Have you been lied to?
yes

Mostly though, I would go with the term “grossly misled”. But hey, most people hardly understand the basic functioning of the stock markets let alone it’s intricacies. The average American doesn’t understand the nature of the trade deficit or how inflation works (or what the heck deflation actually is). We have charlatans like Kiyosaki selling books like “Rich Dad…” and millions of people buying.

So if it’s any consolation, it’s kind of a mass delusion.

But more to the point, your questions:

Can we beat inflation (which is really currency deflation) by refusing to inflate our lifestyles and living frugally?

Really depends on scale. For short periods, I’m sure that you can, but if you plan to retire at 65 and live until you’re 95 without any form of real production, then you’re going to have to leverage a lot of people to get there.

Personally, I figure the easiest way to beat inflation is to out-produce inflation. There is no known limit on a human’s earning capacity as there is no limit on their production capacity. You can either build a nest egg by hoarding the goods you have and sharing (investing) them in hopes of beating the averages. Or you can build a nest egg by leveraging your talents and skills then sharing (investing) those skills and talents into greater production.

Instead, should we be simply putting money in high-yield savings accounts, bonds, and CDs, and prepare to live off the interest?

Depends on your education. I know more people that would benefit from increased personal and professional development than people who would benefit from earning an extra 1% / year on their investments.

I know more people with untapped potential for creating value than I know people with under-utilized investments.

So yes, most people could do very well with low-risk instruments as long as they knew where to really put their efforts.

…if that rebound occurs and they are made whole again…

Here’s the deal, if you traced a line from January 2000 to January 2008 (pre-crash) on the S&P you were down money. Or more accurately, you were down real purchasing power. People are talking about a “rebound” but in real terms, we’re in the midst of an 8-year bear market.

Even if stocks do rebound are they ever going to achieve the necessary heights?

If you make 10% on your stocks will that make you happy?
Obama is “printing” 10% of the US GDP this year. Your money was invented and backed by nothing. Still happy?

Look, unless the US can reverse the trend and turn the trade deficit into a surplus, then it won’t really matter. Right now, the US is a giant hole for money and the only way out is to print a bunch of money to pay off all of the debts (or to use the world’s largest army and secure some more resources).

Of course, every dollar the US “prints” by taking on deficits makes your dollars less valuable. So if you go back to the first point about investing with CDs, I think that we need to really take a different tack.

Imagine that you’re working tech support in the US. Now compare your quality of life to that of a tech support specialist in India. Now explain why the tech support individual in the US deserves a lifestyle that is far more “privileged” that Indian worker.

They do the same job, often for the same people. If they do this at the same skill level, then why does the American “deserve” a car when the Indian can hardly afford a motorcycle.

I think it becomes quickly apparent that the premier way to maintain and improve quality of life is to provide value. Yes, in some way, having money to lend is providing value. But for most people, their largest untapped resource is simply their ability to create a better world and a better life for those around them.

(repeating)
[i]The words “Bad Sport” occur to me in regard to your late arriving desire to escalate your on line theoretical quibbles[/i]

The site at which I put forward the first post pointing out the flaws in the Old School retirement studies was Motley Fool. That site has the best rules protecting us from this sort of thing that I have seen. The problem is not with the site or with its rules. The problem is with the reaction that we see among people who are overinvested in stocks at times of insanely dangerous prices and with the failure of Motley Fool to enforce its own rules.

The words “Bad Sport” occur to me in regard to your late arriving desire to escalate your on line theoretical quibbles to the realm of the courts.

Getting the numbers right in the studies we use to construct our retirement plans is not a “quibble,” Dave. We need accurate numbers if the plans are to work.

I believe that legislative changes and police proceedings should be a last resort, not a first resort. I have tried many other avenues over the past seven years. It is only after seeing these efforts not bear fruit and after seeing the great pain suffered by those who are experiencing the busted retirements and financial losses that I made a decision to contact lawmakers and the police.

There are numerous experts who have agreed in the years since I first posted about the inaccurate numbers that they are in fact inaccurate. These people include: (1) Scott Burns; (2) Bill Bernstein; (3) Ed Easterling; and (4) Larry Swedroe. Yet the studies remain uncorrected to this day. Again, how would you proceed constructively? The case cannot be proven to any greater extent than it was proven seven years ago. We are talking about a numerical calculation. Yet after seven years not one of the invalid studies has yet been corrected and discussion of the errors in the studies has been banned at a number of the discussion boards at which the inaccurate studies are regularly promoted.

