The Whole Ball Game Of Equity Investing As I See It

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selftalk
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The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

After reading and listening to various ways to enhance your wealth by way of stocks I have the following observations and question. Realizing that slicing and dicing works in the long run does that strategy prove far superior in returns and risk to just simply holding the Total Stock Market Index Fund or the S&P 500 Index Fund. John Bogle indicates in his book Common Sense On Mutual Funds that you do not need to slice and dice into multiples of different asset classes worldwide and in fact it may be dangerous to do so because of currency fluctuations, political turmoil and various accounting practices among other things. He says to stay at home with VTSAX or VFIAX and realize that the large companies have a good percentage of their sales overseas. His research goes back some 38 years from when this book was published in 1999. Now there is the IFA index fund group (IFA.com) with research dating back from 1928, ( IFA.com, 12 steps, click on step # 9 and scroll down ), displaying the total returns of many major asset classes. This research indicates that the emerging market small cap value asset class over 85 years has been the superior performer. I personally do not understand how the author Mark T. Hebner procured his statistics as there were no emerging markets small cap value funds or indices from 1928. That asset class was not developed most of that time going forward since then and therefore is misleading to me. Paul Merriman in a recent article indicated he obtains research from Hebner`s listed price history of the major asset classes. Perhaps just perhaps the recency of the last 40 years or so may not mean all that much going forward to bet on in a portfolio of slice and dice.
I do know one thing for sure and that is that the market ( Dow Jones Industrial Average and the S&P 500) has trended higher over the years from inception as it is updated periodically by eliminating and adding to that index. So perhaps this is why both John Bogle and Warren Buffett recommend both or either the S&P 500 and/or the Total stock Market index funds and of course the lower the fund expenses the better for positive returns.
These are my observations. What are yours?
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by RunningRad »

The way I see it is that by tilting to small value and adding international exposure, one can diversify some of the risk of an all large cap US portfolio, and reduce the volatility and increase return (or increase fixed income exposure to further moderate volatility). Some asset classes will zig, while others zag, and while you will likely not match the S&P 500 return year after year, you can have a smoother ride and comparable return over long periods of time.

There are various schools of thought along these lines, and I do not believe that there is an absolutely right or wrong way to do it. Ideally, one should read the authors and thought leaders and understand the pros and cons of various strategies. The best thing to do is to pick a plan that is academically vetted and stick with it. It is worse to change your plan as new concepts come in and out of vogue. The worst thing you can do is to do nothing.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution
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selftalk
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

RunningRad, that sounds right to me also.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by tibbitts »

My thought is that some day, when we'll be able to go back 3000 years with "good" statistics, you'll be able to prove whichever point you wanted by choosing 2998 years vs. 3000 years, or something similar.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by dbr »

Considering that tilting means to concentrate more in small cap than is present in the cap weighted total market, I think starting with TSM and some indeterminate fraction to TISM is sufficient for most any investor. I think doing otherwise is fine for any investor that learns enough about how all those assets behave to conclude with confidence that one should do something different. I have not concluded with confidence that I should do something different.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by Call_Me_Op »

dbr wrote:Considering that tilting means to concentrate more in small cap than is present in the cap weighted total market, I think starting with TSM and some indeterminate fraction to TISM is sufficient for most any investor. I think doing otherwise is fine for any investor that learns enough about how all those assets behave to conclude with confidence that one should do something different. I have not concluded with confidence that I should do something different.
I am not sure what "with confidence" means. I think if (for example) one believes it more likely than not that value will outperform in the future, and if tilting toward value doesn't cost more (or costs more by say 5 or 10 basis points), then tilting toward value is perfectly reasonable. So is not tilting toward value.
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nedsaid
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by nedsaid »

The most important thing is to get invested, it is easy to get into analysis paralysis and do nothing. I believe that broad diversification is better than narrow diversification and this is one reason I like index funds. Active mutual funds will hold many fewer stocks than an index fund. I believe very strongly that investors should also venture beyond their borders and invest internationally. I don't buy John Bogle's argument that investors need only invest in the US Stock Indexes for the equity portion of their portfolio. The fact that the large Japanese Companies do a lot of business outside of Japan did not protect Japanese stock investors during Japan's great bear market. Investing internationally gives an investor a broader diversification than the United States. I would recommend between 20% and 50% of your equities being invested internationally.

