Are we getting spoiled by the long bull market?

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Ocean77
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Are we getting spoiled by the long bull market?

Post by Ocean77 »

I have recently noticed quite a number of posts here that venture past the tried and true BH approach of setting a reasonable asset allocation of broadly diversified low cost index funds, and then just staying the course. I've been on BH only for a few months, so I wonder if we often see these discussions? I rather suspect we may be getting spoiled by the long stretch of the expanding economy and markets. The S&P500 returned more than 13% annually over the last 10 years. An initial investment of $10k would have grown to about $35k in this time period. It looks some of us take this as a clue that putting all money into stocks is the way to go, or do even "better" and try to beat that 13% return from the S&P.

Just a sampling of threads I can see in this forum now:

"Dave Ramsey says not to invest in bonds"
"Why not choose a total market single fund portfolio"
"Why not buy a tech fund"
"If you only invest in an index, You'll never beat it"
"60/40 allocation criticism"
"What is the rationale for cash in your portfolio"

On our wiki, there is even a carefully written article that boils down to putting the emergency fund into the stock market, under the theory that stocks cannot possibly fall by more than 50%.

As for me, I see no reason to change anything with my portfolio. The long bull market has been nice, but it will not go on forever. At some point, I'm sure we will see posts on this forum along these lines. :P

"[some guru] says not to invest in stocks"
"Why not invest the entire portfolio in a bond ladder"
"Why not buy an utility / gold / commodity fund"
"What is the rationale for stocks in your portfolio"

At that point, I hope I'll stay the course as well.
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whodidntante
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Re: Are we getting spoiled by the long bull market?

Post by whodidntante »

I have always had a heavy stock allocation and it is not in my nature to own some of the conservative portfolios I see recommended on Bogleheads. But I've also weathered some wicked downturns with 100% stock and just bought more. Even today I'm a touch under 90% stocks. My fixed income is only sufficient to cover my debts so it would be correct to say I'm 100% stock now and was > 100% stock before. I might be able to hold my nose and buy 30% fixed income someday when clearly most of my life is behind me. But that was true well before this bull run for me.

I'm definitely going to feel it when the bull stops running. I think equities are always risky, and can do the most harm when they are most loved and seem like a sure thing. Winter will come again and it could be a bad one. C'est la vie.

USA equity valuation is a concern. It's been high for a while and could go higher. Large caps are the most highly valued and this may not persist. I'm concerned about the deepening and seemingly unstoppable erosion of the middle class, decade long central bank intervention in the capital markets and possible shifts to long term dollar weakness, weak global growth, the dumpster fire that is the European banking system, record and increasing American budget deficits, corporate debt, fallout in the shift from globalism to nationalism, the Chinese property bubble, unfunded pension obligations at home and abroad, and weak corporate investment. In spite of these legimitate concerns I buy anyway and I'll take the gains as long as they last.
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Re: Are we getting spoiled by the long bull market?

Post by Trapper »

Having lived through the 1999 and 2008 meltdowns, I know pain.
My opinion is that those investors that haven’t felt a market correction may have quite a bit of false bravado currently.
I have my asset allocation, and sleep good. I hope others have the fortitude to hang tough when needed.
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willthrill81
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Re: Are we getting spoiled by the long bull market?

Post by willthrill81 »

Ocean77 wrote: Fri Dec 27, 2019 12:51 pm Just a sampling of threads I can see in this forum now:
I've been seeing those threads for the last three years on this forum, and I'm sure that similar threads existed prior to then.

There are always bulls, and there are always bears.
“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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firebirdparts
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Re: Are we getting spoiled by the long bull market?

Post by firebirdparts »

Other way round. The more the market moves, the more you get to rebalance. Stocks and bonds both soared together. When your portfolio is up 30% in one year, it’s easy to stay the course.

Emotionally, we are spoiled, but intellectually I think you’d be more convinced than ever.
A fool and your money are soon partners
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Watty
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Re: Are we getting spoiled by the long bull market?

