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Do you believe this international SWR data ?

 
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Delawaredave
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Joined: 26 Dec 2004
Posts: 19

PostPosted: Sun Mar 13, 2005 5:17 am    Post subject: Do you believe this international SWR data ? Reply with quote

Found an interesting table and article. This table esimates performance of various mix of domestic / international stocks:

http://www.fundadvice.com/FEhtml/InvestingBasics/9903/table2.html

Here's the base article and another table:
http://www.fundadvice.com/FEhtml/InvestingBasics/9903/9903.html
http://www.fundadvice.com/FEhtml/InvestingBasics/9903/table1.html

Note that the information is dated - late 90's (a lot has happened since then...). And the withdrawls start only at one point.

And I'm not sure of the source / veracity of the data. But it is interesting, if true.

I keep believing that:
1. Long term domestic and international equity returns are comparable
2. International lagged US for over a decade, 1990's +
3. The next decade will show both domestic and international return lines converging (US lagging, international doing better).
4. Having 40% of your equities international has to help diversify and reduce volatility / risk

Does this make sense ? Is it "bet your portfolio" guidance ?

I was at local Fidelity office last week - I overheard several representatives in cubicles telling clients "70% of your portfolio in stocks, 30% in bonds, with 10% international"

I just can't see doing that right now !


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JWR1945
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Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Sun Mar 13, 2005 9:32 am    Post subject: Reply with quote

Delawaredave wrote:
Found an interesting table and article. This table estimates performance of various mix of domestic / international stocks:
...
Note that the information is dated - late 90's (a lot has happened since then...). And the withdrawals start only at one point.

And I'm not sure of the source / veracity of the data. But it is interesting, if true.
...

I am highly suspicious of any approach that promotes an 8% withdrawal rate.

I think that the data are accurate. I think that the sequence chosen has greatly distorts the interpretation. Unfortunately, the article looks only at numbers. It does not try to identify cause and effect.

My guess is that these numbers were greatly influenced by having the 1972-1974 bear market early enough to leave money in the account. The tremendous bull market and the bubble followed.

This was an actual sequence. But it was a highly unusual sequence. We know quite about the future in terms of probabilities. We do not know what the actual outcome will be.

I would place the greatest emphasis on your rationale and use the numbers only as a supplemental source of information.

Have fun.

John R.


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JWR1945
***** Legend


Joined: 26 Nov 2002
Posts: 1697
Location: Crestview, Florida

PostPosted: Sun Mar 13, 2005 9:52 am    Post subject: Reply with quote

Delawaredave wrote:
...
I keep believing that:
1. Long term domestic and international equity returns are comparable
2. International lagged US for over a decade, 1990's +
3. The next decade will show both domestic and international return lines converging (US lagging, international doing better).
4. Having 40% of your equities international has to help diversify and reduce volatility / risk

Does this make sense ? Is it "bet your portfolio" guidance ?
...

Think of international equity as being a VALUE investment.

Whether or not international companies outperform is not the critical issue. The issue is how much you pay for them. Another issue is how other investors look at them. For example, if most other investors are convinced that Europe is heading downhill and will never recover because of socialism AND if that is what the numbers show (i.e., P/E, P/Book Value, Dividend Yield), then European companies are attractive. The market will react strongly whenever there is favorable news. Prices will jump. The market will react very little if the news continues to be bad.

Provided only that you can invest knowledgeably, perhaps via an index fund and/or by limiting yourself to buying the biggest companies, your ideas do make sense. Yes, you can bet your portfolio. Exchange rates that you get for foreign companies are likely to be favorable or not too unfavorable for the next few years.

It is best to seek good returns but not outstanding returns. Be happy if your portfolio outperforms. But don't beat yourself up if it only does OK.

Have fun.

John R.


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Mike
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Joined: 06 Jul 2003
Posts: 278

PostPosted: Sun Mar 13, 2005 6:57 pm    Post subject: Reply with quote

Quote:
I am highly suspicious of any approach that promotes an 8% withdrawal rate.

Me too. Take a reasonable percentage. If your portfolio outperforms, you will be taking a reasonable percentage of a larger portfolio, effectively giving you a raise. That way if you don't outperform, you will still have a chance to recover. At least if you don't make any catastrophic bets.


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