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Re: A Low-Return Future? Are We Prepared?

By my reading of Bernstein, at least, low returns and low interest rates generally occur in low risk, highly stable economies. If things are suddenly becoming more unstable, and more risky, then that should actually lead to higher returns! It's always possible that a series of regional crises could...
by Simplegift
Mon Sep 01, 2014 5:19 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: A Low-Return Future? Are We Prepared?

Just to avoid putting words in the mouths of commentators on the "low return future," I'll let Dimson, Marsh and Staunton speak for themselves, from their April 2013 article in the Financial Times: While we have now been living with low rates for several years, many investors still seem to...
by Simplegift
Mon Sep 01, 2014 4:10 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: Why invest in bonds?

The risk of a stock dominated portfolio is more immediate, you wind up selling at market lows and buying back in when it's high. There's another "deeper risk" of a 100% stock portfolio — that the markets may never recover, or may not recover in your lifetime (ala the Japanese stock market...
by Simplegift
Mon Sep 01, 2014 2:29 pm
 
Forum: Investing - Theory, News & General
Topic: Why invest in bonds?
Replies: 78
Views: 3813

Re: A Low-Return Future? Are We Prepared?

Are they merely extrapolating the trend from 1980-2012 to predict low or lower interest rates in the future? Are interest rate trends that easy to predict? Most of the commentary on a "low-return future" that I've seen doesn't try to predict future interest rates. It simply observes that ...
by Simplegift
Mon Sep 01, 2014 1:26 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: A Low-Return Future? Are We Prepared?

Whether or not Bernstein's theory about discount rates decreasing over the course of centuries is correct, interest rates will still vary greatly from year to year. His theory is not useful for predicting interest rates in 1, 5, 7, 10, 20 years. Other factors are more important and will dominate. Y...
by Simplegift
Mon Sep 01, 2014 10:39 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: Why invest in foreign funds?

mckoder wrote:But the bogleheads lazy portfolios recommend putting about a third of your money in foreign funds. I don't get it. What is the idea behind this?

Image
Source: Manning & Napier
by Simplegift
Sun Aug 31, 2014 11:36 am
 
Forum: Investing - Theory, News & General
Topic: Why invest in foreign funds?
Replies: 22
Views: 1244

Re: When to invest in China?

One of the primary drawbacks of investing in China (and other fast-growing, emerging markets) hasn't yet been mentioned — massive share dilution. The headline profit growth of Chinese companies (in green) far exceeds the growth in earnings per share, that is, what investors actually receive (in oran...
by Simplegift
Sun Aug 31, 2014 12:34 am
 
Forum: Investing - Theory, News & General
Topic: When to invest in China?
Replies: 43
Views: 1678

Re: A Primer on John Templeton

One of the more remarkable aspects (among many) of John Templeton's career was that, even back in the 1950s and 1960s, he was researching and buying international equities. This must have taken an inordinate amount of foresight, work and courage back in those days. What other investors in the U.S. w...
by Simplegift
Sat Aug 30, 2014 6:09 pm
 
Forum: Investing - Theory, News & General
Topic: A Primer on John Templeton
Replies: 28
Views: 1990

Re: When to invest in China?

On the other hand, my sense is that business is growing rapidly in China and I don't want to miss out on buying their stock early enough to make excellent profits. Make sure that you are not confusing economic growth with stock market returns. The "Chinese Miracle" has underperformed the ...
by Simplegift
Sat Aug 30, 2014 2:18 pm
 
Forum: Investing - Theory, News & General
Topic: When to invest in China?
Replies: 43
Views: 1678

Re: I'd buy an S&P 500 index fund in a pinch

It is important to find an allocation you can stick with. If it's important to you that your stock portfolio more truly represent "The Total Market" for better or worse, then adding Extended Market to the S&P500 may be worth the effort. Due to tax-loss harvests long ago, I've ended up...
by Simplegift
Sat Aug 30, 2014 1:25 pm
 
Forum: Investing - Theory, News & General
Topic: I'd buy an S&P 500 index fund in a pinch
Replies: 45
Views: 5385

Re: How low can Vanguard Fees Go?

Looking at a chart of Vanguard's falling expense ratio, compared with their growing fund assets, one might conclude that further expense reductions will come quite slowly. Once Vanguard hit about $1 trillion is assets in 2005, the average expense ratio hasn't declined very significantly. Perhaps the...
by Simplegift
Sat Aug 30, 2014 12:03 am
 
Forum: Investing - Theory, News & General
Topic: How low can Vanguard Fees Go?
Replies: 32
Views: 2166

Re: Do you mix inheritance and earned money?

