Well, as a former 100%-er (I'm older now, so the problem is different), I would say no, it's not a case of a desperate big bet for many, probably most, who take that tack. It's looking at the economic/mathematical best bet. Over decades stocks are the best bet for growth. Maybe it's because I came of age at a time when people acutely remembered the WWII through early 80s period for bonds, but 100% equities was not strange. My employer 401 didn't even offer a real bond fund until the early-mid 1990s, if I recall correctly, maybe later than that. But I was doing the 100% stocks approach from the get-go up into 2007, which was the first 20 years of my investing career. And under the right circumstances I'd do it again. It's really not the bogey-man under the bed.sscritic wrote:This points to a question that I have.columbia wrote:I'm planning on working for 20-25 more years.
Might I end up with more, if I held 10% instead 25% bonds? Perhaps/maybe/yes?
Either way, I've chosen a level that fits my comfort zone....to each, their own.
Are people who go 100% equities not saving enough to reach their goals without the "big bet"? I never had goals that were beyond my reach, so I had no problem with reaching them the slow and steady way.
If the 100% equity folks could double their savings rate, would they still be 100% equities? If so, would this be because of shifting goals? I know when enough is enough for me; maybe I am just easily satisfied.
Stock markets in free fall?
-
- Posts: 2388
- Joined: Fri May 17, 2013 7:09 am
Re: Stock markets in free fall?
Don't do something. Just stand there!
Re: Stock markets in free fall?
Why even index? All those losing stocks in the index are a drag on returns. Just pick the right stocks and you can retire even earlier!
P.S. for anyone who missed it,
P.S. for anyone who missed it,
- nisiprius
- Advisory Board
- Posts: 52211
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: Stock markets in free fall?
I seem to have been one of the few people to have noticed the emoticon, so let me add a few more of them. Leeraar posted one of these.jackpullo997 wrote:Is this for real? Or sarcastic?...Leeraar wrote:Has anyone noticed that the S&P 500 has plummeted to levels not seen since February 10, 2014?
L.
Maybe we need one like this:
Last edited by nisiprius on Sat Apr 12, 2014 2:50 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Stock markets in free fall?
The face with the winking eye provides a clue.jackpullo997 wrote:Is this for real? Or sarcastic?Leeraar wrote:Has anyone noticed that the S&P 500 has plummeted to levels not seen since February 10, 2014?
L.
INSERT PITHY QUOTE HERE
- zaboomafoozarg
- Posts: 2431
- Joined: Sun Jun 12, 2011 12:34 pm
Re: Stock markets in free fall?
Or perhaps this one:nisiprius wrote:Maybe we need one like this:
- nisiprius
- Advisory Board
- Posts: 52211
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: Stock markets in free fall?
Hmmm... I wonder why you were seeing that and I'm not? OK, another try.
I'm going to replace the URL in my previous posting with this one.
I'm going to replace the URL in my previous posting with this one.
Last edited by nisiprius on Sat Apr 12, 2014 2:50 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
- bertilak
- Posts: 10725
- Joined: Tue Aug 02, 2011 5:23 pm
- Location: East of the Pecos, West of the Mississippi
Re: Stock markets in free fall?
Works for me.nisiprius wrote:Hmmm... I wonder why you were seeing that and I'm not? OK, another try.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
- abuss368
- Posts: 27850
- Joined: Mon Aug 03, 2009 2:33 pm
- Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
- Contact:
Re: Stock markets in free fall?
To me this is no "plummet". Now 2007 - 2009 was a plummet and I am sure the folks who invested during the Great Depression would have a whole different perspective to share.Leeraar wrote:Has anyone noticed that the S&P 500 has plummeted to levels not seen since February 10, 2014?
L.
If this is to much of a drop consider increasing your bond allocation.
John C. Bogle: “Simplicity is the master key to financial success."
Sell bonds, buy equities.
I think that it is possible that you missed the point of those "100% equities" threads. The argument is not that the market never goes down. The argument is that over the long term stocks will do much better than bonds and that bonds actually are riskier over time.HueyLD wrote:Whatever happened to the "why not 100% equity threads?"
I am 90% equities, and what cash I have I may soon put into equities. I am down about 3% for the year so far. I was up 37% in 2013 and 21% in 2012. The average duration of a major correction, which this is nowhere near, is about 3 and 1/2 months.
So, really, this downturn means nothing to a long term investor in equities--except maybe an opportunity to invest a bit more cash in stocks--just as a re-balancing process would lead you to do.
I'm buying more equities now. Going for 95-98%
I am 90% equities/10% cash because I think that equities are safer than bonds over longer periods (about 12 years and up) and because they are a better investment that will appreciate faster. As Larry Swerdloe points out, the desirability oo a particular individual of a greater return is usually also a factor in the selection of equities. In my case, I would like to leave as large an estate as possible for my children and grandchildren, so that is another reason to go equities.sscritic wrote:This points to a question that I have.columbia wrote:I'm planning on working for 20-25 more years.
