Only after a 150% stock market rally in 4 years...

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Only after a 150% stock market rally in 4 years...

Postby letsgobobby » Sun Feb 24, 2013 1:25 am

Do we seem to get an abundance of young, enthusiastic, successful but nonetheless untested new investors proposing shockingly aggressive asset allocations for their seven figure cash reserves. The question I always ask is, "Why now?" Because it would have seemed to be more rewarding and more consistent with the Boglehead philosophy to make such a move, oh, I don't know.... 4 years ago... When the Dow was at 6700... instead of 14,000.

This is all very dismaying to me. Is our message not getting across? Are these investors truly better late than never or is this something more dangerous?
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Re: Only after a 150% stock market rally in 4 years...

Postby john94549 » Sun Feb 24, 2013 1:31 am

Bobby, four years ago they were probably still in school. These are very bright folks.

PS: We know we're getting old when the first thing we read in the Stanford magazine is the obits. Then the Class Notes. I so love the Class Notes ("After Joe sold his company, we bought a small(ish) ranch. We still summer at the Vineyard, though. Next week, off to Peru with the grand-kids.").
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Re: Only after a 150% stock market rally in 4 years...

Postby LFKB » Sun Feb 24, 2013 1:44 am

It does seem like there are a lot of new investors coming to the board recently, although I wouldn't know if it is high vs historically because I'm one of them. For me, I was afraid of the markets for a while and only began really investing in equities through my 401k. It was reading this board and bogle's little book that got me comfortable with investing my money rather than leaving it in cash. It is concerning that I've seen so many other people coming here and posting they're going to put their life savings in the market, but I'm confident that I will be able to stay the course no matter what happens. I have set aside money for a home down payment in Vanguard CA and national tax exempt and then allocated the rest of my money at 65 equities, 25 bonds and 10 real estate. I'm 26 by the way.
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Re: Only after a 150% stock market rally in 4 years...

Postby letsgobobby » Sun Feb 24, 2013 1:53 am

john94549 wrote:Bobby, four years ago they were probably still in school. These are very bright folks.

PS: We know we're getting old when the first thing we read in the Stanford magazine is the obits. Then the Class Notes. I so love the Class Notes ("After Joe sold his company, we bought a small(ish) ranch. We still summer at the Vineyard, though. Next week, off to Peru with the grand-kids.").


Ugh, tell me about it. With the new/improved/thinner/cheaper version, they chopped off all the older classes. And my year (95) is now marching slowly toward oblivion.
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Re: Only after a 150% stock market rally in 4 years...

Postby john94549 » Sun Feb 24, 2013 1:58 am

letsgobobby wrote:
And my year (95) is now marching slowly toward oblivion.


Gosh golly, 1895? That was Hoover's class as well.
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Re: Only after a 150% stock market rally in 4 years...

Postby pingo » Sun Feb 24, 2013 4:02 am

Not too long ago it seemed like we had months on end where the Euro debt crisis was every other headline. I remember numerous portfolio threads with statements like, "highly risk tolerant investor can stay the the course; seeks 90/10 portfolio with 10% International.

:oops:
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Re: Only after a 150% stock market rally in 4 years...

Postby gtwhitegold » Sun Feb 24, 2013 4:31 am

I personally have about 25% of my portfolio in international equities, 84% total in equities, and about 14% in junk bonds, and about 2% in investment grade bonds, but I have accepted that level of volatility. I am able to be less risk adverse since I have a guaranteed pension that I will be able to collect at age 43 and of course will continue to work after that (health permitting of course.) I will continue to move 1% of total assets per year into investment grade bonds until I reach 60% equities and junk bonds / 40% investment grade bonds. I know that I have a very aggressive portfolio and I will know that I am able to maintain that portfolio since I was able to do so through 2008 even though I lost half of my contributions in 2008. As long as interest rates are repressed, I will continue to only invest in corporate bond funds and international bond funds. I still evaluate any fund that I am interested in purchasing and try to minimize costs. I have an average ER below 0.11% and only intend to purchase funds with the lowest expense ratios that meet my investment goals. So, while I am aggressive, I am cost conscience, and I am able to handle the possible negative effects of having a very aggressive portfolio.

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Re: Only after a 150% stock market rally in 4 years...

Postby larklea » Sun Feb 24, 2013 6:44 am

For me, this type of evidence, along with the recent USA Today headlines re "Stock Market is doing great" (Don't remember the specific headline) are proof that it's time to underweight in equities a bit. I took a bit off the table recently. Nothing crazy, as the valuations still look good
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Re: Only after a 150% stock market rally in 4 years...

Postby bUU » Sun Feb 24, 2013 6:57 am

(Duplicate post)
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Re: Only after a 150% stock market rally in 4 years...

