PassionSaving.com Home Page : The Financial Freedom Blog : July 2007
July 2, 2007 14:42 – The Fire Alarm Has Not Been Tripped
William Bernstein, author of The Four Pillars of Investing, was asked at the recent Vanguard Diehards meeting to comment on safe withdrawal rates (SWRs). He said that, at today’s valuations, taking a 4 percent withdrawal from a high-stock-allocation portfolio is “risky.” This confirms one more time findings of the Retire Early community dating back over five years that have been confirmed on hundreds of earlier occasions.
The FIRECalc calculator says that taking a 4 percent withdrawal from a high-stock-allocation portfolio is safe.
The SWR study published at the RetireEarlyHomePage.com site says that taking a 4 percent withdrawal from a high-stock-allocation portfolio is safe.
There’s an article at the at the Wikipedia.com site on William Bengen that says that: “Bengen found that retirees who draw down no more than 4 percent of their portfolio in the initial year, and adjust that amount subsequently every year for inflation, stand a good chance their money will outlive them.” There is no mention in the article of the New School SWR findings of recent years discrediting the methodology used by Bengen.
The book The Number discusses the findings of the Old School studies without letting readers know that these studies have been discredited.
There is an article at the bylo.org site providing links to numerous materials advancing the Old School claims but not to any describing the discrediting of the Old School claims by the New School studies. I wrote to the owner of the site two years ago suggesting that he link to some of the materials describing the New School findings. I did not receive a response.
Honest posting on the SWR topic was banned at the following six discussion boards after many community members showed great interest in learning about the New School findings and defenders of the Old School studies deluged the boards with abusive posting to block the discussions: (1) The Retire Early board at the Motley Fool site; (2) The Vanguard Diehards board at the Morningstar.com site; (3) The Raddr-Pages.com site; (4) The Early Retirement Forum; (5) The SWR Research Group board; and (6) The FIRE board at NoFeeBoards.com.
Articles on retirement in major newspapers often refer to the finding of the Old School SWR studies that taking a 4 percent withdrawal from a high-stock-allocation portfolio is safe without mentioning that this does not come even close to being true at times of high valuations (like today).
Dallas Morning News Columnist Scott Burns has linked to Old School studies even after publishing a column reporting on the New School findings and after telling me in e-mail correspondence that he agrees with my views on SWRs (I am the founder of the New School of SWR analysis). An analytically valid SWR methodology shows that a high-stock portfolio for a retirement beginning today that requires a 4 percent withdrawal stands only a 50 percent chance of surviving 30 years.
Wall Street Journal Columnist Jonathan Clements has linked to the FIRECalc calculator even after his newspaper published an article reporting that many financial advisors have adjusted their retirement withdrawal recommendations downward in recent years because of the effect of high stock valuations. I notified Clements of the tactics that have been used to block questioning of the methodology used in the FIRECalc calculator, which included death threats directed at Retire Early community members who posted honestly on this question. Clements response was to say that the Old School methodology is “not the last word” in SWR analysis but to refrain from promising not to provide further links to FIRECalc and to refrain from publishing an article warning his readers of the dangers of planning a retirement based on FIRECalc’s findings or informing them of the tactics that have been used to block questioning of the methodology used in FIRECalc.
Millions of retirees who began their retirements over the past ten years relied on studies and articles that told them that taking a 4 percent withdrawal from a high-stock-allocation portfolio is safe. Thousands today are aware that these studies and articles make false claims. No article has been published in a major newspaper warning these people of the fate they are likely to suffer in their old age in the event that U.S. stocks perform in the future anything at all as they always have in the past. I have notified several reporters at large newspapers of the need for such an article. I have not yet received a positive response (I have managed to get a few articles published on web sites, but not in major newspapers).
The ban on honest SWR posting that applies at the Vanguard Diehards board remains in place despite the fact that Bernstein is a respected poster at that board. Bernstein never spoke up in opposition to the abusive posting that was used to block honest posting at that board, despite his personal knowledge that the Old School claims have been proven false in recent years.
