Safe Withdrawal Rate versus P/E10 Data

Research on Safe Withdrawal Rates

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peteyperson
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Post by peteyperson »

Umm.. okay. Hocus..

There seems to be a sudden arrogance in both your posting style and words chosen, hocus. Shockingly so.

The discussion I have been having with John has been fairly seperate to the main discussions going on here or anywhere else. These include contributions from Ben Solar before my time, I understand. John is taking some of my recent ideas (which I note in past posts in February that John suggested himself but that now John graciously notes are my ideas) to work on the benefits of a cash reserve and other capital preservation strategies.

John's recently posts in tandem with my own have been exploring this in various ways. I don't see them as John's nor my own, I certainly don't see them as yours, hocus, either.

You seem to take a triumphant view of SWR and wax lyrically about the whole issue, alternating from long replies to curt " read the book " type responses which rattled a number of people I'm sure.

This is not a one man solution creator with a bunch of willing disciples. We have nothing to thank you for. It is a joint effort and I don't count one person above another. You seem to view yourself as in need of appreciation and thanks. I think the kudos, should any be due, is shared throughout the community.

Petey
hocus wrote:Does the fact that I think hocus has his head up one of his softer apertures on many of these points explain my behavior at all?

It's over, Wanderer.

You described the JWR1945 post as "outstanding work." That post states that: "It is likely that these results will be sufficient to prove hocus's hypothesis to a large extent." The claims that I put forward were important claims and those claims have been vindicated.

Asked to amplify, JWR1945 stated: "This means that the worst is over. We will be able to proceed. When people demand that you provide an answer as part of asking a question (as absurd and obnoxious as that may be), you will be able to hand them that answer. The numbers will be mathematically correct. We now know that P/E10 is an excellent indicator, suitable for the kinds of strategies that you have hinted about in the past "

A numbers guy has studied the data closely. He found that the data says what I said it said all along. No one else had ever said it. I did. I was right. I told the FIRE community the truth about SWRs and it was an important truth to tell.

Everyone benefits from the insight. I provided the insight. That's what happened. There's no charge. But a "thank you" would be nice.
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Post by peteyperson »

Hocus,

I think this is the kind of slightly snearing, slightly insulting post that made you unpopular before. Your posts alternate between wanting thanks to talking of a community and not just you. You really should make your mind up young man!

I had my own reasons for not jumping into a series on arguements on the REHP board. I don't have to share them with you, nor do I need to defend myself against your charges that I didn't help you. To some extent, you created the problems for yourself, to some extend others did. It isn't my role to bail you out when you get in deep water. It never was.

I cannot make out your inconsistencies at all.

Petey
hocus wrote:If you think it is taking too long to make progess on this matter, you might want to do something about the problems that are making it take so long. You had lots of opportunities to help out diring the time when we posted together over at the REHP board, and I don't recall you stepping forward very often and asking people to knock off the funny business. It's a community, Petety. What we all get out of it is largely a function of what we all put in. I've put in my share, and then some, and then some more. There is not one other poster who has worked this one-tenth as hard as me, or who has had to take one-tenth of the grief for doing so.

I'll be back. I'll do the work that needs to be done here. But over the next six months there will be an opportunity for some others like yourself to step forward and grab the bull by the horns. We need more people working this, so I hope you increase your level of activity. This should not be a one-man show. One reason why it has taken so long to push ahead on this is the fact that it has largely been a one-man show until now (with some significant exceptions, but not nearly enough of them).

You want something done on this, you get about the business of doing it, Pete. I'm with you all the way. It is simply not healthy that the attitude has developed in the FIRE community that if anything is ever going to be done to improve the accuracy of SWRs, it must be done by hocus. It can't work that way. It needs to be a community effort. It needs to be more than just that one voice all the time. I'm sick of hearing hocus post on this subject. I don't want to think about the reactions others have when they see my screen-name appear in connection with the SWR issue.

It's a good thing that I am taking my leave of this for six months. We need fresh voices speaking up on this matter. I hope yours is one of them, Pete.
Last edited by peteyperson on Fri Jul 25, 2003 11:32 am, edited 2 times in total.
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Post by peteyperson »

Hocus,

I have to point out that I went away from the boards and did my own reading, research, analysis and private thinking. I started with the historical data and analysis of different kinds of investing approaches. I came back to the issue of retirement funding, withdrawal analysis with new thoughts based on the new information and depth of knowledge I had then acquired.

This has been a gradual education for me over the last couple of years starting with books solely on various aspect of basic personal finance and then moving onto the stock market investing. The education is substantial and ongoing. It was not started because you, hocus, started me on it. I didn't decide intercst's study was wrong, I've been looking anew at the information out there based on what I've learned reading Bogle, Buffett and others. I cast a cautious eye over what is being postulated, consider it all with a fresh approach which led to some posts in that vain which John R. has grasped onto. I moved to ES's board because I saw that the discussion on REHP only covered a restricted selection of investments, investment approaches and a single approach/flexible answer to SWR issues. I prefer a broader exploration.