Postby bUU » Sun Feb 24, 2013 6:57 am

I'm a little over-weight on equities now, anyway, so perhaps it'll be prudent, on all counts, to just switch new 401(k) contributions to ... what? PTRRX with ER of 1.1%? Damn, there are so few decent options.
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Re: Only after a 150% stock market rally in 4 years...

Postby ks289 » Sun Feb 24, 2013 7:21 am

letsgobobby wrote:
john94549 wrote:Bobby, four years ago they were probably still in school. These are very bright folks.

PS: We know we're getting old when the first thing we read in the Stanford magazine is the obits. Then the Class Notes. I so love the Class Notes ("After Joe sold his company, we bought a small(ish) ranch. We still summer at the Vineyard, though. Next week, off to Peru with the grand-kids.").


Ugh, tell me about it. With the new/improved/thinner/cheaper version, they chopped off all the older classes. And my year (95) is now marching slowly toward oblivion.

Class of '95 ain't old! :D
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Re: Only after a 150% stock market rally in 4 years...

Postby BBL » Sun Feb 24, 2013 7:23 am

LGB - you know the story. The plague of recency. I don't think it will ever end.

The posts that worry me are the ones that want to know the best ways to leverage their portfolios. 99% of the time that's a bad idea.

Its probably a bad idea 100% of the time if you don't even know how to do it. :shock:

I like to think that the only thing other than correlations that rises sharply during a panic is risk aversion. That theory seems to hold. :|
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Re: Only after a 150% stock market rally in 4 years...

Postby Call_Me_Op » Sun Feb 24, 2013 7:27 am

With everybody talking about over-weighting and under-weighting in equities, whatever happened to "stay the course?" Changing one's allocation as a function of their perception of valuation is a form of market timing.
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Re: Only after a 150% stock market rally in 4 years...

Postby sscritic » Sun Feb 24, 2013 8:33 am

letsgobobby wrote:Ugh, tell me about it. With the new/improved/thinner/cheaper version, they chopped off all the older classes. And my year (95) is now marching slowly toward oblivion.

Don't worry. As you get older and richer, they just send you a different magazine, one about planned giving. You see even more obits, but all those come with million dollar gifts.
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Re: Only after a 150% stock market rally in 4 years...

Postby dickenjb » Sun Feb 24, 2013 8:39 am

I, too, am amazed at the number of newcomers to the board looking to get into equities in a big way. Most of them state they have mid-6 figure amounts in a bank account or MM fund.

I always ask how they came to have $600K in a MM fund. Not many answer. I suspect they sold in 2008 or 2009 and have been on the sidelines since. Now they want to go "all in" at 80% or 90% equities. It does not make sense to me. I suspect they are just starting another cycle of "buy high, sell low".
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Re: Only after a 150% stock market rally in 4 years...

Postby spanky123 » Sun Feb 24, 2013 10:00 am

I have a guaranteed pension that I will be able to collect at age 43 and of course will continue to work after that (health permitting of course.)

That's a great pension! If the pension can support your future expenses, why work?
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Re: Only after a 150% stock market rally in 4 years...

Postby Sbashore » Sun Feb 24, 2013 10:57 am

I too, have noticed a few posts where I wondered if the poster was really prepared to lose half or more of their proposed equity position. You really can't anticipate that until you've been there.
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Re: Only after a 150% stock market rally in 4 years...

Postby bUU » Sun Feb 24, 2013 11:13 am

Call_Me_Op wrote:With everybody talking about over-weighting and under-weighting in equities, whatever happened to "stay the course?" Changing one's allocation as a function of their perception of valuation is a form of market timing.

Incorrect. Over-weighting and under-weighting in an asset class is a natural consequence of the fact that difference asset classes perform differently. While some people may be varying from "stay the course", the fact that someone is over-weighted or under-weighted is not a differentiating factor in that regard.
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Re: Only after a 150% stock market rally in 4 years...

Postby KyleAAA » Sun Feb 24, 2013 11:17 am

It's clear to me that the personal finance problem we have in this country isn't one of education, but of behavior. You could require them to take 4 years of personal finance classes in high school and it still wouldn't help all that much. People's relationship with money is an emotional one. People use money as a way to deal with their issues. So long as that's true, no amount of education in the world is going to help. The financial literacy movement is a good idea, but it doesn't cut to the root of the problem and so is ultimately helpless.
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Re: Only after a 150% stock market rally in 4 years...

Postby Rick Ferri » Sun Feb 24, 2013 11:20 am

This is not a new phenomenon. There is evidence of new investors changing the valuation of the markets going back 100 years. It happened after the crash in 29, again after 1970s, and again today. It's a generational phenomena. See Major Investor Shifts from 1900 to 1999 starting on page 45 of Serious Money (free download) and particularly Figure 5-1 on page 47. BTW, the secular bear market started in 2000, not in 2007.