Vanguard Founder John Bogle attended the meeting at which Bernstein made his remarks, but has made no effort to have the ban on honest posting lifted or to notify the millions of retirees whose retirements are at risk of the dangers they are facing as a result of the demonstrably false claims of the Old School studies. Demonstrably false SWR claims are put forward at the Vanguard Diehards board and at its split-off board (the board split in two as a result of the abusive posting by defenders of the Old School studies) to this day.
The building is on fire. The fire alarm has not been tripped.
Maybe tomorrow. We’ve all been awfully busy in recent years.
Or maybe it will rain so hard one of these days that the fire will go out without us having to do anything.
It could happen. You never know. More on This Topic
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July 16, 2007 17:16 – Buy Yourself Some Courage
Bankrate.com recently published an article entitled Working Life Goes on for Serial Retirees. Here is the text of the section of the article that quotes my views:
“It takes a certain amount of courage — and financial freedom — to start your own business later in life. Rob Bennett, a tax attorney and journalist, dreamed of writing a book but needed to work a full-time job for financial reasons. With his dream as a goal, he ‘worked and saved like a madman until I got to the point fairly early in life where I had saved enough so that I could do what I wanted to do,’ he says.
” ‘Now I’m at the point where I only have to make $12,000 a year or so to pay my bills and that covers food, utilities and other day-to-day expenses,’ he says. ‘My mortgage is paid off and if I make more than my minimum, we can take a nice vacation.’ His book, Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work, and his blog, promote the idea of early savings as a path to financial freedom.”
There’s a good reason why you are afraid to ditch the safe corporate job and chase your dream job. You might fail. Or it might take a lot longer to succeed than you were expecting it to take. There are all sorts of things that can happen out in The Big Bad World.
Acquire some financial freedom, and there are fewer bad things that can happen. Many of the things you are afraid might happen are problems that can be solved with money. You can spend years going back and forth in your mind as to whether you should take the chance or not. Or you can save effectively for a few years and put the odds a good bit more in your favor.
Your dream will never be a sure thing. That’s probably for the best. You need a little risk in your life to keep the blood flowing.
But you don’t want too much risk. Too much risk really is a bad thing. Don’t try to work up your courage by talking yourself out of your fears. Buy some courage at The Freedom Store by putting money in the bank to serve as your back-up means of paying the essential bills in case it takes a few years to get from where you are today to where you want to be tomorrow.
Save and dream. And save and dream some more. And save and dream some more. The dreaming encourages the saving. And the saving encourages the dreaming.
When you have saved enough that it makes sense to test your dream in the real world, pick up your trombone and blow. More on This Topic
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July 17, 2007 14:38 – The Terrible Truth About Cute Fuzzy Bunny
I wrote a sentence in a post that I put to the Greaney board this morning that on rereading struck me as being more than a little odd. Here’s the sentence: “That show of weakness has now prompted a second challenge to his integrity, whether he would stand up for SG against the attacks of Cute Fuzzy Bunny and perhaps Nords and some others.”
There’s some individual being discussed here who goes by the name of “Cute Fuzzy Bunny” and who is engaged in some sort of attack behavior. That’s not cute, is it? It’s not terribly fuzzy either. Truth be told, attacking others is not bunnylike behavior in any way, shape, or form. This Cute Fuzzy Bunny individual is engaging in deliberate deception of his fellow community members. He’s not cute, he’s not fuzzy, and he’s not a bunny. He’s a fraud!
He’s not the only one. I have seen a lot of this sort of thing in my first eight years of posting on the internet.
Please be careful when proceeding to the next link in the logic chain. Most people who have spent some time on discussion boards have come to notice that all is not what it seems with individuals who purport to be cute fuzzy bunnies. That’s a good thing. Skepticism is appropriate. Cynicism is not. Some permit the disillusionment they experience when discovering that not all who claim to be cute fuzzy bunnies really are such to go too far. They start thinking that nothing said on the internet matters.
It’s not so. What we say on the internet matters a lot. When we say good and kind and intelligent things, we help people. That’s the other side of the story. That’s the side that makes it imperative that we develop the courage it takes to stand up to the Cute Fuzzy Bunnies of the world.
