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Author: hjg0989 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5085  
Subject: Re: 8 years till ER Date: 10/17/2004 12:02 PM
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Hi Wendy,

You brought up some very interesting topics:

<<You may be correct in this. However, not all market drops recover in 5 years. The 1929 market drop did not recover, until the 1950s (I was close with my grandmother, a longtime investor; our family was badly hurt by the 1929 crash). Japan's stock market crash (accompanied by the popping of a real estate bubble - sound familiar?) has still not recovered, 10 years later. Because of this, I am very cautious about committing a significant portion of my assets to the stock market, which still has historically high P/E ratios, and historically low dividend yields.>>

I think my interest in finance is partially influenced by my Father. He graduated from college in 1930 (yikes !!!) and retired in the early 70's when inflation was through the roof. He really saw the two extremes and talked about it a lot. I remember all his lectures about inflation. I didn't realize why he was so freaked out, but he had just retired at age 65 and had a 15 and 17 year old to put through college. I'm sure he was worried about his pension, social security and dividends keeping up with the cost of living.

Anyway, I have thought a lot about what I think your point is. Do we invest for the worst case, invest for the best case or invest somewhere in between. I think the answer is a very individual thing which I think our posts reflect. You tend to invest heavily in bonds, in part due to your Grandmother's tales of the depression. I tend to invest heavily in the market, in part due to my Father's tales of inflation.

If we invest too conservatively, we run the risk of inflation eroding our money. Bonds may be indexed for inflation, but is the index a true measure of inflation ? Here's an interesting article on the notion that the CPI does not keep up with true inflation:

http://www.pimco.com/LeftNav/HomePageAnnouncements/IO+Con+job+redux+04.htm

If on the other hand, we take on too much risk, we could run out of money during a crash/depression.

I do find comfort in using the FIRECALC

http://www.fireseeker.com/

in that I think it takes more of a balanced approach of a stock to bond mix and uses historical data to regression test the amount of retirement savings. Of course this by no means guarentees success in the future, but I don't think anything could do that.

These are very interesting points that you have brought up. I hope that others will join in on this.

Best regards,

-helen

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