Investing General Discussion

Furry

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Gravel said:
You'd probably be okay doing just two years (very few bear markets last longer than that; basically the 60's is about it). And after the first 10 or so years, you'll know whether sequence of returns has fucked your portfolio. If you last those first 10 years, you should be good to go.
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I thought about that and you could be right, especially since I could make two years of generous spending stretch for four. The reason I settled on four is that I’m retiring at 50 at the latest, so I figured I should plan on at least one major and unusually bad disruption. I’ll be able to lay off my investments for almost a decade if it’s really necessary.

Id rather spend what I want, and I’m on a trajectory to easily be there, but I’ve always been the sort that plans for the worst regardless.
 
Blazin

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So I pulled the S&P 500 returns for the 10yr period from 2000-2009. The market averaged a -0.61% annual return during those 10 years. So again if I asked okay how much money would someone have if they invested $100 a year every year for the 10 years in the market? If you just listen to long term averages someone might figure they'd be up 100% during that period vs the -0.6% reality. Yes I'm cherry picking the shitty period that is the point I'm making, in response to "there has never been a long shitty period"

If you invested $100/yr during this period would have $943.76 after 10yrs with a cost basis of $1000 for a cumulative return of -5.62%. Now we all know history had this investor held up for even just the next 4 years their return would improve to 53.84% over a 14 year period. However the psychological damage of investing for a decade diligently for a negative turn should not be taken lightly. We sit in a secular bull and the further we get away from this period the more it's just a forgotten memory. The idea crops up that all one needs to do is put their money in and collect profits and when that view becomes pervasive enough the cycle will end and financial lives will be destroyed and it all starts over again.

This wasn't a one time event it has happened repeatedly and this time is not different. Everyone knows I preach boglehead investing to people and this isn't to dissuade that we are in a secular bull market but I think people will be better adapted to respond to change if they understand that markets can do something different other than go up and to the right for protracted periods of time. Dividends help during these periods but as we've seen I don't see people falling over themselves buying dividend stocks.
 
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Sanrith Descartes

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Blazin said:
So I pulled the S&P 500 returns for the 10yr period from 2000-2009. The market averaged a -0.61% annual return during those 10 years. So again if I asked okay how much money would someone have if they invested $100 a year every year for the 10 years in the market? If you just listen to long term averages someone might figure they'd be up 100% during that period vs the -0.6% reality. Yes I'm cherry picking the shitty period that is the point I'm making, in response to "there has never been a long shitty period"

If you invested $100/yr during this period would have $943.76 after 10yrs with a cost basis of $1000 for a cumulative return of -5.62%. Now we all know history had this investor held up for even just the next 4 years their return would improve to 53.84% over a 14 year period. However the psychological damage of investing for a decade diligently for a negative turn should not be taken lightly. We sit in a secular bull and the further we get away from this period the more it's just a forgot memory. The idea crops up that all one needs to do is put their money in and collect profits and when that view becomes pervasive enough the cycle will end and financial lives will be destroyed and it all starts over again.

This wasn't a one time event it has happened repeatedly and this time is not different. Everyone knows I preach boglehead investing to people and this isn't to dissuade that we are in a secular bull market but I think people will be better adapted to respond to change if they understand that markets can do something different other than go up and to the right for protracted periods of time. Dividends help during these periods but as we've seen I don't see people falling over themselves buying dividend stocks.
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One of the great things about investing is also one of the shitty things. There is no one perfect formula to success. If there was, someone would post it on Reddit and we could all copy it.

It is ultra rare for a decent (3% or more) dividend stock to have solid price appreciation. Last March was a unicorn for people in that it gave some of those stocks a nice haircut. Still there were few that took advantage because "boomer stock".

I believe is some semblance of balance in my portfolio. I have lived through two of those bear periods. They suck balls. Those are the periods when you look at the KO, IBM, T, VZ, CVX, LMT, NOC, RTX , CAT etc in your portfolio and thank the stars. In hot bull markets you let the AAPL, MSFT, NVDAs carry your boomers. When the bear is out, you let the boomers carry your tech.

At least that is the idea I run with.
 
