Quote:
Originally Posted by VertigoAtHome
Yes, looking at a CAGR calculator (MoneyChimp) for that period it's 8.6%, add in dividends and it jumps 14.1%, add in inflation and it's down to 4.2%. That isn't terrible, in fact given the inflation back then it's good, better than if you started investing in Jan 2000, by Dec 2007 you have a negative return adjusted for inflation. On your point, I agree equities is a good approach, and probably the best approach in today's market. That's where my money is!
However you can pick periods that change the outcome. What if you invested in 1968 (i.e. not near the bottom of the bear market) and were 65 yrs old. By 1981 when you are 78, you'd have a -1.51% return including dividends and inflation over that period. So for those like me who use the bucket approach to investing, having 5, 7, 10 yrs cash certainly helps, but won't necessarily get you to the other side bear market before you need to start selling. That said, I still think it's the best strategy, particularly in todays market. I've included an inflation adjusted S&P chart below for reference.
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VertigoAtHome I see how your example works and the math holds water. And it is cherry picking a time period to look for the perfect storm.
When picking the perfect storm, it is reasonable to pick the average American in 1968. Defined benefit pensions were far more common, so on average the hypothetical 65 year old in 1968 would have pension income, in addition to Social Security income, to reduce the portfolio withdrawal rate. Employer-sponsored retiree health coverage was also more common, reducing out of pocket healthcare expense. Add to this the self-regulating behavior of an individual's spending patterns as net worth ebbs and flows.
We agree that equities are, in general, the best place to invest for the medium and long term, during almost any economic scenario.
I take issue when people on threads like this open the dark closet and bring out the 1970s Inflation Zombie. That zombie wasn't scary then, and shouldn't be scare now, because of the data you presented on equity and bond returns during that period.
Side topic - think about the benefit to Federal tax revenue from RMDs, related to growing retiree assets. It almost seems like aligned objectives between the government and investors. Investors who are also taxpayers. The more money a retiree has in their tax-advantaged retirement accounts because of market appreciation, the more RMD-related tax revenue Uncle Sam gets. I think this is close to a win-win. Therefore the Federal government seems likely to implement policy measures generally supportive of financial asset growth.