S&P500 has basically gone nowhere for 15 years

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Nick341981
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S&P500 has basically gone nowhere for 15 years

Post by Nick341981 »

https://www.facebook.com/RBReich/posts/ ... 74688957:0

I'm just curious to get bogleheads feedback on the current market we have been in. Do you feel that this is something that will persist such as Japan?
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Phineas J. Whoopee
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Re: S&P500 has basically gone nowhere for 15 years

Post by Phineas J. Whoopee »

Unless one takes dividends into account, as the linked article notes when Reich specifies it's only prices he's looking at. Dividends come directly out of stock prices, so studies that ignore them are meaningless.
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Re: S&P500 has basically gone nowhere for 15 years

Post by ogd »

Nick341981 wrote:https://www.facebook.com/RBReich/posts/ ... 74688957:0

I'm just curious to get bogleheads feedback on the current market we have been in. Do you feel that this is something that will persist such as Japan?
The S&P has returned 88% over the past exact 15 years if we include dividends. That's not super exciting -- 4.3% per year -- but it's still respectable and definitely not "nothing" and not Japan.
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Re: S&P500 has basically gone nowhere for 15 years

Post by xjz »

Here's a total return chart for S&P 500 from PerfCharts: link. Unfortunately no adjustment for inflation. I'm not really aware of a good source that makes inflation-adjusted total return charts (if anybody has a source of data like that, please tell me :happy).
ogd wrote:The S&P has returned 88% over the past exact 15 years if we include dividends.
What are the date bounds for that figure? That looks high relative to the perfchart...
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Re: S&P500 has basically gone nowhere for 15 years

Post by Dirghatamas »

1) He completely ignores dividends reinvested. That's a major boo-boo and some what scare mongering.
2) He completely ignores any periodic contributions. A person investing monthly into their 401K will see both peaks and valleys.

The total, realistic return for a person contributing a monthly sum to their 401K over the last 15 years is quite reasonable and positive. For perspective the S&P 500 (basically the US part) part of my portfolio has done MUCH better than my international part. Even still, the international part is still positive returns due to reinvested dividends and regular contributions. I think he has a political agenda here, that's all. I may agree or disagree with what he wants to do (remove the top limit on social security taxation), but putting out funny math like this, is disingenuous at best.
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Re: S&P500 has basically gone nowhere for 15 years

Post by lack_ey »

We're up about 1.6% annualized after dividends and inflation since the start of 2000, pretty much at the peak of what we identify now as the biggest stock bubble in US history. Since 2001, more like 2.7%. Unlike ogd, I am going from the start of the calendar year and ending now in the middle of February for 2016.

When valuations fall, you shouldn't expect to make as much money. Since about mid-1995, when valuations were similar, the return after dividends and inflation has been more like 5.2%. That may or may not be unusually good, considering the circumstances. The incredible rise of the stock market between 1995 and 2000 contributed to lower returns since.

Nobody knows where valuations are going from here and how earnings and everything else will evolve. But middling returns when valuations fall should be no cause for panic or even consternation. It may persist but it's probably less likely to persist after things fall further down to earth.
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Re: S&P500 has basically gone nowhere for 15 years

Post by biscuits222 »

Ignoring dividends would be like ignoring interest on cash savings, in fact worse, since dividends can grow at rates above inflation with time, while interest rates tend to be more fixed and track inflation closely. According to Morningstar, $10,000 in Vanguard 500 on this date in 2001 has turned into $18,754.82 before inflation but including dividends. After inflation, those 87.5% gains might be 30-40% real, that's my rough guess. It's a strange fact that the real price can stay the same for decades while real total return can be up due to dividends. Dividend payouts per s&p 500 share are several times higher now than in 2001.

"Since 1945, total dividends paid are up sixty-six fold. The average growth rates for one, three and five years were 5.8%, 19.8% and 33.9%, respectively."
http://awealthofcommonsense.com/2016/01/getting-to-4-2/

http://www.multpl.com/s-p-500-dividend-growth
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Re: S&P500 has basically gone nowhere for 15 years

Post by Beat The Street »

Wow the comments on that guy's post are alarming, very uneducated people.
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Re: S&P500 has basically gone nowhere for 15 years

Post by nisiprius »

lack_ey wrote:We're up about 1.6% annualized after dividends and inflation since the start of 2000, pretty much at the peak of what we identify now as the biggest stock bubble in US history.
Yep. I like this calculator, which seems to be reliable as far as I know.

