Search found 88 matches

by Chris M
Thu Aug 08, 2013 2:56 pm
Forum: Investing - Theory, News & General
Topic: Bond Funds - Higher Rates - Point of Indifference
Replies: 35
Views: 7492

Re: Bond Funds - Higher Rates - Point of Indifference

Thanks much for the clear explanations Kevin and thx1138.
by Chris M
Thu Aug 08, 2013 9:55 am
Forum: Investing - Theory, News & General
Topic: Bond Funds - Higher Rates - Point of Indifference
Replies: 35
Views: 7492

Re: Bond Funds - Higher Rates - Point of Indifference

I agree these graphs would be good addition to the wiki. But I'm trying to reconcile the graphs with an example in a paper by Vanguard that was highlighted by another recent thread. The paper is here https://advisors.vanguard.com/iwe/pdf/ICRROL.pdf All of the graphs in this thread, for all the various examples, show that the point of indifference equals, or comes close to equalling, the duration. But in Figure 1 of the Vanguard paper the authors give an example of a 3% rise in yield, from 2.1% to 5.1%, that occurs in the course of a single year. Vanguard takes the average of 2.1% and 5.1% as the yield in the first year, then 5.1% thereafter. The duration is 5.5 years. Although Figure 1 only provides Vanguard's calculations out to 5 years, w...
by Chris M
Fri Aug 02, 2013 4:04 pm
Forum: Investing - Theory, News & General
Topic: Time horizon for a new retiree
Replies: 19
Views: 2739

Re: Time horizon for a new retiree

I'd be careful about using life expectancy as your time horizon. There is a significant chance you could live longer. For example, using the Social Security Administration's life table http://www.ssa.gov/OACT/STATS/table4c6.html there's a nearly 20 percent chance a 60 year old male could live to age 90. (You can calculate this value from the table by taking the number of male lives at age 60--85,673--and dividing it into the number of male lives at age 90--16,969. The result gives you the fraction of males age 60 likely to survive till age 90 or more.) You don't want to wind up broke but still alive at age 86.
by Chris M
Thu Aug 01, 2013 3:30 pm
Forum: Personal Investments
Topic: Taxable vs. Non-taxable Accounts
Replies: 7
Views: 2139

Re: Taxable vs. Non-taxable Accounts

Many thanks for the very helpful information; all of my questions have been answered. I will be buying VNQ within my Roth IRA. Are there any other asset classes that y'all recommend be purchased only within a tax-protected account? I know that there are certainly considerations about withdrawal timeline that must be taken into account when discussing Roth IRA investments, but assuming that I am investing solely for retirement, are there other asset classes that make more sense in a tax-protected account than a non-tax-protected account? Pretty much any kind of bond or bond fund, with the exception of municipal bonds, should be held in a tax-protected account. Like REITs, most of the returns you will get from bonds will come in the form of ...
by Chris M
Thu Aug 01, 2013 12:29 pm
Forum: Investing - Theory, News & General
Topic: Fantasy Versus Factors
Replies: 24
Views: 2732

Re: Fantasy Versus Factors

nedsaid wrote:I disagree that value and growth "zig" mostly together and that large and small mostly "zag" together.

The 1990's, particularly the later half saw the large growth stocks outperform. Value pretty well got left in the dust. Small stocks also did not do as well.

The 2000's were the reverse of that. Value did much better than growth and small stocks outperformed the large stocks.
I think that over the short term value and growth move pretty much in lock step, as the high correlations indicate. But even if they fall slightly out of sync (which they will as long as the correlation isn't 1.0) then these slight differences can add up over the long run.
by Chris M
Wed Jul 31, 2013 10:04 am
Forum: Investing - Theory, News & General
Topic: Fantasy Versus Factors
Replies: 24
Views: 2732

Re: Fantasy Versus Factors

nedsaid wrote:The author of the piece made a good argument for why certain factors work. I have argued the same things that value investing is boring and that investors for the most part won't stick with it. Investors lack patience.
Yes, and this goes double for most of the professional traders who really set market prices. Bonus time on Wall Street comes once a year, and that's about as long a perspective as you'll find amongst the pros. Three years or longer? Who knows where the typical Wall Street trader will be then? Retired to the Hamptons? Jail?
by Chris M
Mon Jul 29, 2013 4:15 pm
Forum: Investing - Theory, News & General
Topic: Stock market recovery time
Replies: 25
Views: 7668

Re: Stock market recovery time

So the question is, why are you asking? I don't know why you're bringing it up, but a typical context is that someone will claim that some strategy is reliable because it would have survived the most extreme event that has yet occurred. But that shouldn't give any reassurance at all. Extreme events are interesting but meaningless trivia facts with no predictive value whatsoever with respect to the possibility of greater extremes occurring. When folks invest in the stock market with a 30 or 40 year time horizon, they are placing their faith in the continued dynamism and resilience of capitalistic enterprises and economic systems around the world. Looking at past periods when this resilience was severely tested — say, the United States after...
by Chris M
Sat Jul 27, 2013 2:20 pm
Forum: Non-US Investing
Topic: Why bonds? How to allocate across accounts? [Canada]
Replies: 38
Views: 46935

Re: Why bonds? How to allocate across accounts?

