Hey FT;

I’m behind on the feed reader, but I did have some follow-up comments on the original post. One of the issues I had with the original plan was not really during the growing years but instead during the retirement years.

If you assume that you actually have “enough” money at retirement time, but then follow her plan, you’re hosed if you retire in the wrong year.

Try plugging the numbers and then retiring in 1998 with $2M in the bank. Make yourself pull out money each year while the markets slowly eke down from 1998 to 2007, watch what happens in 2008/09 when you’re (ostensibly) 76 years old. You’re following the rules and living off your 4% (80k), but if you have 2 healthy adults, you need a really big market rally and low inflation is you want to stick it out to 95.

Maybe I need to do a whiteboard or a screencast or somesuch, but it’s pretty obvious that her plan doesn’t work if you retire in the wrong year.

And that’s the big problem to me. It’s not the long-term investment growth, it’s the fact that following her allocation will mean a very “uncomfortable” retirement if you retire at the wrong time or live for too long.

You can’t just save up a bunch of money, you have to retire at the right time.

What type of plan is that?

Oh really? Are you debt free? Mortgage free? RRSPs all maxed out?

Any other questions?

I think it would be fair to DISCOUNT the market performance over the last 20 or so years considering how utterly fraudulent the underlying fundamentals have been. Even inflation is not real (can anyone prove that inflation HAS to exist?).

But then again, truth and reality are often divergent. The mass doesn’t care which is which, as long as they get their money. Ergo, 2008.

Anyone want to buy a bridge?

Also keep in mind that the S&P 500 is a moving basket of stocks. The losers are dumped and the winners are added all the time. Just like how AIG was removed from the DJIA on Sept 22, 2008 and replaced with Kraft Foods. In order for these returns to be mirrored in a portfolio, you would have to invest in the index or a basket of stocks that moves with changes in the index. This also does not include any transaction fees or taxes during this period either. Improper management of either would considerably reduce your overall returns to values near inflation. A 15% return in a year with 10% inflation but taxes and fees of 1/3rd of that 15% would equate to a break-even year. Fees and taxes are extremely important in attempting to beat inflation.

The US has been a decent stock play in all 30-year periods. Even if you invested at the peak in 1929, there were still good returns of 11%/year over the next 30 years.

Factors of the economy are not really relevant. There is no evidence that creditor nations or emerging economies have better stock markets.Slow-growing economies like Germany have had similar stock market returns to the US and fast-growing economies like China over the last 30 years.

There are periods of time when economies have great runs, but a study of returns over the last 100 years showed a slight negative correlation between economic growth and stock market growth.

In short, there is no long term correlation at all between how fast an economy grows and how fast its stock market grows. The reason for this is the same reason that faster-growing companies are generally not better stocks. For example, the return of the NASDAQ for the last 30 years is about the same as the S&P.

The reason for this is that fast-growing economies or companies tend to be valued higher consistently.

This is the part of stock market investing that most investors don’t understand. Future returns result from growth compared to expectations – not growth on its own.

For example, if Company A has an average P/E of 20 and grows at twice the rate of Company B that has an average P/E of 10, then the 2 stocks will grow at about the same rate. The growth rate of both companies are what were expected, so the growth of their stocks will be about the same.

Stocks make money over the long term because companies grow their profits over the long term. As long as companies are growing their profits over the long term, stock markets will grow regardless of the overall economy.

Ed

Was the affected nation a the debtor nation, creditor nation? Was manufacturing a greater percentage of the nation’s GDP in one 30 year period than the other?

The idea that stocks are a good play for 30 years or longer may be true. What I don’t agree with, however, is that the US is a good stock play every single 30 year period.

China/India may emerge as the next great location of stocks, leaving US equities in the dust.

On a site note: I am not a big believer in the US markets for the next few years, I think it will go through a very slow growth period and very high inflation with all the money being thrown out.

In Jeremy Siegels book “Stocks for the long run” he said that between 1802 and now stocks have had a REAL return (after inflation) in the U.S. of +6% to +7% and that by a large margin over a nearly 200 years stocks were by far the best performing asset class…better than bonds, better than RE, better than cash…

Now we have had a pretty good run over these past twenties years so perhaps going forward we will have to revert to the mean….so if you have a time horizon of less than 20 or 30 years than yes maybe I would be worried about the performance of the stock market, but if your young and just starting out, then you have been given a gift and in fact should pray that markets stay low for as long as possible so you can buy as much as possible and then enjoy your returns as markets again return to there 200 year average of 6% return after inflation…..

I am not worried.

Most of the 30 year total return data depends upon the great US bull markets of the 80’s and 90’s. Lets hope that those types of returns are not anomolies and can be achieved in future economic development.

http://allfinancialmatters.com/Graphics/SP%20500%2020-Year%20Rolling%20Period%20Returns.pdf

http://www.mutualofamerica.com/articles/CapMan/October03/SandP500.htm

The numbers are close to each other but at a cursory glance, yours seems to be way off.

DAvid