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Re: Only after a 150% stock market rally in 4 years...

Postby letsgobobby » Sun Feb 24, 2013 11:26 am

sscritic wrote:
letsgobobby wrote:Ugh, tell me about it. With the new/improved/thinner/cheaper version, they chopped off all the older classes. And my year (95) is now marching slowly toward oblivion.

Don't worry. As you get older and richer, they just send you a different magazine, one about planned giving. You see even more obits, but all those come with million dollar gifts.

here's to being not yet old enough or rich enough! :sharebeer
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Re: Only after a 150% stock market rally in 4 years...

Postby tibbitts » Sun Feb 24, 2013 11:27 am

Contributing to the problem are the horribly depressed fixed income opportunities. Plus we have countless posts here about bond bubbles, and cautioning against venturing beyond near-zero-yield treasuries in the bond market. Even going to intermediate-term corporate bonds at 2-ish% is commonly dicussed as "reaching for yield." Someone just starting to read the forum might reasonably conclude that there are as many potential downsides to bonds as equities, so why not take a chance on something that could appreciate?

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Re: Only after a 150% stock market rally in 4 years...

Postby kenschmidt » Sun Feb 24, 2013 11:34 am

Being a regular poster back on the old Morningstar Diehards board, I can say that it was exactly like this back in 1999-2000 as well. Not that this will turn out the same (it could), but there were lots of "who needs bonds", "should I dump my value funds and buy Janus Twenty", etc. posts. I think it is just human nature to chase performance.
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Re: Only after a 150% stock market rally in 4 years...

Postby KyleAAA » Sun Feb 24, 2013 11:37 am

kenschmidt wrote:Being a regular poster back on the old Morningstar Diehards board, I can say that it was exactly like this back in 1999-2000 as well. Not that this will turn out the same (it could), but there were lots of "who needs bonds", "should I dump my value funds and by Janus Twenty", etc. I think it is just human nature to chase performance.


To be fair, market valuations are far more reasonable today than in 99. I think the fear spread by the mainstream financial press about a "bond bubble" is mostly to blame. What they don't say is that, unless you are 100% in long-term bonds, the worst-case scenario for a bond bubble collapse really isn't all that bad.
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Re: Only after a 150% stock market rally in 4 years...

Postby tibbitts » Sun Feb 24, 2013 11:45 am

kenschmidt wrote:Being a regular poster back on the old Morningstar Diehards board, I can say that it was exactly like this back in 1999-2000 as well. Not that this will turn out the same (it could), but there were lots of "who needs bonds", "should I dump my value funds and buy Janus Twenty", etc. posts. I think it is just human nature to chase performance.

I don't think it's at all like 1999. In 1999 you were coming off two decades of outstanding equity performance, with only minor and brief setbacks. Today you're coming off two dramatic equity crashes in a single decade, and a real estate crash. Anyone who's held equities through it all is roughly back where they were when they started, depending on how they count inflation. And in 1999, fixed income investments were much, much more appealing than they are today. So I'm not seeing the parallels at all. Back then people were getting into equities because of the performance they'd experienced over the two previous decades; today people are just turning away from what seem to be more depressing prospects everywhere else.

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Re: Only after a 150% stock market rally in 4 years...

Postby sscritic » Sun Feb 24, 2013 11:51 am

letsgobobby wrote:Ugh, tell me about it. With the new/improved/thinner/cheaper version, they chopped off all the older classes. And my year (95) is now marching slowly toward oblivion.

I lied, as usual. If you read the fine print, they have different editions depending on your class. I see my class notes, but not yours. You see your class notes, but not mine. When '95 is no longer considered to be "young whippersnappers" you will move to the "slowly decaying" edition and eventually make it to the "barely out of the grave" edition that I get.
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Re: Only after a 150% stock market rally in 4 years...

Postby Bacchus01 » Sun Feb 24, 2013 11:59 am

As a newbie myself, I can tell some of my story. Is it related to recent growth in the market? Sure, but that's a small part of it.

In 2008/2009 I lost about 50% of the value of our 7-figure portfolio at the age of 35. However, much of that loss was stock options which ultimately never returned to value. We were sitting around $500K in net worth at that point. Our 401(k)s were also down about 40%.

Outside of our pre-tax, we weren't investing anything after-tax other than CDs. We are above the Trad/Roth IRA income limits and I didn't know about back-door conversions. And being afraid of the crash, we were accumulating cash and continuing to fund my 401(k) at the max (although not in great funds).

In 2010, after two great years of bonuses, I took a job change and moved to another state. We had accumulated nearly $400K in cash at this point. However, we now had moved half-way across the company and had both houses. While my company was paying for the old one, I still was risk averse to not be cash heavy in case something happened and I had both of them. And, the DP on our new house took more than 25% of our cash reserve.

