Notes starting from August 19, 2007

Updated: October 6, 2007.

Avoiding Disaster

A retiree should avoid selling stocks. Upgrading his portfolio is an exception.

Avoiding Disaster

One Market, Three Different Textbooks and Sage Advice

I have been checking out the Scenario Surfer. It has led to the following observation:

The market has three kinds of textbook conditions. When P/E10 is at bargain levels, the right choice is Stocks for the Long Run. At intermediate levels, P/E10=14 to 20 (roughly), modern asset allocation models come into play. At higher valuations, Professor Shiller’s Irrational Exuberance applies.

Benjamin Graham recommended stock and bond allocations between 25% and 75%. It makes sense. It reduces regret. It can be hard to have zero dollars in stocks when valuations soar even higher from ridiculously high levels. Practicing on the Scenario Surfer can help you stick with a zero percent stock allocation. But Benjamin Graham’s 25% minimum is a lot easier on the nerves.

August 9th Letters

Oops! I am late in attaching the August 9, 2007 Letters to the Editor to the Letters button on the right hand display. They include a new letter this morning, August 21, 2007.

August 9, 2007 Letters to the Editor

Manual Allocations Versus Rebalancing

I have include my personal results from the Scenario Surfer checkout with the August 9, 2007 Letters to the Editor.

Rebalancing is a horrible idea.

The key to success is having a meaningful way to measure stock market valuations. There are several. P/E10 is one of them.

August 9, 2007 Letters to the Editor

Shun Rebalancing

Rebalancing is a bad idea.

Shun Rebalancing

Is $200000 Enough?

How much do you need? For a traditional retiree, $200000 can be enough. A younger retiree needs more. Partial retirement may be a better choice.

Is $200000 Enough?

Preferred Stock

What about preferred stock?

It can make a lot of sense. Read the August 29, 2007 Letters to the Editor.

August 29, 2007 Letters to the Editor

Annuities and TIPS

Annuities deserve another look.

Annuities and TIPS

Worth Repeating

These articles are well worth repeating.

Starting at 5%
Starting at 5% with Risk

Investing Research and the Tricky Tricks Used to Trick You

Here is an outstanding article at Rob Bennett's PassionSaving web site.

Investing Research and the Tricky Tricks Used to Trick You

What Ifs

There is always the possibility that the bubble will be followed by a super bubble. It not expected. But it could happen.

I recently went through such a condition (simulated) while checking out the Scenario Surfer. I did OK, but not nearly as well as more traditional approaches.

Such occurrences are rare, but they can happen. Benjamin Graham's advice to maintain stock allocations between 25% and 75% still makes sense. I would change it slightly, however. When stocks are at bargain prices (about a quarter of today's prices), it makes sense to load up entirely on stocks and live off the dividends. In fact, if you are willing to live off today's dividends (read about the Dividend Blend approach in my articles related to Income Allocators), you can do that today. In any case, you must be careful about the quality of your holdings and the quality of their dividends.

Risk Leads to Bankruptcy

We have been so inundated by salesmen that we no longer respond to real dangers.

Risk Leads to Bankruptcy

FIRECALC Sinks

I just received this message when I tried to log onto the Early Retirement Forum as JWR1945a:

vBulletin Message

You have been banned for the following reason:
No reason was specified.

Date the ban will be lifted: Never

With this, the Early Retirement Forum has sacrificed all claims of legitimacy.

Putting Everything on Automatic

In today's extension of the August 29, 2007 Letters to the Editor, I examine setting up an income stream for a son with special needs. I comment as a friend, not as a professional.

August 29, 2007 Letters to the Editor

Dividend Growth and Bond Ladders

It is reasonable to withdraw 5% (plus inflation) if you use a bond ladder and reinvest in dividend stocks as the yields of high quality companies become attractive.

Dividend Growth and Bond Ladders

The Great Mistake

Retirees need income. Accumulators need total return. Mix the two and you make the Great Mistake: the 4% safe withdrawal rate.

The Great Mistake
August 29, 2007 Letters to the Editor

Dividend Blend Calculator

I have put an easy to use Dividend Blend calculator into my Yahoo Briefcase. You can withdraw any amount that you enter until the TIPS cash management account shows a negative balance.

Select the Allocators folder. Download the Dividend Blend file. My Yahoo username is jwr19452000.

Yahoo Briefcase

Dividend Growth and Bond Ladders Addendum

Here is another combination that delivers a continuing withdraw rate of 5% of your original balance (plus inflation).

Dividend Growth and Bond Ladders Addendum

Dividend Growth Rule of Thumb

Here is a rule of thumb about dividend growth. It helps us select investments for the Dividend Blend.

Dividend Growth Rule of Thumb

Dividend Growth Story

This is why dividend growth is so attractive.

Dividend Growth Story

Latest Letter to the Editor

Read about P/E10 and rebalancing.

October 2, 2007 Letters to the Editor

Free Lunches for Everyone

Have you ever heard someone say “and that would be a free lunch” as a proof of an investment argument? I have. Repeatedly.

Free Lunches for Everyone