http://www.moneychimp.com/features/market_cagr.htm

It's showing that, including dividends, 2000 through 2015 inclusive:
--1.83% real (annualized) when corrected for inflation,
--4.02% uncorrected for inflation,
--over the whole period $1.00 grew to $1.88

which is far from "going nowhere." We can crosscheck that last one easily at Morningstar which confirms that $10,000 invested in Vanguard 500 Index Admiral Shares would have grown to $18,856.41.
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Re: S&P500 has basically gone nowhere for 15 years

Post by ThereAreNoGurus »

Phineas J. Whoopee wrote:Unless one takes dividends into account, as the linked article notes when Reich specifies it's only prices he's looking at. Dividends come directly out of stock prices, so studies that ignore them are meaningless.
PJW
Before I clicked the OP's link, I read the above post, saw the name Reich, groaned to myself wondering if it was Robert Reich, visited the link, yep, it sure was. Immediately returned here.

Glad to see posters refuting the irritating (to me) noise and nonsense he generated.
Trade the news and you will lose.
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Re: S&P500 has basically gone nowhere for 15 years

Post by MrVargas »

Beat The Street wrote:Wow the comments on that guy's post are alarming, very uneducated people.
The lack of financial and investment knowledge in the real world is mind-blowing. At my job (I'm a high school teacher) I have encountered 2 people that have any solid understanding of investing (one is the principal who comes form a wealthy family and the other used to be a financial advisor). The most annoying are the people who know nothing but talk like they know what they're doing and try to give me advice (telling me to put my money in an annuities which are ripoff insurance products peddled to us teachers to put our 403B funds into).
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Re: S&P500 has basically gone nowhere for 15 years

Post by JoMoney »

xjz wrote:Here's a total return chart for S&P 500 from PerfCharts: link. Unfortunately no adjustment for inflation. I'm not really aware of a good source that makes inflation-adjusted total return charts (if anybody has a source of data like that, please tell me :happy) ....
Here's a link to a Morningstar chart showing the inflation adjusted return on stocks.
It's using the "Ibbotson Associates Stocks, Bonds, Bills, and Inflation Yearbook" values for "Large U.S. Stocks" on a Total Return basis including dividends. It's essentially the S&P Index and a pretty good proxy for the entire U.S. stock market with data going back to 1926

Here's a fun chart from Jeremy Siegel's book "Stocks For the Long Run", it's missing the most recent few year but at this scale that's just noise :wink:
Image
There are objections to the reliability of his data going back 200 years, there's a Jason Zweig WSJ article you can google search for, and this is Jeremy Siegel's rebuttal : http://www.jeremysiegel.com/index.cfm?f ... rceID=6950
Last edited by JoMoney on Sat Feb 13, 2016 5:54 pm, edited 1 time in total.
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Re: S&P500 has basically gone nowhere for 15 years

Post by biscuits222 »

as for USA having a Japan-style lost 30 years for stocks in future, it's worth noting a few things:

i think japan's late-80s bubble had a much higher peak P/E than the dot-com bubble in USA
japan has had lower birth rates and much lower immigration. usa has population growth, japan has decline. pop growth is a postive for general growth in demand for things s&p 500 constituents sell. [OT comments removed by admin LadyGeek]
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Re: S&P500 has basically gone nowhere for 15 years

Post by ogd »

xjz wrote:Here's a total return chart for S&P 500 from PerfCharts: link. Unfortunately no adjustment for inflation. I'm not really aware of a good source that makes inflation-adjusted total return charts (if anybody has a source of data like that, please tell me :happy).
ogd wrote:The S&P has returned 88% over the past exact 15 years if we include dividends.
What are the date bounds for that figure? That looks high relative to the perfchart...
This is my link: morningstar.

Note that SPX might be a price return index.
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Re: S&P500 has basically gone nowhere for 15 years

Post by itstoomuch »

For most people (Boomers and others) who have been DCA for the said years, They have done very well.
For the few people who deposited $$$ in .SPY for the said years, Have done OK from the divs but have lost $ due to inflation.
YMMV :moneybag
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Nick341981
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Re: S&P500 has basically gone nowhere for 15 years

Post by Nick341981 »

Thanks for the great replies. I was just trying to get some perspective on the situation from some more informed people. I looked on Morningstar and from 2000 to 1/31/16 10k grew to about 17k. Dividends during this time period were at historic lows also. When you factor in inflation it's hard to not chock it up to a lost decade and a half. Between the tech and housing crash it's been a crazy roller coaster of volatility for such low returns too. It almost seems like the 80's and 90's were the anomaly in the big picture of the last 100 years. I hope I'm wrong though
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Re: S&P500 has basically gone nowhere for 15 years