Whether or not you tilt your portfolio from the broad US and International Stock Indexes is up to you. It is a matter of investment philosophy and frankly investment taste. I tilt my portfolio towards small-cap value and I own more mid-cap and small-cap stocks than the broad indexes. I am hoping to capture excess returns doing this. That being said, I have no quarrel with the simple 3-5 fund index portfolios that many on this forum advocate.

I like having aggressive, volatile assets in my portfolio. I call these my "Tiger in the Tank" investments that should add more oomph into the portfolio in up markets. These include Small-Cap Value, REITs, Emerging Markets, and International Mid-Small Cap. I own funds that practice earnings and price momentum strategies. The rest of my stock assets are in boring old index funds, value funds, and mostly blue chip individual stocks. Build your stock portfolio around good core investments like index funds, value funds, and if you like blue chip individual stocks. The best core investments are the boring, plain vanilla index funds. Then put a "Tiger in your Tank" with the volatile asset classes that I talked about. But don't overdo it. Small Value has had some really bad years historically. I have seen REIT funds fluctuate by as much as 10% in a day!!! Emerging Markets are sometimes called Submerging markets. This stuff is risky. Add enough to put more octane in your gas tank but not so much that you risk blowing up your portfolio.

Then pretty much forget about market timing other than at the extremes of market valuation and investor sentiment. Even then, don't be "all out" of any asset class you want to be in for the long term. I saw a Jack Bogle interview where he said that a 65% stock/35% bond portfolio was good for most investors. He said that if you run into extreme stock market valuations, maybe go to a 50/50 portfolio. He mentioned that long term investors will do well with balance in their portfolio between stocks and bonds, he seemed to like 65/35 a lot.

So if all you did was split your stock portfolio between a Total US Stock Market Index and a Total International Stock Market (which includes Emerging Markets), you will do just fine. You will own a bit of everything and be diversified all over the world.
A fool and his money are good for business.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by dbr »

Call_Me_Op wrote:
dbr wrote:Considering that tilting means to concentrate more in small cap than is present in the cap weighted total market, I think starting with TSM and some indeterminate fraction to TISM is sufficient for most any investor. I think doing otherwise is fine for any investor that learns enough about how all those assets behave to conclude with confidence that one should do something different. I have not concluded with confidence that I should do something different.
I am not sure what "with confidence" means. I think if (for example) one believes it more likely than not that value will outperform in the future, and if tilting toward value doesn't cost more (or costs more by say 5 or 10 basis points), then tilting toward value is perfectly reasonable. So is not tilting toward value.
Confidence means you are sure you yourself understand what is going on as opposed to listening to what someone else says is going on. Once you actually know what is going on you will know that you know. Until then, whether or not you know that you know is subject to considerable error in estimation.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by pkcrafter »

Selftalk, you have mentioned two approaches to investing--investing in the overall market and investing in small and EM. Now I wonder, armed with this knowledge, what does your portfolio look like?


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Re: The Whole Ball Game Of Equity Investing As I See It

Post by midareff »

nedsaid wrote: I like having aggressive, volatile assets in my portfolio. I call these my "Tiger in the Tank" investments that should add more oomph into the portfolio in up markets. These include Small-Cap Value, REITs, Emerging Markets, and International Mid-Small Cap. .

Some sauce for the goose Ned. :wink:
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by nedsaid »

midareff wrote:
nedsaid wrote: I like having aggressive, volatile assets in my portfolio. I call these my "Tiger in the Tank" investments that should add more oomph into the portfolio in up markets. These include Small-Cap Value, REITs, Emerging Markets, and International Mid-Small Cap. .

Some sauce for the goose Ned. :wink:
Yep. A relatively cheap way to get excitement in my life at age 55. :D :D :D
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

I wish we had more excitement than this although too much isn`t healthy. Perhaps we should go into politics where the action is for the moment. My portfolio consists of VTCLX in taxable via dollar cost averaging still and the IRA consists of VICSX and VBTLX for income and VTSAX. Not too exciting huh but I hope it does the job. It hasn`t been emotionally easy to dollar cost average in these times but I tell myself there were other times in history that things looked mighty terrible also. Today I bought more VTCLX. It may prove a good price in 5 years.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by nisiprius »

tibbitts wrote:My thought is that some day, when we'll be able to go back 3000 years with "good" statistics, you'll be able to prove whichever point you wanted by choosing 2998 years vs. 3000 years, or something similar.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by JoMoney »

selftalk wrote:...It may prove a good price in 5 years.
Why is the price 5 years from now important? Are you planning on selling everything 5 years from now?
If the price is lower in 5 years and you average in over the whole period your cost will be even lower.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by LongerPrimer »