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Blazin

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Ran the numbers on the 16yr period from 1966-1981 and for this 16yr period the S&P had an avg return of just 3.21%. And that is a far shittier 3.21% than it first appears, it's a 3.21% during a period of very high and persistent inflation. Anyone who invested in the S&P during this 16yr period (a good chunk of an entire career or an entire retirement) would have had their ass handed to them in real return after inflation. If alternate universe Furry was 50 in 1966 with his retirement plan, it would be completely shot to shit for almost 2 decades.

If you invested $100/yr during the entire period you would eek out a 27.16% cumulative return (that 1.7%/yr for the period) . I could keep showing more periods but I can save them, as I'm sure we'll have plenty more "you always make money.." posts in the future. Just remind me to cover new periods next time I get triggered by it.
 
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Gravel

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Blazin said:
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One of the common fallacies people get into about stock market returns is a quirk of math.
If in year 1 the S&P goes up 50% then year 2 the S&P goes up 50% then in year 3 the S&P goes down 50%. Then Johnny investor looks up on wiki/google "What is the average return of the S&P for yrs 1-3 ?" And gets their answer of 17%/yr

Now if we look at someone invested for that period:
Johnny invest $100 . After year 1 he has $150 and after year two he has $225 and after year three he has $112.50.

Now if Johnny listened to some people in this thread he is going to be mighty upset when in year three he is up only 12% after he was told the market averages 17% a year. Telling people they can make 10% a year in stocks is just a white lie we tell people to try to get them to put some damn money in their 401k accounts.
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Eh, unless I'm missing something, the CAGR of the market is 10% (7% after inflation). That number already accounts for what you're saying.


Edit: With your last two examples, you're basically cherry picking a single year where the 4% rule didn't work (there are a handful, but you'll also know within a few years if you're in one; which is why I mentioned keeping 2 years cash and knowing within 10 whether you're completely fucked). 1966 is the single worst period in history to have retired. Adjust it left or right and suddenly it doesn't look as bad.
 
Tmac

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Gravel said:
Eh, unless I'm missing something, the CAGR of the market is 10% (7% after inflation). That number already accounts for what you're saying.


Edit: With your last two examples, you're basically cherry picking a single year where the 4% rule didn't work (there are a handful, but you'll also know within a few years if you're in one; which is why I mentioned keeping 2 years cash and knowing within 10 whether you're completely fucked). 1966 is the single worst period in history to have retired. Adjust it left or right and suddenly it doesn't look as bad.
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He said he cherry picked the data to make a point.

That being said Blazin Blazin what hope is there for super noobs like myself that know they need to be in the game, but still aren’t sure exactly what game they’re playing?

Personally, I want to start learning options. My current obstacle is that I find them dreadfully boring to read about. Which means, either I’ll never learn (bc I csnt force myself to learn something I find boring) or I need to find different reading material.
 
Sanrith Descartes

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Tmac said:
He said he cherry picked the data to make a point.

That being said Blazin Blazin what hope is there for super noobs like myself that know they need to be in the game, but still aren’t sure exactly what game they’re playing?

Personally, I want to start learning options. My current obstacle is that I find them dreadfully boring to read about. Which means, either I’ll never learn (bc I csnt force myself to learn something I find boring) or I need to find different reading material.
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Just because indexes may not return the "best" returns doesn't make it the wrong answer for 95% of investors. Blazin Blazin May feel differently but for someone just wanting to learn, I would all you "savings" into an index IVV, QQQ, ITOT etc and then start a brokerage account with a small amount of disposable money to learn with. The idea is to learn the skills you want to learn with small amounts and as your skill, exp and confidence build so to the dollar amounts. If/when you hit a level that your are ready. Then start dabbling with the larger amounts in your savings. Or not. I consider myself a knowledgeable investor and a good portion of my savings sits in FTEC.

Edit: fractional investing is a boon to new investors. You aren't locked out of big names because you have low dollar amounts.
 
Blazin

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Me pointing out that there can be shitty periods of time lasting a decade and more is just wanting to keep things honest so that this thread doesn't require BS boots to drudge through like a certain crypto thread. Consistent investment into a broad low cost index is the answer for pretty much everyone. IF you succeed and accumulate what is equal to a decade + of your earnings power AND you are within 5 years of desired retirement THEN it warrants paying attention to the primary trend and adjust allocations and withdrawal plans accordingly. Not saying anything deep here outside of cautioning against the idea that you can set it forget it and there is no way it won't work out.

