Boglehead Portfolio vs. All Other Possible Investments

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joer1212
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Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Thu May 25, 2017 12:26 pm

Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?

* total stock, total bond, total int'l (optional: small-cap value, REITs and TIPS)
Last edited by joer1212 on Thu May 25, 2017 12:45 pm, edited 3 times in total.

bigred77
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by bigred77 » Thu May 25, 2017 12:31 pm

Most here (or at least I do) believe it does based on academic research.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by friar1610 » Thu May 25, 2017 12:53 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?

* total stock, total bond, total int'l (optional: small-cap value, REITs and TIPS)
I think it is an excellent bet to achieve what you described. Whether or not it's the best bet won't be known until the long-term (however you define that.) So, excellent prospects but no guarantees.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by BHUser27 » Thu May 25, 2017 12:59 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere?
I have no idea if it is the "best bet". But after a lot of research, it is a "good enough bet" for me.
(FWIW - I do not invest in international directly)

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Phineas J. Whoopee
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Phineas J. Whoopee » Thu May 25, 2017 1:02 pm

OP: are you asking about a decision one can make today based on today's information; or about the particular results of that decision at a predefined point in the future?
PJW

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by mc2 » Thu May 25, 2017 1:06 pm

I guess for me, I'm happy with a bird in the hand, so to speak. Knowing that a 3-fund won't be screwing me and costing unnecessarily, I've been happy since I converted as much as I can to the 3 fund portfolio. When I look at my company's 401k offerings, very few-like 1 or 2 have outperformed the SP500 over the past 5 years. My pedestrian choices seem to have paid off.

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JoMoney
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by JoMoney » Thu May 25, 2017 2:01 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?

* total stock, total bond, total int'l (optional: small-cap value, REITs and TIPS)
No, it will not have the highest possible return, risk-adjusted or otherwise. Broad diversification pretty much ensures that there will be some other portfolio that achieves higher returns...
The aggregate results of other stock investors will be the same (minus costs) whether they like it or not, but that doesn't preclude that a few of them can't do better (at the expense of all those who perform worse). But I don't know how to chose a portfolio that will have the highest returns in advance, and I don't know how to distinguish between others who say they can and might be able to, and those who are just selling a story.

I know how to take extra risks beyond a broad average, but I don't know how to tell in advance whether above average risks have a justifiable advantage or are just flipping a coin.
I know how to spend more money on expenses and transaction costs, but that doesn't interest me either.
I know how to build a complicated portfolio with lots of pieces that will need periodic managing, but I don't see that as having any advantage. A market-cap weighted portfolio makes those decision incredibly easy.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

joer1212
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Thu May 25, 2017 2:05 pm

Phineas J. Whoopee wrote:OP: are you asking about a decision one can make today based on today's information; or about the particular results of that decision at a predefined point in the future?
PJW
I'm asking about a decision one can make today, with the information that's available now.

Also, bear in mind that I am comparing an index portfolio to every conceivable investment opportunity out there, with the exception of starting a business (buying homes and renting the units; purchasing art; investing in Bitcoin and/or other crytocurrencies; flipping homes; picking stocks with the best PE ratios and/or dividend yields, etc.). Don't forget that I'm talking about long-term, risk-adjusted returns, difficult to quantify as that may be.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Thu May 25, 2017 2:10 pm

JoMoney wrote:
joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?

* total stock, total bond, total int'l (optional: small-cap value, REITs and TIPS)
No, it will not have the highest possible return, risk-adjusted or otherwise. Broad diversification pretty much ensures that there will be some other portfolio that achieves higher returns...
The aggregate results of other stock investors will be the same (minus costs) whether they like it or not, but that doesn't preclude that a few of them can't do better (at the expense of all those who perform worse). But I don't know how to chose a portfolio that will have the highest returns in advance, and I don't know how to distinguish between others who say they can and might be able to, and those who are just selling a story.

I know how to take extra risks beyond a broad average, but I don't know how to tell in advance whether above average risks have a justifiable advantage or are just flipping a coin.
I know how to spend more money on expenses and transaction costs, but that doesn't interest me either.
I know how to build a complicated portfolio with lots of pieces that will need periodic managing, but I don't see that as having any advantage. A market-cap weighted portfolio makes those decision incredibly easy.
OK, fair enough. You make some good points. But, keep in mind that I am comparing the expected long-term returns of various investments. No doubt, there will be portfolios and investments of all kinds that will outperform a Boglehead portfolio in the short term. But, will those investments outperform over a span of several decades? Have they in the past?
Last edited by joer1212 on Thu May 25, 2017 2:24 pm, edited 1 time in total.

NiceUnparticularMan
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by NiceUnparticularMan » Thu May 25, 2017 2:20 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere?
The best I am aware of, assuming you are talking about a typical retail investor with no insider information.
How do you know this?
Process of elimination. Almost everything else costs more, with no good reason to believe it will work better. The only things that cost less (like buying a single stock) we have good reason to believe will work worse.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by alex_686 » Thu May 25, 2017 2:23 pm

Yes, but....

It assumes a "Strong" interpretation of the "Efficient-Market Hypothesis" where all information is factored into the price of assets. I favor the "Semi-Strong" interpretation where there are market inefficiencies but they are hard or expensive to exploit.

It assumes that the underlying index are correctly constructed. They are not. A good example is the index that the Total Bond Market uses. It represents only about 10% of its defined market.

It assumes that trading is frictionless. Large parts of the bond market are illiquid. Small Cap, Emerging Market, and Real Estate are other examples.

It assumes that there are no distortions in the market. The rules around the taxing of REITs is one example. Regulations favoring the holding of long term government Treasuries by banks and insurance companies are another.

If you notice, most of the issues I bring up would be very hard for a individual investor to exploit. The portfolio you use is not prefect but very simple to implement. Improving that portfolio can be done but it would require much wori..