There’s a fellow who called me a “nut” yesterday because I say that the owners of Retire Early boards have no right to ban honest posting on the topic of early retirement (the particular question under discussion was our community’s findings about safe withdrawal rates). Me, Rob Bennett, a nut! He really said that. It’s in the Post Archives.
I have been known to opt for an Almond Joy over the more staid and conventional Mounds bar, that much is fair to say. But I don’t think that what I am saying about the responsibilities of the owners of Retire Early boards is so terribly off base. Butter up some popcorn; I’m going to tell you why and I’ll try to make it a show.
There was a guy who used to post to the Motley Fool board back near the time when The Great Debate was taking off. It’s been so long that I don’t remember the name. I remember that he was a human, though. That’s something that matters to me, so I always make a note of it. This guy was a human and he had a concern about investing and I interacted with him and he thanked me and I came to care about him a little as a result and I always will.
The internet discussion board is a personal medium. It’s important to get that to be able to grasp what follows. It’s about people getting together and talking things over and coming to care about each other. The rest won’t make sense unless you keep that in mind.
So, anyway, there’s this human individual posting at this board owned by Motley Fool and he’s having a good time and everyone likes him and then out of nowhere he does this nutty thing. He expresses some doubts about whether he should be as heavily invested in stocks as he is.
There’s another fellow who posts on this board who was forward-thinking enough to put together a Goon Squad before putting up his first post and he feels a deep contempt for anyone who expresses doubts about putting all his money in stocks. So he snaps his fingers and the attack dogs race off to tear the nutty guy into bits and to make sure that no one else posting at that board ever tries something similar.
I see this play out before my eyes.
I feel ashamed.
I built this board. It was a tiny board before I came along with my ideas about the Passion Saving approach to money management, and then I post that stuff and it explodes in popularity and becomes the most successful board in the history of the Motley Fool site. I happen to agree with the chewed-up guy about stocks. More important than that, though, I feel a kinship with him. I’m a human too.
I don’t want this to get out. I’m trying to make it as an investing expert, and I of course understand that this sort of thing will count against me. Still, you’re my friend and I know I can trust you to be discreet. The complete truth is that, yes, I really am a human. My wife remarks on it from time to time (both as praise and criticism, depending on the circumstances, as is proper). My friends too. There’s really no sense in denying it. I feel better just acknowledging the horrible reality and getting on with things. I’m a human! Sue me!
I’m a human who feels ashamed because I watched a friend (not a close friend, an internet friend, but a friend all the same) get chewed up into bits and I said nothing.
So I don’t do that anymore.
You might have noticed.
You know what I do now when Cute Fuzzy Bunny shows up on a board where I post? I punch him smack dab in the middle of his little button nose. I do! I do!
As he hops off, I throw a pebble at his bushy tail so he doesn’t forget that we don’t want his kind in our cabbage patch anymore. Cute Fuzzy Bunny can dig himself a hole in the ground and stay down there for a long time, so far as Farmer Hocus is concerned. That’s the new law in these here parts and it is going to be enforced.
Maybe not just yet. There are a few technical details that I haven’t entirely worked out. But just you wait, Henry Higgens, just you wait! We’re going to clean up Retire Early World and then we’re going to take the broom to the rest of Planet Internet too. We’re going to Take Back the Internet!
There are people betting that I cannot do it. They are entitled. That’s all part of the wonderful game. I need to tell you why I think they are underestimating what they have unleashed. I need to tell you why I think we’ve truly got a tiger by the tale re this one.
Everyone gets it that Cute Fuzzy Bunny is neither cute nor fuzzy nor a bunny. The problem is getting someone to do something about it.
You know what happens, don’t you? You say: “Arrest that bunny, officer, he is an impersonator of bunnies, not the real thing at all.” And the nice policeman says: “Oh, calm down now, Farmer Hocus, he was just joshin’. This is the internet, this is all make-believe, no one believes anything they read on the internet, my good fellow.”
