Current Research R: The VII Advantage

Updated: July 28, 2009.

Current Research Index

Current Research R: The VII Advantage

Valuation Informed Indexing offers an advantage over buy and hold. Here are some numbers and some pictures.

The Valuation Informed Indexing Advantage

Valuation Informed Indexing can offer a tremendous advantage. Here are some numbers based on the most likely values of P/E10 from Year 2000 to Year 2030.

The Valuation Informed Indexing Advantage

The Valuation Informed Indexing Advantage for Accumulators

I built a calculator to test the advantage of staying out of stocks whenever P/E10=20 and above. I kept the investor out of stocks until P/E10 fell below 10. I did this by modifying the P/E10 data in the Deluxe V1.1A08a calculator.

I compared this form of Valuation Informed Indexing with an all-stock portfolio. I used 2% TIPS as the non-stock alternative investment.

[Actually, this form of investment has not been available until recently. But there have been satisfactory alternatives all along. I used TIPS because our historical sequence calculators treat non-stock investments poorly. They treat them as single year trading vehicles.]

Here are the Year 10 results using data from 1923-1980. This shows the typical result.

Here are the Year 10 results using data from 1921-2000. This shows the run up in the 1990s. Very few of these sequences include the effects of the October 2008 meltdown.

Here are the Year 20 results using data from 1923-1980. This includes the run up in the 1990s.

Here are the Year 30 results using data from 1923-1980. This shows the run up in the 1990s. Very few of these sequences include the effects of the October 2008 meltdown.

Simple Valuation Informed Indexing

Valuation Informed Indexing offers an advantage over buy and hold. Here is what a simple variant delivers in terms of Safe Withdrawal Rates. Typically, you make only one or two allocation shifts in a 30 year period.

Simple Valuation Informed Indexing

Simple VII Sensitivity Study

Valuation Informed Indexing offers a tremendous advantage over buy and hold. Here is a sensitivity study. It shows what happens to a simple variant. This time, I used a Bear Market exit point of P/E10=15 instead of 10.

Simple VII Sensitivity Study

Switching C Variants

I optimized stock allocation switching for today’s valuations on the Investment Strategy Tester. I call this Switching C. I have added variants SwC15 and SwC10.

Switching C Variants