I'm too lazy to dig it up but there have been good academic studies that found you actually don't need a very large percentage of active investors for it to still work. Could probably get 90%+ with passive funds and the system will still be efficient overall.
Dow posts worst Opening Day in 8 years
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I'm too lazy to dig it up but there have been good academic studies that found you actually don't need a very large percentage of active investors for it to still work. Could probably get 90%+ with passive funds and the system will still be efficient overall.
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The Darwinian down side is that investing is a competitive sport. What matters is not how well you do, but how well you do relative to everyone else. In a world where everyone saves well and invests wisely just makes it harder to chase the same set of goods as there is more money out in the masses. Think Japan where everyone works hard and saves well makes it hard for everyone to retire. A world where the majority of folks get suckered by the Citibanks and Morgan Stanleys makes it easier for the few who save well and use Vanguard and other successful strategies to accumulate wealth. When everybody uses Vanguard your "relative" wealth drops. A very cold way of looking at things, but true.
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Sure, if "relative" is your goal then it matters. My "goal" is to reach my "number" with as little risk as possible. I don't care much how everyone else does in a percentage term because there is no free lunch in long term investing: Higher returns means higher risk.
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My point is that your number would be higher if everyone saved well and invested wisely.
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More and more investors are moving to passive strategies and low cost indexing, but there still an awful lot of active investors out there. I mean, that idiot Cramer still has a TV show and this very thread is full of people convinced they can substantially beat the market with one system or another, while paying lip or no service to the notion of risk.
I think passive indexing as a strategy is going to be Just Fine for the forseeable future of the human race.
I understand your point, but don't totally agree. Your number should be based on the amount of money you need to spend to do the things you want to do. If I can drive the car I want, vacation where and how I want, live where I want, and golf where I want, why do I care what everyone else is doing? I mean to some extent we like to compare ourselves with our neighbors, but if I can be comfortably retired and doing what I want to do I personally don't care if my neighbor is Bill Gates or if it's some regular guy living on his social security check. I still do my thing and he does his.
People are naturally jealous, but your personal standard of living is yours alone.
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The only reason to buy the market is largely due to DCF returns that the stock provides for a specific price point.
Ergo, metrics such as P/E ratios, Stock market cap/Total GDP, Schiller P/E ratio, EV/EBITA, etc are valid measures to determine the valuation of the overall market.
If you use a Vanguard Total Stock Market Index for instance tracking the total return of the broader market including some small cap exposure, the increase in valuation will be largely due to:
1) DCF improvement for the price point you are paying
2) Interest rate policies that affect cash flows due to HIGHLY levered companies
3) Federal Reserve Polices including QE
I don't fully see why passive investment would change these metrics overall compared to active management.
For instance, if a company falls out of the SP500 fund due to problems with DCF/leverage ratios, there is "active" management in that the company is dropped from the fund.
That is why hedge funds/PE haven't been able to outperform the SP500 due to the highly levered environment coupled with Federal Reserve Policies.
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What "number" are you recommending for retirement?
That's up to you and how much money you spend. I personally target approximately 33x annual expenses net of taxes, but that's just me. Historically 25x annual expenses has held up well but I try to be conservative with my projections. I'd personally rather work a little longer/harder to have that extra security blanket.
The tricky part is figuring out the tax consequences of each account. A Roth is tax free withdrawals so $1M in a Roth is worth a decent amount more than $1M in a 401K that will be taxed as income when withdrawn.
I have a combination of Roth, 401K, Defined Benefit Plan, and taxable accounts. They are all unique in their tax treatment so it's not straightforward to determine, but I am far enough away from retirement that I haven't gotten around to the details yet. But when I am, the 401K and DBP will get taxed as income, the Roth won't get taxed at all, and the taxable will have capital gains taxes. It can get a bit tricky IMHO when you try to determine how much to take out of which account in which years to minimize the tax hit.
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Strongly agree with the bold. See the link from bogleheads wiki.
Safe withdrawal rates - Bogleheads
Current valuations of stocks and bonds are high. That argues for lowering withdrawal rates. Read the link for a good overview.
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Retirement Calculator | How much do you need to retire? | Nerdwallet
I agree with the 33X net expenses for a rough estimate. Another way to estimate your retirement needs is to use a 3% withdrawal rate per year.