Might I end up with more, if I held 10% instead 25% bonds? Perhaps/maybe/yes?
Either way, I've chosen a level that fits my comfort zone....to each, their own.
Are people who go 100% equities not saving enough to reach their goals without the "big bet"? I never had goals that were beyond my reach, so I had no problem with reaching them the slow and steady way.
If the 100% equity folks could double their savings rate, would they still be 100% equities? If so, would this be because of shifting goals? I know when enough is enough for me; maybe I am just easily satisfied.
I expect that over the next two weeks my cash stake is likely to decline to 5% or less as I buy more equities during the downturn.
- nisiprius
- Advisory Board
- Posts: 52211
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: I'm buying more equities now. Going for 95-98%
claver wrote:...bonds actually are riskier over time...
But Jeremy Siegel, author of Stocks for the Long Run, does not think so. He saidclaver wrote:...I think that equities are safer than bonds over longer periods (about 12 years and up)...
...many of you who have gone to my presentations have probably seen that slide before. Now, one thing I should make very clear, I never said that that means stocks are safer in the long run....
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: I'm buying more equities now. Going for 95-98%
claver,claver wrote:I think that equities are safer than bonds over longer periods (about 12 years and up) ...
How do you define "safe" or "safer"?
L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
- danwhite77
- Posts: 421
- Joined: Thu Mar 08, 2012 8:21 am
Re: Stock markets in free fall?
My guess is that he's talking about the risk of inflation. Buffett, when discussing the performance of bonds relative to stocks, has described bonds along the lines of 'Instead of bonds providing risk free return, over the long run against inflation they provide return free risk.'Leeraar wrote:How do you define "safe" or "safer"?claver wrote:I think that equities are safer than bonds over longer periods (about 12 years and up) ...
I'm 100% equities myself.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
- tainted-meat
- Posts: 838
- Joined: Tue Dec 20, 2011 8:35 pm
- Location: Kentucky
Re: Stock markets in free fall?
Inflation is the silent portfolio killer for bond/fixed income heavy portfolios.
- nisiprius
- Advisory Board
- Posts: 52211
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: Stock markets in free fall?
Oh, if only there were some kind of bond that were, I don't know, indexed to inflation, so that you your low-risk portfolio was also free from inflation risk. Of course you wouldn't win when inflation was lower than that expected and priced in, but you wouldn't lose when it was higher, and the point of the low-risk allocation is not to win, but to be safe. Oh, I know what you're going to say. Dreamer! That's crazy talk! Get your head out of the clouds! It's unthinkable that any country would ever do anything like that. Well, OK, but a fella can wish, can't he?tainted-meat wrote:Inflation is the silent portfolio killer for bond/fixed income heavy portfolios.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
- tainted-meat
- Posts: 838
- Joined: Tue Dec 20, 2011 8:35 pm
- Location: Kentucky
Re: Stock markets in free fall?
I'm well aware of TIPS, I just don't use them or think they are a good long-term investment, YMMV.
EDIT to clarify: for folks in their 20's, 30's and maybe even early 40's
EDIT to clarify: for folks in their 20's, 30's and maybe even early 40's
Re: Stock markets in free fall?
If you define "risk" in terms of beta, or volatility, then stocks are riskier the longer the time horizon.
The longer you invest, the greater the dispersion of possible outcomes. Hence, greater risk.
L.
The longer you invest, the greater the dispersion of possible outcomes. Hence, greater risk.
L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
Re: Stock markets in free fall?
tainted-meat wrote:I'm well aware of TIPS, I just don't use them or think they are a good long-term investment, YMMV.
EDIT to clarify: for folks in their 20's, 30's and maybe even early 40's
So what 20 year old do you know who is bond heavy?Inflation is the silent portfolio killer for bond/fixed income heavy portfolios.
It seems to me that you are saying that TIPS are not a good investment for people who don't exist. As I recall my logic class, the statement all A are B is true when A is empty.
- tainted-meat
- Posts: 838
- Joined: Tue Dec 20, 2011 8:35 pm
- Location: Kentucky
Re: Stock markets in free fall?
@sscritic - my point is that I don't think bonds are good for anyone <40 yrs old. To each their own
Re: Stock markets in free fall?
The biggest issue with TIPS is they are terrible investments in taxable accounts. You pay taxes on increases in value now (the inflation component) that you may never see in the future because many of the bonds trade above par. You loose real purchasing power today via taxes. So unless you are in the 0% tax bracket, I put these in the category it theory there is no difference between theory and practice but in practice there is.
I think the bigger risk is the risks not noted by many, namely if you have more the 5 years in expenses in bonds in 5 years the money folks expect to be there may not be there in real terms. In addition, the types of folks who think they are being conservative are taking risk they may not think they are.
Packer
I think the bigger risk is the risks not noted by many, namely if you have more the 5 years in expenses in bonds in 5 years the money folks expect to be there may not be there in real terms. In addition, the types of folks who think they are being conservative are taking risk they may not think they are.
