Government Shutdown/Default [effect on investments]

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epilnk
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Re: Government Shutdown/Default [effect on investments]

Post by epilnk » Sat Oct 12, 2013 10:55 pm

I'm having a heck of a time explaining all of this to my children, ages 12 and 10. My younger son's class is studying how the stock market operates so we've been listening to the financial news after school every day, and everything centers on the government shutdown. I normally try to present a politically neutral perspective and leave my biases out of it as much as possible. (My children overflow with strong opinions of their own, and I prefer not to inhibit that.) But I'm not succeeding here. No matter how I try to frame the issues, I am always answered with, "What? Why would they do that???" Usually that means I have stripped too much context out so I give them a little more explanation and hear, "What? Why would they do that???" Which makes me think I've injected too much of my opinion in so then I try to take the other side's perspective and get, "What? Why would they do that???" It's exhausting.

I am hoping someone on this politically neutral group can recommend a good online source or two - preferably with a minimum of handwringing or finger pointing - for background information that I can use to educate my kids on what is going on in DC, and how this does or may impact the larger national and world economy. Any suggestions?

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Re: Government Shutdown/Default [effect on investments]

Post by LazyNihilist » Sat Oct 12, 2013 11:37 pm

epilnk wrote:I'm having a heck of a time explaining all of this to my children, ages 12 and 10. My younger son's class is studying how the stock market operates so we've been listening to the financial news after school every day, and everything centers on the government shutdown. I normally try to present a politically neutral perspective and leave my biases out of it as much as possible. (My children overflow with strong opinions of their own, and I prefer not to inhibit that.) But I'm not succeeding here. No matter how I try to frame the issues, I am always answered with, "What? Why would they do that???" Usually that means I have stripped too much context out so I give them a little more explanation and hear, "What? Why would they do that???" Which makes me think I've injected too much of my opinion in so then I try to take the other side's perspective and get, "What? Why would they do that???" It's exhausting.

I am hoping someone on this politically neutral group can recommend a good online source or two - preferably with a minimum of handwringing or finger pointing - for background information that I can use to educate my kids on what is going on in DC, and how this does or may impact the larger national and world economy. Any suggestions?

Wikipedia has a decent account and is neutral. http://en.wikipedia.org/wiki/United_Sta ... wn_of_2013
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Re: Anyone else freaking about the state of the market?

Post by Fallible » Sun Oct 13, 2013 12:28 am

umfundi wrote:
Jfet wrote:I will point out one thing. The fact that this thread is already 48 posts long means that even if we are not freaking out about the market, we are at least paying close attention to it right now :D
No, we are just posting on Bogleheads.

Someone told me today the market had two +- 300 point days last week. Really? I did not know.

Keith
Right, and some posters are saying they're not freaking out and some are more concerned about bananas at their local market. :happy
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Re: Anyone else freaking about the state of the market?

Post by Sheepdog » Sun Oct 13, 2013 1:01 am

mojave wrote:This thread was started 5 days ago. Out of curiosity, I've checked my 401k daily to see how these events would affect it. To my utter surprise I made $1000.
You made me look.
I'm also up for those 5 days......and the month......and last quarter......and the year. Scary market indeed.
People should not say everything they think. They should think about everything they say.

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Cosmo
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Re: Anyone else freaking about the state of the market?

Post by Cosmo » Sun Oct 13, 2013 6:14 am

Grt2bOutdoors wrote:No. Has anyone thought how a default may actually be beneficial in the long-term? A default would cause a revaluation of riskiness in the marketplace, government securities would reprice though higher rates, high flying p/e equities would reprice downwards taking the wind out of their sales in turn that would raise the equity risk premiums leading to higher returns down the road. Right now, I believe they are going to do it, the game of chicken is just about over.
No, No and No. I think it is pretty clear. Nothing good will come out of a default.

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Re: Anyone else freaking about the state of the market?

Post by livesoft » Sun Oct 13, 2013 6:19 am

A summary about how to behave during all this in the NYTImes: http://www.nytimes.com/2013/10/13/your- ... storm.html
Nothing new in the article for readers of this forum, but a good dose of confirmation bias always helps. Maybe Mr Sommer reads this forum for ideas on what to write?
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Re: Anyone else freaking about the state of the market?

Post by Professor Emeritus » Sun Oct 13, 2013 6:53 am

livesoft wrote:
WendyW wrote:You'd be far better off paying a professional 1% -- to keep you from buying high and selling low.
But who is to say that "a professional" would not also be buying high and selling low?
and churn churn churn

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Re: Anyone else freaking about the state of the market?

Post by stemikger » Sun Oct 13, 2013 10:05 am

Stoney178 wrote:i am really tempted to sell all my stocks and funds now, just until the government shutdown is resolved. i really feel we are headed for a crash
As Mr. Bogle has often said. Don't Peak.

As Mr. Buffett has often said. You should only buys stocks with the attitude that if the stock market closed down for 5 years, it would not bother you in the least. If you own farmland or a house, you do not look at the daily price movements, so it should be no different when buying into an index. Also, realize that you are buying productive assets that should perform well in the long term.

Mr. Buffett has been saying recently that the average 55 year old will be well served by just buying an index fund that owns America and just keep adding to it.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

Texas hold em71
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Re: Government Shutdown/Default [effect on investments]

Post by Texas hold em71 » Sun Oct 13, 2013 10:55 am

AndroAsc wrote:
livesoft wrote:
AndroAsc wrote:Can we discuss on how capitalize if there is indeed a government default? Is anyone setting limit orders for ETFs?
I am going to submit a limit order(s) to purchase ETF(s) at 19.8% below the previous market close. The idea is that if the market drops 20%, then circuit breakers go into effect and the market will close for the day. Hopefully, my order will execute and only then the market will close. Then the next time the market opens, it will open gap-up and there will be lots of buying, but my buying from the day before will look like I was a genius.

Based on October 1987, there will be little or no chance that any retail investor will be able to get through to their broker (by phone, e-mail, or website) to submit any orders once the market has dropped by 10% or so. Thus, one will have to submit their order(s) before that happens.
So are we talking about just US market, VTI, or will the international stock indexes be affected by a default as well?
Go back and look at what happened to our market when Greece was in turmoil. We are far larger than Greece.