Post by burt »

Regarding:

"It's showing that, including dividends, 2000 through 2015 inclusive:
--1.83% real (annualized) when corrected for inflation,
--4.02% uncorrected for inflation,
--over the whole period $1.00 grew to $1.88 "

Seems like I remember Mr. Bogle mentioning in one of his books, to be very thankful to the market for 3-4% returns above inflation.
When considering risk, 1.83% APR over 15 years makes me not so thankful.

burt
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Re: S&P500 has basically gone nowhere for 15 years

Post by Phineas J. Whoopee »

itstoomuch wrote:For most people (Boomers and others) who have been DCA for the said years, They have done very well.
For the few people who deposited $$$ in .SPY for the said years, Have done OK from the divs but have lost $ due to inflation.
YMMV :moneybag
I'm afraid I'm failing to understand the distinction you're drawing. Can you be more explicit?
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Re: S&P500 has basically gone nowhere for 15 years

Post by JoMoney »

burt wrote:Regarding:

"It's showing that, including dividends, 2000 through 2015 inclusive:
--1.83% real (annualized) when corrected for inflation,
--4.02% uncorrected for inflation,
--over the whole period $1.00 grew to $1.88 "

Seems like I remember Mr. Bogle mentioning in one of his books, to be very thankful to the market for 3-4% returns above inflation.
When considering risk, 1.83% APR over 15 years makes me not so thankful.

burt
But don't forget about the 15.3% above inflation returns over the 15 year period 1985-2000.
I wouldn't expect the next 15 years to be like either of the periods leading up to the peaks of 2000, or off from it... but the dismal lows could have been balanced with some amazing highs for someone who averaged in over time.
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Re: S&P500 has basically gone nowhere for 15 years

Post by itstoomuch »

^^
Reich has pointed out that .SPY is the same today vs 2000 adjusted for inflation. Very few Boomers have enough one time cash to make a buy in 1990 and then hold for the next 25 years. In the meantime the divs from .SPY have done OK vis-a-vis CDs and shortterm Bonds in a BuynHold (?? supposition on my part, IMO)

But how many people buy one time and hold? I'd guess that most of us had to DCA into retirement assets. We did.

I must say that the Lost Decade was a harrowing time for us even with DCA purchases plus over 50 purchases.
IMO, Reich real agenda is SS.
YMMV.
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Re: S&P500 has basically gone nowhere for 15 years

Post by Phineas J. Whoopee »

itstoomuch wrote:...
IMO, Reich real agenda is SS.
YMMV.
Thanks for the clarification, and yes, Reich certainly was explicit about his Social Security opinion in the article which kicked off the thread. With luck it won't become a subject for discussion here.
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Re: S&P500 has basically gone nowhere for 15 years

Post by Toons »

Nick341981 wrote:Thanks for the great replies. I was just trying to get some perspective on the situation from some more informed people. I looked on Morningstar and from 2000 to 1/31/16 10k grew to about 17k. Dividends during this time period were at historic lows also. When you factor in inflation it's hard to not chock it up to a lost decade and a half.

Would you have rather been in cash? :happy
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Re: S&P500 has basically gone nowhere for 15 years

Post by Nick341981 »

Yeah, please exclude his comments on social security. I was more regarding the first paragraph when creating this topic.
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Re: S&P500 has basically gone nowhere for 15 years

Post by Nick341981 »

Toons wrote:
Nick341981 wrote:Thanks for the great replies. I was just trying to get some perspective on the situation from some more informed people. I looked on Morningstar and from 2000 to 1/31/16 10k grew to about 17k. Dividends during this time period were at historic lows also. When you factor in inflation it's hard to not chock it up to a lost decade and a half.

Would you have rather been in cash? :happy
Good point. Obviously no, but I'm sure it has been a seriously gut wrenching past 15 years for anyone that had a sizable amount of money in the S&P for not much return when calculating for inflation
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Re: S&P500 has basically gone nowhere for 15 years

Post by Raybo »

I didn't read the article, but no one has mentioned tax loss harvesting or rebalancing. The use of both greatly changes the returns over a one-time purchase and hold (who would do this?)

I rebalanced on the way down in 2008 (several times) and effectively doubled my money (that is, I now have to pay capital gains on 50 cents of every dollar I sell).

