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Re: A Low-Return Future? Are We Prepared?

So I hadn't previously done a numerical analysis of the effectiveness of my combined forecasting model. We've been talking about future returns so much that it seemed like a good idea in order to make sure I was being fully rigorous. Here are my methods and results: I used http://www.multpl.com for ...
by Clearly_Irrational
Tue Sep 02, 2014 5:53 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Another problem. 3.5% real GDP growth? In whose world? We've not done anything like that since 2000 in US and Europe (nor Japan). The context in which I posted the diagram was a question about the attribution model I was using and why population growth figured into it. I agree with you on the GDP g...
by Clearly_Irrational
Mon Sep 01, 2014 4:46 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

1210sda wrote:"Clearly", I have a question. How do you get 8% Nominal GDP growth from 3.5% (Real?) Growth rate and 2.5% inflation?? Shouldn't that be 6% Nominal GDP, or am I reading this wrong??


I think it's just a typo.
by Clearly_Irrational
Mon Sep 01, 2014 3:24 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Cut-Throat wrote:I am done trying to 'educate' you, because you apparently know everything while understanding nothing.


I'm sorry if you were personally offended, that was never my intent. Apparently it's time to move on to other topics.
by Clearly_Irrational
Sat Aug 30, 2014 11:08 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Sure you're not! :confused There is no perfect withdrawal system because we don't have complete information. Each system attempts to compensate for that lack but they all fail in different ways. Choosing an appropriate failure mode is actually important because there are different ways to compensat...
by Clearly_Irrational
Sat Aug 30, 2014 9:42 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

As far as Spending ALL of your money, yes you can do that, but that is a very minor point of VPW..... If you look at VPW when it starts to withdraw 10% of your portfolio, you can customize it so you never withdraw more than 10% (which is usually around age 90) so you don't ever run out of money. *s...
by Clearly_Irrational
Sat Aug 30, 2014 9:12 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

siamond wrote:This is a cool chart. Thanks for sharing. Where does it come from? Where can I find more background information about it?


I've seen similar diagrams in several places, I got that one from here: http://www.financialphysics.net/future.html
by Clearly_Irrational
Sat Aug 30, 2014 8:57 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Nope, you still don't get it. I see two possible advantages: 1) You're guaranteed to use up all of the money by the end of the duration, thus leaving no money unspent. In theory, if a retiree has no bequest motive he would want to run out of money exactly as he died. (assuming that intentionally go...
by Clearly_Irrational
Sat Aug 30, 2014 8:17 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

These folks that are planning to live past 100, will fail to live while they're still alive. Just look at the Obits and see how many folks live past 95. For me, I look at it as a probability distribution. My current life expectancy is 82, I could die much earlier or much later than that but it's th...
by Clearly_Irrational
Sat Aug 30, 2014 5:57 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Cut-Throat wrote:I agree; You don't see it.


The advantage is that you're guaranteed to use up all of the money, the only problem for me is that I don't see that as an advantage unless you pair it with an SPIA.
by Clearly_Irrational
Sat Aug 30, 2014 5:51 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Tell me something I don't know. Now if someone that was retired, actually used VPW for their Withdrawal Method (Like Myself)...They could easily figure out reasonable input values and be far ahead of the game. But, if someone just wanted to be 'right', and wanted to argue the ridiculous (Like yours...
by Clearly_Irrational
Sat Aug 30, 2014 2:56 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Cut-Throat wrote:Don't be ridiculous!...Just plug in age 105.....You aren't going to live that long. There's a very good chance to won't live to age 90.


The duration you plug in has a very large effect on the withdrawal rate.
by Clearly_Irrational
Sat Aug 30, 2014 2:14 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

How is that being required to know the "'Exact Date of your death" ? :confused Because if you don't guess the duration correctly you'll be out of luck. SWR modeling gives you a chance of running out of money at the end of the period, the VPW guarantees it. With a lifespan of unknown durat...
by Clearly_Irrational
Sat Aug 30, 2014 2:50 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

"functioning technological civilization based on capitalism" we are getting terribly close to the Karl Marx critique of industrial capitalism (profit and economic cycles of ever increasing violence due to the problem of labour surplus). It is way too broad an assertion to make. His soluti...
by Clearly_Irrational
Sat Aug 30, 2014 2:48 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