At the end of 2011 we sold the old house after 18 months on the market. My company made up most of the loss, but we were still down $30K of our own money. But, we were now sitting on over $450K in cash again.

In April of 2012 my company IPO'd and I had a chance to buy in at the IPO. Well, we went quite risky and sunk $200K in pre-IPO shares (they are up over 15% still) and then our cash was drained a fair amount.

Then Sept of 2012 my in-laws came to us for some advice. In their late 70's they were running out of money. They had about $30K in savings left, and still carried a mortgage. They work part time and draw SS, so it's not dire, but it's not spectacular. They looked into reverse mortgages, but ultimately we decided to buy their house and rent it back to them. While the investment was not huge ($20K), I didn't want to mess with our assets while going through the home buying process with the bank. The process is a nightmare these days.

So, flash forward to late December. We closed on the house and now, finally, after a number of years, I finally sat down and said "let's get this mess cleaned up." And, I found my way here. I spent two full days of vacation reading everything I could and then began making measured changes to our AA to get it in a healthier place. We still have about 1/3 of our portfolio in individual stocks that I'll begin to move out of when they become LT gains.

So, my personal story (sorry that it's long) is that it had everything to do with the downturn (scared) and recovery (confidence) while at the same time it really had nothing to do with it.

I guess it just happens to be odd timing on my part.
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Re: Only after a 150% stock market rally in 4 years...

Postby kenschmidt » Sun Feb 24, 2013 12:07 pm

tibbitts wrote:
kenschmidt wrote:Being a regular poster back on the old Morningstar Diehards board, I can say that it was exactly like this back in 1999-2000 as well. Not that this will turn out the same (it could), but there were lots of "who needs bonds", "should I dump my value funds and buy Janus Twenty", etc. posts. I think it is just human nature to chase performance.

I don't think it's at all like 1999. In 1999 you were coming off two decades of outstanding equity performance, with only minor and brief setbacks. Today you're coming off two dramatic equity crashes in a single decade, and a real estate crash. Anyone who's held equities through it all is roughly back where they were when they started, depending on how they count inflation. And in 1999, fixed income investments were much, much more appealing than they are today. So I'm not seeing the parallels at all. Back then people were getting into equities because of the performance they'd experienced over the two previous decades; today people are just turning away from what seem to be more depressing prospects everywhere else.

Paul


I believe many new investors are coming into the market chasing the new highs in equities just like in the late 90's. I don't think these new investors are looking at the fundamentals of equity valuations vs. bonds; experienced investors may be, but the new ones are caught up in the excitement and emotion of a bull market, hoping to strike it rich. It's a repeated story in every bull market that at least I have seen before.

I am not saying the investment environment is the same as 1999. No one can know. And it may not end the same although some such as Roubini think so:

http://finance.yahoo.com/blogs/daily-ti ... 43386.html

Roubini being Roubini, he doesn’t predict a happy ending to the Fed’s current experiment. ”We could create an asset bubble worse than the previous one which could lead to another financial crisis not this year, not next year but two or three years down the line if we keep on doing these policies,” he says. “You're building the financial leverage that’s going to lead you to [another] bubble and eventual crash.”

Off camera, Roubini sums up his analysis of all this as “short-term bullish, long-term catastrophic.”


I do think when the next bear market hits, you won't see any more "100% equity" posts. Those will be replaced with the "should I sell SOME or ALL of my stocks now?" posts.

p.s ...and the "buy and hold is for suckers" posts...
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Re: Only after a 150% stock market rally in 4 years...

Postby pingo » Sun Feb 24, 2013 12:22 pm

pingo wrote:Not too long ago it seemed like we had months on end where the Euro debt crisis was every other headline. I remember numerous portfolio threads with statements like, "highly risk tolerant investor can stay the the course; seeks 90/10 portfolio with 10% International.

:oops:


LFKB and gtwhitegold got me thinking that if I had only looked to the right of my own post I'd have recalled that I found this board in 2009. Prior to joining I considered myself to be risk tolerant and looking at my first AA post, I asked for help to setting up a...wait for it...90/10 portfolio.

Busted! :oops:

International? 20%, although in my defense I was going with Mr. Bogle's Little Book suggestion and the fact that VG only held 20% in target funds at the time.

That post is full of contradictions in writing and behind the scenes. One consolation is that I was trying to invest at the market bottom, but really I wasn't so different than some new noobs now.

Anyway, it's a personal lesson that I should be more patient and less inclined to criticize than I have been lately and I'm glad we have threads like this to help lurkers start to see some behavioral aspects of our investment decisions that a board like this can help them avoid.

I'm so glad I found this forum.
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Re: Only after a 150% stock market rally in 4 years...