Packer
Last edited by packer16 on Sat Apr 12, 2014 5:14 pm, edited 1 time in total.
Buy cheap and something good might happen
Re: Stock markets in free fall?
The stocks are in the fall, but they are not free. Yet.
Victoria
Victoria
Inventor of the Bogleheads Secret Handshake |
Winner of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
Re: Stock markets in free fall?
I've never been a fan of calling something riskier if it had a greater range of outcomes than something with a smaller return. Something will end up between 1,000,000 and 7,000,000 is not riskier than something that will end up between 500,000 and 800,000.Leeraar wrote:If you define "risk" in terms of beta, or volatility, then stocks are riskier the longer the time horizon.
The longer you invest, the greater the dispersion of possible outcomes. Hence, greater risk.
L.
(Of course stocks aren't guaranteed to end up even as high as they are today in 30 years, but I've seen people make that argument for the past, where the outcome is known, before)
Re: Stock markets in free fall?
packer16 wrote:The biggest issue with TIPS is they are terrible investments in taxable accounts. You pay taxes on increases in value now (the inflation component) that you may never see in the future because many of the bonds trade above par. You loose real purchasing power today via taxes. So unless you are in the 0% tax bracket, I put these in the category in theory there is no difference between theory and practice but in practice there is.
I think the bigger risk is the risks not noted by many, namely if you have more the 5 years in expenses in bonds in 5 years the money folks expect to be there may not be there in real terms. In addition, the types of folks who think they are being conservative are taking risk they may not think they are.
Packer
Buy cheap and something good might happen
- stevewolfe
- Posts: 1676
- Joined: Fri Oct 10, 2008 7:07 pm
Re: Stock markets in free fall?
I was a 20 something that was bond heavy (we've been between 30% stocks and 40% stocks since we started investing 16 years ago). I used Vanguard's Asset Allocation Models and historical worst one year performance to arrive at my stock allocation back then and stuck with it. We just save more. There is more than 1 road to Dublin as Taylor says.sscritic wrote:So what 20 year old do you know who is bond heavy?
- zaboomafoozarg
- Posts: 2431
- Joined: Sun Jun 12, 2011 12:34 pm
Re: Stock markets in free fall?
What about someone who's shooting for financial independence at the age of 45?tainted-meat wrote:@sscritic - my point is that I don't think bonds are good for anyone <40 yrs old. To each their own
Re: Stock markets in free fall?
Meh, I'm one of the 100% right now. Every time I go to buy a bond fund I just can't pull the trigger and I end up buying more equities. Actually, I was kinda hoping the market keeps dropping so I can buy on the cheap. I'm planning on working for 25 more years though, so I don't sweat precipitous drops much. I'll get around to buying some bond funds eventually to get to my target AA. Probably Monday.... If I can click on that "confirm" button that is. I'll just have my wife do it, it's her SEP money going in anyway.
I’d trade it all for a little more |
-C Montgomery Burns
Re: I'm buying more equities now. Going for 95-98%
For some reason, you keep mischaracterizing Jeremy Siegel's position on this byrepeating this one fragmentary quote without a reliable source. This doesn't change Siegel's position, which is abundantly clear and stated at length, in print, in five editions of his work, where the very title refutes what you are saying: Stocks for the Long Run.nisiprius wrote:claver wrote:...bonds actually are riskier over time...But Jeremy Siegel, author of Stocks for the Long Run, does not think so. He saidclaver wrote:...I think that equities are safer than bonds over longer periods (about 12 years and up)......many of you who have gone to my presentations have probably seen that slide before. Now, one thing I should make very clear, I never said that that means stocks are safer in the long run....
You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up.
You might disagree with him or argue with him. But it completely undercuts your credibility to so totally misstate his position by "quoting" a fragment of a sentence.
-
- Posts: 5682
- Joined: Sat Aug 11, 2012 8:44 am
Re: I'm buying more equities now. Going for 95-98%
Hi Claver,claver wrote: You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up.
Could you provide an exact quotation from one of Mr. Siegel's books (with book title and page number)?
Did he actually write: "[...] stocks are safer than bonds over periods of 12-14 years and up."? Did he use the present tense ("are") or the past tense ("were")?
It would really be unfortunate if you were inadvertantly misrepresenting Jeremy Siegel.
longinvest
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Re: Stock markets in free fall?
If you look on page 33 & 37 Figures 2-4 and 2-6 of the Third Edition of Stocks for the Long Run you will see the standard deviation of annual real returns for stocks is less than bonds for 20 and 30 year holding periods. He also states on page 32 between 15 and 20 years the volatility of real bond returns is higher than real stock returns. The data is from 1802 to 2001. Then on page 38 are recommended allocations based upon holding period and risk tolerance.
Some folks would respond we now have inflation-indexed bonds so this data is not as applicable to them. I disagree and part of that can be seen in the negative real rates that some of these bonds will trade at and the negative carry costs associated with these bonds. In other words some are willing to lock in real losses to ensure no further losses in real value of there assets. The carrying cost of these bonds include taxes you have to pay on the inflation adjustment. So it appears that bonds (even TIPS) still have an inflation protection issue that stock do not.