I agree that it is pretty unlikely that one would run out of money with such a low withdrawal rate, but I don't think that is because it is "dividends + interest"; it's just low enough that you almost certainly won't run out. I'm not sure if this is supported by academic research or not, ...
by Clearly_Irrational
Fri Aug 29, 2014 3:59 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Where do you see the lowest balance results? I went to the firecalc page but didn't see where they display that data. Edit: I see that now but I also get this warning for the 30 year run with 2.1%: "(Caution: The portfolio failed, or went negative, during some of the years in your scenario, bu...
by Clearly_Irrational
Fri Aug 29, 2014 3:37 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: Burton Malkiel Opinion in WSJ -- "Are Stock Prices ..."

nisiprius wrote:In fact it was a good exercise in explaining why predictions may not be actionable even if they are correct.


That's a really important point.
by Clearly_Irrational
Fri Aug 29, 2014 3:28 pm
 
Forum: Investing - Theory, News & General
Topic: Burton Malkiel Opinion in WSJ -- "Are Stock Prices ..."
Replies: 26
Views: 2950

Re: A Low-Return Future? Are We Prepared?

Yes, but what was the value of that $1 million in constant dollars after 50 years? Certainly far less than $1 million. In other words, it was depleted by inflation even though not nominally. You know, I hadn't actually looked into that portion of the FireCalc site before. Here is what it says "...
by Clearly_Irrational
Fri Aug 29, 2014 3:20 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Even that rate leads to depletion due to inflation. For a 50/50 portfolio, using the current dividend + coupon rate of 2.21% there are no historical failures at the 10, 20, 30, 40 or 50 year time frames. Lowest balance during the retirement period by timeframe (starting with $1 Million): 10 $532,92...
by Clearly_Irrational
Fri Aug 29, 2014 2:35 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Huh? What does population growth have to do with anything? I don't see the relation with expected returns... More workers and more consumers, sure, but this comes with a heap of other problems... Please explain? Here's a picture that probably explains it better than I can just using words: http://w...
by Clearly_Irrational
Fri Aug 29, 2014 2:22 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

rustymutt wrote:Inflation is more a concern to me, than reduced long term real returns.


I'm actually not very worried about that. All the information I've seen points to a very low inflation environment.
by Clearly_Irrational
Fri Aug 29, 2014 2:11 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

1- You cannot predict your minimum spending requirements, therefore you'd add margin. 2- As a result of 1 (margin) you can always cut back, unless your minimum spending requirements were based on unrealistic assumptions. Well, in order to "add margin" you have to have some kind of estimat...
by Clearly_Irrational
Fri Aug 29, 2014 2:06 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Unless you can pick the exact date of your death it's a bit problematic since it guarantees you'll run out of money. Then you don't understand VPW! .... Why would you think you have to predict the 'exact date of your death'? Looking at the description one of the requirements is to choose a duration...
by Clearly_Irrational
Fri Aug 29, 2014 1:07 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

You make good points, and I'll stop our discussion with this last word (feel free to respond one more time, if you want the "last word") :) I haven't had all my coffee yet, perhaps I'm coming across a bit too strongly. That 5% "failure" means I take 3 vacations a year instead of...
by Clearly_Irrational
Fri Aug 29, 2014 1:02 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Why even worry about failure rate, when you can employ VPW that cannot fail. You'll probably start out with a WR of over 4%. VPW has a 0% chance of Failure. If times get tough, VPW will employ a 2% WR, but only IF it needs to. And it will do it at the Proper time! Unless you can pick the exact date...
by Clearly_Irrational
Fri Aug 29, 2014 12:46 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

HomerJ wrote:(1) No one can predict anything.


I don't agree but ok.

HomerJ wrote:(2) Even if they're right, the FOLLOWING ten years will probably give higher returns than normal.


