Good advice on how to deal with such a decline, though.
.-= Roger´s last blog ..Taxing Financial Transactions: Good Idea or Not? =-.

This is the answer.

The conventional wisdom is that stocks are “risky.” But the conventional wisdom, as Rob Arnott, says, is rooted in “myth and urban legend.” 80 percent of the risk of stock investing goes away for investors willing to abandon Buy-and-Hold and follow valuation-informed strategies. There has never been a time when stocks performed poorly in the long term starting from a time of moderate or low prices. There has never been a time when stocks performed well in the long term starting from a time of insanely high prices (like what we saw from 1996 through 2008).

The problem is that we cannot talk openly today about what works. The Stock Selling Industry made hundreds of millions promoting Buy-and-Hold and it is viewed as career suicide today to report openly what the academic research has been telling us for 30 years now. Many bloggers don’t want to give up the links they get by promoting Buy-and-Hold strategies, which remain popular for so long as the money keeps coming in for The Stock Selling Industry.

I believe that people are going to get fed up after the next crash. The last 30 years of academic research has taught us wonderful things about how to invest effectively and, when we are able to share what we have learned, we will be seeing The Golden Age of Middle-Class Investing. The trick is going to be surviving that next crash, which threatens to bring on The Second Great Depression.

Rob
.-= Rob Bennett´s last blog ..“It [My Claim That Long-Term Timing Works] Is Consistent with Shiller’s Analysis & Could Be True” =-.

“Are we not comparing Apples to Oranges then? Of course Leslie will have more money, because she has more money to start with and has a 5 year head start no?”

Since Mike is comparing RELATIVE years (retirement + 5) that than absolute years (2010), this is apples to apples.

At the top, you say
“Even though Bob retired in 1999 at close to the top of the market, he’s selling at levels much higher than Leslie. Hence, how can Bob have so much less after 10 years? Doesn’t Leslie also start to hemorrhage a lot of money in the bear market as well since she hasn’t withdrawn everything out of the market?”

One thing to note is that Bob is BUYING during the bull run, Leslie is not. Sure, he’s selling at a higher price, but his basis is higher. Just because I sell a stock for 100 and you sell for 70, it doesn’t necessarily mean that I’m making more money – I may have paid 65 per share and you may have paid 10.

But I also agree with the comment that 60% stock is probably too much… *especially*, in my mind, if you only have $500K. Or, really, if you’re withdrawing at 4% rate. That means that your fixed income investments are only 40%/4% = 10 years of non-equity money available, and thats kinda low.

Second, I’m not sure a ‘total bond market fund’ is an appropriate fixed income fund for retirees… at least not as the only one. “Total market” means it has short term but also long term. It has AAA rated, but also A and lower rated. And… no cash! No stable value in that 60/40 at all.

Same with the ‘Total Market Stock Fund’. There are ways in which its too aggressive. Shouldn’t retirees stock allocation have be dividend & blue-chip heavy? But there’s always ways its just missing things… shouldn’t they also have international for diversification? Shouldn’t they have some precious metals & commodities and other things that are counter-cyclical?

For instance, this is what Vanguard’s retiree fund has.. 65% bonds, 30% stocks, 5% stable value.
(https://personal.vanguard.com/us/funds/snapshot?FundId=0308&FundIntExt=INT#hist=tab%3A2)

I’d be interested in how much that would’ve helped.