Packer
Some folks would respond we now have inflation-indexed bonds so this data is not as applicable to them. I disagree and part of that can be seen in the negative real rates that some of these bonds will trade at and the negative carry costs associated with these bonds. In other words some are willing to lock in real losses to ensure no further losses in real value of there assets. The carrying cost of these bonds include taxes you have to pay on the inflation adjustment. So it appears that bonds (even TIPS) still have an inflation protection issue that stock do not.
Packer
Last edited by packer16 on Sun Apr 13, 2014 8:54 am, edited 1 time in total.
Buy cheap and something good might happen
-
- Posts: 5682
- Joined: Sat Aug 11, 2012 8:44 am
Re: I'm buying more equities now. Going for 95-98%
Hi Claver,claver wrote: You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up.
Assuming that Mr. Siegel actually meant what you wrote (see my previuous post), this still says nothing about the relative safety of stocks to a mix of stocks and bonds. All this says is that 100% equities is safer than 100% bonds over the long term.
I still don't why anyone should be covinced by future return predictions of any single expert. I find your arguments pretty weak.
Regards,
longinvest
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Re: Stock markets in free fall?
I was a little heavy in stocks(53%-47%)- but not enough to re-balance, even with new money. The market did it for me.
Marty
Marty
-
- Posts: 5682
- Joined: Sat Aug 11, 2012 8:44 am
Re: Stock markets in free fall?
I asked for a quotation. Can you provide one?packer16 wrote:If you look on page 33 & 37 Figures 2-4 and 2-6 of the Third Edition of Stocks for the Long Run you will see the standard deviation of annual real returns for stocks is less than bonds for 20 and 30 year holding periods. The data is from 1802 to 2001.
Packer
A table of past standard deviations says nothing about how stoks "are"; it simply tells us about how the ones that we measured "were". (Don't forget about stock survival bias!)
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Re: Stock markets in free fall?
See the revised citation above. If you are looking for a forecast you are not going to find one but the past data is the best data we have to go on and in my book is better than mere speculation of the future. I think the key to his statement is real return volatility over longer time periods not nominal return volatility over shorter time periods.longinvest wrote:I asked for a quotation. Can you provide one?packer16 wrote:If you look on page 33 & 37 Figures 2-4 and 2-6 of the Third Edition of Stocks for the Long Run you will see the standard deviation of annual real returns for stocks is less than bonds for 20 and 30 year holding periods. The data is from 1802 to 2001.
Packer
A table of past standard deviations says nothing about how stoks "are"; it simply tells us about how the ones that we measured "were". (Don't forget about stock survival bias!)
Packer
Buy cheap and something good might happen
Re: I'm buying more equities now. Going for 95-98%
Dear longinvest:longinvest wrote:Hi Claver,claver wrote: You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up.
Could you provide an exact quotation from one of Mr. Siegel's books (with book title and page number)?
Did he actually write: "[...] stocks are safer than bonds over periods of 12-14 years and up."? Did he use the present tense ("are") or the past tense ("were")?
It would really be unfortunate if you were inadvertantly misrepresenting Jeremy Siegel.
longinvest
You and I have been through all of this before in the thread I started entitled "Why Own Bonds at All." You frequently posted in that thread and argued there in direct response to the quotes you now ask for. So I am not sure why you are asking for this stuff. The issues were fully aired there, and I have quoted Siegel and other sources extensively in that thread, as you know and have previously replied to. And, before you say it, yes, the future is not guaranteed to be like the past, but please note that that argument applies equally to any purported benefits of bonds as well as to any purported benefits of equities. So, on its own that argument serves as no basis for making a distinction between the two.
Nonetheless, I , but I am happy to provide for other readers some quotations and links:
Chapters 5 and 6 of his fifth edition are devoted to this issue and should be read in their entirety.
On pp. 94-95 of the fifth edition of Stocks for the Long Run, Siegel describes his findings on the relative real returns of holdings in stocks, bonds, and bills:
"Stocks are unquestionably riskier than bonds or Treasury bills over one- or two-year periods. However, in every five-year period since 1802, the worst performance in stocks, at -11.9 percent per year, has been only slightly worse than the worst performance in bonds or bills [-11.9 vs -10.1 vs -8.3 respectively]. and for 10-year holding periods, the worst stock performance has actually been better than for bonds or bills [-4.1 vs -5.4 vs -5.1]. For 20-year holding periods, stock returns have never fallen below inflation, while returns for bonds and bills once fell as much as 3 percent per year below the inflation rate. During that inflationary episode, the real value of a portfolio of Treasury bonds, including all reinvested coupons, fell by nearly 50 percent. The worst 30-year return for stocks remained comfortably ahead of inflation by 2.6 percent per year, a return that is not far below the average performance of fixed-income assets. It is very significant that stocks, in contrast to bonds or bills, have never delivered to investors a negative real return over periods lasting 17 years or more. Although it might appear to be riskier to accumulate wealth in stocks rather than in bonds over long periods of time, for the preservation of purchasing power, precisely the opposite is true: the safest long-term investment has clearly been a diversified portfolio of equities."