Isn't that a prediction?
by Clearly_Irrational
Fri Aug 29, 2014 12:19 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

(1) You might not even live the full 30 years. True, or you might live for 40 years. The chances are lower for that occurrence of course but it is possible. Any sensible plan should include that contingency. (2) You can adjust your spending downward if needed... Going from 3 vacations a year to 2 v...
by Clearly_Irrational
Fri Aug 29, 2014 12:15 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

I understand your skepticism. But realize that Mr. Bernstein's real return forecasts are pretty much middle of the road when it come to a lower-return future. If you want to see actual pessimism, check out Jeremy Grantham's forecasted 7-year returns — how about -1.7% real for US large cap stocks? S...
by Clearly_Irrational
Fri Aug 29, 2014 12:08 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Going with 4% is already the conservative number... Yes, it's fairly conservative with only a 5% failure rate. If that's within your risk tolerance then go with it. For me, I find the world pretty unpredictable and my personal experience has been that things often work out not nearly as well your w...
by Clearly_Irrational
Fri Aug 29, 2014 11:41 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

5% chance of a 6.5% loss in spending power is irrelevant to me... You're mixing up two different numbers. It's a 5% chance of going completely broke before you die. It would take a 6.5% reduction in yearly spending to reduce that chance to zero based on historical data. Pretty much zero risk at 4% ...
by Clearly_Irrational
Fri Aug 29, 2014 11:36 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

If you look at the cost of putting a pound in orbit, the sheer energy cost, this doesn't seem that likely. Here is some food for thought. Platinum is $22,704 a pound. The cost of getting to orbit is currently about $10,000 a pound. SpaceX feels they can get that cost down by a factor of 10. If they...
by Clearly_Irrational
Fri Aug 29, 2014 11:30 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

I am really unconvinced that increased rates of technical progress will lead to lower returns on capital. Just to be clear that was not what I was arguing. Population growth is one variable that effects returns and I was just pointing out that it's expected to be lower in the 21st century than it w...
by Clearly_Irrational
Fri Aug 29, 2014 11:19 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Just to offer a concrete example of what a "low-return" future looks like, the table below shows William Bernstein's estimates for expected annual real returns of major asset classes over the next 10 years Wow, I think that's WAY too pessimistic. 2% real returns for US Large Cap? Sorry, I...
by Clearly_Irrational
Fri Aug 29, 2014 11:15 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Simplegift wrote:A low-return future implies lowered expectations from those of the past, which were all based on past historical data!


Right, which would imply an even lower SWR, not a higher one.
by Clearly_Irrational
Thu Aug 28, 2014 7:41 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Mind you, I'm not making a specific prediction, but I believe greater technological innovation has been increasing productivity, creating a bigger pie to share (whether or not it's shared in a reasonable way - people will differ on that point). I agree that technology is the likely wild card. Assum...
by Clearly_Irrational
Thu Aug 28, 2014 7:40 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

You were the only person that mentioned 30 years, maybe the OP meant 25! The Trinity study which did the research that resulted in the 4% SWR rule used a retirement period of 30 years. Using a longer period lowers your chances of success. For example, with the same 40/60 portfolio a projected 40 ye...
by Clearly_Irrational
Thu Aug 28, 2014 7:16 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

OK, 3.74% ...............Sheeesh !! ......Talk about nitpicking! If a 6.5% reduction in a spending power isn't relevant to you then please send me a check, I'd be happy to take 6.5% of whatever you're making. By the way, that number assumes that returns are as good as they were in the past and that...
by Clearly_Irrational
Thu Aug 28, 2014 7:12 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Global diversification - I personally use international stocks but not bonds - helps with that part. There can't be any net immigration or emigration, globally. In this case I was speaking about the US stock markets, but you're right that global issues have a growing impact. The global population g...
by Clearly_Irrational
Thu Aug 28, 2014 7:10 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

First you have to understand that 4% SWR is a 'Worst Case Historical Number'. Actually it's the 95% confidence level, that means with a 4% SWR you would have run out of money before the end of thirty years in 5% of the cases. I'd hardly call that a "Worst cast historical number", it's mor...
by Clearly_Irrational
Thu Aug 28, 2014 6:51 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: A Low-Return Future? Are We Prepared?

Using an attribution model stocks should return (dividend yield + productivity growth rate + population growth rate + inflation) which is (1.85% + 2.2% + 1% + 2.25%) = 7.30% nominal or 5.05% real. Dividend yields fluctuate over time. Currently they're lower due to tax policies that favor capital gai...
by Clearly_Irrational
Thu Aug 28, 2014 6:37 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 177
Views: 10315

Re: What are you up YTD?

