No. of Recommendations: 4
For Masterminds only <grin>

The Secret Code of the Superior Investor: How to Be a Long-Term Winner in a Short-Term World. by James K. Glassman

http://www.amazon.com/exec/obidos/ASIN/0812991087/qid=1028868562/sr=8-1/ref=sr_8_1/103-6320153-4081424#product-details

Check out the critical review by the market-timer/day-trader at the bottom of the page.

intercst



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Intercst warns,

For Masterminds only <grin>

Hey, I'm not a Mastermind and I read that book a few weeks ago. I declare it safe for us non-Masterminds, too.
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No. of Recommendations: 1
Yes I like Glassman.

He published an article recently rehashing Dow 36,000. He doesn't shirk from it a bit, and makes a good case for higher equity prices based on Earning and Earnings Growth, and Dividends and Dividend Growth. I am a firm believer that stocks will rally strongly over time. I think much of what Glassman says, that the market is slowly coming to realize that stocks are not all that risky over trime, and that they are therefore undervalued, will prove true.

It's also interesting to note in a recent post of an article on this board that P/E ratios, are not P/E ratios are not P/E ratios. High P/E's are the traditional arguement I see on this board as to why stocks are overvalued. Glassman makes a very good argument that higher P/Es are very sustainable given the artificially perceived high risk of stocks. I think this is particularly true, with investors still feeling the sting of the bear market.

-reb
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I used to read his articles regularly. They never made sense then, and I doubt that they make sense now.

But he tells people what they want to hear. It would be interesting to see his actual investing record, and to compare it to his book income. Those who can, do, and do not necessarily feel the need to talk about it. Others write a book.

People like Glassman are give the rationalization to people who have just held long since March 2000. Those who sold then have a lot more money.
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No. of Recommendations: 6
I'm in agreement with the author. LTBH investing is the way to go but one must remember that it's a roller coster ride. You pick the difficulty of the ride {via your portfolio's geometric standard deviation (GSD)} and you take the ride. Do not pick a portfolio whose volatility you can't handle. If you do, you'll jump off the ride at the worse possible moment.

For those of us who started investing before the stock market bubble, things have gone very well despite the recent bear. This bear is mainly a training session for other bear markets in our future.

For those who started their investing during the bubble, things have not gone so well. But hopefully some important and correct lessons were learned.

This is a great time to invest--but especially for the younger FIRE wannabes out there. Start by picking an inexpensive and broad-based index mutual fund like VTSMX and add to it monthly. If you can invest 20% to 40% of your gross monthly income into VTSMX, you'll be FIRE'd in 10 to 20 years.
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No. of Recommendations: 2
I declare it safe for us non-Masterminds, too.

Patnbj:

I thought intercst was right on to note that this is a MasterMind-oriented book. On what basis have you determined that the James Glassman theory is "safe" for non-MasterMinds too?

In my mind, the critical distinction is whether you are investing based on the historical data or not. There's a certain safety that comes from investing in an asset class with the expectation that your returns will be in accord with what has been provided for that investment class in prior historical periods. When you have to do better than what the historical data suggests is possible to keep your retirement from going bust, you need MasterMind skills to pull it off. Those not possessing such skills should generally refrain from engaging in such strategies.

I think that intercst should be commended for pointing out that Glassman's theory is not based on the future being like the past, just as the Dent theory is based on the future not being like the past and the intercst Safe Withdrawal Study is based on the idea that the future will not be like the past.

There's nothing wrong with people who consider themselves superior investors following such theories so long as they realize that they need to do better than the majority of investors who followed them in the past in order to obtain acceptable results. The problem comes when theories that provide acceptable results for only a small fraction of the population are marketed as being generally workable.

Making note that the theories discussed in the Glassman book are appropriate for MasterMinds only seems to me to be a perfectly reasonable warning to include at the top of a post. referencing a book on such a theory.
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No. of Recommendations: 5
hocus wrote:
I think that intercst should be commended for pointing out that Glassman's theory is not based on the future being like the past, just as the Dent theory is based on the future not being like the past and the intercst Safe Withdrawal Study is based on the idea that the future will not be like the past.

Welcome back hocus! My favorite guy with the "kick me" sign on his back IS back!
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No. of Recommendations: 18
hocus:

and the intercst Safe Withdrawal Study is based on the idea that the future will not be like the past.

Pardon my ignorant question, but isn't the Safe Withdrawal Study based on exactly the opposite, that the future will be no worse than the past? If the past 130 years isn't indicative of the worst that the future might bring, then the safe withdrawal rate won't hold. The assumption of the Safe Withdrawal Study is that a 4% withdrawal rate using a specific allocation will result in a balance of $0 or greater after 30 years as long as future stock market returns fall in line with historical averages.

I don't know if I am a Mastermind or not, but I think I understand the study. Perhaps I'm misinterpreting things.

Chris
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But Reb how can you believe the E in P/E? Some companies are flat out lying about their earnings. How in the heck can we make reasoned judgements about the value of a stock when we can't trust the financial statements?
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No. of Recommendations: 5
dagrims wrote:
Pardon my ignorant question, but isn't the Safe Withdrawal Study based on exactly the opposite, that the future will be no worse than the past?

That's why I sincerely missed hocus! He's the epitome of "non-masterminds" on this board.
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But Reb how can you believe the E in P/E? Some companies are flat out lying about their earnings. How in the heck can we make reasoned judgements about the value of a stock when we can't trust the financial statements?

I think that's exactly why real estate feels better than equities to some.

With real estate, you're generally investing in something based on a set of data that you know is true. With equities, you're investing based on something that someone else tells you is true. <grin>

Golfwaymore
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No. of Recommendations: 12
My favorite guy with the "kick me" sign on his back IS back!

Galeno:

Bob Dylan did an interview with Playboy in 1966 in which one of the questions the interviewer asked him was "how do you get your kicks?"

Dylan's response was something to the effect of: "I arrange to have a group of people tie me up with ropes and hit me with sticks for about two hours."

"And that's how you get your kicks?" the interviewer responded.

"Oh, no," Dylan said. "Then, I forgive them. That's how I get my kicks."

Just a story that I've always found funny and that I find marginally relevant to your post here. I like lots of Dylan's songs, but I think an argument can be made that he is even more skilled at giving interviews than he is at writing songs.




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I don't know if I am a Mastermind or not, but I think I understand the study.

No personal offense intended, Dagrims, but I think that you do not understand it fully. intercst has acknowledged that the study only applies to the 10 percent or so of investors that he characterizes as MasterMinds (this is another name for the group with the "INTJ" classification in the Myers-Briggs personality study). If you are not in this group, the study does not apply to you, according to the author.

You say that you do not know if you are a Mastermind or not. If you are making any investment decisions based on what the study says, I think you should find out as soon as possible. The study results make no sense for those not in the MasterMind class, so you can't just ignore this factor. I personally think it would be a good idea if intercst provided a warning with the study noting its limited applicability, as he quite properly did with the post kicking off this thread.

The assumption of the Safe Withdrawal Study is that a 4% withdrawal rate using a specific allocation will result in a balance of $0 or greater after 30 years as long as future stock market returns fall in line with historical averages.

That's the sort of misstatement of the study's finding that I have seen made on this board many times. Even intercst has been guilty of it. Actually, the statement you make is true only in the most extraordinary of circumstances, circumstances that may well have never occured in the history of public markets to this point in time.

In order for the study to apply, investors would have to maintain 80 percent stock allocations through the worst market drops that have occured in the past 130 years. The worst drop in that period was the one in 1929, when the market fell 86 percent. So that would mean that someone retiring in 2000 with an 80 percent stock allocation would have to maintain that allocation if the DOW (or whatever measure is used) fell from something close to 11,800 to something close to 1500.

I think you'll agree that a retiree with $1 million in assets who sees the DOW fall from 11,800 to 1500 would not be likely to maintain an 80 percent stock allocation. There have been some on this board raising the idea of cutting their stock allocation with a fall to only 8,000!

The study provides investors with no tools for determining whether they are the sort to maintain an 80 percent stock allocation in the face of a fall to DOW 1500 or not. So all you can really do is hope that you are part of the lucky 10 percent group that intercst refers to as MasterMinds.

Some investors on the board are convinced that they are, so I see no reason why they should not adopt the high-risk strategy proposed in the study. Taking on that level of risk often provides exceptional long-term returns, as you can see by looking at the results obtained by intercst. I don't think that intercst should be faulted, however, for trying to let the non-MasterMinds who might be visiting the board know that some of the investment strategies discussed here are high risk and not at all suitable for the average aspiring early retiree.

Just for the record, I personally do not believe that the DOW will fall to anything close to 1500. I personally believe that the fall will not be anywhere near as great as it has been at prior times of extreme overvaluation. The downside of a smaller fall, of course, is that the subsequent bull markets will not be as great as those that followed the bear market of the 1930s. The removal of middle-class funds from the stock market during bear markers is one of factors pushing subsequent bull markets higher as it provides for lots of new demand for stocks when they are perceived as safe again.

So you don't need to believe that the DOW will fall to anything like 1500 to believe that the safe withdrawal rate for most investors is far less than 4 percent. All you need to believe that is that there is a reaonable chance that stocks will behave in the future in a manner somewhat similar to how they have behaved in the past.








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No. of Recommendations: 4
"All you need to believe that is that there is a reaonable chance that stocks will behave in the future in a manner somewhat similar to how they have behaved in the past." - Hocus

I know one thing. Back when Techs were roaring I bought into the line, "This time it's different!" It wasn't. I've learned my lesson. It's never different. - Art








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No. of Recommendations: 26
hocus continues to misinterprete,

<<<<I don't know if I am a Mastermind or not, but I think I understand the study.>>>>

No personal offense intended, Dagrims, but I think that you do not understand it fully. intercst has acknowledged that the study only applies to the 10 percent or so of investors that he characterizes as MasterMinds (this is another name for the group with the "INTJ" classification in the Myers-Briggs personality study). If you are not in this group, the study does not apply to you, according to the author.


intercst has done no such thing. He pointed out that the INTJ personality type is over represented in the "Retire Early" population by a factor of 20 to 1 versus the population at large. Folks with this personality type seem to be able to ignore the idiocy that prevents the vast majority of the population from retiring early.

Anyone who understands basic math can follow the study. The simple arithmetic applies to Masterminds and non-Masterminds alike. The non-Masterminds who understand the approach can attest to that.

<<<<The assumption of the Safe Withdrawal Study is that a 4% withdrawal rate using a specific allocation will result in a balance of $0 or greater after 30 years as long as future stock market returns fall in line with historical averages.>>>>

hocus: That's the sort of misstatement of the study's finding that I have seen made on this board many times. Even intercst has been guilty of it. Actually, the statement you make is true only in the most extraordinary of circumstances, circumstances that may well have never occured in the history of public markets to this point in time.


That's exactly the sort of statement that accurately describes the Retire Early Study on Safe Withdrawal Rates, but since you've admitted you haven't read or understood the study, you continue to post this lunacy.

intercst

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Hocus, I have to ask. Do you get paid by the word?

nmckay
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A request: please don't bash hocus too much. I LOVE having him around. I think he's "perma-stoned" and when I'm stoned, I CAN groove with him! Go hocus go!
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>>>>>
But Reb how can you believe the E in P/E? Some companies are flat out lying about their earnings. How in the heck can we make reasoned judgements about the value of a stock when we can't trust the financial statements?
>>>>>

You can't completely. But it hads *always* been that way.
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At 7% increase/year, the Dow will be 36000 in 21 years.

At 10% it will take 15 yers.

At 15% it will take 10 years.

That assumes an average annual increase. Of course, it might just fluctuate, or it might go down.