BTW, Siegel says he doesn't own bonds except for a few junk bonds that he just rolls over. But he never says that no one should ever own bonds. He does not say stocks are without risk. He does say, clearly and repeatedly, that stocks are safer than bonds over the long run, and if you look at his tables, the time periods I cite are accurate.
David Blanchett, Morningstar's Director of Retirement Research and a distinguished young research scholar has made similar findings. Warren Buffett takes a similar view (see his 2012 investment letter, available online, for details). Jack Bogle suggests treating social security or pensions as a form of fixed income that in most ways offsets the need for bonds. This is what I do, since my wife and I will have both social security and a modest joint life pension, in addition to our equity investments and a cash stake that now varies from 2% to 10%. But I don't own any bonds and don't plan to.
Here is a link to Blanchett's paper: http://corporate.morningstar.com/ib/doc ... %20Run.pdf
Here is a link to Blanchett's video interview and transcript, entitled "When Stocks Are Safer": http://www.morningstar.com/cover/videoc ... ?id=616020
One of the lead sentences from his interview with Christine Benz:
Blanchett: What we found was that the longer you hold stocks, the safer they become. People think of cash as being a safer investment for longer time periods; stocks actually were a safer investment for someone investing for maybe 10 or 20 years versus cash or bonds.
Benz: You looked at a lot of different datasets. Can you summarize how you tried to be comprehensive and you also how you tried to be global in your research as well?
Blanchett: We looked at 20 different countries. We looked at time periods from one to 20 years, and different levels of risk preference. It's the most comprehensive empirical study on time diversification--this idea that stocks change in terms of their riskiness over time--of any study done so far.
So, anyway, that is some of my documentation for the statements I made and the positions (both intellectual and financial) that I hold.
Claver
-
- Posts: 5682
- Joined: Sat Aug 11, 2012 8:44 am
Re: Stock markets in free fall?
Thanks for the explanation, Packer.packer16 wrote:See the revised citation above. If you are looking for a forecast you are not going to find one but the past data is the best data we have to go on and in my book is better than mere speculation of the future. I think the key to his statement is real return volatility over longer time periods not nominal return volatility over shorter time periods.longinvest wrote:I asked for a quotation. Can you provide one?packer16 wrote:If you look on page 33 & 37 Figures 2-4 and 2-6 of the Third Edition of Stocks for the Long Run you will see the standard deviation of annual real returns for stocks is less than bonds for 20 and 30 year holding periods. The data is from 1802 to 2001.
Packer
A table of past standard deviations says nothing about how stoks "are"; it simply tells us about how the ones that we measured "were". (Don't forget about stock survival bias!)
Packer
So, if I understand correctly, Jeremy Siegel didn't actually write that stocks are safer than bonds on the long term. Good to know. I hope Bogleheads will remember that in future arguments.
That being out of the way, let's get back to the other problem. Did Mr Siegel provide the standard deviation of real returns of a balanced portfolio of stocks and bonds, so that we could use this data in our discussion? If not, why would anyone use past results of 100% stocks vs 100% bonds to anticipate future results of 100% stocks vs a balanced portfolio? I see no logic in doing so.
longinvest
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
-
- Posts: 5682
- Joined: Sat Aug 11, 2012 8:44 am
Re: I'm buying more equities now. Going for 95-98%
Thanks, Claver for providing an exact quotation. I will repeat it: "[...] Although it might appear to be riskier to accumulate wealth in stocks rather than in bonds over long periods of time, for the preservation of purchasing power, precisely the opposite is true: the safest long-term investment has clearly been a diversified portfolio of equities."claver wrote:Dear longinvest:longinvest wrote:Hi Claver,claver wrote: You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up.
Could you provide an exact quotation from one of Mr. Siegel's books (with book title and page number)?
Did he actually write: "[...] stocks are safer than bonds over periods of 12-14 years and up."? Did he use the present tense ("are") or the past tense ("were")?
It would really be unfortunate if you were inadvertantly misrepresenting Jeremy Siegel.
longinvest
You and I have been through all of this before in the thread I started entitled "Why Own Bonds at All." You frequently posted in that thread and argued there in direct response to the quotes you now ask for. So I am not sure why you are asking for this stuff. The issues were fully aired there, and I have quoted Siegel and other sources extensively in that thread, as you know and have previously replied to. And, before you say it, yes, the future is not guaranteed to be like the past, but please note that that argument applies equally to any purported benefits of bonds as well as to any purported benefits of equities. So, on its own that argument serves as no basis for making a distinction between the two.
Nonetheless, I , but I am happy to provide for other readers some quotations and links:
Chapters 5 and 6 of his fifth edition are devoted to this issue and should be read in their entirety.
