Are Stocks a Sure Thing Over the Long Term? Not Necessarily

[bobcat2]

Are Stocks a Sure Thing Over the Long Term? Not Necessarily - Meir Statman in WSJ

A large part of Statman's article is based on research by Edward McQuarrie who posts frequently here at Bogleheads. Excerpts from the article.

Those investing exclusively in U.S. stocks during the centuries since 1792 have been relatively fortunate. When McQuarrie looked at international stock markets, in some cases he found losses over long holding periods of even greater magnitude than those he had identified in the U.S. Italian stocks, for example, lost 78.2% in the 20 years ended in 1979, Japanese stocks lost 64.3% in the 20 years ended in 2009 and Norwegian stocks lost 74.1% during the 30 years ended in 1978. Elsewhere, German stocks lost 21.5% in the 20 years ended in 1980 and Swiss stocks lost 20.9% during the 30 years ended in 1991.

Why do these international returns matter? First, many American investors hold international stocks for diversification purposes, so returns in overseas markets affect them directly. But second, and more important, U.S. stocks aren’t immune to the forces that hammered Italian, Japanese and German stocks, meaning declines of even greater magnitude are possible in the U.S. Just because they haven’t happened yet doesn’t mean they won’t.

Excellent work Ed.

Link to article - https://www.wsj.com/finance/stocks/stoc ... s-873723c1

BobK

PS - Statman was interviewed by Rick Ferri back in November.
Link to interview - viewtopic.php?t=443917

[bloom2708]

The future is fuzzy.

A wise Finance mind named Nate Bergatze said it best..."Nobody knows....."

[Garco]

MY future is limited by my current age. I invest not just for myself and my generation, but also for my estate -- my children and their families. Stocks have been an excellent investment for this purpose since I first started investing more than 50 years ago. But there's substance to that old saw: "Two things are certain about the stock market: 1. stocks go up, and 2. stocks go down."

We also have some "real property." I don't trade in it but it's a good storage of value.

[White Coat Investor]

Totally agree. That's one reason I own bonds in my portfolio.

Lots of investors, including many Bogleheads, don't seem to believe this, especially after years like 2023-2024.

I still "bet" on stocks, I have three times as much money in stocks as bonds, but seeing stocks underperform bonds for the rest of my life would not be outside the range of possible future outcomes I have considered.

[FoundingFather]

Totally agree. That's one reason I own bonds in my portfolio.

Lots of investors, including many Bogleheads, don't seem to believe this, especially after years like 2023-2024.

I still "bet" on stocks, I have three times as much money in stocks as bonds, but seeing stocks underperform bonds for the rest of my life would not be outside the range of possible future outcomes I have considered.

This is where I fall as well. I think stocks will win, but I don't know, so I am 80% stocks / 20% bonds.

Founding Father

[JBTX]

We stay about 60/40, and keep about 40% of stocks in ex US, to try to partially mitigate such worst case scenario risks.

It seems compared to the last 30-40 years, the US may be at an inflection point in terms of

- market valuations
- trends in interest rates/cycle
- trends in inflation
- global geopolitical / economic (tariffs, trade, etc)
- internal political (can’t discuss)
- technology

Who knows how that all shakes out, but I wouldn’t assume a base case assumption as replicating the last 40+ years.

[exodusing]

If stocks were a sure thing over any time period, long or otherwise, then they would not be expected to have a risk premium, that is, return more than low risk assets. This is about as fundamental an investment principle as there is. Somehow many have convinced themselves that stocks are essentially risk-free if held long enough or that the only risks of stocks are psychological (panic selling).

The conclusion of the WSJ article is spot on:

"In short, stocks don’t cease to be risky investments once they are held for decades. But investors can mitigate their losses by investing in the most broadly diversified low-fee index funds and refraining from trading."

[hoops777]

They become a helluva less sure thing once you are retired and in your 70’s.

[Fallible]

It's good to see these figures going way back. Most of what I've read over the years about stock performance is usually with hedges that they "tend" to be, or "usually are," a sure thing in the long run.

And, of course, it's good to see Statman's concluding sentence:

In short, stocks don’t cease to be risky investments once they are held for decades. But investors can mitigate their losses by investing in the most broadly diversified low-fee index funds and refraining from trading.