The general indexes are great.
The more volatile the index, when you buy into or sell out of that index becomes more important.
How old you are in the investment cycle or how long you intend to hold that index is important.
What your investment goals are important.
These three thoughts have to be in sync for any investment to work properly. :shock:

OP, if you are early or mid cycle (high human capital) in the retirement cycle, you are very different than someone close to retirement (low human capital). You are, however, closer in investment philosophy to someone who is retired And who has more than enough retirement funds. :annoyed
Can you see why? :oops:
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

JoMoney, the 5 years is just an arbitrary number representing the future.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by LongerPrimer »

[quote="selftalk", "the OP"]I wish we had more excitement than this although too much isn`t healthy. Perhaps we should go into politics where the action is for the moment. My portfolio consists of VTCLX in taxable via dollar cost averaging still and the IRA consists of VICSX and VBTLX for income and VTSAX. Not too exciting huh but I hope it does the job. It hasn`t been emotionally easy to dollar cost average in these times but I tell myself there were other times in history that things looked mighty terrible also. Today I bought more VTCLX. It may prove a good price in 5 years.[/quote]

On another thread, someone said that Bogle thinks that SS should be part of your AA , bonds.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by Stonebr »

Tilting and slicing and dicing might add to portfolio returns if the investor is highly disciplined (stay the course), doesn't monkey with the slices, and waits for a very long time. However, I suspect that the added returns are not going to be enough to change your standard of living significantly over a cap-weighted indexed approach. Also, the discipline part and the don't monkey part are quite difficult. Maybe you set your slices up now, and ten years from now some Nobel Prize winner tells you that new research proves that you need a slice for Blah-blah-blah, and suddenly you are living in angst. What to sell, how to add the new slice? Oh my.

As the economy grows over time, a broad market index fund is designed to return your fair share of the market returns. After 30 years you are virtually guaranteed to have done better than 90% (or thereabouts) of active investors. I don't see what the slicing and dicing delivers that I'm not already getting from a simple approach. Comfortable retirement? Check. Tax-Efficiency? Check. Risk Reduction through diversification? Check. Extreme low-cost? Check.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by backpacker »

An observation: This last year, there have been a lot fewer "how do I tilt?" threads and a lot more "you only need total market funds" threads and "why do I need international?" threads. Funny how investors just so happen to be skeptical of strategies that have underperformed over the last few months. :oops:

This is not to say that people should be tilting. If anything, the swing in sentiment causes by a few months of underperformance is good reason to think that tilting isn't a good idea for most investors. If a decade of underperformance would change your mind about the wisdom of tilting, you have no business tilting.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by JoMoney »

backpacker wrote:... If a decade of underperformance would change your mind about the wisdom of tilting, you have no business tilting.
Right. I think whatever strategy you decide to go with needs to be something you can stick with long-term and "stay the course". Too many people are their own worst enemy, hurting their long-term performance by jumping in and out of investments thinking that their efforts to push and pull the portfolio does something to increase their returns. There's a horrible tendency of people deciding to change course at the wrong time.

Here's a PV growth chart of three popular Boglehead slice and dice portfolios as an average for a hypothetical investor who was putting in $1000 a year every year and "stayed the course":
Portfolio 1 is a Bill Schulteis "Coffee House"
Portfolio 2 is a Bill Bernstein "No Brainer"
Portfolio 3 is a Mr.Bogle 60% U.S. TSM / 40% Total Bond
Image
PV Link

We can argue until the cows come home about if any particular portfolios performance is being skewed by some period dependent short-term outperformance or underperformance but someone who stuck with their regular investments and "stayed the course" would have done just fine using any of the strategies. Over a long period of regular investments, the specific allocation within the different types of stocks and bonds made very little difference.
I happen to think there's a lot of wisdom in keeping things simple and expenses low.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by backpacker »

JoMoney wrote:
backpacker wrote:... If a decade of underperformance would change your mind about the wisdom of tilting, you have no business tilting.
Right. I think whatever strategy you decide to go with needs to be something you can stick with long-term and "stay the course". Too many people are their own worst enemy, hurting their long-term performance by jumping in and out of investments thinking that their efforts to push and pull the portfolio does something to increase their returns. There's a horrible tendency of people deciding to change course at the wrong time.

