Wall Street 2014 forecasts = random dart throwing

Further support for my recent blog about Wall Street’s stock market predictions for 2014.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

Wall Street 2014 forecasts = random dart throwing

How much will you spend in retirement?

The Wall Street Journal just published a good article about retirement income.

I tend to be conservative in my planning, so I assume 100% pre-retirement spending, and spending 3.33% of savings per year, but the article highlights the more conventional view of 75% to 85% pre-retirement income and 5% per year spending.

The choice is really up to each individual, but I prefer a bigger rather than a smaller margin of safety.

If you were told you had a 1 in 20 of getting into a major car accident today that would cause debilitating injuries, you probably would elect not to drive.  But, when people are told they have a 5% chance of running out of money in retirement, they don’t seem to grasp that 1 in 20 and 5% are the same odds.

Depending on the kindness of strangers–or worse, family members!–in your 80’s or 90’s sounds about as enticing as a debilitating car accident, to me.

The issue isn’t so much what numbers you plan for retirement spending and saving, but that you think about it.  The article referred to above gives a great set of ideas to consider in your retirement planning.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

How much will you spend in retirement?

2014 Stock Market Prediction! NOT!!!

It’s that time of year again, when the public eagerly eats up articles, speeches and sound bites predicting where the stock market will close in 2014.

My problem with this annual ritual is that it’s a ruse that distracts people from investing, and leads them instead into unprofitable speculation.

No one knows where the stock market will end 2014 any more than someone knows that one roll of a die will land on 6.  Someone may get lucky and guess 6 correctly, but everyone acknowledges it’s luck and not skill.  

The skill with rolling a die is knowing that any one roll cannot be predicted, but that several rolls will converge on an average number of 3.5.

I just rolled a die 57 times.  On the 11th roll, the average converged above 3.  On the 57th roll, it had converged on 3.175.  If I kept doing it, it would converge on 3.5.

The same is true with the stock market.  Predicting one year’s return is impossible, but knowing the trend over time leads to a converging solution.

By my estimates, I think the S&P 500 will return 0.9% over the next 5 years.  Now, that’s not one roll of the die, but several.  

And, that could occur as 5 years of 0.9% returns, or as 4 years of 12% returns and one year of -33%, or as 2 years of -33% returns and 3 years of 33%.  You get the idea.

I don’t know any one year’s return, but I can understand the underlying nature of the system and predict where things will converge.  

The longer the period, the more confident I am in my prediction.  That 0.9% 5 year prediction doesn’t carry a lot of confidence any more than 5 rolls of a die will end up averaging 3.5 with much confidence.  But many rolls makes me more confident in my prediction.

That is why I more confidently predict 4.4% returns over the next 10 years, and even more confidently predict 5.6% returns over the next 15 years.
Thinking about next year’s return and acting on that “thinking” is pure speculation, and a sure-fire way to lose money over time.

Instead, focus on the longer run where the predictions are more accurate.  
The market isn’t cheap, so don’t expect high returns over the next 5, 10 or 15 years.  

But, that doesn’t mean we won’t have high returns in 2014.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

2014 Stock Market Prediction! NOT!!!