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Bogleheads
Investing Advice Inspired by Jack Bogle
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stratton
Joined: 04 Mar 2007
Posts: 8199
Location: Puget Sound
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 Posted: Thu Oct 08, 2009 7:12 pm Post subject: Vanguard: Strong 2009 performance warrants yellow flag |
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Strong 2009 performance warrants yellow flag
| Quote: | While it may be gratifying to see these robust gains lift the balances of your funds, the markets have "come a long way in a hurry," as the saying goes. At this point, it may be wise to ensure that your asset allocation is in line with your long-term goals. Maintaining a balanced, well-diversified portfolio is a sensible way to prepare for the uncertainties and volatility that accompany investing in the stock and bond markets.
We also caution against using short-term performance figures—however attractive—to guide your investment decisions. Four Vanguard funds*, in particular, have provided year-to-date returns well in excess of the broad stock and bond markets (as defined above).
Vanguard Capital Value Fund: +68.5%
Vanguard Emerging Markets Stock Index Fund: +62.6%
Vanguard Precious Metals and Mining Fund: +59.9%
Vanguard High-Yield Corporate Fund: +32.4% |
They sent out a warning like this for Wellington and Wellesley in the mid 1990s.
Paul |
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Robert T
Joined: 27 Feb 2007
Posts: 1406
Location: 1, 0.2, 0.4, 0.5
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| Posted: Thu Oct 08, 2009 7:43 pm Post subject: |
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From start of 2008
Index 2009 YTD 2008 to date
MSCI BRIC Index 80.0 -59.4 -26.9
MSCI Emerging Markets Index(SM) 67.2 -53.3 -22.0
MSCI EAFE Small Cap Index 47.7 -47.0 -21.7
MSCI EAFE Value Index 35.2 -44.1 -24.4
Russell Microcap(R) Index 27.7 -39.8 -23.1
Russell MidCap Value Index 26.8 -38.4 -22.0
S&P SmallCap 600/Citigroup Value Index 16.8 -29.5 -17.7
BC U.S. 1-3 Year Trsy Bond Index 1.0 6.7 7.7
BC U.S. 3-7 Year Trsy Bond Index -0.2 13.3 13.0
BC U.S. 7-10 Year Trsy Bond Index -2.6 18.0 14.9
BC U.S. 20+ Year Trsy Bond Index -14.1 33.7 14.8
Source: iShares website
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What went down the most in 2008 has come put the most, and what went up the most has come down the most...Still some way to go to get to 2008 start values. But agree with the sentiement to maintain long-term asset allocation targets on the way down and up (rebalancing as needed).
Robert
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simplesimon
Joined: 25 Feb 2008
Posts: 1992
Location: San Jose, CA Age: 25
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| Posted: Thu Oct 08, 2009 7:48 pm Post subject: |
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| I wonder if other mutual fund houses give out similar warnings/reminders. |
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bob90245
Joined: 19 Feb 2007
Posts: 4316
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| Posted: Thu Oct 08, 2009 8:00 pm Post subject: Re: Vanguard: Strong 2009 performance warrants yellow flag |
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| stratton wrote: | Strong 2009 performance warrants yellow flag
| Quote: | | While it may be gratifying to see these robust gains lift the balances of your funds, the markets have "come a long way in a hurry," as the saying goes. At this point, it may be wise to ensure that your asset allocation is in line with your long-term goals. Maintaining a balanced, well-diversified portfolio is a sensible way to prepare for the uncertainties and volatility that accompany investing in the stock and bond markets. |
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Yep, I ensure my asset allocation is in line with my long-term goals on a weekly basis. Every Friday after the market close, I check my portfolio. If any holding is beyond its rebalancing bands, I take appropriate action.