So I'm sorry but I reject your claim or impression that you have created a movement or collapsed intercst's work in some way. For me, the jury is still out on the validity of intercst's study. I'm more interested in working in the community to analyse everything fresh and see what results can be deduced. That way I know the various results are solid and I understand how they were generated. This why I've been keen to steer John in a direction where I don't get lost inside his maze of formulas & tables and we can get meaningful results that everyone will understand. It is less important to me whose study is right or wrong, what interests me is what the right approach to take is and what can be accomplished. Most of the progress I see on the nofee boards is coming from other posters rather than you. This makes your request for a thank you even more ridiculous and frankly insulting to everyone who contributed thus far.

There is no finish line or gold medal aworded on SWR and FIRE issues. There is no final score or victor. Not running out of funds during FIRE, understanding the risks / weak points on your FIRE plan and seeing the subject advance sufficiently are some of the goals as I see them. You seem utterly confused on any number of these points.

Respectfully,
Petey
hocus wrote:Everyone benefits from the insight. I provided the insight. That's what happened. There's no charge. But a "thank you" would be nice.
Last edited by peteyperson on Fri Jul 25, 2003 11:35 am, edited 1 time in total.
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Post by JWR1945 »

hocus
From looking at your posts above, it appears to me that the potential of this tool is breathtaking. We are talking about something that could provide benefits worth $100,000 to a single aspiring early retiree, are we not? Multiply that by 10,000, and you have a big number. Am I right in having these sorts of expectations for what this tool can deliver?
It's even better than that. Look at these two paragraphs (out of sequence):
For stocks at high valuations, but within the historical range, the P/E10 varied from 17.0 to 27.0. With 50% stocks you can plan to withdraw 3.8% (gross, before taxes) safely. With 80% stocks you can plan to withdraw 4.0% (gross, before taxes) safely.
If stocks were to return to normal valuation, the P/E10 would range between 11.4 and 16.7. It is reasonable to expect something like this within the next decade. With 50% stocks you can plan to withdraw 4.6% (gross, before taxes) safely. With 80% stocks you can plan to withdraw 5.6% safely...provided that stocks return to their normal valuations (i.e., P/E10 is 16.7 or lower) some time in the future.
Someone might be planning on a withdrawal rate just below 3.8% today with a stock allocation of 50%. He would select the lower stock allocation because of risk. There is little upside potential compared to the downward risk. Valuations are just outside of the historical range.

When stocks return to their normal P/E10 level, that same person could reasonably increase his exposure to stocks because risk and reward are balanced better. If he were to increase his exposure from 50% to 80%, he could increase his withdrawal rate from 3.8% to 5.6% while maintaining a high degree of safety.

By using P/E10 as a course valuation tool (i.e., identify high, middle and low valuations), we can increase our exposure to stocks as well as increase our withdrawal rate. The ratio of 5.6% to 3.8% is 1.47. This means that you can increase your withdrawals to 1.47 of your original amount. Alternatively, this means that your initial balance can be reduced by the ratio of 3.8% to 5.6% or 1/(1.47) or 0.68. If financial independence requires you to have a starting balance of $800K today, you will only need $800K*0.68 = $544K (plus an adjustment for inflation) when stocks become fairly valued.

I hope that this helps brighten everybody's day. I hope that peteyperson sees an opportunity regarding cash buffer management.

Have fun.

John R.
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Post by peteyperson »

John,

Could you break down your results analysis so I can see where you're getting your information from. Just staring at your tables doesn't do much for me. It would be helpful to see it laid out much as I did in how I calculated my math.

I need to be able to understand the data, where it comes from, how it is put together enough to plug it into my personal spreadsheets as I did before to generate my numbers dependent on the allocation. Right now I can't do that.

Treat me like I'm stupid and lay it out step by step. If I can understand Bogle I can understand you, but not from what you've posted so far with some long tables.

Thanks mate.