[littlerfish]

the forces that hammered Italian, Japanese and German stocks

What an interesting trio of countries.

[bobcat2]

the forces that hammered Italian, Japanese and German stocks

What an interesting trio of countries.

Yes, but the long-term hammerings cited in the article occurred well after WWII.

Italian stocks, for example, lost 78.2% in the 20 years ended in 1979, Japanese stocks lost 64.3% in the 20 years ended in 2009 and Norwegian stocks lost 74.1% during the 30 years ended in 1978. Elsewhere, German stocks lost 21.5% in the 20 years ended in 1980 and Swiss stocks lost 20.9% during the 30 years ended in 1991.

BobK

[hoops777]

What an interesting trio of countries.

Yes, but the long-term hammerings cited in the article occurred well after WWII.

Italian stocks, for example, lost 78.2% in the 20 years ended in 1979, Japanese stocks lost 64.3% in the 20 years ended in 2009 and Norwegian stocks lost 74.1% during the 30 years ended in 1978. Elsewhere, German stocks lost 21.5% in the 20 years ended in 1980 and Swiss stocks lost 20.9% during the 30 years ended in 1991.

BobK

Probably 99% of people think that could never happen here.
I am very bearish to be honest, and I can see the US having a lite version of what these countries experienced.
We did have that recent ten years starting in 2000 where the market made basically nothing.
I know it can be a lot worse than that.

[Cautious Investor]

This is why I personally, and am a fan of, contributing to a 50/50 stocks/bonds portfolio at any age. I know that this is an unpopular opinion, but isn't this only an unpopular opinion because of the American exceptionalism that has dominated the market in the last century? One of the biggest investing philosophies, especially amongst bogleheads, is that past performance is not indicative of future returns.

My thoughts on the 50/50 portfolio for any age is that fact that if stocks knock bonds out of the water as they have, and you do not rebalance, stocks will overtake the portfolio anyway and compound overtime. If bonds outperform stocks, you will then have a great cushion of fixed income to build up over time.

I know I'm in the minority with this one. But, as a young(ish) person, I do not want to plan my financial futures on something just because it worked in the passing century. Look at Japan, for example, and how it took their equities market nearly 30 years to restore after its crash.

[White Coat Investor]

This is why I personally, and am a fan of, contributing to a 50/50 stocks/bonds portfolio at any age. I know that this is an unpopular opinion, but isn't this only an unpopular opinion because of the American exceptionalism that has dominated the market in the last century? One of the biggest investing philosophies, especially amongst bogleheads, is that past performance is not indicative of future returns.

My thoughts on the 50/50 portfolio for any age is that fact that if stocks knock bonds out of the water as they have, and you do not rebalance, stocks will overtake the portfolio anyway and compound overtime. If bonds outperform stocks, you will then have a great cushion of fixed income to build up over time.

I know I'm in the minority with this one. But, as a young(ish) person, I do not want to plan my financial futures on something just because it worked in the passing century. Look at Japan, for example, and how it took their equities market nearly 30 years to restore after its crash.

Seems like that was Benjamin Graham's approach too if I recall, but never his most famous student's, although I believe Berkshire has 1/3 of its money in cash right now.

[Lawrence of Suburbia]

50/50 (or thereabouts) is The Way.

(All credit to St. Jack ♡)

p.s.
Own a fair slug of global stocks as well; things are gonna get squirrely.

[UNSpacy]

This is why I personally, and am a fan of, contributing to a 50/50 stocks/bonds portfolio at any age. I know that this is an unpopular opinion, but isn't this only an unpopular opinion because of the American exceptionalism that has dominated the market in the last century? One of the biggest investing philosophies, especially amongst bogleheads, is that past performance is not indicative of future returns.

My thoughts on the 50/50 portfolio for any age is that fact that if stocks knock bonds out of the water as they have, and you do not rebalance, stocks will overtake the portfolio anyway and compound overtime. If bonds outperform stocks, you will then have a great cushion of fixed income to build up over time.

I know I'm in the minority with this one. But, as a young(ish) person, I do not want to plan my financial futures on something just because it worked in the passing century. Look at Japan, for example, and how it took their equities market nearly 30 years to restore after its crash.