Chris M, I think there is an emotional and an objective element to market risk, and maybe a good way to distinguish the two is via the concept of time horizon. If you are investing with a short-term goal in mind--say, paying for a college education in three years--then the objective aspect of market risk becomes very important. Within such a short time horizon, the market could quite possibly rise 50%--or decline 50%. If the latter happens, then a 100% equity portfolio will be cut in half--and you may have to send your kid to Joe's Automotive School instead of Harvard. In other words, in the short-run, market risk can have very real consequences. The objective aspect of risk comes to the fore (though the emotional aspect doesn't go away). ...
by Chris M
Fri Jul 26, 2013 10:03 pm
Forum: Non-US Investing
Topic: Why bonds? How to allocate across accounts? [Canada]
Replies: 38
Views: 46935

Re: Why bonds? How to allocate across accounts?

The thing that stands out to me is that, at extreme equity allocations, you're increasing risk (the standard deviation) disproportionately as compared to the increase in expected returns. longinvest, I think FinancialRamblings point is as close as you can come to the "mathematical/rational (not emotional)" explanation you requested. But it doesn't truly separate the mathematical from the emotional, because that cannot be done when the subject is risk. I think there is an emotional and an objective element to market risk, and maybe a good way to distinguish the two is via the concept of time horizon. If you are investing with a short-term goal in mind--say, paying for a college education in three years--then the objective aspect o...
by Chris M
Wed Jul 24, 2013 3:40 pm
Forum: Investing - Theory, News & General
Topic: What did Bogleheads do when the stock market crashed?
Replies: 129
Views: 88454

Re: What did Bogleheads do when the stock market crashed?

I didn't do anything up until Dec. 2008, when I did tax loss harvesting. And then in Jan. 2009 I rebalanced out of bonds and into stocks (including reinvestment of the cash I raised from tax loss harvesting in December).

It was a scary experience though, especially since I had semi-retired in 2006. After it was over and the recovery rally was well underway I decided to change my allocation from 70/30 to 50/50.
by Chris M
Mon Jul 22, 2013 10:23 am
Forum: Investing - Theory, News & General
Topic: is "age in bonds" really good Bogleheads advice?
Replies: 94
Views: 14077

Re: is "age in bonds" really good Bogleheads advice?

Age in bonds is just a starting point. I would argue that it IS optimal for investors who don't particularly care to learn anything about investing (which is sadly, the majority) because 1.) it's easy to remember, 2.) it's easy to implement, 3.) it has moral weight behind it since it's been so often repeated (thus making it easy to buy into), and 4.) it's far better than what most of those people would do otherwise. Personally, I think any advice that doesn't make psychology the primary consideration is a sub-optimal cop-out. Optimal in this case refers to the overall financial health of the entire population, not any given individual within it. We Bogleheads are a special case. We are educated, motivated, and interested in investing. Most...
by Chris M
Mon Jul 22, 2013 9:47 am
Forum: Investing - Theory, News & General
Topic: is "age in bonds" really good Bogleheads advice?
Replies: 94
Views: 14077

Re: is "age in bonds" really good Bogleheads advice?

But I think the data from target funds supports my argument that age-in-bonds is not ideal "naked" guidance for the general population. VG target funds glide-path for example ([1]) have 50% equities at retirement, presuming the nominal standard age 65: that's 43% more equities than age-in-bonds, a pretty major difference. And allocation never drops below 30% equities, another major difference. Lastly the equity allocation starts and stays at 90% from age 20 to 40, again a major difference vs. going from 80% to 60% during this time. "age in bonds" would be a strange way to describe "10% bonds until age 40, 70% bonds from age 72 on, and in between ages 40 and 72 gradually shift to that second plateau". In fact a...
by Chris M
Sun Jul 21, 2013 9:23 pm
Forum: Investing - Theory, News & General
Topic: is "age in bonds" really good Bogleheads advice?
Replies: 94
Views: 14077

Re: is "age in bonds" really good Bogleheads advice?