Petey
JWR1945 wrote:hocus
From looking at your posts above, it appears to me that the potential of this tool is breathtaking. We are talking about something that could provide benefits worth $100,000 to a single aspiring early retiree, are we not? Multiply that by 10,000, and you have a big number. Am I right in having these sorts of expectations for what this tool can deliver?
It's even better than that. Look at these two paragraphs (out of sequence):
For stocks at high valuations, but within the historical range, the P/E10 varied from 17.0 to 27.0. With 50% stocks you can plan to withdraw 3.8% (gross, before taxes) safely. With 80% stocks you can plan to withdraw 4.0% (gross, before taxes) safely.
If stocks were to return to normal valuation, the P/E10 would range between 11.4 and 16.7. It is reasonable to expect something like this within the next decade. With 50% stocks you can plan to withdraw 4.6% (gross, before taxes) safely. With 80% stocks you can plan to withdraw 5.6% safely...provided that stocks return to their normal valuations (i.e., P/E10 is 16.7 or lower) some time in the future.
Someone might be planning on a withdrawal rate just below 3.8% today with a stock allocation of 50%. He would select the lower stock allocation because of risk. There is little upside potential compared to the downward risk. Valuations are just outside of the historical range.

When stocks return to their normal P/E10 level, that same person could reasonably increase his exposure to stocks because risk and reward are balanced better. If he were to increase his exposure from 50% to 80%, he could increase his withdrawal rate from 3.8% to 5.6% while maintaining a high degree of safety.

By using P/E10 as a course valuation tool (i.e., identify high, middle and low valuations), we can increase our exposure to stocks as well as increase our withdrawal rate. The ratio of 5.6% to 3.8% is 1.47. This means that you can increase your withdrawals to 1.47 of your original amount. Alternatively, this means that your initial balance can be reduced by the ratio of 3.8% to 5.6% or 1/(1.47) or 0.68. If financial independence requires you to have a starting balance of $800K today, you will only need $800K*0.68 = $544K (plus an adjustment for inflation) when stocks become fairly valued.

I hope that this helps brighten everybody's day. I hope that peteyperson sees an opportunity regarding cash buffer management.

Have fun.

John R.
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Post by BenSolar »

JWR1945 wrote:We now know that P/E10 is an excellent indicator, suitable for the kinds of strategies that you have hinted about in the past. As an aside, it is highly likely that BenSolar's valuation based allocation changes would have enhanced calculated Safe Withdrawal Rates dramatically if it weren't for the masking effect of the 1881-1920 anomalies
I don't think that eliminating the 1871-1920 data would have improved my results much, John.

If my memory serves me correctly, then the years that set the SWR in those studies were the mid 1960s. The middling high valuations seen in the 60s and 70s weren't so terrible, in my view, but the inflation that came along with the over-correction in valuation to extended periods of undervaluation wreaked some serious havoc.

Of course more sophisticated allocations and switches into something other than commercial paper would likely have fared better, but the simple PE-10 based switch using only S&P500/Commercial paper didn't fare particularily well in those tough times.
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Post by peteyperson »

With high inflation likely comes high interest. Wouldn't you switch a large part of your commercial paper to cash investments that track high interest rates more readily?

I remember with 18% inflation here came 15% interest rates the last time around.

Petey
BenSolar wrote:
JWR1945 wrote:We now know that P/E10 is an excellent indicator, suitable for the kinds of strategies that you have hinted about in the past. As an aside, it is highly likely that BenSolar's valuation based allocation changes would have enhanced calculated Safe Withdrawal Rates dramatically if it weren't for the masking effect of the 1881-1920 anomalies
I don't think that eliminating the 1871-1920 data would have improved my results much, John.

If my memory serves me correctly, then the years that set the SWR in those studies were the mid 1960s. The middling high valuations seen in the 60s and 70s weren't so terrible, in my view, but the inflation that came along with the over-correction in valuation to extended periods of undervaluation wreaked some serious havoc.

Of course more sophisticated allocations and switches into something other than commercial paper would likely have fared better, but the simple PE-10 based switch using only S&P500/Commercial paper didn't fare particularily well in those tough times.
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Post by BenSolar »

peteyperson wrote:With high inflation likely comes high interest. Wouldn't you switch a large part of your commercial paper to cash investments that track high interest rates more readily?

I remember with 18% inflation here came 15% interest rates the last time around.
The commercial paper will track the high interest rates. But 18% inflation and 15% interest is a losing proposition - eh? Negative 3% real interest.

If I recall correctly, when inflation kicked up over here, inflation was higher than the interest rates for a good stretch, then inflation calmed, and interest rates were higher than inflation for a bit. However that later phase was after the stocks dropped, so you would have been back primarily in stocks by then.

The big drop in stocks within that period occured in 1972-1974, and they occurred from PE-10 of only 18.6. It's tough to say you'd be significantly out of stocks at that level - so you're going to be getting hit. Then they stayed at low valuations (under PE-10 of 12) until 1986!

Very tough period. Having a bit of gold / mining stocks would have been a significant help, IINM.
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Post by JWR1945 »

BenSolar wrote:The big drop in stocks within that period occurred in 1972-1974, and they occurred from PE-10 of only 18.6. It's tough to say you'd be significantly out of stocks at that level - so you're going to be getting hit. Then they stayed at low valuations (under PE-10 of 12) until 1986!
These are the three groups of years listed according to years. Remember that all valuations are for January:

These are the 20 years with the lowest values of P/E10.
P/E10 varied from 5.1 to 11.4.