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Re: Anyone else freaking about the state of the market?

Post by rustymutt » Sun Oct 13, 2013 5:51 pm

Stoney178 wrote:i am really tempted to sell all my stocks and funds now, just until the government shutdown is resolved. i really feel we are headed for a crash
That's what they want us to do. Think the other way and don't be part of the herd mentality.
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Re: Government Shutdown/Default [effect on investments]

Post by Artsdoctor » Sun Oct 13, 2013 6:08 pm

Lazy Nihilist,

The answer to your question is easy. [OT comments removed by admin LadyGeek]

Artsdoctor

[Back to investing, I don't think there's anything to really do about this until more is known. At this point, even if we don't default, we've ruined our reputation internationally from a financial point of view. If I were Moody's, I'd be looking at "Speculative" as a ratings downgrade.]

umfundi
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Re: Anyone else freaking about the state of the market?

Post by umfundi » Sun Oct 13, 2013 6:17 pm

Stoney178 wrote:i am really tempted to sell all my stocks and funds now, just until the government shutdown is resolved. i really feel we are headed for a crash
Stoney,

Please don't. What you may wish to do, if this thing spooks you so much, is question your Asset Allocation. Is it too aggressive for your own comfort? If so, dial it down, but realize your AA is for the long term. It is not to be changed according to your short-term outlook.

The point here is "know thyself". There is lots of short term noise and people wishing to manipulate your emotions. Read some books and articles on behavioral finance: Why real people make the decisions they do. A major part of the Boglehead philosophy, particularly writing an Investment Policy Statement, is to shield yourself against the noise and the short-term impulses.

And, it really does matter. The market can easily change 3% in a day, 6% in a week. That is the same magnitude as the yearly gains you are looking for in the long term. The risk of not being invested is very real.

Good luck.

Keith
Déjà Vu is not a prediction

denovo
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Re: Government Shutdown/Default [effect on investments]

Post by denovo » Sun Oct 13, 2013 7:23 pm

Politics is unpredictable. And if it is predicatable, I am sure the market has already priced it in. :happy I think it would be reckless to buy or sell anything because of what is currently going on.

Has anyone actually made some trades because of the government shutdown or possible default???? :?:
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Re: Government Shutdown/Default [effect on investments]

Post by LadyGeek » Sun Oct 13, 2013 8:43 pm

FYI - I merged another thread into here. Check the post's subject line (top left corner) to see what's new (Anyone else freaking about the state of the market?).
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Re: Government Shutdown/Default [effect on investments]

Post by gerrym51 » Sun Oct 13, 2013 8:46 pm

market will tank on monday.

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Re: Government Shutdown/Default [effect on investments]

Post by Artsdoctor » Mon Oct 14, 2013 9:44 am

I can say one thing that has definitely changed in my investing because of this embarrassing debacle. Any reservations I ever had about investing in California general obligation bonds because they were "only" rated A have been neutralized. I am (almost) sure that the US government will ultimately make good on all of its bond payments, but I no longer feel that treasuries are the safest instruments in the entire world without question or without the slightest risk. I never thought I'd include political risk when discussing treasuries but here we are. Unbelievable that we have found ourselves in this spot.

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Re: Government Shutdown/Default [effect on investments]

Post by Doc » Mon Oct 14, 2013 11:22 am

gerrym51 wrote:market will tank on monday.
Tuesday?

Thinking of moving some short term bonds around today so that I have both Corporate and Treasuries separated to get the most bang of the buck no matter what happens tomorrow (Wednesday/Thursday).

Since the bond market is closed I am limited to using ETF's.

Any thoughts.
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Re: Government Shutdown/Default [effect on investments]

Post by hsv_climber » Mon Oct 14, 2013 11:24 am

gerrym51 wrote:market will tank on monday.
Currently down by 0.2%... Truly scary drop.

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Re: Government Shutdown/Default [effect on investments]

Post by VictoriaF » Mon Oct 14, 2013 11:51 am

gerrym51 wrote:market will tank on monday.
Today is a fantastic example of the futility of predicting markets. But no one will remember it.

Victoria
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Re: Government Shutdown/Default [effect on investments]

Post by Doc » Mon Oct 14, 2013 12:43 pm

Is the market slow because of volume or is VBS just slow.

I just sold a few hundred shares of short TIPS ETF (STPZ) with a limit price at the ask. Plenty of shares in the ask to cover. It took 5 minutes to execute.

I turned around and bought Vg Short Bond ETF (VCSH) again with a limit price but at the bid and it executed before I could switch screens.

If this poor execution is due to market conditions associated with shutdown what happens during a market tank?
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Re: Government Shutdown/Default [effect on investments]

Post by protagonist » Mon Oct 14, 2013 2:22 pm

Artsdoctor wrote:I can say one thing that has definitely changed in my investing because of this embarrassing debacle. Any reservations I ever had about investing in California general obligation bonds because they were "only" rated A have been neutralized. I am (almost) sure that the US government will ultimately make good on all of its bond payments, but I no longer feel that treasuries are the safest instruments in the entire world without question or without the slightest risk. I never thought I'd include political risk when discussing treasuries but here we are. Unbelievable that we have found ourselves in this spot.
Greece, Italy, Spain, Portugal, Ireland etc "found themselves in this spot" (sic) and have been torturing themselves with austerity measures and the like over the last few years, doing everything possible to AVOID default.
We didn't find ourselves in this spot at all. We are voluntarily courting it. That is what is so bizarre about it, and I can only imagine the European reaction.

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Re: Anyone else freaking about the state of the market?

Post by protagonist » Mon Oct 14, 2013 2:28 pm

umfundi wrote: The risk of not being invested is very real.

Good luck.

Keith
The people who were not invested when the Dow peaked around 11000 and the Nasdaq around 5000 somewhere around 14 years ago might be laughing at that statement, Keith. And at us. I would guess that most of us are down in real dollars since then. They would probably say just the opposite.

