Total Stock market is up 9% annually for the last decade

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VennData
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Total Stock market is up 9% annually for the last decade

Post by VennData »

Some nice returns for VTI-type products.

http://finance.yahoo.com/blogs/michael- ... 39226.html
tj
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Re: Total Stock market is up 9% annually for the last decade

Post by tj »

Guess it tells you that you can find data to support whatever conclusion you want. What happened to the "lost decade"!?
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Re: Total Stock market is up 9% annually for the last decade

Post by Ice-9 »

"I once was lost
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zaboomafoozarg
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Re: Total Stock market is up 9% annually for the last decade

Post by zaboomafoozarg »

Ice-9 wrote:"I once was lost
but now am found
was blind
but now I see"
Amen!
Valuethinker
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Re: Total Stock market is up 9% annually for the last decade

Post by Valuethinker »

March 2003 was the bottom of the post dot com crash.

Taking a 10 year figure from there is going to overstate returns.


Use a 5 year figure, or a 15, or better yet a 30 or 50 year, to get a more reasonable feeling for returns.
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nisiprius
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Re: Total Stock market is up 9% annually for the last decade

Post by nisiprius »

I don't know the cure for it, but "boxcar averaging" on financial data is poisonous. It doesn't matter that you have ten years in between, the sharp cutoffs at the beginning and end mean that the results are strongly affected by the fluctuations at only two points in time, and stock market data has fluctuations in it that are so large and persist for so long that they can easily "bend" results for 3, 5, or 10 years.

I would argue that this effect remains meaningful enough to affect perceptions even over 15 and 20-year periods. One reason I like growth charts is that you can at least see visually how start and endpoints are located relative to peaks and troughs.

10-year returns contain today's news together with a high-fidelity upside-down echo of 10-year-old financial headlines.

Looking at the 1, 3, 5, and 10-year returns for a fund is like trying to watch a baseball game through a fence with four knotholes in it.

In February, 2012, Linda Stern wrote an article called Watch for the pop!: "Next month, something very dramatic is going to happen to most stock mutual funds. The dramatic event is this: Those funds will hit the three-year anniversary of the nadir of the market in March 2009. And that means their three-year-return numbers will start to look amazingly good.

I started a thread about that article, and in one of the finest pieces of true financial prediction I've seen, majormajor78, my boldface,
majormajor78 wrote:Same thing for the 10 year returns. Two years ago all of the media was going on and on about the lost decade when the 10 year period just happened to closely coincide with the top of the tech bubble and the recent recession lows. Now the opposite is in effect. In 7 or 8 months we are going to experience the ten year anniversary of the tech bubble bursting lows. Vanguard's Total stock market ETF VTI had a low of $36 (I believe). Fridays close of $69.31 gives an annual return of the NAV of 7.55% for the past 9.25 years. Reinvest the dividends (I'm sick so I'm not going to do the math) and suddenly VTI looks like the sexiest stock fund in recent memory. Lost decade!!!? What lost decade? This fund has been kicking butt and taking names through one of the toughest market enivronments in modern history!!! Oh yes... this thread is going to need a twin later in the year.
Also, everyone should be aware that moving averages also create cycles not present in the original data and hide cycles that might be, like a seashell held to the ear acts as a resonator to manufacture "the sound of the ocean" out of ambient noise in the room.
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Aptenodytes
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Re: Total Stock market is up 9% annually for the last decade

Post by Aptenodytes »

We all agree -- the last ten years of performance is almost totally useless for decision making, so best to ignore it if you can, or not act on it if you can't ignore it.
MnD
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Re: Total Stock market is up 9% annually for the last decade

Post by MnD »

Most people know IRL (in real life) are pretty discouraged about stocks and investing in general.
Many bought high and panic sold low in both cycles (.com and housing bubble) and many of them also traded up on their primary residence during the housing bubble.
They remain convinced that the stock market is a money-losing "rigged" system and that the economy is in terrible shape.
The last 13 years fundamentally damaged a lot of people as far as a positive financial perspective in general and the idea of systematically making money with money.
Thirteen years ago a mention of "the market" would elicit all sorts of discussions by friends and coworkers about the virtue of QQQ, Janus Funds, Scudder Ultra and similar vehicles where their hard earned money was "making around 40% a year".