In fact, and perhaps a bit irrational, I don't regard the gifted money as my own and I'm more hesitant to touch it (even for simplification). This is a common feeling with inherited money, I believe — perhaps a slight feeling that one doesn't entirely deserve the money because it wasn't earned. My ...
by Simplegift
Fri Aug 29, 2014 5:33 pm
 
Forum: Personal Consumer Issues
Topic: Do you mix inheritance and earned money?
Replies: 25
Views: 2120

Re: Your thoughts on farmland values

Very instructive post and paper, berntson, thanks.
by Simplegift
Fri Aug 29, 2014 12:21 pm
 
Forum: Investing - Theory, News & General
Topic: Your thoughts on farmland values
Replies: 29
Views: 2387

Re: High net worth in CA - what % of bonds in munis?

Several expert recommendations I've seen have a breakdown like this: 50% Taxable Bonds 25% National Munis 25% CA Munis The idea is to keep your muni exposure to half of your bond allocation, and keep your individual state exposure to half of your muni allocation. This is to protect against a blow-up...
by Simplegift
Fri Aug 29, 2014 11:51 am
 
Forum: Investing - Theory, News & General
Topic: High net worth in CA - what % of bonds in munis?
Replies: 21
Views: 1459

Re: A Low-Return Future? Are We Prepared?

Wow, I think that's WAY too pessimistic. 2% real returns for US Large Cap? Sorry, I'm not buying that without one heck of a lot of evidence. I understand your skepticism. But realize that Mr. Bernstein's real return forecasts are pretty much middle of the road when it come to a lower-return future....
by Simplegift
Fri Aug 29, 2014 11:34 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: A Low-Return Future? Are We Prepared?

You can't possibly predict average stock market returns per century unless you can predict average number of wars and their economic effects per century. One can't predict stock market returns decades or a century ahead, but one can observe stock market returns from decades or a century in the past...
by Simplegift
Fri Aug 29, 2014 10:16 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: A Low-Return Future? Are We Prepared?

Just to offer a concrete example of what a "low-return" future looks like, the table below shows William Bernstein's estimates for expected annual real returns of major asset classes over the next 10 years (from his book, Rational Expectations , published May 2014). These estimates are mos...
by Simplegift
Thu Aug 28, 2014 11:17 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: A Low-Return Future? Are We Prepared?

What you need to be careful about is that, right or wrong, "low-return future" is a meme on the rise, a fad, a fashion. Excellent point, Nisi, and I couldn't agree more. I'd be most interested to hear contrary points of view, from experts who see the current trends in a different light. H...
by Simplegift
Thu Aug 28, 2014 9:17 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: A Low-Return Future? Are We Prepared?

The Trinity study which did the research that resulted in the 4% SWR rule... In the 1998 Trinity Study , the authors backtested a number of stock/bond mixes and withdrawal rates against market data compiled by Ibbotson Associates covering the period from 1925 to 1995. The larger question being aske...
by Simplegift
Thu Aug 28, 2014 7:36 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

A Low-Return Future? Are We Prepared?

Could we be living through a major shift in the long-term valuation of global financial assets? Many respected financial commentators, from Bill Gross to Burton Malkiel to Vanguard, continue to express their belief that today's persistently-high global asset prices will assure lower future returns f...
by Simplegift
Thu Aug 28, 2014 5:36 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 153
Views: 8467

Re: Emerging markets 1900-2013

Yes, I don't know if we have any economic historians here, but my concern is that the data isn't so reliable from that time for obvious reasons. After a little digging, I was able to find more information about how Dimson, Marsh and Staunton addressed survivorship bias in their stock markets data s...
by Simplegift
Thu Aug 28, 2014 1:57 am
 
Forum: Investing - Theory, News & General
Topic: Emerging markets 1900-2013
Replies: 53
Views: 4552

Re: Emerging markets 1900-2013

As noted upthread, just because a country had a stock exchange in 1886, it does not mean that a continuous and useful record of its stock returns over the 128 year period is available to researchers. For various reasons (wars, revolutions, floods, fires, etc.), many stock exchanges in even developed...
by Simplegift
Wed Aug 27, 2014 8:20 pm
 