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Re: Government Shutdown/Default [effect on investments]

Post by moolamaven » Mon Oct 14, 2013 2:47 pm

Protaganist has a point. Every rule has its exceptions.....

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Re: Anyone else freaking about the state of the market?

Post by umfundi » Mon Oct 14, 2013 3:19 pm

protagonist wrote:
umfundi wrote: The risk of not being invested is very real.

Good luck.

Keith
The people who were not invested when the Dow peaked around 11000 and the Nasdaq around 5000 somewhere around 14 years ago might be laughing at that statement, Keith. And at us. I would guess that most of us are down in real dollars since then. They would probably say just the opposite.
You are dead wrong. I more than doubled my money from before the 2001-2 decline through investing in 70/30 stocks/bonds, rebalancing, and systematic investing. I am not saying I had a 100% return, since I was investing new money. What I am saying is that those who stayed the course over the supposedly "lost" decade of 2001-10 did quite fine.

I will run the numbers to prove what I say, but it may take a few days. There is this pesky conference I have to attend!

Keith
Déjà Vu is not a prediction

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Re: Anyone else freaking about the state of the market?

Post by JoMoney » Mon Oct 14, 2013 3:34 pm

protagonist wrote: The people who were not invested when the Dow peaked around 11000 and the Nasdaq around 5000 somewhere around 14 years ago might be laughing at that statement, Keith. And at us. I would guess that most of us are down in real dollars since then. They would probably say just the opposite.
And yet, those invested 15 years ago and longer are seeing rewards over bonds (not Nasdaq, but other indexes). A "balanced" portfolio like VBINX actually saw a "rebalancing bonus" over both VTSMX and VBMFX if measured from '98 to the first half of this year (although I suspect it will eventually drift back to the longterm 60/40 average). It's been a particularly long period for stocks to see a reward over bonds, but eventually a buy-and-hold investor saw a premium, and probably will even from the 1999-2000 levels at some point.... so yes, '99-'00 has proven to be a bad time to "lump sum" into the market as measured to today. If you were dollar cost averaging for years around it, you'd be doing pretty good, and If you had managed to "tactically allocate" around it, you may be doing much better, if you didn't but you held on, you're not doing too much worse, and there's a good chance a "premium" will show up from even those '99-'00 levels.
Image
(If measured from the peak in March 2001 to today, VTSMX would be up 64% whereas the VBMFX portfolio was up 100%)
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protagonist
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Re: Government Shutdown/Default [effect on investments]

Post by protagonist » Mon Oct 14, 2013 3:38 pm

moolamaven wrote:Protaganist has a point. Every rule has its exceptions.....
To an extent, I was playing devil's advocate...for the most part I agree with Keith's analysis and I am not selling my investments or reacting to this latest crisis. But I "don't believe in " my approach...I just honestly don't know what to do so I am doing nothing, and I think that is probably the most intelligent response one can have at this stage.
This is a potentially serious crisis. 9/11 caught us completely by surprise. The " wise men " (laughing) look back at 2008 through their retrospectoscopes and say that the crash was easily predictable in the year preceding it, which was probably true. This is a potential crisis where everybody has full warning and time to react. Unlike 2008, you don't have to be much of an expert to see the possible consequences if we go to default.

Markets are ultimately chaotic. I don't know if we can assume "rules" based on short histories (and 100 years is a short history...especially given the incredible economic growth of the US in the 20th century). I, personally, feel very humble about making any assumptions about our financial future (vs my relative cockiness in the 1990s). And it is not because of the recent financial downturns as much as just a wider sense of perspective.

If you take out the recent market uptick from Jomoney's graph, it is not very encouraging, especially when you consider the potential depth of a future trough brought on by a default on top of a fairly weak economy. I'm not all that smart really....the best I can tell my friends when they ask what to do is "I don't know".

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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 3:54 pm

VictoriaF wrote:
gerrym51 wrote:market will tank on monday.
Today is a fantastic example of the futility of predicting markets. But no one will remember it.

Victoria
On Yahoo finance right now:
Wall Street Rises on Hopes for Budget Deal Progress
While I think this headline is bs, if you believe it you must also believe that the possible negative outcome is priced into the market.

Keith
Déjà Vu is not a prediction

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Re: Government Shutdown/Default [effect on investments]

Post by Doc » Mon Oct 14, 2013 3:56 pm

Am I the only one who is willing to incur modest added expense now in order to better weather any short term upheaval ("downheavel?") that may occur because of this fiasco?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 4:17 pm

Doc wrote:Am I the only one who is willing to incur modest added expense now in order to better weather any short term upheaval ("downheavel?") that may occur because of this fiasco?
I would hope so. Can we convince you otherwise? :?

Keith
Déjà Vu is not a prediction

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Re: Anyone else freaking about the state of the market?

Post by Abe » Mon Oct 14, 2013 4:26 pm

rustymutt wrote:
Stoney178 wrote:i am really tempted to sell all my stocks and funds now, just until the government shutdown is resolved. i really feel we are headed for a crash
That's what they want us to do. Think the other way and don't be part of the herd mentality.
I haven't read all the post on this thread, so someone may have already addressed this issue. Obviously, the OP is very upset about the government shutdown and the possibility of a crash. There may be a message here. Maybe you need to seriously consider lowering your stock allocation to the point where you are not "freaking" out. I think that would be better than selling out because, as others have pointed out, the market goes in cycles, both good and bad. You don't want to be tempted to sell out everytime something bad happens.
Slow and steady wins the race.

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Re: Government Shutdown/Default [effect on investments]

Post by Nestegg_User » Mon Oct 14, 2013 4:26 pm

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Last edited by Nestegg_User on Mon Oct 14, 2013 9:28 pm, edited 1 time in total.

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Re: Government Shutdown/Default [effect on investments]

Post by Jfet » Mon Oct 14, 2013 5:12 pm

Jfet wrote:Looks like the trouble is over and all will be well. Went long 500 shares of SPY today. Going to pop to $172 when the deal is done.
My timing is so perfect in this "crisis" it is starting to scare me. Not scare me that I am psychic, but scare me into again thinking I can time the market with reliability.