Post by Watty »

Ocean77 wrote: Fri Dec 27, 2019 12:51 pm I have recently noticed quite a number of posts here that venture past the tried and true BH approach of setting a reasonable asset allocation of broadly diversified low cost index funds, and then just staying the course. I've been on BH only for a few months, so I wonder if we often see these discussions? I rather suspect we may be getting spoiled by the long stretch of the expanding economy and markets.
Compared to some other message boards the Bogleheads is pretty tame but over the years some people have gotten excited about things like 100% stocks, emerging markets, small cap value, real estate, gold, bitcoin, etc so post like that are mostly noise about something that is doing well at the moment.

I was following different boards during the dot com bubble and the run up to the financial crisis in 2008 and in both cases it was easy to see that trouble was brewing and that there were bubbles that would end badly. By monitoring message boards it is pretty easy to see their excitement or depression as a good contrary indicator.

I have not seen them for years but people used to publish subscription newsletters that would try to time the markets. There were also people that would consolidate those to see how many of them were bullish or bearish and with you saw something like 80% of them were bullish that was a pretty good sign that the markets were due for a big drop.

The bugger is that even though message boards and newsletter sentiment can be a pretty good contrary indicator trying to use it for market timing does not work since they may be years too early. Even Alan Greenspan's famous "irrational exuberance" comment was over three years before the dot com bubble topped out and burst.
heyyou
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Re: Are we getting spoiled by the long bull market?

Post by heyyou »

"It will fluctuate" is what the 1920s financier (John Jacob Astor?) replied one day, when asked about the next direction of the stock market. Someone could search for the century anniversary of that remark, since I do not know if it was said early in the Roaring 1920s, or a month before the October 1929 crash.

Note that someone other than we retired Bogleheads, is most often paying more on each purchase of the individual stocks that comprise our index funds.
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Re: Are we getting spoiled by the long bull market?

Post by Artful Dodger »

I really see nothing wrong with a strong allocation to stocks if you are young. I'm 65 now, and have lived through a number of corrections, and it's all worked out. I kept plugging away, regularly maxed my retirement accounts, and when we had those drops made purchases at lower valuations. If you're young with time, dollar cost averaging will usually win out.

I would definitely have enough cash (or mix of cash and short term fixed income) in my emergency fund to keep me afloat one to two years. Ultimately, you have to find some balance between equities and fixed so you can sleep at night if we get another major correction. By major correction, I mean the 40-50% drops we experienced in 2000-2002 and 2007-2009. I always expect we'll get the occasional 20% correction.

I have the same concerns at whodidntante, but while I've moved my total allocation closer to 50/50, I'm still buying equities with new money.
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Re: Are we getting spoiled by the long bull market?

Post by jacksonm »

It's looking more and more like we've reached a permanently high plateau.
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FelixTheCat
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Re: Are we getting spoiled by the long bull market?

Post by FelixTheCat »

This is a repeat of 2007/08.

Buffett's quote of "Be fearful when others are greedy" is starting to resonate.
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Ocean77
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Re: Are we getting spoiled by the long bull market?

Post by Ocean77 »

jacksonm wrote: Fri Dec 27, 2019 3:04 pm It's looking more and more like we've reached a permanently high plateau.
:P
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willthrill81
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Re: Are we getting spoiled by the long bull market?

Post by willthrill81 »

FelixTheCat wrote: Fri Dec 27, 2019 3:09 pm This is a repeat of 2007/08.

Buffett's quote of "Be fearful when others are greedy" is starting to resonate.
How do you know that this is a repeat of 2007-2008?

I still see a lot of skepticism about the current market. This bull market is less than one year old, yet observe how many people are asking if it's safe to buy stocks at all right now.
“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: Are we getting spoiled by the long bull market?

Post by Nate79 »

Ocean77 wrote: Fri Dec 27, 2019 12:51 pm I have recently noticed quite a number of posts here that venture past the tried and true BH approach of setting a reasonable asset allocation of broadly diversified low cost index funds, and then just staying the course. I've been on BH only for a few months, so I wonder if we often see these discussions? I rather suspect we may be getting spoiled by the long stretch of the expanding economy and markets. The S&P500 returned more than 13% annually over the last 10 years. An initial investment of $10k would have grown to about $35k in this time period. It looks some of us take this as a clue that putting all money into stocks is the way to go, or do even "better" and try to beat that 13% return from the S&P.

