Safe withdrawal quick questions and discussion.
Posted: Wed Jun 25, 2003 12:42 am
In summary of various threads on safe withdrawal rates, is it not the general consensus on this board that investors here feel the market won't return more than 6% on average comprising 4.5% growth and 1.5% dividends?
Is it further the consensus that with investment costs of 0.1 - 1% a year and 3% inflation, swf is reduced to 2% roughly?
Is it fair to say that the board are agreeing with the analysis of stock market valuation a la Bogle being Growth + Dividends + Over Exhuberance than will revert to mean eventually?
If we're now in a situation where the indexes and the market generally are overvalued above the historical PE of 15ish, how can one invest with safety in mind in a balance portolio including stocks? I've been reading articles about people who have retired at 60 with a £1m portfolio and saw it halve and think to myself, " Didn't they look at the average P/E of their investments, compare them to the historical average and re-calculate their actual valuation once the market corrects which history shows it overcorrects eventually and then rises too high and the cycle begins over..? " No one even mentions the idea of doing a recalculation of the value of your portfolio based on the historical mean, I wonder am I missing something or are people ignoring valuations because we seem to be in an environment where P/E has gone nutty and so throw that yardstick out with the bathwater? I see people now view future P/Es as a way to value a company (seems mad to me), or comparing free cash flow, or cash in hand in various ratios. I've not read how and where such analysis is useful and what the historical ratios are for such measurements. Are these used as alternative ways to measure companies (as well as avoiding dodgy accounting that can mess with profit figures but not so much with cash)?
Some random thought that have been running through my brain on this subject for a while. Thought I'd stop by and put them out there. Hope you guys don't mind.
P.S. I've just dropped my wd rate on years away planned FIRE to 2% based on 6% return, less 1% investment costs, less 3% inflation. Puts up a 50x spending figure however. If the math is right on that, it makes me wonder how almost anyone is expected in today's society to save 50x their retirement spending. It just seems such an unrealistic number. 25x sure, but 50x...? $1m only gets you $20k pre-tax. With medical costs spiralling out of control in the States, I nod in a agreement when articles question whether $1m is enough for a retirement today. World Wealth Report stated recently there are 7.3m $millionaires in the world, a world estimated to contain 6 billion + people. If $1m doesn't do it, then almost no one has enough. It truly seems to get to point where almost no one can retire.
Petey
Is it further the consensus that with investment costs of 0.1 - 1% a year and 3% inflation, swf is reduced to 2% roughly?
Is it fair to say that the board are agreeing with the analysis of stock market valuation a la Bogle being Growth + Dividends + Over Exhuberance than will revert to mean eventually?
If we're now in a situation where the indexes and the market generally are overvalued above the historical PE of 15ish, how can one invest with safety in mind in a balance portolio including stocks? I've been reading articles about people who have retired at 60 with a £1m portfolio and saw it halve and think to myself, " Didn't they look at the average P/E of their investments, compare them to the historical average and re-calculate their actual valuation once the market corrects which history shows it overcorrects eventually and then rises too high and the cycle begins over..? " No one even mentions the idea of doing a recalculation of the value of your portfolio based on the historical mean, I wonder am I missing something or are people ignoring valuations because we seem to be in an environment where P/E has gone nutty and so throw that yardstick out with the bathwater? I see people now view future P/Es as a way to value a company (seems mad to me), or comparing free cash flow, or cash in hand in various ratios. I've not read how and where such analysis is useful and what the historical ratios are for such measurements. Are these used as alternative ways to measure companies (as well as avoiding dodgy accounting that can mess with profit figures but not so much with cash)?
Some random thought that have been running through my brain on this subject for a while. Thought I'd stop by and put them out there. Hope you guys don't mind.
P.S. I've just dropped my wd rate on years away planned FIRE to 2% based on 6% return, less 1% investment costs, less 3% inflation. Puts up a 50x spending figure however. If the math is right on that, it makes me wonder how almost anyone is expected in today's society to save 50x their retirement spending. It just seems such an unrealistic number. 25x sure, but 50x...? $1m only gets you $20k pre-tax. With medical costs spiralling out of control in the States, I nod in a agreement when articles question whether $1m is enough for a retirement today. World Wealth Report stated recently there are 7.3m $millionaires in the world, a world estimated to contain 6 billion + people. If $1m doesn't do it, then almost no one has enough. It truly seems to get to point where almost no one can retire.
Petey