The Wiki article states: "All age-based guidelines are predicated on the assumption that an individual's circumstances mirror the general population's." What I would infer from this statement is that age in bonds is an appropriate guideline for the general population, but an individual's circumstances might require a different approach. But I wonder if age in bonds really is good guidance even for the general population? Maybe in some past time, when the general population saved more and consumed less. But these days many if not most Americans are not saving enough for their retirement. If most people still working are behind in saving, wouldn't better advice for them be "put as much in equities as your risk tolerance will a...
by Chris M
Sun Jul 21, 2013 1:04 pm
Forum: Investing - Theory, News & General
Topic: is "age in bonds" really good Bogleheads advice?
Replies: 94
Views: 14077

Re: is "age in bonds" really good Bogleheads advice?

The Wiki article states: "All age-based guidelines are predicated on the assumption that an individual's circumstances mirror the general population's." What I would infer from this statement is that age in bonds is an appropriate guideline for the general population, but an individual's circumstances might require a different approach. But I wonder if age in bonds really is good guidance even for the general population? Maybe in some past time, when the general population saved more and consumed less. But these days many if not most Americans are not saving enough for their retirement. If most people still working are behind in saving, wouldn't better advice for them be "put as much in equities as your risk tolerance will al...
by Chris M
Sat Jul 20, 2013 2:03 pm
Forum: Investing - Theory, News & General
Topic: Critique this Stock & Option Strategy?
Replies: 33
Views: 3238

Re: Critique this Stock & Option Strategy?

RooseveltG wrote:I use technical analysis so that I can determine a better entry time. One can't time the market per se, but one can intelligently determine when to enter & exit. Even the best like Tom Sosnoff, creator of Think or Swim & Dave Johnson, technical analyst extraordinaire, can be fooled. So if I make the right call 60+% I am doing well."
Technical analysis--nuff said! I suggest you buy your friend a copy of A Random Walk Down Wall Street--and bookmark the chapter entitled "Technical Analysis and the Random-Walk Theory."
by Chris M
Sat Jul 20, 2013 1:34 pm
Forum: Personal Investments
Topic: Is the Expense of Total International Stock Index Worth It?
Replies: 13
Views: 2260

Re: Is the Expense of Total International Stock Index Worth

For the same reason that one would invest in Total Stock Market as opposed to a single stock with a 0% expense ratio: diversification. The diversification effect is, of course, much smaller, but the rationale is the same. E.g. it's possible that either Apple or Samsung wins the smartphone battle, with a huge impact on profits. Why not diversify away that impact? Agreed. Plus not only are you getting diversification across companies, you are also getting currency diversification and geopolitical diversification. Consider this: from Jan. 2000 to Dec. 2010 the S&P 500 returned 0.4%, but the average emerging market mutual fund returned 9.6%. Over the short-run, the U.S. and international markets tend to move pretty much in lock-step. But n...
by Chris M
Sat Jul 20, 2013 12:36 pm
Forum: Investing - Theory, News & General
Topic: Soliciting Boglehead opinions on this paper
Replies: 12
Views: 1624

Re: Soliciting Boglehead opinions on this paper

Sorry, it's not the same at all as rebalancing. The normal withdrawal approaches, the ones that don't do as well as bonds first, all assume rebalancing. Buying stocks when the market is down might seem to be an approach which gives the best outcomes, but the study results say the opposite. Not buying stocks when the market is down - not rebalancing - is better. To see why this might be so, consider a case in which there's two 50% drops in a row in stocks. If you start out at 60/40, at the end of the year, you've sold most of your bonds to buy stocks. The next year the market drops again. Your portfolio is 49% of where you started. That second market crash effectively destroyed part of the money which you originally had in bonds. Even if st...
by Chris M
Fri Jul 19, 2013 4:52 pm
Forum: Personal Investments
Topic: u.s. & foreign reits for asset allocations
Replies: 6
Views: 1188

Re: u.s. & foreign reits for asset allocations

You can get correlations between VNQ and other ETFs here: http://www.assetcorrelation.com/majors Note that the correlations between VNQ and the Vanguard Large Cap, Mid Cap and Small Cap ETFs are pretty high. In general, the correlations between U.S. REITs and the broader stock market have moved up significantly since the 2000-02 bear market. I used to own a REIT fund as a diversifier but I sold it for two reasons--first the increase in correlations, and second because REITs' reliance on heavy leverage makes them vulnerable to credit crunches. REIT funds did much worse than the S&P 500 during the 2007-09 financial crisis. I don't like the idea of a diversifier that maybe might help you during a run-of-the mill downturn but could make thi...
by Chris M
Fri Jul 19, 2013 4:31 pm
Forum: Investing - Theory, News & General
Topic: Selling Mutual Funds & ETFs
Replies: 6
Views: 937