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Re: Government Shutdown/Default [effect on investments]

Post by protagonist » Mon Oct 14, 2013 5:29 pm

moolamaven wrote: Every rule has its exceptions.....
I want to put our "rules" into perspective.

We are looking for "rules" governing long-term investing outcomes....a lifetime of investing is what matters for us. Let's say we are talking about 40 year future outcomes.

Let's say our data is based on 100 years of investment history (and potentially an unusual 100 years at that, but let's not take that into consideration).

Let's also ignore the possible assumption that the past is not valuable in predicting the future.

Isn't basing rules governing 40 year investment strategy on the most recent 100 years of investment history essentially the equivalent of basing rules governing one month investment strategy outcomes on the most recent 2 1/2 months of investment history? I would venture to say that almost everybody here would consider a person who did that a fool, yet we are doing essentially the same.

One rule of complex systems dynamics is symmetry of scale. If we could come up with rules predicting one month outcomes based on 100 years of data, I would listen more closely, but we all agree we can't. 100 years is nothing. There are not nearly enough data points to come to meaningful conclusions that would address our ultimate concerns about lifelong investing.


I do think that we have enough information to assume the more risk we take, the more profit we can make....that is true regardless of scale. Maybe investing in stocks and bonds was the best strategy in the 20th century because, during periods of rapid growth such as we experienced in the 20th century (a short period of 100 years compared with investment lifetimes), the extra risk just happened to pay off.

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Re: Anyone else freaking about the state of the market?

Post by umfundi » Mon Oct 14, 2013 5:55 pm

umfundi wrote:
protagonist wrote:
umfundi wrote: The risk of not being invested is very real.

Good luck.

Keith
The people who were not invested when the Dow peaked around 11000 and the Nasdaq around 5000 somewhere around 14 years ago might be laughing at that statement, Keith. And at us. I would guess that most of us are down in real dollars since then. They would probably say just the opposite.
You are dead wrong. I more than doubled my money from before the 2001-2 decline through investing in 70/30 stocks/bonds, rebalancing, and systematic investing. I am not saying I had a 100% return, since I was investing new money. What I am saying is that those who stayed the course over the supposedly "lost" decade of 2001-10 did quite fine.

I will run the numbers to prove what I say, but it may take a few days. There is this pesky conference I have to attend!

Keith
So, here are the numbers for a lump sum.