This seems like a logical approach as long as the 50/50 allocation is expected to achieve your financial goals by the target time. High equity allocations have indeed seemed popular in recent years, but the reasoning behind them often seems to boil down to "I just want the most money" without much regard to setting a specific goal (deciding what is "enough" to sustain the life one wants to live) / the risk of not meeting that goal by the required time.

"Risk adjusted return" is not a euphemism for "lesser return". It can make a serious difference when the risk actually shows up.

[nisiprius]

If stocks were a sure thing over any time period, long or otherwise, then they would not be expected to have a risk premium, that is, return more than low risk assets. This is about as fundamental an investment principle as there is. Somehow many have convinced themselves that stocks are essentially risk-free if held long enough or that the only risks of stocks are psychological (panic selling)....

What some people think is risk tolerance is really risk denial.

[secondopinion]

If stocks were a sure thing over any time period, long or otherwise, then they would not be expected to have a risk premium, that is, return more than low risk assets. This is about as fundamental an investment principle as there is. Somehow many have convinced themselves that stocks are essentially risk-free if held long enough or that the only risks of stocks are psychological (panic selling).

This is key. I have studied many markets, and the reality is that one must diversify beyond a single country stock market. The risks are very much real, and I think most individuals really do not have the ability to truly take the full risk of even 100% global stocks.

I might be disappointed slightly that I missed significant returns as I got merely reasonable returns, but my job paid well for the same reasons US stocks did well; I was able to save far more than expected. At the end of the day, leftover income after expenses is still the largest contributor to wealth. I do not regret being conservative about my portfolio; it is not the “optimal” choice according to studies, but I cannot afford to lose as I am not the hypothetical investor of these studies.

[rockstar]

If stocks were a sure thing over any time period, long or otherwise, then they would not be expected to have a risk premium, that is, return more than low risk assets. This is about as fundamental an investment principle as there is. Somehow many have convinced themselves that stocks are essentially risk-free if held long enough or that the only risks of stocks are psychological (panic selling).

This is key. I have studied many markets, and the reality is that one must diversify beyond a single country stock market. The risks are very much real, and I think most individuals really do not have the ability to truly take the full risk of even 100% global stocks.

I might be disappointed slightly that I missed significant returns as I got merely reasonable returns, but my job paid well for the same reasons US stocks did well; I was able to save far more than expected. At the end of the day, leftover income after expenses is still the largest contributor to wealth. I do not regret being conservative about my portfolio; it is not the “optimal” choice according to studies, but I cannot afford to lose as I am not the hypothetical investor.

The problem is globalization. Everything is connected today than when one tumbles the rest go with it. We're seeing some separation this year. But I fear that if the US goes down, it will pull it's global peers with it.

[slicendice]

Both McQ's and the OP's posts have been influential to me over the years. The twenty years of -80% returns many markets experienced in the past is equity risk showing up-- it can happen here as well.

Not that long ago I held 100% stocks for about 15 years, but by mid-november 2024 I had moved to 50:50 overall, with about half the bonds being long and intermediate TIPS. Future contributions are all at 50:25:25 now, buying some additional diversification with managed futures like KMLM etc...

I like sitting at 50:50 with world market cap weight of international stocks, as others have written, the regret minimization is strong at this AA. If equities go on a tear the next few years I will have captured enough to benefit. If the opposite happens, while painful, I will have hopefully averted disaster.

[Morse Code]

The only thing riskier than stocks in the long run is bonds, but invest we must.

[gunny]

there's substance to that old saw: "Two things are certain about the stock market: 1. stocks go up, and 2. stocks go down."

You forgot #3. "Over the long haul, stocks go up more than down." That's why investing in stocks works and why it makes up the bulk of all investing.

Are stocks a sure thing over the long term? In general, yeah. But of course that's a huge oversimplification and the devil is in the details.

[gunny]

This is why I personally, and am a fan of, contributing to a 50/50 stocks/bonds portfolio at any age. I know that this is an unpopular opinion, but isn't this only an unpopular opinion because of the American exceptionalism that has dominated the market in the last century?