Re: Selling Mutual Funds & ETFs

In addition to commissions, ETFs, like individual stocks, are subject to the bid/ask spread--the difference between the price the seller will receive and the (higher) price the buyer must pay. The difference is pocketed by the market maker. Bid/ask spreads vary depending on the ETF; you can check current bid/ask spreads on Morningstar. For a highly liquid ETF like SPY the bid/ask spread will be negligible (I just checked and it's 0.01% as I write this). For thinly traded ETFs it can get as high as 5%. Also, ETFs typically trade at either a premium or discount to their NAV. Again, the magnitude of the premium or discount tends to depend on how liquid the market for the ETF is. Open ended mutual funds are not subject to bid/ask spreads, and t...
by Chris M
Fri Jul 19, 2013 11:28 am
Forum: Investing - Theory, News & General
Topic: Soliciting Boglehead opinions on this paper
Replies: 12
Views: 1624

Re: Soliciting Boglehead opinions on this paper

ourbrooks wrote:What's going on is this: One of the big reasons why portfolios fail is because of poor market returns early in retirement. That means that capital gets spent which would otherwise produce future earnings. A long term bear market in the first five years of retirement does far more damage than the same bear market in the last five years. Any mechanism that reduces the need to sell stocks early in retirement is bound to increase portfolio survival rate.
True. But can't this same effect be achieved through rebalancing? If you hit a bear market in the first years of retirement, then you would sell bonds to buy stocks.
by Chris M
Wed Jul 17, 2013 10:05 am
Forum: Investing - Theory, News & General
Topic: Dynamic AA - does it make sense?
Replies: 77
Views: 7160

Re: Dynamic AA - does it make sense?

Interesting Appel. Couple of avenues for your to explore 1. How sensitive is your model to the 35% drop number? What if you made it 30%? or 20% or 40%? 2. Run the analysis for different time periods. 70-80, 80-90, 90-00 etc. 3. Run the analysis upto to 2007 - see if there is recency bias Appel, it makes intuitive sense to me, looking forward to seeing more results. I agree with above suggestions, and have another. The 35% cutoff would have left you all bonds for over 25 years (1975 to 2000), and at least up till 1982 you'd have been earning negative real returns. Inflation is really a bigger risk than volatility. What if instead of 100% bonds you went to some other allocations, say 50/50? What I'd really like to see is this test extended b...
by Chris M
Tue Jul 16, 2013 4:15 pm
Forum: Personal Investments
Topic: My dentist asked me for a hot tip
Replies: 37
Views: 4347

Re: My dentist asked me for a hot tip

FDIC insured CD. He takes a drill to your teeth--you don't want to suggest anything that could cause him to lose money.
by Chris M
Tue Jul 16, 2013 4:10 pm
Forum: Personal Investments
Topic: Need some help with my AA, particularly equity/FI
Replies: 4
Views: 554

Re: Need some help with my AA, particularly equity/FI

Unless you are planning to spend a big chunk of money (a house? college for your kids?) in the next five years or so, my advice would be to allocate as much to equities as you can stomach and still stick with buy and hold (and sleep at night). Retirement is an expensive proposition, and at your age you want all the inflation-beating returns of equities you can get to build up your nest egg. Of course figuring out how much of an allocation to equities you can stand is easier said than done, but if you were invested in the market in 2008 you can use your experience from that year as a guide. What was your allocation going into the autumn of 2008? Did you stick with that allocation as the market went crazy, or did you sell? If you sold then th...
by Chris M
Tue Jul 16, 2013 3:39 pm
Forum: Investing - Theory, News & General
Topic: Dynamic AA - does it make sense?
Replies: 77
Views: 7160

Re: Dynamic AA - does it make sense?

Rodc wrote:Chris, see the edit to my post above. I was not quick enough and posted while you were posting.
Thanks for the link Rodc. He does make the same point in the article too, that rebalancing is more likely to yield a bonus in a global equity portfolio (where long-run returns among asset classes are more or less similar) than across stocks and bonds. He says that if the difference in long-term returns between the assets being rebalanced exceeds 5%, then non-rebalanced portfolios will win out.
by Chris M
Tue Jul 16, 2013 3:24 pm
Forum: Investing - Theory, News & General
Topic: Dynamic AA - does it make sense?
Replies: 77
Views: 7160

Re: Dynamic AA - does it make sense?

