Author Topic: Retire Early Homepage on Wade Pfau  (Read 3600 times)

dude

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Retire Early Homepage on Wade Pfau
« on: July 08, 2014, 10:29:03 AM »
Discussing Pfau's claim that the 4% SWR needs to be downgraded to 3%:

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

RoseRelish

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Re: Retire Early Homepage on Wade Pfau
« Reply #1 on: July 08, 2014, 10:48:43 AM »
Wow. Very stupid. Of course the 4% rule doesn't hold if you're giving away 1% in fees.

arebelspy

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Re: Retire Early Homepage on Wade Pfau
« Reply #2 on: July 08, 2014, 05:27:08 PM »
Wow.

I lost a lot of respect for the RetireEarlyHomepage website from that link.

Quote
A Retire Early reader sent me this CNN Money Magazine article touting Wade Pfau's "research" a while back. Dr. Pfau, is a "professor of retirement income" at something called the American College for Financial Services. The American College provides "professional training to all types of financial practitioners". Presumably they have an interest in maintaining a high level of fee & commission income to the profession.

First of all, if you don't know who Pfau is, clearly you haven't looked at any ER literature in the last 5 years or so (which may not sound like a lot, but it is, considering most ER research started 15-20 years ago, a LOT has been done in the past five years).

Second of all, putting the word "research" in quotes is just rude.  Pfau does damn fine work.

I agree with their conclusion, that a 1% fee reduces a 4% SWR to 3%, and one should take fees into account when planning their SWR.

But the snark and lack of knowledge displayed there was pretty shocking, as I've always thought highly of that website/author. Disappointing.
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Nords

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Re: Retire Early Homepage on Wade Pfau
« Reply #3 on: July 14, 2014, 06:40:19 PM »
But the snark and lack of knowledge displayed there was pretty shocking, as I've always thought highly of that website/author. Disappointing.
Greaney has a curmudgeonly side that he usually hides pretty well, but this time he clearly has no idea who Wade Pfau is or what he's done.  Other than that Wade has been savaged by a well-known troll (whose name I won't mention here) whom Greaney already spends an unhealthy percentage of his retirement time mocking.

Greaney only updates his site four times per year now, and I think he could've skipped this one.

Both Greaney and Greenspun appear to be turning into guys who did an outstanding job of achieving ER, but who seem to have fallen a little flat on the lifestyle aspects. 

defenestrate

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Re: Retire Early Homepage on Wade Pfau
« Reply #4 on: July 14, 2014, 08:49:23 PM »
I believe that the research is absolutely valid, especially if you follow the underlying investment advice. If you put 50% of your "stash" into 10yr govt bonds at less than 3% return, you will have a hard time beating inflation if the assumption for inflation stands at 3%. If, on the other hand, you understand that treasuries are not a great place to park your money unless  your stakeholders demand absolute safety, you could get almost as much safety by investing in a basket of corporate bonds and almost double the return on your bond portfolio.

Another assumption to challenge is the inflation number. When returns are expected to be low, inflation is likely to follow suit--look at the inflation numbers since 2008, they have surpassed 3% only once. If inflation were to rise, so would the treasury rate as we know our central bank loves to manipulate the treasury rates to fight inflation.

If you only need 3% of your stash to retire, it probably also makes sense to have a far more aggressive portfolio, and hold whatever reserve you need in cash, near cash, or investments that are far less volatile, like real estate (unencumbered of course). Another way is to purchase some deep out of the money protective puts on the stock portfolio, which may cost less then the opportunity cost of holding 10yr treasuries.

Again, the big problem with this research is that it assumes that the individual investing the money cannot think of any appropriate hedge to systemic market risk. Most of us can and do--even unwittingly do this.

The most important insight is that no one has yet been a great predictor of market returns, as most of the predictions are backward looking, or fail to consider all the macro trends going on in the world. I think this research falls into the same trap. What we all need to do is ensure that within our investment strategy, we have thought through how to act in the worst case scenario--and understand that markets change rapidly, so a loss of 50% today, may not take too long to recover if we have prepared for such a storm.