1921, 1922, 1923, 1924, 1925,
1926, 1932, 1933, 1935, 1942,
1943, 1944, 1948, 1949, 1950,
1975, 1976, 1978, 1979, 1980.

These are the 20 years with the middle values of P/E20.
P/E10 varied from 11.4 to 16.7.

1927, 1931, 1934, 1938, 1939,
1940, 1941, 1945, 1946, 1947,
1951, 1952, 1953, 1954, 1955,
1957, 1958, 1971, 1974, 1977.

These are the 20 years with the highest values of P/E10.
P/E10 varied from 17.0 to 27.0.

1928, 1929, 1930, 1936, 1937,
1956, 1959, 1960, 1961, 1962,
1963, 1964, 1965, 1966, 1967,
1968, 1969, 1970, 1972, 1973.

You would have minimal stock holdings from 1959 through 1973. You would have increased them in 1974. Stocks fell to bargain levels in 1975 and 1976. Remember that the month is January of the year shown.

A P/E10 of 18.6 is high by historical standards.
BenSolar wrote:If my memory serves me correctly, then the years that set the SWR in those studies were the mid 1960s. The middling high valuations seen in the 60s and 70s weren't so terrible, in my view, but the inflation that came along with the over-correction in valuation to extended periods of undervaluation wreaked some serious havoc.
Your memory has been influenced by the earlier period, with the 1881-1920 anomaly. The end of the 1800s were good times for starting retirements but they also had high values of P/E10. The 1960s and early 1970s were bad times for starting retirements and they had high values of P/E10. If the previous study had been restricted to the current era, your allocation shifts would have been much more beneficial.

Absent proof to the contrary, I stand by my hypothesis: using your approach (shifting allocations according to P/E10), the calculated safe withdrawal rates would have been much higher, dramatically so, if it were not for the effects of the 1881-1920 anomaly.

Have fun.

John R.
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Post by JWR1945 »

BenSolar wrote:The big drop in stocks within that period occurred in 1972-1974...
These are the January index values (real prices, truncated):

1970 403 (P/E10 = 17)
1971 396 (P/E10 = 16)
1972 424 (P/E10 = 17)
1973 469 (P/E10 = eighteen)
1974 348 (P/E10 = 13)
1975 235 (bottom) (P/E10 = eight)
1976 294 (P/E10 = 11)
1977 299 (P/E10 = 11)

There was a final bottom in 1982. The January index value (real price) fell to 209. (P/E10 = 7)

The opportunities line up with the P/E10. Buying when P/E10 levels were low would have been lucrative. Prices were at or below their intrinsic values.

Have fun.

John R.
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Post by peteyperson »

Ben,

You got my point and then mislayed it!

With the cash portion, you would at least only lose 3% a year vs. not having cash, stuck with stocks that may be going nowhere and be losing 18% to inflation.. But no one can really handle a high inflation situation for very long. It will kill any kind of wealth. You would have to be stupidly well diversified and then you may have other kind of problems like lack of liquidity.

Petey
BenSolar wrote:The commercial paper will track the high interest rates. But 18% inflation and 15% interest is a losing proposition - eh? Negative 3% real interest.
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Post by wanderer »

Wow. So, if i compliment JWR that means I agree with every single thing he said in his sometimes hocusly-leviathan posts? It's this sort of grasp of logic that loses you supporters, hocus/jwr.

Are you really foolish enough to pin your retirement on these 2 independent data points? Yes? Then perhaps you still don't get how inconclusive that data is. Perhaps you'd be game to belly up to the bar and guarantee the application of these "findings" for me and my family. Of course, I will require you posting a bond and adequate credit enhancements just in case what you've (really jwr collected the data, right?) "proved" is incorrect.

As for thank yous, have you thanked me for locating an arbitrage scenario whereby individuals can withdraw at a rate 58% less than that required under the conventional methdology? Or for posting tons of content on the board you abandoned at tmf? Or for banging the drum for residential real estate and other value oriented investments and sounding cautionary notes on the frailty of flesh and blood investors and most importantly for making the case for letting some air into the re*p when you were MIA elsewhere? IIRC, you are taking credit for all those insights now. I don't really mind (at least, I didn't used to), but don't you at least owe me a "thank you"?

kenm, I'm with you.
regards,

wanderer

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Post by BenSolar »

JWR1945 wrote:Your memory has been influenced by the earlier period, with the 1881-1920 anomaly. The end of the 1800s were good times for starting retirements but they also had high values of P/E10. The 1960s and early 1970s were bad times for starting retirements and they had high values of P/E10. If the previous study had been restricted to the current era, your allocation shifts would have been much more beneficial.
I could be mis-remembering, but I take notice of which start year was busting out first, and I think I remember that the 1965 or 1966 start year was still trouble with the switching.