[...]
Over a long period of regular investments, the specific allocation within the different types of stocks and bonds made very little difference. I happen to think there's a lot of wisdom in keeping things simple and expenses low.
+1

Saving rate, avoiding unforced errors, and the overall stock/bond split all have a strong influence on portfolio returns. If you don't save enough money, or sell at the wrong time, or engage in market timing, or having too little in stocks, your returns will be seriously hurt. All other portfolio questions (international stocks, tilts, whether you own corportate bonds, etc) are way less important, boarding on insignificant.

If you like to tinker with your portfolio, tilting towards value stocks is a reasonable way to get that out of your system. It's better than picking active managers because you at least have some reasonable historical evidence to go on, even if it's not much. Additional fees are also minimal and you won't hurt your returns much as long as you maintain reasonably broad diversification. For others, holding a simple portfolio better helps them stay the course.

I think there's something really admirable about both approaches and find myself torn between them. I could easily imagine myself holding a globally cap weighted all-stock portfolio (VTI + VXUS). But my value stock ship has sailed, so it looks like staying the course for me is going to mean buying value stocks. Should be a fun ride! :beer
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

JoMoney, I wish you would have put the VFIAX and VTSAX 100% each on that chart also. Would you consider doing that?
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by garlandwhizzer »

nedsaid wrote:
by nedsaid » Fri Nov 28, 2014 12:15 pm

The most important thing is to get invested, it is easy to get into analysis paralysis and do nothing. I believe that broad diversification is better than narrow diversification and this is one reason I like index funds. Active mutual funds will hold many fewer stocks than an index fund. I believe very strongly that investors should also venture beyond their borders and invest internationally. I don't buy John Bogle's argument that investors need only invest in the US Stock Indexes for the equity portion of their portfolio. The fact that the large Japanese Companies do a lot of business outside of Japan did not protect Japanese stock investors during Japan's great bear market. Investing internationally gives an investor a broader diversification than the United States. I would recommend between 20% and 50% of your equities being invested internationally.

Whether or not you tilt your portfolio from the broad US and International Stock Indexes is up to you. It is a matter of investment philosophy and frankly investment taste. I tilt my portfolio towards small-cap value and I own more mid-cap and small-cap stocks than the broad indexes. I am hoping to capture excess returns doing this. That being said, I have no quarrel with the simple 3-5 fund index portfolios that many on this forum advocate.

I like having aggressive, volatile assets in my portfolio. I call these my "Tiger in the Tank" investments that should add more oomph into the portfolio in up markets. These include Small-Cap Value, REITs, Emerging Markets, and International Mid-Small Cap. I own funds that practice earnings and price momentum strategies. The rest of my stock assets are in boring old index funds, value funds, and mostly blue chip individual stocks. Build your stock portfolio around good core investments like index funds, value funds, and if you like blue chip individual stocks. The best core investments are the boring, plain vanilla index funds. Then put a "Tiger in your Tank" with the volatile asset classes that I talked about. But don't overdo it. Small Value has had some really bad years historically. I have seen REIT funds fluctuate by as much as 10% in a day!!! Emerging Markets are sometimes called Submerging markets. This stuff is risky. Add enough to put more octane in your gas tank but not so much that you risk blowing up your portfolio.

Then pretty much forget about market timing other than at the extremes of market valuation and investor sentiment. Even then, don't be "all out" of any asset class you want to be in for the long term. I saw a Jack Bogle interview where he said that a 65% stock/35% bond portfolio was good for most investors. He said that if you run into extreme stock market valuations, maybe go to a 50/50 portfolio. He mentioned that long term investors will do well with balance in their portfolio between stocks and bonds, he seemed to like 65/35 a lot.

So if all you did was split your stock portfolio between a Total US Stock Market Index and a Total International Stock Market (which includes Emerging Markets), you will do just fine. You will own a bit of everything and be diversified all over the world.
I+
This is great advice and likely the result of decades of experience combined with sound judgement.

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Re: The Whole Ball Game Of Equity Investing As I See It

Post by pkcrafter »

Selftalk, here are the numbers for JoMoney's chart. #1 and #2 are the same portfolios as JoMoney posted, but #3 is now total stock market. Note that No's 1 and 2 are 60% stock and #3 is total stock market (100% stock). You would expect No. 3 to have higher returns, but also notice the standard deviation is higher and the worst year has a bigger loss.

The most important thing to notice is that by going from 100% stock to 60/40 you lose about 20% in best year, but improve maximum worst year drop by 45%. VTIAX would show very similar results to total stock market.