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by NiceUnparticularMan » Thu May 25, 2017 2:25 pm

joer1212 wrote:OK, fair enough. You make some good points. But, keep in mind that I am comparing the expected long-term returns of various investments. No doubt, there will be portfolios and investments of all kinds that will outperform a Boglehead portfolio in the short term. But, will those investments outperform over a span of decades? Have they in the past?
There are certainly individual stocks that have outperformed Boglehead portfolios over decades. For example:

https://www.fool.com/investing/2017/03/ ... -time.aspx

Expecting that to happen for any given stock in the future is the tricky part.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Thu May 25, 2017 2:44 pm

NiceUnparticularMan wrote:
joer1212 wrote:OK, fair enough. You make some good points. But, keep in mind that I am comparing the expected long-term returns of various investments. No doubt, there will be portfolios and investments of all kinds that will outperform a Boglehead portfolio in the short term. But, will those investments outperform over a span of decades? Have they in the past?
There are certainly individual stocks that have outperformed Boglehead portfolios over decades. For example:

https://www.fool.com/investing/2017/03/ ... -time.aspx

Expecting that to happen for any given stock in the future is the tricky part.
Hmm, interesting. But, let's say that I had created a portfolio containing these top-performing companies + 40% total bond fund, and held that portfolio for 40 years. Would the risk-adjusted returns (as measured, let's say, by the Sharpe ratio) have been as good as, or better, than a 60/40 Boglehead portfolio?

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by GLState » Thu May 25, 2017 2:55 pm

Index investors know that we will never have the "best" returns, risk adjusted or not. There will always be an asset class or asset will have a higher return than our portfolio. We are content to share in the growth of the world economy by owning most of the corporations in the world.

We'd likely have better risk-adjusted returns by investing in CDs or savings accounts which have very low risk in relation to return. However, the return on these safer assets may not outpace inflation and surely won't allow us to retire with the same lifestyle that we enjoyed while we were working.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Phineas J. Whoopee » Thu May 25, 2017 2:59 pm

I posted this number at least once before, but I think it's germane to the question at hand about the best risk-adjusted return one can expect today, without considering what the unknown eventual outcome will be, from any conceivable portfolio. Presumably unexpected financial ruin, or alternatively being the first up against the wall when the revolution comes, would be acceptable if not optimal results.

If one flips a fair coin 100 times, the most likely outcome, disregarding sequence, is 50 heads and 50 tails. The likelihood is only 8%, approximately one time out of twelve trials, and each of us long-term investors gets only one try at investing. Dispersion of results is wide.

The most likely outcome is unlikely to occur. I think this concept gets in the way of a lot of peoples' thinking.

PJW

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by GLState » Thu May 25, 2017 3:00 pm

joer1212 wrote: Hmm, interesting. But, let's say that I had created a portfolio containing these top-performing companies + 40% total bond fund, and held that portfolio for 40 years. Would the risk-adjusted returns (as measured, let's say, by the Sharpe ratio) have been as good as, or better, than a 60/40 Boglehead portfolio?
If we had invested X years ago in today's top performers we would have higher risk-adjusted returns than if we indexed, but we can't buy today's winner at yesterday's prices. We have to buy today without knowing what the future has in store.

Here's list of the top 10 S&P 500 stocks for various years. http://etfdb.com/history-of-the-s-and-p-500/#2000 These were the Googles, Facebooks, Netflixes, Amazon's of their day. They would be the stocks you hold today if your strategy had been to buy only top stocks.
Last edited by GLState on Thu May 25, 2017 3:26 pm, edited 1 time in total.

protagonist
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by protagonist » Thu May 25, 2017 3:03 pm

joer1212 wrote: OK, fair enough. You make some good points. But, keep in mind that I am comparing the expected long-term returns of various investments. No doubt, there will be portfolios and investments of all kinds that will outperform a Boglehead portfolio in the short term. But, will those investments outperform over a span of several decades? Have they in the past?
You ask good questions.

But realize, none of us have a crystal ball and when you speak of several decades in the future, chaos rules.

Any investment theory or research you will find will be based on past returns during what has been a totally remarkable century (at the very least)...it has been one of the greatest growth periods in the history of civilization. Besides which the period of data collection has been too short to be statistically meaningful if you are talking decades into the future, even if you do believe that the past repeats itself.

Most of us here believe, from what we have read and from our logical conclusions, that low-cost diverse index investing is the best plan. It is certainly one of the simplest, if not the simplest.

I, for one, realize that I am just a bozo on this bus. I admit I'm guessing, and I do believe my guess is as good as anybody else's regarding the future, including the greatest of the experts (of which I certainly am not). I like the "Boglehead approach". But as with any other major decision in life- marriage, taking a job, buying a new home, whatever- you have limited information and you never really know how it will turn out. It is not over until it is over.

Don't take our words for it. Do your diligent research. Read as much as you can of what is out there, and come to your own conclusions. Perhaps you will decide that our approach is the best, or perhaps not.

And remember, if the future proves your guess was wrong, and you lose money, that does not mean that it was not the best guess at the time given the information available. It's easy to say through the retrospectoscope that we should have known that 9/11 was coming, or that the 2008 crash would happen, or ..... It's a favorite criticism. That does not mean it was easy on 9/10. Or in 2007.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by NiceUnparticularMan » Thu May 25, 2017 3:10 pm

joer1212 wrote:
NiceUnparticularMan wrote:
joer1212 wrote:OK, fair enough. You make some good points. But, keep in mind that I am comparing the expected long-term returns of various investments. No doubt, there will be portfolios and investments of all kinds that will outperform a Boglehead portfolio in the short term. But, will those investments outperform over a span of decades? Have they in the past?
There are certainly individual stocks that have outperformed Boglehead portfolios over decades. For example:

https://www.fool.com/investing/2017/03/ ... -time.aspx

Expecting that to happen for any given stock in the future is the tricky part.
Hmm, interesting. But, let's say that I had created a portfolio containing these index-beating companies + 40% total bond fund, and held that portfolio for 40 years. Would the risk-adjusted returns (as measured, let's say, by the Sharpe ratio) have been as good as, or better, than a 60/40 Boglehead portfolio?
Yep. I like to use Eaton Vance for this purpose, because it has been both high return and relatively low volatility (for a single stock), it coincides with the period of mutual fund data availability, and you can even sorta make a rationalization for why it should work (it manages diversified investments, even if it is itself a single company).

I need to use VFINX (SP500) to go back as far as I can, which is "only" 1990, but here is what that looks like:

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Approximately normalizing Stdev requires 25%EV/75%TBM, and that looks like this:

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Note international index funds are relatively new, which is why I haven't used one yet. But Vanguard International Value and Growth are old, so let's try mixing in some of those:

https://www.portfoliovisualizer.com/bac ... tion5_3=10

Didn't help, the 25% EV portfolio still wins.

