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Subject:  Re: Rip Van Winkle Portfolio Date:  3/22/2004  11:11 PM
Author:  telegraph Number:  39963 of 76594

Recalling a statistic from "Stocks For The Long Run", domestic stocks have outperformed bonds historically over 80% of all 10 year periods, 90% of all 20 year periods, and 100% of all 30 year periods.

Fine, but your premise was you would retire in 20 years, and thus start withdrawals from your nest egg. You got a 1 in 10 chance of being in that 10%. Certainly not 'foolproof'. Your portfolio value on the day you retire sets your 30 year period for SWR.

I wouldn't buy into something with a 10% chance of failure in 20 years.....would you? not when I could cut it down to a lot less by diversification.

And the above statement doesn't tell you how BADLY the could underperform, does it?

Intercst has shown the SWR from all stock is 2.3% for 30 year survival from that point (you live to 90 if you are 40 now, and retire in 20 years).

Another fact is current interest rates: five year treasuries are yielding 2.7%, actually a negative yield when you adjust for taxes and inflation. And while rates could go lower, it seems more likely to me that they'll rise over the next few years.

GOod, so you buy 5 or 10 year bonds, that mature every year in a ladder....or invest new money every year into a 5 or 10 year bond, or buy AAA rated corporates, some GNMA, or some TIPS that protect you against inflation.

And you can get 4.3% on CDs today (ING direct), or 5% or more on corporate bonds. And if they are in a tax deferred account, there is not annual income tax....the compound.....

And who knows, bond yields might outperform stocks. Stocks could be minus 10 percent this year. Yes? And next year too..and the year after.......

So I have these two facts, and I have money to invest that I won't need for 30 years. My conclusion is that stocks are the best investment.<?i>

This voilated your first premise of retirement in 20 years, and that is the point you set your SWR, not 30 years out, unless you have a seperate 10 year bond/CD ladder set aside with a lot of money in it for the 'first ten years' after you retire so you don't touch your all stock
until the 30 year from now point (age 70). In which case, if in a 401K or IRA, you will be forced to take mandatory withdrawals in excess of the SWR to satisfy uncle sam, paying lots of taxes along the way.

SO you want to try again, making withdrawals in 20 years?

And what happens if you have one of the 10 year periods for the next 10 years that is in the 20% underperforming set? And you have no bonds, and your stock holdings come out worse after the next ten years? Where are you then? And then you have another 10 year bad period...then you retire?????

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