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> You: The study was for the US, and never claimed to be otherwise, nor am I claiming otherwise. > Me: What you fail to grasp, and what I am pretty sure you ar

> You: The study was for the US, and never claimed to be otherwise, nor am I claiming otherwise. > Me: What you fail to grasp, and what I am pretty sure you are going to refuse to believe at this point, is the 4% rule applied as you and MMM are suggesting is the same trap of overfitting that many people who engage in backtesting do. http://www.financial-math.org/blog/2014/04/faqs-on-backtest-overfitting/ http://www.financial-math.org/blog/2014/04/faqs-on-backtest-... > 5. I do not understand the meaning of backtest overfitting. If a strategy worked in the past, why shouldn’t it work in the future? Could you please provide a simple example? > Any random sample extracted from a population incorporates patterns. For example, after tossing a fair coin ten times we could obtain by chance a sequence such as {+,+,+,+,+,-,-,-,-,-}, where “+” means head and “-” means tail. A researcher could determine that the best strategy for betting on the outcomes of this coin is to expect “+” on the first five tosses, and for “-” on the last five tosses (a typical “seasonal” argument in the investment community). When we toss that coin ten more times, we may obtain a sequence such as {-,-,+,-,+,+,-,-,+,-}, where we win 5 times and lose 5 times. That researcher’s betting rule was overfit, because it was designed to profit from a random pattern observed in the past. The rule has absolutely no predictive power over the future, regardless of how well it appears to have worked in the past. http://blogs.barrons.com/focusonfunds/2014/06/13/backtests-damned-backtests-and-statistics/ http://blogs.barrons.com/focusonfunds/2014/06/13/backtests-d... > The point: Investors don’t know how many hypotheses the managers examined, didn’t like, and chucked out, before they found the perfect backtest. The more the data is tortured, the likelier the result is just a fluke. So: How often is a fluke passed off as “alpha,” or some kind of amazing financial innovation? ----- I'm just putting this here because you clearly missed the boat on my post and its possible others will to.

JoshTriplett 11y ago
I understood your point. Past performance is no guarantee of future results. And I've seen multiple people (including MMM) make that same point in several different places; nor am I relying only on one source for advice. (Though if you're suggesting it has no predictive power for long-term averages, that's ridiculous; it's simply that predictions are not in any way guarantees, nor do they in any way let you time the market.) But even if you don't buy into the 4% rate, or even if you want to make a more conservative assumption, the math for an estimate still works; just use a different multiplier. And you still shouldn't treat that estimate as a guarantee. Retirement doesn't need to be a binary one-way process, where once you retire if you didn't plan well enough you're doomed. One of the lovely advantages of retiring early is that you're still more than capable of working if you want to, or doing some other kind of work. Nor should you assume that because you planned for 4% (or 3%, or whatever you like), you should withdraw that much like clockwork every year. You might plan for 4%, but then spend 2.5% because that's what you happened to need. And if the market happens to grow 10% in a year, great, but you shouldn't spend 2.5x as much that year. Whatever you don't spend stays in place, growing your buffer even more for future downsides. If you steal away every unexpected upside, averages stop working, and you'll be more screwed by unexpected downsides rather than just living a little more frugally for a while. Estimates are just that: estimates. They're useful tools for planning, not guarantees. Again, see the article I linked about safety margins. You're talking all about all the horrible things that could happen. So, have backup plans, and backup backup plans, and you still can retire before your 60s.

JoshTriplett 11y ago

I understood your point. Past performance is no guarantee of future results. And I've seen multiple people (including MMM) make that same point in several different places; nor am I relying only on one source for advice. (Though if you're suggesting it has no predictive power for long-term averages, that's ridiculous; it's simply that predictions are not in any way guarantees, nor do they in any way let you time the market.) But even if you don't buy into the 4% rate, or even if you want to make a more conservative assumption, the math for an estimate still works; just use a different multiplier. And you still shouldn't treat that estimate as a guarantee. Retirement doesn't need to be a binary one-way process, where once you retire if you didn't plan well enough you're doomed. One of the lovely advantages of retiring early is that you're still more than capable of working if you want to, or doing some other kind of work. Nor should you assume that because you planned for 4% (or 3%, or whatever you like), you should withdraw that much like clockwork every year. You might plan for 4%, but then spend 2.5% because that's what you happened to need. And if the market happens to grow 10% in a year, great, but you shouldn't spend 2.5x as much that year. Whatever you don't spend stays in place, growing your buffer even more for future downsides. If you steal away every unexpected upside, averages stop working, and you'll be more screwed by unexpected downsides rather than just living a little more frugally for a while. Estimates are just that: estimates. They're useful tools for planning, not guarantees. Again, see the article I linked about safety margins. You're talking all about all the horrible things that could happen. So, have backup plans, and backup backup plans, and you still can retire before your 60s.