Not really, John.  My example had a 45 year old in 1988.  There are 45 year olds to day too, and all ages in between.

Are you saying the PE10 is only for retired folks in the withdrawal stage?

I have no real issue with PE10 valuations for retirement for me because I don't intend to be much over 30 or at most 40% equities anyway.

"Notice that this is a specific outcome, rather unusual, that included a bubble."

That got me laughing.  Thanks.

I remember how often you have used the 1965 thru the 70's stagnation period to warn folks off TR investing.

Wasn't that a specific, and unusual outcome?

best,

Bill

Bill,

"Wasn't that a specific, and unusual outcome?"

No really,  That particular date for retirement gave very specific credibility as to the meaning that such and such a real, inflation adjusted rate of withdrawal (in this case, 5%) has only a 95% probability of success.  1966 was one case where the probability of failure should have been 100%! 8-)

People often assume that '95% success rate' is good enough.  It is good enough, in 19 out of 20 years for retirement.  The problem we all face now, whenever deciding whether or not to take that 5% rate of withdrawal, is if 2008 through 2038 will be like 1965 through 1995, or some other time period, where that specific withdrawal was good enough.

I remember how often you have used the 1965 thru the 70's stagnation period to warn folks off TR investing.

Wasn't that a specific, and unusual outcome?

Actually, NO, not for the 1965 and 1966 sequences. P/E10 was 24. The outcome was only slightly worse than "typical" at that valuation level.

But YES, a procedure that ignores probabilities can be misleading. The notion that 4% was SAFE is misleading. It survived. That was the specific historical outcome. But it was far from safe. (It had a probability of failure between 20% and 50%.)

Have fun.

John Walter Russell

 

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Bill, this is a recent NOTE at my site.

 

Latest Research Findings (Price Drops)

 

Valuation Informed Indexing is a winner. It produces consistently good outcomes. It removes the sensitivity as to when price drops occur.

 

During accumulation when you are dollar cost averaging, there are two alternatives that make sense. One is to invest entirely in stocks all of the time. At year 30, the odds are about 20% that you will do spectacularly well. The odds are about 20% that you will have seriously underperformed Valuation Informed Indexing. Otherwise, the odds are that your results will be similar to Valuation Informed Indexing.

 

The other approach is to start with 20% stocks and 80% TIPS and wait until P/E10 falls below 15 for the first time. Then you switch to Valuation Informed Indexing. The resulting outcomes are almost identical to using Valuation Informed Indexing from the start.

 

Another story from my latest research is that the likelihood of P/E10’s falling below 10 is only about 50%-50%. Although it is reasonable to expect prices to fall to one half of today’s level (from P/E10=24 to P/E10=12), do not count on deeper cuts.

 

Have fun.

 

John Walter Russell

Bill,

You have good instincts in spite of yourself.

With P/E10=23, as it does today, and assuring a balance of zero or higher at Year 30:

With a 30% stock allocation, your SAFE withdrawal rate is 4.0% with TIPS (at 2%) or 4.5% with corporate bonds/preferred stock.

With a 70% stock allocation, your SAFE withdrawal rate would only be 3.6% or 3.7% (respectively).

If you were willing to take 50%-50% odds, the withdrawal rates would be around 4.6% with TIPS and 5% with corporate bonds/preferred stock.

The fact that you have a low stock allocation planned for retirement is a definite PLUS.

Have fun.

John Walter Russell

JWR1945a:

"The fact that you have a low stock allocation planned for retirement is a definite PLUS."

Right about here is where we always do the "yeah, but . . . "

Yeah, but if you have a high equity allocation consisting of quality companies paying a dollar dividend greater than you need to withdraw and that dollar income stream is growing at a rate much greater than expected inflation . . . . 

. . . . . then maybe you don't have to worry about P/E10 or P/E40 or P/E whatever.

I think you agreed with this, JWR, in prior posts where you recognized that a dividend strategy is different and a 100% allocation to equities even now might be just ducky.  Yes?

Regards.

Cliff 

Cliff,

"I think you agreed with this, JWR, in prior posts where you recognized that a dividend strategy is different and a 100% allocation to equities even now might be just ducky.  Yes?"

Maybehaps the P/E10 of an individual stock, or fund, is low, while that of the market is high?

Or that high yield means low price, hence low P/E?  After all, P/D and P/E are related (by the DPR), so low P/D implies high D/P, or percentage dividend yield?

So, high D/P, covering withdrawals, is less risky then low D/P (or high P/E10), which relies on share price appreciation to fund withdrawals?  A more 'risky' strategy, relying on share price appreciation?

Anyhow, all of this stuff ties together, obviously! 8-))

I think you agreed with this, JWR, in prior posts where you recognized that a dividend strategy is different and a 100% allocation to equities even now might be just ducky.  Yes?

Definitely so. I believe that dividend and income stragegies are best. Valuation Informed Indexing comes close. Fixed allocations fall far behind.

In terms of Bill's decision to stick with a fixed allocation, his choice of 30% is a good choice.

P/E10 does not go away entirely, even with dividend strategies. It helps you assess the likelihood of more favorable stock prices (and better dividend yields). It may lead you to preferred stock or corporate bonds for a few years, while hoping for better stock opportunities.

Have fun.

John Walter Russell

JWR,

"P/E10 does not go away entirely, even with dividend strategies. It helps you assess the likelihood of more favorable stock prices (and better dividend yields)."

A few questions, for my own understanding of P/E10.

As I understand it, you would use P/E10, of the market as a whole (market cap weighted) to determine the valuation (good or bad) of equities, in general.  For example, the P/E10 of the S&P500.  Based upon this, you would set your portfolio asset allocation.

1) Would/could you not compare the P/E10 of some fund, rather then the market, as a whole, to determine whether or not to invest in that particular fund?  For example, if the P/E10 of that fund was at 11, while that of the market was 22, one indicator would say light on equity, while the other would indicate exactly the opposite, for that particular fund?

2) What about the P/E10 of individual stocks (same question as 1?)

3) If P/E10 of individual stocks and funds is significant (see 1 & 2), does that mean the average investors has to pour through historical data and annual reports to come up with this number?  That is, how good is current P/E, by itself, as an indicator for an individual stock/fund?

4) How important is P/E10, per your definition, compared to the average P/E over the last 10 years?  That is, I understand the difference in the calculation, as you explained it.  I'm wondering how a simple test (of the current P/E of a stock/fund, compared to it's average over some time period, is predictive of future share price behavior).  Or even current P/E compared to P/E10, for that stock or fund.

5) Are there any guidelines, for something similar to P/E10, on the debt side of one's portfolio?

6) Finally, wouldn't the P/E, or P/E10, of of one's portfolio, rather then the market, as a whole, or any specific stock/fund, be more indicative of the future performance of one's portfolio, specifically with respect to portfolio survivability during retirement?  This gets into asset allocation.  For example, P/E10 might indicate 30% equity (valuation based), but I might choose 4 funds/stocks, whose average P/E10 might indicate 60% equity?

I realize these questions may already be answered somewhere on your website but, being retired, I've forgotton how to do any real work, including searching for answers! 8-))