> People retiring today can expect to live another 20 years or so. So > even there it's not clear that heavy equity investment isn't the smart > choice. As far as I understand the literature on the equity premium > puzzle, this explanation doesn't really work.
Yes, it does. If you're drawing down your savings in retirement at a constant rate while your stocks are losing their value, a ten year bear market may leave you with nothing when the next bull gets underway. The 7% long-term inflation-adjusted return on equity investments (composed of dividends plus capital gains) is only true for people who enter the market at very low P/E's and benefit from dramatic P/E "inflation." ~Alypius Skinner