Postby baw703916 » Sun Feb 24, 2013 12:23 pm

Rick Ferri wrote:This is not a new phenomenon. There is evidence of new investors changing the valuation of the markets going back 100 years. It happened after the crash in 29, again after 1970s, and again today. It's a generational phenomena. See Major Investor Shifts from 1900 to 1999 starting on page 45 of Serious Money (free download) and particularly Figure 5-1 on page 47. BTW, the secular bear market started in 2000, not in 2007.

Rick Ferri


Rick,

This is very interesting, and something that I had wondered about myself. There does seem to be a periodicity of roughly 35 years in terms of secular trends in the U.S. market in the "modern" financial era (since the creation of the Federal Reserve). The best answer I could come up with as to why this would be the case is rather mundane: that's about how long it takes for a new generation of investors and financiers to replace the previous one and purge the institutional memory of the lessons learned by the previous generation. Following the George Santayana line, the new generation, being ignorant of history, is condemned to repeat it.

This would mean that right now, in the current secular bear, we are right at the point where "The Death of Equities" article came out the last time around. I'm hoping that history will at least rhyme.

Best wishes,
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No one size fits all

Postby EDN » Sun Feb 24, 2013 12:42 pm

Seems like posters here might be suffering from a bit of the representativeness heuristic? I've read a few posts here with young investors asking if its OK to be 100% stocks (answer: yes, in some cases), but we are a long way from a full-on, 1990s-style embrace of equities in the entire market. As a matter of fact, equity mutual fund cash flows have continued to be negative every year through 2012 despite the fact that stocks are up 150% to 200%+ since early 2009.

I generally agree, many investors continue to invest in the rearview mirror and make decisions that run counter to their best interests. I'm just careful not to issue one-size-fits-all mandates to protect people from themselves (high bond allocations for all young investors) that may unfairly penalize those who don't fit the profile of one with bad behavior.

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Re: Only after a 150% stock market rally in 4 years...

Postby bUU » Sun Feb 24, 2013 12:44 pm

pingo wrote:Prior to joining I considered myself to be risk tolerant and looking at my first AA post, I asked for help to setting up a...wait for it...90/10 portfolio. Busted! :oops:
Though, to be fair, that earlier comment about weighting was regarding a target asset allocation of 65/35, and the skew due to how much equities have shot up over the last several months.
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Re: Only after a 150% stock market rally in 4 years...

Postby LFKB » Sun Feb 24, 2013 1:12 pm

The market may have returned 150% over the last four years but it has also returned approximately 0% over the last 13. I consider this a 13 year bear market rather than a four year bull market. Equity valuations are reasonable and I think we have just reached a stage where people are having confidence again that the world isn't going to end. Personally I think my 65/25/10 equity bond real estate AA is reasonable for someone my age (26). Vanguard would have told me to be much more aggressive at 80 or 90% equities. FWIW, I am one of the people the OP is referring to, I'm 26 and just invested a mid six figure portfolio that I had in cash previous to this.
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Re: Only after a 150% stock market rally in 4 years...

Postby baw703916 » Sun Feb 24, 2013 1:35 pm

LFKB wrote:The market may have returned 150% over the last four years but it has also returned approximately 0% over the last 13. I consider this a 13 year bear market rather than a four year bull market. Equity valuations are reasonable and I think we have just reached a stage where people are having confidence again that the world isn't going to end. Personally I think my 65/25/10 equity bond real estate AA is reasonable for someone my age (26). Vanguard would have told me to be much more aggressive at 80 or 90% equities. FWIW, I am one of the people the OP is referring to, I'm 26 and just invested a mid six figure portfolio that I had in cash previous to this.


I agree, and wish you good luck in your investments. These multi-decade trends appear to exist, but we don't really have much choice about when we start investing--basically that depends on when we were born. I first got access to an employer-sponsored retirement account in 1997--about the worst possible time. But it was what it was.
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Re: Only after a 150% stock market rally in 4 years...

Postby zaboomafoozarg » Sun Feb 24, 2013 1:45 pm

baw703916 wrote:I first got access to an employer-sponsored retirement account in 1997--about the worst possible time. But it was what it was.


Not likely the worst if you're still 10+ years away from retirement. Better to invest at lower valuations for a long time and have it grow later, than invest at rapidly increasing valuations for a long time and have them stagnate when you need to withdraw that money.
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Re: Only after a 150% stock market rally in 4 years...

Postby livesoft » Sun Feb 24, 2013 1:52 pm

Is it correct that only a couple of asset classes went up 150% or more in the past 4 years? Small-cap value and REITs?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Only after a 150% stock market rally in 4 years...

Postby baw703916 » Sun Feb 24, 2013 2:02 pm

zaboomafoozarg wrote:
baw703916 wrote:I first got access to an employer-sponsored retirement account in 1997--about the worst possible time. But it was what it was.