My fat bottom!
Go to one of those Vanguard Diehard annual meetings and tell me that no one believes anything they read on the internet. Why do they invite Rick Ferri if they don’t want anyone to believe it? Why do they invite Larry Swedroe if they don’t want anyone to believe it? Why do they invite William Bernstein if they don’t want anyone to believe it? Why do they invite John Bogle if they don’t want anyone to believe it?
Google the names. Read what they do and try to imagine how much money these individuals bring in offering investing advice. And then tell me again that the whole thing is a big joke, that integrity doesn’t matter in discussions held on the internet. That it’s all “for entertainment purposes only,” as the good people at Morningstar.com tell us.
Integrity matters. Always. No exceptions. Yes, even when discussing investing strategies. Yes, even on the internet.
When William Bernstein sits on his hands while Mel Lindauer runs vicious smear campaigns against posters who dare to try to use the Morningstar discussion boards for the purpose for which they were created, there’s an integrity deficit evidencing itself. When John Bogle stands on the same stage as Lindauer and jokes with him about the food served at the luncheon, there’s an integrity deficit evidencing itself. When people come to the RetireEarlyHomePage.com site for the purpose of planning their retirements and read claims about safe withdrawal rates that the author of that web site knows to be false and has known to be false (or at least indefensible in reasoned debate) for five years now, there’s an integrity deficit evidencing itself.
As the older Bush once said about something or other (who can keep track of all that political junk?), “This cannot stand.”
People use the internet today to get together and talk over investing ideas. Those people have a right to have their discussions in peace, without people like Mel Lindauer or John Greaney or Cute Fuzzy Bunny sticking their fake button noses and phony bushy tails into them.
We’ve got pebbles. These individuals better start running for the holes they live in or we’re going to start figuring out how to make good use of what we’ve got.
There is no accomplishment of mine in the personal finance field of which I am prouder than I am of what I did to build our discussion-board communities. If you want to get a sense of what ordinary middle-class people can accomplish when they are able to get together on the internet and discuss their ideas in peace, please click on the “Start Me Up” tab to the left and read the article entitled “20 Insights You’ll Likely See Only Here.” I wrote the words. Your contributions helped flesh out a lot of the ideas. Please take a bow, fellow community member.
Cute Fuzzy Bunny contributed nothing. Zero. He gives us pictures of animals with food on their heads. He may consider himself warmly invited to take his posting energies elsewhere. He is no longer welcomed at the party. He’s a con of a bunny and The Great Bunny Con no longer amuses us. Truth be told, it never much did. It is a stone cold bore and it always was. Put that pancake on your head and take care that it doesn’t slide off, my bunny friend!
I need to get back to the point about the guy who got chewed up at the Motley Fool board before I run out of running room. He matters. Each of the humans matter. It is humans who make our engine purr. It is because we focus on what the humans do instead of what the experts say that we have been able to come up with so much exciting stuff that no one came up with before we came along.
If we want the humans to continue putting forward outstanding contributions, we need to stick up for them when the Cute Fuzzy Bunnies of the internet show up on the scene. Do you see? Please tell me that you see, and that you are prepared to act. I am telling you that we need to begin punching the Cute Fuzzy Bunnies of the internet in their button noses (which are fake, of course) when we see them causing trouble with the humans.
I’ll be watching to see what you do in response to these words of mine. Please do not let me down re this. I don’t want to see any shivering and quivering. I don’t want to hear any lame excuses.
Integrity matters. Even in investing discussions. Even on the internet. It matters big bunches.
Watch your tail, Cute Fuzzy Bunny.