If there is a rebalancing bonus, then it seems that the bonus would be even bigger if you "over-rebalance", no? There is no consistent rebalancing bonus. Many threads on the subject so won't explain here, other than to point out that over time most rebalancing is from high growth to low growth so that high growth does not become too high an allocation; ie from stocks to bonds which lowers returns (and risk which is the true point of rebalancing). Could you please provide some links to these threads? I didn't find anything on this particular topic. Thanks! William Bernstein has an article on his website http://www.efficientfrontier.com/ef/996/rebal.htm in which he derives an equation for the rebalancing bonus, and tests it over th...
by Chris M
Tue Jul 16, 2013 3:15 pm
Forum: Investing - Theory, News & General
Topic: Dynamic AA - does it make sense?
Replies: 77
Views: 7160

Re: Dynamic AA - does it make sense?

If there is a rebalancing bonus, then it seems that the bonus would be even bigger if you "over-rebalance", no? There is no consistent rebalancing bonus. Many threads on the subject so won't explain here, other than to point out that over time most rebalancing is from high growth to low growth so that high growth does not become too high an allocation; ie from stocks to bonds which lowers returns (and risk which is the true point of rebalancing). Could you please provide some links to these threads? I didn't find anything on this particular topic. Thanks! William Bernstein has an article on his website http://www.efficientfrontier.com/ef/996/rebal.htm in which he derives an equation for the rebalancing bonus, and tests it over th...
by Chris M
Tue Jul 16, 2013 10:48 am
Forum: Investing - Theory, News & General
Topic: Dynamic AA - does it make sense?
Replies: 77
Views: 7160

Re: Dynamic AA - does it make sense?

If you had 70/30 before 2008, and went to 100/0 (the extreme) after/during the market collapsed, you would be buying low. Years later, you will benefit. To begin with, I don't think this is market timing, since you are over weighting assets which have done bad in the past. Of course it is blatant market timing. I don't think it's market timing as long as you recognize that stocks could continue to go down. In that case you are simply buying low in the expectation of an eventual reward, without trying to time the bottom. I think you could view it as being similar to rebalancing--in effect you would be "over-rebalancing." I rebalanced out of bonds and into stocks in January 2009 not because I wanted to (it made me nervous) or becau...
by Chris M
Tue Jul 16, 2013 9:35 am
Forum: Investing - Theory, News & General
Topic: REIT Blues
Replies: 3
Views: 1425

Re: REIT Blues

I'm not clear on what function you are looking to REITs to perform in your portfolio? A lot of people hold REITs as a diversifier, and it is true that they did well during the 2000-02 bear market. But since then U.S. REIT correlations with the overall market have increased substantially. The correlations between US and international REITs have also gone way up; William Bernstein has a graph in Skating Where the Puck Was that shows a pretty steady rise from zero in the early nineties to about 0.8 today for the three-year rolling correlation. Correlation aside, the high leverage used by REITs makes them vulnerable to financial crises--hence they did significantly worse than the S&P 500 during the 2007-09 bear market. I don't like the idea...
by Chris M
Sat Jul 06, 2013 2:18 pm
Forum: Investing - Theory, News & General
Topic: Confused on bond funds and all the bad news
Replies: 26
Views: 3856

Re: Confused on bond funds and all the bad news

The example with real numbers makes sense and I also understand how the #1 is riskier with more money being in stocks. In your example above you earned more with the Roth, but didn't it also cost you more to fund it? At 29.5, there is a whole lot greater chance that I'm going to live to be 59.5 than I will 89.5. I'm starting to think 30 years of tax deductions sounds a whole lot better than 30 years of tax free withdrawals. You guys sure are good at making me think too much! cdogg44, Yes, assuming you put an equal amount in the trad IRA and the Roth, you would have to pay taxes today on your Roth contribution--so it would cost more to fund it. But there are advantages to having, and funding, both the Roth and the trad IRA. Since you don't ...
by Chris M
Fri Jul 05, 2013 4:29 pm
Forum: Investing - Theory, News & General
Topic: Confused on bond funds and all the bad news
Replies: 26
Views: 3856

Re: Confused on bond funds and all the bad news

Kevin M wrote:Chris, you must have missed my comment above (before your post):
Kevin M wrote: Stocks in a Roth is a myth. If you "tax-adjust" your asset allocation, it doesn't matter which type of IRA you hold what in. This has been discussed extensively here.
Kevin
Yes, I must have been writing when you posted that.

Chris
by Chris M
Fri Jul 05, 2013 3:25 pm
Forum: Investing - Theory, News & General
Topic: Confused on bond funds and all the bad news
Replies: 26
Views: 3856

Re: Confused on bond funds and all the bad news

ogd wrote:Chris: the first allocation is riskier (more stocks) and it benefits from that. You need to take the tax adjustment into account when doing asset allocation.
Hmmm...good point. And thank you for clarifying that. cdogg44, please ignore my original reply and refer to ogd's above. And sorry for the misdirection.

