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Subject:  Re: The hocus plan: 4% from 100% FI? Date:  5/1/2003  2:00 PM
Author:  BenSolar Number:  104965 of 881715

Galagan wrote:

Just to clarify, we're talking about withdrawals over 50 years and not 30 or 40, and so that's why the SWR based on the REHP study is 3.31 percent and not somewhere closer to the oft-mentioned 4 percent, right?


The conclusion you draw is that you can produce a slightly higher SWR through a timing strategy than by straight static investment. Some will say that raising your SWR from 3.31% to 3.4% or 3.5% isn't significant.

But am I also right that we're still not really comparing the same thing, because you chose to switch from 0-100 to 50-50 based on simplicity of calculation and not based on that being the optimal switch? Is the possibility still open that you might find a better switching mechanism that would produce a still-higher SWR?

I've examined some other datapoints. Nothing huge jumps out. I've collected my posts on the subject here:

One thing to keep in mind though: the valuation based switching will help in a stock market crash caused by a valuation bubble, but not one caused by general economic distress like found in the 1970s. So when doing the hSWR switching studies, if the switch greatly improves the 1929 era results, then the worst period just becomes the 1966 era results which are less susceptible to being improved by valuation switching.

Year 2000 era results, however, should be tremendously improved by the switching, as valuations were dramatically worse than even the 1929 era, and the options available like TIPS and I-bonds were superior options to flat Fixed Income instruments. That is still somewhat conjecture.


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