Now a similar attempt to start a "market" discussion is likely to earn a scowl and some comments about how the local credit union is paying 0.2% annually.
I am absolutely not worried about irrational exuberance - it might take until we have the next generation (that did not experience either crash as adults) before things could get frothy again. I also love the assumptions here - that the 4% withdrawal rate is wildly optimistic and folks using 2% real return assumptions or less for stocks.

Gloomy Gus still rules despite some very solid market returns, especially if you look beyond US large cap indexes.
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jeffyscott
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Re: Total Stock market is up 9% annually for the last decade

Post by jeffyscott »

tj wrote:What happened to the "lost decade"!?
It ended about 3 years ago, roll the clock back 3 years and the 10 year return of VTSMX was 0.

Also, VTSMX had -3% cummulative return for the decade 2000-2009. The purists would say the decade should really be 2001-2010, but given what happened on Dec. 31, 1999 compared to Dec. 31, 2000, it seems that decades, like centuries, now clearly begin in years that end in zero.
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Re: Total Stock market is up 9% annually for the last decade

Post by NYBoglehead »

The problem of course with the "lost decade" always assumed that people ONLY bought at the top, didn't continue to invest as the market fluctuated, and never received any dividends. Of course that inconvenient truth didn't fit the media narrative that we are all doing terrible and have the cards stacked against us.
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Post by Taylor Larimore »

VennData wrote:Some nice returns for VTI-type products.

http://finance.yahoo.com/blogs/michael- ... 39226.html
"Stay the Course. It is the most important single piece of wisdom I can give to you." -- Jack Bogle

Thank you, Jack.

Best wishes
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UliKunkel1953
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Re: Total Stock market is up 9% annually for the last decade

Post by UliKunkel1953 »

nisiprius wrote:One reason I like growth charts is that you can at least see visually how start and endpoints are located relative to peaks and troughs.
Image

My current favorite are the Morningstar rolling return charts. I look at the bars for each year end. Though I really wish there was a way to have it show only the end of year returns. I would love to find a tool that showed a simple bar chart of yearly returns.
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Re: Total Stock market is up 9% annually for the last decade

Post by Valuethinker »

NYBoglehead wrote:The problem of course with the "lost decade" always assumed that people ONLY bought at the top, didn't continue to invest as the market fluctuated, and never received any dividends. Of course that inconvenient truth didn't fit the media narrative that we are all doing terrible and have the cards stacked against us.
No they use total return. But they usually exclude inflation.

Total real return just does not look great.

And of course you pay taxes on dividends-- the tax drag (as well as the TER drag) is significant-- you don't get index performance.

As to ony investing at the top, if you were at or near retirement at that point, that IS what you did.

Consider. You have a $1m portfolio to which you contribute $25k a year. The market drops by 50% and then returns to its previous level.

The impact of market moves on that portfolio is going to be at least 4x greater than the impact of contribution moves (take the extreme case, the portfolio dropped 50% on day 1, say, and then rose slowly over the next 10 years-- roughly speaking the $1m you had would lose $500k, and the $250k you contributed would only rise by c. $125k, if the index returned to its previous level). Again, very roughly (it's better than this due to compounding) you'd wind up with $1375, but 250k of that came from your contributions.

The issue is the arbitrary end points, rather than the principle per se.

You can't call the 'death of equities' from a bad decade, but you can note that compared to what was promised in 1999 (and believe me, the same promises were made in 1968 by brokers, and in 1928 that infamous '$50 a month to riches') investors did quite poorly *even if* they used the lowest cost equity mutual fund (Vanguard TSM). This is what is causing all the pension funds to scramble, because unrealistic return forecasts were made.

It's double down of course because interest rates have fallen so much, and hence in retirement income (annuities-- it does not really matter whether you hold bonds and an SWR or whether you annuitize for that calculation). Roughly speaking, that's more than halved (for a given quantum of money) in 10 years.

At the moment, for investors, we are not quite Japan, but it's been a torrid 13 years really. We have gone the square root of nowhere (markets still below 2000 highs) with a lot of volatility AND a plunge in retirement income from our assets.

My guess is I am a lot closer to retirement than you are, and so this matters more? (I've got about 12 years to go, with luck and a fair wind).