On pp. 94-95 of the fifth edition of Stocks for the Long Run, Siegel describes his findings on the relative real returns of holdings in stocks, bonds, and bills:
"Stocks are unquestionably riskier than bonds or Treasury bills over one- or two-year periods. However, in every five-year period since 1802, the worst performance in stocks, at -11.9 percent per year, has been only slightly worse than the worst performance in bonds or bills [-11.9 vs -10.1 vs -8.3 respectively]. and for 10-year holding periods, the worst stock performance has actually been better than for bonds or bills [-4.1 vs -5.4 vs -5.1]. For 20-year holding periods, stock returns have never fallen below inflation, while returns for bonds and bills once fell as much as 3 percent per year below the inflation rate. During that inflationary episode, the real value of a portfolio of Treasury bonds, including all reinvested coupons, fell by nearly 50 percent. The worst 30-year return for stocks remained comfortably ahead of inflation by 2.6 percent per year, a return that is not far below the average performance of fixed-income assets. It is very significant that stocks, in contrast to bonds or bills, have never delivered to investors a negative real return over periods lasting 17 years or more. Although it might appear to be riskier to accumulate wealth in stocks rather than in bonds over long periods of time, for the preservation of purchasing power, precisely the opposite is true: the safest long-term investment has clearly been a diversified portfolio of equities."
BTW, Siegel says he doesn't own bonds except for a few junk bonds that he just rolls over. But he never says that no one should ever own bonds. He does not say stocks are without risk. He does say, clearly and repeatedly, that stocks are safer than bonds over the long run, and if you look at his tables, the time periods I cite are accurate.
David Blanchett, Morningstar's Director of Retirement Research and a distinguished young research scholar has made similar findings. Warren Buffett takes a similar view (see his 2012 investment letter, available online, for details). Jack Bogle suggests treating social security or pensions as a form of fixed income that in most ways offsets the need for bonds. This is what I do, since my wife and I will have both social security and a modest joint life pension, in addition to our equity investments and a cash stake that now varies from 2% to 10%. But I don't own any bonds and don't plan to.
Here is a link to Blanchett's paper: http://corporate.morningstar.com/ib/doc ... %20Run.pdf
Here is a link to Blanchett's video interview and transcript, entitled "When Stocks Are Safer": http://www.morningstar.com/cover/videoc ... ?id=616020
One of the lead sentences from his interview with Christine Benz:
Blanchett: What we found was that the longer you hold stocks, the safer they become. People think of cash as being a safer investment for longer time periods; stocks actually were a safer investment for someone investing for maybe 10 or 20 years versus cash or bonds.
Benz: You looked at a lot of different datasets. Can you summarize how you tried to be comprehensive and you also how you tried to be global in your research as well?
Blanchett: We looked at 20 different countries. We looked at time periods from one to 20 years, and different levels of risk preference. It's the most comprehensive empirical study on time diversification--this idea that stocks change in terms of their riskiness over time--of any study done so far.
So, anyway, that is some of my documentation for the statements I made and the positions (both intellectual and financial) that I hold.
Claver
I highlighted the use of the past tense. Notice how in your posts you change it to the present tense. This could be seen as misrepresenting Mr. Siegel's text. I am sure it was not your intention to do so.
Now, again, I don't see in any part of the citation, a comparison of stocks to a mix of stocks and bonds. So, again, I fail to see any logical basis for your argumentation against a balanced portfolio, based on Mr Siegel's book.
This is getting quite off topic relative to the OP's joke. So, I'll stop argumenting. My goal was simply to warn new readers about the dangers of faulty argumentations against a balanced portfolio.
Regards,
longinvest
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Re: Stock markets in free fall?
I think you misinterpreted my statement so here are his exact words (p173 of The Future for Investors) interpret them as you may:
Over shorter periods of time, stocks are undoubtedly riskier than bonds. But as the holding period increases between 15 to 20 years, the riskiness of stocks falls below that of fixed-income assets. And over 30 year periods, stock risk falls to less than three-quarters that of bonds or bills. As the holding period increases, the risk of average returns falls nearly twice as fast as fixed-income returns.
The reason for this surprising result is the instability of the rate of inflation. Inflation afflicts real bond returns far more than stock returns.
While he did not make an explicit statement that this would recur in the future, he did not say it would not either. It is historical data analysis. The other point is that some may say that with TIPS the last inflation effect on bonds is removed but the current negative yields and the taxation of the appreciation component of TIPS increases the effects of inflation on TIPS.
Packer
Over shorter periods of time, stocks are undoubtedly riskier than bonds. But as the holding period increases between 15 to 20 years, the riskiness of stocks falls below that of fixed-income assets. And over 30 year periods, stock risk falls to less than three-quarters that of bonds or bills. As the holding period increases, the risk of average returns falls nearly twice as fast as fixed-income returns.
The reason for this surprising result is the instability of the rate of inflation. Inflation afflicts real bond returns far more than stock returns.