I also am reminded of the old saying “Be careful of what you ask for, because you just may receive it. When God punishes us, it is by giving us what we ask for.”

The very fact that someone would put these words forward to someone who is trying to prevent failed retirements highlights the nature of the problem we are dealing with here. Do you think it would be a bad thing if the abusive posting were brought to an end and people were permitted to have the discussions they have on numerous occasions indicated they would like to have? What is it that you see as the downside of permitting people to have open conversations amongst themselves about how to plan their retirements?

Regardless of whether I can make sense of it, a review shows that you do seem to spend most of your days there, to the exclusion of other sites, with very little complaint other than on arguments of abstract financial strategy.

It sounds to me as though you are referring to the board that I refer to as the “Goon Central” board. Yes, I post there. No, not at all to the exclusion of other boards. I much prefer to post at boards where abusive posting is not permitted and where people can engage in civil and reasoned discourse.

The Goon Cental board is owned by John Greaney,. He is the author of one of the Old School retirement studies (you can view it at http://www.RetireEarlyHomePage.com). John posted at the same Motley Fool board at which I first posted about the flaws in these studies. The community responded with great enthusiasm to my posts on this topic. John launched a campaign of intimidation against anyone who posted honestly on the topic and burned the Retire Early board there to the ground. Several other boards were started by people who wanted to be able to post honestly on this question.He and his supporters burned those boards to the ground as well.

I have opposed this behavior from the first day. There is no one who has spoken out against it as often as I have. I asked the owners of the Motley Fool site to remove John from the board. I put up a post there on November 23, 2002 asking other community members to help me in petitioning Motley Fool for his removal. None of this is my doing. I have always spoken in opposition to the abusive posting.

I post at the Goon Central board for a number of reasons. There’s an article detailing my reasons at the “Banned at Motley Fool!” section of my site. The most important reason is that I want to hear feedback from people who are skeptical of my ideas. That helps me sharpen my thinking and improve the ideas over time. If you check my posts at the Goon Central board, you will see that I am the only poster there who never posts abusively. I respond to questions and comments of substance.

There have been some good questions raised at that board. There is lots and lots of awful stuff there. I don’t deny that for three seconds. But just because these people are abusive posters does not mean that they are not smart or not capable of asking good questions from time to time. You need to understand that these people are hurting themselves as much as they hurt others. They too need to learn how to invest more effectively (although they will of course not acknowledge that such a thing is possible!).

Greaney personally believes that the number that he reports in his study as the safe withdrawal rate in truly the safe withdrawal rate. He knows that he cannot defend the study in reasoned debate; that’s why he engages in abusive posting. But he believes that the number is right all the same (I cannot prove this but I am personally convinced that this is so). He is suffering from cognitive dissonance. He is in great pain.

John is a friend of mine. He praised me to the skies in the days before I posted on the flaws in the Old School studies and I continue to this day to praise him for the good work he has done. John takes all of this very personally. I do not. My goal is to get the Old School studies corrected, to publicize the New School studies, and to reopen all of the Retire Early and Indexing boards to honest posting on valuation-related topics.

I understand that many view it as odd that I post daily at a board populated by a number of people who are abusive to me. The reality is that it is the situation that is odd; I do what I do out of an effort to come to a better understanding of what is going on.

Are you able to think of any downside to reporting retirement numbers accurately, Dave? I know that you are not. So why is there any “controversy” about any of this at all? What I and the hundreds of community members who have helped out have done is all good. So why are there so many who express hostility to us? I cannot give you a rational answer to that one. The answer lies in the realm of emotion. Investing is an intensely emotional endeavor. This is the great overlooked truth of stock investing.

So, being a regular contributor, you must have seen that those 101quotes look to have long ago been carefully reviewed and answered using later replies that indicated a far different picture than the one you paint.

I know what you are referring to, Dave. I am friends with most of the posters you are referring to here. A few of them I have met in “real life.” There are all sorts of tricks being played in the response post you are referring to. In some cases, threats were made against the people who agreed with me and then those people changed their story. Which story do you think is the right one, the one made before the threats or the one made after?

Check out what has been said by people like Scott Burns, Ed Easterling, Bill Bernstein, and Larry Swedroe. These are recognized experts in the field. Swedroe has said that the Old School studies are a case of “Garbage In.Garbage Out.” Why do you think he says that? He says it because it is so. All the rest follows from that obvious truth. The Old School studies cannot be defended in honest and reasoned debate. So we get this other stuff instead by those who feel an intense emotional need not to acknowledge the errors.