In any case, the Dow most surely has to move up faster in all of those scenarios than the economy has done recently, which is 3-5% in a good year.

Of course profits may go up faster than the ecopnomy, at least in some companies. Other companies see their profits go to zero. Is it likely that profits of the Dow go up at the rate of 15% per year, for example? I have no idea.

If, for example, profits of the Dow go up at a rate of 10% per year, and the Dow gets to 36,000 in 10 years, then the P/E of the Dow will have increased significantly, and we will have another bubble.

At 3% average annual increase, the Dow will be 36,000 in 47 years.

At 5%, it will take only 29 years.

So if the Dow increases something like the GDP in recent history, we might get 36,000 some time in the neighborhood of 38 years, give or take something or other.

Pick your own numbers. I do not have much use for such speculation, but I am bored, and I have a spreadsheet.

The important thing is to make decisions based on what the market is doing now, not on some hypothetical speculation which may or may not be entertaining.
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>>>>>
But Reb how can you believe the E in P/E? Some companies are flat out lying about their earnings. How in the heck can we make reasoned judgements about the value of a stock when we can't trust the financial statements?
>>>>>

You can't completely. But it hads *always* been that way.


Yeah, probably. I wonder if those services like Value Line and Weiss can help in this regard. Maybe their analyses include comments on the quality of the financial statements. Might be worth subscribing if that's the case. Lord knows you can't trust the auditors.

What I've come to appreciate over the past couple years is the value of asset allocation. A lot of people think that if you've got a 30 year investment horizon you should be 100% in equities. Well that may very well work for some folks but I can't stand the volatility. I'm going to investigate building a portfolio that includes some real estate, bonds and hard assets as well as equities. I need a smoother overall return. This up 30% one year down 40% the next is too hard on the stomach.
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Hello hocus,

Glad you've rejoined the discussion. I hope that this post can serve to bridge the gap between your point of view and the 'Mastermind's'.

You write:
That's the sort of misstatement of the study's finding that I have seen made on this board many times. Even intercst has been guilty of it. Actually, the statement you make is true only in the most extraordinary of circumstances, circumstances that may well have never occured in the history of public markets to this point in time.

In order for the study to apply, investors would have to maintain 80 percent stock allocations through the worst market drops that have occured in the past 130 years


The main problem with that that I see with this is that the previous poster, and the study do in fact agree that if a specific investor maintains the asset allocation described, and the market is no worse than previously, then the results will hold. Note that the poster correctly included the assumption that the asset allocation would be followed. So his statement is correct. He does not say all or most investors will follow the allocation.

You raise the very important point that psychologically few might be able to stomache a drop of 86% in stocks and continue to move money into stocks. That does not change the fact that if you assume they would do so, they would get the withdrawal rate promised, if history holds. I think you, hocus, will have much better results trying to discuss the important issues that you raise if you try to discuss them in terms of volatility tolerance and asset allocation and how they apply to individual withdrawal rates, instead of making unsupported claims about what the SWR study says. It says what it says, applying it to real life is the issue you want to address, I think.

Previously you wrote:
the intercst Safe Withdrawal Study is based on the idea that the future will not be like the past.

This, in my mind is simply asking for more of the same round and round arguments and re-explanations of what the SWR study does and doesn't claim unless you go into more detail that you mean something like:

The intercst Safe Withdrawal Study is based on the idea
that an individual investor will be able to withstand the
psychological torture of watching stocks drop 86% and calmly
rebalance money from bonds into stocks, something which in
the past very few have done. Furthermore, I think it
appropriate that a warning be attached to the study that
anyone considering following the efficient frontier
allocation of (roughly) 75% stocks / 25% fixed income should
very carefully consider whether they can watch their assets
go from $1,000,000 to $200,000 and stick with stocks which
just lost them $800,000!
And if they do chose this path
they need to steel themselves and prepare themselves in any
way possible to withstand such a drop, because attempting
to follow such an allocation and then bailing out of stocks
at the wrong time will likely mean a failed FIRE.


Have I captured something akin to your thinking?

Regards,
Ben

PS Have you taken the plunge back into any stocks yet? Have you noted the recent article that explained that the single digit PEs in 1982 and 1932 excluded one-time losses from earnings and only considered earnings and expenses from continuing operations? Also interesting that the ratio the inverted PE or 'earnings yield' using trailing 12 month operating earnings to the current 10 year treasury yield actually compares favorably to the same ratio in 1982 when the PE was about 8, but interest rates were three times higher. Of course I'm not saying anything about short term direction of the stock market.
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No. of Recommendations: 11
hocus responds to me (in italics):

No personal offense intended, Dagrims,

Absolutely none taken. I know from your posts that you stick to discussion of issues and ideas without denegration into personal insults or remarks.

but I think that you do not understand it fully. intercst has acknowledged that the study only applies to the 10 percent or so of investors that he characterizes as MasterMinds (this is another name for the group with the "INTJ" classification in the Myers-Briggs personality study). If you are not in this group, the study does not apply to you, according to the author.

intercst answered this point in a reply already, and I agree with his response: the study applies to everyone because it's a collection of research and facts. It presents a calculation based on historical detail, and is not biased toward any particular type of individual.

You say that you do not know if you are a Mastermind or not. If you are making any investment decisions based on what the study says, I think you should find out as soon as possible. The study results make no sense for those not in the MasterMind class, so you can't just ignore this factor.

Now that you reminded me of the Mastermind definition, I can state that I do not fit that profile. I believe that I tested as an ENTP or ENTJ (I haven't taken the test in a number of years). I digress a bit, but imagine me, a CPA, testing out as extroverted. I don't doubt that result for a second, as I enjoy public speaking, interacting with others in social settings, and making concerted efforts to meet as many people as I can. However, one of my favorite accountant jokes is "What's the definition of an extroverted accountant? One who looks at your shoes when he's talking rather than his own." Well, it's funny to me, anyway.

Back on point, I don't agree with your statement that the study makes no sense for non-Masterminds. I believe it should be used and followed only by those who have the interest in and personal characteristics to follow the guidelines of the study fully, without wavering. It does require certain personality traits, but I believe those traits can be found in people across the spectrum, including non-Masterminds. It's simply more likely that a Mastermind will be interested (and able) to follow the guidelines.

In order for the study to apply, investors would have to maintain 80 percent stock allocations through the worst market drops that have occured in the past 130 years.

Agreed.

The worst drop in that period was the one in 1929, when the market fell 86 percent. So that would mean that someone retiring in 2000 with an 80 percent stock allocation would have to maintain that allocation if the DOW (or whatever measure is used) fell from something close to 11,800 to something close to 1500.

Agreed again. That's exactly what it means. If one follows this withdrawal method, whatever the Dow falls to or climbs to is irrelevant. The retiree should continue to withdraw the 4% and remain allocated in the same manner.

I think you'll agree that a retiree with $1 million in assets who sees the DOW fall from 11,800 to 1500 would not be likely to maintain an 80 percent stock allocation. There have been some on this board raising the idea of cutting their stock allocation with a fall to only 8,000!

I do agree with you here. There are many investors, retired or not, that invest with emotion as their guide rather than pure rationality. I would guess that very, very few investors don't get emotional when/if they see their portfolio tumble by tens of percentage points. However, if one acts upon these emotions and allocates away from stocks, he/she simply is not following history, and is betting that the future will result in long-term returns worse than the worst-case scenarios in the past 130 years.

The study provides investors with no tools for determining whether they are the sort to maintain an 80 percent stock allocation in the face of a fall to DOW 1500 or not. So all you can really do is hope that you are part of the lucky 10 percent group that intercst refers to as MasterMinds.

The study isn't meant to do that. It provides investors with just one tool - a historical study of a withdrawal rate that will result in not losing 100% of your investment in a 30-year period. There's no way that this study should be the only consideration in a retirement withdrawal plan. What if you expect to live longer than 30 years? What if you think the future will be worse than anything in the past? What if you just don't think you can stick it out with this asset allocation? These and many other questions need to be asked. The study is simply a tool for an individual to use.

My wife and I are in our early 30s, and we really started investing a significant portion of our income in 1999. As a result, we've experienced losses in our portfolio through a significant portion of our investing 'career'. We haven't sold anything, and continue to invest regularly. A key factor, whether you're retired or not, is that historically, time is on your side. A retiree who sees their investment plummet during the first 10 years of their retirement should understand that in every single situation throughout the past 130 years, their investment value would remain above $0 for at least 20 more years, if they followed the withdrawal and allocation guidelines of the study. Of course that could be difficult to do, certainly if you don't want to use history as a predictor of the future.

But let me ask you this: if the Dow were to fall to 1800, what alternatives to stocks would you see as being attractive? Why would you pick those? There are no historical grounds to defend an alternative investment choice as safer.

So you don't need to believe that the DOW will fall to anything like 1500 to believe that the safe withdrawal rate for most investors is far less than 4 percent. All you need to believe that is that there is a reaonable chance that stocks will behave in the future in a manner somewhat similar to how they have behaved in the past.

Maybe we'll have to agree to disagree here. I do believe there is an excellent possibility that stock returns over the next 30 years will behave in a manner very similar to one of the 101 30-year periods over the past 130 years. It doesn't matter which one. As long as it is similar to any one of them, then I am very confident that I can follow the precepts of the Safe Withdrawal Study and still have a dollar left after 29 years and 364 days. If I plan to retire at 50 and live to 90, however, I need to do more calculations.

Chris
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The intercst Safe Withdrawal Study is based on the idea
that an individual investor will be able to withstand the
psychological torture of watching stocks drop 86% and calmly
rebalance money from bonds into stocks, something which in
the past very few have done.


Geez, even tenants calling in the ubiquitous "middle of the night" (which has never happened to me) doesn't torture me. How do y'all stand it?!
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Geez, even tenants calling in the ubiquitous "middle of the night" (which has never happened to me) doesn't torture me. How do y'all stand it?!

I chuckled at your post, but I wanted to share my own personal experience about how landlording and being your own property manager can indeed be 'psychological torture'. Eviction proceedings. Lost sleep. Worry over property damage and neighbor's complaints. I don't have time to go into lots of detail now, but suffice to say the phrase isn't too far from accurate for me over the last few months. In one case tenants that came with the house, so we didn't have a chance to screen, and the other we weren't patient enough, didn't screen well enough. Ouch. Lesson in process of being ingrained in my sleepless head.

Ben
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Geez, even tenants calling in the ubiquitous "middle of the night" (which has never happened to me) doesn't torture me. How do y'all stand it?!

Tracking the portfolio the last couple years hasn't been fun like it used to be, but I swear I haven't lost one minutes sleep. It's probably because I'm a long way from retirement, I'd probably feel differnt if I was living off my portfolio. I've also concluded a couple things:

1. Stocks go up
2. Stocks go down
3. If you don't like No. 2, don't buy stocks.

That's the thing I don't get about Hocus. Hey, if the volatility of stocks is making lose sleep, don't buy 'em. It's kind of like saying, the Law of Gravity is incorrect because it doesn't provide a tool to make you feel less heavy. The market is gonna do what it's gonna do.
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The simple arithmetic applies to Masterminds and non-Masterminds alike.

I developed my understanding that intercst thought otherwise from the post linked below:

http://boards.fool.com/Message.asp?mid=17389965

In that post, intercst states:

"Does that mean that the other 90% can't retire early? It depends. It probably means they have to change their behavior, which I admit is a very difficult thing to do."

If it is certain that the 10 percent of the population classed as MasterMInds obtains a 4 percent withdrawal rate but for the other 90 percent "it depends," it seems clear to me that the simple arithmetic does NOT apply to MasterMInds and non-MasterMinds alike. A safe withdrawal rate that "depends" on various things happening isn't really safe.