Let's say you want to retire on $200K per year (which is really $180K after taxes)
You would need roughly 6.7 Million in savings to get there. I'd be hesitant to use a 4% withdrawal rate but instead choose 3%.
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Indeed, when Pfau calculates safe withdrawal rates based on today's lower yields—which he updates each month on his Retirement Income Dashboard—he estimates that retirees who want a 90% or so chance that their savings will last 30 years should limit themselves to an inflation-adjusted withdrawal rate of just under 3% rather than 4%. At first glance, a drop of a little more than a percentage point may not seem like that big a deal, but it translates to about a quarter less annual retirement income from savings.
Some People Have a Crazy Idea of What They Can Afford in Retirement
I agree with the 33X net expenses for a rough estimate. Another way to estimate your retirement needs is to use a 3% withdrawal rate per year.
Let's say you want to retire on $200K per year (which is really $180K after taxes)
You would need roughly 6.7 Million in savings to get there. I'd be hesitant to use a 4% withdrawal rate but instead choose 3%.
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Indeed, when Pfau calculates safe withdrawal rates based on today's lower yields—which he updates each month on his Retirement Income Dashboard—he estimates that retirees who want a 90% or so chance that their savings will last 30 years should limit themselves to an inflation-adjusted withdrawal rate of just under 3% rather than 4%. At first glance, a drop of a little more than a percentage point may not seem like that big a deal, but it translates to about a quarter less annual retirement income from savings.
Some People Have a Crazy Idea of What They Can Afford in Retirement
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An array of online calculators can help you sort this out. Some key considerations:
So what can you do now?
Start with a list of all your monthly expenses. Go through it looking for areas that you can or will reduce in retirement. Now consider any new expenses like escalating health care costs and travel and hobbies. Identify which of these is a fixed cost and which is discretionary. You’ll need a big enough number to secure an income stream that covers all fixed costs. This is your base number, the lowest one that you should consider acceptable.
Sizing Up the Big Question: How Much Money Do You Need To Retire? | TIME.com
- Life expectancy The Society of Actuaries estimates that for a married 65-year-old couple, there is a 45% chance of one person reaching 90 and a 20% chance one will reach 95. Plan for a long life.
- Medical costs EBRI estimates that a 65-year-old couple in 2019 that does not have any employer-provided health benefits will need $450,000 to have a 50% chance of funding health care expenses not covered by Medicare. Even with employer benefits, there is a 50% chance that out-of-pocket expenses will reach $268,000. Plan for this big expense.
- Inflation Over 30 years, expect inflation to cut your spending power in half. You would need nearly $12,000 today to match the spending power of $5,000 in 1982.
- Investment style You may never reach your number if you hide from stocks. Bond yields and short-term interest rates are so low that, adjusted for inflation, you may get little or no growth for years.
- Savings rate A good rule of thumb is saving 15% of income each year throughout your working life. That puts you on track to replace about 85% of your final year’s salary for 30 years of retirement without worrying about some gigantic number. If you have not been saving at that rate, you may need to adjust your savings plan or your retirement expectations.
So what can you do now?
Start with a list of all your monthly expenses. Go through it looking for areas that you can or will reduce in retirement. Now consider any new expenses like escalating health care costs and travel and hobbies. Identify which of these is a fixed cost and which is discretionary. You’ll need a big enough number to secure an income stream that covers all fixed costs. This is your base number, the lowest one that you should consider acceptable.
Sizing Up the Big Question: How Much Money Do You Need To Retire? | TIME.com
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Thinking of chucking it all and retiring early, long before you start getting a pension or Social Security, and before you have ready access to your 401k and IRA?
The big question:
"With what you have today, and what it costs you to live, can you retire and maintain the same lifestyle?"
www.firecalc.com
The big question:
"With what you have today, and what it costs you to live, can you retire and maintain the same lifestyle?"
www.firecalc.com
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What worries me about the market is that every metric of pricing is way out of whack and almost at all time highs in terms of debt and P/E ratios.
the way the western world is collapsing, might not be much left in 30 years.
Market valuations should in no way impact what you use for a safe withdrawal rate, that's why it's called safe. If you care to use them for anything, you'd use them for asset allocation. Although if retiring, you should have a fairly conservative asset allocation. I mean if you had a 3% SWR, you could probably have something like 30% stocks/70% bonds or 40/60 and do just fine.