Do you think those 101 people were somehow forced to say those later things, and that involvement by Congress and police is somehow actually warranted?

Only a tiny fraction of the 101 changed their views. Yes, some of them were forced. I saw it happen and the Post Archives document this.

Yes, I believe that police action and congressional action is warranted. There are millions of people who are likely going to suffer busted retirements as a result of the errors in the Old School studies. Many of those people can still make changes in their retirement plans to improve their odds. We should be doing all that we can to publicize the errors in the Old School studies and to help people become aware of the New School studies. We need to talk straight with people to win back confidence in the markets.

This discussion has even gotten bizarre

The entire thing is bizarre. It’s all 100 percent nutso. There is no possible harm that could come to anyone from having accurate numbers to plan his or her retirement. Yet you see what you see. Investing is an intensely emotional life endeavor, Dave. That’s the piece of the puzzle that you are missing. I have caused people pain by reporting the numbers accurately. I don’t say otherwise. The question is — Are they better to feel that pain by hearing the realities from some guy who posts stuff on the internet or to learn about them by seeing their retirement money go “poof!”

I predict that the interest from Congress or from any other official body will be lacking with regard to some squabble about the theoretical best ways to invest

I am not seeking congressional or police help re the investing questions. People can figure that stuff out for themselves so long as they are permitted to hear both sides of the story. I am seeking congressional and police help so that we can bring an end to the abusive posting practices that are blocking the realization of the desire expressed by thousands of my fellow community members to be able to hear both sides of the story. Once we open the board up to honest posting by those on both sides, the rest is downhill sledding.

Your history there, and now here, seems to be one of focusing on your supposedly suppressed plight, and not on any nifty ways you have to help others invest.

Check the history of this thread, Dave. You’ll see that I am not the one who brought up the process questions. I prefer to discuss the substance side of things. However, I do make an effort to respond to process questions when they are put to me. I think that some of these questions are genuine and not entirely off point.

I’m sorry to be so blunt.

Please don’t apologize for being blunt, Dave. I prefer to know where you are really coming from when trying to answer your questions. It helps me know what aspects of the question to which to direct my focus.

Please continue to think it all over, my new friend. If you believe (as I do) that the intensity of the reaction tells us that something important is going on, I think I can safely say that we truly have a tiger by the tale re this one!

Rob

Guys, let’s please move the discussion forward. I respect both opinions, but frankly I am not sure comments are the place to exchange these kinds of messages. I respectfully ask that you take this offline, via email, or somewhere else other than Frugal Dad. Thanks.

I think the lack of perspective is on the other side, RJL.

Scott Burns is a personal finance columnist at the Dallas Morning News. Scott and I have engaged in extensive e-mail correspondence on our community’s findings regarding today’s retirement planning studies (most of today’s studies are analytically invalid because they do not include an adjustment for the valuation level that applies on the date the retirement begins). Scott has told me that he agrees with me that valuations need to be considered. He has written three columns about the “New School” research done by my partner John Walter Russell that is used as the engine of the retirement calculator available at my site.

So all is well, right?

That’s not right. Scott wrote in one of his columns that the reason why the general media has not reported on the flaws in the Old School studies since they were discovered nearly seven years ago is that “it is information most people don’t want to hear.” I think that’s pretty much on the mark. But is that a good reason not to tell people that the retirement planning tools they are using do not work? My view is that it is a horrible reason.

Stock investing is an intensely emotional act. Once prices go to insanely dangerous levels, people very, very, very much do not want to be told that this is the case. People want to be told fantasies. There’s lots of money to be made in constructing plausible fantasies and in publicizing them widely (whether this is being done intentionally or not — my belief is that it is usually done without bad intention). But fantasies always hurt us in the long run. The fantasies developed this time were bigger and more dangerous than those we have seen on any prior occasion and the pain that we are living through as a consequence is bigger too. What do you propose be done about this if we are not to speak frankly about the mistakes that were made and get about the business of correcting them?

The blog entry is suggesting that some might give up on stocks altogether,. There are lots of people giving thought to this idea today. Unless we hear some frank talk about the causes of what happened, this idea is going to catch on. I understand why the idea is catching on. I strongly believe that this is not the way to go, however. Stocks do not need to be so risky an asset class. We make stocks risky by telling tales about them. The risk is not really with the stocks themselves. The risk is with the people who buy them and then long to be told tales about them and with the people who construct and promote the tales.