I will gladly have another 15 years of what we just had!
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Post by Taylor Larimore »

Nick341981 wrote:https://www.facebook.com/RBReich/posts/ ... 74688957:0

I'm just curious to get bogleheads feedback on the current market we have been in. Do you feel that this is something that will persist such as Japan?
Nick:

Mr. Reich wrote:
If you look at what's happened since 2000 and you adjust for inflation, the average stock price hasn't increased at all (see chart below).
Anyone who makes a categorical statement using a chart, not including dividends as evidence,[/u] is misleading and dangerous.
"There are lies, damned lies and statistics."
Best wishes.
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Re: S&P500 has basically gone nowhere for 15 years

Post by nisiprius »

JoMoney wrote:It's using the "Ibbotson Associates Stocks, Bonds, Bills, and Inflation Yearbook" values for "Large U.S. Stocks" on a Total Return basis including dividends. It's essentially the S&P Index and a pretty good proxy for the entire U.S. stock market with data going back to 1926
Amazing! I had no idea that was on Morningstar. How on earth did you discover it?
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Re: S&P500 has basically gone nowhere for 15 years

Post by Jeff Albertson »

Smart guy, very good sense of humor -
https://www.youtube.com/watch?v=kWliylnxSrA
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Re: S&P500 has basically gone nowhere for 15 years

Post by nisiprius »

Nick341981 wrote:Thanks for the great replies. I was just trying to get some perspective on the situation from some more informed people. I looked on Morningstar and from 2000 to 1/31/16 10k grew to about 17k. Dividends during this time period were at historic lows also. When you factor in inflation it's hard to not chock it up to a lost decade and a half. Between the tech and housing crash it's been a crazy roller coaster of volatility for such low returns too. It almost seems like the 80's and 90's were the anomaly in the big picture of the last 100 years. I hope I'm wrong though
I'm sorry, I just don't think 1.8% real annualized counts as a "lost decade and a half." It may not be what people think they were promised, but it's not a nominal dollar loss and it's not a loss with respect to inflation.

It was, however, a 16-year period (counting on fingers, yeah, 2000-2015 inclusive is 16 years) over which Vanguard Total Bond Market Index beat Vanguard Total Stock Market Index.

Disappointing, sure. Not what the retirement seminar I took in 1998 suggested I could expect. The series I savings bonds I bought in 2000 have done better than stocks.

But stocks have not been anything I would call a "loss."

Now, 1966-1982, just under 0% real annualized, that was a lost 17 years.
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Re: S&P500 has basically gone nowhere for 15 years

Post by JoMoney »

nisiprius wrote:
JoMoney wrote:It's using the "Ibbotson Associates Stocks, Bonds, Bills, and Inflation Yearbook" values for "Large U.S. Stocks" on a Total Return basis including dividends. It's essentially the S&P Index and a pretty good proxy for the entire U.S. stock market with data going back to 1926
Amazing! I had no idea that was on Morningstar. How on earth did you discover it?
Just stumbled onto it when looking for a chart for something else. There's all sorts of index data on there. I posted a rough how-to here:
viewtopic.php?f=10&t=179425#p2718790
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Re: S&P500 has basically gone nowhere for 15 years

Post by gvsucavie03 »

Yep, according to Morningstar, a $10,000 investment back on 2/13/2001 into TSM (VTSAX) would have slightly more than doubled. Hardly anything to get excited about, but at least it did something.

A rough rule of 72 puts that at 4.8% per year (well, slightly more as the fund more than doubled, so maybe say 5%). Yay.
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Re: S&P500 has basically gone nowhere for 15 years

Post by paper200 »

Looks like Dr. Reich did not realize the the chart was excluding dividends reinvested. Its unfortunate that he did not look into this deeper and added more confusion than necessary. Hopefully, someone would have pointed out the facts to him. Further, a balanced portfolio would have done better. In my pre-boglehead days i would have taken the conclusion presented by someone like Dr. Reich as the truth. I think like the Mythbusters show - this subject should be classified as busted 8-)
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Re: S&P500 has basically gone nowhere for 15 years

Post by JoMoney »

Running a scenario on PortfolioVisualizer.com , If you had $100,000 invested in Vanguard Total Stock Market (VTSMX) in Jan-2000, you could have withdrawn 3.9% of the annual remaining balance at the end of each year and have a balance of $100,388 in Jan-2016.
Granted the dollar amounts and balances would have been quite volatile over the years.. but still something worth considering I think.
The withdrawals each year would have been:

Code: Select all

2000: $3,488
2001: $2,984 
2002: $2,267
2003: $2,861
2004: $3,094
2005: $3,151
2006: $3,498
2007: $3,546
2008: $2,145
2009: $2,653
2010: $2,986
2011: $2,897
2012: $3,236
2013: $4,147
2014: $4,481
2015: $4,319
16 withdrawals totaling $51,753 , combined with the remaining balance of $100,388, it still may not represent the growth rates the market seemed to be anticipating back in Jan-2000 but it's not "nowhere" either.
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Re: S&P500 has basically gone nowhere for 15 years