No, it's unpopular because simply isn't logical. The odds of a 50/50 mix outperforming a more stock-laden mix in the long run are small. A more aggressive mix will likely not only be better, but by a considerable margin. I can see a mix like that for elderly folks though, as it's safer in the shorter term and they're trying to protect what they have.

[MathWizard]

The WSJ article is behind a paywall, so I cannot refer to it.

I have not checked the other indices ,but just looking at
the Norwegian index, which Is assume is the Oslo exchange,
the following chapter contains Appendix A showing the values
of the Norwegian total market index by month for well beyond
the 30 years mentioned .

https://www.norges-bank.no/globalassets ... 2017122524

From Jan 1949 to Jan 1978 ( the 30 years ending in 1978)
the index fell from 218.3 to 200.6 , a loss of 11.7 or 5.4% ,
not 78% .

In addition ,page 3 of this chapter specifically stated that the value
of the index does not account for dividends. So though the
stock was worth a bit less after these specific 30 years,
the investor was earning dividends the whole time.

Clearly this may not have been a great investment,but
owning stocks means that you own a piece of a business.
I have a hard time believing that the entire public stock market
of any developed nation lost over 3/4 of its value over a 30 year period, short of a devastating war or a complete change in its
economic system.

Clearly Japan, Germany and Italy were devastated during WW2,
so I would understand, and even expect such a loss when
comparing pre war vs post war,but not during the comparatively peaceful post war periods mentioned.

[Lawrence of Suburbia]

The only thing riskier than stocks in the long run is bonds, but invest we must.

I presume you mean riskier over the long run, due to inflation?

[ApeAttack]

Totally agree. That's one reason I own bonds in my portfolio.

Lots of investors, including many Bogleheads, don't seem to believe this, especially after years like 2023-2024.

I still "bet" on stocks, I have three times as much money in stocks as bonds, but seeing stocks underperform bonds for the rest of my life would not be outside the range of possible future outcomes I have considered.

I am 90:10, with the 90 split between 75% US stocks and 25% ex-US stocks.

I'd have more bonds, but I have a pension and social security in my future, along with a large EF now. There's no way I'd put everything into US stocks.

[ApeAttack]

The only thing riskier than stocks in the long run is bonds, but invest we must.

I presume you mean riskier over the long run, due to inflation?

In Deep Risk, by Bernstein, he lists as stocks being a good inflation hedge.

[AlwaysLearningMore]

"I measure the risk of stocks as the market price of insurance against earning less than the risk-free interest rate. Such an insurance policy is equivalent to a European put option with strike price equal to the forward price of the underlying stock index. The price of such a shortfall put increases -- not decreases -- with the time to expiration."

Zvi Bodie

https://retirementincomejournal.com/wp- ... Mar-20.pdf

[Hyperchicken]

Is that supposed to be a gotcha of some sort?

If stocks were a "sure thing", they would be bonds.

[Northern Flicker]

Are Stocks a Sure Thing Over the Long Term? Not Necessarily

A more accurate answer is: No. "Not necessarily" would imply that they may be sure thing over a long enough term, which is a false statement.

[secondopinion]

"I measure the risk of stocks as the market price of insurance against earning less than the risk-free interest rate. Such an insurance policy is equivalent to a European put option with strike price equal to the forward price of the underlying stock index. The price of such a shortfall put increases -- not decreases -- with the time to expiration."

Zvi Bodie

https://retirementincomejournal.com/wp- ... Mar-20.pdf

The trick with very long-dated European put options is that the “risk-free” interest rate would be earned by investing in very long maturity STRIPS. Because of the potential dynamics of the yield curve and how duration could be potentially compensated risk, it does muddy the analysis.

But yes, stocks do not reduce in risk as time progresses. That is why I refuse to hold 100% stocks.

[tomas123]

I think many people infer equities having much greater risk than in reality when looking at individual stock markets like this. Many markets have historically been dominated by so few companies that what we are looking at is single stock risk. The Norwegian market was something like 80% StatoilHydro. Nokia something similar in Finland.

[ROIGuy]

This is why I personally, and am a fan of, contributing to a 50/50 stocks/bonds portfolio at any age. I know that this is an unpopular opinion, but isn't this only an unpopular opinion because of the American exceptionalism that has dominated the market in the last century? One of the biggest investing philosophies, especially amongst bogleheads, is that past performance is not indicative of future returns.