_________________
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands. |
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Robert T
Joined: 27 Feb 2007
Posts: 1406
Location: 1, 0.2, 0.4, 0.5
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| Posted: Thu Oct 08, 2009 8:15 pm Post subject: |
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FWIW – just did a quick calculation on the annual rebalancing impact on the following portfolio
23% Russell MidCap Value
10% iShares S&P600 Value
.4% Russell Microcap
23% MSCI EAFE Value
10% MSCI EM
.5% MSCI EAFE Small
25% BG US 3-7 yr Trsy
Cumulative return from start of 2008 to YTD 2009
Not rebalanced from start of 2008 = -13.4%
Rebalance at year end 2008 = -9.1%
Difference = + 4.3%
Robert
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Gekko
Joined: 11 May 2007
Posts: 3648
Location: USA
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| Posted: Thu Oct 08, 2009 8:26 pm Post subject: |
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i'm not worried.
it takes a 100% gain to offset a 50% loss. |
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neverknow
Joined: 05 Jun 2009
Posts: 1841
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| Posted: Thu Oct 08, 2009 9:11 pm Post subject: Re: Vanguard: Strong 2009 performance warrants yellow flag |
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| bob90245 wrote: | | Yep, I ensure my asset allocation is in line with my long-term goals on a weekly basis. Every Friday after the market close, I check my portfolio. If any holding is beyond its rebalancing bands, I take appropriate action. |
I'm with you on this one, Bob. I keep selling off risky things, into cash - and cash is a lousy investment at the moment. But I'm holding it, as nothing looks worthy of investing in that doesn't have a 20 year time horizon on it - at the moment. And that time horizon is longer then my life expectancy.
neverknow
Last edited by neverknow on Fri Oct 09, 2009 5:21 am; edited 1 time in total |
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fishndoc
Joined: 11 Apr 2007
Posts: 1260
Location: Kennesaw, GA
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| Posted: Thu Oct 08, 2009 9:41 pm Post subject: |
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| Quote: | | I keep selling off risky things, into cash - and cash is a lousy investment at the moment |
Is it (cash) really such a lousy investment right now?
I'm better off earning 2% in my CU mm with maybe 0-1% deflation, than in the past when I was earning 4% with 3% inflation, and that is even before taxes are considered!
Just something to keep in mind when one gets the desperate urge to chase yields.
Wayne
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" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle |
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Adrian Nenu
Joined: 12 Apr 2007
Posts: 4494
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| Posted: Thu Oct 08, 2009 9:46 pm Post subject: |
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Short term, anything can happen after a big runup. Those who are equity heavy should make sure that they can handle the bumps. Otherwise, reduce equity exposure. The economy is not out of the woods yet.
Adrian
anenu@tampabay.rr.com |
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Karl
Joined: 13 May 2007
Posts: 918
Location: Milwaukee, WI
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| Posted: Fri Oct 09, 2009 2:02 am Post subject: |
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| The last year has confirmed for me that the masses are crazy. They go from hating anything with risk to falling madly in love with risk, sending stocks and corporate bonds (especially junk) soaring. Their international small cap index went up 50% within the first 6 months of its life, as just one of many examples. |
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neverknow
Joined: 05 Jun 2009
Posts: 1841
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| Posted: Fri Oct 09, 2009 6:36 am Post subject: |
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| fishndoc wrote: |
Just something to keep in mind when one gets the desperate urge to chase yields.
Wayne |
I have no such desperate urge. The ringing warning of recency says folks got clobbered chasing yield. But it sure is a good warning to get out there, right along with the run up in bonds and equities.
My distaste for cash for the moment, arises from - I don't mind so much, central bankers lending banks capital for essentially ziltch, but to force granny's savings to lend to the banks for basically nothing - I see as unjust. I am very tempted to bring my cash home and stick it in the mattress. There is no incentive to store it in a bank. They are not paying for the privilege of using my money, in my opinion - so why should I give them my capital, to use, for free?
I have never felt this way before - but truly my paper money is worthless, other then as used to pay my bills. It has so little value, that the banking system is not willing to pay me anything for the use of my capital. It might as well be wampum beads.
Prosperity will only return when there is a stable store of value. For right now, I am finding that stable store of value in laundry detergent, socks and under ware - and per shelf life; coffee and sugar.
That is my objection to cash. However; I'm a wash in cash.
neverknow |
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SpringMan
Joined: 21 Mar 2007
Posts: 2481
Location: Michigan
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| Posted: Fri Oct 09, 2009 8:04 am Post subject: |
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After staying the course during the recent bear market, I wonder how well I could handle another big leg down. My risk tolerance may be lower now, having been worn down by the pain felt in March 2009. There is a point were one gets sick and tired of a bad stock market and can't take it any more. Maybe its time for me to get more conservative. Just because one successfully handled the first leg down of a "W" recovery does not mean they can handle the second down leg. Vanguard's warnings are appropriate IMO.