Not likely the worst if you're still 10+ years away from retirement. Better to invest at lower valuations for a long time and have it grow later, than invest at rapidly increasing valuations for a long time and have them stagnate when you need to withdraw that money.


Agreed. In the short run I've rarely gotten a sustained tail wind, but assuming a secular bull market does commence at some point, the more money one has invested when it takes off, the better.
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Re: Only after a 150% stock market rally in 4 years...

Postby EDN » Sun Feb 24, 2013 2:04 pm

livesoft wrote:Is it correct that only a couple of asset classes went up 150% or more in the past 4 years? Small-cap value and REITs?


Actually, only a couple of asset classes didn't go up by about 150% over the last 4 years (since recovery)

Growth of $10K since 3/9/2009:

S&P 500 = $24,310
US large value = $30,131
US small = $32,071
US small value = $33,092
US REIT = $37,932

EAFE = $20,707
Int'l large value = $22,545
Int'l small = $23,495
Int'l small value = $23,101
Int'l REIT = $30,447
EM = $24,574
EM value = $26,100
EM small = $30,676


BOLD = more than 150%, with a few right at that 150% level. Only Int'l (and specifically large) didn't, only doubling in value. Also, owing to 07-09 being a real estate crisis, markets functioned efficiently, dropping real estate prices (REITs) globally to the point where, when the recovery began, investors were rewarded highest for taking the most perceived risk at that time.

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Last edited by EDN on Sun Feb 24, 2013 5:42 pm, edited 1 time in total.
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Re: Only after a 150% stock market rally in 4 years...

Postby Puakinekine » Sun Feb 24, 2013 2:09 pm

tibbitts wrote:Contributing to the problem are the horribly depressed fixed income opportunities. Plus we have countless posts here about bond bubbles, and cautioning against venturing beyond near-zero-yield treasuries in the bond market. Even going to intermediate-term corporate bonds at 2-ish% is commonly dicussed as "reaching for yield." Someone just starting to read the forum might reasonably conclude that there are as many potential downsides to bonds as equities, so why not take a chance on something that could appreciate?

Paul

False equivalency seems to be one of the major intellectual diseases of our time. There is a constant media fueled search for pattern and meaning where it does not exist. Bonds do not behave the same way stocks do, that is the point of having both. To a large extent true understanding of how the various financial instruments work can only come from experiencing their movements over many years--especially their painful movements.

I have deep sympathy for younger investors: their inherent impatience, their lack of perspective, their belief that they can do better than the average bear because they are smarter/better researched/get up earlier in the morning, etc. especially when fixed income yields are as ridiculously low as they are right now. They will get burned, as we all have gotten burned, and we can only hope that most of them learn from the experience.

Deciding on our asset allocation and sticking to it over the years has saved us at least twice now. We probably would have done just as well or better in a balanced retirement fund with some cash and I bonds on the side, but they had not been invented when we started. It is close to impossible to convince the young and the restless and those with just enough knowledge to hang themselves of this. Rather then respecting the waves, they fight them, thinking they can win. I hope they will eventually learn to ride them.
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Re: Only after a 150% stock market rally in 4 years...

Postby Grt2bOutdoors » Sun Feb 24, 2013 2:10 pm

I didn't read all the posts so forgive me if this one's been mentioned before:

I'm a 50 year old plus investor, I've been reading and hearing about the impending doom of the bond market, so I've moved some of my assets around. Before I was 60/40, but now am finding better yields with a 70 Large Cap Equity 30% Junk Bond and Preferred Stock allocation. What do you think, will I be able to sustain 6% withdrawals? I've backtested my new portfolio and history indicates my proposed portfolio will work just swimmingly. Just ask the folks over at CNBC, Motley Fool and the Yahoo Message Boards. :oops:
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Re: Only after a 150% stock market rally in 4 years...

Postby Default User BR » Sun Feb 24, 2013 4:29 pm

LFKB wrote:The market may have returned 150% over the last four years but it has also returned approximately 0% over the last 13. I consider this a 13 year bear market rather than a four year bull market.

This is nonsense on two points. One, you very carefully selected the starting point exactly to include the first crash. There's no particularly good reason to start any period there other than you want to.

The second is that in total return the market has NOT returned 0% over that period. I suggest you review the actual numbers.

I personally don't believe in the "secular markets". They can, in my opinion, only be determined well after the fact, and contain no actionable information going forward. There's no way to tell whether there was a 13+ year bear market that started in 2000 and continues, or whether there was 9 year bear market that started then and ended in 2009, with the start of a bull market following, or if indeed 2000 and 2009 were just corrections in a very long term bull market (after all, neither lasted more than a few years).

I don't try to outguess the market.