Chris
by Chris M
Fri Jul 05, 2013 2:59 pm
Forum: Investing - Theory, News & General
Topic: Confused on bond funds and all the bad news
Replies: 26
Views: 3856

Re: Confused on bond funds and all the bad news

I agree with Call_Me_Op that you should avoid holding bonds in a taxable account, but especially for someone as young as you I would strongly favor putting them in a traditional IRA rather than a Roth. I would save the Roth for stocks, which have much higher expected returns than bonds. Over your working life you will get most of the returns from the stock portion of your portfolio, and therefore if you can keep these returns completely protected from the tax man the benefits of tax free withdrawals when you're retired will be huge. Put stocks in your Roth, let compounding work its magic, and you will wind up with a nest egg at retirement that will weighted heavily towards tax-free money. This is EXACTLY what I was looking for. I've had a ...
by Chris M
Fri Jul 05, 2013 11:32 am
Forum: Investing - Theory, News & General
Topic: Confused on bond funds and all the bad news
Replies: 26
Views: 3856

Re: Confused on bond funds and all the bad news

I agree with Call_Me_Op that you should avoid holding bonds in a taxable account, but especially for someone as young as you I would strongly favor putting them in a traditional IRA rather than a Roth. I would save the Roth for stocks, which have much higher expected returns than bonds. Over your working life you will get most of the returns from the stock portion of your portfolio, and therefore if you can keep these returns completely protected from the tax man the benefits of tax free withdrawals when you're retired will be huge. Put stocks in your Roth, let compounding work its magic, and you will wind up with a nest egg at retirement that will weighted heavily towards tax-free money. This is EXACTLY what I was looking for. I've had a ...
by Chris M
Fri Jul 05, 2013 11:25 am
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

Good points Valuethinker, nisprius and Clive. My comments were about recoveries from cyclical bear markets, but I don't disagree that we have experienced long secular bear markets where the market has essentially moved sideways--2000 to ??? (at least 2011) being the latest example... How, exactly, do you distinguish a "cyclical bear market" from a "secular bear market?" I don't think you can, it's just more overactive human pattern recognition, seeing animal shapes in clouds. What's the evidence for there being two separable kinds of bear market, other than intuition, folklore, and tautology (you recover quickly from cyclical bears because if you don't recover quickly, that proves it wasn't a cyclical bear)... I agree t...
by Chris M
Fri Jul 05, 2013 10:25 am
Forum: Investing - Theory, News & General
Topic: Confused on bond funds and all the bad news
Replies: 26
Views: 3856

Re: Confused on bond funds and all the bad news

cdogg44, You are right that in general, dividends constitute the vast majority of the returns you will see over the long run with a bond or bond fund. Capital appreciation has been very limited. For example, from 1925 to 2010 $1 invested in intermediate-term government bonds would have grown to $92.08 (assuming re-investment of the dividends--very important). But the growth due to price appreciation was only to $1.72. This is from data in Roger Gibson's latest (2013) edition of Asset Allocation . Given current low interest rates, at least in the medium term I wouldn't count on any capital appreciation at all--depreciation is more likely or at best prices may remain more or less stable. I agree with Call_Me_Op that you should avoid holding b...
by Chris M
Thu Jul 04, 2013 4:25 pm
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

The point is not that market crashes sometimes take a decade or more to recover (Japan from the 1990's being the rare exception). It's that market crashes are almost invariably soon followed by good years in which the effects of the crash are ameliorated (table below). Three of the countries below had just lost a world war on their own soil! The lesson for the OP is not to panic during a crash and sell equities — thus the advice to hang in there. I don't disagree about 'hanging in there' but I think it is unwise to assume that the markets will just rebound. Each market crash is different. What matters is that you have an appropriate risk profile *before* the crash hits, so you can afford to take the losses you will take. Then I don't think...
by Chris M
Thu Jul 04, 2013 4:24 pm
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

Good points Valuethinker, nisprius and Clive. My comments were about recoveries from cyclical bear markets, but I don't disagree that we have experienced long secular bear markets where the market has essentially moved sideways--2000 to ??? (at least 2011) being the latest example (this is different from Japan, though, as in the past U.S. secular bear markets we did hold at more or less break even). Still, the thing to do is hang in there, don't panic and sell. A 60/40 portfolio with a 4% withdrawal rate would have survived the thirties and first half of the forties.