Yep - I just ran a couple of very quick checks:

I set the switch at PE-10 of 14 below that I set the stock allocation to 80%, above it to 40%, at WR =4.1% I see only 2 bust years: 1965 and 1966.

I set the switch at PE-10 of 15, low PE allocation: 80%, high PE allocation: 20%, at WR of 4.1% I see one bust year in 1966.

I set the switch at PE-10 of 17 to match your division:low PE allocation 80%, high PE allocation 20%, at WR of 4.2% I see one bust year in 1966.

If I remember correctly, the other studies I did broke first in 1965/1966 start years as well. Why? I haven't gone into any depth looking at it, but apparently the decades of stagnant stock returns combined with very high inflation, and lack of inflation protection/growth from cash was enough to sink the SWR right down to essentially the same as with no switching. Confused

If TIPS were used instead of cash/commercial paper things would have been better, I suspect. A more robust diversification such as is now easily possible would likely have done better as well.
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Post by JWR1945 »

peteyperson
John,

Could you break down your results analysis so I can see where you're getting your information from. Just staring at your tables doesn't do much for me. It would be helpful to see it laid out much as I did in how I calculated my math.

I need to be able to understand the data, where it comes from, how it is put together enough to plug it into my personal spreadsheets as I did before to generate my numbers dependent on the allocation. Right now I can't do that....
Refer to my first post to fill in any details. Safe Withdrawal Rate versus P/E10 by JWR1945 dated Thursday, July 24, 2003 at 12:59 pm CDT.
http://nofeeboards.com/boards/viewtopic ... 8982#p8982

Following that post are three tables. The three tables show groups of twenty years for starting a retirement. In the first table the years are those with the lowest values of P/E10. Those were the bargain years. I did not refer to the first table. The second table is for the twenty years with P/E10 values in the middle. I have referred to those years as having normal valuations. The third table is for the remaining twenty years. Those were the years when stocks had high prices (high valuations).

The third and fourth numbers in each row (for all three tables) is the first withdrawal amount at which a retirement portfolio would have failed. When I collected the data, I increased the withdrawal amounts in steps of $2. That means that any withdrawal amount that was $2 less than indicated was safe. A withdrawal of the indicated amount was unsafe.

Since I set the initial portfolio balance equal to $1000, the number in the table = 10*the withdrawal percentage = the withdrawal amount in dollars. Each $1 corresponds to 0.1%.

The third column in each table is for an allocation of 50% stocks and 50% commercial paper. The fourth column in each table is for an allocation of 80% stocks and 20% commercial paper.

Now look at the second table. That corresponds to normal valuations. The smallest number in the third column is 48 (or $48 or 4.8%). It occurred in both in 1939 and 1940. That means that a 4.8% withdrawal rate was unsafe at normal valuation levels and 4.6% was safe...with a 50% stock allocation. I do not know whether 4.7% is safe since I collected data in increments of 0.2%.

Now look at the fourth column in the same (second) table. The smallest number in that column is 58 (or $58 or 5.8%). It occurred in 1931. This means that 5.8% was unsafe at normal valuation levels and 5.6% was safe...with an 80% stock allocation. I do not know whether 5.7% is safe since I collected data in increments of 0.2%.

Later on, I stated that 4.6% is safe at normal valuations for a 50% stock allocation. I stated that 5.6% was safe at normal valuations for an 80% stock allocation.

Now look at the third table. Those are the years when stock valuations (as measured by P/E10) were highest. As before, the third column is for a 50% stock allocation. The smallest number in the third column is 40 (or $40 or 4.0%). It occurred in 1937. That means that 4.0% was unsafe at high valuation levels and 3.8% was safe...with a 50% stock allocation. (That is the answer to a question that I had previously refused to answer. With a 50% stock allocation, the safe withdrawal rate is either 3.8% or 3.9%. We know that 3.8% is safe. I have not checked 3.9%.)

Now look at the fourth column in the same (third) table. The smallest number in that column is 42 (or $42 or 4.2%). It occurred in 1966. That means that 4.2% was unsafe at high valuations and 4.0% was safe...with an 80% stock allocation. I do not know whether 4.1% is safe since in collected data in increments of 0.2%.

Later on, I stated that 3.8% is safe at high valuations for a 50% stock allocation. I stated that 4.0% was safe at high valuations for an 80% stock allocation.

