Bogleheads

[jemhunter]

I know that we are all supposed to be passive, buy and hold people. That we are supposed to be comfortable enough with our AAs to weather any storm and still sleep well at night. I know all that.

But....does anyone feel a little uneasy when looking at a chart of the SPY? It is still below where it was in 2000. Thats a pretty long time to wait for a return. Unfortunately, we started investing around that time. I remember "reliable" sources like the Motley Fool making it seem like over ten years the S&P would surely return 10%.

Honestly, I know the answers to these questions. We are diversified with 30% in bonds. I just wonder if I am alone in feeling a little queesy about it all.

Jennifer.

[Zinji]

I didn't get started with my Roth until 2 1/2 years ago and last year was the first year I was able to fully fund it. Personally, I'm looking at the drop as a Godsend allowing me to play a little bit of catch up.
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"You are strong if you conquer others; you are mighty if you conquer self." - Lao Tzu

[Raybo]

Why leave it at the stock market? I don't like to fly in airplanes, worry about getting creamed by a car when I am riding my bicycle, am concerned about my health, and the ability of my retirement outlasting my money.

Anything else you want to know?

Ray
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[FISH]

Jennifer,

Just because we are "buy and holders" doesn't mean we never have moments of concern.

If it was really easy, everyone would do it!

Hang in there!!

[Soaker]

I would argue that, if you put a ruler across the graph below, the S&P 500 is more or less on its long-term trend line right now, after having gone well above the trend in the 1995-2000 period (and having been below trend from the mid-'70's to the early '80's). "Reversion to the mean" at work...it just took a few years. The only thing I would guarantee about the next 50 years is that there will be significant excursions both above and below the trend line during that time, just as with the last 50 years.

[EyeDee]

.
Jennifer,

Yes, I feel very queasy about the market for the very reason you mention - the SP500 being basically flat since 1999. You are actually lucky to have been investing during the down turn in 2000-2002. We had to stop investing in early 2001 (no jobs – still hoping to find one). To top it off, I read Bogle in the mid-1990’s, so we purchased most of our stocks in the very late 1990’s and mostly bought the SP500 and TSM, since at that time he said foreign was not needed and I did not discover the Diehard board until much later. And although we also own bonds, they have not paid much interest during the 2000’s so they have not been much help either.

So when I see the SP500 basically flat for the last eight years, I worry a lot and wonder if large U.S. stocks will ever recover? When I see charts of returns for those eight years or even for the last 10, 15, 20 years, I do not understand why some people say stocks are expensive or have high valuations.

You are definitely not alone!
_________________
Randy

SSCA - Security (ER fund, insurance), Savings, Costs (inc. taxes), Allocation (inc. rebalancing).
Board Wiki

[jh]

...

[EyeDee]

.
Soaker’s graph is a good example of what I was writing while he was posting – the last few years have pulled us back to trend, basically wiping out the gains of the late 1990’s (that many of us missed), yet people post like we should be expecting returns well under average – why? Since the excesses of the 1990’s are pretty much removed as Soaker’s graph points out, why should future returns be lower (or for that matter higher than average)? Why should we not be starting to see returns approaching the long term averages?
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Randy

SSCA - Security (ER fund, insurance), Savings, Costs (inc. taxes), Allocation (inc. rebalancing).
Board Wiki

[gt4715b]

There are a couple of points here that you should remember. The peak in 2000 was the result of the Internet bubble where valuations were very high. Yes, it does take some time for that to unwind. If you're going to be a stock investor, you should be ready for periods of up to or more than 10 years where stocks underperform bonds. That's what makes stocks risky and that's what gives them the superior historical returns.

Also, since you say you started invested in 2000, your personal return should be greater than the return for SPY (assuming you didn't invest one lump sum in 2000 with no additional investments thereafter). To learn how to calculate this, do a search for XIRR.

Finally, hopefully you understand and have applied the basics of diversification in your portfolio. You should also have small-cap stocks and international stocks, both developed and emerging markets, in your stock portfolio. Some people also recommend a separate allocation to REITs. Having these additional asset classes reduce your reliance on one particular asset class such as SPY (large-cap stocks).

[ken250]

Jennifer,

You might consider adding a tilt toward LV dividend-paying stocks, the divs will make the long dry spells a little easier to accept.