Of course this is the ultimate in benefiting from hindsight, but there you go. And my guess is I could do this for most periods--what you really need is just to catch now-big companies in their early stages of high stock appreciation at the beginning of whatever period you are looking at. Then you dial down the volatility with more bonds, and voila--it will score better in this sort of test.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by NiceUnparticularMan » Thu May 25, 2017 3:14 pm

GLState wrote:
joer1212 wrote: Hmm, interesting. But, let's say that I had created a portfolio containing these top-performing companies + 40% total bond fund, and held that portfolio for 40 years. Would the risk-adjusted returns (as measured, let's say, by the Sharpe ratio) have been as good as, or better, than a 60/40 Boglehead portfolio?
If we had invested X years ago in today's top performers we would have higher risk-adjusted returns than if we indexed, but we can't buy today's winner at yesterday's prices. We have to buy today without knowing what the future has in store.
That is in fact the problem.

Diversified portfolios make sense because we DON'T know exactly which companies will be the big winners during our investing period. But if for some reason we did, it would make no sense to dilute those big winners with a bunch of losers and mediocre performers.

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JoMoney
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by JoMoney » Thu May 25, 2017 3:18 pm

joer1212 wrote:...
OK, fair enough. You make some good points. But, keep in mind that I am comparing the expected long-term returns of various investments. No doubt, there will be portfolios and investments of all kinds that will outperform a Boglehead portfolio in the short term. But, will those investments outperform over a span of several decades? Have they in the past?
You are not going to beat the market by tracking the market, but you are certain to do better than most of the money actively trading trying to get something extra.
If you invest in a low cost stock index fund, and set your benchmark for "outperformance" as the results of active mutual funds, you'll be happy with the results.
The latest SPIVA U.S. Scorecard Year-End 2016 shows the S&P 1500 Index outperformed 82.23% of all U.S. equity funds. over the last 15 years.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Thu May 25, 2017 3:19 pm

Will the 3-fund portfolio beat many other portfolios out there, perhaps even the majority? Certainly. Will it have the highest returns of any portfolio out there? Very, very unlikely. Can you predict which portfolios out there will outperform the 3-fund portfolio based on the information you have available right now? Not precisely, but to the extent that the future resembles the past, possibly yes.

Many on this forum, including me, believe that certain segments of the stock market that have had higher returns than the total stock market and endured across time and geography are very likely to continue to do so over the long-term going forward. These segments include smaller-capitalization companies and 'value' companies (as opposed to 'growth). Historically speaking, portfolios tilted in these directions have, over the long-term, tended to outperform the total stock market in terms of total returns; small-cap value equities have had higher returns than the S&P 500 in every twenty year period in history except one. Whether this will continue going forward is unknown but hotly debated. You'll need to do the research and make your own decision.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Thu May 25, 2017 3:21 pm

NiceUnparticularMan wrote:
joer1212 wrote:
NiceUnparticularMan wrote:
joer1212 wrote:OK, fair enough. You make some good points. But, keep in mind that I am comparing the expected long-term returns of various investments. No doubt, there will be portfolios and investments of all kinds that will outperform a Boglehead portfolio in the short term. But, will those investments outperform over a span of decades? Have they in the past?
There are certainly individual stocks that have outperformed Boglehead portfolios over decades. For example:

https://www.fool.com/investing/2017/03/ ... -time.aspx

Expecting that to happen for any given stock in the future is the tricky part.
Hmm, interesting. But, let's say that I had created a portfolio containing these index-beating companies + 40% total bond fund, and held that portfolio for 40 years. Would the risk-adjusted returns (as measured, let's say, by the Sharpe ratio) have been as good as, or better, than a 60/40 Boglehead portfolio?
Yep. I like to use Eaton Vance for this purpose, because it has been both high return and relatively low volatility (for a single stock), it coincides with the period of mutual fund data availability, and you can even sorta make a rationalization for why it should work (it manages diversified investments, even if it is itself a single company).

I need to use VFINX (SP500) to go back as far as I can, which is "only" 1990, but here is what that looks like:

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Approximately normalizing Stdev requires 25%EV/75%TBM, and that looks like this:

https://www.portfoliovisualizer.com/bac ... tion3_2=60

Note international index funds are relatively new, which is why I haven't used one yet. But Vanguard International Value and Growth are old, so let's try mixing in some of those:

https://www.portfoliovisualizer.com/bac ... tion5_3=10

Didn't help, the 25% EV portfolio still wins.

Of course this is the ultimate in benefiting from hindsight, but there you go. And my guess is I could do this for most periods--what you really need is just to catch now-big companies in their early stages of high stock appreciation at the beginning of whatever period you are looking at. Then you dial down the volatility with more bonds, and voila--it will score better in this sort of test.
This is a wonderful tool. Will test it out. Thanks for sharing.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by protagonist » Thu May 25, 2017 3:25 pm

Another thing to consider, OP, if you are not sure, is what is the dollar value of simplicity to you? That is a hard one to answer.

Sometime around 1999 I sold all my stocks and put the proceeds into index funds. I had a demanding job, and I decided I would rather spend my precious free waking hours playing with my daughter or pursuing my hobbies than sitting in front of a computer monitor pouring through prospectuses, P/E ratios, alphas, betas, whatever. I haven't purchased a Wall Street Journal since. Though those things can be addictive, I find playing the saxophone more fun.

So no, I don't know if the Boglehead approach will ensure the best risk/reward ratio for my investments. But I also don't know that it won't and I am not convinced that another approach will. And I am having a lot more fun. It's hard to put a dollar value on fun. It's priceless.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by nisiprius » Thu May 25, 2017 3:30 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere?
I don't know.
How do you know this?
I don't know.

There are a large number of "sensible" portfolios that are good enough. We won't know which had the highest risk-adjusted return over the next thirty years until thirty years have gone by. Even then, we won't know whether the one that had the highest return was actually the best or whether it was just the luck of those thirty years.

So the question is, given that I don't think I know, what should I do? However, that's not the question you asked, so I won't try to answer it here.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by arcticpineapplecorp. » Thu May 25, 2017 5:57 pm

joer1212 wrote:
Phineas J. Whoopee wrote:OP: are you asking about a decision one can make today based on today's information; or about the particular results of that decision at a predefined point in the future?
PJW
I'm asking about a decision one can make today, with the information that's available now.