Now you know how I got my numbers in my post that began:
peteyperson wrote:No time to read or reply at the mo. Will try to get to this tomorrow, meanwhile have you seen my new thread?
Look at those horrible tables. Think along these lines...
Later on, I referred to that post. It was the source in my post that began:
hocus wrote::
From looking at your posts above, it appears to me that the potential of this tool is breathtaking. We are talking about something that could provide benefits worth $100,000 to a single aspiring early retiree, are we not? Multiply that by 10,000, and you have a big number. Am I right in having these sorts of expectations for what this tool can deliver?
It's even better than that. Look at these two paragraphs (out of sequence):
For stocks at high valuations, but within the historical range, the P/E10 varied from 17.0 to 27.0. <b>With 50% stocks you can plan to withdraw 3.8% (gross, before taxes) safely.</b> With 80% stocks you can plan to withdraw 4.0% (gross, before taxes) safely.

If stocks were to return to normal valuation, the P/E10 would range between 11.4 and 16.7. It is reasonable to expect something like this within the next decade. With 50% stocks you can plan to withdraw 4.6% (gross, before taxes) safely. With <b>80% stocks</b> you can plan to <b>withdraw 5.6%</b> safely...<b>provided that stocks return to their normal valuations</b> (i.e., P/E10 is 16.7 or lower) some time in the future.
Then I mentioned the possibility of cutting back on stocks when prices are high and increasing one's stock allocation when stocks are reasonably priced. Cutting back on stocks corresponds to putting more money into your cash buffer. In my example, I mentioned having 50% stocks at high valuations. The safe withdrawal rate is 3.8% (from the third table).

When stocks have normal valuations, I mentioned increasing the stock allocation to 80%. This reduces the cash buffer in favor of stocks because the risk / reward ratio is reasonable. From the second table, I find that the safe withdrawal rate is 5.6% in times with normal valuations with 80% stocks.

Thus, I am doing two things. I am changing my withdrawal percentages depending upon valuations (high, middle, low). My percentages come from the third table for high valuations and the second table for middle range valuations. On top of that, I am changing my allocations depending upon the risk / reward ratio as indicated by P/E10.

Of course, this is just a first pass to show that good things might happen.

I hope that this helps.

Have fun.

John R.
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Post by BenSolar »

peteyperson wrote:There seems to be a sudden arrogance in both your posting style and words chosen, hocus. Shockingly so.
I have to chime in and agree that your tone has been quite unpleasant, hocus. This board is starting out poorly. A pity.

Ben
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BenSolar
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Post by BenSolar »

JWR1945 wrote:Then I mentioned the possibility of cutting back on stocks when prices are high and increasing one's stock allocation when stocks are reasonably priced. Cutting back on stocks corresponds to putting more money into your cash buffer. In my example, I mentioned having 50% stocks at high valuations. The safe withdrawal rate is 3.8% (from the third table).

When stocks have normal valuations, I mentioned increasing the stock allocation to 80%. This reduces the cash buffer in favor of stocks because the risk / reward ratio is reasonable. From the second table, I find that the safe withdrawal rate is 5.6% in times with normal valuations with 80% stocks.

Thus, I am doing two things. I am changing my withdrawal percentages depending upon valuations (high, middle, low). My percentages come from the third table for high valuations and the second table for middle range valuations. On top of that, I am changing my allocations depending upon the risk / reward ratio as indicated by P/E10.
I did another check to test this more specifically:

Switch allocations at PE-10 of 17, allocation at low PE - 80% stocks, allocation at high PE - 50% stocks. At WR of 4.1% I get one bust year in 1966.

The switching algorithm is quite crude, and might be improved ... , but, their is no huge benefit seen thus far. Maybe other benefits - growth in low PE-years accentuated by higher stock allocation .
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
hocus
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Post by hocus »

There seems to be a sudden arrogance in both your posting style and words chosen, hocus. Shockingly so.

I have a great amount of confidence at this point in the idea that I put forward that changes in valuation levels affect SWRs. My confidence level has grown and grown as time has gone on. It has grown because there is so much data supporting the idea and there is none pointing the other way. My confidence is justified.by the realities.

I certainly don't see them as yours, hocus, either.

It's unlikely that we would be having this discussion had I not started the ball rolling. SWRs were discussed regularly for three years on the REHP board prior to my post and no one had ever argued for making an adjustment for changes in price levels.

JWR1945 has not had any difficulty acknowledging the role I played in getting this discussion started. He put up two highly recced posts at the other board called "Hocus is Really Onto Something" and "Hocus Started It All" talking about how much fun he was having exploring an idea that would not have occured to him had I not put it forward. That's what discussion boards are all about. Different people get together and each makes a contribution where he is most able to do so. JWR1945 can do things with numbers that I cannot. I can do things with concepts that he cannot. So we work together and we each know a lot more about how to invest as a result of sharing than we would if we kept these talents to ourselves.