[mptfan]

[ElJay]

The bottom line to sleeping at night from my POV is having a sufficient emergency fund parked away. I am queasy to the point where I would not lump sum into this market, but I am very much OK with buying into it at somewhat regular intervals on the way down (or up.) (To the point that I can afford it, of course.)

[EyeDee]

.
Mptfan,

I realize that dividends have helped (I generally look at the returns on Vanguard’s funds instead of the actual indexes, which include the effect of the dividends). However, with the drops this year the dividend return is almost wiped out also. Also, inflation was probably equal to or higher during the last eight years than the low dividends. So I still feel things were basically flat.

Unfortunately, many of us were not able to continue investing regularly during the 2000-2002 period.
_________________
Randy

SSCA - Security (ER fund, insurance), Savings, Costs (inc. taxes), Allocation (inc. rebalancing).
Board Wiki

[Schooly D]

I think many of us would find it easier to maintain peace of mind during market downturns if, instead of having to rely only on statistical principles (e.g., reversion to the mean) and atheoretical extrapolations from past market behavior we understood why over the long haul equities can be expected to return 8-10% per year on average. Can any of you finance or economics mavens explain to the rest of us why the broad market trends ever upward at a more or less steady rate?

David

[tetractys]

Reassurance, I think, can best be found through some of those very experienced long term investors that speak up every so often--actually pretty often--on this forum. They've been through many many times that I'm sure are allot more stressful than this time. There's no need for me to name them. But a clue to who they are, a very general clue, is that their quiet words say, stay the course, in short order. -- Tet

[plake15]

[Gekko]

mptfan - this is great stuff - thanks!

----

If you had invested $10,000 in Vanguard's SP500 Index fund at the beginning of January 2000, as of yesterday you would have approximately $13,000.

Here are the numbers:

Starting Value of $10,000 on January 1, 2000 in VFINX.

Year Return
2000 0.909 9090
2001 0.881 8008.29
2002 0.879 7039.28691
2003 1.2868 9058.154396
2004 1.1088 10043.68159
2005 1.0491 10536.82636
2006 1.1579 12200.59124
2007 1.064 12989.97

Ending Value as of November 5, 2007: $12,989.97.

[timid investor]

Yes of course I'm worried.

I'm worried that a bear market is NOT just around the corner.

One to two decade death of confidence in equities is optimal for me.

[plake15]

[fishnskiguy]

Plake15,

Your graph is too rosy. If you account for inflation, the period 1965 to 1980 was a fifteen year long, not always slow downhill ride.

That's why we are only 20% equities and 60% TIPS. The rest is in bond funds and FDIC insured CDs.

Chris
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[NoMoreInvestingExcitement]

... you most certainly aren't alone.

After selecting an asset allocation that's appropriate for you and then actually pulling the trigger and investing according to that AA in low cost vehicles, "staying the course" as someone here mentioned is definitely one of if not the biggest roadblock to long term investing success.

... b/c big daily drops in the market are unsettling ... "corrections" can be downright terrifying ... and "crashes" can cause otherwise stalwart investors to head for the hills.

You'll see on this board some very good "hard numbers" on why U.S. equities have trended upward over the very long term (historically), but, truth be told, there's a certain level of, well, let's call it faith, that you'll need to sustain you when the market nosedives over whatever time period.

That's b/c nobody knows for certain what the market's going to do ... long or short term ... and especially not over any "particular" term. There are 30-year periods during which even Bogleheaded portfolios would have produced what most of us would consider lackluster inflation-adjusted returns. If you haven't done so already, take a look at a book like William Bernstein's The Four Pillars of Investing sometime and you'll get the picture.

In the end, though, there's not much you can do about it if the 30-year period beginning in 2000 (when you started investing) turns out to be a tough one for "the market."

The best you can do is hold on tight and listen to Jack Bogle (and the many who have echoed his sentiments): "No matter what happens, stick to your program. I've said 'stay the course' a thousand times and I meant it every time. It is the most important single piece of investment wisdom I can give you." (straight from page 167 of The Bogleheads' Guide ... to give credit where credit is due!).

Take solice in this though: I'm assuming that you are relatively young (you said you started investing in 2000, so I hope so...), so these days of declining markets aren't necessarily bad for you.

Bernstein has a simple little table at page 236 of the book to which I referred, which notes that bull markets are good for retirees and bad for savers while bear markets are bad for retirees and good for savers.