Code: Select all

#    Initial Balance  Final Balance 	 CAGR 	 StdDev 	Best Year     Worst Year 	  Max. dawdown 		
1 	$1,000 	      $179,125 	      19.59% 	10.72% 	  28.81% 	       -20.21% 	      -18.46% 	
2 	$1,000 	      $165,391 	      19.26% 	11.33% 	    28.38%          -24.55% 	       -22.76% 	 	
3 	$1,000 	      $205,576 	      20.16% 	17.91% 	  35.79% 	       -37.04% 	      -35.46%
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by nedsaid »

Garland,

Thanks for your comments. You learn an awful lot just by holding investments and watching how they act in different market situations. I started investing in 1984, so I have been at it for 30 years.
The reason I might sound smart is that I have tried a lot of things, owned a lot of things, and frankly made mistakes along the way. It is my hope that others will learn from the things I did wrong.

I learned from stockbrokers, insurance agents, financial planners, TV and Radio programs, Financial Publications, and from friends and relatives. That is key, I think, to have an open mind and to learn something from whoever you are listening to. Even if you disagree with a presenter, there is usually one or two good kernels of information that is there if you will just listen. Too many people just dismiss those they disagree with.

I did most things right and at least had the good sense not to sell my stocks in really bad markets. I think of my own investment behavior over the years about how I started out very cautious, just tip-toeing into the stock market. By the time early 2000 came around, I had a 94% stock and a 6% fixed income retirement portfolio. The bull market transformed me into a very aggressive investor. Fortunately, Bob Brinker scared me into selling a portion of my stock investments before the market crashed, going to an 80/20 portfolio. I went on a program of buying bond funds with 40% of my new monies for investment and over time my asset allocation worked down to 70% stocks and 30% bonds where it is today.

So now I am entering into a new phase of my investing career, completely unexplored territory. I am 55 now and will likely retire in 10-12 years time. I don't have the luxury anymore of saying, oh heck, I won't touch this money for 20-30 years or more. The reality is that I could be drawing on it in just a few years and that completely changes my thought processes. In other words, the future is almost now, the retirement I have been planning for will arrive in a few years.

This will be a real test of my investment approach. How will I handle this next phase of my investing career. What adjustments will I have to make to account for the reality of my advancing age? Will I be able to resist the urge to sell when things look tough? As I see it, my biggest challenge will be de-risking my portfolio and changing 30 years of investing habits.

The Bogleheads can provide me with good role models of those who trod this path before me and give me good ideas about what I should be doing. Thanks to everyone who shared their life stories and how they managed their finances through different stages of life.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by pkcrafter »

Nedsaid,
The Bogleheads can provide me with good role models of those who trod this path before me and give me good ideas about what I should be doing.
Yes sir! Smart investors learn from their mistakes: Wise investors learn from the mistakes of others.
I've come to the conclusion that new investors are very disappointed to discover efficient investing is very simple, and most fight it. For anyone who wants the best investing advise, listen to Taylor Larimore. His advice through the years has not varied. It's simple, un-challenging and rather boring to the excited new investor who wants to show how smart he is, but Taylor is right.

Paul
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

Pkcrafter, I just wanted to see how only the S&P500 compared to those other allocations from 1982 on the chart.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

The question is how do you de-risk your portfolio today with bonds so darn high? Bogel says to go to 50% or so of top quality corporates along with 50% total bond market index fund. That`s an idea but is it the answer? I don`t know. Stocks are high, bonds are high and cash loses purchasing power and earns very little.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by nedsaid »

selftalk wrote:The question is how do you de-risk your portfolio today with bonds so darn high? Bogel says to go to 50% or so of top quality corporates along with 50% total bond market index fund. That`s an idea but is it the answer? I don`t know. Stocks are high, bonds are high and cash loses purchasing power and earns very little.
Yes, I am agonizing over this very same thing. I would be de-risking from a higher risk, higher return investment into a lower risk investment with very little return potential. In other words, bond returns adjusted for inflation will likely be "dead money" going forward. It is almost the equivalent of having some of your portfolio as cash stuffed in your mattress to reduce volatility. Of course money market funds are presently losing purchasing power every year and basically ARE cash stuffed into your mattress.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by selftalk »

With the conditions of these markets as they are now I`ve got a feeling something big is going to happen and it won`t be good for investors. Japan is doing QE now in a very big way, Europe is starting with it and the U.S. has done it 3 times so far. In essence to me is that the worlds currencies are being watered down drastically to get the respective economies going and it`s not really working. You lower rates and nothing gets going. This is bad. I know some of you will totally disagree but that`s the way I see it.
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by rustymutt »

RunningRad wrote:The way I see it is that by tilting to small value and adding international exposure, one can diversify some of the risk of an all large cap US portfolio, and reduce the volatility and increase return (or increase fixed income exposure to further moderate volatility). Some asset classes will zig, while others zag, and while you will likely not match the S&P 500 return year after year, you can have a smoother ride and comparable return over long periods of time.