There were several people who came onto this thread to thank JWR1945 for his contribution, which of course was the right thing to do. I have not seen one post yet thanking me for my contribuition. I think it is fair to say that I have put a whole lot more work into this thing than JWR1945 has and have been subject to a whole lot more abuse than he has. So where are the posts saying "thanks for hanging in there, man, you showed a real love for the community doing that." I am owed these posts given what I have been put through.

If it had been the other way around, and the data had showed that I was wrong, I would have put up a post saying so to the entire community. It would be the right thing to do. It is equally right that others come forward and acknowledge that my position has beeen vindicated by the data, as I always said it would be. There has been a certain amount of ugliness in some of the posts put to the board, and a few posts along those lines would do a lot to reduce the level of friction.

It's something that in ordinary circumstances you would expect to see after the things that JWR1945 said in his post. This thing has an unusual dynamic and we are not seeing it here. I think it's worth giving a little thought as to why that is so.

You seem to take a triumphant view of SWR and wax lyrically about the whole issue, alternating from long replies to curt " read the book " type responses which rattled a number of people I'm sure

I do indeed wax lyrical about the power of a properly calculated SWR to help people achieve financial independence years earlier than they otherwise could. It's a wonderful tool. I knew that all along, but the more I learn about it the more I see how wonderful it really is.

I do think that more people need to read the Bernstein book, and those that have already read it need to re-read it. We spend a lot of time on these discussions, and things would move a lot more quickly if everyone had a firm grasp of the basics. Chapter Two of that book sets forth the basics. It's not the sort of thing that you hear in the general business press much. So if you want to understand this stuff, you have to read the book. I offer that advice because I believe it is good advice. I read the book carefully and I have profited from doing so. I believe that many others could as well.

This is not a one man solution creator with a bunch of willing disciples.

I don't think of anyone as being my "disciple," not would I want anyone to play that role. I stated in clear terms in earlier posts that I could not have done what I have done here alone. The whole point of participating on a board is to gain access to the talents of others. I have noted several times that I do not view myself as an altruist. I come to boards because of the benefits I obtain from my participation on them.

That said, I think that I have an obligation to give something back to the community for what I take out. My post of May 13, 2002, was a big giving back. The REHP board was in trouble at the time. It had become deluged with political posts, and intercst had just run Wanderer (the board's most popular poster at the time) off the board. I thouight that the board badly needed some on-topic posting, so I came up with a topic that would generate some. My post succeeded at that beyond my wildest dreams. Scores of community members thanked me for doing so. There was none of this hesitancy in coming forward with a "thank you" to hocus in those days.

I got something from the board, and I gave something to the board. When I took, I thanked the board; when I gave back, the board thanked me. That's the way it should work. None of us gets paid in cash for the work we do here. We are owed a "thank you" from our fellow community members when we do something special.

I am owed such a thank you today. Big time. There is no insight in the history of this board as important as the one that I have put forward. JWR1945 has given you a hint as to the sorts of dollar-valuie benefits you can expect to gain from use of this tool. He did his work as a result of an insight that I offered to the community, and which I defended when the community was hitting me with baseball bats for doing so. Now that I have been proven right, it should be over. The community should say "thank you" and we should move on.

I am not requesting any big celebratory event. I am saying that those who have said harsh and unwarrented things in recent days should apologize for having done so, and those who see the benefit they stand to gain from this tool should say "thank you for hanging in there all this time, man." The appropriate response from me is: "Well, I couldn't have done it without all of the rest of you, thank you for providing the tough scrutiny needed to make sure that this concept really does hold up." Then we go on.

That's the way communities work out the sort of frictions that we have been dealing with in recent days. It is standard procedure.

We have nothing to thank you for.

Not a true comment and not a helpful comment.

It is a joint effort and I don't count one person above another.

Saying "thank you" to someone does not mean that you think they are above you. It means you are grateful for something they did that helped you.

You seem to view yourself as in need of appreciation and thanks.

It's not just that I am owed the "thank you" in a personal sense. That's part of it. But it is the entire community that benefits if the thank yous are spoken. We need to clear the air on this thing. That's the procedure by which that sort of thing is done. We need to bring the conflict to resolution, and acknowleding that I have been vindicated in my claim does that. It's the most effective way of putting all of the ugliness behind us.

I think the kudos, should any be due, is shared throughout the community.

I thank the community for all the help it has provided me in this matter. I single out JWR1945, raddr, and BenSolar foor their help with numbers stuff. I add that Wanderer, FoolMeOnce, and ES have played big roles in other aspects of this. I don't at all mean to leave out the others who have many important contributions. You have made important contributions, Petey. KenM has made important contributions. Gummy has made important contributions. I thank you all, and I thank all those whose names are not coming to me at the moment. We are doing important work together, and we are taking advantage of the benefits of community to do it. It's a great use of this new internet tecnology, in my view.
hocus
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Post by hocus »

I had my own reasons for not jumping into a series on arguements on the REHP board. I don't have to share them with you, nor do I need to defend myself against your charges that I didn't help you.