Post by visualguy »

nisiprius wrote: It's showing that, including dividends, 2000 through 2015 inclusive:
--1.83% real (annualized) when corrected for inflation,
--4.02% uncorrected for inflation,
--over the whole period $1.00 grew to $1.88

which is far from "going nowhere." We can crosscheck that last one easily at Morningstar which confirms that $10,000 invested in Vanguard 500 Index Admiral Shares would have grown to $18,856.41.
Does this take into account taxes on the dividends and capital gains? Would you have beaten inflation at all after taxes?
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Re: S&P500 has basically gone nowhere for 15 years

Post by lack_ey »

paper200 wrote:Looks like Dr. Reich did not realize the the chart was excluding dividends reinvested. Its unfortunate that he did not look into this deeper and added more confusion than necessary. Hopefully, someone would have pointed out the facts to him. Further, a balanced portfolio would have done better. In my pre-boglehead days i would have taken the conclusion presented by someone like Dr. Reich as the truth. I think like the Mythbusters show - this subject should be classified as busted 8-)
I'm not sure.

This is what he wrote:
Investment managers (who used to be called stock brokers) will tell you that over the long haul you can count on an average 7 percent annual increase in stock prices. That's technically correct, but their arithmetic includes the 1980s and 1990s stock market boom. If you look at what's happened since 2000 and you adjust for inflation, the average stock price hasn't increased at all (see chart below).
Twice he writes "price" and the graph shows price. It is true that the inflation-adjusted S&P 500 price return since 2000 has been negative, which is what he writes and what the graph shows. But it's also misleading to neglect to mention dividends at all. Even if you provide a price return chart, you should at least mention the dividends.

Now, is it actually true that the price return averages 7%? If he means a geometric average then there are plenty of periods where you can quote a 7% average return, but in many periods it's a bit less than that, including starting from 1957, the start of the S&P 500, or backfilling the composite to 1927 or 1871. For arithmetic mean, sure, that number is higher.

visualguy wrote:
nisiprius wrote: It's showing that, including dividends, 2000 through 2015 inclusive:
--1.83% real (annualized) when corrected for inflation,
--4.02% uncorrected for inflation,
--over the whole period $1.00 grew to $1.88

which is far from "going nowhere." We can crosscheck that last one easily at Morningstar which confirms that $10,000 invested in Vanguard 500 Index Admiral Shares would have grown to $18,856.41.
Does this take into account taxes on the dividends and capital gains? Would you have beaten inflation at all after taxes?
It's customary not to take taxes into account for most calculations (these do not) because they're different for everybody and tax-advantaged accounts exist, etc.

Dividend yield was about 2% over the period with the top qualified dividends and long-term capital gains tax rate at 15% through much the period, 20% at some points, and 23.8% now (some others would see less). So that's a tax drag of let's say around 0.4% a year. If you really want you can look at the yearly return series and tax rates and run the exact numbers. If you sold it all, that would be a bit different from the now-less-than-$8856 in LTCG as some reinvested dividends would have a lower cost basis than the original $10000 investment in 2000, while some would have a higher cost basis. As a rough ballpark, if $8000 in LTCG is taxed at 23.8%, that costs $1904.

So after inflation and taxes, a return between 0-1%. With the YTD drop, using the S&P 500 and not the total market, assuming the highest tax rate, that basically wipes out all the return.
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Nick341981
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Re: S&P500 has basically gone nowhere for 15 years

Post by Nick341981 »

visualguy wrote:
nisiprius wrote: It's showing that, including dividends, 2000 through 2015 inclusive:
--1.83% real (annualized) when corrected for inflation,
--4.02% uncorrected for inflation,
--over the whole period $1.00 grew to $1.88

which is far from "going nowhere." We can crosscheck that last one easily at Morningstar which confirms that $10,000 invested in Vanguard 500 Index Admiral Shares would have grown to $18,856.41.
Does this take into account taxes on the dividends and capital gains? Would you have beaten inflation at all after taxes?