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Monster.com recently published an article entitled Take Time to Think About Work. Here’s the text of the section of the article quoting my views:
” ‘Many of us have our only quiet time when we’re heading off to sleep,’ says Rob Bennett, author of Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work. ‘Just the act of putting the notepad on the bedside table will send a message to your brain to start coming up with thoughts about your career shift.’ ”
Three tips on doing the thinking needed to begin plans for a career shift:
1) There’s no better place to do this than at the beach. Getting away from your routine helps you to focus on the big picture. Plus, we have stronger memories of our vacation weeks than we do of most of the other weeks of our lives. So, being at the beach will bring back memories of earlier times when you were thinking of making a career shift, putting the latest plan into the context of a larger Life Plan. Bring a notebook to the beach the first few days, and then use the last few to organize your ideas and write down some action steps;
2) Stop using an IPod! Seriously, you must have quiet to engage in serious thought. A great time to think about a career shift is when you are taking a long walk or a bike ride. For thoughts to develop, you need a nice stretch of uninterrupted quiet time and a walk or bike ride provides that; and3) Keep a notepad by your bed. Again, quiet is required for sustained thought. Many of us have our only quiet times when we are heading off to sleep. If you have a notepad handy, you might be willing to switch on the light and write down the idea that comes into your head. If you do so, there’s a good chance that, as you write down the first idea, new ones will flood into your brain. The act of putting the notepad on the bedside table is a way of telling yourself that you are serious about wanting to think about this topic. More on This Topic
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July 19, 2007 14:41 – Some Goofy Kid Interviews for the Marketing Director’s Slot
Woman’s World recently (actually it wasn’t so recently — the article is in the April 3, 2007, issue, but I only recently was able to get my hands on a copy) published an article entitled “10 Ways to Recapture Your Childhood Spirit.” Here is the text of the section that quotes my views:
” ‘Listen to records that were important to you as a child,’ says Rob Bennett, author of Passion Saving: ‘They will remind you that you are the same person.’ ”
God gives us a time in life when we are kids and a time in life when we are coming of age and a time in life when we are grown-ups and a time in life when we are preparing to die. There are upsides and downsides to all of these stages of life. A great trick to play in seeking to make a success out of your life is to shift your thinking from that that applies at the stage you are in today to the thinking that applies at the stage you were in at an earlier time or will be in at a later time to see whether that causes you to come up with some ideas for playing things differently.
Say that you’re bummed because you lost a job paying $60,000 and are now only able to get one paying $50,000. Losing $10,000 of income is a big deal. But when you were a kid looking forward to the day when you would be a grown-up, you might have looked at the idea of earning $50,000 as a sign that you were a great success. Maybe you are a great success and you just don’t know it! Perspective is everything.
You can play this game the other way. Perhaps you’ve recently received a big raise and you’re bringing in heaps of money. You’ve got a big apartment, a new car, and can afford an expensive vacation. You’re feeling pretty darn satisfied with yourself. Should you be? Would the kid version of you think of you as a success or a sellout? You really are just a grown-up version of the kid version of you. If the kid version thinks of you as a bit of a sellout, that’s what you think of you deep inside. You better do something about it.
You never outgrow the kid version of you. And the old man or old woman that you will someday become is always waiting inside looking for his or her chance to come out. Make friends with these early and late versions of the concept of you. Talk things over with them. Listen to their praise and their criticism. Learn from them.
Say that you’re going to a job interview and you need to present yourself well. If you try too hard to impress, it might make you nervous and you might mess up. If you take to heart the reality that you are just a big kid version of the earlier you, it might take some of the heat off. It might help you to tell a joke that wins the job.
Please don’t tell me that this is not practical advice. We all tighten up at times and we all get too loose at times. Your inner child reminds you to loosen up when you’re too tight. Your inner adult reminds you to tighten up when you’re too loose. Or maybe with you it is the other way around.
There’s no one whom you can trust as well as you can trust yourself. So you need to stay on speaking terms with the person who is lovingly referred to as “You.” All of them.
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July 20, 2007 14:09 – Not Working Is the Most Boring Work of All
Last Sunday’s edition of The New York Times included an article entitled To Showcase Your Skills, Seize the Initiative. Here is the text of the section of the article quoting my views:
“Staying too long in a job where you don’t feel relevant takes a toll, said Rob Bennett, who worked for years in a well-paying corporate communications job where he didnt have enough to do.
” ‘You go to bed at night thinking you aren’t being productive, you’re not making contacts and your professional skills are eroding,’ he said.