My thoughts on the 50/50 portfolio for any age is that fact that if stocks knock bonds out of the water as they have, and you do not rebalance, stocks will overtake the portfolio anyway and compound overtime. If bonds outperform stocks, you will then have a great cushion of fixed income to build up over time.

I know I'm in the minority with this one. But, as a young(ish) person, I do not want to plan my financial futures on something just because it worked in the passing century. Look at Japan, for example, and how it took their equities market nearly 30 years to restore after its crash.

Seems like that was Benjamin Graham's approach too if I recall, but never his most famous student's, although I believe Berkshire has 1/3 of its money in cash right now.

I wonder what his lowest amount of cash holdings was over the last 40 years, and what year(s) was it?

[Parkinglotracer]

Age 64 retirement we are 50/50 stocks and bonds. We will have a great retirement no matter which way the markets go. If my kids are lucky they will inherited some $ too which I hope will offset the debt our gov and i will leave them, their pensions all my mba buddies have gotten rid of, and the disappearance of all the US manufacturing jobs my generation has moved overseas. Well unless tariffs fix all that … lol.


Long live bogleheads!

[kd2008]

I don't understand.

Why do you need stocks to be a sure thing?
If stocks were a sure thing, markets would be ineffective, inefficient because they cannot incorporate and reflect new information about the future expected revenue etc.

If the question is do you want your portfolio to be a sure thing, then we are talking about something else.

There are a lot of fans of McQ here. Just not me.

[Valuethinker]

The WSJ article is behind a paywall, so I cannot refer to it.

I have not checked the other indices ,but just looking at
the Norwegian index, which Is assume is the Oslo exchange,
the following chapter contains Appendix A showing the values
of the Norwegian total market index by month for well beyond
the 30 years mentioned .

https://www.norges-bank.no/globalassets ... 2017122524

From Jan 1949 to Jan 1978 ( the 30 years ending in 1978)
the index fell from 218.3 to 200.6 , a loss of 11.7 or 5.4% ,
not 78% .

In addition ,page 3 of this chapter specifically stated that the value
of the index does not account for dividends. So though the
stock was worth a bit less after these specific 30 years,
the investor was earning dividends the whole time.

Clearly this may not have been a great investment,but
owning stocks means that you own a piece of a business.
I have a hard time believing that the entire public stock market
of any developed nation lost over 3/4 of its value over a 30 year period, short of a devastating war or a complete change in its
economic system.

Clearly Japan, Germany and Italy were devastated during WW2,
so I would understand, and even expect such a loss when
comparing pre war vs post war,but not during the comparatively peaceful post war periods mentioned.

Is the difference simply real v nominal returns?

(I agree dividends would make a huge difference. Over 20 years, we could reasonably expect that total dividends were half of returns).

The Dow Jones went over 1000 in 1966, I believe, and did not do so again until 1981 (?) But we look at Total Return, and Real Return. The nominal return is just not interesting in a period of high inflation.

[Valuethinker]

I presume you mean riskier over the long run, due to inflation?

In Deep Risk, by Bernstein, he lists as stocks being a good inflation hedge.

He is oversimplifying and I imagine he knows it.

Stocks:

- represent a claim on real cash flows, the cash flows equity owners accrue. Since we would expect real cash flows to grow with inflation (but not in any sense in an even way - different companies and different sectors have very different effects) there's an element of inflation hedging in there (it's held to be stronger for Property ie Real Estate)

- empirically are incredibly volatile. Read Mandelbrot's "The Misbehavior of Markets" for a look-see. Mind blowing. Or just look at the spread of returns from different stock markets in the UBS Global Investment Returns yearbook (Dimson Marsh & Staunton)

- so you have a real asset, with very volatile returns. It can only be said to "protect against inflation" in very long run.