Chris
by Chris M
Thu Jul 04, 2013 4:02 pm
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

ogd, I'm intrigued--when you say bogleheadism is rooted in the Depression, do you mean in the sense that the Depression served as a kind of lesson in the need to control for risk in investing? Or something more? Chris That -- plus thrift, patience, avoiding speculation and concentration, and a healthy dose of skepticism. Ah, yes--it taught the values behind being a boglehead. I got most of those values from my parents, who lived through the Depression. Seems like my generation (baby boomers) did a poor job of passing those values on. And so today there aren't as many investors following a boglehead approach as there ought to be. Easy peasy to trash the boomers. But of course they simply responded to a different set of circumstances. In the...
by Chris M
Thu Jul 04, 2013 12:54 pm
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

According to this article http://money.msn.com/investment-advice/bear-market-losses-have-been-erased-marketwatch, if you look at the entire market, include dividends, and take deflation into account then it took a little over 7 years for the market to recover from the 1929 Crash. Again I am quite confused by that because the market dropped something like -30% in 1938 when the Fed and the US government both cut back quite sharply. The longest recovery from the S&P 500 bear markets that occurred since 1970 (1973-74, 1980-82, 1987, 2000-02, and 2007-09) was a little over 4 years (based on S&P 500), for the 2000-02 bear market. My understanding is that a 60/40 portfolio with a 4% withdrawal rate and annual adjustments for inflation has...
by Chris M
Thu Jul 04, 2013 11:21 am
Forum: Investing - Theory, News & General
Topic: Dr. Bernstein's new factor tilts
Replies: 9
Views: 3888

Re: Dr. Bernstein's new factor tilts

patriciamgr2 wrote:I've seen discussions of how to incorporate momentum (go long stocks with a recent positive return; go short lower-returning stocks)--although I've personally never done that.
This sounds like it requires frequent trading. Is the momentum premium sufficient to offset the trading costs?

Chris
by Chris M
Thu Jul 04, 2013 11:14 am
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

...whether we can learn anything from that period of history to safeguard our financial futures. Though the 1920-1930 run-up and crash was really in a league of its own for the U.S., one big lesson from the history of market crashes is the consistency of recovery . If one looks at U.S. stock crashes over the last century (chart below), the market invariably overshoots on the downside (from fear and panic), but then over the next 500 days regains a lot of its losses (red lines). This pattern is true world wide, even during the post-war crashes in Japan, Germany and Italy. The lesson is to hang in there, ignore the panic and keep your eye on your long-term goals. http://i.imgur.com/KxlzklK.gif Source: Doug Short This looks wildly misleading ...
by Chris M
Thu Jul 04, 2013 10:47 am
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

ogd wrote:
Chris M wrote:ogd, I'm intrigued--when you say bogleheadism is rooted in the Depression, do you mean in the sense that the Depression served as a kind of lesson in the need to control for risk in investing? Or something more?

Chris
That -- plus thrift, patience, avoiding speculation and concentration, and a healthy dose of skepticism.
Ah, yes--it taught the values behind being a boglehead. I got most of those values from my parents, who lived through the Depression. Seems like my generation (baby boomers) did a poor job of passing those values on. And so today there aren't as many investors following a boglehead approach as there ought to be.
by Chris M
Wed Jul 03, 2013 10:13 pm
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

There were no bogleheads then, and furthermore "bogleheadism" was impossible at that time. Umm... no internet? [Captain Obvious] I gotta say though, the stock market was at least recognizable . Like, if you were dropped there you would kind of know what to do. The graphs would look familiar. You'd assemble a few Dow stocks together, pepper with some Treasuries, call it a portfolio. The other aspects of human experience, not so much. Politics was vicious, racist, anti-Catholic, populist, what have you. Over the ponds Europe and Asia were going insane. Hitler. Fear/fascination of communism. Back home, food being dumped while people were starving. Can't go out and have a beer. Most women didn't work and only been allowed to vote for...
by Chris M
Wed Jul 03, 2013 8:50 pm
Forum: Investing - Theory, News & General
Topic: 1929 Crash being a Boglehead?
Replies: 74
Views: 9617

Re: 1929 Crash being a Boglehead?

A lot of Bogleheads likely would've been in trouble as the posts above really haven't mentioned the dearth of actual cash in circulation. Yes, maybe today the FDIC would protect us from some of that problem, but it just gives a backstop to the hoarding of cash that existed at the time. Nisi has quoted from Benjamin Roth's "Great Depression a Diary" so often I bought a copy to read. In it he repeatedly mentions that professional people had no cash to invest. Paraphrasing, a doctor was rubbing a $1 bill on the edge of the desk saying that was the only cash he had received in a month. Were a freeze up like this to happen again, rebalancing with new monies, boldly rebalancing from treasuries or other guaranteed savings accounts into ...
by Chris M
Wed Jul 03, 2013 5:03 pm
Forum: Investing - Theory, News & General
Topic: Will the Small-Value premium persist over 40 years?
Replies: 73
Views: 9247

Re: Will the Small-Value premium persist over 40 years?