I'd be interested to know this too. I know people are making a big deal about the dividends but you also have to factor in that they have been pretty low over this time period at around 1.75 compared to a historical average around 4%.
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Re: S&P500 has basically gone nowhere for 15 years

Post by Nick341981 »

So after inflation and taxes, a return between 0-1%. With the YTD drop, using the S&P 500 and not the total market, assuming the highest tax rate, that basically wipes out all the return.[/quote]

Yikes, when you take into account the volitality of the tech bubble crash and the housing bubble thats pretty brutal.
lack_ey
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Re: S&P500 has basically gone nowhere for 15 years

Post by lack_ey »

With those numbers, you'd have had to buy shares at the peak, be in a high tax bracket throughout, and sell the entire investment while in the highest tax bracket (what in the world for? balling out with over $413,650 in taxable income while retired? I wish). Of course, you get pretty close in some brackets in between, but still.

I didn't run the exact numbers because frankly the difference between -1% and 1% is not huge.

And we can already point to 1966-1982, which would have been much worse, with dividends and tax rates higher over that period.
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JoMoney
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Re: S&P500 has basically gone nowhere for 15 years

Post by JoMoney »

Not sure if it interests anyone else, but I wanted to run a different simulation than I did above. Instead of picking a somewhat arbitrary percentage withdrawal, I used the life expectancy (RMD) withdrawal method someone might use on a retirement account to see what "going nowhere" would look like for someone taking regular withdrawals from Total Stock Market beginning in 2000 .

PortfolioVisualizer doesn't offer it as an option to simulate this withdrawal method in the Asset Allocation tool (but they do in the Monte Carlo... :idea: I wonder if it'll be a future 'upgrade' to add it to the Asset Allocation simulator )

Code: Select all

Year	Age	RMD	Withdrawal Balance
2000	60	4.00%	$4,000.00	$100,000.00
2001	61	4.10%	$3,519.78	$85,848.29
2002	62	4.30%	$3,151.92	$73,300.45
2003	63	4.40%	$2,439.57	$55,444.76
2004	64	4.60%	$3,202.72	$69,624.34
2005	65	4.80%	$3,587.27	$74,734.75
2006	66	5.00%	$3,770.12	$75,402.38
2007	67	5.20%	$4,302.64	$82,743.15
2008	68	5.40%	$4,468.31	$82,746.49
2009	69	5.60%	$2,760.00	$49,285.67
2010	70	5.90%	$3,532.78	$59,877.61
2011	71	6.10%	$4,024.55	$65,976.24
2012	72	6.50%	$4,065.60	$62,547.67
2013	73	6.80%	$4,623.13	$67,987.16
2014	74	7.10%	$5,999.20	$84,495.75
2015	75	7.50%	$6,618.98	$88,253.12
2016	76	7.90%	$6,468.04	$81,873.90 
Anyways, the total growth wasn't appreciably different, I did it in a spreadsheet taking the withdrawal at the beginning of each year.
17 withdrawals totaling $70,534.60 and an end balance of $81,873.90 (combined = $152,408.50 )
Last edited by JoMoney on Sat Feb 13, 2016 11:00 pm, edited 1 time in total.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Dirghatamas
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Re: S&P500 has basically gone nowhere for 15 years

Post by Dirghatamas »

I earlier wrote about his methodology being completely wrong so I back tested on Portfolio Visualizer, how a reasonable employee investing periodically in their 401K say, would have done over this time. This to me is much closer and practical for the message he is trying to argue about (need to increase Social Security maximum). His basic premise is that if you are an employee and use a 401K or other retirement vehicle, you can't retire with much because with S&P 500 index fund to invest, you are doing poorly. As a result, the Govt should do XYZ (whatever his political agenda is)

So let us see. I used Portfolio Visualizer with the following inputs:

1) I used S&P 500 Index total returns (dividends reinvested) as the benchmark. It is available as a choice on Portfolio Visualizer
2) Our model employee started in January 2000 and ended in January 2016. This person started with an ~ empty 401K ($1 just to make the tool happy)
3) He/she invested 1000 dollars every month inflation adjusted from then to now. So, they DCA across this entire time frame. This is realistically, how most of us in accumulation actually invest. Our salaries do go up over time with inflation (at the very least, leaving out other raises), so should our contributions..
4) No taxes as this is a 401K type analysis.
5) I have listed in table below, both nominal and inflation adjusted results. The inflation adjustment is already available in Portfolio Visualizer as an option.