How can results that are opposites--one group obtains a 4 percent withdrawal rate and one does not--be considered to be "alike?"
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That's the thing I don't get about Hocus. Hey, if the volatility of stocks is making lose sleep, don't buy 'em.

But, sykeMOL, I do not consider the volatility of the asset class to be a bad thing. I enjoy reading posts about real estate and bonds and so forth, but stocks are my favorite asset class. What I like about stocks is the long-term growth potential, and without the volatility, you wouldn't have the long-term growth potential.

So why should I refrain from buying an asset class I like?

My complaint with the Safe Withdrawal Rate study is that it suggests purchasing stocks even when doing so delays your early retirement. I like stocks, but there are limits. I think that the sensible way to go is to buy stocks when they provide the Safe Withdrawal Rate you need for a reasonably early retirement and buy other asset classes when they do.

Of course, to make the comparison, you need to know the true safe withdrawal rate for each of the various asset classes.
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hocus writes AGAIN:
My complaint with the Safe Withdrawal Rate study is that it suggests purchasing stocks even when doing so delays your early retirement. I like stocks, but there are limits. I think that the sensible way to go is to buy stocks when they provide the Safe Withdrawal Rate you need for a reasonably early retirement and buy other asset classes when they do.

Of course, to make the comparison, you need to know the true safe withdrawal rate for each of the various asset classes.


Here we go again <grin>. BTW hocus, your Bob Dylan analogy in a previous post went completely over my head. I just don't get it.
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You raise the very important point that psychologically few might be able to stomache a drop of 86% in stocks and continue to move money into stocks. That does not change the fact that if you assume they would do so, they would get the withdrawal rate promised, if history holds.

Yours was a well-motivated constructive post, BenSolar. If we started talking about the things you are talking about here back in May, we would have made a lot more progress in the past three months, in my view.

You are right that my primary objection to the study is that it depends on an assumption that the particular investor following it will stick to an 80 percent stock allocation no matter what. You are also right that, if one accepts that asumption, then the subsequent logic of the study, the calculation of the safe withdrawal rate, becomes a "fact."

What troubles me is that the study offers no data in support of its assumption, which I find farfetched in the vast majority of circumstances. By changing the assumptions you incorporate into a safe withdrawal rate study, you can arrive at any rate you choose in advance. Say thar you want a Safe Withdrawal Rate of 20 percent. Just assume that on Janaury 1 of each year you will pick the ten best performing stocks for the coming year, and you can probably produce a safe withdrawal rate of 20 percent. It's not much more farfetched an assumption than the one intercst goes with.

So long as a study incorporates assumptions that have no basis in fact, you can produce any rate you like, just by making adjustments in the underlying assumptions. It is the assumptions that determine the results of such a study, not the historical data. The data is just being used to give the study some surface appearance of being "scientific."

Intercst has said that he believes that those with the INTJ personality type ("MasterMInds") are more likely to obtain a 4 percent withdrawal rate than the 90 percent of investors with other personality types. That may or may not be true. I'd like to see some data on the point. Is there historical data showing that INTJs stay with high stock allocations in bear markets more often than other personality types? If there is, that tells us something about the safe withdrawal rate that applies to INTJs. But I haven't seen the data yet, so as of now I just don't know.

It's theoretically possible that INTJs have a lower safe withdrawal rate than others because they hold onto their stock allocations longer than most other personality types and then sell only at the absolute marker bottom. Again, I just don't think it's possible to say too much about the true safe withdrawal rate for INTJs (much less any other personality type) without first looking at some data that bears on the question.

What if there is data that shows that those with 50 percent stock allocations stick with their stock allocations 95 percent of the time, and those with 80 percent allocations only stick with theirs 20 percent of the time? If there were data showing that, that would suggest to me that an 80 percent stock allocation is not at all the optimal stock allocation, as some have claimed on this board. If a 50 percent stock allocation provides a higher safe withdrawal rate, then a 50 percent allocation might well be optimal. Again, the key to me is looking at data that bears on the factors that determine the safe withdrawal rate.

It says what it says, applying it to real life is the issue you want to address, I think.

Yes, that's a most astute comment. The study does indeed say what it says, and any other researcher who looked at the exact same set of factors as intercst would come to exactly the same result. My problem is just what you suggest here. To make the safe withdrawal rate concept a practical tool for aspiring early retirees, you need some way to apply it in real life. And, in real life, stocks are owned by people. So you can't get to the right answer without incorporating into theequation some data about how people hold stocks.

I think you, hocus, will have much better results trying to discuss the important issues that you raise if you try to discuss them in terms of volatility tolerance and asset allocation and how they apply to individual withdrawal rates...

I'm happy to use any sort of terminology that makes others happy. My concern is not with the words, but with the results and the practical implications.

Let me give you one concrete example of the sort of problem that the study causes me. I have put up posts on various occasions explaining why I think that certificates of deposit can be a good asset class for aspring early retirees. intercst will often post on these threads pointing to his study and saying that far higher safe withdrawal rates can be obtained by investing in stocks. How am I to respond to these sorts of posts without pointing out the flaws in the study?

If the intercst study did what intercst says it does, intercst would be right. But it doesn't. I'm left having to debate the merits of the study on each and every thread discussing any investment class other than stocks. It gets tiresome.
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I wanted to share my own personal experience about how landlording and being your own property manager can indeed be 'psychological torture'.

That's why I don't manage my own properties. I told the property manager, don't call me unless someone got shot. Of course, based on where they're located, that's not unimaginable.
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if one acts upon these emotions and allocates away from stocks, he/she simply is not following history, and is betting that the future will result in long-term returns worse than the worst-case scenarios in the past 130 years.

You and I approach the historical data from a different perspective, Dagrims. I don't see anything irrational about lowering your allocation to stocks if you see that your earlier decision to go with an 80 percent stock allocation was a mistake. I think that the time to consider the historical data is at the point you are coming up with the initial allocation.

If you believe that your personal pain thershold is to lose 20 percent of your overall portfolio value, and you see from the historical data that stocks may lose 40 percent of their value in the early years of your retirement, I would advice limiting your stock allocation to 50 percent. That way you won't face difficult isses as to what to do at some later data.

I believe that the time to look at the historical data is when you are making the intial allocation, not when you have already lost the money. You're not left with too many pleasant options at that point.

If the Dow were to fall to 1800, what alternatives to stocks would you see as being attractive?

If the DOW were to fall to 1800, I would find stocks incredibly attractive on a going forward basis. I believe that part of the reason why stocks provided such great returns from 1930 forward and from 1980 forward is that the big price drops starting in the late 20s and in the mid-60s flushed middle-class investors out of stocks. That set up the conditions for years or decades of extremely good returns from stocks, as the middle-class slowly returned to an asset class they left behind "for good" years earlier.

The study assumes that you can get the same sort of returns from stocks if you did not have these flush-outs of middle-class investors, that everybody can just vow to remain 80 percent invested in stocks and still obtain their 4 percent withdrawal rate in the long run. I'm dubious.

If prices don't drop low enough to wash out most middle-class investors, I don't think you will see on a going forward basis the sorts of returns you see in the historical data. Assuming that there will not be a middle-class washout in the future ignores the message of the historical data in a significant way, and I believe that when you assume a major change like that you can no longer have confidence that the other characteristics of stock performance examined in the study will not be changed as well. I see all of these factors as connected.

I believe that the price earnings ratio for stocks was on the low side in 1870, when the historical period being examined begins. It moved up until the late 20s, when a drop in prices washed out middle-class participation in the market. Then the process of high stock market returns and a gradual increase in PE rations started up again, and ended in another washout in the late 60s through the early 80s. Then the climb began again, ending in the late 90s.

I have no way of knowing whether there will be another washout now or not. If there is, then the study will not work for most investors. If there is not, then I expect that most investors will not obtain the same sorts of returns from stocks that the historical data suggests is possible under conditions in which there are such washouts.

To assume that there will be no further washouts of middle-class participation in the stock market changes the world of stock investing in so profound a way that I think to assume that is almost like trying to create an entirely new investment class and then expect the new one to perform like the old one. We have never had a time in history in which middle-class investors invested in stocks in the way in which intercst presumes they will in the future.
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he's "perma-stoned"

Now THAT's funny.

No offense, Hocus, but I got a chuckle out of this one.

Draggon
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Here we go again <grin>. BTW hocus, your Bob Dylan analogy in a previous post went completely over my head. I just don't get it.

I think hocus was putting the REHP board in place of Bob Dylan and he wants us to forgive for beating this issue again.

Hyperborea
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hocus writes,

The simple arithmetic applies to Masterminds and non-Masterminds alike.

I developed my understanding that intercst thought otherwise from the post linked below:

http://boards.fool.com/Message.asp?mid=17389965

In that post, intercst states:

"Does that mean that the other 90% can't retire early? It depends. It probably means they have to change their behavior, which I admit is a very difficult thing to do."

If it is certain that the 10 percent of the population classed as MasterMInds obtains a 4 percent withdrawal rate but for the other 90 percent "it depends," it seems clear to me that the simple arithmetic does NOT apply to MasterMInds and non-MasterMinds alike. A safe withdrawal rate that "depends" on various things happening isn't really safe.

How can results that are opposites--one group obtains a 4 percent withdrawal rate and one does not--be considered to be "alike?"


Thank you for providing that link. I've placed the operative words of my post in bold above.

Anyone who has actually reached financial independence, retired at a young age, and no longer needs to do any paid work to meet their annual expenses will attest that their behavior is very different from the other 99% of the population. You bemoan the fact that early retirement should be for everybody, not just a select few. It probably can't be for everyone, but certainly more people could do it if they changed their behavior. The arithmetic works for anyone who understands math and applies it.

I'd be very interested in seeing the "100% safe" withdrawal rate for the retiree that switches in and out of stocks based on his knowledge of when stocks are "high or "low". The folks that timed their switches perfectly would enjoy extraordinary returns. The folks that timed the switches poorly would quickly go broke. Since the "100% safe" withdrawal rate is the rate that allows the portfolio to survive for all pay out periods examined (and for all investors adhering to the strategy), would the "safe" withdrawal rate for the "stock switchers" be more than 0%?

intercst
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Galeno:: He's perma-stoned
Draggon:Now THAT's funny.

I agree, Draggon.

I sort of like the impression that that particular post leaves one with in regard to the excitement quotient in my day-to-day affairs. It's not too accurate, but I think it helps my image more than me putting up another in a long line of those too too wordy posts.

As far as the inner meaning of the earlier Dylan parable goes, he put it more directly in another oft-quoted obsersation from 1966. The basic point was that "everybody must get stoned" (and it was not a song about drugs).

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You and I approach the historical data from a different perspective, Dagrims. I don't see anything irrational about lowering your allocation to stocks if you see that your earlier decision to go with an 80 percent stock allocation was a mistake. I think that the time to consider the historical data is at the point you are coming up with the initial allocation.

I think we're saying pretty much the same thing here, although maybe in different ways. I agree that it is when you are getting the withdrawal plan set up that you should set your initial allocation. But, if you decide to set it up based upon the SWR study figures of 80/20 and 4% because you believe that historical data shows us the worst that we'll have to face, you should feel confident in sticking with it through good periods and bad periods.

If you believe that your personal pain thershold is to lose 20 percent of your overall portfolio value, and you see from the historical data that stocks may lose 40 percent of their value in the early years of your retirement, I would advice limiting your stock allocation to 50 percent. That way you won't face difficult isses as to what to do at some later data.