Also, bear in mind that I am comparing an index portfolio to every conceivable investment opportunity out there, with the exception of starting a business (buying homes and renting the units; purchasing art; investing in Bitcoin and/or other crytocurrencies; flipping homes; picking stocks with the best PE ratios and/or dividend yields, etc.). Don't forget that I'm talking about long-term, risk-adjusted returns, difficult to quantify as that may be.
First off, you need to realize that many things you say in the same breath as the word "investments" are not really investments.

Art? A commodity, not an investment. A speculation. It pays you nothing while you wait for the asset to increase in value. It produces nothing (you don't go from one piece of artwork to 2 over time). You only make money if you can sell it for more than you paid it. That's a speculation, not an investment. Plenty of people have lost money doing that. I assume you're not going to purchase Monet's, Picasso's, and the like. There are always stories of people making money selling all sorts of commodities (beanie babies, cabbage patch kids, etc). Markets sometimes dry up. I have a friend who had a house that was in an antique style. She couldn't sell it, no one wanted that anymore. They want modern looking homes now. She sunk alot of money into that house thinking it would sell for more in the future. It didn't.

Bitcoin? A currency, not an investent. A speculation. For all the same reasons as above. Yes, everyone wants to focus on Bitcoin (or whatever has gone up) but Bitcoin also "tumbled more than $400 from new high" just today (http://www.coindesk.com/bitcoins-price- ... -new-high/). People don't want to focus on that for obvious reasons.

Stock Picking? That's a speculation too, not an investment because you're excluding many stocks that could be the winners (no way of knowing that in advance). You have to because it would be too expensive to own as many as you might like to. Though in truth the market's returns are generally determined by a very few stocks. Again, no way to know which one's in advance. And they change from year to year. How sure are you that you'll pick right year after year for the rest of your life? P/E? Well that might tell you something, but it's not generally predictive. Yes, you want to buy stocks that are cheap. But they're also cheap for a reason. Ever heard the term "value trap"? That means the cheap stock you buy could go bankrupt. There goes your money. You know you can't lose your money invested in the market unless the entire market ends, right? If you think you have skill at picking stocks, then set up a dummy account with play money and pick stocks to your heart's content and then compare your returns vs. the market. Do this for several years so it's not just an anomoly (luck). Then try it with real money and tell us how you did. If you're good, you should start a hedge fund.

Renting real estate is an investment because it's an income producing asset (provided your income exceeds your expenses) AND you might get capital appreciation if you sell for more than you paid. But "flipping" houses is speculation. You do realize that people did that for many years in the mid 2000s only to be the ones without the chair when the music stopped in 2007-2008. They were stuck with houses they couldn't afford. They assumed they'd keep on selling at a higher price to the next sucker. When the music stops, you'll realize who the sucker really is.

Jack Bogle has said too many times to mention that the stock market has provided investors with generous returns over time. I'll never understand why that never seems to be good enough for so many people. In the meantime, the best way to invest (not speculate) is to own the markets of the world. That way you're investing in the economy of the entire planet. If you're not sure what portfolio to choose the link below shows that there are 150 portfolios (at least) to choose from. Some of them are bound to do better than the others too (and there's no way to know that in advance), but they're all pretty much variations of owning the market. You could do worse. Do not let the perfect be the enemy of the good enough. Good luck.

https://whitecoatinvestor.com/150-portf ... han-yours/
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Dominic » Thu May 25, 2017 6:08 pm

The best? No.

In theory, one of the best portfolios for the last 20ish years would have been 100% Apple. But we only know that in hindsight. You could have just as easily bought 100% Enron and gone broke.

However, some combination of low cost funds is likely to be among the best portfolios forever. It is mathematically impossible for higher cost active funds to outperform cheaper funds in the aggregate, and we also know that active management cannot outperform for extended periods of time. No one knows whether the best portfolio in the next two decades will be a 50/50 two fund portfolio, an 80/20 three fund portfolio, a Larry portfolio, or a really exotic slice and dice portfolio. But in terms of diversified portfolios, Boglehead portfolios will all outperform their similarly allocated peers.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by protagonist » Thu May 25, 2017 11:47 pm

arcticpineapplecorp. wrote:In the meantime, the best way to invest (not speculate) is to own the markets of the world. That way you're investing in the economy of the entire planet.
Playing devil's advocate, you mentioned that other forms of investment are speculation.

How is owning the markets of the world not speculation?

Yes, you are investing in the economy of the entire planet. The planet is incredibly interconnected. In 1997 an economic bubble popped in Thailand, Malaysia and other SE Asian countries. Oil prices plummeted, causing a financial crisis in Russia which led to the collapse of Long Term Capital Management. The only thing that prevented a massive market collapse in the USA was a federal bailout of trillions of dollars. When Kuala Lumpur sneezed, Moscow, Washington, Brazilia, and the rest of the world caught a cold.

Even a lone con man like Bernie Madoff can send powerful ripples crashing the world's markets.

I agree that flipping houses, bitcoin, stock picking etc. is speculating. You are guessing that your chosen investment will rise in value and hoping you are right.
When we invest in the world economy, we are guessing that the world economy will improve (as it has, for the most part, in recent history) and hoping we are right.
"Speculation" is just a pejorative term that implies that others are guessing while we know the truth.

I invest in the markets of the world. I don't know if they will rise or falter within the next 30 or 50 years. I'm gambling that they will rise. Call me an investor if you like what I do. Call me a speculator if you don't.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Fri May 26, 2017 2:27 am

arcticpineapplecorp. wrote:
joer1212 wrote:
Phineas J. Whoopee wrote:OP: are you asking about a decision one can make today based on today's information; or about the particular results of that decision at a predefined point in the future?
PJW
I'm asking about a decision one can make today, with the information that's available now.

Also, bear in mind that I am comparing an index portfolio to every conceivable investment opportunity out there, with the exception of starting a business (buying homes and renting the units; purchasing art; investing in Bitcoin and/or other crytocurrencies; flipping homes; picking stocks with the best PE ratios and/or dividend yields, etc.). Don't forget that I'm talking about long-term, risk-adjusted returns, difficult to quantify as that may be.
First off, you need to realize that many things you say in the same breath as the word "investments" are not really investments.

