Author Topic: Stop worrying about the 4% rule  (Read 880886 times)

TomTX

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Re: Stop worrying about the 4% rule
« Reply #1950 on: March 22, 2021, 08:47:49 PM »

In addition to the sequence of the returns, another factor would be inflation.  That chart looks like nominal returns, but it is real returns that usually matter when people go to calculate SWRs, because the usual method is to adjust spending for inflation.  A more useful chart would be the supported SWR compared with real rates of return.

I concur. That would be a useful chart.

Must_ache

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Re: Stop worrying about the 4% rule
« Reply #1951 on: April 13, 2021, 08:46:39 PM »
Here's a useful chart:

https://i2.wp.com/www.philosophicaleconomics.com/wp-content/uploads/2013/12/linearavg1.jpg

Historically, the higher the percentage of all US assets that are equities, the lower the ensuing 10-yr return. 

https://fred.stlouisfed.org/graph/?g=qis

We are sitting on a ratio of 0.476 which was only higher in the last 60 years during the 1998-2000 bubble.  The formula (which has an R^2 of 0.91) tells us to expect a 1% return over the next decade.  You can quote the historical performance of the market as some high single-digit number, and the graph would agree, but it would tell also to tell you to cancel that expectation for the next ten years.

https://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/

boarder42

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Re: Stop worrying about the 4% rule
« Reply #1952 on: May 19, 2021, 06:44:57 PM »
Here's a useful chart:

https://i2.wp.com/www.philosophicaleconomics.com/wp-content/uploads/2013/12/linearavg1.jpg

Historically, the higher the percentage of all US assets that are equities, the lower the ensuing 10-yr return. 

https://fred.stlouisfed.org/graph/?g=qis

We are sitting on a ratio of 0.476 which was only higher in the last 60 years during the 1998-2000 bubble.  The formula (which has an R^2 of 0.91) tells us to expect a 1% return over the next decade.  You can quote the historical performance of the market as some high single-digit number, and the graph would agree, but it would tell also to tell you to cancel that expectation for the next ten years.

https://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/

That's based on a single asset class of large growth. The ensuing decade that followed the dotcom collapse saw small cap value return over 13% annualized.