But since you brought it up, stock market valuations are only high if you don't compare them to interest rates and other possible investments. If you look at them in the current environment, they are still within reasonable valuations and could grow further. I mean this will be the S&P is going to have all time record earnings this year and they are rising at a good clip.
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So due to artificially low interest rates, everyone is largely forced to put money into a highly overpriced market with >22% of corporations levered so badly that they will go out of business if interest rates increase a little.
Doesn't sound like a good situation to me.
No, that is incorrect. Interest rates effect prices/yields of bonds which are the main alternative investment to stocks. So with such low rates bonds are relatively very unattractive so stocks are relatively more attractive. And no, >22% of major corporations will not be out of business when interest rates rise a bit. I mean I'd seriously like a list of which businesses these are. I mean it's been smart for many businesses to issue debt recently at such low interest rates. They lock those low rates in for 15 or 30 years. When interest rates rise, their bond payments don't rise, they stay the same.
The situation is that neither you nor I should be in the business of making short term predictions about stock markets.
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In Stark Warning, IMF Finds Over 20% Of US Corporations At Risk Of Default Should Rates Rise | Zero Hedge
Guess you know better than the IMF though huh? Got any stats/references to counter that since you appear to be confident this assessment is "incorrect"?
Also, metrics of stock prices are not just about "short term predictions". No one can tell when these effects will occur but bad metrics will show far worse returns over the longer term.
Stock Market's High P/E Suggests Lower Returns Ahead
There have been MANY economics articles about buying into a high P/E market and poorer long term returns. This doesn't mean you should never get into the market, even at higher valuations, but the realization of poorer returns over the longer term should be expected.
Also, interest rate policy is largely determined by the Federal Reserve who is still keeping the rates artificially low. These artificial polices at such low interest rates due to QE, ZIRP, etc has NEVER been done in American history, so its very hard to predict its long term effects but they are likely VERY bad considering the huge misallocation of capital that occurs under these environments including EXTREME leverage ratios in both corporations and the US govt.
This continues in 2017 as well:
Why "Nothing Matters": Central Banks Have Bought A Record $1 Trillion In Assets In 2017 | Zero Hedge
Is the inflation going into the market with these unprecedented actions? No one really knows. What will happen if the federal reserve dramatically cuts back on this policy?
Likely, the RA and stocks will collapse due to huge bubbles like in 2008 but we will see. They are hoping for slow tapering of the policy but that will like portend even worse for an overinflated stock/RA market.
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At these valuations one should only invest in Equities that % he/she is willing to have suffer a 20-25% correction in the next 24-36 months. I think a big correction/bear market is long overdue but we could have a rally this year of 20-25% if Trump cuts corporate tax rates to 20% and allows repatriation of foreign cash at a flat rate of 10%.
Predicting short term market moves is very hard and longer term the market does move up over time. I think it's prudent to be cautious at these valuations but the bull market may yet continue this year and maybe even next.
Predicting short term market moves is very hard and longer term the market does move up over time. I think it's prudent to be cautious at these valuations but the bull market may yet continue this year and maybe even next.
1) that Zero Hedge article is just awful. It's essentially provides no source for the data presented. It certainly provides no data at the company level to assess the accuracy of. Beyond that, I'm not sure what the IMF has to do with anything. On a related note, that entire website is horrible. Is it still just 2 guys writing all the articles? Used to be 3.
2) you'll be happy to know that as corporate earnings rise, the market's P/E ratio falls. You'll also be happy to know that I agree it'd be nice if the P/E ratio was lower. I mean I personally hope for a 75% drop in the market since I'm in the accumulation phase of my investing career and will invest more in the future than I have so far. That doesn't mean you should avoid purchasing stocks at these prices.
3) I find it interesting that you point out all these things that have never been done so we don't know what the long term effect will be, but then you are sure it will be VERY BAD. And if you think our rates are "artificially" low, is that in absolute terms or relative to the rest of the world that is even lower than us? And what is "EXTREME leverage"? Some leverage is good, how much depends on interest rates. You can't on one hand talk about how low the rates are as being bad and then on the other hand talk about the higher leverage being bad. Either one is bad or the other (or neither), but not both. Because when you have low rates a company would be foolish to not use more leverage, especially when they are using it by locking in the current low interest rates. High levels of debt at low interest rates become more dangerous when a company can't pay them and has to refinance the debt at a higher rate in the future. But that's a different discussion and has to happen at a company by company level, not the entire market. I mean if you don't, it's like saying I can't have a credit card because my neighbor can't make his payments.