While he did not make an explicit statement that this would recur in the future, he did not say it would not either. It is historical data analysis. The other point is that some may say that with TIPS the last inflation effect on bonds is removed but the current negative yields and the taxation of the appreciation component of TIPS increases the effects of inflation on TIPS.
Packer
Buy cheap and something good might happen
Re: Stock markets in free fall?
Dear longinvest:packer16 wrote:I think you misinterpreted my statement so here are his exact words (p173 of The Future for Investors) interpret them as you may:
Over shorter periods of time, stocks are undoubtedly riskier than bonds. But as the holding period increases between 15 to 20 years, the riskiness of stocks falls below that of fixed-income assets. And over 30 year periods, stock risk falls to less than three-quarters that of bonds or bills. As the holding period increases, the risk of average returns falls nearly twice as fast as fixed-income returns.
The reason for this surprising result is the instability of the rate of inflation. Inflation afflicts real bond returns far more than stock returns.
While he did not make an explicit statement that this would recur in the future, he did not say it would not either. It is historical data analysis. The other point is that some may say that with TIPS the last inflation effect on bonds is removed but the current negative yields and the taxation of the appreciation component of TIPS increases the effects of inflation on TIPS.
Packer
The latest points you raise have for the most part already been addressed in my post above, which you quote (e.g., the difference between the past tense and the future tense, which as I said applies equally to any argument you make as much as it does to one I make; neither of us has a lease on the future).
Siegel addresses combined portfolios of stocks and bonds in his brief discussion of Modern Portfolio Theory and efficient frontiers (pp. 101-102), where he argues that MPT and EF do not include a robust representation of the effects of holding period and rely on a random walk model of returns. As I said, he does not have any significant holdings in bonds. Is he right? You pay your money and you make your choices.
Regards,
Claver
Last edited by claver on Sun Apr 13, 2014 11:16 am, edited 1 time in total.
Re: Stock markets in free fall?
LOL. Nice one.bertilak wrote:Half of my investments are 100% equities. The other half is 100% bonds.Khanmots wrote:Still 100% equities. No second thoughts. Hadn't even known that the market was having "issues".
Although... just calced my return and I'm around 1.2% YTD. So not sure what everyone's on about.
One half or the other will do me proud!
'It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so!' Mark Twain
Re: Stock markets in free fall?
A lot of those people are going to have more contributions each year than they are any gains or losses since they're still early in accumulation. Even if you do "age in bonds" which most people here would consider quite conservative, early on I don't think it matters as much as just saving as much as you can.tainted-meat wrote:Bonds are still a waste of time for young investors (<40yrs) who plan on retiring at 55 or later, even if the market drops another 30-40%. The market has risen well over that in the last few years and bonds would have been a major drag on returns.
Re: I'm buying more equities now. Going for 95-98%
This analysis makes little sense. I'm not doubting the numbers, but why would anyone even calculate all of those numbers?claver wrote:
On pp. 94-95 of the fifth edition of Stocks for the Long Run, Siegel describes his findings on the relative real returns of holdings in stocks, bonds, and bills:
"Stocks are unquestionably riskier than bonds or Treasury bills over one- or two-year periods. However, in every five-year period since 1802, the worst performance in stocks, at -11.9 percent per year, has been only slightly worse than the worst performance in bonds or bills [-11.9 vs -10.1 vs -8.3 respectively]. and for 10-year holding periods, the worst stock performance has actually been better than for bonds or bills [-4.1 vs -5.4 vs -5.1]. For 20-year holding periods, stock returns have never fallen below inflation, while returns for bonds and bills once fell as much as 3 percent per year below the inflation rate. During that inflationary episode, the real value of a portfolio of Treasury bonds, including all reinvested coupons, fell by nearly 50 percent. The worst 30-year return for stocks remained comfortably ahead of inflation by 2.6 percent per year, a return that is not far below the average performance of fixed-income assets. It is very significant that stocks, in contrast to bonds or bills, have never delivered to investors a negative real return over periods lasting 17 years or more. Although it might appear to be riskier to accumulate wealth in stocks rather than in bonds over long periods of time, for the preservation of purchasing power, precisely the opposite is true: the safest long-term investment has clearly been a diversified portfolio of equities."
He's comparing the worst loss of stocks, bonds and bills over various holding periods: 1, 2, 5, 10, 20 and 30 years.
This is bond abuse.
Who knows what's the difference between a bill, a note and a bond?
Anyone? Anyone?
Can you see why most of those comparisons make no sense?
Anyone? Anyone? Bueller?
-
- Posts: 12073
- Joined: Fri Sep 18, 2009 1:10 am
Re: I'm buying more equities now. Going for 95-98%
In the long run we're all dead; your long run may not coincide conveniently with the long run needed to demonstrate stocks' superiority to bonds.claver wrote:Dear longinvest:longinvest wrote:Hi Claver,claver wrote: You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up.
Could you provide an exact quotation from one of Mr. Siegel's books (with book title and page number)?
Did he actually write: "[...] stocks are safer than bonds over periods of 12-14 years and up."? Did he use the present tense ("are") or the past tense ("were")?