I have no issue with this. If you understand rationally what the study states, but you emotionally cannot handle the extreme value fluctuations that history has shown can and will happen, then by all means don't follow the precepts of the SWR study. Sleepless nights should not be a result of structuring your retirement plan. As I mentioned earlier, my particular investing time horizon is very long, so when my returns are down double digits I don't despair. Saying that, however, if I'm losing money while all around are breaking even or making money, then I need to figure out what I'm doing wrong and fix it. I'm not a blind LTBH-er.

If the DOW were to fall to 1800, I would find stocks incredibly attractive on a going forward basis.

Easy to say, but what happens if the US economy tanks completely and the Dow at 1800 is just as overvalued then as it is perceived to be today (or was two years ago)? Without knowing what the returns would be for alternative investment types during the same period the Dow plummets, this is just speculation. My conclusion from the study is that I don't care whether stocks look incredibly attractive on a go-forward basis, history tells me that they'll perform well enough to preserve my capital for 30 years at a 4% withdrawal rate.

The study assumes that you can get the same sort of returns from stocks if you did not have these flush-outs of middle-class investors, that everybody can just vow to remain 80 percent invested in stocks and still obtain their 4 percent withdrawal rate in the long run. I'm dubious.

If prices don't drop low enough to wash out most middle-class investors, I don't think you will see on a going forward basis the sorts of returns you see in the historical data. Assuming that there will not be a middle-class washout in the future ignores the message of the historical data in a significant way, and I believe that when you assume a major change like that you can no longer have confidence that the other characteristics of stock performance examined in the study will not be changed as well. I see all of these factors as connected.


I don't see the study as assuming there will be no middle-class washouts in the future. In my mind, the study assumes there will continue to be such 'washouts' as the vast majority of investors will not be following the SWR tenets. The market will continue to act unpredictably in the short-term, and even in the longer term, but will trend up. There will continue to be periods of great volatility, with bear and bull markets, some of them possibly quite long. Because of this, I as an individual investor can take advantage of this by using the SWR study guidelines. As with any other investment method, once enough people act in the same manner, the effectiveness of the method decreases. This may be what's happening with the S&P 500 as more and more people index, but that's for another thread.

I have no way of knowing whether there will be another washout now or not. If there is, then the study will not work for most investors.

Only if most investors try to do it. I think only a small minority would attempt this, which would preserve the study's validity.

If there is not, then I expect that most investors will not obtain the same sorts of returns from stocks that the historical data suggests is possible under conditions in which there are such washouts.

To assume that there will be no further washouts of middle-class participation in the stock market changes the world of stock investing in so profound a way that I think to assume that is almost like trying to create an entirely new investment class and then expect the new one to perform like the old one.

We have never had a time in history in which middle-class investors invested in stocks in the way in which intercst presumes they will in the future.


I'm not reaching the same conclusion about intercst's assumption. I think the assumption is that a future 30-year period will be like one of the preceding 30-year periods, with washouts, dips, rises, bear and bull markets, recessions or even a depression. But not worse than anything history has thrown us in the prior 130 years. If so, all bets are off.

I'm enjoying this discussion, hocus, even if others may be tiring of it. I enjoy reading your posts and discussing these issues helps flesh out my thoughts and ideas much better. If you'd like to, feel free to email me privately to continue. When this was going hot and heavy a while back, I was about 1000 posts behind in my reading so I wasn't reading things timely enough to post my thoughts then.

Chris
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intercst wrote:
Anyone who has actually reached financial independence, retired at a young age, and no longer needs to do any paid work to meet their annual expenses will attest that their behavior is very different from the other 99% of the population. You bemoan the fact that early retirement should be for everybody, not just a select few. It probably can't be for everyone, but certainly more people could do it if they changed their behavior. The arithmetic works for anyone who understands math and applies it.

Amen! Amen! Amen!
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<in the continuing Intercst/Hocus debates, Hocus quotes Intercst:

"Does that mean that the other 90% can't retire early? It depends. It probably means they have to change their behavior, which I admit is a very difficult thing to do.">

<<If it is certain that the 10 percent of the population classed as MasterMInds obtains a 4 percent withdrawal rate but for the other 90 percent "it depends," it seems clear to me that the simple arithmetic does NOT apply to MasterMInds and non-MasterMinds alike. A safe withdrawal rate that "depends" on various things happening isn't really safe.>>


The math is the math is the math. If you are smart enough to earn 100k per year, but are unable to ever save anything, FIRE will not be on the agenda for you. If you make 50k per year, but are able save at least 20k per year, FI becomes a real possibility.

I veiw the 4% concept as both a starting point and a possible finishing point. The starting point is there to give you an idea of how much in assets you need in order to cover your expenses. From there you can stand back and see where you are, where you want to get to and then make some determinations about HOW you intend to get there. The finishing point comes when you have answered a series of important personal questions.

If this process is done correctly, you will ask yourself many lifestyle questions. Are you a saver? Can you go into hypersaving mode? Can you cut down your living expenses permanently? Do you NEED to have a new car every three years? Do you selectively make cuts in some areas to be able to enjoy things in other ones? Do you want to stay in a job you dislike simply because it may accelerate your FI chances? If you are married, will your SO be in general agreement with you on these issues? If you are single, will you consider these questions before making the plunge? If you recognize that you made serious mistakes in the past, are you willing to alter your behavior? There are many more additional questions, but you get the idea.

Early on, you should also make a clear determination of how risk averse you are. Again the SWR study can help. If you are not comfortable with a 75/25 mix, you can determine how much in assets you will need to accumulate in order to go with a 50/50, 25/75 or a 0/100 mix. It will give you a withdrawal rate to support any one of those mixes.

The vast majority of people out there never give these questions the thought that they deserve. Some have the misfortune of personal or family illness that limits their choices. However, most fail to realize that they are making choices that will permanently close the door to FI. That is neither good nor bad. Like the math mentioned above, it just is. If 90% of the population is unable to reach FIRE it is not because of flawed math. Hocus spends a lot of energy trying to open the door for those who keep slamming it shut on themselves. Most of those who have reached FIRE are more than willing to help those who are trying to open the door. They do not want to spend their time trying to convince people that FI is a good concept as that tends to cause headaches.

Incidentally, Hocus, I think your particular choice of saving like hell and structuring your investments to maximize current income is a viable choice. It allowed you to leave an overly stressful, well paying job to focus your attention on an independent writing career. The current income provides a temporary safety net for you while you ramp up your earnings in your new career. However, it is definately not a RE program. Also, it will only become a FI program if in fact the new career works out for you. I do applaud it for what it is, as it provides a real alternative for someone who wants to reduce the burnout and/or stress level that many suffer from in the corporate world. There are many worthy goals that do not include RE.

I think it is very useful when people present an alternate way of reaching their goals here. Some here have managed to get there by owning rental real estate. Good for them too! Whatever choices you make they should be based on answering a long series of questions similar to those above. If your personality is such that you are totally uncomfortable with both real estate and stock investing you can still get there with 0/100 allocation. The math is easy. You just have to increase your savings and decrease your withdrawal rate (somewhere around 2.3% IIRC).


BRG
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gurdison writes,

Incidentally, Hocus, I think your particular choice of saving like hell and structuring your investments to maximize current income is a viable choice. It allowed you to leave an overly stressful, well paying job to focus your attention on an independent writing career. The current income provides a temporary safety net for you while you ramp up your earnings in your new career. However, it is definately not a RE program. Also, it will only become a FI program if in fact the new career works out for you. I do applaud it for what it is, as it provides a real alternative for someone who wants to reduce the burnout and/or stress level that many suffer from in the corporate world. There are many worthy goals that do not include RE.

I think it is very useful when people present an alternate way of reaching their goals here. Some here have managed to get there by owning rental real estate. Good for them too! Whatever choices you make they should be based on answering a long series of questions similar to those above. If your personality is such that you are totally uncomfortable with both real estate and stock investing you can still get there with 0/100 allocation. The math is easy. You just have to increase your savings and decrease your withdrawal rate (somewhere around 2.3% IIRC).


To quote galeno: Amen, Amen, Amen!

intercst
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I'm enjoying this discussion, hocus, even if others may be tiring of it. I enjoy reading your posts and discussing these issues helps flesh out my thoughts and ideas much better.

Thank you for those kind words, Dagrims. I learn from posts like yours too. This sort of exchange is what makes it worth coming to the board.
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dagrims wrote:
I'm enjoying this discussion, hocus, even if others may be tiring of it. I enjoy reading your posts and discussing these issues helps flesh out my thoughts and ideas much better.

I enjoy hocus' posts also. They never fail to point the AWAY toward true FIRE <grin>.
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hocus spends a lot of energy trying to open the door for those who keep slamming it shut on themselves.

gurdison:

Where did this idea come from? Intercst said something similar in a recent post, but I don't recall having expressed any such ambition on my part.

The only sense in which it is true is that I am willing to consider and debate Retire Early strategies other than an 80 percent stock allocation, and one consequence of widespread consideration of such strategies would be to open up the goal of early retirement to millions that could never puil it off if the intercst approach were the only possible way.

But I didn't develop investment approaches with the aim of opening up early retirement to more people. I did it with the goal of allowing me to do it as soon as possible. It was only later that I dicovered that there was a message board where investment approaches are promoted that exclude millions from having any realistic hopes of achieving an early retirement.

Do you think that intercst invented the idea of early retirement? There's a book called "Your Money or Your Life" that has sold millions of copies worldwide that tells people how to retire early and that takes an approach far more negative to stocks than the one I put forward. There are far more people who have retired early as a result of that book than ever will as a result of this message board, and none of those following the program as advocated in the book invest a penny in stocks.

There's another book called "Cashing in on the American Dream" that recommends an entirely different approach to early retirement, again one that does not call for a heavy investment in stocks. The author changed his views during the bull market of the late 90s. But that doesn't change the fact that again there are many more who have retired early as a result of that book than as a result of any stock-heavy strategies recommended on this board, and those following the program advocated in the book did it without a heavy reliance on stocks.

I get the impression, gurdison that you have never even given serious consideration to Retire Early investment strategies that do not rely on heavy stock allocations. If you haven't studied them, then you really don't know whether they work better than heavy stock strategies, worse, or about the same. You seem to somehow just "know" that stocks are the only way to go, but how do you really know this? And why does the idea of some people who do not "know" this discussing alternate strategies amongst themselves on a Motley Fool message board offend you?

If it doesn't offend you, then you are you on my side in this debate. Because I am not trying to stop people who like heavy stock strategies from advocating them on this board. I'm asking that the few who are interested in discussing some alternatve approaches be allowed to do so without regular interruption by proponents of high-risk stock strategies who want the discussion to always remain focused on their studies "proving" that their way is the only way.
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<I get the impression, gurdison that you have never even given serious consideration to Retire Early investment strategies that do not rely on heavy stock allocations. If you haven't studied them, then you really don't know whether they work better than heavy stock strategies, worse, or about the same. And why does the idea of some people who do not "know" this discussing alternate strategies amongst themselves on a Motley Fool message board offend you?>


Hocus:

If you have read enough of my posts you will see that I clearly welcome people who have used investment real estate as a means to reaching FI or RE. I even participate in that segment with my heavy investment in the REIT class.

One of my favorite Fools Seattle Pioneer has followed what I would consider to be an excellent FI strategy. Stocks have been a significant element of his success, but he also has done well with owning investment real estate properties. He also has his own furnace repair business that he works for not too many hours a week. I think he has been more than candid about the plusses and minuses in his discussions of his choices in asset classes. He even started a recent thread about his bad luck with his investment in GLW.