Just a sampling of threads I can see in this forum now:

"Dave Ramsey says not to invest in bonds"
"Why not choose a total market single fund portfolio"
"Why not buy a tech fund"
"If you only invest in an index, You'll never beat it"
"60/40 allocation criticism"
"What is the rationale for cash in your portfolio"

On our wiki, there is even a carefully written article that boils down to putting the emergency fund into the stock market, under the theory that stocks cannot possibly fall by more than 50%.

As for me, I see no reason to change anything with my portfolio. The long bull market has been nice, but it will not go on forever. At some point, I'm sure we will see posts on this forum along these lines. :P

"[some guru] says not to invest in stocks"
"Why not invest the entire portfolio in a bond ladder"
"Why not buy an utility / gold / commodity fund"
"What is the rationale for stocks in your portfolio"

At that point, I hope I'll stay the course as well.
Did you actually read those threads and see the responses which clearly were not in favor of the risky ideas proposed?
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Re: Are we getting spoiled by the long bull market?

Post by arsenalfan »

I revisit my IPS and AA annually, and adjust the AA and rebalance.
At the start of the Bull, I was 80/20. Initially I rebalanced with new money, now I have to buy/sell rebalance in tax sheltered accounts.
The bull has helped me progress towards my financial goals. As a consequence, I am taking less risk and am at 60/40 at a far younger age than I anticipated back in 2007.
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Ocean77
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Re: Are we getting spoiled by the long bull market?

Post by Ocean77 »

Nate79 wrote: Fri Dec 27, 2019 3:33 pm Did you actually read those threads and see the responses which clearly were not in favor of the risky ideas proposed?
Yes sure, but good point. What I found noteworthy is the number of threads started around this theme, not the responses from seasoned BH members. Sorry I didn't make it clear.
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Ocean77
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Re: Are we getting spoiled by the long bull market?

Post by Ocean77 »

willthrill81 wrote: Fri Dec 27, 2019 3:26 pm This bull market is less than one year old
That may be technically true, but that little correction we had last December felt at most like a brief interruption of the decade old bull market. If anything, the recent turn of events may have reinforced the idea in some new investors that there is not much to be afraid of, at most one needs to wait out a couple months.
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Re: Are we getting spoiled by the long bull market?

Post by 2pedals »

Ocean77 wrote: Fri Dec 27, 2019 12:51 pm <---cut & snip--->
I've been on BH only for a few months, so I wonder if we often see these discussions? I rather suspect we may be getting spoiled by the long stretch of the expanding economy and markets.
<---cut & snip--->
As for me, I see no reason to change anything with my portfolio. The long bull market has been nice, but it will not go on forever.
<---cut & snip--->
At that point, I hope I'll stay the course as well.

Yes we see these discussions a lot. I like your assessment of the situation. The pendulum will some day swing the other way but nobody knows when it will.

Since you are a relatively new BH;

I suggest that you create a Investment Policy Statement to help you stay the course in up and down markets.
https://www.bogleheads.org/wiki/Investm ... _statement

I also suggest that you read one of my favorite books "A Random Walk Down Wall Street by Burton G. Malkiel".
https://www.amazon.com/Random-Walk-Down ... B00QH9NTSI
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Re: Are we getting spoiled by the long bull market?

Post by Dandy »

It is a subtle dulling of the risk that I sense after a 10+ bull run. You tend to think the current pile of assets is pretty much what you've got -- but depending on your equity holdings you can be surprised by a major melt down even if you've been there before. It is hard to visualize your post crash portfolio with half your current equity assets -- and if retired half the equity assets and probably withdrawing assets to fund some retirement expenses -- and no more contributions or company matches to speed up the portfolio recovery and likely a concern about spending more fixed income to rebalance even though that is your plan.

It's kind of like you know as you get older you won't be able to do all the things you did before but it still is somewhat of a surprise your not very steady on that ladder like you once were - the gutter seems so much higher than it used to. :oops:
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Re: Are we getting spoiled by the long bull market?

