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Subject:  Re: non-MasterMind will RE Date:  8/10/2002  7:48 PM
Author:  warrl Number:  73427 of 881887

The SWR study is based on certain assumptions:

* Your stock investments will be in the S&P500 index, or perform at least as well as same.

* Your bond investments are in long-term bonds and you live off the interest as opposed to trading bonds. (Bonds in a trading portfolio should be counted as part of your stock investment.)

* You have the discipline to stick with it through high & low.

If you fail to live up to any of those conditions, you will find that you have a lower safe withdrawal rate.


On the other hand, if your stock investments signifigantly outperform the S&P500, you may be able to withdraw more safely. How confident are you of achieving this result? Remember that most professional fund managers don't make the grade.

The SWR has no provision for real estate because it isn't a national commodity like stocks and bonds are, or for any other sort of security because they don't have the history, indexes, and fundamental solidity. (You rarely HAVE to sell a stock for non-personal reasons, and the large majority of stocks will have value longer than you'll care about them; you eventually HAVE to "sell" a bond - when it matures - but both the price and the date of that required sale are known the day the bond is issued. Options, futures, etc. will either die worthless or require some action - not known precisely in advance, and in some cases it may even cost you more money - on a specified date. You can't buy an option and then hold it for ten years.)

Again, this is not a flaw in the study; it's merely a limitation upon the scope, and the SWR study says nothing about investments outside its scope.

Here's another flaw in the study as it exists: it assumes a single investment portfolio. Most people have somewhat different situations. But this flaw can be dealt with by acknowledging the income stream from portfolios you don't control, and breaking down any remaining income requirements into several categories depending on what's going on - and then breaking the investment portfolio you DO control into chunks to satisfy these needs and processing them separately.

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