I think my philosophy is somewhat similar to his. However when I went through the long series of questions I mentioned in my previous post, I realized that I do not have the temperment to own and/or manage investment property. As for people owning their own business, I have found that there were very few like SP who could afford to only work it for 10 hours per week. In fact many that I knew personally were putting in 60+ hours per week in their business. If you read enough of SPs posts you will learn that stocks were a huge driver of his LT success (in addition to the common trait of LBYM).

I gave you serious praise in my last post regarding your change of careers and your success at putting your savings into overdrive. It is really an alternative that may be useful to others who post here. I do not mean to be overly negative in pointing out that it is not FI or RE story at the current time. It certainly can lead to that and I genuinely hope you are successful at it in the LT. I am always interested in how people reach FI and I believe I have encouraged many to share their experiences with the board. Someone like Golfwaymore has done a lot to show that there is more than one way to reach FIRE. He too has done well in business and in real estate as well as stocks.

I am probably somewhat biased, but I give a lot of credit to those who have made it to FI. If real estate or owning a business was a key driver, I consider it worthy. FWIW, I do not remember anyone talking about reaching FI with a 0/100 allocation. All roads to FI, like life itself, requires one to deal with some element of risk.


BRG

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gurdison writes,

I am probably somewhat biased, but I give a lot of credit to those who have made it to FI. If real estate or owning a business was a key driver, I consider it worthy. FWIW, I do not remember anyone talking about reaching FI with a 0/100 allocation. All roads to FI, like life itself, requires one to deal with some element of risk.

You must have missed Joe Dominguez, the celebrated author of Your Money or Your Life who retired in 1969 with $100,000 of US Treasury securities and a $7,000 annual withdrawal. By 1996, just before he died of cancer, he was living on about $13,000 per year. To keep pace with inflation, $7,000/yr. in 1969 would need to grow to $30,360/yr. by 1996 to maintain the same purchasing power.

I guess it can be done if you don't mind a steadily declining standard of living, but it doesn't look appealing.

intercst
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geleno states:
This bear is mainly a training session for other bear markets in our future.


When the “hocus” argument was going on and questions were being asked if most people could stay in the market during bears I realized that I could because I'm having a trial run right now and have stayed true to my asset allocation. This is a great test to see if the efficient frontier is right for you.

Leolo in Waikiki
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I guess it can be done if you don't mind a steadily declining standard of living, but it doesn't look appealing. intercst

Actually, I think a case CAN be made for a slowly declining standard of living for people retiring "NORMALLY" around age 65. Certainly it is BETTER to do it the FIRE way, but for those who cannot, the truth is that somewhere between age 70 and 80 most people won't be jet setting every month and having wild sex on exotic beaches. Yeah, health costs will mount to offset that. But for people of moderate means the "live well from age 65 to 70 or 75" plan can be a good substitute for trying to maintain a lesser lifestyle all the way to age 90+.
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Daryll40 writes,

<<<<I guess it can be done if you don't mind a steadily declining standard of living, but it doesn't look appealing. intercst >>>

Actually, I think a case CAN be made for a slowly declining standard of living for people retiring "NORMALLY" around age 65. Certainly it is BETTER to do it the FIRE way, but for those who cannot, the truth is that somewhere between age 70 and 80 most people won't be jet setting every month and having wild sex on exotic beaches. Yeah, health costs will mount to offset that. But for people of moderate means the "live well from age 65 to 70 or 75" plan can be a good substitute for trying to maintain a lesser lifestyle all the way to age 90+.


I agree that it's reasonable to assume that you'll slow down and spend less money on vacations and things at age 65, though your medical costs may well start to rise at that age.

Dominguez experienced his "steadily declining standard of living" due to his "all fixed income" strategy from age 29 to 57. I think most of us expect to be fairly active during those years.

intercst
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Dominguez experienced his "steadily declining standard of living" due to his "all fixed income" strategy from age 29 to 57. I think most of us expect to be fairly active during those years.

I'm tempted to conclude from out-of-the-blue attack on the godfather of the Retire Early movement that Intercst the Ridiculer himself is developing a serious case of thin-skin disease.

This is one of those cases where the board need not have any sort of debate as to whether what intercst says is shot full of holes or not. He doesn't have any spreadsheets with worrisome numbers and such to fool any non-MasterMinds in our midst into thinking that, since he says it with such assurance, there must be some sliver of truth to the claim. Here he is just parading his fantasy life out for all to see without the slightest scrap of evidence to back up the assertion.

Dominguez is the author of "Your Money or Your Life," the bible of the Retire Early movement for those not quite so inclined as intercst to try-your-luck-and-pray -for a-100 bagger concoctions. The book was published in the early 90s and has sold millions of copies in dozens of languages worldwide. He turned over all royalties--not some, all--to a charitable environmental group. Does that sound like someone shivering in his apartment in fear over his "steadlily declining standard of living" to you?

No, not to me either.

From the reports I've read, it appears that Dominguez lived from the date of his age 31 retirement to his death a happy man, a wise man, a giving man. He earned enough to do exactly what he wanted with his life energy from the time he left the work world to the time he gave up the ghost. He was too absorbed in his enjoyment of early retirement to have any time left over for ridicule of those who didn't share his views precisely. That's a receipe for making an effective contribution to the world's storehouse of knowledge on early retirement and for living a successful life in the bargain, in my view.

Make one-hundredth the contribution to the Retire Early movement that Dominguez already has over the course of the remainder of your life, and you'll be doing real well, intercst. The odds aren't looking too good for your prospects at this particular moment in time.

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No. of Recommendations: 5
hocus wrote:
From the reports I've read, it appears that Dominguez lived from the date of his age 31 retirement to his death a happy man, a wise man, a giving man. He earned enough to do exactly what he wanted with his life energy from the time he left the work world to the time he gave up the ghost. He was too absorbed in his enjoyment of early retirement to have any time left over for ridicule of those who didn't share his views precisely. That's a receipe for making an effective contribution to the world's storehouse of knowledge on early retirement and for living a successful life in the bargain, in my view.

Make one-hundredth the contribution to the Retire Early movement that Dominguez already has over the course of the remainder of your life, and you'll be doing real well, intercst. The odds aren't looking too good for your prospects at this particular moment in time.


In my NOT SO humble opionion as the newly coronated holy emperor and president for life of the REHP board, intercst's SWR study is thousands of times more valuable than our early departed subject St. Joseph Domingues' book is and will be.

St. Joe Domiguez (and senators for life in abscentia Paul and Vicki Terhorst) will from now on foward be known as the Newtons of early retirment. Honorable senator for life and ex-emperor intercst will from now on forward be known as the Einstein of early retirement for his study of SWRs.

This has been decreed by royal order.

Signed,

Galeno
"the highest of the high"
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No. of Recommendations: 2
"I guess it can be done if you don't mind a steadily declining standard of living, but it doesn't look appealing." - intercst

"Actually, I think a case CAN be made for a slowly declining standard of living for people retiring "NORMALLY" around age 65. Certainly it is BETTER to do it the FIRE way, but for those who cannot, the truth is that somewhere between age 70 and 80 most people won't be jet setting every month and having wild sex on exotic beaches."
- Daryll40


In actuality I think you can have it both ways if you aren't completely attached to living within the U.S. borders. I have a friend from the Vet School, an M.D. from China, that was working at the Vet School as a research technician. He told me that a person could very easily retire in China on $100,000 and live very comfortably the rest of their lives. I don't agree with everything that Galeno says, but one thing that I do agree with is that retiring to Costa Rica may be a good idea for a lot of Americans, especially those who think they are going to get by on Social Security alone. My brother recently married a Phillipino woman and he is seriously thinking about moving to the Phillipines after he retires. There are other alternatives to the places I've mentioned. I keep hoping that the United States normalizes relations with Cuba and that Cuba becomes a haven for retirees. It's close to Key West and the mainland, has excellent health care (if not the most high tech, it's at least adequate and that's about all I'll be able to afford anyway) and I love black beans, yellow rice, and Mambo!!! - Art

Phillipine Retirement:
http://www.livinginthephilippines.com/
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No. of Recommendations: 5
hocus objects,

Dominguez experienced his "steadily declining standard of living" due to his "all fixed income" strategy from age 29 to 57. I think most of us expect to be fairly active during those years.

I'm tempted to conclude from out-of-the-blue attack on the godfather of the Retire Early movement that Intercst the Ridiculer himself is developing a serious case of thin-skin disease.

This is one of those cases where the board need not have any sort of debate as to whether what intercst says is shot full of holes or not. He doesn't have any spreadsheets with worrisome numbers and such to fool any non-MasterMinds in our midst into thinking that, since he says it with such assurance, there must be some sliver of truth to the claim. Here he is just parading his fantasy life out for all to see without the slightest scrap of evidence to back up the assertion.


I refer all doubters to the August 1996 issue of Kiplinger's Personal Finance Magazine page 36:

<snip>

"Of course, achieving financial independence is easier if you start as a well-paid professional. Dominguez was a Wall Street analyst before he retired 25 years ago at age 31, and [Vicki] Robin [his wife] was directing and acting in New York City. Now both live simply, in a group house, on $500 to $600 a month apiece in income from Treasury bonds"

</snip>

Dominguez retired with a $100,000 portfolio of US Treasury securities and $7,000 per year in living expenses. Expenses of $500 to $600 per month, each for two people, equate to $12,000 to $14,400 per year. To keep pace with inflation, Dominguez's $7,000 per year in 1969 would need to grow to $30,360 per year by 1996 to maintain the same purchasing power.

I happen to like the vast majority of what's in Your Money or Your Life and have recommended it the REHP web site, but with the strong caveat that the financial advice to "put everything in Treasury bonds" that Dominguez provides in Chapter 9 be ignored. It's only appropriate for those that see a group home and a $500/month budget in their future. Dominguez unfortunately died of cancer in 1997. I wonder if his $500/month budget included health insurance?

This financial nonsense may appeal to hocus, but I'm not aware of anyone with even rudimentary arithmetic skills who would follow this approach.

intercst
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No. of Recommendations: 3
Make one-hundredth the contribution to the Retire Early movement that Dominguez already has over the course of the remainder of your life, and you'll be doing real well, intercst. The odds aren't looking too good for your prospects at this particular moment in time.

My, my. Is this hostility or jealousy that I sense?
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No. of Recommendations: 0
There are other alternatives to the places I've mentioned. I keep hoping that the United States normalizes relations with Cuba and that Cuba becomes a haven for retirees. It's close to Key West and the mainland, has excellent health care (if not the most high tech, it's at least adequate and that's about all I'll be able to afford anyway) and I love black beans, yellow rice, and Mambo!!! - Art

I wouldn't bank on retiring cheaply to Cuba. Wasn't Cuba the playground of the rich back in the 50's? I've heard that rich Europeans currently vacation in Cuba as it has it's "tourist" area.
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No. of Recommendations: 4
This is one of those cases where the board need not have any sort of debate as to whether what intercst says is shot full of holes or not.

I agree with hocus that intercst's most finely tuned talent (apparently--in addition to the occasional 100-bagger) is his abilty to ridicule under the guise of wry humor. But I'm wondering, hocus, if you were given wide latitude (which, really, you are, since galeno took over the board) to discuss alternative methods to achieve FIRE besides stocks, what alternative methods do you favor?

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No. of Recommendations: 4
This has been decreed by royal order.

Signed,

Galeno
"the highest of the high"



What a bore.
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No. of Recommendations: 7
My, my. Is this hostility or jealousy that I sense?

It ain't jealousy, Mazske.

There is hostility in those comments to be sure. Hostility to blind and proud ignorance. You don't just sense it, it's out there in the open.

As a matter of principle, I don't believe that it's a good idea to have that sort of hostility appear on a message board. I wouldn't be surprised if I think about it before I go to bed tonight and regret ithe post. It's happened two or three times before in my posting career.

