like, on our own schedule.


Very good read! and I read some of your blog and find I share alot of the same insights.

Right again.  I did a horrible job of paraphrasing the top 5 regrets that a palliative care nurse (Bonnie Ware) said people expressed on their deathbed.  So yes, there are plenty of people that don't regret working more or harder than they felt they needed to, it's just one of the common regrets people had expressed, along with: not living a life true to oneself, not having the courage to express one's feelings, losing touch with friends, and not allowing oneself to be happier.   
http://www.care2.com/greenliving/top-5-regrets-people-have-on-their-deathbed.html