Portfolio Returns

Code: Select all


Nominal Returns

Portfolio        Initial Balance Final Balance   IRR
S&P 500          $1              $428,183       7.37%
Total Return

Inflation adjusted Returns

Portfolio        Initial Balance Final Balance     
S&P 500          $1              $304,638           
Total Return

Whether one looks at nominal data or inflation adjusted, these are excellent results. Not sure what he is complaining about (well I know exactly, but that is Politics not facts). I am perfectly happy with these results. My second half (International Stocks) have done much worse and I am OK with them too :happy
itstoomuch
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Re: S&P500 has basically gone nowhere for 15 years

Post by itstoomuch »

Let's remember that he is using .SPY as the benchmark and making the comparison to SS.
He knows that future SS is in trouble in today's low interest environment.
He knows that most Americans will have a small IRA of <$100,000 at retirement and a relatively small SS Income.

Whether his illustration is in/correct to what he is saying is not as important as the message.
JMO
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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baw703916
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Re: S&P500 has basically gone nowhere for 15 years

Post by baw703916 »

A few comments, both negative and positive.

First the negatives:

The S&P 500, including dividends, returned a total of 88% (nominal) or 34% real over a 16 year period. That's ok, not terrible, but not spectacular either. However there are some idealized assumptions. First, our hypothetical investor held a 100% equity portfolio. This is unrealistic, and not recommended on this board (as can easily be verified by the responses to any post asking "why not 100% equities?").

Now in fact these last 16 years holing some of one's portfolio in bonds would have actually improved returns, but many on this board tend to remind people that 1) the more you invest in bonds, the lower your expected return, in spite of the counter example of the historical returns these past 16 years; 2) it's unwarranted to assume a negative correlation between bonds and stocks in future bear markets, so don't expect any rebalancing magic; 3) it's pretty much mathematically impossible for bonds to return what they have in 2000-16going forward, given the low current interest rates.

Also, there's the assumption of no expenses or tracking error, no tax costs, and perfect investor behavior. The first will be largely true is one invests in a low cost index fund, but often these aren't available in a 401(k). The second is only true in a tax-advantaged account. Assuming an average dividend yield of 3% over the 16 year period, 100% qualified at the 15% rate, still eats up about a quarter of the total real return.

How many investors would have just stayed 100% equities through everything that's happened since 2000? To quote wbern, the answer is probably not much different than zero. The "markets in free fall" thread continues to get lots of new posts every time the S&P drops for more than one week---and this is the BOGLEHEADS board, for heaven's sake!

Now the bright side:

Has there ever been another 16 year period when the index values fluctuated but didn't have any sustained gains?

Well, yes there was. From 1966-1982 the index values didn't go up much. Dividend rates (and consequently total returns) were much higher then than 2000-16, but so was inflation (and tax costs as many current retirement vehicles didn't exist then). And the mood in the financial world was really gloomy--I'm old enough to remember it.

So how did things go after 1982? Really, really well!!! I'm not saying it will necessarily happen again, but the fact is that 16 years of modest returns while economic growth has generally been good is if anything an optimistic sign, as it means that valuations are now much more reasonable.
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Re: S&P500 has basically gone nowhere for 15 years

Post by visualguy »

Nick341981 wrote: Yikes, when you take into account the volitality of the tech bubble crash and the housing bubble thats pretty brutal.
Yes, and it's quite a bit worse if you look at ex-US, so if you had that as part of your stock portfolio, it's even more brutal.
Dirghatamas
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Re: S&P500 has basically gone nowhere for 15 years

Post by Dirghatamas »

itstoomuch wrote: Whether his illustration is in/correct to what he is saying is not as important as the message.
JMO
Sorry but I got to disagree on first principles. Facts are facts. There is a saying "good ends don't justify bad means". As I just illustrated painstakingly in the post above yours, if a person saved a very reasonable amount (1000 dollars a month) and invested it in S&P 500 index in their 401K, they did great in the so called "lost decade". The reason people have low 401K or IRA balances is because most people don't save or panic or whatever. That's not the fault of the 401K system or the defined contribution plan or the economic engine of the USA (represented by the S&P 500 stock market).

If instead of his post he had said: "frugal people who live below their means, save and invest in diversified assets in retirement accounts have done great. Unfortunately, most people live way beyond their means. They save nothing and speculate instead of diversified investments. As a result, the responsible folks need to step in and solve these irresponsible folks retirement dilemma".