But I'll tell you why I broke my usual posting guidelines in this particular case, hocus is some guy who has some ideas about how to retire early and has written about them on this board from time to time. I think that some of those ideas may prove to be useful to some people down the line. But there's no real proof of that at this point, is there?

If someone wants to mock hocus on this board, I will argue that it's rude and that it's counter-productive to what should be the board's mission, but hocus hasn't contributed enough to the world's storehouse of knowledge at this point in time for anyone to show with 100 percent certainty that he isn't the loony-tunes crackpot that intercst says he is. I don't think that's right, but I can't give you documented proof that I have anything legitmate to offer.

Dominquez is in a different class entirely. I don't know of anyone who has walked the earth who has done as much to help as many retire early as Joe Dominguez, and I've spent many years now looking. For someone who presumes to be qualified to offer advice to others on how to retire early to openly mock Dominguez goes so beyond the pale that it's not a question of a quirky personality type at work anymore. There is something perma-stoned about that sort of behavior, to borrow an apt bit of phrasology from Galeno.

If intercst hasn't figured out that Dominguez's insights are 10 miles above any he (or I, or any other poster on this board) has ever offered, then he just isn't a serious student of the topic he is pretending to teach people about here. You've got to learn your ABCs before you take on teaching a graduate level class.

Intercst should drop the idea of monitoring the board for dissenting-view posts to ridicule for a few months and read "Your Money or Your Life" six times from cover to cover until he begins to understand some of the fundamental issues involved in the subject matter he expounds on on this board. Until he becomes familiar with the basics, it's hard to take much else of what he says seriously.

Again, it sounds harsh and I don't like that. But this stuff isn't a game. There are people's financial hopes at stake, and intercst just hasn't bothered to do his homework.

Learning comes begins with listening. There are many people on this board with useful insights into how to retire early to offer to anyone open to hearing them. I think it's fair to remark at this point that intercst would do the entire board a lot of good if he would worry less for awhile that someone on the board might get to hear about an investment approach at variance from the one he favors and more worrying about whether his apparant belief that he had it all figured out before he even started the board has crippled his efforts to partake in the learning experience the rest of us are trying to participate in.
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No. of Recommendations: 2
I'm wondering, hocus, if you were given wide latitude to discuss alternative methods to achieve FIRE besides stocks, what alternative methods do you favor?

Catherine:

My view is that there are many routes that work. I don't really have any one approach that I want to talk about myself. I like seeing lots of people come forward with lots of good ideas, and then having the opportunity to offer an idea myself on those threads from time to time when it seems like a good idea.

If your question is, what caused you to start this debate over what sort of topics may be debated on the board, you might want to check out a post called "The Coin Toss," which went up in late June, I believe. That one is the best summary of my position.

The real start of the debate was in May, when I put up a thread called something like "Personalized Safe Withdrawal Rates." My position is that there is no single safe withdrawal rate that applies to all, that the number varies according to your life goals and financial circumstances.

Because of my unusual personal circumstances, I determined that in my case, a zero percent stock allocation was the way to go to obtain an early retirement (I acknowledge that it is rare for a zero allocation to be the right answer). With stock prices falling and the rates paid on ibonds falling, I believe that a case can now be made that I should have a small percentage of my assets in stocks. To determine whether that is the case or not, I would like to be able to compare the safe withdrawal rate for stocks with the safe withdrawal rate for ibonds, and see which is higher, and by how much.

It was the suggestion that the safe wtihdrawal rate for stocks might be some number lower than the 4 percent figure advertised by intercst that caused all heck to break out. I'm still interested in knowing the real safe withdrawal rates for the various asset classes. I hope that someday this board will debate the issue. If not, I hope someday to be able to examine the question at some other venue.
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No. of Recommendations: 0
There are many people on this board with useful insights into how to retire early to offer to anyone open to hearing them.

Perhaps you're one of them, hocus. What's your most thought-out idea for retiring early, if you wouldn't mind sharing? I'm certainly interested.
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No. of Recommendations: 5
hocus advises,

Intercst should drop the idea of monitoring the board for dissenting-view posts to ridicule for a few months and read "Your Money or Your Life" six times from cover to cover until he begins to understand some of the fundamental issues involved in the subject matter he expounds on on this board. Until he becomes familiar with the basics, it's hard to take much else of what he says seriously.


I'm confident that my understanding and comprehension of Dominguez's "Your Money or Your Life" exceeds your understanding of retirement withdrawals, the effects of inflation on fixed income investors, and any other of a number of issues of importance to retirees that require a basic understanding of math. Perhaps it's you that needs more study and less talking?

As I said before, I like Dominguez's book in virtually all respects except for the financial advice. Unfortunately, you need to know a little bit of math to understand just how bad it is. <grin>

intercst
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No. of Recommendations: 2
I'm still interested in knowing the real safe withdrawal rates for the various asset classes.

Well, how many "various" asset classes are there? Let's see ... stocks and bonds, real estate, art and collectibles, precious metals ... There just aren't that many, are there?, from which to withdraw.

You must have some inkling of what may be better than 4% from stocks, even if you haven't proven it empirically. Throw it out here, dude!
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No. of Recommendations: 3
I like Dominguez's book in virtually all respects except for the financial advice. Unfortunately, you need to know a little bit of math to understand just how bad it is. <grin>

Intercst:

I don't need to know any math whatsoever to know that the Dominquez plan worked.

He decided to come up with a plan to retire early, he followed the plan, he left his job and accomplished the things he wanted with his life, and until the day he died he always had the money he needed to live life to the fullest. That's what I'm in the market for, an approach that works.

When you can point to someone for whom your approach has worked (they planned for retirement with it, and did not run out of money and need to return to the workforce subsequent to retiring), I'll give yours more serious consideration. Right now it's just theory and theory that was not even constructed with the idea of being suitable for application in the real world. So put me down as in a "wait and see" mode re the intercst approach.
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No. of Recommendations: 3
I'm confident that my understanding and comprehension of Dominguez's "Your Money or Your Life" exceeds your understanding of retirement withdrawals, the effects of inflation on fixed income investors, and any other of a number of issues of importance to retirees that require a basic understanding of math. Perhaps it's you that needs more study and less talking? ....blah, blah, blah.

Geez, intercst, throw the man a bone. Why not just say, "you know, maybe I will take a second look when I get a bit of time." Then just carry on, leader-like.

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No. of Recommendations: 2
You must have some inkling of what may be better than 4% from stocks, even if you haven't proven it empirically. Throw it out here, dude!

Catherine:

There are other investment classes than the ones you mentioned. Personally, my assets are in certificates of deposit, Treasury inflationn-protected securities (TIPS) and ibonds. I expect to get up to a 50 percent stock allocation at some future date. I have nothing against real estate, but have not studied it suffciiently to invest in it at this time.

I don't say that there are safe withdrawal rates for other investment classes higher than 4 percent (although I haven't specifically rejected that idea re all investment classes either). My claim is that the safe withdrawal rate for stocks is less than 4 percent. My read from a review of the historical data is that it is somewhere near 2 percent for the average investor, but it differs from case to case. For example, an investor with $10 million in assets has a higher safe withdrawal rate from stocks than an investor with $1 million.

My goal is to be able to compare the withdrawals rates of the various asset classes. If you can get the same 2 percent withdrawal rate from both CDs and stocks, you should be in stocks because of their higher growth potential. But If the rate for CDS is 3.5 percent and the rate for stocks is 2.2 percent, you may need to keep a portion of your assets out of stocks for the time being.

My basic complaint is that it's impossible to make effective comprisons until you know the rate that applies for stocks. So I'd like to see threads examining the various factors that influence the rate that applies for stocks. For some reason, that is considered by some to be a highly controversial thing to desire.



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No. of Recommendations: 10
If intercst hasn't figured out that Dominguez's insights are 10 miles above any he (or I, or any other poster on this board) has ever offered, then he just isn't a serious student of the topic he is pretending to teach people about here. You've got to learn your ABCs before you take on teaching a graduate level class.


But I think intercst is correct in questing Joe's idea of living off just Treasuries. Joe's states that when confronted with inflation just substitute with something cheaper. I for one am not willing substitute icky food because I no longer can afford tasty food. I refuse to spend my time washing out plastic bags when I could be reading a book on the beach. I prefer to snorkel then spend my time sewing my own cloths to keep up with inflation. I refuse to leave Hawaii because of inflation to some god-forsaken hick town in Texas with sweltering summers and the fragrant smell of the oil refineries when the wend is blowing in a cretin direction.<grin>

But Joe enjoyed his life. That is what RE is all about. If dramatically changing one's life because of inflation will keeps one happy then Joe's idea of 100% Treasuries without reinvesting for inflation is an option.

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No. of Recommendations: 4
To CatherineCoy. You asked hocus:

Perhaps you're one of them, hocus. What's your most thought-out idea for retiring early, if you wouldn't mind sharing? I'm certainly interested.


For a start, let me suggest that you read hocus's recent post, number 67025, dated 5-20-02, about "My Plan."

If you have more time, browse through this board's Recs. (Click Recs on the top line between Author and Date.) hocus has many interesting, outstanding and highly recommended posts. I think that you will enjoy reading many of them.

Fool On,

John R.
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No. of Recommendations: 5
It's [the Dominguex approach] only appropriate for those that see a group home and a $500/month budget in their future.

The Dominguez approach can be used to finance an early retirement at any retirement-income level the aspiring early retiree desires. It's up to the aspiring early retireee to save the amount needed to finance the lifestyle he or she prefers.

Contrary to intercst's claims, Dominguez makes no suggestion in his book that those followig his approach live in group homes or restrict themselves to $500 a month budgets. In fact, it is a direct violation of the Dominguez approach for the aspiring early retiree to make any budget cut that represents a sacrifice in his or her enjoyment of life. If someone following the Dominguez approach agreed to live in a group house even though she did not like the idea, she would be failing to follow the program as desciibed in the book.

You are engaging in one of your favroite ridicule approaches here, intercst. You've come up with a nonsense straw-man, some idiot that puts together a plan calling for living in a group house who does not like the idea of living in a group house, and then claimed that presuming that we lived in a world in which your fantasy presumptions actually applied, the Dominguez approach would not work.

That makes about as much sense as saying that, presuming that we lived in a world in which stocks behaved in a way entirely different from the way in which they have always before behaved in the world in which we do live, they would provide a 4 percent safe withdrswal rate. As always, you can come up with any crazy result you want if you want to stick in enough crazy assumptions to get you there.







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No. of Recommendations: 6
I don't need to know any math whatsoever to know that the Dominquez plan worked.

It worked for him. It is probably safe to say that the vast majority of FIREs and wannabe-FIREs would not be satisfied with a shoestring retirement and a steady decline in purchasing power.

When you can point to someone for whom your approach has worked (they planned for retirement with it, and did not run out of money and need to return to the workforce subsequent to retiring), I'll give yours more serious consideration.

Intercst's approach has certainly worked for intercst, and many of the other early retirees on this board got to where they are today by following a similar strategy. I don't hear many of them threatening to return to the work force.

Certainly, many would be uncomfortable with the level of concentration of intercst's portfolio. He himself doesn't necessarily recommend that others do the same; indeed, his safe withdrawal rate studies assume a portfolio invested in the S&P500. This approach demonstrably provides a retirement income that adjusts with inflation, while requiring savings of only 25x the desired annual income, and that it succeeds in virtually all historical cases has been meticulously documented. This, to me at least, is much more appealing than Dominguez' erosion of income over the years, no matter how well it may have worked for him personally.

sydsydsyd
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No. of Recommendations: 9
hocus asks,

It was the suggestion that the safe wtihdrawal rate for stocks might be some number lower than the 4 percent figure advertised by intercst that caused all heck to break out. I'm still interested in knowing the real safe withdrawal rates for the various asset classes. I hope that someday this board will debate the issue. If not, I hope someday to be able to examine the question at some other venue.