Forum: Investing - Theory, News & General
Topic: Emerging markets 1900-2013
Replies: 53
Views: 4552

Re: Your thoughts on farmland values

Wouldn't want to predict the future of U.S. farmland prices — and I'm not in-the-know — but it seems clear that today's elevated farmland prices are being supported by today's historically low U.S. interest rates. Rising interest rates could have a significant impact on farmland prices, through incr...
by Simplegift
Wed Aug 27, 2014 6:14 pm
 
Forum: Investing - Theory, News & General
Topic: Your thoughts on farmland values
Replies: 29
Views: 2387

Re: How sustainable if the inflation adjusted income of VTSM

Is it fair to assume that the inflation adjusted income/dividend potential for the index would be (on average) preserved over generations? Barring taxes or major calamity of course. I believe the historical rate of dividend payout from stocks has dropped substantially over the decades. While divide...
by Simplegift
Wed Aug 27, 2014 3:43 pm
 
Forum: Investing - Help with Personal Investments
Topic: How sustainable if the inflation adjusted income of VTSMX?
Replies: 6
Views: 792

Re: How do you calculate your return rate?

The XIRR function in Excel will give you the most accurate result, but if you just want a quick, seat-of-the-pants estimate, this method is offered by William Bernstein in his Four Pillars of Investing (footnote on page 186): If no net additions or withdrawals for the year, simply divide the end por...
by Simplegift
Wed Aug 27, 2014 2:23 pm
 
Forum: Investing - Help with Personal Investments
Topic: How do you calculate your return rate?
Replies: 5
Views: 384

Re: Emerging markets 1900-2013

Just wondering, how active or liquid was the Chinese Stock Market in 1900, or the Russian Stock Market. Are we confident about the prices we have? Were they even open to foreigners? Good questions. It appears Dimson, Marsh and Staunton used only seven countries to construct their emerging markets s...
by Simplegift
Wed Aug 27, 2014 1:08 pm
 
Forum: Investing - Theory, News & General
Topic: Emerging markets 1900-2013
Replies: 53
Views: 4552

Re: Market Corrections — Befriending the Beast

Has anyone seen a chart showing how long it takes to get back to even after a correction? Not sure exactly what you're looking for here. If you're interested in time-to-recovery for individual stock market corrections, then Ed Yardeni has a nice publication, HIstory of Stock Market Corrections , wh...
by Simplegift
Wed Aug 27, 2014 12:24 pm
 
Forum: Investing - Theory, News & General
Topic: Market Corrections — Befriending the Beast
Replies: 18
Views: 2656

Re: Market Corrections — Befriending the Beast

A somewhat different perspective on market corrections — but one with the same message: market corrections are a normal and re-occurring aspect of equity investing and are not a reason for fear. http://www.bloomberg.com/image/i9_3wqxrfXWw.png Source: Bloomberg View - 1/21/14 [Link modified by admin ...
by Simplegift
Wed Aug 27, 2014 9:50 am
 
Forum: Investing - Theory, News & General
Topic: Market Corrections — Befriending the Beast
Replies: 18
Views: 2656

Re: Emerging markets 1900-2013

This sort of thing leads me to doubt the objectivity of Dimson & al. and wonder whether they are not pushing a point of view. The best available data is not necessarily good data. There's no doubt that it can be extremely difficult to reconstruct global stock market returns going back 100 years...
by Simplegift
Tue Aug 26, 2014 7:16 pm
 
Forum: Investing - Theory, News & General
Topic: Emerging markets 1900-2013
Replies: 53
Views: 4552

Re: What are you up YTD?

• 50% Stock/50% Bonds
• Modest tilt to small and value
• 6.63% year-to-date
by Simplegift
Tue Aug 26, 2014 4:16 pm
 
Forum: Investing - Help with Personal Investments
Topic: What are you up YTD?
Replies: 94
Views: 6276

Market Corrections — Befriending the Beast

Quite a few recent posters have expressed their concern about today's elevated stock market levels and their fear of a market correction. This post is intended to give a broader, historical perspective on yearly market drops and to show that they are, 1) very common, and, 2) not an impediment to str...
by Simplegift
Tue Aug 26, 2014 3:02 pm
 
Forum: Investing - Theory, News & General
Topic: Market Corrections — Befriending the Beast
Replies: 18
Views: 2656