There are various schools of thought along these lines, and I do not believe that there is an absolutely right or wrong way to do it. Ideally, one should read the authors and thought leaders and understand the pros and cons of various strategies. The best thing to do is to pick a plan that is academically vetted and stick with it. It is worse to change your plan as new concepts come in and out of vogue. The worst thing you can do is to do nothing.
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Birdman10687
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by Birdman10687 »

JoMoney wrote:
backpacker wrote:... If a decade of underperformance would change your mind about the wisdom of tilting, you have no business tilting.
Right. I think whatever strategy you decide to go with needs to be something you can stick with long-term and "stay the course". Too many people are their own worst enemy, hurting their long-term performance by jumping in and out of investments thinking that their efforts to push and pull the portfolio does something to increase their returns. There's a horrible tendency of people deciding to change course at the wrong time.

Here's a PV growth chart of three popular Boglehead slice and dice portfolios as an average for a hypothetical investor who was putting in $1000 a year every year and "stayed the course":
Portfolio 1 is a Bill Schulteis "Coffee House"
Portfolio 2 is a Bill Bernstein "No Brainer"
Portfolio 3 is a Mr.Bogle 60% U.S. TSM / 40% Total Bond
Image
PV Link

We can argue until the cows come home about if any particular portfolios performance is being skewed by some period dependent short-term outperformance or underperformance but someone who stuck with their regular investments and "stayed the course" would have done just fine using any of the strategies. Over a long period of regular investments, the specific allocation within the different types of stocks and bonds made very little difference.
I happen to think there's a lot of wisdom in keeping things simple and expenses low.
Isn't one of the (purported) major advantages to slicing and dicing a premium to capture by rebalancing? If so, your charts while somewhat informative, leave out a huge piece. In many ways, your charts support the idea that slicing and dicing will help in the long run because it shows that, without rebalancing it can still keep pace with a much "lazier" portfolio, meaning that with rebalancing it would beat it?
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JoMoney
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Re: The Whole Ball Game Of Equity Investing As I See It

Post by JoMoney »

Birdman10687 wrote:Isn't one of the (purported) major advantages to slicing and dicing a premium to capture by rebalancing? If so, your charts while somewhat informative, leave out a huge piece. In many ways, your charts support the idea that slicing and dicing will help in the long run because it shows that, without rebalancing it can still keep pace with a much "lazier" portfolio, meaning that with rebalancing it would beat it?
The chart's from PortfolioVisualizer.com says it applies "annual rebalancing". It also says that the charts using regular withdrawls or contributions (such as this one) have an inflation factor applied to the withdrawl/contribution, so it's not a fixed $1000 over the whole period, it starts at $1000 and adjusts with inflation .
All 3 of the portfolios are 60/40 stock/bonds, so if there's any "rebalancing bonus" they're all capturing it.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Birdman10687
Posts: 58
Joined: Mon Apr 30, 2012 6:47 pm

Re: The Whole Ball Game Of Equity Investing As I See It

Post by Birdman10687 »

JoMoney wrote:
Birdman10687 wrote:Isn't one of the (purported) major advantages to slicing and dicing a premium to capture by rebalancing? If so, your charts while somewhat informative, leave out a huge piece. In many ways, your charts support the idea that slicing and dicing will help in the long run because it shows that, without rebalancing it can still keep pace with a much "lazier" portfolio, meaning that with rebalancing it would beat it?
The chart's from PortfolioVisualizer.com says it applies "annual rebalancing". It also says that the charts using regular withdrawls or contributions (such as this one) have an inflation factor applied to the withdrawl/contribution, so it's not a fixed $1000 over the whole period, it starts at $1000 and adjusts with inflation .
All 3 of the portfolios are 60/40 stock/bonds, so if there's any "rebalancing bonus" they're all capturing it.
Oh, wow. That is really cool that it can incorporate rebalancing into the projections.
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