The data shows that in periods of accelerating inflation (1966-1979, say) stocks don't seem to do well. Probably because:
1). companies pay more tax under conditions of inflation
2). Central Banks raise interest rates, which have all kinds of negative effects on companies directly (higher interest bills) and indirectly (slower economic growth, more volatility etc)

If you look at Great Britain, in the early 1970s the stock market dropped -82% in the course of 18 months (in real terms, inflation was running at c. 20% at that time). No lost war. No revolution. Terrorism but arising out of a small province (Northern Ireland). Centrist governments.

https://www.youtube.com/watch?v=jpUSil0_0zU&t=1s is from the Netflix series "The Crown" about the life of Elizabeth II - that's her (Olivia Coleman) speaking to her younger sister Margaret (Helena Bonham Carter), on the occasion of her Silver Jubilee (25th anniversary of her reign).

That's what can happen. -82%. Or think about Japan. These are politically stable countries.

[dogagility]

Probabilities. People have different probability values in their heads when considering their asset allocation and investing goals. To each, their own.

The only sure thing is death.

Our asset allocation is heavily weighted toward stocks. This has the best probability of meeting our future goals.

[WalkingBackToHouston]

Interesting thread. I guess I'm surprised that its surprising for some that investing in stocks over any time frame involves risk?
Is this a generational thing? Are any of us older investors surprised?

[rossington]

Are Stocks a Sure Thing Over the Long Term? Not Necessarily - Meir Statman in WSJ

A large part of Statman's article is based on research by Edward McQuarrie who posts frequently here at Bogleheads. Excerpts from the article.

Those investing exclusively in U.S. stocks during the centuries since 1792 have been relatively fortunate. When McQuarrie looked at international stock markets, in some cases he found losses over long holding periods of even greater magnitude than those he had identified in the U.S. Italian stocks, for example, lost 78.2% in the 20 years ended in 1979, Japanese stocks lost 64.3% in the 20 years ended in 2009 and Norwegian stocks lost 74.1% during the 30 years ended in 1978. Elsewhere, German stocks lost 21.5% in the 20 years ended in 1980 and Swiss stocks lost 20.9% during the 30 years ended in 1991.

Why do these international returns matter? First, many American investors hold international stocks for diversification purposes, so returns in overseas markets affect them directly. But second, and more important, U.S. stocks aren’t immune to the forces that hammered Italian, Japanese and German stocks, meaning declines of even greater magnitude are possible in the U.S. Just because they haven’t happened yet doesn’t mean they won’t.

Excellent work Ed.

Link to article - https://www.wsj.com/finance/stocks/stoc ... s-873723c1

BobK

But second, and more important, U.S. stocks aren’t immune to the forces that hammered Italian, Japanese and German stocks, meaning declines of even greater magnitude are possible in the U.S. Just because they haven’t happened yet doesn’t mean they won’t.

I can understand the premise but don't see the reality.

What actually caused Italian, Japanese, Norwegian, German, and Swiss stocks to decline? How do these examples (given the diverse time periods) correlate with the current/future US market?

Does anyone truly believe that If the US stock market loses GREATER than 21% to 78% over 20 years that international stocks will do better?
(Please explain)

Given the same circumstances of stock declines how will US bonds actually provide long term safety?
(Please explain)

As the US economy goes so goes the rest of the world IMHO.

[exodusing]

As the US economy goes so goes the rest of the world IMHO.

Maybe, but the market is not the economy. One reason is that markets tend to perform relative to expectations while economies perform based on fundamentals, such as productivity.

[Cautious Investor]

This is why I personally, and am a fan of, contributing to a 50/50 stocks/bonds portfolio at any age. I know that this is an unpopular opinion, but isn't this only an unpopular opinion because of the American exceptionalism that has dominated the market in the last century?

No, it's unpopular because simply isn't logical. The odds of a 50/50 mix outperforming a more stock-laden mix in the long run are small. A more aggressive mix will likely not only be better, but by a considerable margin. I can see a mix like that for elderly folks though, as it's safer in the shorter term and they're trying to protect what they have.

Illogical why, exactly? There is 0 guarantee that stocks will outperform bonds in every period of time. There are some foreign markets, referenced here, where stocks have underperformed for prolonged periods of time. The US market took 25 years to recover after the crash of 1929, and 10 years to recover from the crash of 1973. If you were older and retired, or planning for an imminent retirement, and were allocated to an 80/20, 90/10, or 100/0 portfolio, at those times, your financial goals would have been sabatoged.