Re: Emerging markets 1900-2013

Thanks, Robert T, for posting the excellent summary. It's interesting to see how relatively consistent the returns of emerging markets have been over the last century (with the exception of the world war periods!). Nearly all of the other historical returns series we've had just date back to about 1...
by Simplegift
Tue Aug 26, 2014 9:59 am
 
Forum: Investing - Theory, News & General
Topic: Emerging markets 1900-2013
Replies: 53
Views: 4552

Re: The Extreme Outliers of the Investment Universe

Technically, I believe you are right, Nisi. The super, outperforming investors would be considered part of the natural distribution of returns — even though they may be three standard deviations from the mean. Thus, their returns would not be anamolous outliers in the technical sense, just way above...
by Simplegift
Mon Aug 25, 2014 5:20 pm
 
Forum: Investing - Theory, News & General
Topic: The Extreme Outliers of the Investment Universe
Replies: 27
Views: 2747

Re: What if there were only index funds?

Does anyone know what percent of the global stock market is in index funds? I have some vague recollections of the percent of U.S. stocks in index funds, and it was pretty low. I would guess the entire world stock market is less than 10% in index funds. A quick search didn't turn up the % of global...
by Simplegift
Mon Aug 25, 2014 4:11 pm
 
Forum: Investing - Theory, News & General
Topic: What if there were only index funds?
Replies: 23
Views: 2031

Re: The Extreme Outliers of the Investment Universe

This topic reminded of another paper, Buffet's Alpha , which showed how much of an outlier Mr. Buffet's long-term performance has been, compared with active equity fund managers (first chart) and other companies (second chart): http://i.imgur.com/NifYiWf.jpg This figure shows the distribution of ann...
by Simplegift
Mon Aug 25, 2014 1:35 pm
 
Forum: Investing - Theory, News & General
Topic: The Extreme Outliers of the Investment Universe
Replies: 27
Views: 2747

Re: Any good studies on active vs. passive BEFORE fees?

From one study of over 7,000 mutual funds for the ten-year period ending 12/31/12: So are professional investors really underperforming the market or are they earning positive alpha (returns in excess of the market) but capturing all of the gains for themselves with high fees? The data shows that th...
by Simplegift
Mon Aug 25, 2014 11:49 am
 
Forum: Investing - Theory, News & General
Topic: Any good studies on active vs. passive BEFORE fees?
Replies: 10
Views: 984

Re: The Extreme Outliers of the Investment Universe

Thanks for sharing this- those charts are really informative. Two questions about them- does the chart for active funds include expenses? What is the time period for the active fund chart- just the first six months of 2012? YDNAL has you on the right track. There's more on the study methodology beh...
by Simplegift
Mon Aug 25, 2014 10:48 am
 
Forum: Investing - Theory, News & General
Topic: The Extreme Outliers of the Investment Universe
Replies: 27
Views: 2747

The Extreme Outliers of the Investment Universe

The chart below was forwarded by a fellow chart enthusiast — who noted it was from a recent book by Frederik Vanhaverbeke, Excess Returns , published June, 2014. Apologies if this chart has been posted previously here. http://i.imgur.com/5s5RX90.png While it's tantalizing to know that a select group...
by Simplegift
Mon Aug 25, 2014 4:20 am
 
Forum: Investing - Theory, News & General
Topic: The Extreme Outliers of the Investment Universe
Replies: 27
Views: 2747

Re: How Do Rising Interest Rates Affect Stock Prices?

- the Fed believes the economy is overheating and raises interest rates to slow inflation. This is usually bad for stocks. Looking at recent history, you're right. Fed rate increases have certainly proven to be bad for stocks in the end (as the Fed is ultimately trying to cool off the economy) — bu...
by Simplegift
Sat Aug 23, 2014 3:51 pm
 
Forum: Investing - Theory, News & General
Topic: How Do Rising Interest Rates Affect Stock Prices?
Replies: 5
Views: 782

Re: Help with data points on why passive vs. managed

The book that makes the best and most persuasive case for passive investing is this one, in my view:

Rick Ferri, The Power of Passive Investing, 2010.

It has theory, historical analysis, charts, tables and clear, readable explanations. Highly recommended.
by Simplegift
Sat Aug 23, 2014 1:43 pm
 
Forum: Investing - Theory, News & General
Topic: Help with data points on why passive vs. managed
Replies: 5
Views: 507

Re: How Do Rising Interest Rates Affect Stock Prices?