Post by willthrill81 »

Ocean77 wrote: Fri Dec 27, 2019 3:40 pm
willthrill81 wrote: Fri Dec 27, 2019 3:26 pm This bull market is less than one year old
That may be technically true, but that little correction we had last December felt at most like a brief interruption of the decade old bull market. If anything, the recent turn of events may have reinforced the idea in some new investors that there is not much to be afraid of, at most one needs to wait out a couple months.
It is true. VTSAX dropped 20% in value from 9/20/2018 to 12/24/2018.

And while it may take longer than a few months for stocks to recover, the point is that they have always recovered. If they don't, it may not matter if you own stocks or not.

Stocks are for the long haul. Those buying them need a long-term mindset and should be thinking in decades, at least.
“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: Are we getting spoiled by the long bull market?

Post by abuss368 »

FelixTheCat wrote: Fri Dec 27, 2019 3:09 pm This is a repeat of 2007/08.

Buffett's quote of "Be fearful when others are greedy" is starting to resonate.
No one knows for sure and only hindsight will determine that. We Bogleheads can only focus on asset allocation, keeping costs low, and staying the course.

Tune out the market noise.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Are we getting spoiled by the long bull market?

Post by siamond »

Ocean77 wrote: Fri Dec 27, 2019 12:51 pmOn our wiki, there is even a carefully written article that boils down to putting the emergency fund into the stock market, under the theory that stocks cannot possibly fall by more than 50%.
Just curious. What wiki article are you referring to?
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Re: Are we getting spoiled by the long bull market?

Post by boglefannyc »

FelixTheCat wrote: Fri Dec 27, 2019 3:09 pm This is a repeat of 2007/08.

Buffett's quote of "Be fearful when others are greedy" is starting to resonate.
If I recall correctly, at the time the 30 year US Treasury bond yielded over 9% before the market crashed. Interest rates are much lower now.
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Re: Are we getting spoiled by the long bull market?

Post by rich126 »

Trapper wrote: Fri Dec 27, 2019 2:00 pm Having lived through the 1999 and 2008 meltdowns, I know pain.
My opinion is that those investors that haven’t felt a market correction may have quite a bit of false bravado currently.
I have my asset allocation, and sleep good. I hope others have the fortitude to hang tough when needed.
Yeah I agree. Especially those getting closer to retirement. Building a $1M portfolio (or whatever) and losing 30% of it and not seeing it recover for years will be a rude awakening. Instead of having $40K a year in retirement it is only $28K is a sizable cut if it makes up a sizable part of their retirement income.

Not sure when it will happen but will occur. The only question is whether it does recover quickly or take decade or more to recover.

I'm in my 50s so I've gone through those and when you have 25+ years until retirement it is painful but you figure you have a long time to recover and you have decades of saving ahead of you, but if you are 50 and hope to retire at 60, then you may need to adjust those plans. I saw it happen to people back in 2000. And also saw it with real estate out west in 2008+.
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Re: Are we getting spoiled by the long bull market?

Post by Dottie57 »

rich126 wrote: Fri Dec 27, 2019 5:08 pm
Trapper wrote: Fri Dec 27, 2019 2:00 pm Having lived through the 1999 and 2008 meltdowns, I know pain.
My opinion is that those investors that haven’t felt a market correction may have quite a bit of false bravado currently.
I have my asset allocation, and sleep good. I hope others have the fortitude to hang tough when needed.
Yeah I agree. Especially those getting closer to retirement. Building a $1M portfolio (or whatever) and losing 30% of it and not seeing it recover for years will be a rude awakening. Instead of having $40K a year in retirement it is only $28K is a sizable cut if it makes up a sizable part of their retirement income.

Not sure when it will happen but will occur. The only question is whether it does recover quickly or take decade or more to recover.

I'm in my 50s so I've gone through those and when you have 25+ years until retirement it is painful but you figure you have a long time to recover and you have decades of saving ahead of you, but if you are 50 and hope to retire at 60, then you may need to adjust those plans. I saw it happen to people back in 2000. And also saw it with real estate out west in 2008+.
This. 2008 was hard. I thought my retirement had disappeared ( was 51). But the recovery was beneficial and now retired with conservative allocation.
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Ocean77
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Re: Are we getting spoiled by the long bull market?