Art? A commodity, not an investment. A speculation. It pays you nothing while you wait for the asset to increase in value. It produces nothing (you don't go from one piece of artwork to 2 over time). You only make money if you can sell it for more than you paid it. That's a speculation, not an investment. Plenty of people have lost money doing that. I assume you're not going to purchase Monet's, Picasso's, and the like. There are always stories of people making money selling all sorts of commodities (beanie babies, cabbage patch kids, etc). Markets sometimes dry up. I have a friend who had a house that was in an antique style. She couldn't sell it, no one wanted that anymore. They want modern looking homes now. She sunk alot of money into that house thinking it would sell for more in the future. It didn't.

Bitcoin? A currency, not an investent. A speculation. For all the same reasons as above. Yes, everyone wants to focus on Bitcoin (or whatever has gone up) but Bitcoin also "tumbled more than $400 from new high" just today (http://www.coindesk.com/bitcoins-price- ... -new-high/). People don't want to focus on that for obvious reasons.

Stock Picking? That's a speculation too, not an investment because you're excluding many stocks that could be the winners (no way of knowing that in advance). You have to because it would be too expensive to own as many as you might like to. Though in truth the market's returns are generally determined by a very few stocks. Again, no way to know which one's in advance. And they change from year to year. How sure are you that you'll pick right year after year for the rest of your life? P/E? Well that might tell you something, but it's not generally predictive. Yes, you want to buy stocks that are cheap. But they're also cheap for a reason. Ever heard the term "value trap"? That means the cheap stock you buy could go bankrupt. There goes your money. You know you can't lose your money invested in the market unless the entire market ends, right? If you think you have skill at picking stocks, then set up a dummy account with play money and pick stocks to your heart's content and then compare your returns vs. the market. Do this for several years so it's not just an anomoly (luck). Then try it with real money and tell us how you did. If you're good, you should start a hedge fund.

Renting real estate is an investment because it's an income producing asset (provided your income exceeds your expenses) AND you might get capital appreciation if you sell for more than you paid. But "flipping" houses is speculation. You do realize that people did that for many years in the mid 2000s only to be the ones without the chair when the music stopped in 2007-2008. They were stuck with houses they couldn't afford. They assumed they'd keep on selling at a higher price to the next sucker. When the music stops, you'll realize who the sucker really is.

Jack Bogle has said too many times to mention that the stock market has provided investors with generous returns over time. I'll never understand why that never seems to be good enough for so many people. In the meantime, the best way to invest (not speculate) is to own the markets of the world. That way you're investing in the economy of the entire planet. If you're not sure what portfolio to choose the link below shows that there are 150 portfolios (at least) to choose from. Some of them are bound to do better than the others too (and there's no way to know that in advance), but they're all pretty much variations of owning the market. You could do worse. Do not let the perfect be the enemy of the good enough. Good luck.

https://whitecoatinvestor.com/150-portf ... han-yours/
Thanks for this colorful and comprehensive analysis.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by AlohaJoe » Fri May 26, 2017 3:44 am

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere?
No, it isn't.

Now that we've settled the only question in your post: What are you actually going to do differently now? How is this actionable? I don't understand the point of your post (since the question is trivially and obviously wrong, especially now that you've clarified that you're comparing against every possible investment there could possibly be out there); can you help me understand what you are going to do now?

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by bottlecap » Fri May 26, 2017 5:58 am

Welcome to the site. Try the wiki to get an idea of what we tend to believe here and why.

But yes, index funds are your "best bet" for the best risk adjusted returns.

Beating 80% of funds is a far better "bet" than trying to pick anything in the top 20% in advance, no less your chance of happening to pick the top performing funds in advance.

Good luck,

JT

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by arcticpineapplecorp. » Fri May 26, 2017 5:20 pm

protagonist wrote:
arcticpineapplecorp. wrote:In the meantime, the best way to invest (not speculate) is to own the markets of the world. That way you're investing in the economy of the entire planet.
Playing devil's advocate, you mentioned that other forms of investment are speculation.

How is owning the markets of the world not speculation?

Yes, you are investing in the economy of the entire planet. The planet is incredibly interconnected. In 1997 an economic bubble popped in Thailand, Malaysia and other SE Asian countries. Oil prices plummeted, causing a financial crisis in Russia which led to the collapse of Long Term Capital Management. The only thing that prevented a massive market collapse in the USA was a federal bailout of trillions of dollars. When Kuala Lumpur sneezed, Moscow, Washington, Brazilia, and the rest of the world caught a cold.

Even a lone con man like Bernie Madoff can send powerful ripples crashing the world's markets.

I agree that flipping houses, bitcoin, stock picking etc. is speculating. You are guessing that your chosen investment will rise in value and hoping you are right.
When we invest in the world economy, we are guessing that the world economy will improve (as it has, for the most part, in recent history) and hoping we are right.
"Speculation" is just a pejorative term that implies that others are guessing while we know the truth.

I invest in the markets of the world. I don't know if they will rise or falter within the next 30 or 50 years. I'm gambling that they will rise. Call me an investor if you like what I do. Call me a speculator if you don't.
Thanks. I enjoy a bit of devil's advocate myself. I hate using gambling metaphors because this only reinforces the belief that investing is like gambling which it's not (stock picking is gambling but not owning the world market). But here goes anyway...when you gamble you are playing a hand (or few hands), a one-arm bandit, etc. but there's no way you can play every game being played in the house at the same time, all the time.

When you invest in the economy of the planet, (in gambling terms)...you ARE the house. The house always wins (except in the case of Trump casinos which tend to go bankrupt...but that's another reason not to invest in individual stocks, like Trump stock which did exactly that). When you invest in the planet, you're playing every hand all at the same time all the time. You're guaranteed to get your fair share of the return overall. Anything short of that, you could do better (which the OP is trying to do) or you could do worse. No guarantees there. Is the economy of the planet guaranteed to go up over time? No. But I wouldn't bet against it.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Fri May 26, 2017 5:29 pm

protagonist wrote:
arcticpineapplecorp. wrote:In the meantime, the best way to invest (not speculate) is to own the markets of the world. That way you're investing in the economy of the entire planet.
Playing devil's advocate, you mentioned that other forms of investment are speculation.

How is owning the markets of the world not speculation?

Yes, you are investing in the economy of the entire planet. The planet is incredibly interconnected. In 1997 an economic bubble popped in Thailand, Malaysia and other SE Asian countries. Oil prices plummeted, causing a financial crisis in Russia which led to the collapse of Long Term Capital Management. The only thing that prevented a massive market collapse in the USA was a federal bailout of trillions of dollars. When Kuala Lumpur sneezed, Moscow, Washington, Brazilia, and the rest of the world caught a cold.