Code: Select all

Initial Amount	$1,000,000 		
VTSMX	70%		
VBMFX	30%		
			
Date	 VTSMX 	 VBMFX 	 Value 
1/3/2000	 $25.21 	 $5.05 	 $1,000,000.00 
2/1/2000	 $25.85 	 $5.11 	 $1,021,335.08 
3/1/2000	 $27.32 	 $5.18 	 $1,066,188.20 
4/3/2000	 $25.90 	 $5.15 	 $1,025,543.99 
5/1/2000	 $25.02 	 $5.15 	 $1,001,152.67 
6/1/2000	 $26.12 	 $5.26 	 $1,038,378.68 
7/3/2000	 $25.61 	 $5.30 	 $1,026,555.36 
8/1/2000	 $27.48 	 $5.38 	 $1,083,674.08 
9/1/2000	 $26.20 	 $5.42 	 $1,050,757.43 
10/2/2000	 $25.66 	 $5.45 	 $1,037,342.45 
11/1/2000	 $23.12 	 $5.54 	 $970,603.37 
12/1/2000	 $23.53 	 $5.64 	 $987,907.92 
1/2/2001	 $24.43 	 $5.74 	 $1,019,613.32 
2/1/2001	 $22.13 	 $5.79 	 $955,082.67 
3/1/2001	 $20.64 	 $5.82 	 $911,553.64 
4/2/2001	 $22.32 	 $5.79 	 $962,081.38 
5/1/2001	 $22.55 	 $5.84 	 $971,513.57 
6/1/2001	 $22.18 	 $5.87 	 $961,852.36 
7/2/2001	 $21.80 	 $6.00 	 $956,707.57 
8/1/2001	 $20.49 	 $6.06 	 $919,334.54 
9/4/2001	 $18.65 	 $6.12 	 $864,275.93 
10/1/2001	 $19.12 	 $6.23 	 $884,182.71 
11/1/2001	 $20.58 	 $6.15 	 $928,037.78 
12/3/2001	 $20.94 	 $6.11 	 $937,590.71 
1/2/2002	 $20.68 	 $6.16 	 $931,743.41 
2/1/2002	 $20.26 	 $6.21 	 $920,766.01 
3/1/2002	 $21.15 	 $6.12 	 $945,076.47 
4/1/2002	 $20.11 	 $6.22 	 $917,178.90 
5/1/2002	 $19.87 	 $6.27 	 $911,728.59 
6/3/2002	 $18.46 	 $6.29 	 $867,312.88 
7/1/2002	 $16.98 	 $6.32 	 $819,879.10 
8/1/2002	 $17.07 	 $6.43 	 $827,202.07 
9/3/2002	 $15.35 	 $6.53 	 $772,716.36 
10/1/2002	 $16.53 	 $6.49 	 $812,877.06 
11/1/2002	 $17.58 	 $6.48 	 $848,645.57 
12/2/2002	 $16.55 	 $6.62 	 $819,340.96 
1/2/2003	 $16.13 	 $6.63 	 $805,157.20 
2/3/2003	 $15.86 	 $6.72 	 $799,001.86 
3/3/2003	 $16.03 	 $6.71 	 $804,640.19 
4/1/2003	 $17.35 	 $6.77 	 $853,179.70 
5/1/2003	 $18.41 	 $6.89 	 $894,204.12 
6/2/2003	 $18.67 	 $6.88 	 $902,654.81 
7/1/2003	 $19.11 	 $6.65 	 $908,493.17 
8/1/2003	 $19.57 	 $6.70 	 $925,850.34 
9/2/2003	 $19.34 	 $6.88 	 $925,695.56 
10/1/2003	 $20.53 	 $6.81 	 $962,741.00 
11/3/2003	 $20.81 	 $6.83 	 $972,780.52 
12/1/2003	 $21.74 	 $6.89 	 $1,005,775.75 
1/2/2004	 $22.23 	 $6.95 	 $1,024,271.82 
2/2/2004	 $22.54 	 $7.02 	 $1,037,365.25 
3/1/2004	 $22.30 	 $7.08 	 $1,032,293.25 
4/1/2004	 $21.83 	 $6.89 	 $1,008,752.62 
5/3/2004	 $22.13 	 $6.86 	 $1,017,138.93 
6/1/2004	 $22.59 	 $6.90 	 $1,033,717.94 
7/1/2004	 $21.73 	 $6.97 	 $1,009,316.53 
8/2/2004	 $21.80 	 $7.10 	 $1,017,240.03 
9/1/2004	 $22.18 	 $7.12 	 $1,030,511.86 
10/1/2004	 $22.55 	 $7.18 	 $1,045,150.57 
11/1/2004	 $23.60 	 $7.12 	 $1,076,596.30 
12/1/2004	 $24.46 	 $7.18 	 $1,106,780.36 
1/3/2005	 $23.81 	 $7.23 	 $1,088,504.47 
2/1/2005	 $24.30 	 $7.19 	 $1,102,378.50 
3/1/2005	 $23.88 	 $7.15 	 $1,087,201.23 
4/1/2005	 $23.32 	 $7.25 	 $1,073,916.06 
5/2/2005	 $24.20 	 $7.33 	 $1,105,838.69 
6/1/2005	 $24.40 	 $7.37 	 $1,114,046.48 
7/1/2005	 $25.40 	 $7.29 	 $1,142,379.00 
8/1/2005	 $25.17 	 $7.39 	 $1,139,839.08 
9/1/2005	 $25.37 	 $7.31 	 $1,142,477.29 
10/3/2005	 $24.90 	 $7.25 	 $1,124,848.35 
11/1/2005	 $25.89 	 $7.29 	 $1,158,016.19 
12/1/2005	 $25.92 	 $7.36 	 $1,162,291.33 
1/3/2006	 $26.83 	 $7.35 	 $1,190,381.60 
2/1/2006	 $26.83 	 $7.38 	 $1,191,839.21 
3/1/2006	 $27.32 	 $7.31 	 $1,203,684.50 
4/3/2006	 $27.62 	 $7.29 	 $1,211,948.86 
5/1/2006	 $26.73 	 $7.28 	 $1,184,113.25 
6/1/2006	 $26.77 	 $7.29 	 $1,185,841.58 
7/3/2006	 $26.74 	 $7.39 	 $1,189,791.35 
8/1/2006	 $27.35 	 $7.51 	 $1,214,586.64 
9/1/2006	 $27.97 	 $7.57 	 $1,236,771.28 
10/2/2006	 $28.96 	 $7.63 	 $1,270,355.00 
11/1/2006	 $29.61 	 $7.71 	 $1,294,309.84 
12/1/2006	 $29.94 	 $7.68 	 $1,302,896.42 
1/3/2007	 $30.51 	 $7.67 	 $1,319,750.73 
2/1/2007	 $30.01 	 $7.79 	 $1,310,805.41 
3/1/2007	 $30.35 	 $7.79 	 $1,321,201.00 
4/2/2007	 $31.56 	 $7.83 	 $1,360,107.96 
5/1/2007	 $32.73 	 $7.77 	 $1,392,276.86 
6/1/2007	 $32.18 	 $7.74 	 $1,374,286.95 
7/2/2007	 $31.08 	 $7.80 	 $1,344,599.16 
8/1/2007	 $31.53 	 $7.91 	 $1,363,915.55 
9/4/2007	 $32.67 	 $7.96 	 $1,401,021.64 
10/1/2007	 $33.27 	 $8.04 	 $1,423,257.12 
11/1/2007	 $31.78 	 $8.18 	 $1,386,073.55 
12/3/2007	 $31.59 	 $8.21 	 $1,381,797.83 
1/2/2008	 $29.67 	 $8.36 	 $1,330,582.89 
2/1/2008	 $28.76 	 $8.37 	 $1,302,493.42 
3/3/2008	 $28.59 	 $8.39 	 $1,298,037.79 
4/1/2008	 $30.03 	 $8.36 	 $1,342,410.41 
5/1/2008	 $30.65 	 $8.30 	 $1,358,920.85 
6/2/2008	 $28.14 	 $8.30 	 $1,281,021.21 
7/1/2008	 $27.93 	 $8.30 	 $1,274,329.31 
8/1/2008	 $28.37 	 $8.36 	 $1,291,145.67 
9/2/2008	 $25.74 	 $8.27 	 $1,203,190.04 
10/1/2008	 $21.20 	 $8.06 	 $1,045,471.90 
11/3/2008	 $19.53 	 $8.35 	 $999,107.87 
12/1/2008	 $19.89 	 $8.63 	 $1,022,050.49 
1/2/2009	 $18.25 	 $8.57 	 $960,928.61 
2/2/2009	 $16.34 	 $8.53 	 $889,185.19 
3/2/2009	 $17.75 	 $8.66 	 $946,960.90 
4/1/2009	 $19.63 	 $8.69 	 $1,018,153.52 
5/1/2009	 $20.69 	 $8.76 	 $1,059,099.44 
6/1/2009	 $20.76 	 $8.81 	 $1,063,421.22 
7/1/2009	 $22.39 	 $8.94 	 $1,126,575.95 
8/3/2009	 $23.21 	 $9.03 	 $1,158,859.76 
9/1/2009	 $24.18 	 $9.13 	 $1,196,611.81 
10/1/2009	 $23.56 	 $9.17 	 $1,176,706.93 
11/2/2009	 $24.88 	 $9.30 	 $1,227,860.75 
12/1/2009	 $25.59 	 $9.14 	 $1,246,051.01 
1/4/2010	 $24.70 	 $9.29 	 $1,221,850.16 
2/1/2010	 $25.53 	 $9.30 	 $1,250,985.42 
3/1/2010	 $27.13 	 $9.30 	 $1,305,866.09 
4/1/2010	 $27.72 	 $9.38 	 $1,329,115.27 
5/3/2010	 $25.50 	 $9.47 	 $1,258,430.08 
6/1/2010	 $24.06 	 $9.62 	 $1,214,664.94 
7/1/2010	 $25.74 	 $9.71 	 $1,277,444.24 
8/2/2010	 $24.52 	 $9.85 	 $1,240,586.79 
9/1/2010	 $26.84 	 $9.85 	 $1,322,752.90 
10/1/2010	 $27.90 	 $9.89 	 $1,360,932.28 
11/1/2010	 $28.06 	 $9.83 	 $1,363,918.60 
12/1/2010	 $29.97 	 $9.72 	 $1,424,327.68 
1/3/2011	 $30.62 	 $9.73 	 $1,446,391.21 
2/1/2011	 $31.72 	 $9.74 	 $1,483,209.52 
3/1/2011	 $31.87 	 $9.74 	 $1,488,119.26 
4/1/2011	 $32.82 	 $9.87 	 $1,525,128.97 
5/2/2011	 $32.44 	 $10.00 	 $1,518,794.43 
6/1/2011	 $31.86 	 $9.96 	 $1,497,963.54 
7/1/2011	 $31.14 	 $10.12 	 $1,481,486.04 
8/1/2011	 $29.27 	 $10.27 	 $1,425,797.98 
9/1/2011	 $26.99 	 $10.36 	 $1,351,802.19 
10/3/2011	 $30.10 	 $10.38 	 $1,461,620.79 
11/1/2011	 $30.01 	 $10.34 	 $1,456,871.84 
12/1/2011	 $30.26 	 $10.46 	 $1,470,439.71 
1/3/2012	 $31.79 	 $10.55 	 $1,526,278.96 
2/1/2012	 $33.15 	 $10.54 	 $1,571,551.69 
3/1/2012	 $34.16 	 $10.48 	 $1,602,384.78 
4/2/2012	 $33.94 	 $10.60 	 $1,600,665.29 
5/1/2012	 $31.82 	 $10.70 	 $1,535,207.64 
6/1/2012	 $33.07 	 $10.71 	 $1,577,853.87 
7/2/2012	 $33.41 	 $10.85 	 $1,595,397.11 
8/1/2012	 $34.24 	 $10.86 	 $1,623,582.20 
9/4/2012	 $35.12 	 $10.87 	 $1,653,240.01 
10/1/2012	 $34.51 	 $10.88 	 $1,633,595.67 
11/1/2012	 $34.76 	 $10.90 	 $1,642,780.51 
12/3/2012	 $35.17 	 $10.88 	 $1,655,440.03 
1/2/2013	 $37.11 	 $10.80 	 $1,715,708.93 
2/1/2013	 $37.58 	 $10.86 	 $1,733,779.12 
3/1/2013	 $39.04 	 $10.87 	 $1,781,408.74 
4/1/2013	 $39.70 	 $10.97 	 $1,807,406.45 
5/1/2013	 $40.63 	 $10.78 	 $1,827,653.01 
6/3/2013	 $40.11 	 $10.60 	 $1,802,124.03 
7/1/2013	 $42.31 	 $10.63 	 $1,872,845.64 
8/1/2013	 $41.11 	 $10.56 	 $1,831,963.28 
9/3/2013	 $42.62 	 $10.66 	 $1,884,270.26 
10/1/2013	 $43.16 	 $10.64 	 $1,899,921.43 
Suppose you had $1M on 1/112000, invested 70/30 in stocks and bonds. With no new investments, and rebalancing monthly, you would now have $1.9M.

