Another post that I am recreating is one from last fall covering retirement spending. Maybe the number one question people have about retirement is how much money they need to fund a certain spending level. The flipside of this question is the level of spending that their current portfolio will safely support. We don't want to run out of money and end up back at our kid's house! In the spring of 2011, Wade Pfau extended the topic of Maximum Safe Withdrawal Rates, suggesting that Safe Withdrawal Rates in retirement were higher historically after periods of poor market returns and lower after periods of good market returns.
I will be recreating some posts from the old version of my website. I want to make sure that I post a link to the paper by Pu Shen from 2000 called The P/E Ratio & Stock Market Performance. This paper was very prescient, arguing that high P/E ratios lead to below average Equity Market performance over the following periods.
Furthermore, negative equity market returns (one month forward) were expected when there was a negative spread between the Earnings Yield and the 3 month T-Bill yield - as was the case at publication date.
This paper was incredibly influential to my further research into the question of how to simulate expected returns in the equity markets AND on when to reallocate money from stocks into bonds and vice-versa.
Kevin Spires, CFA, FRM