Guessing the day to day or month to month is extremely challenging, figuring out if you are in a secular bear or bull is not challenging at all. Look at the long term moving averages are they pointed up? Guess what you are in a bull. Are they flat or rolling over? Then you are likely in a secular bear trend. In a bull I think very high allocation towards equities is the right answer. During a bear I think the right answer if a much more diversified mix of equities/RE/Bonds/Prec Mtls/Cash. 4% withdrawal rate in a bull is very high chance of working out, in a bear 2.5-3% is probably the safer number. You guys know I have strong financial conservative bias. So you can always look at the numbers I give and know that I'm giving the "safe" number. Some will live more on the edge and it may work out great. I always try to plan for worse outcomes and if they are better than my expectations then that's great.

We have several people here in their mid 40s realizing they can likely retire by their early 50s which means we have to be smart and be prepared for a 40yr retirement. A lot has to go right for a very long time so some margin of error helps. If you retire early it's not enough that your withdrawal rate has your net worth running sideways minus inflation. For those first 20yrs you need that NW to keep growing and hopefully reach those levels it's easily outpacing your lifestyle.
 
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Blazin

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Hard to read this chart at this scale but this 40yrs or so of the SPX. Ignore the dark blue moving average and my various scribbles, but look at the cyan and green moving averages. Either one could be used as a guidepost (20 month and 50 month avgs) They will never get you out at a top but they can definitely help you identify the current macro trend. I think cyan is the a good one to follow but you just have to be disciplined about jumping back into equities when the market does an occasional fake out like we had in March'20. You don't just ditch equities the moment it is pierced, but these are monthly bars if the market losses the level or slices through it like butter then respond accordingly. This is not some insane "timing" of markets it would be under 20 transactions in 40years and yet it would keep you safe from the most dramatic portfolio declines.

For me Cyan is PAY ATTENTION alert green is my STOP. Because I'm a trader which I don't recommend to anyone I'm a little cautious now because we are so elevated above cyan, but for long term retirement investment my 401k plan is humming along and I wouldn't touch it as we are in a primary up trend and I don't plan on using that money for over a decade.

So to answer TMAC we are in a bull market, if you are investing for the long haul then Step A is , dollar cost average into a broad market index. If you are wanting to join the trading pits I would only recommend that when step A is taken care of and never in replacement of.

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Sanrith Descartes

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I wonder if the days of 20 or 30 basis point moves in the indexes being considered "normal" are gone for good?
 
Sanrith Descartes

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Blazin said:
Hard to read this chart at this scale but this 40yrs or so of the SPX. Ignore the dark blue moving average and my various scribbles, but look at the cyan and green moving averages. Either one could be used as a guidepost (20 month and 50 month avgs) They will never get you out at a top but they can definitely help you identify the current macro trend. I think cyan is the a good one to follow but you just have to be disciplined about jumping back into equities when the market does an occasional fake out like we had in March'20. You don't just ditch equities the moment it is pierced, but these are monthly bars if the market losses the level or slices through it like butter then respond accordingly. This is not some insane "timing" of markets it would be under 20 transactions in 40years and yet it would keep you safe from the most dramatic portfolio declines.

For me Cyan is PAY ATTENTION alert green is my STOP. Because I'm a trader which I don't recommend to anyone I'm a little cautious now because we are so elevated above cyan, but for long term retirement investment my 401k plan is humming along and I wouldn't touch it as we are in a primary up trend and I don't plan on using that money for over a decade.

So to answer TMAC we are in a bull market, if you are investing for the long haul then Step A is , dollar cost average into a broad market index. If you are wanting to join the trading pits I would only recommend that when step A is taken care of and never in replacement of.

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1987 Black Monday doesnt look nearly as shitty on this chart as it was in real life now that we have been through the dot.com bubble burst, 9/11 and Coronachan.
 
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AMZN
Apparently AMZN now controls the internet according the AG of DC. and on an unrelated note, why does DC have a fucking AG?

DC Attorney General Files Antitrust Suit Against Amazon
12:37 PM EDT, 05/25/2021 (MT Newswires) -- Amazon.com(AMZN) is being sued by the District of Columbia Attorney General Karl Racine for allegedly "abusing and maintaining its monopoly power by controlling prices across the online retail market and violating DC law."
 
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For those still holding, PLTR has been slowly and steadily climbing its way back up through resistance. It broke $22 today for a bit.
 
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