Part 1 of my proposition.

Keith
Déjà Vu is not a prediction

American In Korea
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Re: Government Shutdown/Default [effect on investments]

Post by American In Korea » Mon Oct 14, 2013 7:16 pm

The market grew between 9/4/2001 and 10/4/2001 ?? That's strange (sep 11th?)

mak
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Re: Government Shutdown/Default [effect on investments]

Post by mak » Mon Oct 14, 2013 7:24 pm

A 90% return in 14 years works out around 4.6% per year. Individual bonds bought and held to maturity don't seem so bad. Insured tax free munis seem not such a bad choice for example.

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Doc
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Re: Government Shutdown/Default [effect on investments]

Post by Doc » Mon Oct 14, 2013 7:32 pm

umfundi wrote:
Doc wrote:Am I the only one who is willing to incur modest added expense now in order to better weather any short term upheaval ("downheavel?") that may occur because of this fiasco?
I would hope so. Can we convince you otherwise? :?

Keith
:D

I "spent" the ~8% annual gain on 3% of my portfolio for three months and traded a TIPS fund representing ~2% of my portfolio for a short corporate fund to gain some better Treasury/non-Treasury exposer at the expense of the unexpected inflation risk over the next few months. I'm from Larry's neighborhood (the heartland) and we consider those levels of expense the same as liability insurance on our car, fire insurance on our house or life insurance on our life. What part of the country do you live in? :P

To answer your question, no unless you can give me a whole lot of good reasons otherwise.

Now if I was completely bailing out of equities for CD's I might be listening to your theories. Actually I would agree with you without even hearing your theories.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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LadyGeek
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Re: Government Shutdown/Default [effect on investments]

Post by LadyGeek » Mon Oct 14, 2013 7:46 pm

Doc wrote:I "spent" the ~8% annual gain on 3% of my portfolio for three months and traded a TIPS fund representing ~2% of my portfolio for a short corporate fund to gain some better Treasury/non-Treasury exposer at the expense of the unexpected inflation risk over the next few months.
Good point. Can you elaborate on your interpretation of these "events" as unexpected inflation?

I see two camps here. One is "stay the course" in which your risk tolerance should be able to handle a large drop in equities. IOW, treat this as no different than a large market swing. That's the whole point of asset allocation (stocks / bonds), which is to minimize the impact. How well can you sleep at night if your portfolio suddenly tanks 50%?

The other camp is hedging a bet by transferring securities for short term stability (I think that's what you are doing). The whole point of Treasury Inflation Protected Security (TIPS) is to provide protection for unexpected inflation. (It's in the Role in a portfolio section). That is very different than expected inflation as used in everyday context.