You can find the safe withdrawal rates for a variety of fixed income investments in the Retire Early Study on Safe Withdrawal Rates and it's accompanying Excel spreadsheet. But since you've admitted that you haven't read and understood the study, I realize it's pointless to refer you there.

Here's a study from Financial Planner Jaye Jarrett that looks at the 30-Year inflation-adjusted "safe" withdrawal rates for portfolios of a fixed income securities of several types, see link:

http://jjarrett.home.texas.net/resFixedIncomePortion.pdf

I call your attention to the table in Figure 3.

<snip>

30-year withdrawal rate for 100% 5-Year Treasury Notes = 2.40%
30-year withdrawal rate for 100% 3-month Treasury Bills = 2.18%
30-year withdrawal rate for 100% 20-Year Corporate Bonds = 2.52%
30-year withdrawal rate for 100% 20-Year Treasury Bonds = 2.42%

</snip>


Is it beginning to dawn on you why Dominguez's 7% withdrawal rate from a portfolio of 20-Year Treasury Bonds is looney?

intercst
(enjoying all the lunacy, it reminds me of the staff meetings at work <grin>)
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No. of Recommendations: 8
Again, it sounds harsh and I don't like that. But this stuff isn't a game. There are people's financial hopes at stake, and intercst just hasn't bothered to do his homework.

We're born and we die. In between we live a little. Yes, I have a strong desire to FIRE. But, is money really that important??

I have friends. I have a spouse and kids. I've been more poor than I am now and 3 years ago my stocks were worth more than they are today.

I may die tomorrow or I may live to be 125 or 150. That's my goal of course, but I am a realist.

Life is a game.

I don't want to become a begger in the streets, but in this country how many people have to resort to that?

I repeat, life is a game. Remember the old saying, it's not whether you win or lose, but how you play the game? Criminals aren't not playing fair in the game of life. If I intentionally hurt another person and it's not because I'm protecting my life or property, than that's not playing fair.

During the course of this game that is called life, I have a desire to make a positive difference in the lives of others. I think I've made a difference in a life somewhere so I could say I've won this game. But, the games not over until I draw my last breath. Until that time, I have lots more time to play.

If I lose every cent that I have in the stock market, am I suppose to blame the other posters on this board? Should I blame TMF? Or do I take personal reponsibility for the choice that I made to buy the stocks?

There are plenty of smart folks that post here and then there are people like me. I may consider hocus to be the smartest person alive, but if you were to recommend to me to buy some INTC or CSCO, that does not mean that I will. You may tell me that I'm not raising my children right and you may give me suggestions on how to do it, but that doesn't mean that I will listen.

I, just like you and every other poster here, am an individual person. I take input from many different sources, I process this information and I make decisions based on my thought process and my life experiences.

Every person that is here has different goals in life. Some are single and some have 4 or 5 kids. There is probably a good sampling of folks from almost every state in this country as well as a few other countries. Some, like duggg, have attempted to live on a very little bit of money. Where is duggg?

Others claim to have millions of dollars. In some parts of the country, I would be considered poor. There are some folks that are reading this that would not want to hang out at my house because it's not a mansion. There may be others who wish that they could grow some tomatoes and enjoy sealing a driveway like I have.

If a poster wants to play games with his/her posts and you don't like it, put them in the penalty box. If I declare that I'm now the King and galeno better move over, then so be it. If galeno doesn't like me being King, he could put me in the p-box or I could do the same with him.

I don't want to be King though, so don't worry about a coup attempt, galeno.

I take everything that I read here with a grain of salt. If Donald Trump wanted to teach me about buying real estate, I would listen. If Warren Buffett wants to teach me how to buy stocks, I will listen. Then, since it's my money, I will make my own decisions.

Good luck in your decisions.


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No. of Recommendations: 7
Hocus: I'm tempted to conclude from out-of-the-blue attack on the godfather of the Retire Early movement that Intercst the Ridiculer himself is developing a serious case of thin-skin disease.

This is one of those cases where the board need not have any sort of debate as to whether what intercst says is shot full of holes or not. He doesn't have any spreadsheets with worrisome numbers and such to fool any non-MasterMinds in our midst into thinking that, since he says it with such assurance, there must be some sliver of truth to the claim. Here he is just parading his fantasy life out for all to see without the slightest scrap of evidence to back up the assertion.


Hocus,

You say that you want a kinder gentler board, (paraphrased). I submit that posts like the above do nothing toward reaching that goal. I know you've taken a lot of crap lately from some of the posters, but I don't think sinking to their level of snideness is the way to go about it. If you have a debate, offer it without the unecessarily caustic remarks.

InParadise
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If you have more time, browse through this board's Recs. (Click Recs on the top line between Author and Date.)

For the life of me, I can't find this feature. ??
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No. of Recommendations: 2
CatherineCoy asks,

If you have more time, browse through this board's Recs. (Click Recs on the top line between Author and Date.)

For the life of me, I can't find this feature. ??


1) Click on "Retire Earty Home Page" just above to the left of the heart shaped icon.

2) This will bring you to a listing of about 20 messages on the REHP. Notice a line that says "UnThreaded • Threaded Author Recs Date Number" just about the list of posts?

3) If you click on "Author" it will sort all 70,000+ posts by the author's name.

4) If you click on "Recs", it will sort all 70,000+ posts by the number of "recs" it received.

intercst
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No. of Recommendations: 3
Make one-hundredth the contribution to the Retire Early movement that Dominguez already has over the course of the remainder of your life, and you'll be doing real well, intercst. The odds aren't looking too good for your prospects at this particular moment in time.

This is intercst's contribution: He showed how Dominguez could have retired safely without a declining standard of living. That's a mine a personally don't want to step on.
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No. of Recommendations: 2
I don't need to know any math whatsoever to know that the Dominquez plan worked.

But for the same amount of effort, it could have worked much, much better. All he had to do was an 80/20 mix of stocks and bonds, 4% withdrawl and bam! Good to go for life.

Right now it's just theory and theory that was not even constructed with the idea of being suitable for application in the real world. So put me down as in a "wait and see" mode re the intercst approach.

Intercst's approach can be reduced to: You have a big pile of money and take some out every now and again. Intercst has simply quantified how big the pile needs to be and how big the withdrawls can be.

P.S. I say "simply" because the question was simple i.e. how big does my pile need to be, but constructing the solution I'm sure was difficult.
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<Some, like duggg, have attempted to live on a very little bit of money. Where is duggg?>


I remember reading many of his posts and being interested in how one can manage to get by with a very low budget. However, over a period of time it became obvious that it had some holes in it (most noticably no medical insurance coverage). I think that the shoestring he was living on did not allow enough funds for an annual FOOL membership.


BRG

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gurdison writes,

<Some, like duggg, have attempted to live on a very little bit of money. Where is duggg?>


I remember reading many of his posts and being interested in how one can manage to get by with a very low budget. However, over a period of time it became obvious that it had some holes in it (most noticably no medical insurance coverage). I think that the shoestring he was living on did not allow enough funds for an annual FOOL membership.



The low budget may have been doable. I think it was duggg's 10% initial annual withdrawal rate that spelled disaster.

intercst
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The low budget may have been doable. I think it was duggg's 10% initial annual withdrawal rate that spelled disaster.</i.

I think I'd rather work than have a budget that low. He was damn near living in a carboard box.
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No. of Recommendations: 1
I think I'd rather work than have a budget that low. He was damn near living in a carboard box.

Living in a cardboard box and riding a mountainbike if I remember correctly. Wonder where he plugged his computer in at?

Hopefully that snake didn't get him.

Ever tell y'all about my drunken younger days when I laid down prone directly in front of a Fir de Lance to take his picture?

Galeno can probably tell you about Fir de Lance's and since I was probably only 2-3 feet in front of his face I guess you all are lucky I'm still here to type this. What would this board do without me?

Got one of my attic windows out and I have a coat of primer on it. Had to take a break to run to Lowes to pick up some glaze. Then came back and put another coat on the picture window in our bedroom.

Need to glaze that window and paint it tomorrow so I can get it back in. Hope no bird flys in that hole in the side of my house. It's too high for a person to get in. If they tried, I'd be waiting on the inside with my Glock and 16 hollowpoints in it. :-)

The window was fun getting out and why do I get this feeling it'll be more fun to get back in?

Nothing like working in a house when it's 90 degrees outside. Fans are fine to keep a person cool when you are just hanging out, but it gets a little hot while painting. Especially up in that attic. I got a couple of vents in, but I need to dig deep in my pockets to get me an exhaust fan. Like I said in another post, I love my house, but it takes a lot of my spare dollars.
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WaikikiLeolo writes:

But I think intercst is correct in questing Joe's idea of living off just Treasuries. Joe's states that when confronted with inflation just substitute with something cheaper. I for one am not willing substitute icky food because I no longer can afford tasty food. I refuse to spend my time washing out plastic bags when I could be reading a book on the beach. I prefer to snorkel then spend my time sewing my own cloths to keep up with inflation. I refuse to leave Hawaii because of inflation to some god-forsaken hick town in Texas with sweltering summers and the fragrant smell of the oil refineries when the wend is blowing in a cretin direction.<grin>

But Joe enjoyed his life. That is what RE is all about. If dramatically changing one's life because of inflation will keeps one happy then Joe's idea of 100% Treasuries without reinvesting for inflation is an option.



You've hit the nail on the head. What worked for Dominguez wouldn't necessarily work for other aspiring early retirees.

Personally -- and maybe it's just me -- I found Dominguez' book to be rather grim. He did contribute worthwhile concepts such as spending your life energy wisely, but some of the types of frugalities as you mentioned simply leave me cold.

I much preferred Paul Terhorst's book "Cashing In on the American Dream". Maybe it's Terhorst's unique writing style, but he can take ideas -- like getting rid of your house and vehicles and living on next to nothing -- and make them sound fun, exciting, and even sexy. <grin>



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Need to glaze that window and paint it tomorrow so I can get it back in. Hope no bird flys in that hole in the side of my house. It's too high for a person to get in. If they tried, I'd be waiting on the inside with my Glock and 16 hollowpoints in it. :-)

The window was fun getting out and why do I get this feeling it'll be more fun to get back in?


I love rehabbing houses and I miss it terribly. I left my 250 year old dream house in progress when we moved here. When we finally retire and move back to the mainland, I intend to buy properties to fix up. DH does not share this passion, so it sure won't be the place we are living in.

Meanwhile, the Nature Conservancy has bought a historic plantation that they are starting to fix up. I've already signed up to volunteer my time when the kids go back to school in the Fall. They do understand however, that the situation has to be of mutual benefit, and I won't do just grunt work. I figure now is a good time to increase my building skills.

InParadise,
whose view of paradise is a bit different from a few on this board.
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If a poster wants to play games with his/her posts and you don't like it, put them in the penalty box.

It's not nearly as simple as that, mazske.

Let's say that intercst is successful in his riducule campaign, and I cease posting to the board. What has happened? I have more time for my family and the work I am supposed to be doing, and the board continues on as before. I wasn't posting much before this debate started, so I doubt that more than one or two would even notice any change.

But it's not an objection to what intercst's approach to running the board does to me personally that is the cause for my criticism of it. My concern is not about what intercst does to me, hocus, it is about what he does to the Retire Early discussionn board, a Motley Fool property.