It would really be unfortunate if you were inadvertantly misrepresenting Jeremy Siegel.
longinvest
You and I have been through all of this before in the thread I started entitled "Why Own Bonds at All." You frequently posted in that thread and argued there in direct response to the quotes you now ask for. So I am not sure why you are asking for this stuff. The issues were fully aired there, and I have quoted Siegel and other sources extensively in that thread, as you know and have previously replied to. And, before you say it, yes, the future is not guaranteed to be like the past, but please note that that argument applies equally to any purported benefits of bonds as well as to any purported benefits of equities. So, on its own that argument serves as no basis for making a distinction between the two.
Nonetheless, I , but I am happy to provide for other readers some quotations and links:
Chapters 5 and 6 of his fifth edition are devoted to this issue and should be read in their entirety.
On pp. 94-95 of the fifth edition of Stocks for the Long Run, Siegel describes his findings on the relative real returns of holdings in stocks, bonds, and bills:
"Stocks are unquestionably riskier than bonds or Treasury bills over one- or two-year periods. However, in every five-year period since 1802, the worst performance in stocks, at -11.9 percent per year, has been only slightly worse than the worst performance in bonds or bills [-11.9 vs -10.1 vs -8.3 respectively]. and for 10-year holding periods, the worst stock performance has actually been better than for bonds or bills [-4.1 vs -5.4 vs -5.1]. For 20-year holding periods, stock returns have never fallen below inflation, while returns for bonds and bills once fell as much as 3 percent per year below the inflation rate. During that inflationary episode, the real value of a portfolio of Treasury bonds, including all reinvested coupons, fell by nearly 50 percent. The worst 30-year return for stocks remained comfortably ahead of inflation by 2.6 percent per year, a return that is not far below the average performance of fixed-income assets. It is very significant that stocks, in contrast to bonds or bills, have never delivered to investors a negative real return over periods lasting 17 years or more. Although it might appear to be riskier to accumulate wealth in stocks rather than in bonds over long periods of time, for the preservation of purchasing power, precisely the opposite is true: the safest long-term investment has clearly been a diversified portfolio of equities."
BTW, Siegel says he doesn't own bonds except for a few junk bonds that he just rolls over. But he never says that no one should ever own bonds. He does not say stocks are without risk. He does say, clearly and repeatedly, that stocks are safer than bonds over the long run, and if you look at his tables, the time periods I cite are accurate.
David Blanchett, Morningstar's Director of Retirement Research and a distinguished young research scholar has made similar findings. Warren Buffett takes a similar view (see his 2012 investment letter, available online, for details). Jack Bogle suggests treating social security or pensions as a form of fixed income that in most ways offsets the need for bonds. This is what I do, since my wife and I will have both social security and a modest joint life pension, in addition to our equity investments and a cash stake that now varies from 2% to 10%. But I don't own any bonds and don't plan to.
Here is a link to Blanchett's paper: http://corporate.morningstar.com/ib/doc ... %20Run.pdf
Here is a link to Blanchett's video interview and transcript, entitled "When Stocks Are Safer": http://www.morningstar.com/cover/videoc ... ?id=616020
One of the lead sentences from his interview with Christine Benz:
Blanchett: What we found was that the longer you hold stocks, the safer they become. People think of cash as being a safer investment for longer time periods; stocks actually were a safer investment for someone investing for maybe 10 or 20 years versus cash or bonds.
Benz: You looked at a lot of different datasets. Can you summarize how you tried to be comprehensive and you also how you tried to be global in your research as well?
Blanchett: We looked at 20 different countries. We looked at time periods from one to 20 years, and different levels of risk preference. It's the most comprehensive empirical study on time diversification--this idea that stocks change in terms of their riskiness over time--of any study done so far.
So, anyway, that is some of my documentation for the statements I made and the positions (both intellectual and financial) that I hold.
Claver
Right now central banks and the IMF are far more concerned about the possibility of disinflation and frank deflation than about inflation. If their fears materialize, bonds will have done far better than stocks.
Regardless, the point is that it is one thing to accept the risks of 100% stocks with eyes wide open; it is another entirely to assert that over any 20 year period, stocks always do better than bonds. A comprehensive risk management plan considers not only the odds of being wrong, but the consequences of being wrong.
With a 60/40 portfolio I can retire comfortably and probably extremely comfortably and probably early with an extremely wide array of market outcomes. If I go 100/0 or similar, I have a greater chance of retiring even richer, but also a non-zero chance of going broke. There's no need for me to take such a risk, and very little added marginal utility of wealth by going from 'very comfortable' to 'rich', so there is no logical reason that I would be 100/0. People forget that the unlikely is not impossible. I guess that's especially true after a 5 year, 200% bull market in stocks.
Re: Stock markets in free fall?
Tomorrow, 4/14/14,the market, if it opens weak then the bottom is in and you should buy quickly. This is short term mind you. My experience tells me this. The DOW is only down 3 1/2 % but it`s really oversold with lots of pessimism abound.