I couldn't find a good definition of unexpected inflation, so I'm not quite sure on the intent. Is there a consensus that the impending shutdown / default counts as unexpected inflation?
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

umfundi
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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 7:47 pm

The numbers are total return from Yahoo Finance. Stocks grew by 71%, bonds by 111%.

So much for the lost decade. By the way, a static 70/30 portfolio would have grown by 83%. The rebalanced portfolio grew by 90%. There is a rebalancing bonus in a mostly sideways market.

Keith
Déjà Vu is not a prediction

umfundi
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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 7:58 pm

What part of the country do you live in?
Metro Detroit, ground zero for the economic fiasco.

[OT comment removed by admin LadyGeek.]

Keith
Déjà Vu is not a prediction

umfundi
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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 8:04 pm

American In Korea wrote:The market grew between 9/4/2001 and 10/4/2001 ?? That's strange (sep 11th?)
AIK: I don't know. I simply downloaded the numbers from Yahoo. As I recall, 9/11 did not have a big immediate impact on the market, though there may have been something of a longer term slump.

Keith
Déjà Vu is not a prediction

protagonist
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Re: Government Shutdown/Default [effect on investments]

Post by protagonist » Mon Oct 14, 2013 8:09 pm

umfundi wrote:The numbers are total return from Yahoo Finance. Stocks grew by 71%, bonds by 111%.

So much for the lost decade. By the way, a static 70/30 portfolio would have grown by 83%. The rebalanced portfolio grew by 90%. There is a rebalancing bonus in a mostly sideways market.

Keith
Are you talking about the S+P? According to a graph I see, in 2013 inflation-adjusted value, it peaked on 3/24/2000 at $2064.76. It peaked again on 10/9/07 at $1757.12 (inflation-adjusted). And on 5/14/13 (latest peak on graph) at $1650.34 (assuming one dollar per "point"). The NASDAQ would have fared much worse. So from March 24,2000 peak to May 14, 2013 peak that looks like about a 20% loss in inflation-adjusted dollars over 13 years...

I didn't cherry pick this reference and can't vouch for it... this is where I got the info....it was the first that came up on a google search: http://www.businessinsider.com/sp-500-p ... ons-2013-5

umfundi
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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 8:20 pm

protagonist wrote:
umfundi wrote:The numbers are total return from Yahoo Finance. Stocks grew by 71%, bonds by 111%.

So much for the lost decade. By the way, a static 70/30 portfolio would have grown by 83%. The rebalanced portfolio grew by 90%. There is a rebalancing bonus in a mostly sideways market.

Keith
Are you talking about the S+P? According to a graph I see, in 2013 inflation-adjusted value, it peaked on 3/24/2000 at $2064.76. It peaked again on 10/9/07 at $1757.12 (inflation-adjusted). And on 5/14/13 (latest peak on graph) at $1650.34 (assuming one dollar per "point"). The NASDAQ would have fared much worse. So from March 24,2000 peak to May 14, 2013 peak that looks like about a 20% loss in inflation-adjusted dollars over 13 years...

I didn't cherry pick this reference and can't vouch for it... this is where I got the info....it was the first that came up on a google search: http://www.businessinsider.com/sp-500-p ... ons-2013-5
Yes, I thought about that.

I chose 1/1/2000 as a round number and close enough to any high. It is not possible to find a simultaneous high in both the stock and bond markets. I certainly did not cherry pick a low as a starting point. My data is clearly marked: Vanguard Total Market Investor shares, VTSMX for stocks, VBFMX for bonds.

I will add the inflation data in my next post.

Keith
Last edited by umfundi on Mon Oct 14, 2013 8:27 pm, edited 1 time in total.
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Re: Government Shutdown/Default [effect on investments]

Post by gkaplan » Mon Oct 14, 2013 8:24 pm

umfundi wrote:
What part of the country do you live in?
Metro Detroit, ground zero for the economic fiasco.

[OT comment removed by admin LadyGeek.]

Keith
I believe Michigan takes a back seat to Illinois.

(Chicago Native)
Gordon

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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 8:44 pm

According to http://inflationdata.com/Inflation/Cons ... oaded=true
the CPI in Jan 2000 was 166.8, and on 8/2013 was 233.9.

Which is 40%. My 70/30 rebalanced portfolio gained 90%, or 36% in real terms. Lost decade, anyone?

Keith
Déjà Vu is not a prediction

umfundi
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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 9:18 pm

Part two of my proposition is that a regular investment of $ 1,000 per month, rebalanced monthly at 70/30 stocks/bonds since 1/1/2000, would now be worth $274,000. That is a total investment of $154,000. Someone else may wish to XIRR that, but it seems pretty good to me.

I started in 2000 with $1M in savings and $2k per month added through the end of 2008 when I retired. I think the decade of the 2000s was quite kind to me.

Not like the 1990s, but good enough.

Stay the course.

Keith
Déjà Vu is not a prediction

protagonist
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Re: Government Shutdown/Default [effect on investments]

Post by protagonist » Mon Oct 14, 2013 9:24 pm

umfundi wrote:According to http://inflationdata.com/Inflation/Cons ... oaded=true
the CPI in Jan 2000 was 166.8, and on 8/2013 was 233.9.

Which is 40%. My 70/30 rebalanced portfolio gained 90%, or 36% in real terms. Lost decade, anyone?

Keith
What would cash have done if invested at the same time? Clearly buying and selling dates make a big difference...to the tune of 40% gain in your example vs 20% loss in mine (which I don't think was an unfair choice of dates, because it was peak-to-peak, not trough- to-peak or peak-to-trough). The only point I am trying to make (and on which I think we can all agree) is that that the potential reward from stocks is related to the potential risk. What we cannot agree upon is whether time mitigates that risk....most people here I think would say it does, whereas I would say "I don't know....I don't have enough information to decide". The fact that, on the average, stocks rose x%/year over cash during the last century in most 40 year cycles might be irrelevant, because that may have just been due to a combination of increased risk during a century of known, nearly unprecedented growth . A century of data is nothing if you are trying to predict 40 years into the future....it is the equivalent of using 2 1/2 months of data to predict one month into the future. So to expect a certain return from a portfolio based on the limited, small amount of data we have is a bit of a fool's game.

