by Archie M. Richards, Jr.
December 4, 2006

In the December 1, 2006 issue of The Wall Street Journal, I found, not one, but three headline stories about the dollar slipping to a 20-month low against the euro and a 14-year low against the pound. The issue was also the lead item in the newspaper's summary of important business and finance stories.

In making market predictions, nothing works better than headline stories about a price going to a new low after a lengthy decline. Following such headlines, you should expect the declining trend to reverse and a long-lasting advance to begin.

What will cause the dollar's advance? I have no idea. What will be the effect on the stock market? Don't know that either. What has caused the dollar to decline in the past? You've got me there. All I know is, headlines about a record low following a long-term bear market point to a likely reversal.

Why? Because editors are attune to what readers believe. To attract readers, they supply headlines that reinforce those views. But most readers are wrong about major price trends. The headlines therefore make evident what readers will soon be wrong about.

At the close on November 30, 2006, one dollar in the wholesale dollar market bought 0.7551 euro. Within a few years, the dollar will probably have strengthened to the point of buying something like 0.85 euro - maybe better. Go ahead; keep track.

Dale Buckner, a financial planning friend in Amarillo, Texas, writes, "How can an investor be sure that he won't run out of money when he's taking out income and suffers a poor stock market in the first few years of retirement?"

Excellent question, Dale. Let's say a person has investments of $100,000. He needs income and takes out 5 percent a year. In the first year, that's $5,000.

The market then takes a dive. A year later, the account is worth only $70,000. Five percent of $70,000 is only $3,500. The percentage must be applied to the current value. Continually taking out 5 percent of the beginning value would be too dangerous. You can't squeeze blood from a stone.

The reason I haven't made this clearer in my columns is probably because I'm enthusiastic about stocks. Even the Democratic majority can't kill this bull market, because too many of the new members of the Congress are fiscal conservatives. Oh, they might adjust social laws, but the new Congress probably won't increase spending or tax rates by much. The leadership may be so inclined, but the votes aren't there to override presidential vetoes.

Sure, the stock market can go down 10 or 15 percent any time. But a 60 percent decline lasting for a decade, as we had in the 1970s - naahh, no way can that happen now. The wretched economic policies that prevailed in the 1920s, 1930s, and 1970s won't be reenacted. Voters all over the world have become too well-informed. If Congress comes up with really bad economic policies, term limits will be imposed on legislators, reversing the mistakes.

Over the next 15 years, expect the market to rise at the same rate it has since 1926 - about 12 percent a year. Well, all right, call it 10 percent.

If you take out 5 or 6 percent, you might take a hit for a year or two. But overall, you'll enjoy an expanding level of income.

Get in the market with index funds or preferably exchange-traded funds. Use a variety of asset types. I recommend 30 percent in U.S. stocks spread among big, small, growth, and value, 30 percent among foreign regions, 20 percent in real estate investment trusts, and 20 percent long-term bonds. The variety will cut down on the volatility of the whole.

If the market falls, you may have to reduce income withdrawals. But this shouldn't last long. Take out up to 6 percent of the current portfolio value. Over the next 15 years, your withdrawals will become larger and larger.