Small Cap Value 30%
Emerging Market 20%
Long US Treasuries 30%
Gold 20% (rotated with cash based on real interest rates)

Results YTD: +10.1%

Currently I'm beating my benchmark from portfolio inception to date but well within the expected range.
by Clearly_Irrational
Tue Aug 26, 2014 1:15 pm
 
Forum: Investing - Help with Personal Investments
Topic: What are you up YTD?
Replies: 94
Views: 6318

Re: Can a Boglehead put down 10% on a house?

We currently pay around $900 in rent and $100 in utilities at the apartment. It's at the higher end of the 1BR rent values. Zillow's "estimated monthly payment" for homes at the upper end of our price range ($160,000) is around $990 including PMI, insurance, and taxes. Sounds like a no br...
by Clearly_Irrational
Tue Aug 26, 2014 11:11 am
 
Forum: Personal Finance (Not Investing)
Topic: Can a Boglehead put down 10% on a house?
Replies: 30
Views: 2435

Re: Can a Boglehead put down 10% on a house?

What's the payment on the rental compared to the estimated payment on the house?
by Clearly_Irrational
Mon Aug 25, 2014 4:13 pm
 
Forum: Personal Finance (Not Investing)
Topic: Can a Boglehead put down 10% on a house?
Replies: 30
Views: 2435

Re: Why don't utilities get any praise

Hmm.. interesting. Health Care covers hospitals, health insurance companies, medical supply and manufacturing companies from scanners to cancer treatments, pharmaceutical companies, medical delivery from medical durable to home health, biotech and so forth with an aging population and explosive EM ...
by Clearly_Irrational
Mon Aug 25, 2014 2:36 pm
 
Forum: Investing - Theory, News & General
Topic: Why don't utilities get any praise
Replies: 39
Views: 3694

Re: Why don't utilities get any praise

It seems that common tilts are towards small cap, REIT, or health care. But rarely do you read, at least on these forums, about people tilting towards utilities. Small caps are legitimate if you buy into the multi-factor model. REITs are almost a separate asset class so it's not totally indefensibl...
by Clearly_Irrational
Fri Aug 22, 2014 7:34 pm
 
Forum: Investing - Theory, News & General
Topic: Why don't utilities get any praise
Replies: 39
Views: 3694

Re: A random walk...

nisiprius wrote:Which is another way of saying "it's not a random walk, it's much worse than that."


Heh, I think that's a valid point.
by Clearly_Irrational
Thu Aug 21, 2014 4:04 pm
 
Forum: Investing - Theory, News & General
Topic: A random walk...
Replies: 21
Views: 1677

Re: A random walk...

bertilak wrote:
baw703916 wrote:If the market follows a random walk, why don't returns follow a normal distribution?

What distribution do they follow?


One of the Student's t-distributions or a variant of Normal Inverse Gaussian seem to be among the most likely suspects in the current literature.
by Clearly_Irrational
Thu Aug 21, 2014 3:49 pm
 
Forum: Investing - Theory, News & General
Topic: A random walk...
Replies: 21
Views: 1677

Re: A random walk...

baw703916 wrote:If the market follows a random walk, why don't returns follow a normal distribution?


The market isn't actually a random walk, it's a levy flight.
by Clearly_Irrational
Thu Aug 21, 2014 3:32 pm
 
Forum: Investing - Theory, News & General
Topic: A random walk...
Replies: 21
Views: 1677

Re: A random walk...

I was much less impressed with it than the hype suggested I should be. Frankly I think he made a lot of unsupported statements and hand waved away entire portions of the debate. *shrug* There is some useful material in there, but it's buried in a mass of opinion.
by Clearly_Irrational
Thu Aug 21, 2014 1:22 pm
 
Forum: Investing - Theory, News & General
Topic: A random walk...
Replies: 21
Views: 1677

Re: Is a big war coming ???

I always wondered if 'The Big One' blew in Europe and we did *not* go nuclear (both low probability events) then what would the world look like by Christmas. Although things change over time, I gamed out this scenario several times back when it was the Soviet Union we were worried about. (I like ta...
by Clearly_Irrational
Tue Aug 19, 2014 1:18 pm
 
Forum: Investing - Theory, News & General
Topic: Is a big war coming ???
Replies: 37
Views: 3838
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