If I had to venture a wild guess, I would expect that if you looked at millenia, not a single century, of data (which I think you would need to do to make valid statistical forecasts about 20-50 year periods), you might find that on "average" all vehicles returned approximately the same in the long run (probably approximating inflation), and the average % gain during boon years or loss during bust years was directly proportional to the risk of the investment. That would make sense if you believe that markets follow the same rules as other chaotic, complex, nonlinear systems, and followed symmetry of scale. In other words, a plot of return for any given investment for 1000 consecutive 40 year periods would look essentially the same as a plot of 1000 consecutive one minute periods. I wish that was testable.

protagonist
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Re: Government Shutdown/Default [effect on investments]

Post by protagonist » Mon Oct 14, 2013 9:37 pm

Another point, Keith....you are looking from the perspective of somebody who was working and contributing regularly to the portfolio throughout this period, so you were investing in down periods and now is an unprecedented "up", so if you sold today you would have an advantage. If now was a "down" such as in spring, 2009 your numbers would look very different.

I was looking from the perspective of a hypothetical retiree who invested a lump sum 13 years ago and had no excess income to invest since.

It's sort of apples and oranges.
Last edited by protagonist on Mon Oct 14, 2013 9:41 pm, edited 1 time in total.

umfundi
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Re: Government Shutdown/Default [effect on investments]

Post by umfundi » Mon Oct 14, 2013 9:38 pm

protagonist wrote:
umfundi wrote:According to http://inflationdata.com/Inflation/Cons ... oaded=true
the CPI in Jan 2000 was 166.8, and on 8/2013 was 233.9.

Which is 40%. My 70/30 rebalanced portfolio gained 90%, or 36% in real terms. Lost decade, anyone?

Keith
What would cash have done if invested at the same time? Clearly buying and selling dates make a big difference...to the tune of 40% gain in your example vs 20% loss in mine (which I don't think was an unfair choice of dates, because it was peak-to-peak, not trough- to-peak or peak-to-trough). The only point I am trying to make (and on which I think we can all agree) is that that the potential reward from stocks is related to the potential risk. What we cannot agree upon is whether time mitigates that risk....most people here I think would say it does, whereas I would say "I don't know....I don't have enough information to decide". The fact that, on the average, stocks rose x%/year over cash during the last century in most 40 year cycles might be irrelevant, because that may have just been due to a combination of increased risk during a century of known, nearly unprecedented growth . A century of data is nothing if you are trying to predict 40 years into the future....it is the equivalent of using 2 1/2 months of data to predict one month into the future. So to expect a certain return from a portfolio based on the limited, small amount of data we have is a bit of a fool's game.

If I had to venture a wild guess, I would expect that if you looked at millenia, not a single century, of data (which I think you would need to do to make valid statistical forecasts about 20-50 year periods), you might find that on "average" all vehicles returned approximately the same in the long run (probably approximating inflation), and the average % gain during boon years or loss during bust years was directly proportional to the risk of the investment. That would make sense if you believe that markets follow the same rules as other chaotic, complex, nonlinear systems, and followed symmetry of scale. In other words, a plot of return for any given investment for 1000 consecutive 40 year periods would look essentially the same as a plot of 1000 consecutive one minute periods. I wish that was testable.
protagonist,

Yes. It all comes down to the risk of being invested vs. the risk of not being invested.

Since my personal time scale is a century (at best) of which 2/3 has been spent, I do not pay much attention to millennial data.

Keith
Déjà Vu is not a prediction

protagonist
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Re: Government Shutdown/Default [effect on investments]

Post by protagonist » Mon Oct 14, 2013 9:44 pm

umfundi wrote:
protagonist wrote:
umfundi wrote:According to http://inflationdata.com/Inflation/Cons ... oaded=true
the CPI in Jan 2000 was 166.8, and on 8/2013 was 233.9.

Which is 40%. My 70/30 rebalanced portfolio gained 90%, or 36% in real terms. Lost decade, anyone?

Keith
What would cash have done if invested at the same time? Clearly buying and selling dates make a big difference...to the tune of 40% gain in your example vs 20% loss in mine (which I don't think was an unfair choice of dates, because it was peak-to-peak, not trough- to-peak or peak-to-trough). The only point I am trying to make (and on which I think we can all agree) is that that the potential reward from stocks is related to the potential risk. What we cannot agree upon is whether time mitigates that risk....most people here I think would say it does, whereas I would say "I don't know....I don't have enough information to decide". The fact that, on the average, stocks rose x%/year over cash during the last century in most 40 year cycles might be irrelevant, because that may have just been due to a combination of increased risk during a century of known, nearly unprecedented growth . A century of data is nothing if you are trying to predict 40 years into the future....it is the equivalent of using 2 1/2 months of data to predict one month into the future. So to expect a certain return from a portfolio based on the limited, small amount of data we have is a bit of a fool's game.

If I had to venture a wild guess, I would expect that if you looked at millenia, not a single century, of data (which I think you would need to do to make valid statistical forecasts about 20-50 year periods), you might find that on "average" all vehicles returned approximately the same in the long run (probably approximating inflation), and the average % gain during boon years or loss during bust years was directly proportional to the risk of the investment. That would make sense if you believe that markets follow the same rules as other chaotic, complex, nonlinear systems, and followed symmetry of scale. In other words, a plot of return for any given investment for 1000 consecutive 40 year periods would look essentially the same as a plot of 1000 consecutive one minute periods. I wish that was testable.
protagonist,

Yes. It all comes down to the risk of being invested vs. the risk of not being invested.

Since my personal time scale is a century (at best) of which 2/3 has been spent, I do not pay much attention to millennial data.

Keith
My point is that you need millenial data to say anything meaningful about your 1/3 century that you have left. Otherwise you are just guessing. Like me. We are doing the same thing- following the same course. The difference is you have faith. I don't. I see what I am doing as gambling. The science is not there to support it.

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