You don't need to answer to me in any way, shape, or form. I presume that's obvious to all.

That said, it is my view that someone who takes from a community is under an obligation to help it when it comes under attack. At a time when that community was under attack, you did not step forward to help. I think you should have. You might have been able to make a difference. You never know until you try.

To some extent, you created the problems for yourself, to some extend others did. It isn't my role to bail you out when you get in deep water. It never was.

None of this has anything to do with me as a person, Petey. Do you think that intercst or Arrete or phantomdiver or any of the others honestly believes that either me or Wanderer or JWR1945 or any of the others genuinely suffers from mental illness? Come on. I know you don't believe this stuff.

People put forward those sorts of claims as tactics. Lawyers say that, when you have the law on your side, you pound the law; and when you have the facts on your side, you pound the facts; and when you have neither on your side, you pound the table. Well, when you have the data on your side, you pound the data. That's why I constanrly bring it up. When you have no data to support what you are saying, you attack the person holding up the data to try to discredit the message that way. It's a tactic employed by people holding a losing hand.

You've seen that sort of thing here in recent days. It has been proven beyond any reasonable doubt that what I am saying about the SWR as defined in the studies is true, so now some want to use different definitions. And there is hostility directed at me because I use the definition employed in the studies. It's a tactic. If you can't undermine the message, you undermine the messenger.

These tactics do great harm to the communities in which they are practiced. Take a look at the content of the Motley Fool board today if you want to gain a sense of how serious the damage can be, if no one speaks up. Responsible members of a community have an obligation to speak up when these sorts of things transpire.

Say that you are a lurker here, someone who visits but has never posted. Say that you agree with everything hocus says. Do you feel comfortable today coming forward with a post saying so, knowing the hell night you are going to be subjected to for doing so?

Most people are not going to subject themselves to the sort of abuse that I have taken in trying to get this message out. I do it because I am in this for the long term, and it means a lot for me to see the two message boards (this one and the TMF one) succeed. But not many are in the sorts of circumstances I am in. I don't know of anyone who is in those sorts of circumstances.

So you are not going to get a balanced debate on these questions unless someone steps forward to restore some balance. I talk about issues. I put forward arguments. I point to data. Others do other sorts of things. The things I do help the community grow. The other things send it reeling backwards.

Don't worry about how things affect me personally so much. Worry about the community, the board. Worry about the learning resource. That's what counts in the long run. I am but a small part of that bigger thing, but how people here react to the claims I have put forward affects the fortunes of that bigger thing.
hocus
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Post by hocus »

Most of the progress I see on the nofee boards is coming from other posters rather than you.

For a long time now most of my energies have been directed to responding to hostile questions and to correcting misstatements of my positions. How do you think it would be if people were asked to respond to my claims on the merits?

If we did it that way, then we could start talking about the fun stuff, how this insight benefits people. That's where the focus should be. Allowing me to put my insights forward to the board community helps every single person who comes here. It grows the board.

I have experienced the best of what message boards are about and the worst of what message boards are about. Take the best 10 percent of posts in the SWR matter, and you have the best FIRE posts of all time. But how many have read those posts? Few can stand the thought because the other 90 percent of the posts are all about nonsense semantics stuff.

It is not just the people who are putting forward the semantics stuff who are causing the problem. It is the people not speaking out against it. This stuff hurts us all. We all have a right and an obligation to speak out when we see this sort of stuff take place.

It is less important to me whose study is right or wrong, what interests me is what the right approach to take is and what can be accomplished.


The second part of this statement contrdicts the first. You can't determine what is "the right approach" until you identify a methodology that answers the question being posed. If you are using a study rooted in an invalid methodology, you are going to get wrong answers.

Determining whether the methodology being used is valid or not is a critical first step. That's the hard part. Once you do that, all the good stuff follows. Once you have some numbers you can have confidence in, you are prepared to discuss strategies for putting those numbers to efective use.

We need to get to the good stuff. There is a suggestion of that in your comment, and I heartily endorse that suggestion. But my question to you is--how do you propose to do it? How you do propose to bring the word games to an end so that we can work together on something constructive?
hocus
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Joined: Mon Dec 02, 2002 12:56 am

Post by hocus »

I hope that this helps brighten everybody's day.

It brightens mine, JWR1945. Thanks once again for all the help that you have provided with this.

There is going to come a day when all of our hard work is going to pay off. It's the destination that matters, not the rockiness of the road we take getting there.
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