Even a lone con man like Bernie Madoff can send powerful ripples crashing the world's markets.

I agree that flipping houses, bitcoin, stock picking etc. is speculating. You are guessing that your chosen investment will rise in value and hoping you are right.
When we invest in the world economy, we are guessing that the world economy will improve (as it has, for the most part, in recent history) and hoping we are right.
"Speculation" is just a pejorative term that implies that others are guessing while we know the truth.

I invest in the markets of the world. I don't know if they will rise or falter within the next 30 or 50 years. I'm gambling that they will rise. Call me an investor if you like what I do. Call me a speculator if you don't.
+10

Speculation is one of those words that gets tossed around here a lot without many having a good understanding of the context of its meaning.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by nisiprius » Fri May 26, 2017 6:42 pm

Well, John C. Bogle wrote a whole book entitled The Clash of the Cultures: Speculation vs. Investment and what he means by it is "rapid trading of financial instruments of all kinds."
When I entered this business in 1951, right out of college, annual turnover of U.S. stocks was about 15 percent. Over the next 15 years, turnover averaged about 35 percent. By the late 1990s, it had gradually increased to the 100 percent range, and hit 150 percent in 2005. In 2008, stock turnover soared to the remarkable level of 280 percent, declining modestly to 250 percent in 2011.
Elsewhere in the book he fairly consistently uses the word "speculation" as part of the phrase "short-term speculation."

Right now I don't want to get drawn into the question of definitions or a survey of what other writers say, but I'll just point out the way he uses it. From that, I would gather that the distinction between speculation and investment is simply a question of the expected period of time your plan to hold.

Oh, OK, I'll add my personal definition. Nothing is purely investment or purely speculation, but it is speculation to the extent you are playing in something close to a zero-sum game--either because the asset has no earnings, or because you are acting on a time scale during which earnings do not have time to accumulate--and an important source of your expected profits is taking money away from another speculator who is not as clever as you. It is investment if an important source of your expected profits is not money taken from other speculators, but money earned by the enterprise backing the security.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Taylor Larimore » Fri May 26, 2017 6:45 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere?
joer1212:

Our mentor, Jack Bogle, has your answer:
"The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk. -- In my view, owning the market and holding it forever is the ultimate strategy for winners." --
The Three-Fund Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by knpstr » Fri May 26, 2017 6:51 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?
Best bet and highest possible, hmm...
I think it is a great bet that by locking in the average returns you'll do better than average investors (due to cost).

I don't know that it will return the best possible and with intense scrutinty maybe you could find someone/thing that you could feel comfortable betting on, or maybe yourself, it'd take a lot of work and then you couldn't be certain. Also, I wouldn't worry too much about "risk-adjusted" aspect of it all.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by knpstr » Fri May 26, 2017 7:01 pm

willthrill81 wrote:
protagonist wrote:
arcticpineapplecorp. wrote:In the meantime, the best way to invest (not speculate) is to own the markets of the world. That way you're investing in the economy of the entire planet.
I invest in the markets of the world. I don't know if they will rise or falter within the next 30 or 50 years. I'm gambling that they will rise. Call me an investor if you like what I do. Call me a speculator if you don't.
+10

Speculation is one of those words that gets tossed around here a lot without many having a good understanding of the context of its meaning.
Ben Graham wrote: "A cynic's definition is that: an investment is a successful speculation and a speculation is an unsuccessful investment."
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by arcticpineapplecorp. » Fri May 26, 2017 7:51 pm

ok, i'll fall back on my old school reporting days...Webster's defines a speculation as...

https://www.google.com/search?q=what%27 ... 8&oe=utf-8

Speculation tends to be higher risk and short term focused, whereas investing tends to be lower risk and longer term focused.

By those definitions, many of the things I stated as speculations are--flipping homes, picking individual stocks, bitcoin. You have to admit these are short term and definitely riskier than owning 10,000 stocks of various size, style, sector, country and 13,000 high quality bonds of varying duration, both corporate and government in numerous countries (essentially what's contained in Vanguard's target date retirement funds). Those 10,000 stocks and 13,000 bonds are less risky and for the long term (it has the name "retirement" in it. The target date retirement fund is not for speculating, flipping or trading).
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Fri May 26, 2017 7:56 pm

arcticpineapplecorp. wrote:ok, i'll fall back on my old school reporting days...Webster's defines a speculation as...

https://www.google.com/search?q=what%27 ... 8&oe=utf-8

Speculation tends to be higher risk and short term focused, whereas investing tends to be lower risk and longer term focused.

By those definitions, many of the things I stated as speculations are--flipping homes, picking individual stocks, bitcoin. You have to admit these are short term and definitely riskier than owning 10,000 stocks of various size, style, sector, country and 13,000 high quality bonds of varying duration, both corporate and government in numerous countries. Those 10,000 stocks and 13,000 bonds are less risky and for the long term.
I've got to place devil's advocate here for a bit. One could argue that over time, those 'speculations' are less risky in a similar way that it's less risky to own VTSAX than an individual stock. You might not make money on every house you flip, but over time and with many houses, it might actually be less risky than a stock index.

Of course, it's all semantics, but I still think that many here just label something as 'speculation' if they think it entails more risk than they want to take on. I know many outside of this forum who think that the entire stock market is speculation.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by knpstr » Fri May 26, 2017 8:04 pm

arcticpineapplecorp. wrote:Webster's defines a speculation as...
Not responding directly to your post here. But I noticed your signature and I like the inverse of your Bernstein quote:

"The purpose of investing is not to simply avoid dying poor. The purpose is to optimize returns and make yourself rich."
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by JonnyDVM » Fri May 26, 2017 8:11 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?

* total stock, total bond, total int'l (optional: small-cap value, REITs and TIPS)
Having evaluated other options I do believe it is the best option for people who do not devote their entire life to financial or real estate research. Math has proven indexing to be a successful strategy.

Will there be a "better" strategy in the future ? Maybe. I can always re-evaluate. But getting me off indexing is going to be a tough sell.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by arcticpineapplecorp. » Fri May 26, 2017 8:19 pm

willthrill81 wrote:
arcticpineapplecorp. wrote:ok, i'll fall back on my old school reporting days...Webster's defines a speculation as...

https://www.google.com/search?q=what%27 ... 8&oe=utf-8

Speculation tends to be higher risk and short term focused, whereas investing tends to be lower risk and longer term focused.