_________________
Best Wishes,
SpringMan |
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Robert T
Joined: 27 Feb 2007
Posts: 1406
Location: 1, 0.2, 0.4, 0.5
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| Posted: Fri Oct 09, 2009 8:20 am Post subject: |
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Interestingly - during the recent upswing from the beginning of March, the 75:25 stock:bond portfolio I listed earlier had a return of 50.3%, 100% TSM has a return of 49.0% and the MSCI All Cap World Index has a return of 57.8% - so the 75:25 has not lagged the 100% stock allocations by much since March 2009, but did provided more protection during the downturn. Obviously no guarantees going forward.
Staying the course with my allocation, rebalancing as needed, directing new savings to underweighted asset classes.
Robert
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Ziggy75
Joined: 24 Sep 2008
Posts: 263
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| Posted: Fri Oct 09, 2009 8:33 am Post subject: |
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| How about a "M" or a "U" or a "V" recovery? I guess an "L" is not a recovery, but better than an "I" |
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Ron
Joined: 23 Feb 2007
Posts: 4039
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| Posted: Fri Oct 09, 2009 9:21 am Post subject: |
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| Ziggy75 wrote: | | How about a "M" or a "U" or a "V" recovery? I guess an "L" is not a recovery, but better than an "I" |
How about a square root symbol? 
https://news.fidelity.com/news....=investing
- Ron |
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stratton
Joined: 04 Mar 2007
Posts: 8199
Location: Puget Sound
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czeckers
Joined: 17 May 2007
Posts: 264
Location: Upstate NY
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| Posted: Fri Oct 09, 2009 5:36 pm Post subject: |
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I don't really know what to make of this reason run-up. Are we merely returning closer to where we were before the crash, or is this investor exuberance and we are due for a correction. For me its academic as I invest every month, rebalance with new money no matter what and move on.
One interesting observation for me at the beginning of this month is that my portfolio is now just a hair above my value path. If this month is like the last, I will begin accumulating a cash balance. Perhaps the markets are becoming a little overexuberant.
-K
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16% US LCB, 16% US SCV, 16% US REIT, 16% Developed Int'l, 16% EM, 10% Inter-term US Treasury, 10% TIPS
"A journey of a thousand miles must begin with a single step." |
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smallcapvalue
Joined: 04 Jun 2009
Posts: 153
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| Posted: Fri Oct 09, 2009 6:23 pm Post subject: |
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| Meh...they also went FAR DOWN in a HURRY! |
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gkaplan
Joined: 03 Mar 2007
Posts: 1841
Location: Ventura, California
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LH
Joined: 14 Mar 2007
Posts: 2521
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| Posted: Sat Oct 10, 2009 6:28 am Post subject: |
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| SpringMan wrote: | | After staying the course during the recent bear market, I wonder how well I could handle another big leg down. My risk tolerance may be lower now, having been worn down by the pain felt in March 2009. There is a point were one gets sick and tired of a bad stock market and can't take it any more. Maybe its time for me to get more conservative. Just because one successfully handled the first leg down of a "W" recovery does not mean they can handle the second down leg. Vanguard's warnings are appropriate IMO. |
If you get more conservative now, just stay that way, and do not get more aggressive when things seem good again, for that = buy high and sell low. I would view it as a one way street, and think of yourself in the future, when things are good again, and imagine yourself looking at the bond holdings, and thinking, gee, maybe I should buy more stock now, as it feels better.....
One should divorce oneself from the current conditions mentally, and if times are good, imagine they are bad, and vice versa, and come up with an all weather portfolio...... So, if the stock market booms for the next three years in a row, huge gains, will you be comfortable with your allocation? Who would have thought the market would drop like it has, who would think that a 3 year huge boom is possible in the next three years? Do not base your risk tolerance just on your feelings now, factor in your feelings when things are doing well in the future. We as humans are programmed to buy high and sell low - and its a result of our brains recency bias. When things are "good" (stocks are expensive) we buy stock, when things seem "bad" (stocks on sale) we sell stocks. Thats no way to be an investor. |
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neverknow
Joined: 05 Jun 2009
Posts: 1841
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| Posted: Sat Oct 10, 2009 7:26 am Post subject: |
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| LH wrote: | | We as humans are programmed to buy high and sell low - and its a result of our brains recency bias. When things are "good" (stocks are expensive) we buy stock, when things seem "bad" (stocks on sale) we sell stocks. Thats no way to be an investor. |
This is such a widespread accepted "truth" I can't help but offer a contrast.
