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That could be, but I suggest that your model gives even a bigger false sense of security because it completely ignores events we know have happened in the past. For example periods of high inflation, or long periods of low or even negative stock market returns. This is non-theoretical. The real CAGR of the S&P 500 for the decade of the 1970s was 0.18%. In the meantime, inflation was raging along at 8-14%. That's pretty far from what your model predicts.

Thank you for your comments. The purpose of my model is not to predict the future. The future is NOT predictable.

What I and all of us can do is to create strategies and tactics to deal with our lives and that includes developing an investing style. That requires goals to aim for. My model highlights these goals. But as with any model, garbage in/garbage out.

Suppose I were to input my numbers and the resulting yield were to match the S&P 500's historic yield. I would feel fairly confident that buying an index fund or two would suit me. If the yield were lower still I might feel OK buying treasuries and dispense with market risk altogether. If, unfortunately I don't have enough investable capital I'll have to look to riskier alternatives. That's all my model tells me. Well, not quite, it tells me the yield I need to aim for.

There is a built in safety feature, the fact that it calculates a perpetual portfolio. None of us will live forever and we don't need perpetual portfolios. Using up some capital from time to time is OK. If you are really worried that the model underestimates, double the expected inflation. Use the "raging 8-14%" rate if you must. Just imagine what would happen if you used the Weimar rate. LOL BTW, since one tends to aim for a comfortable expense (living standard) level, belt tightening is also an option in dire times.


This is off-topic to the rest of the thread, but very few credible economists expected inflation.

All I can reply is that we must have read different authors.

My own take is that Milton Friedman has been proven wrong, money does not cause inflation.

Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. Milton Friedman [emphasis added]

Suppose there were twice the amount of air in the atmosphere, we would not breathe twice as much. If there were not enough air as in the Black Hole of Calcutta, we would choke. In the latter condition adding some air would help us breathe better. In physics there is a phenomenon known as "state change." H2O can be solid, liquid or a gas. In each state H2O behaves differently.

Since gold is limited, choking for lack of money under the gold standard is not unusual. The gold standard is designed to do just that, keep kings and sovereigns in check. But once you go to a genuine fiat currency, unlimited in quantity (state change), inflation is no longer a question of money supply. Fiat money, as gold bugs emphasize, has no intrinsic value and that is its beauty! (Fiat) money becomes just a record keeping device.

There is more but, as you say, this is off-topic so I'll leave it a that.

Denny Schlesinger
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