Do you invest based on historical performance?

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like2read
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Do you invest based on historical performance?

Post by like2read »

Is the way forward to look at the past for guidance?

Or, do you allocate based on the realities of the present?

Perhaps, your expectations of what is to come?

l2r
retired@50
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Re: Do you invest based on historical performance?

Post by retired@50 »

I like to consider the past 50 to 100 years.
Generally this means:
1. Stocks tend to return more than bonds over long periods.
2. Bonds tend to return more than cash over long periods.
3. Nothing spends quite as easily as cash.

I hold a roughly 60% stock / 36% bond / 4% cash portfolio.

Regards,
This is one person's opinion. Nothing more.
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midareff
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Re: Do you invest based on historical performance?

Post by midareff »

Interesting question which will yield a variety of opinions. I'm 72 and retired and think the economic and political landscape in the USA is superior enough to warrant my owning the US almost exclusively. I no longer own international and have a tough time owning treasuries when they pay less than the inflation rate, but do own some, mostly corporates for bonds as I think some semblance of a real return is important without going excessively in equities. Do we think that investment grade corporate America is going to fail?... are you prepared for a run on salt bags and ammunition... I'm discounting all of that.

When I invest I do so to expect a return for the risk I take. What is the risk.. is it risk of loss,.. is it short term, long term? Investment grade corporate move differently than treasuries.... they have more volatility and should you need to sell some each month to pay your bills that may be important, or not. Is a real return important or not?

Finally, I'll admit to a play money account.. it's in my Roth. It started with little.. it grew... my fund selection (at FIDO) became a bit more sophisticated and it grew more.... it became subject to a 5.5% WR adjusted quarterly and continued to grow.... (I'm retired) and all investment sectors.. taxable, IRA and Roth pay me monthly).

Well... contrary to the opinion of others I think not much in the world is going to change in the next decade or so and I invest that way...
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David Jay
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Re: Do you invest based on historical performance?

Post by David Jay »

The past provides broad-brush illumination. It provides no useful information about specific stock/fund selection.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
pkcrafter
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Re: Do you invest based on historical performance?

Post by pkcrafter »

like2read wrote: Sat May 02, 2020 7:06 pm
Is the way forward to look at the past for guidance?

No, and yes. You can get some guidance from the past, but there is nothing to say the future will be the same. That is the nature of stock investing risk. I believe investors should always maintain some balance in their portfolio.

Or, do you allocate based on the realities of the present?

If you mean do I change my portfolio based on current events, no.

Perhaps, your expectations of what is to come?

I have not changed my allocation in many years and won't change it due to current conditions or expectations. Doing things like that is not a good way to invest.

Paul


When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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SimpleGift
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Re: Do you invest based on historical performance?

Post by SimpleGift »

The single greatest insight that financial history can offer us, I believe, is that capitalist enterprise around the world has consistently exhibited a creativity, a dynamism and a resiliency that's resulted in the long-term growth of real, inflation-adjusted wealth for stockholders (global returns, chart below).
That's why I invest in stocks — and at present look to bonds, both nominals and TIPS, mainly just for their deflation and unexpected inflation protection. So, if nothing else, the history of past performance can give us faith in the future success of corporate enterprise, in the face of whatever challenges may come. Without this faith, why invest?
Last edited by SimpleGift on Sat May 02, 2020 9:15 pm, edited 1 time in total.
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goodenyou
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Re: Do you invest based on historical performance?

Post by goodenyou »

I invest in stocks because I believe that companies will continually make more money and therefore go up in price. I invest in US bonds because I believe in the integrity of the economic and legal system of the US. The historical part is relevant to looking at trends to help pick an asset allocation. So, yes, since we don’t have a crystal ball, the only hope to predict the future is past behavior.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.
oldfort
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Re: Do you invest based on historical performance?

Post by oldfort »

For treasury bonds, I don't use historical data. I use current yields and estimate returns, based on what I would get if they were held to maturity. For stocks, the Dimson-Marsh data shows over the past 120 years, stocks returned 5.2% real. I estimate globally stocks will return about 5% real in the future.
dru808
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Re: Do you invest based on historical performance?

Post by dru808 »

Yes, to an extent, I don’t pick hot funds that have outperformed the s&p or total market the past decade, I do invest in equities because of their long term historical returns.
65% US equity | 25% ex US equity | 10% US long bond index
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tennisplyr
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Re: Do you invest based on historical performance?

Post by tennisplyr »

Not any more, after lots of reading, I invest based on my age, risk tolerance, costs and asset quality. Most importantly, I stay the course...retired 9 years, no complaints.
Those who move forward with a happy spirit will find that things always work out.
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bottlecap
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Re: Do you invest based on historical performance?

Post by bottlecap »

I invest based on theory.

The theory is supported by historical returns.

JT
Swivelguy
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Re: Do you invest based on historical performance?

Post by Swivelguy »

Anyone who invests does so based on historical performance.

If the entire history of stocks were "a few hundred years ago, some people tried using their money to fund the business ventures of strangers in exchange for an ownership stake in that venture, but it worked out terribly and everyone went bust," then would any of us be investing in stocks? Of course not, because there wouldn't be a stock market. Likewise, I choose not to invest in the government debt of nations that no longer exist. The entire investable world exists solely through survivorship bias, which is another term for historical performance.
targetconfusion
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Re: Do you invest based on historical performance?

Post by targetconfusion »

Yes. Past performance assures future returns. The US has done the best in recent years and therefore will continue to do so. The best thing to do is figure out which stocks have the most momentum and buy as much of them as possible. If they have dual momentum it’s twice as good.
Topic Author
like2read
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Re: Do you invest based on historical performance?

Post by like2read »

OP here.

So, I suppose I do all three.

I invest a moderate portion of my portfolio in growth (although muted on this front, Primecap fund, (and a portion) of the SP500 Index) because new stuff continues to happen, and old continues to be disrupted.

I currently lean away from Treasuries because the current expected real yield is not sufficient for my needs, and the cost of using them as insurance is too high. Fixed income mostly consists of DODIX (core plus fund) and VWIUX (municipals), and of course cash for the short term. I have been retired for 4 years.

There are so many historical performance lessons to be appreciated that have caused varying degrees of success. Certainly, asset allocation is key, indexing – mostly, the obvious stuff like keep costs low, diversify, stay the course, and re balance. Tools like Portfolio Visualizer can be instructive, but can be a backward-looking rat hole. My feeling is the same is true of over weighting past sector allocations winners, like small cap value.

l2r
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