Q. How well do you think we can project our investment performance?

A. Planners often forget that the statistics of the past are not the statistics of the future. They often do not remind their clients about this. Instead they worship Monte Carlo programs and modern portfolio theory as universal truths, considering them as accurately depicting the statistics of the future. The truth is they don’t. The future is just as uncertain as it always has been and always will be.

The heart of the US problem now is the incredible lack of savings for the last 20 years and the accumulation of debts of all kinds. As more people realize that they don't have enough savings, it will severely crimp the economy as more people save and spend less. This will be exacerbated by the off-book unfunded liabilities of SS, MC and public retirement plans.

Where are all of those brilliant writers of past years who said that people didn't have to save any more because the stock market and home values had increased so much? Why aren't they telling people to save more now? That's because they are slinking under the cover that what has happened was a statistical freak. One famous planner said that his theory (to invest 100% in stocks and draw 7.5% initially and increase that by inflation) failed because the economy experienced a one in a million series of events. Yet his paper said, that to be accurate, he had let his Monte Carlo runs use not 500 or not even 1,000, but a million simulations for each and every data point.

That planner totally missed the point. Accuracy is impossible when you don’t know what will happen to the economy, the financial markets or even in your personal lives. The most important part of planning is not predicting the future accurately but is making good choices between alternatives so that you may sustain a reasonable lifestyle when (not if) something goes awry. Stress your plans with different alternatives and see how they react. The Pre and Post Retirement Planner from www.analyzenow.com lets you do this by running two computer planning programs side-by-side and presenting both results on the same chart so that you can enter one case on one program and the other case as an alternative on the other program.

The retirement planning programs on www.analyzenow.com caution users to be conservative and urge them to use assumptions that produce results closer to what happened to those who retired in 1965. Several times, radio talk-show hosts have been critical of my allocation rules in my books and articles saying they are old fashioned and too conservative. I know it's more by luck than wisdom that my rules have worked well through my 20 years of retirement so far, but I'll stick with being conservative. It paid off for the six years when I was responsible for Boeing's corporate forecasts; it paid off when I retired; and I believe it will serve me well in what may be another 20+ years of retirement--if I live as long as my father.

Bud