Investing in Trying Times

What Happens IF???

Check out this video I did yesterday if you’d be so kind. I titled it: The #1 Risk In Retirement Planning that No One Talks About

What got me thinking about this was reading my man Jim Otar’s website yesterday. I’m such a HUGE fan of Jim’s. He’s the first guy I know to actually tackle the problems of relying so heavily on Monte Carlo analysis.  You can read that article by scrolling about half-way down his main page.

But what got me thinking was his writing “Neither the standard retirement calculator, nor the Monte Carlo simulation can account for the Time Value of Fluctuations. The Otar Retirement Calculator does! The Otar Retirement Calculator is based on actual market data. There are no assumptions of average growth or inflation. It gives you a range of portfolio asset projections that enables you to plan realistically for your retirement.”

The concern here is the assumption that what happened in the past means anything going forward. Check out my video on that here.

The issue with using historical data is how much the data overlaps.  If you take one investment time frame from 1930-1959 and a second from 1931-1960, you have 29 OVERLAPPING years!  Only 1 is independent.  And as such using historical “rolling returns” is using completely DEPENDENT data sets, they are not statistically significant.

The way I like to go about this stuff is to use the worst-case scenarios we’ve had in the modern era.  We can go back to 1871 if we want, not sure that’s legitimate though as very, very few people were actual investors back then

But say we did nonetheless.  The latter part of the 19th century consisted of HIGH RETURNS and DEFLATION.

The 1930’s consisted of LOW RETURNS and DEFLATION.

1966-1982 consisted of MIDDLING RETURNS and HIGH INFLATION.

And the Aught’s consisted of LOW RETURNS and relatively LOW INFLATION.

Notice anything missing?


Some will argue 1973-1974 was that. But that’s a mistake. I’m talking extended, SECULAR markets here, not just a two year time frame.

In fact, you’d have been better off retiring at the beginning of 1973 when the markets proceeded to get crunched the next two years, with high inflation, than you would have been if you retired in 1966 with a moderately low down year and moderate inflation.

So, this begs my question. What if we go into a HIGH INFLATION and LOW RETURN scenario? What works best?

I don’t know. We haven’t had to deal with that before. And, as such, ALL models that use PREVIOUS HISTORY will be junked if this were to happen.

Let’s think about this though. In trying times, what is always in demand. FOOD, WATER and…. SHELTER.  Could shelter (real estate) then be the asset that leads the way in bad times?

I’m going to dive into this tonight during my livestream at 7pm Eastern time.

We’ll look at some Census Data from the “old days”.  We’ll look at returns on REITS, which doesn’t go back as long.   We’ll even dive into my subscription and get a gauge of advertisements for housing during those times.

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