All of the things that I describe in the articles at the site happened, both the good stuff (of which there is a lot) and the bad stuff (of which there is also a lot). I’m a journalist by training. I report stories. To ask me not to do so is like asking a dog not to bark. This is by far the biggest story that I have witnessed in my lifetime. What would you expect me to do but to tell people about it?

I always endeavor to tell the story in a fair and balanced and charitable way. That’s part of the job. Scott Burns is one of my favorite columnists. I have an entire binder filled with columns of his on my bookshelves. But I think that Scott dropped the ball in not telling the story of the flaws in the Old School studies when he first learned of them. Lots of people are going to suffer busted retirements as a result and a busted retirement is a very serious life setback. Investing is a serious subject and serious responsibilities come into play when reporting on it.

I feel great respect and affection for Scott Burns. I do not believe that he hurt the people he hurt intentionally. I have a pretty good idea of the pressures that caused him not to report that story in the manner in which I believe he should have reported it. Still, I think all this needs to change. People like Scott Burns need to start reporting what they have learned, regardless of whether doing so generates intense emotional reactions on the part of those overinvested in stocks or not. We cannot make good investing decisions unless we know the realities and we cannot know the realities unless people overcome their fears of what will happen to them if they report the realities plainly and bluntly and boldly. We need to overcome the taboo on straight reporting of the realities of stock investing that came to dominate all we hear on this subject during the out-of-control bull market.

Scott wants to say what he knows. I can tell by reading between the lines of the e-mails he wrote to me. The same is true of lots of other “experts.” It’s true of John Bogle. It’s true of Bill Bernstein,. It’s true of Jonathan Clements. It’s true of Bill Bengen. it’s true of lots and lots of smart and good people. They are willing to help us if we are willing to signal them that we will not endorse vicious smear campaigns against them for the “crime” of telling things as they are.

Perspectives need to change. You have that part right, RJL. But it’s not the perspectives of those sticking their necks on the line by reporting the realities plain and clear that need to change. It’s the perspectives of those who are afraid to do so that need to change. I look forward to a day when the things that I report on in the e-mail to my congressman are unimaginable. I was working on a belief that these things were unimaginable in the days before I put forward my first post on the flaws in the Old School studies. For good or for ill, I now know better.

An investing model that leads to this sort of behavior is a failed investing model. This sort of thing should never happen. It’s not the reporting of the realities that is the problem. It is the reaction we too often see to the reporting of the realities that needs to change. We need to hear multiple perspectives. We are all in this together and we all need to work together to get to a better place.

These are not hasty conclusions. All of this is coming from a guy who has spent seven years of his life studying this stuff up close and personal. Take it for what you think it’s worth. But I am saying it because I think it needs to be said and I have devoted a good bit of mental energy to serious thought and reflection on these questions.

What we say about stock investing affects people. People matter. We need to make much more of an effort to get this stuff right than we have put forward in recent decades.

Rob

I think I’ll move on to other websites rather than expose myself further to Mr. Bennett. With all good wishes, however, I would urge him to seek professional counseling regarding his anger and fear.

“It is true that I have notified the police, Dave. Appropriately so, as crazy as it should be to say… snippets from posts by over 101 members of the Retire Early and Indexing discussion-board communities… Do you have constructive suggestions to offer re how to deal with this situation, Dave?”

Rob,
Yes, I believe I do have some constructive feedback.

1) I can’t understand why anyone would voluntarily post at a location so far out of bounds that they honestly feel Congress and police involvement is required. The words “Bad Sport” occur to me in regard to your late arriving desire to escalate your on line theoretical quibbles to the realm of the courts. I also am reminded of the old saying “Be careful of what you ask for, because you just may receive it. When God punishes us, it is by giving us what we ask for.”

2) Regardless of whether I can make sense of it, a review shows that you do seem to spend most of your days there, to the exclusion of other sites, with very little complaint other than on arguments of abstract financial strategy.

3) So, being a regular contributor, you must have seen that those 101quotes look to have long ago been carefully reviewed and answered using later replies that indicated a far different picture than the one you paint. Link:
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1189390571/5#5

4) Do you think those 101 people were somehow forced to say those later things, and that involvement by Congress and police is somehow actually warranted? I can’t imagine anyone really feeling that way. This discussion has even gotten bizarre, and I can’t see any good in continuing. I predict that the interest from Congress or from any other official body will be lacking with regard to some squabble about the theoretical best ways to invest, and I hope you can resign yourself to that.

Your history there, and now here, seems to be one of focusing on your supposedly suppressed plight, and not on any nifty ways you have to help others invest. I’m sorry to be so blunt.