So, it sounds like to me that yes it is unpopular because of the American exceptionalism that has occurred in the market.

I have never said that a 50/50 mix will outperform. But $1,000 contributed to a 50/50 AA with no rebalancing over 30 years that receives an 8% return on equities and 4% return on bonds would still compound to a *safe* and decent retirement balance. To me, safety is much more important than hoping that risk will generate an extra couple hundred thousand.

[Morse Code]

The only thing riskier than stocks in the long run is bonds, but invest we must.

I presume you mean riskier over the long run, due to inflation?

Yes.

[BiggerSaver]

This is why I personally, and am a fan of, contributing to a 50/50 stocks/bonds portfolio at any age. I know that this is an unpopular opinion, but isn't this only an unpopular opinion because of the American exceptionalism that has dominated the market in the last century? One of the biggest investing philosophies, especially amongst bogleheads, is that past performance is not indicative of future returns.

My thoughts on the 50/50 portfolio for any age is that fact that if stocks knock bonds out of the water as they have, and you do not rebalance, stocks will overtake the portfolio anyway and compound overtime. If bonds outperform stocks, you will then have a great cushion of fixed income to build up over time.

I know I'm in the minority with this one. But, as a young(ish) person, I do not want to plan my financial futures on something just because it worked in the passing century. Look at Japan, for example, and how it took their equities market nearly 30 years to restore after its crash.

I am aligned.

I love the USA and believe in America's greatness. However, not every decade will be great!

[simplesimon]

Interesting thread. I guess I'm surprised that its surprising for some that investing in stocks over any time frame involves risk?
Is this a generational thing? Are any of us older investors surprised?

It's very basic human behavior. Almost 20 years of good times (since the GFC) will make a lot of people forget.

Of course there are all the folks that only started investing after the GFC, which might be the generational thing.

[White Coat Investor]

Seems like that was Benjamin Graham's approach too if I recall, but never his most famous student's, although I believe Berkshire has 1/3 of its money in cash right now.

I wonder what his lowest amount of cash holdings was over the last 40 years, and what year(s) was it?

I'll bet it's available somewhere, but I don't know where. I'll bet it was right after a huge crash though. Maybe 2009

[watchnerd]

there's substance to that old saw: "Two things are certain about the stock market: 1. stocks go up, and 2. stocks go down."

You forgot #3. "Over the long haul, stocks go up more than down." That's why investing in stocks works and why it makes up the bulk of all investing.

Are stocks a sure thing over the long term? In general, yeah. But of course that's a huge oversimplification and the devil is in the details.

Japanese market took over 30 years to recover from its peak.

The investor must ask if their personal "long haul" is long enough? Or will they die before the market recovers?

[mbwalker98]

I wonder what his lowest amount of cash holdings was over the last 40 years, and what year(s) was it?

I'll bet it's available somewhere, but I don't know where. I'll bet it was right after a huge crash though. Maybe 2009

According to this chart (https://companiesmarketcap.com/berkshir ... h-on-hand/) BRK had only $1.05 Billion in cash in 1997 vs. $66.28 B in 2009. It's grown over the last 30 years, with the cash position really expanding more recently.

[White Coat Investor]

I'll bet it's available somewhere, but I don't know where. I'll bet it was right after a huge crash though. Maybe 2009

According to this chart (https://companiesmarketcap.com/berkshir ... h-on-hand/) BRK had only $1.05 Billion in cash in 1997 vs. $66.28 B in 2009. It's grown over the last 30 years, with the cash position really expanding more recently.

Not sure total amounts matter given what the company has done. I think the question is the percentage in cash.

[CloseEnough]

You forgot #3. "Over the long haul, stocks go up more than down." That's why investing in stocks works and why it makes up the bulk of all investing.

Are stocks a sure thing over the long term? In general, yeah. But of course that's a huge oversimplification and the devil is in the details.

Japanese market took over 30 years to recover from its peak.

The investor must ask if their personal "long haul" is long enough? Or will they die before the market recovers?

Yes but the nice thing is either way the problem is solved. The investor can also ask if their portfolio is so large that with other income (SS, etc.) even if their "long haul" is not long enough, they have "enough", or, at least close enough.