6 years in the trenches - what did it get me?

[Browser]

Just putting the recent new high in the market in perspective: Over the last six years, my total return from Vanguard's total market ETF was 30.8% and along the way I experienced a 55% drawdown in 2008 to get there. By comparison, had I been conservatively invested in 5-year Treasury bonds instead, my total return would be 40.6% with a maximum drawdown of about 6%. Not to say the gains since the 2008 low haven't been nice for the guy who happened to time it right but that wasn't me.

[rm]

The exact reverse could have been said for 1995-2000. Would that have meant you change to 100% stocks and 0% bonds in 2000?

[reggiesimpson]

A real world eyeopener.

[bb]

Once again proving hindsight is 20/20 !

[HomerJ]

I feel for you guys who are retired, but my wife and I experienced our prime savings years over the last 6 years; we're doing better than I ever thought we would at this point. We paid off our house 5 years ahead of schedule, and my wife got to quit her job that she hated.

Every cent we saved since 2007 has gained, some of it gained 100% or 150%...

I'm far richer today because of the stock market crash than I would have been if the market had just gone up steadily 5% a year.

[FireProof]

Personally, I woulda invested in Apple six years ago, 390.8% return.

[arthurdawg]

It points out the power of having a diversified portfolio... I don't really follow my returns, but the portfolio has done fine over the past several years (see my sig below!). Saving and not overspending is probably the most important facet of investing unless you make a pretty big salary.

[nisiprius]

The phrase "The equity risk premium" tells us that stocks are risky. It's a reward for taking risk. If you want the risk premium, you must take the risk.

They're risky in the short term, they're risky in the long term. Risk means you might not get the reward. If you always got the reward, there wouldn't be any risk. It wouldn't be an "equity risk premium," it would be an "equity patience premium."

Even if you believe in "stocks for the long run," and I think there's a lot of scope of debate on what that means, how long the long run is, and to what extent it's true, the long run isn't six years. It might be 20 years. In the introduction to one edition of Siegel's Stocks for the Long Run, Peter Bernstein wrote:

we must keep in mind that Professor Siegel did not lightly choose Stocks for the Long Run as the title of his book. The operative number is 20. Volatility of returns is high in periods of less than 20 years.

Or, it might be thirty. Siegel himself writes:

Never in the past 150 years has the buyer of a newly-issued 30-year government bond who held it to maturity achieved greater gains than an investor who held a diversified portfolio of common stocks over the same period.

(That was true when he wrote it, but is no longer true... which tells you something about the "half-life of facts" in the financial world.) Or, it might be much longer. Siegel also wrote about

the extraordinary stability of the real return on stocks over all major subperiods: 7.0 percent per year from 1802 through 1870, 6.6 percent from 1871 through 1925, and 6.8 percent a year since 1926. [i.e. until 2007]

The shortest of the three periods of time mentioned is 55 years! So if you believe in "Siegel's Constant," if you believe that you can count on a real return of about 7% real for stocks if you just are patient, even if you believe that (and I don't).... the period of time needed to be fairly sure of getting something close to it is 55 to 80 years!

[Default User BR]

Just putting the recent new high in the market in perspective: Over the last six years, my total return from Vanguard's total market ETF was 30.8% and along the way I experienced a 55% drawdown in 2008 to get there. By comparison, had I been conservatively invested in 5-year Treasury bonds instead, my total return would be 40.6% with a maximum drawdown of about 6%. Not to say the gains since the 2008 low haven't been nice for the guy who happened to time it right but that wasn't me.

But if you pick 5 years or 10 years it's not true. So what does it tell you? That you can't predict the markets. So diversify, follow your plan, and take what the market gives you.


Brian

[grayfox]

Just putting the recent new high in the market in perspective: Over the last six years, my total return from Vanguard's total market ETF was 30.8% and along the way I experienced a 55% drawdown in 2008 to get there. By comparison, had I been conservatively invested in 5-year Treasury bonds instead, my total return would be 40.6% with a maximum drawdown of about 6%. Not to say the gains since the 2008 low haven't been nice for the guy who happened to time it right but that wasn't me.

You have to consider your horizon and return vs risk.
Stocks standard deviation of return is on the order of 20%
5-year Bonds standard deviation of return us on the order of 2.5%
There is going to be a lot more variability in the result with stocks than 5-year Treasury.
6-years is not the long term with stocks. LT is more like 10 to 30 years

In Mar-2007
S&P500 had earnings yield E10/P = 3.8%, 95CI = -16% to 23.8%
5-year Treasury was yielding 4.5%, 95CI = 2% to 7%
5-year TIPS yield 2.1% real

S&P 500 offered -16% to 24%, bonds offered 2% to 7%
It turned out that bonds ended up winning

In Mar-2013
S&P500 has earnings yield E10/P = 4.3%, 95CI = -15.7% to 24.3% About the same as 2007
5-year Treasury is yielding 0.89%, 95CI = -1.61% to 3.39% Much lower than 2007
5-year TIPS yield -1.28% real Much lower than 2007

S&P 500 offers -16% to 24%. Bond offer -1.6% to 3.4%
Which will win over your horizon?
Choose wisely, grasshopper.