By those definitions, many of the things I stated as speculations are--flipping homes, picking individual stocks, bitcoin. You have to admit these are short term and definitely riskier than owning 10,000 stocks of various size, style, sector, country and 13,000 high quality bonds of varying duration, both corporate and government in numerous countries. Those 10,000 stocks and 13,000 bonds are less risky and for the long term.
I've got to place devil's advocate here for a bit. One could argue that over time, those 'speculations' are less risky in a similar way that it's less risky to own VTSAX than an individual stock. You might not make money on every house you flip, but over time and with many houses, it might actually be less risky than a stock index.

Of course, it's all semantics, but I still think that many here just label something as 'speculation' if they think it entails more risk than they want to take on. I know many outside of this forum who think that the entire stock market is speculation.
The total stock market to my knowledge contains around 3% real estate. Some, like Rick Ferri, have argued that real estate makes up about 20% of the entire "economy". Most people who own their home (or are building equity) have that in their portfolios and don't need to engage in house flipping to try and increase the percentage of real estate they own. That being said, how can flipping homes be less risky than owning 10,000 stocks and 13,000 bonds? How many houses can you possibly own at one time (especially if your goal is to get rid of it as quickly for as much profit possible)? Since real estate is a part of the economy but not the economy in its entirety, how can you possibly say flipping real estate is less risky than owning the entire stock and bond market (which includes real estate)?? By definition flipping real estate is less diversified. It's potentially uncompensated risk taking (ask those who were flipping until the "house" of cards came crashing down in 2007-2009).

If stocks lose value over a period of time, you don't have to "do" anything. It doesn't cost you anything. You just sit and wait for the market to go back up. With real estate, when the market goes down, you still have a mortgage to pay (or taxes/insurance/maintenance in the event you have no mortgage) and rents to collect (good luck if tenants lost their job and can't pay). Real estate has far greater costs/risks than holding a target date retirement fund.

If people think the entire market is speculation, they're participating whether they want to or not. Buy a car? Iphone? Dishwasher? Don't you want the company you purchased the item from to stay in business especially if something goes wrong with the item you own? How does the company stay in business? Profit (money left over after bills are paid). What do you think happens to those profits? What doesn't get reinvested in the business gets distributed to the investors. Wealth flows to owners. People outside this group think a lot of things that may not be true. So? Dave Ramsey thinks you can get 12% per year from the stock market, but I don't put much stock in that either.
Last edited by arcticpineapplecorp. on Fri May 26, 2017 8:25 pm, edited 1 time in total.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by protagonist » Fri May 26, 2017 8:19 pm

nisiprius wrote:Well, John C. Bogle wrote a whole book entitled The Clash of the Cultures: Speculation vs. Investment and what he means by it is "rapid trading of financial instruments of all kinds."
When I entered this business in 1951, right out of college, annual turnover of U.S. stocks was about 15 percent. Over the next 15 years, turnover averaged about 35 percent. By the late 1990s, it had gradually increased to the 100 percent range, and hit 150 percent in 2005. In 2008, stock turnover soared to the remarkable level of 280 percent, declining modestly to 250 percent in 2011.
Elsewhere in the book he fairly consistently uses the word "speculation" as part of the phrase "short-term speculation."


So if you invest in one stock, say Tesla, because you believe in the product, and you hold it long term, that would, in Jack Bogle's view, be investing rather than speculation? I could accept that definition I suppose. At least it provides a clear distinction rather than relying on one's predictions of the unknowable future.

Flipping houses would be speculation. Buying a house and keeping it as a rental property would be investment. Same with bitcoin, gold, or whatever.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by pkcrafter » Fri May 26, 2017 8:22 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?

* total stock, total bond, total int'l (optional: small-cap value, REITs and TIPS)
You can beat 80% of all investors by simply holding the total market. How do we know this? Because the math of low cost says so. However, you have included small caps and REITS which MAY improve returns, but you also increase the possibility of behavioral losses, so yes, you might beat the total market players, but you also have a good chance of not getting the market return you would have had if you had not played around.

Paul
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by arcticpineapplecorp. » Fri May 26, 2017 8:28 pm

Don't take it from me, take it from Mark Hebner:
Investors who construct a globally diversified portfolio of index funds understanding that market prices incorporate all publicly available information (the Efficient Market Hypothesis) can expect a positive return over time commensurate with the risk they take.

Speculators, on the other hand, utilize individual stock picking, style picking and market timing in an attempt to “beat the market” and generate abnormal profits. Some classify speculating as excessively risky “bets.” In other words, speculating can be seen as gambling. Although you may beat the house every once in awhile, the odds are always in the house’s favor. French mathematician Louis Bachelier published his thesis “The Theory of Speculation” which concluded that the expected return of speculation is zero before costs (which implies negative return after costs).

My newly released documentary titled “Index Funds, The 12-Step Recovery Program for Active Investors” discusses in detail the differences between investing and speculating. The documentary can be viewed at www.indexfundsthemovie.com.
http://www.investopedia.com/ask/answers ... lating.asp
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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willthrill81
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Fri May 26, 2017 8:52 pm

arcticpineapplecorp. wrote:That being said, how can flipping homes be less risky than owning 10,000 stocks and 13,000 bonds?
First, with the notable exception of 2007-2009, real estate is generally less volatile than the stock market. In many markets in the U.S., real estate prices didn't change much at all. Just because REITs lost out doesn't mean that real estate across the board lost as much.

Second, there are many 'varieties' of flipping. Not all flippers are constantly 'all in' when it comes to their liquid assets being tied up in properties. Some actually flip without ever taking out a mortgage at all; they took much less of a hit than typical flippers in the GR.

