Update: I made a new and improved version for the contents of this post here.
This original post was merely a very rough initial draft of the analysis.
In the update, I based the analysis around a 50/50 asset allocation. Here it was centered on 60/40. The result here was that a valuation-based asset allocation strategy provides more wealth for 102 of the 110 rolling 30-year periods, while buy-and-hold did better in 8 of the periods.
If you are interested in the subject of valuations, I have published several research articles, all of which should be fairly understandable without a deep mathematics background:
Pfau, Wade D. "Withdrawal Rates, Savings Rates, and Valuation-Based Asset Allocation." Journal of Financial Planning, Vol. 25, No. 4 (April 2012), forthcoming.
Pfau, Wade D. "Long-Lerm Investors and Valuation-Based Asset Allocation." Applied Financial Economics. forthcoming. (revised version of "Revisiting the Fisher and Statman Study on Market Timing")
Pfau, Wade D. "Can We Predict the Sustainable Withdrawal Rate for New Retirees?" Journal of Financial Planning. Vol. 24, No. 8 (August 2011), 40-47. [blog summary]
Pfau, Wade D. "Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle." Journal of Financial Planning. Vol. 24, No. 5 (May 2011), 42-50. [blog summary] [story about the article from The Economist]
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Includes dividends?
ReplyDeleteI wouldn't think using rolling periods is proper here.
ReplyDeleteLumpr: the results are based on the total stock returns, which includes dividends.
ReplyDeleteAbout rolling periods: I understand there is some debate about this. I think rolling periods is definitely an improvement over existing studies which seem instead to track how an investment made in 1871 would be doing today.