From your perspective as a saver, this reflects the fact that you can buy more shares on the cheap when you are in the accummulation phase of your investing life, as you are now, when prices are lower (as in a bear market) than when prices are higher (as in a bull market).

Silver lining? Yes, but only time will tell whether that's sterling or plate. Sleep tight!

[Sunny Sarkar]

It doesn't worry me from the investment point of view, in fact as someone in the accumulation stage I see it as a buying opportunity, but the market affects the job market and I wouldn't like to lose my job.
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Hindsight bestows on us great wisdom and sagacity but delivers no results.

[Christine_NM]

mptfan & gekko

30% cumulative return over 8 years averages out to 3.75% per annum (or close, I closed my calculator so don't have the precise number, I think that was it).

That is distressingly close to the recent annual inflation rate. It's even more distressing when compared to health care inflation rates, which run over 4%. There's no getting around it, the S&P has been a bummer lately. But it needed a breather. You don't have to pretend that it has great returns all the time.

Jennifer -

Just keep adding to the AA every month that you possibly can. That is the only possible way to become financially independent, barring an inheritance, a winning lottery ticket, or starting a wildly successful business. I lost $44k in one week in 2000. Since the summer I'm down $30k. But I only had about $550,000 in 2000, and now I have a little over $1 million. So the losses are insignificant if you save, save, save. Sometimes the market gives you a push upward, sometimes downward. In the long run, with a good AA, the push-ups should outweigh the push-downs.

[fishndoc]

[Gekko]

mptfan's chart assumes a lump sum deposit on 1-1-00. very few if anyone did this. i know i've personally been dollar cost averaging plenty before and since that time!

[biasion]

[removed]

[bob90245]

I used to be worried about the S&P 500. Then I read THIS ARTICLE by Paul Merriman a few years ago. I changed course and adopted 'slice and dice'. And my portfolio has greatly benefited.

[mptfan]

[Opponent Process]

[jemhunter]

[timid investor]

[plake15]

[mptfan]

jemhunter, that's exactly the point. If you invest in a low cost broadly diversified portfolio of U.S. and international stocks, as well as bonds, and if you continue to invest during the market's ups and downs, then you are likely to have a higher return than the S&P 500 did over the last 8 years, even if the next 8 years look like the last.

[zalzel]

[bob90245]

[jeffyscott]

[plake15]

[jeffyscott]

[plake15]

[grayfox]

[jeffyscott]

[mptfan]

I stand corrected. My 2002 total return figure was wrong, I must have made a typo.

[Gekko]

this ain't so bad -

1999 10,000.00
2007 11,317.48

[turbo]

[plake15]

market is getting hammered afterhours..intel missed earnings by 2 cents....especially tech sector..

Intel

Fourth-Quarter Revenue $10.7 Billion, up 10.5 Percent Year-
over-Year
* Gross Margin 58 Percent, up 8.5 Points Year-over-Year
* Operating Income $3 Billion, up 105 Percent Year-over-Year
* Record Microprocessor and Chipset Units and Revenue
* Net Income $2.3 Billion; EPS 38 Cents

it's all about expectations...wall street put Intel on a high bar,they
could not reach it.

Merrill Lynch or Citi could come out and say they lost only 3 billion.but
expections are so low for finance that you could have big rally off of
something like that..wow only 3 billion lose this year cool! RALLY!
that how things work.. such a bummer

[market timer]

[heyyou]

TSM and S&P500 are both Large Blend. A Callan Periodic Table shows how that asset class has fluctuated in both value and in relation to other asset classes over long periods. That is just how the market moves--up and down at unpredictable intervals. Read Swedroe and Wm Bernstein until you do see that the market is expected to drop regularly. That is just part of equity investing. Diversify as best you can, then rebalance as needed. That has worked, so far.

[Rodc]

Back to the original question.

It looks to me like the market is doing the sorts of things the market is supposed to do. I am invested based on an expectation of this sort of behavior. While I have done well very recently, I have done fine averaged over the last 17 years, and I feel comfortable that things will work out well enough over the next three decades when I will have substantial amounts invested in the markets (if I live that long!).

I have a stable job (knock on wood), but still I worry more about the job market and what it means to my fellow citizens than I do what the market has in store over the next couple of years.
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[grayfox]

[mptfan]