“Mr. Bennett eventually left his job in order to write, and now publishes the Financial Freedom Blog, which provides information about investing and early retirement.”
Back in those days, I had more money coming in than I knew how to make good use of and little job satisfaction. Now I love the work I do so much that I don’t need to set an alarm to be up hours before everyone else, but I have little money coming in. The career puzzle can be a tricky one, eh?
Boo and I were taking two-hours walks each weekend in those days during which we would talk over what happened to us during the week. There were several occasions at which I told her that I just could not stand my job any longer and in six months I was quitting and that was that.
Guess what happened each time?
I got a big raise. So big that it seemed too stupid to give up that meal ticket, no matter how frustrated I was at the lack of a challenge in the work I was doing. I doubt that there is anyone on Planet Earth who has complained about getting big raises as many times as I have. I was getting paranoid about it. I was thinking that maybe they had spies and each time they knew I was ready to leave they made sure that I got so big a raise as to make it impossible.
I now see that it wasn’t personal. They probably just had too much money coming in. It’s easy to be critical of corporate entities that behave that way but the truth is that even individuals sometimes have too much money coming in. It causes us to get big heads and to develop bad habits and to do dangerous things.
The purpose of this site is to teach you (and me) how to live a rich life. A big part of it is having enough money so that you can call the shots about your own future. Another important part of it is understanding what you want to do with your life. Having money and not an understanding of what to do with it can be worse than not having money. Many people have a hard time accepting that that is so but it is so all the same.
It’s all about integration of your life, work and money goals. When you keep your life and work goals in mind when making your money decisions, you get it right. There is no other way to get it right, in my assessment.
I told Timothy about my decision to give up the big paycheck and he said: “But, dad, if they were willing to give you all that money for not doing much, why didn’t you just take it?” Then I reminded him of the time we watched the Honeymooners television program together and inquired whether he had been paying attention to Ralph’s explanation of the “Pow, Zoom, To the Moon!” concept. That quieted him down for a spell. More on This Topic
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July 23, 2007 11:07 – Jeremy Siegel Is a Dangerous Individual
I’ve added an article to the “Heroes and Villains” section of the site entitled Jeremy Siegel Is a Dangerous Individual.
Juicy Excerpt: What Jeremy Siegel did was to make investing analysis scientific. Too many investing claims are subjective in nature. People hear six different experts giving six different viewpoints that all conflict with each other and have no idea what to make of it all. Jeremy Siegel cut through the nonsense by looking to something objective to make his points — the historical stock-return data. Many looked at the data before Siegel came along, of course. But he did so in an exhaustive way, giving added power to all his findings by setting them forth in a book that appeared to evidence a deep and complete understanding of the objective realities.
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July 24, 2007 08:57 – The 10 Most Common Objections to Following a Realistic Investing Strategy
I’ve added an article to the “Valuation-Informed Indexing” section of the site entitled The 10 Most Common Objections to Following a Realistic Investing Strategy.
Juicy Excerpt: Your stock portfolio is not worth what you have come to believe that it is worth.
I know you don’t want to hear it. I get that message loud and clear. It’s my job to tell you the reality all the same.
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July 25, 2007 09:19 – 11 Benefits of Humor in the Workplace
Eleven benefits of humor in the workplace:
- It makes it easier for everyone to admit mistakes, a key to long-term success;
- Worker don’t feel a need to “rebel” against a boss with whom they can kid around;
- Humor allows you to say things that need to be said but that would sound harsh unless the edge were softened by the addition of humor;
- Humor makes the time pass more quickly;
- Humor provides a way for workers to “protest” unreasonable deadlines in a way that preserves their self-respect and allows them to let off steam while still acknowledging the need to meet the deadline;
- Humor (handled properly) pulls employees from different cultural and ethnic backgrounds together;
- Humor gives workers the courage to take on projects that they otherwise would be reluctant to tackle;
- Humor prevents workers from overreacting to losing streaks and causing them to continue longer than necessary;
- Humor creates good memories, which is a different sort of compensation received for work done, a form of compensation that many view as being more important than cash;
- Humor generates company loyalty — people view those they laugh with as a sort of substitute family; and
- Humor helps us come to a better understanding of those with different personality types. More on This Topic
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July 26, 2007 09:50 – Personal Finance Advice for the Rest of Us
I’ve added an article to the “Start Me Up” section of the site entitled Personal Finance Advice for the Rest of Us.