In earlier days, I was addicted to the Washington Post. I sometimes spent two hours reading a copy virtually from front to back. When I visited my parents in Philadelphia, I would suffer from withdrawal if I could not get my hands on a copy, so I would take a 45-minute ride on the subway to get downtown where there were copies for sale. When people asked me whether I liked living in Washington, the first thing I would tick off as a benefit is that "we have a good local newspaper here."

I don't read the Washington Post at all anymore. I don't have time. Instead, I get my daily reading material from message boards, with the most important one for me being this one. This board is something that adds to my enjoyment of life and to my knowledge of a subject matter that is important to me both for personal and professional reasons. I want to see this board thrive.

That's the bone of contention. I believe that the policies intercst follows is running this board are taking it over a cliff.

I'll offer only one illustration of my concern, of scores that come to mind, because I have to try to keep the post to somewhat manageable length. Catherine Coy started posting here a few weeks ago. Intercst tried very hard to drive her off by putting up mocking threads titles with her name in them. Catherine has a tough skin and she remained. Good for her.

But what if she hadn't had such a tough skin? Then what? Then I would lose out on any benefits that Catherine will ever put up in the course of her posting life. Catherine is new here and just getting up to speed. To me, it's exciting to have a new poster with a somewhat different perspective than some others. I haven't invested a penny in real estate to this point in my life (outside of my home). It's theoretically possible that at some point in the next year Catherine is going to put up a post that is going to change my investing life forever by persuading me that real estate is a good investment choice for me.

Do I really think that is going to happen? No. But it's possible. It could. And that possibility is the exact reason why I now spend my reading time on message boards rather than with the Washington Post. There's a greater likelihood of being exposed to fresh ideas.

If the board is run in such a way to welcome a multitude of perspectives. Once board leaders develop the view that there is one way to do things and only one way and all criticism of that way is taboo, that board begins dying, in my experience. People telling each other over and over again how smart they are helps me know how to retire early not at all. The way I see it, if you know all the answers already, there's no point in even having a message board. The point of the exercise is to discuss, and to discuss there needs to be at least some possibility of disagreement.

Putting intercst or anyone else into my penalty box achieves exactly zero of what I am trying to achieve here. I want a healthy discussion board on the subject of early retirement, which I can turn to to learn about new ideas and occasionally to post on and test reaction to my own ideas. This board was that sort of place back in 2000 and early 2001, before intercst's concern that the flaws in his Safe Withdrawal Rate study might be exposed drove him to the ridicule campaigns that have driven a good number of strong posters to other locales.

I want that old board back. There was a lot of talk about the intercst study on that board, and that was fine with me, because there was also a lot of discussion about lots of other exciting stuff. You didn't have to pass any litmus test to earn the right to offer your views at that board. There was no one at the entrance checking to see whether you retirement was "real" or not. People just posted their ideas, and each reader of the board had the ability to follow the advice offered or not. Individual board readers made the decisions of what was loony and what was not, not board leaders or board founders.

I can't tell you how many powerful Retire Early insights I have been denied because intercst has driven away the posters that would have offered those insights. I'm sure it's in the hundreds, perhaps the thousands. I want those insights. I pay for them, and I want them. I can decide whether they are loony or not, I don't need intercst acting as an intermediary protecting me from "bad" thoughts.

If the intercst study were a legitimate piece of research, he would not worry about it being subjected to scrutiny. When posters aimed to show holes in the methodology, he would welcome the questions and then take us through the thought process by which he decided on the assumptions he incorporated into the study. I think it's pretty clear at this point that he does not feel comfortable at going through that sort of analytical process.

Fine. There's no law that says that a board founder must put up a study for the board he founds to discuss. Intercst can take the study down from his web site, or stop posting links at this board, and I will stop talking about it. I have no aim to embarrass anyone. But if he posts links and argues on the board that the study says certain things, then I say at that point he becomes subject to the same posting rules by which all other posters at this board govern themselves.

That means that you respond to responsible questions with respectful answers. That's how successful message boards work, and I want this particular one to suceed.
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I know you've taken a lot of crap lately from some of the posters, but I don't think sinking to their level of snideness is the way to go about it. If you have a debate, offer it without the unecessarily caustic remarks.

InParadise:

I agree with you 100 percent that sinking to the level of snideness of some other posters on this board does my cause no good. Each time I do that I lose traction in this debate. Each time I refrain a gain a little.

That said, I would sure appreciate it if this debate could stop being a intercst vs. hocus debate and become what it properly should be, an intercst, vs. Retire Early Board debate. It's not just me that would benefit from the board being opened up to a wider variety of views on how to achieve early retirement. Anyone who posts or just lurks here would benefit from what I am trying to accomplish.

There have been many posts over the course of the past three months in which people have said that they enjoy hearing about alternative investment stratgies, whether they employ them or not. Well, how about some of those people lending me a hand in what I am trying to do here, then? A few have, and I greatly appreciate their efforts. But an awful lot of people are still enjoying the comfort of this fiction that all I need to do is put intercst in the penalty box and all my concerns about the direction in which this board is headed will magically be solved.

There's been some talk in recent days that an aspiring early retiree must have an exceptionally think skin. I't's best left to others to assess who on this board possesses a thick skin and who does not. But I'll share my personal view. My perception is that I am the one showing possession of a thick skin and intercst the one behaving in the way of someone with a particularly thin one. The vast majority of this board is in general agreement with his views on stocks. If he can't tolerate a debate on a board where nine out of ten posters agree with him, I'd hate to think how he would handle himself on a board where he was expressing a minority view, as I am here. I don't think he would last 30 minutes.

I am willing to refrain from personal attacks for the remainder of my posting career on this board. I hate the way personal attacks turn a discussion from the topic that should be discussed to a hundred different ones that add nothing to my ability to retire early. So the words in your post make infinite sense to me, InParadise even though in this particular case it was necessary for you to direct them to me.

I do think in fairness, however, that if you are to direct those comments to me in this case, that either you or any of scores of other regular posters on this board should by now have directed hundreds of such posts to intercst. With him, ridicule is not an occasional lapse, or something that happens in the heat of a monent. With him, ridicule is a policy. He declared his policy in a post here Saturday afternoon.

Is there anyone other than Naskog (who did a great job) who would like to offer their views on what they expect that policy will do to their ability to gain insights into how to retire early by reading this board in the future?
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Hocus: I do think in fairness, however, that if you are to direct those comments to me in this case, that either you or any of scores of other regular posters on this board should by now have directed hundreds of such posts to intercst.

Frankly, I have. I don't exactly pull many punches with Galeno either. But they have not been the ones writing thousands of words about being nice. Galeno in particular admits to enjoying torquing people up and getting his jollies off of it. If you want a higher standard on the board, you are going to have to walk your talk.

InParadise,
who has been entirely turned off by your recent and hopefully temporary hostile streak, and looks forward to getting her old friend back.
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They have not been the ones writing thousands of words about being nice.

inparadise:

I honestly believe that your intent in this debate has been to be helpful to me. In one post in particular, you tried to advise me in a friendly but firm way how to proceed. It was one of those posts where I could somehow tell that there was a message there that I needed to understand, but because of my own particular weaknesses was not able quite to comprehend it. I know you're on the right side (and wish that there didn't even need to be sides).

There's one perception of yours and I think many others that I would like to change a bit. It's not my goal to achieve a "nice" board. It's my goal to achieve an effective and educational board. There's overlap between the two concepts, but they are not exactly the same thing.

I'm pro-niceness. But If this were just about achieving niceness, I would not be inclined to invest this much energy in the project.






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I'm pro-niceness. But If this were just about achieving niceness, I would not be inclined to invest this much energy in the project.

hocus, I'm not about niceness, either (obviously). But, really--and I say this as constructively as I can--maybe you do need some encouragement to get to the point. I personally have asked you a couple of times to state your alternative methods of achieving FIRE so as to open the topic for discussion. Several Fools have asked, if you don't agree with the SWR study, what in your opinion is a viable alternative to monitor withdrawals from one's stash?

Have you ever been in a relationship that deteriorated to the point where whenever you were together, you talked about the relationship, rather than simply having the relationship? This is kinda what's going on.

So...what methods of achieving FIRE do you think are or may be effective and why? I'm really not interested in why you think they can't or aren't being talked about. They are being talked about, so let's talk about 'em.

intercst can be dealt with separately. <grin>
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You do need some encouragement to get to the point.

Catherine:

You are far from the first person on the board to offer this advice. It's good advice.

What in your opinion is a viable alternative to monitor withdrawals from one's stash?

I have tried to answer this one before. There's something in the way I am saying it that is caused the message not to get through. I'll try again, and I'll try to keep it brief.

What I aim to do is to assign a Safe Withdrawal Rate to each asset class under consideration, and then run a comparative analysis to choose the allocations of each that I will include in my investment portfolio.

For simplicity's sake, let's say that the only asset classes that exist are certificates of depsoit and the DOW index of stocks. It's not too hard to determine the safe withdrawal rate for CDs. You look at the rate on the certificate, subtract something for taxes and inflation, and the remaining number is something close to your withdrawal rate. There are some complexities that you might want to factor in in some circumstances, but I think it's best to leave them aside for the time being.

Let's say that the number you come up with for CDs happens to be 3 percent. The next step is to calculate the safe withdrawal rate for stocks so that you can compare that number with the number you got for CDs. Let's say that the number for stocks (factoring in all influences on the safe withdrawal rate, and using historical data whenever possible to avoid being too subjective in your calculation) is 2 percent.

Now you get to the last step, choosing your allocation percentage for stocks and CDs. It's a mistake, in my view, to choose a 100 percent allocation to CDs because the historical data suggests you will get more long-term growth from stocks. But you can't go with a 100 percent allocation to stocks if you have saved only enough to support a 4 percent withdrawal rate.

What you need to do is to come up with some allocation that provides a mix of investment classes that allows you to retire at the withdrawal rate that your accumulated capital will support while not giving up all prospects for long-term growth.

I believe that it sounds more complicated than it really is. Once you get used to comparing different asset classes by withdrawal rate it becomes more or less second nature to think of them that way. It's not always possible to get precise withdrawal rates for each investment class. But often the comparison shows that one investment class is so much more preferable than the other that you don't need a precise number to know which way to go.

In my particular case, the intial analysis (performed in 1996) showed that stocks should be zero percent of my investment porffolio. At that time, the historical data showed that, for someone in my particular circumtances, stocks were a very poor Retire Early asset class indeed. But several factors have changed since 1996. I'd like to redo the analysis. This time I need more precision. While in 1996, stocks were clearly not an acceptable class for any of my assets, today I think it's possible that stocks are a good class for some small percentage of my assets.

I can come up with a reasonable estimate of the safe withdrawal rate for the non-stock investment classes that I am considering. But I'd like board input on the question of the safe withdrawal rate for stocks for someone in my circumstances (and, as a matter of intellectual curiosity, for those in other sorts of circumstances as well.

The intercst study does not provide this sort of information. intercst excluded three critical factors from his analysis, resulting in a finding of a Safe withdrawal rate of near 4 percent. The three ignored factors were: (1) valuation levels of stocks; (2) the difference in safe withdrawal rates for investors with greater and lesser amounts of saving; and (3) the difference in safe withdrawal rates for innvestors with higher vs. lower stock allocations.

My bottom line request is that the board allow discussion threads where those interested in knowing the true safe witihdrawal rates for stocks be permitted to trade ideas for calculating these numbers more precisely than we have been able to do until now. We know by looking at the inntercst study that the true Safe Withdrawal Rate must be well under 4 percent, since that's the number intercst came up with by ignoring the three factors. My guess is that the number is somewhere near 2 percent, but I'd feel more comfortable making investment decisions based on something more s