The messages are the eternal verities. Stocks are probably a good long term investment, but not certainly so. High risk pays high return. Equities are volatile and you cannot count on the past being like the future, when it comes to equity returns.
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Re: Total Stock market is up 9% annually for the last decade

Post by YDNAL »

VennData wrote:Some nice returns for VTI-type products.

http://finance.yahoo.com/blogs/michael- ... 39226.html
Point 1 -----> Point 2 data (returns in this case) would be only meaningful to those that stopped accumulating and retired
exactly at Point 1. For everyone else, we accumulate at many points before, during and after the period. Fudgetaboutit!
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Re: Total Stock market is up 9% annually for the last decade

Post by rkhusky »

tj wrote:Guess it tells you that you can find data to support whatever conclusion you want. What happened to the "lost decade"!?
It doesn't seem that long ago that there were a number of posts pushing small value because TSM had had a "lost decade".
Valuethinker wrote: The messages are the eternal verities. Stocks are probably a good long term investment, but not certainly so. High risk pays high return. Equities are volatile and you cannot count on the past being like the future, when it comes to equity returns.
High risk has the potential for high returns. High risk also has the potential for terrible returns. There are no guarantees.
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Re: Total Stock market is up 9% annually for the last decade

Post by Cut-Throat »

MnD wrote: Now a similar attempt to start a "market" discussion is likely to earn a scowl and some comments about how the local credit union is paying 0.2% annually.
I am absolutely not worried about irrational exuberance - it might take until we have the next generation (that did not experience either crash as adults) before things could get frothy again. I also love the assumptions here - that the 4% withdrawal rate is wildly optimistic and folks using 2% real return assumptions or less for stocks.

Gloomy Gus still rules despite some very solid market returns, especially if you look beyond US large cap indexes.
+1

Yup, 2% SWR now that we are in the the worst investment conditions that the U.S. has ever seen. Even Worse than October 28th, 1929.
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Re: Total Stock market is up 9% annually for the last decade

Post by Akiva »

VennData wrote:Some nice returns for VTI-type products.

http://finance.yahoo.com/blogs/michael- ... 39226.html
Just keep in mind that the arithmetic average he's talking about isn't something you'd realize in practice. Depending on how you rebalance, you'd get something in between his arithmetic average and the (lower) geometric one.
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Re: Total Stock market is up 9% annually for the last decade

Post by Akiva »

nisiprius wrote:Also, everyone should be aware that moving averages also create cycles not present in the original data and hide cycles that might be, like a seashell held to the ear acts as a resonator to manufacture "the sound of the ocean" out of ambient noise in the room.
This is more of an effect of how people use moving averages than how they actually work. For example, if you go to yahoo and tell it to plot a 200-day simple moving average, it will draw a line on the chart that will follow the prices with some "lag". This is because the line isn't being drawn correctly. When you calculate the simple average of the last 200 days, what you get is an estimate of the "fair" price 100 days in the past. But Yahoo doesn't plot the line so that it ends 100 days ago, instead it plots the value from 100 days ago under today's price (100 days into "the future" of the moving average). And it's this arbitrary shift that creates the familiar problems with moving averages. (And for some obnoxious reason, most charting packages have no easy way to fix this.) Similarly, if you use an exponential moving average, it is calculated with the assumption that your time series is stable and trend-free (neither of which are true of market prices). Consequently, it will have similar problems to the SMA.

FWIW, if you are using MAs, it's worth having a copy of Hyndman et al.'s Forecasting with Exponential Smoothing. That book is a bit mathematical, but it systematically presents the various forms of exponential smoothing and explains when they would be appropriate. (He gives 15 models each of which can be used with either additive or multiplicative forecasting errors, so there are a total of 30 variations.)
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Re: Total Stock market is up 9% annually for the last decade

Post by Oicuryy »

careytilden wrote:I would love to find a tool that showed a simple bar chart of yearly returns.
Like this? Too bad FRED only has data for the Wilshire 5000.

Image
http://research.stlouisfed.org/fred2/graph/?g=guF

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UliKunkel1953
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Re: Total Stock market is up 9% annually for the last decade

Post by UliKunkel1953 »

Oicuryy wrote:
careytilden wrote:I would love to find a tool that showed a simple bar chart of yearly returns.
Like this?
Oh yes, that's lovely.
Oicuryy wrote:Too bad FRED only has data for the Wilshire 5000.
Yeah, that really is too bad. It's so easy to see the number of good years vs bad years, how good were the good years, and how bad were the bad years. Guess I'm stuck making spreadsheets when I want to see a chart like this for any other fund.
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