ERROLD F. MOODY JR.

January 15, 2006

U.S. News and World Report

RE:Birthday Bash!; Boomers are about to find out whether their 401(k)'s are such a sweet deal; Paul J. Lim

Dear Mr. Lim,

As you can see by the letterhead- or even review the website- I have an extensive background in planning and have written on all areas financial. I do admit that your article provided consumers some very salient retirement issues but, even considering the comment about taking no more than 4% out of your assets in order for it to have a 95% chance of lasting a lifetime, my position is that the info is lackluster at best and a complete travesty at worst.

Monte Carlo analysis displays the odds reasonably correctly. But so what if your portfolio is devastated at the front end of the retirement. Anyone doing an analysis of 1973/74 could quickly see that the ruination of the initial assets shredded the asset base so quickly that it could never recover (unless one had a WHOLE pile full of money- but that is not the “predicament” of current or future retirees). The same thing happened in 2000- 2002 because advisers (and I use the term loosely) were ill prepared for a change in the market even though the economic projections (inverted yield curve in early 2000) were as clear as a bell. It does no good to interview people who say they know money when they simply indicate to clients that “we only lost 37% of your money where the market lost 45%. See, we are better!” C’mon- advisers have a duty to protect their clients from the obvious debacles. But the term “obvious” may be the problem.

For example, stockbroker “advisers” (series 7 licensees) have never been taught the fundamentals of investing (alpha, beta, correlation, etc.). CFPs have not been taught the correct concept of standard deviation. It is universally advanced in “financial plans” that the longer you hold equities, risk (standard deviation) goes down. However, the RISK of a LOSS of MONEY GOES UP. At any given time, there is a statistical certainty of having HALF the assets traditionally projected. But, as addressed, if that HALF occurs up front, no more retirement. Admittedly, you cannot get into the subject of ‘fat tails’ or the comments from Jahnke, Bodie, Mandelbrot and others that prove the risks are far greater than projected in the sophomoric texts and teachings.

That said, you have to offer something more than simplistic buy and hold. It doesn’t work when the market goes south. Rebalancing doesn’t work when the market goes south. Dollar cost averaging doesn’t work when the market goes south. The next group of retirees deserve better.

Very Truly,

Errold F. Moody Jr.