Post by Ocean77 »

siamond wrote: Fri Dec 27, 2019 4:59 pm
Ocean77 wrote: Fri Dec 27, 2019 12:51 pmOn our wiki, there is even a carefully written article that boils down to putting the emergency fund into the stock market, under the theory that stocks cannot possibly fall by more than 50%.
Just curious. What wiki article are you referring to?
==> https://www.bogleheads.org/wiki/Placing ... ed_account
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Watty
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Re: Are we getting spoiled by the long bull market?

Post by Watty »

Artful Dodger wrote: Fri Dec 27, 2019 2:58 pm I really see nothing wrong with a strong allocation to stocks if you are young. I'm 65 now, and have lived through a number of corrections, and it's all worked out. I kept plugging away, regularly maxed my retirement accounts, and when we had those drops made purchases at lower valuations. If you're young with time, dollar cost averaging will usually win out.
A major problem with the "OK while you are young" logic is that in addition to all the unknowns in your investing there are also lots of unknowns in your life which could mean that you might not have decades to invest through bear markets before you retire.

I don't know what the statistic are but I have personally seen people run financial problems with the death of a spouse, disability, divorce, getting laid off and never getting a similar job, medical expenses even with insurance, needing to spend a lot to support a elderly parent, addiction of various types, expensive fertility treatments, much loved quadruplets with mild issues, grown kids that come back home up with drama and babies, etc.
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Re: Are we getting spoiled by the long bull market?

Post by Stinky »

jacksonm wrote: Fri Dec 27, 2019 3:04 pm It's looking more and more like we've reached a permanently high plateau.
I think I've heard that quote somewhere before ..... :D
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Ocean77
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Re: Are we getting spoiled by the long bull market?

Post by Ocean77 »

willthrill81 wrote: Fri Dec 27, 2019 3:59 pm VTSAX dropped 20% in value from 9/20/2018 to 12/24/2018.
What I meant is that some folks may look at this literal definition and think: Ok, bear market is done now. Completed. Check! :D Now we're good for many more years of strong returns, since we just started a new bull market. And then overextend their portfolio with risky assets. And perhaps sell them in the next bear market.
willthrill81 wrote: Fri Dec 27, 2019 3:59 pm Stocks are for the long haul. Those buying them need a long-term mindset and should be thinking in decades, at least.
Fully agree.
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Re: Are we getting spoiled by the long bull market?

Post by rascott »

This seems just like a ho-hum bull market when compared with many others (has nothing on the 90s, for example).

And the 20 year returns of US equities remains one of the lowest 20 year periods in history.

50% bear markets are also not the norm. Could another soon occur (or worse)... sure. But also wouldn't be shocked if we didn't see another one of those type of bear markets again for decades. Having two in a decade was the major shock to the system of many investors.... permanently altering their outlook and even having many abandon the market entirely.
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Re: Are we getting spoiled by the long bull market?

Post by hoops777 »

I guess we will find out.One thing that I believe is different this time are the bond yields which seems to be driving people to higher stock allocation.
K.I.S.S........so easy to say so difficult to do.
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Re: Are we getting spoiled by the long bull market?

Post by FelixTheCat »

willthrill81 wrote: Fri Dec 27, 2019 3:26 pm
FelixTheCat wrote: Fri Dec 27, 2019 3:09 pm This is a repeat of 2007/08.

Buffett's quote of "Be fearful when others are greedy" is starting to resonate.
How do you know that this is a repeat of 2007-2008?

I still see a lot of skepticism about the current market. This bull market is less than one year old, yet observe how many people are asking if it's safe to buy stocks at all right now.
I don't know. The market keeps going up and I see a lot of comments on TV about greed. These were the same comments I've heard before.
Felix is a wonderful, wonderful cat.
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siamond
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Re: Are we getting spoiled by the long bull market?

Post by siamond »

Ocean77 wrote: Fri Dec 27, 2019 5:25 pm
siamond wrote: Fri Dec 27, 2019 4:59 pm
Ocean77 wrote: Fri Dec 27, 2019 12:51 pmOn our wiki, there is even a carefully written article that boils down to putting the emergency fund into the stock market, under the theory that stocks cannot possibly fall by more than 50%.
Just curious. What wiki article are you referring to?
==> https://www.bogleheads.org/wiki/Placing ... ed_account
The wiki page doesn't say that markets can't drop by more than 50%. It only warns you of consequences of the approach being described if such a drop would happen. It certainly doesn't exclude a bigger drop. Check the third bullet point of the Fine Points section as a case in point ("Keep in mind that the market could go down by more than 50% [...]").