Juicy Excerpt: Most money advice is aimed at the lowest common denominator. People cooked up this stuff to have appeal on broadcast television or in magazines that sold in huge quantities. There aren’t many magazines like that around anymore. Today everything is segmented. But many of us are still listening to money advice that was designed to work “okay” for everyone but not particularly well for anyone. You don’t need to settle for that sort of thing anymore.
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July 27, 2007 16:45 – The Scenario Surfer Is Coming!
John Walter Russell and I are at work on a third investing calculator. It will be called “The Investor’s Scenario Surfer.”
Our first calculator is called “The Stock-Return Predictor.” The Return Predictor tells you the odds of various returns on a purchase of the S&P index made at the valuation level that applies today or at any other valuation level you elect to examine.
The second calculator is called “The Retirement Risk Evaluator.” The Risk Evaluator is the first retirement calculator developed pursuant to the New School of safe-withdrawal-rate analysis. It shows that the Old School studies, frequently cited in the general media to this day, report numbers wildly off the mark from those obtained through use of an analytically valid methodology (one that includes adjustments for changes in starting-point valuation levels).
The Scenario Surfer will allow you to examine various hypothetical but realistic return scenarios for a portfolio-allocation strategy beginning at any of a number of starting-point valuation levels. Again, the results generated will be rooted in Russell’s research into what the historical stock-return data tells us about how stocks perform in the real world. Again, the calculator generates results that would be impossible in a world where starting-point valuation levels did not make a big difference, the world presumed by advocates of the Efficient Market Theory model for understanding how stocks work.
One strategic point made clearly by the upcoming calculator is that rebalancing does not work. Rebalancing makes sense when it causes investors to lower their stock allocations at times of sky-high prices. That’s not because rebalancing is a great idea; it’s because stocks offer a dubious value proposition when prices get too high. The Scenario Surfer will show that investors who adjust their stock allocations in response to big price changes do better than those who engage in mechanical rebalancing strategies that fail to take price levels into account in a direct way.
John and I expect to be able to make the new calculator available at our web sites (John’s site is www.Early-Retirement-Planning-Insights.com) by the end of September.
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July 29, 2007 18:46 – Why You Want to Buy Investing Newsletters
I’ve added an article to the “Investing for Humans” section of the site entitled Why You Want to Buy Investing Newsletters.
Juicy Excerpt: Most investing newsletters provide the same general information over and over again. That’s a rip-off, in one sense. In another sense, it’s a good thing. If the information is good, you are better off being exposed to it twelve times than you are being exposed to it one time. Newsletters that repeat a good message thereby make it more likely that that good message will result in good long-term investing returns for you.
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July 31, 2007 15:55 – 8 Paths to Financial Independence
I’ve added an article to the “Community Rules!” section of the site entitled Eight Paths to Financial Independence.
Juicy Excerpt: I acknowledge the workplace problems that fill the disgruntled cubicle dwellers with such anger and have tried to put forward a more positive approach for dealing with these problems. I appeal to people’s idealism in urging them to use their desire to do wonderful things with their lives to motivate better financial decisions without going so far as to suggest that we all need to retire from the corporate workplace to sign up with nonprofit organizations. I encourage the exploration of frugal ways of living without showing disdain for the consumerist choices that I believe have added a great deal to many middle-class lives in recent decades. I take a maverick position on many topics as a result of my belief that the old rules no longer work while showing what I hope is the proper measure of respect for the good that has been achieved in earlier times by the conventional money advice.
Programming Note: The Financial Freedom Blog will be on vacation through Labor Day. The next entry will appear (God willing) on Tuesday, September 4. Enjoy the rest of your summer!
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