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Re: Only after a 150% stock market rally in 4 years...

Postby Puakinekine » Sun Feb 24, 2013 4:57 pm

Grt2bOutdoors wrote:I didn't read all the posts so forgive me if this one's been mentioned before:

I'm a 50 year old plus investor, I've been reading and hearing about the impending doom of the bond market, so I've moved some of my assets around. Before I was 60/40, but now am finding better yields with a 70 Large Cap Equity 30% Junk Bond and Preferred Stock allocation. What do you think, will I be able to sustain 6% withdrawals? I've backtested my new portfolio and history indicates my proposed portfolio will work just swimmingly. Just ask the folks over at CNBC, Motley Fool and the Yahoo Message Boards. :oops:


I think that you might want to read about the risks of preferred stock and junk bonds versus reward and also about recency bias.

Short and sweet on preferred stock
http://www.cbsnews.com/8301-505123_162- ... ed-stocks/

More complex on junk bonds
http://seekingalpha.com/article/58172-d ... igh-return

The Callan Periodic Table of Investment returns for a graphic view of how the top dogs change from year to year.
http://www.callan.com/research/periodic/

As for whether or not you will be able to sustain 6% withdrawals and not run out of money, the usual recommendation is for 4%. Some people are now talking about 3%. There was a very recent thread about this. Withdrawal rate discussions come up about once a month.
viewtopic.php?f=10&t=110835&newpost=1611533

Most people here advocate developing an investing plan/asset allocation and sticking with it through thick and thin. It takes discipline and many people found that they were taking more risk then they could psychologically deal with during the 2008 fiasco and ended up selling low. Others that stayed the course were rewarded with (according to the thread title) with a 150% equity rise after a 50% drop. We stayed the course BUT did not have the courage to rebalance except with automatic reinvestment of dividends. That is why I am thinking (but have never run the numbers) that we may have been better off being in a retirement fund which automatically rebalances.
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Re: Only after a 150% stock market rally in 4 years...

Postby trudy » Sun Feb 24, 2013 5:24 pm

john94549 wrote:PS: We know we're getting old when the first thing we read in the Stanford magazine is the obits. Then the Class Notes. I so love the Class Notes ("After Joe sold his company, we bought a small(ish) ranch. We still summer at the Vineyard, though. Next week, off to Peru with the grand-kids.").


Ha, ha, ha, ha, ha. Okay, now I feel better about reading the MIT class notes.
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Re: Only after a 150% stock market rally in 4 years...

Postby letsgobobby » Sun Feb 24, 2013 7:50 pm

Puakinekine wrote:
Grt2bOutdoors wrote:I didn't read all the posts so forgive me if this one's been mentioned before:

I'm a 50 year old plus investor, I've been reading and hearing about the impending doom of the bond market, so I've moved some of my assets around. Before I was 60/40, but now am finding better yields with a 70 Large Cap Equity 30% Junk Bond and Preferred Stock allocation. What do you think, will I be able to sustain 6% withdrawals? I've backtested my new portfolio and history indicates my proposed portfolio will work just swimmingly. Just ask the folks over at CNBC, Motley Fool and the Yahoo Message Boards. :oops:


I think that you might want to read about the risks of preferred stock and junk bonds versus reward and also about recency bias.

Short and sweet on preferred stock
http://www.cbsnews.com/8301-505123_162- ... ed-stocks/

More complex on junk bonds
http://seekingalpha.com/article/58172-d ... igh-return

The Callan Periodic Table of Investment returns for a graphic view of how the top dogs change from year to year.
http://www.callan.com/research/periodic/

As for whether or not you will be able to sustain 6% withdrawals and not run out of money, the usual recommendation is for 4%. Some people are now talking about 3%. There was a very recent thread about this. Withdrawal rate discussions come up about once a month.
viewtopic.php?f=10&t=110835&newpost=1611533

Most people here advocate developing an investing plan/asset allocation and sticking with it through thick and thin. It takes discipline and many people found that they were taking more risk then they could psychologically deal with during the 2008 fiasco and ended up selling low. Others that stayed the course were rewarded with (according to the thread title) with a 150% equity rise after a 50% drop. We stayed the course BUT did not have the courage to rebalance except with automatic reinvestment of dividends. That is why I am thinking (but have never run the numbers) that we may have been better off being in a retirement fund which automatically rebalances.


I am confident Grt2bOutdoors was being sarcastic...
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Re: Only after a 150% stock market rally in 4 years...

Postby tibbitts » Sun Feb 24, 2013 8:39 pm

kenschmidt wrote:
tibbitts wrote:
kenschmidt wrote:Being a regular poster back on the old Morningstar Diehards board, I can say that it was exactly like this back in 1999-2000 as well. Not that this will turn out the same (it could), but there were lots of "who needs bonds", "should I dump my value funds and buy Janus Twenty", etc. posts. I think it is just human nature to chase performance.