Just for the record, here is a link to a second study of the "threshold effect," which again found rising stock prices correlated with rising interest rates up to 6%, then falling stock prices at rising interest rates above 6%. Not too surprising, as the time period and methodology are ver...
by Simplegift
Sat Aug 23, 2014 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: How Do Rising Interest Rates Affect Stock Prices?
Replies: 5
Views: 782

Re: Diversification in practice: Investing from Australia

To invest in international shares, the easiest way will likely be in a Superannuation fund (I use SunSuper who have relatively low-fee International Enhanced Index funds available. Most diversified/balanced/conservative/growth funds will include an international allocation). Outside of super there ...
by Simplegift
Sat Aug 23, 2014 12:02 pm
 
Forum: Investing - Theory, News & General
Topic: Diversification in practice: Investing from Australia
Replies: 6
Views: 739

Re: How Do Rising Interest Rates Affect Stock Prices?

More evidence of the "threshold effect" (at 6% this time) and more discussion of possible reasons in this New York Times article from June 2, 2013: Doug Ramsey, chief investment officer at the Leuthold Group, has looked at stock valuations and bond yields going back to 1878. He has found t...
by Simplegift
Sat Aug 23, 2014 11:22 am
 
Forum: Investing - Theory, News & General
Topic: How Do Rising Interest Rates Affect Stock Prices?
Replies: 5
Views: 782

How Do Rising Interest Rates Affect Stock Prices?

The usual argument is that rising interest rates mean higher borrowing costs for corporations, which leads to lower profit margins, then lower corporate earnings and stock prices. But looking at the chart below, it doesn't appear that this a direct, straight line, cause-and-effect relationship. Inst...
by Simplegift
Sat Aug 23, 2014 2:41 am
 
Forum: Investing - Theory, News & General
Topic: How Do Rising Interest Rates Affect Stock Prices?
Replies: 5
Views: 782

Re: Is the Aggregate Index Too Heavy in Treasuries?

Doc wrote:
Simplegift wrote:Can anyone shed light on why the duration has risen nearly 40% in the five years since 2009?

This was addressed in the thread that Nisi referenced earlier.

Johno wrote:This Treasury report has graph of average maturity (not duration) of govt debt since 1980, p. 19

Thanks, Doc and Johno, very helpful!
by Simplegift
Fri Aug 22, 2014 11:27 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 63
Views: 2958

Re: Is the Aggregate Index Too Heavy in Treasuries?

Do you have any information on average maturity? Duration is essentially a function of interest rate and maturity. No, offhand I don't — but I'd like to research this situation in more depth. The rise in duration is concerning and I'd like to understand more about it before making a decision on my ...
by Simplegift
Fri Aug 22, 2014 9:56 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 63
Views: 2958

Re: Is the Aggregate Index Too Heavy in Treasuries?

Has maturity increased? Duration increases as interest rates decrease, so the drop in interest rates could be enough to account for the duration change. Looking at the long-term trends (chart below), the duration of the Barclays U.S. Aggregate Index was fairly constant at around 4.5 years for the t...
by Simplegift
Fri Aug 22, 2014 9:29 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 63
Views: 2958

Re: Is the Aggregate Index Too Heavy in Treasuries?

I wonder if there were articles about 14 years ago worrying about whether the Aggregate Index had become too light in Treasuries, because when I first invested in the Vanguard Total Bond Fund about 1992, the proportion that was Treasuries was at the current level or larger than it is now. (Somewher...
by Simplegift
Fri Aug 22, 2014 1:57 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 63
Views: 2958

Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

For some historical perspective, a chart of Vanguard's market share of total U.S. mutual fund and ETF assets since 1993, relative to its competitors. So far, Vanguard's cost advantage is just unbeatable. On an asset-weighted basis (according to the article), its average expense ratio is 0.15% — well...
by Simplegift
Thu Aug 21, 2014 7:56 pm
 
Forum: Investing - Theory, News & General
Topic: Investors Pour Into Vanguard, Eschewing Stock Pickers
Replies: 70
Views: 6620

Re: Is the Aggregate Index Too Heavy in Treasuries?

There is one sense in which the Agg is too heavy in Treasuries: if you invested in it in 2000 and incorporated it into your allocation with the risk it had back then, you are now overly safe. This is the opposite of Valuethinker's dreaded risk creep — and is a clear case of "safety creep."...
by Simplegift
Thu Aug 21, 2014 6:02 pm
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 63
Views: 2958
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