Just for your information, if you check the history of this wiki page, the bulk of it was written in the 2nd half of 2008, precisely when the financial crisis hit. And the 50% caveat was added in Dec 2010, once the worst of the crisis seemed to be over, after 18 months of severe financial trauma (including a 50% drop). It was hardly a time where investors felt "spoiled by the long stretch of the expanding economy and markets".

I don't disagree with the general spirit of your OP, but associating this wiki page with the kind of animal spirits that we can see after years and years of a long bull market seems a little off target.
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Re: Are we getting spoiled by the long bull market?

Post by sambb »

Market was down in 2018. We’ve been up for a year.
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Re: Are we getting spoiled by the long bull market?

Post by lostdog »

Sure maybe the U.S. is over priced but International isn't. Hopefully you're diversified. If I was U.S. only right now, I would be hand wringing...

The U.S. could hit a plateau while International grows

I'm not hearing any FOMO from any non investors. Once the Bitcoin crowd starts jumping into the stock market, then I'll be concerned.
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Re: Are we getting spoiled by the long bull market?

Post by tvubpwcisla »

If you are paying attention to what the market is doing today, yesterday, or what you think it will do in the future, you are not following a sound financial investing plan. Buy low cost index funds through thick and thin, ignore the noise, and enjoy the short time you are given.
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Re: Are we getting spoiled by the long bull market?

Post by AlohaJoe »

Ocean77 wrote: Fri Dec 27, 2019 12:51 pm The long bull market has been nice, but it will not go on forever. At some point, I'm sure we will see posts on this forum along these lines. :P
There have been 3 bear markets over the time period you're talking about.

13% gains are not amazing.

The average over 100+ years is almost 10% gains.

25% of all 10-year cycles have 13% gains annualized.

People seem to think that stock market gains are smooth, coming in at 7% year after year. That's not how it works. You get 19% annual gains for a decade (1949-1958) and then you get absolutely terrible gains for a somewhat shorter period of time.
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Re: Are we getting spoiled by the long bull market?

Post by firebirdparts »

jacksonm wrote: Fri Dec 27, 2019 3:04 pm It's looking more and more like we've reached a permanently high plateau.
I see you!
A fool and your money are soon partners
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Ocean77
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Re: Are we getting spoiled by the long bull market?

Post by Ocean77 »

siamond wrote: Fri Dec 27, 2019 8:10 pm
The wiki page doesn't say that markets can't drop by more than 50%. It only warns you of consequences of the approach being described if such a drop would happen. It certainly doesn't exclude a bigger drop. Check the third bullet point of the Fine Points section as a case in point ("Keep in mind that the market could go down by more than 50% [...]").
Then the article has a logical error. It says "Thus, the taxable account should be twice as large as your cash needs."
If you do that, the market drops by 80%, and you need the emergency fund, then you're in a pickle.

In any case, I'd rather keep the emergency funds in a savings account and not in the stock market.
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Re: Are we getting spoiled by the long bull market?

Post by dogagility »

rascott wrote: Fri Dec 27, 2019 6:30 pm And the 20 year returns of US equities remains one of the lowest 20 year periods in history.
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JBTX
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Re: Are we getting spoiled by the long bull market?

Post by JBTX »

Ocean77 wrote: Fri Dec 27, 2019 8:51 pm
siamond wrote: Fri Dec 27, 2019 8:10 pm
The wiki page doesn't say that markets can't drop by more than 50%. It only warns you of consequences of the approach being described if such a drop would happen. It certainly doesn't exclude a bigger drop. Check the third bullet point of the Fine Points section as a case in point ("Keep in mind that the market could go down by more than 50% [...]").
Then the article has a logical error. It says "Thus, the taxable account should be twice as large as your cash needs."
If you do that, the market drops by 80%, and you need the emergency fund, then you're in a pickle.

In any case, I'd rather keep the emergency funds in a savings account and not in the stock market.