I don't think it's at all like 1999. In 1999 you were coming off two decades of outstanding equity performance, with only minor and brief setbacks. Today you're coming off two dramatic equity crashes in a single decade, and a real estate crash. Anyone who's held equities through it all is roughly back where they were when they started, depending on how they count inflation. And in 1999, fixed income investments were much, much more appealing than they are today. So I'm not seeing the parallels at all. Back then people were getting into equities because of the performance they'd experienced over the two previous decades; today people are just turning away from what seem to be more depressing prospects everywhere else.

Paul


I believe many new investors are coming into the market chasing the new highs in equities just like in the late 90's. I don't think these new investors are looking at the fundamentals of equity valuations vs. bonds; experienced investors may be, but the new ones are caught up in the excitement and emotion of a bull market, hoping to strike it rich. It's a repeated story in every bull market that at least I have seen before.

I am not saying the investment environment is the same as 1999. No one can know. And it may not end the same although some such as Roubini think so:

http://finance.yahoo.com/blogs/daily-ti ... 43386.html

Roubini being Roubini, he doesn’t predict a happy ending to the Fed’s current experiment. ”We could create an asset bubble worse than the previous one which could lead to another financial crisis not this year, not next year but two or three years down the line if we keep on doing these policies,” he says. “You're building the financial leverage that’s going to lead you to [another] bubble and eventual crash.”

Off camera, Roubini sums up his analysis of all this as “short-term bullish, long-term catastrophic.”


I do think when the next bear market hits, you won't see any more "100% equity" posts. Those will be replaced with the "should I sell SOME or ALL of my stocks now?" posts.

p.s ...and the "buy and hold is for suckers" posts...

One reason I don't see this as the same is that through much of the 80s and 90s, many people experienced a generally favorable economic environment. It's one thing to be enthusiastic about investing in equities when you're experiencing growing real income and see the economy generally doing well, and another to be enthusiastic about it after a decade of declining real income. People partly wanted to invest in the 90s because they had money to invest; today, there just isn't the same amount of spare income available, and for many of us it tends to decrease every year. Ultimately, it doesn't matter very much if you invest $50/mo in 100% equities, especially if you don't feel you have any prospect of ever having more than $50/mo to invest. That's why I think some of the 100% equity "enthusiasm" today seems to be more related to the futility of any alternatives. People might not look at relative valuations; they're just looking at 1% interest rates in a world where their utility bill goes up 5%, and figuring they need to do something else.

Paul
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Re: Only after a 150% stock market rally in 4 years...

Postby dickenjb » Sun Feb 24, 2013 9:49 pm

Bacchus01 wrote:So, my personal story (sorry that it's long) is that it had everything to do with the downturn (scared) and recovery (confidence) while at the same time it really had nothing to do with it.

I guess it just happens to be odd timing on my part.


Thanks for sharing, that is an interesting story.
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Re: Only after a 150% stock market rally in 4 years...

Postby Lethal » Sun Feb 24, 2013 11:25 pm

I am 26 and really started getting into investing around March '09 when the DOW was near its bottom. Basically just dumped all the money I had saved up and put nearly all of my paychecks into investments since I viewed the market crash as a good opportunity. Worked out nicely for me. Was surprised to hear people I know that had a lot of cash but were scared to put money into the market. Missed a wonderful opportunity IMO and I nearly tripled my portfolio in the past 3-4 years.
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Re: Only after a 150% stock market rally in 4 years...

Postby Chan_va » Mon Feb 25, 2013 8:37 am

As other people have mentioned before - the stock market charts are fractals. You can find patterns at the 1 day, 1 year, 1 decade, 1 century level. You can also find different patterns at the 2 day, 2 year, 2 decade, 2 century level.

That's what makes investing theory so fascinating and so hard.
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Re: Only after a 150% stock market rally in 4 years...

Postby Shireman28 » Mon Feb 25, 2013 10:04 am

Perhaps we young investors know that US Treasuries at 2% aren't going to get us to retirement in real dollars in a country with a major aging demographic problem and long term debt issues.

I'll pass on loaning Uncle Sam money at 2%, thanks.
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Re: Only after a 150% stock market rally in 4 years...

Postby swaption » Mon Feb 25, 2013 11:41 am

kenschmidt wrote:Being a regular poster back on the old Morningstar Diehards board, I can say that it was exactly like this back in 1999-2000 as well. Not that this will turn out the same (it could), but there were lots of "who needs bonds", "should I dump my value funds and buy Janus Twenty", etc. posts. I think it is just human nature to chase performance.


It is worth noting that Greenspan coined the phrase "Irrational Exuberance" on December 5, 1996.
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