That said, in general the explanations of the premium we might expect to remain valid are those that are rooted in characteristics that should persist over time. IlliniDave notes that one of the explanations is that value stocks aren't the glamor stocks that get all the press and popularity. This particular explanation is ultimately based on certain human biases identifed by psychologists, such availability bias (the human tendency to overemphasize events--such as a big move in a stock's price--that receives heavy media attention) and recency bias. I would expect these biases, rooted as they are in human nature, to persist over time regardless of technology, market efficiency, etc. Now, whether this explanation of the premium is true is a ...
by Chris M
Tue Jul 02, 2013 4:49 pm
Forum: Personal Investments
Topic: Bond Funds
Replies: 67
Views: 8251

Re: Bond Funds

Now I learn that I should not hold bonds in a taxable account... Should I sell the funds in the taxable account and reopen and diversify in one or more the tax-sheltered accounts? Last question for now, I struggle with investing significant amounts in bond funds when all have negative YTD returns and the interest rate outlook is not good. 1.) Not true that bonds shouldn't be held in taxable. This is an over-simplification. If you have a choice of where to hold taxable bonds, it is probably better to hold in a tax-free or tax-deferred account, but there are other considerations. I would keep your bonds in tax-deferred accounts, but save your tax free accounts for high-returning assets--i.e., stocks (and preferably small value would go in th...
by Chris M
Tue Jul 02, 2013 4:31 pm
Forum: Investing - Theory, News & General
Topic: Is Social Security a bond for asset allocation?
Replies: 18
Views: 4452

Re: Is Social Security a bond for asset allocation?

technovelist wrote:SS has bond-like characteristics, but it has zero liquidity and can't be rebalanced. So I would say it should be handled separately, as an income source that reduces the amount of money you will have to draw out during retirement.
I agree with this approach. The best thing about SS is that it enables you to substantially reduce your withdrawal rate. Reducing your withdrawal rate in retirement is the best way to reduce risk. It's better than a bond, which may reduce volatility but at the expense of reducing returns and potentially leaving you with returns insufficient to keep pace with inflation.
by Chris M
Tue Jul 02, 2013 9:44 am
Forum: Investing - Theory, News & General
Topic: Danger in bond funds?
Replies: 33
Views: 3488

Re: Danger in bond funds?

golfallday,

Yes, you're understanding this correctly. Basically, the price of your 2% bond will drop until the yield on the bond (for a new purchaser) matches the 3% yield for the new bond (assuming the two bonds are equal in all other respects).

Cheers,
Chris
by Chris M
Tue Jul 02, 2013 9:35 am
Forum: Investing - Theory, News & General
Topic: "Stocks on sale", "reversion to the mean", etc.
Replies: 22
Views: 3069

Re: "Stocks on sale", "reversion to the mean", etc.

If I buy this $1 Stock for $0.50 tomorrow, after a drop, the likelihood to lose money has been lowered yet the likelihood to make money is higher.[/list] ‣ Why shouldn't I expect that buying at $0.50 today will sell for $1+ tomorrow ? ← that was my initial premise to begin with. ‣ If we don't believe this, why buy Stocks ? Because whatever made the stock drop by 50% this morning wasn't known yesterday. Maybe the market has discovered that your (its) initial premise was flawed, and has corrected it. Or maybe the 50% drop is pure irrationality on a highly volatile stock and the expectation hasn't changed. You can't know without seeing what it does over time. Your answers don't sound too convincing.... maybe this... or maybe that.... you can'...
by Chris M
Mon Jul 01, 2013 4:54 pm
Forum: Investing - Theory, News & General
Topic: Will the Small-Value premium persist over 40 years?
Replies: 73
Views: 9247

Re: Will the Small-Value premium persist over 40 years?

I'm young, and investing for a very long time. With the pace of innovation in this world, I have no idea what the world will look like in 40 years, yet I'm trying to make a decision today whether to invest in TSM or a small-value tilted approach. There are various explanations for the small-value premium. In an age of increasing globalization, technological development, and market efficiency, which of these reasons do we expect to remain valid? Well, technological development and market efficiency have been around a long time, and even the current trend towards increasing globalization goes back to the early 1990s and the fall of the USSR. So I don't see major developments that would call the continued existence of the premium into questio...