Third, the flipper has far more control over the process of investing in real estate (i.e. choosing properties) than does the stock investor. If they so desire, they can minimize the risk, though this will usually come at the expense of ROI.
arcticpineapplecorp. wrote:If stocks lose value over a period of time, you don't have to "do" anything. It doesn't cost you anything. You just sit and wait for the market to go back up.
Are you arguing that paper losses are not real losses? You might not need the money during the downturn, or you might really need it.
arcticpineapplecorp. wrote:With real estate, when the market goes down, you still have a mortgage to pay (or taxes/insurance/maintenance in the event you have no mortgage) and rents to collect (good luck if tenants lost their job and can't pay).
That's true, although rents don't necessarily drop lock-step with real estate prices.
arcticpineapplecorp. wrote:If people think the entire market is speculation, they're participating whether they want to or not. Buy a car? Iphone? Dishwasher? Don't you want the company you purchased the item from to stay in business especially if something goes wrong with the item you own? How does the company stay in business? Profit (money left over after bills are paid). What do you think happens to those profits? What doesn't get reinvested in the business gets distributed to the investors. Wealth flows to owners. People outside this group think a lot of things that may not be true. So? Dave Ramsey thinks you can get 12% per year from the stock market, but I don't put much stock in that either.
I agree completely. I'm nearly 100% in equities right now. I don't even go for direct real estate personally at all, but I definitely see its value and would likely do it if my DW wasn't opposed to it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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arcticpineapplecorp.
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by arcticpineapplecorp. » Fri May 26, 2017 9:32 pm

willthrill81 wrote:
arcticpineapplecorp. wrote:That being said, how can flipping homes be less risky than owning 10,000 stocks and 13,000 bonds?
First, with the notable exception of 2007-2009, real estate is generally less volatile than the stock market. In many markets in the U.S., real estate prices didn't change much at all. Just because REITs lost out doesn't mean that real estate across the board lost as much.



Second, there are many 'varieties' of flipping. Not all flippers are constantly 'all in' when it comes to their liquid assets being tied up in properties. Some actually flip without ever taking out a mortgage at all; they took much less of a hit than typical flippers in the GR.



Third, the flipper has far more control over the process of investing in real estate (i.e. choosing properties) than does the stock investor. If they so desire, they can minimize the risk, though this will usually come at the expense of ROI.

arcticpineapplecorp. wrote:If stocks lose value over a period of time, you don't have to "do" anything. It doesn't cost you anything. You just sit and wait for the market to go back up.
Are you arguing that paper losses are not real losses? You might not need the money during the downturn, or you might really need it.

arcticpineapplecorp. wrote:With real estate, when the market goes down, you still have a mortgage to pay (or taxes/insurance/maintenance in the event you have no mortgage) and rents to collect (good luck if tenants lost their job and can't pay).
That's true, although rents don't necessarily drop lock-step with real estate prices.

arcticpineapplecorp. wrote:If people think the entire market is speculation, they're participating whether they want to or not. Buy a car? Iphone? Dishwasher? Don't you want the company you purchased the item from to stay in business especially if something goes wrong with the item you own? How does the company stay in business? Profit (money left over after bills are paid). What do you think happens to those profits? What doesn't get reinvested in the business gets distributed to the investors. Wealth flows to owners. People outside this group think a lot of things that may not be true. So? Dave Ramsey thinks you can get 12% per year from the stock market, but I don't put much stock in that either.
I agree completely. I'm nearly 100% in equities right now. I don't even go for direct real estate personally at all, but I definitely see its value and would likely do it if my DW wasn't opposed to it.
Yes, you can buy real estate without a mortgage. I said that, but I also said you still are on the hook for taxes/insurance/utilities (left that one out originally) and maintenance while your waiting to "flip". Those are costs you incur. The same is not true of owning the market. You don't have ongoing costs. Ok, well, an expense ratio to be honest. But the expenses are generally less with an e.r. than the percentage you pay if you add up taxes/insruance/utlities/maintenance.



The word I was looking for that was "concentrated risk". You're concentrating your risk in real estate because it's one sector. And likely one geography (are you really going to start flipping houses worldwide?). This is very different than owning 10,000 stocks worldwide that are different sizes, styles (value/growth), in all sectors and countries. You don't really think the amount of real estate you could possibly own is less concentrated than that?



Regarding real vs. paper losses, when you invest in the entire market all losses are paper unless: 1. you sell at a loss, 2. the market never reccovers. To say "you might need the money in a downturn" is to fail to abide by the first rule of investing: 1. have enough set aside in liquid/safe assets for a rainy day. You shouldn't have money invested in the market (or real estate) that you might need in the next 5 years. So any money you won't need for at least that long should be able to recover from a downturn. Incidentally, sometimes neighborhoods turn bad and never recover. So much for flipping there.



Coincidentally, I just finished reading Jack Bogle's latest journal article (complements to Taylor). Below is very relevant to this discussion. Jack quotes Benjamin Graham. It can be found here:



viewtopic.php?f=10&t=219720



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"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

joer1212
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Sat May 27, 2017 2:27 pm

AlohaJoe wrote:
joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere?
No, it isn't.

Now that we've settled the only question in your post: What are you actually going to do differently now? How is this actionable? I don't understand the point of your post (since the question is trivially and obviously wrong, especially now that you've clarified that you're comparing against every possible investment there could possibly be out there); can you help me understand what you are going to do now?
I'm going to do absolutely nothing different, given that all other investment options do not appear to have greater expected long-term returns over equities (on a risk-adjusted basis) to be worth the trouble.
By the way, the answer to my question is actionable, not just academic. For example, I had considered purchasing homes and renting them as an alternative or supplement to my index investing. But, after much thought, I concluded that the ROI does not justify the hassle and work involved.

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stemikger
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by stemikger » Sun May 28, 2017 8:38 am

While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite. The rationale for a 100-percent-index-fund portfolio remains as solid as a rock. It's all about common sense.

CMH - The Cost Matters Hypothesis.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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willthrill81
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Sun May 28, 2017 9:09 am

stemikger wrote:While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite. The rationale for a 100-percent-index-fund portfolio remains as solid as a rock. It's all about common sense.

CMH - The Cost Matters Hypothesis.
If there are indeed infinite investment strategies, then the same could be said of any investment strategy.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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stemikger
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by stemikger » Sun May 28, 2017 9:38 am

willthrill81 wrote:
stemikger wrote:While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite. The rationale for a 100-percent-index-fund portfolio remains as solid as a rock. It's all about common sense.

CMH - The Cost Matters Hypothesis.
If there are indeed infinite investment strategies, then the same could be said of any investment strategy.
Possibly, but I doubt any of them concentrate on simplicity for the average main street investor. In fact, it seems 99% of the other strategies claim their cutting edge practices are proprietary which is why you need them to implement said methods. Some do beat the market but some don't and you can guarantee you will pay the price either way.

When all else fails fall back on simplicity ~ John C. Bogle
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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