I agree, that if we are not paying attention to any data, and just go with our "feelings" this buy high - sell low is very likely to happen. The most telling "feeling" that comes over me is "oh no! I am missing it" --- this is a huge warning flag. There is no harm in missing it. The harm is in loosing money, not in money that was possible to be made, that wasn't.
But as near as I can tell, if I am at all connected to any facts (rather then just emotions - lets call it the right brain, left brain thing) my own best judgment is quite able to sell high and buy low. This is what my personal history over 30 years tells me about myself. So I dispute this ever prevalent "truth".
In general we buy and hold and re balance to our target allocation, DCA in - SWR out -- in order to override our emotional self. For sure, this kind of discipline keeps us from harming ourselves by over estimating our own best judgment. I contend it also runs the risk of over relying on past performance data (which we all know is no predictor of the future) at the expense of the possibility that our own best judgment, is not emotional, but rather a reasonable and rational response to facts.
In investing, we are instructed to ignore the noise. But in real life we make these "own best judgment" decisions all the time. Do I take that new job opportunity? or not? Or perhaps this one has enough recency to it, that everyone can relate:
I am 30 years old. I have a good job and a stable marriage, and my first child is turning 1 years old. This apartment is too small. I have saved up my down payment for my first home, and it is 2005, and I live in California, or Florida. It is the normal, natural time of my life to take the plunge, and buy my first home. I have heard there is a bubble in housing prices, and I have heard that housing prices always go up. I am going to ignore both the noise, and my own best judgment, and go ahead and buy in now. Undoubtedly - those relatively intelligent people who did so, are wishing they had heeded their own best judgment and hadn't ignored that "price matters".
In regards to current equity or bond prices, my own best judgment tells me it matters a great deal how much, if any "human capital" is on your side, versus how much "financial capital" you have at risk. Such as are you 25, have 10K invested, and are saving 10K a year - or are you 50, have 500K invested and are saving 50K a year - or are you 65 and have 750K invested and are saving nothing, you are in SWR.
I was asked this question about 18 months ago, but actually didn't comprehend it. I was stuck in the mode of "you target making as much money as you can", because any uncertainty in life could call out that you need it - that 120 minus your age thing, as if we all are going to live to 100 and spend our last 10 years in nursing home care. This was the question;
How would your life be different if you made a whole bunch or money? and how would your life be different if you lost a whole lot of money?
Recency alone will tell us, at the individual level - what loosing a whole bunch of money means. Clearly, we all found out how much "human capital" we have to deploy (under severe layoff conditions) and how much "financial capital" we have at risk.
Adrian's rule - Tolerable loss 50% in equities.
No sir, that is not tolerable for me. I have no human capital on my side, and an awful lot of financial capital at risk. Max that is tolerable to be is a total portfolio loss of 10%. The side of the question "what if I loose a whole bunch of money" is more real time, high priority in my mind. It's matters in my case (and might not matter at all, in your case).
Just as LH was speaking to risk tolerance, I am also speaking to risk tolerance. Boy is risk tolerance a really vague set of words. And probably over all, the vaguest set of words that has ever guided my life. I'm an idiot. I sleep just fine. My ability to sleep, far exceeds any common sense. And it is that common sense, our own best judgment, I think we must not disengage from. It matters, but for some reason we have entered a period of time, where mathematical formulas, or the computer said so - is taken to be a higher truth, then human judgment. I assert, this is false (as far as technology stands today).
neverkknow |
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zotty
Joined: 15 Sep 2009
Posts: 188
Location: DFW, Texas
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| Posted: Sat Oct 10, 2009 11:39 pm Post subject: |
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| Ziggy75 wrote: | | How about a "M" or a "U" or a "V" recovery? I guess an "L" is not a recovery, but better than an "I" |
Good one. got a chuckle! Hopefully it's not a "toilet shaped recovery", but maybe that's not as bad as an "I" shaped, after all. |
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