Consider that the stock market may drop 50%
Keep in mind that the stock market tanking by 50% is not uncommon.
Keep in mind that the market could go down by more than 50%

Not to belabor the point but your wiki characterization is incorrect as shown by the posts above. But I do agree with you that I'd prefer my emergency reserve in liquid investments. If the market goes down 75%, I'd hate for my EF fund to lose 75%, in the middle of a deep recession where my job may be at risk too.

Also I tend to think the tax efficiency arguments are greatly exaggerated and mostly irrelevant in the low interest environment over much of the last 15+ years
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Re: Are we getting spoiled by the long bull market?

Post by lostdog »

If the market dropped by 70% to 80% everybody would be in a world of hurt beyond the stock market.
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Re: Are we getting spoiled by the long bull market?

Post by willthrill81 »

lostdog wrote: Fri Dec 27, 2019 10:20 pm If the market dropped by 70% to 80% everybody would be in a world of hurt beyond the stock market.
One must ask what kind of economic situations would lead to such a market decline. It would like have to be something of similar magnitude to the Great Depression, when unemployment reached 25% and many were quite literally starving.
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Re: Are we getting spoiled by the long bull market?

Post by abuss368 »

lostdog wrote: Fri Dec 27, 2019 10:20 pm If the market dropped by 70% to 80% everybody would be in a world of hurt beyond the stock market.
I could not imagine. Our REIT fund dropped 70% - 80% during the financial crisis. International dropped by over 50%. Domestic may have been 35% or so.
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Ocean77
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Re: Are we getting spoiled by the long bull market?

Post by Ocean77 »

JBTX wrote: Fri Dec 27, 2019 9:17 pm
Not to belabor the point but your wiki characterization is incorrect as shown by the posts above. But I do agree with you that I'd prefer my emergency reserve in liquid investments. If the market goes down 75%, I'd hate for my EF fund to lose 75%, in the middle of a deep recession where my job may be at risk too.

Also I tend to think the tax efficiency arguments are greatly exaggerated and mostly irrelevant in the low interest environment over much of the last 15+ years
I agree. And it's good the author put those caveats into the fine print.

Maybe my "wiki characterization" was a bit cavalier. The technique described in the article only works if the stock market never drops by more than 50%. Without that assumption, it simply does not work, fine print or not. That's what I tried to convey in my OP.
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siamond
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Re: Are we getting spoiled by the long bull market?

Post by siamond »

Ocean77 wrote: Fri Dec 27, 2019 8:51 pm
siamond wrote: Fri Dec 27, 2019 8:10 pm The wiki page doesn't say that markets can't drop by more than 50%. It only warns you of consequences of the approach being described if such a drop would happen. It certainly doesn't exclude a bigger drop. Check the third bullet point of the Fine Points section as a case in point ("Keep in mind that the market could go down by more than 50% [...]").
Then the article has a logical error. It says "Thus, the taxable account should be twice as large as your cash needs."
If you do that, the market drops by 80%, and you need the emergency fund, then you're in a pickle.
Well, that is EXACTLY what the third bullet point tries to convey. "twice" and "50%" only illustrate an example of a deep market downturn with easy math. Anybody understanding this example should then be able to generalize the math to the case where the market goes down by more and decide if some extra cushion is needed.

This being said, I can see that the current ordering of sentences might create some confusion. Let me think a bit more to some possible tuning. Thank you for the feedback.
Ocean77 wrote: Fri Dec 27, 2019 8:51 pmIn any case, I'd rather keep the emergency funds in a savings account and not in the stock market.
Well, this isn't quite what the wiki page is suggesting. The REAL emergency fund in the example is the money market fund in tax-advantaged (see the 'How it works' section). The rest is just moving parts around to optimize taxes. Nothing reckless here. This being said, emergency funds are for peace of mind and you should definitely select an approach that gives you such peace of mind. If you prefer to use a regular savings account, by all means, go for it.

And again, this is a side discussion. The fundamental point you were trying to make in your OP certainly remains valid IMHO.
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steve roy
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Re: Are we getting spoiled by the long bull market?

Post by steve roy »

I know not what course OTHERS may take, but as for ME, give me 30% stocks and 70% fixed instruments, or give me a long-term annuity paying 8.7%!