Those would be facts. I obviously agree with you that most people don't have enough saved in IRA/401K. Thats their fault not of either S&P or 401K system
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Re: S&P500 has basically gone nowhere for 15 years

Post by lack_ey »

baw703916 wrote:So how did things go after 1982? Really, really well!!! I'm not saying it will necessarily happen again, but the fact is that 16 years of modest returns while economic growth has generally been good is if anything an optimistic sign, as it means that valuations are now much more reasonable.
1982:
P/E = 7.73
CAPE = 7.39

2000:
P/E = 29.04
CAPE = 43.77

Today:
P/E = 20.57
CAPE = 23.61

I predict returns going forward between the 2000-present level and the 1982-2000 level, at least as the baseline. I know, such a bold stance.
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Re: S&P500 has basically gone nowhere for 15 years

Post by Dirghatamas »

visualguy wrote:
Nick341981 wrote: Yikes, when you take into account the volitality of the tech bubble crash and the housing bubble thats pretty brutal.
Yes, and it's quite a bit worse if you look at ex-US, so if you had that as part of your stock portfolio, it's even more brutal.
Sorry. I again got to remind people that facts are facts. I actually hold the exact portfolio you describe so I ran it again through Portfolio visualizer. If you read my post a few above, I did a realistic model of what a person actually doing DCA got if they invested in the S&P 500: their IRR was actually 7.37% which is very good.

Now to model the case you are talking about, I just entered a different Portfolio Visualizer model with 50/50 US/International contributions with no rebalancing. It reports an IRR of 5.32 % over that time frame. This is over the "lost decade" and over a time international has done horribly. My results are perfectly satisfactory. Again, advocacy is fine, but people need to quote actual facts. The real returns for a person DCAing over the last 15 years in US stocks has been great. The real returns of a person DCAing a globally diversified US/International portfolio is also quite OK. Those are the facts.
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Re: S&P500 has basically gone nowhere for 15 years

Post by baw703916 »

lack_ey wrote: I predict returns going forward between the 2000-present level and the 1982-2000 level, at least as the baseline. I know, such a bold stance.
:beer

I like the analysis, but I propose taking inflation into account:

Using these inflation numbers: http://www.usinflationcalculator.com/in ... ion-rates/

1982
E/P (inverse of P/E): 12.9%
inflation: 6.2%
net real earnings return: 6.7%

2000
E/P: 3.4%
inflation: 3.4%
net real earnings return: 0.0%!!!

2016
E/P: 4.9%
inflation (2015): 0.1%
net real earnings return: 4.8%

Viewing it this way, today looks much more like 1982 than 2000.
Last edited by baw703916 on Sat Feb 13, 2016 11:59 pm, edited 1 time in total.
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visualguy
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Re: S&P500 has basically gone nowhere for 15 years

Post by visualguy »

Dirghatamas,

You are looking at a particular scenario - regular small contributions throughout the entire period, tax-deferred account, etc.

What about the money you already had in the stock market in 2000 - it hasn't grown much since then. If you lump summed, you were in a particularly unfortunate situation. If you were retired, you did poorly. If you lost your job or business at the times the market crashed and couldn't contribute at the lows, you did poorly. If on top of all that, it was a taxable account, you did even more poorly, etc.

Also, here we are in 2016, and even though the US market dropped recently, it's still expensive relative to earnings, so the returns since 2000 could easily look even worse in a year or two (maybe closer to what we already see with ex-US).

I think Robert Reich's point is very valid.
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Re: S&P500 has basically gone nowhere for 15 years

Post by thefireguy »

MrVargas wrote:
Beat The Street wrote:Wow the comments on that guy's post are alarming, very uneducated people.
The lack of financial and investment knowledge in the real world is mind-blowing. At my job (I'm a high school teacher) I have encountered 2 people that have any solid understanding of investing (one is the principal who comes form a wealthy family and the other used to be a financial advisor). The most annoying are the people who know nothing but talk like they know what they're doing and try to give me advice (telling me to put my money in an annuities which are ripoff insurance products peddled to us teachers to put our 403B funds into).
Yikes, the uninformed level of comments on this article is off the charts. It's so hard to keep my mouth shut when I'm talking to people who think they are so called experts, but don't even understand the basic mechanics of a 401k. [OT comment removed by admin LadyGeek]
itstoomuch
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Re: S&P500 has basically gone nowhere for 15 years

Post by itstoomuch »

Dirghatamas wrote:
itstoomuch wrote: Whether his illustration is in/correct to what he is saying is not as important as the message.
JMO
Sorry but I got to disagree on first principles. Facts are facts. There is a saying "good ends don't justify bad means". As I just illustrated painstakingly in the post above yours, if a person saved a very reasonable amount (1000 dollars a month) and invested it in S&P 500 index in their 401K, they did great in the so called "lost decade". The reason people have low 401K or IRA balances is because most people don't save or panic or whatever. That's not the fault of the 401K system or the defined contribution plan or the economic engine of the USA (represented by the S&P 500 stock market).... snip
He's a political economist. Politics is his game and soundbites/facebook is his medium :wink:
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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