Just finished your book this morning. I may have a few questions, but one that comes to mind right away is why not consider other CAPEs or more specifically a weighted average CAPE based on our own unique equity portfolio. Right now the Shiller CAPE is crazy high because of it only tracks the S&P 500, which is only a small part of your model 55/40/5 portfolio. If one calculated a weighted average of CAPE for the different asset classes, do you have any insight to how that would impact things? In this unique time when so much of the global market is concentrated in the Magnificent 7 and a few other, it seems that smoothing out the CAPE might help. This especially seems plausible when your model portfolio actually diminishes the investor’s exposure to this phenomenon to maybe 3% or 4% of the entire portfolio.

Would love to hear your thoughts on this. Also, thank you so much for sharing your incredible insight in this book. I am on a path toward retirement and probably two years or so away from my own initial withdraw. The timing of this couldn’t be better.    D.

 

Dear D.,

 

Thanks for your note and kind words.

You propose an intriguing idea. The immediate challenge for implementation would be creating a database of CAPES for other asset classes. I wonder if Professor Shiller would be interested.

I can’t predict how a multi-factor CAPE model would work. It depends on how closely valuation and subsequent returns are correlated for each asset class. It would be messy, but fun to test!

I am testing how my existing CAPE model works for planning horizons longer than 30 years. I have almost completed work on a 35-year horizon, but too early to assess results.

With any luck, in a few years you’ll be retiring into a new stock bull market, after this one fizzles. That might be an opportune time for higher stock allocations and higher withdrawal rates.

Wishing you the best,

Bill Bengen