(And if that's not possible, allow me to stick with my current 30/70 allocation.)
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Re: Are we getting spoiled by the long bull market?

Post by JoMoney »

The stock market was closed for about a week, suddenly and unexpectedly after 9/11/2001.
It was closed for four months after the outbreak of World War I.

Even without a horrible nose dive in market prices, liquidity in the markets can effectively go to zero. While the Fed is likely to step in to ensure emergency liquidity is available to the banking system, no such assurances are there for other assets.
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watchnerd
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Re: Are we getting spoiled by the long bull market?

Post by watchnerd »

Ocean77 wrote: Fri Dec 27, 2019 12:51 pm
As for me, I see no reason to change anything with my portfolio. The long bull market has been nice, but it will not go on forever. At some point, I'm sure we will see posts on this forum along these lines. :P

"[some guru] says not to invest in stocks"
"Why not invest the entire portfolio in a bond ladder"
"Why not buy an utility / gold / commodity fund"
"What is the rationale for stocks in your portfolio"

At that point, I hope I'll stay the course as well.
I'm certainly planning to pare down my equity exposure from 70% to something lower over the course of the next few years, both for legitimate life stage reasons (I turn 50 next year, so time to start the glide path....), but also because things seem to be getting a bit euphoric and frothy.

I'm also looking at risk parity AA strategies more closely, which some might think is "not Boglehead like", but if it's done using index funds and with knowledge of MPT theory, why not?

So, yes, the bull has been nice, but I'm starting to evaluate for how I'm protected from it ending and how my AA looks. Lots of Monte Carlo simulation the last few days.

Re: Gold

My wife said at lunch today we should consider "getting some gold while its cheap". I asked her how much.

She said 10%.

She's not a gold bug and we haven't owned gold since when commodities were fashionable 15 years ago. So there is something in the air / water.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
JBTX
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Re: Are we getting spoiled by the long bull market?

Post by JBTX »

Ocean77 wrote: Fri Dec 27, 2019 10:27 pm
JBTX wrote: Fri Dec 27, 2019 9:17 pm
Not to belabor the point but your wiki characterization is incorrect as shown by the posts above. But I do agree with you that I'd prefer my emergency reserve in liquid investments. If the market goes down 75%, I'd hate for my EF fund to lose 75%, in the middle of a deep recession where my job may be at risk too.

Also I tend to think the tax efficiency arguments are greatly exaggerated and mostly irrelevant in the low interest environment over much of the last 15+ years
I agree. And it's good the author put those caveats into the fine print.

Maybe my "wiki characterization" was a bit cavalier. The technique described in the article only works if the stock market never drops by more than 50%. Without that assumption, it simply does not work, fine print or not. That's what I tried to convey in my OP.
I also agree with your "we are spoiled" comment to a large degree. Even those who have experienced a 50% hit were able to see their portfolio rebound in a few years if they held tight. It doesn't always work that way. While I am sure there are some here who have more aggressive allocations that fully understand the risks, both intellectually and emotionally, I suspect there are others who may not.
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Ben Mathew
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Re: Are we getting spoiled by the long bull market?

Post by Ben Mathew »

Ocean77 wrote: Fri Dec 27, 2019 8:51 pm
siamond wrote: Fri Dec 27, 2019 8:10 pm
The wiki page doesn't say that markets can't drop by more than 50%. It only warns you of consequences of the approach being described if such a drop would happen. It certainly doesn't exclude a bigger drop. Check the third bullet point of the Fine Points section as a case in point ("Keep in mind that the market could go down by more than 50% [...]").
Then the article has a logical error. It says "Thus, the taxable account should be twice as large as your cash needs."
If you do that, the market drops by 80%, and you need the emergency fund, then you're in a pickle.

In any case, I'd rather keep the emergency funds in a savings account and not in the stock market.
Note that in the technique described in the wiki article, the emergency fund is invested in bonds, not in stocks. It's an indirect pathway necessitated by tax efficiency, but the money is ultimately in bonds. In fact, if someone wishes to invest their emergency funds in stocks, there would be no need for this technique. It's all about how to tax efficiently invest your emergency fund in bonds.
Last edited by Ben Mathew on Fri Dec 27, 2019 11:22 pm, edited 1 time in total.
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