You seem to be interested in bearish predictions. That's fine. Just be aware that everything you said has been true for 6 years now and we're still waiting for that drop. I mean we literally have posts in this forum from 2011 we can drag up saying the same thing.
You are asking for retirement advice. Best advice is that worrying about the P/E ratio of the market should have nothing do with a decision to retire nor anything to do with how much money you need saved up to retire. If you think it does, you are worrying about the wrong things.
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1) Here is further information confirming the HIGHLY levered nature of corporations in the US since at least 2013 (which has gotten WORSE) since that period of time: US companies are highly leveraged Notice thats not zerohedge. There are TONS of these articles out there you can find with a simple google search. Suffice it to say, leverage ratios of US companies/US govt/locat govts are basically at all time highs. They are VERY susceptible to even slight interest rate increases.
Zerohedge is one of many sources I use.
2) I never said you should totally avoid it, I was saying that high P/E ratios have traditionally yielded far lower return rates for the overall market.
3) The problem is that companies become DEPENDENT on VERY HIGH levels of debt compared to historical norms with VERY low interest rates. They have levered up to UNPRECEDENTED levels due to Federal Reserve Policies that have artificially affected interested rates for PROLONGED periods of time.
Ergo, much of the "market growth" is due to debt/share buy backs/etc giving an artificial growth.
When you look at the Buffet Metric of Total Stock Market CAP/GDP, we are at VERY bad numbers, particularly with such LOW GDP growth coupled with artificial interest rate policies.
The percent of total market cap relative to Gross National Product?
This breaks it down even further.
I never said to get out of stocks completely but I will remain diversified at this time due to these concerns. I remember these discussions in 1997 and 2006 as well where everyone was talking about a "new economy" or "there is no bubble in RA".
I am not that optimistic going forward.
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Here is another article from Zerohedge:
Just How Overvalued Is The Market? Here Are 20 Metrics To Help You Decide | Zero Hedge
I have added the graphic of most interest.
Notice these METRICS were calculated by Bloomberg, Merrill Lynch, etc.
Zerohedge will often link to information from more "mainstream" sites, so I find many of their articles helpful and assimilate the information accordingly.
Are those metrics inaccurate? Every single one is SCREAMING for a strongly overvalued market.
Just saying "don't read zerohedge" doesn't really negate these numbers given by other sources that have been cited.
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Also I don't know what you're talking about the article being "horrible" with no sources cited.
it clearly cites the 2017 IMF Global Financial Stability reports and LITERALLY pulls the data from that report. You can google the IMF report for yourself and compare.
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Another potential flawed assumption is that you will be able to keep working past 65. Yet the recently released 2017 Retirement Confidence Survey by the nonpartisan Employee Benefit Research Institute finds that more than half of workers say they expect to still be on the clock past age 65. By comparison, less than 15 percent of today's retirees kept working that long.
"If you plan on working longer as a way to get by in retirement, you are going to be in trouble," says Craig Copeland, senior research associate at EBRI. "It should be a complement to a solid savings and spending plan, not the foundation."
A popular retirement assumption that can backfire
Downsizing, or making it a priority to get the mortgage paid off, can also make it more practical to downshift to a lower-paying/part-time job later on
"If you plan on working longer as a way to get by in retirement, you are going to be in trouble," says Craig Copeland, senior research associate at EBRI. "It should be a complement to a solid savings and spending plan, not the foundation."
A popular retirement assumption that can backfire
Downsizing, or making it a priority to get the mortgage paid off, can also make it more practical to downshift to a lower-paying/part-time job later on
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Most of my Mutual Funds are focused on International and Emerging Markets where the top 1/2 of mangers have a very good chance of beating their indices.
This is from Morningstar.com
1) The typical actively managed international-stock fund has beaten its relevant index over the past 20 years, albeit not by much;
2) That's better than domestic-stock funds have done, especially large-company domestic-stock funds;
3) If you are to invest actively in large-company stocks, doing so with international funds seems to make more sense than doing so with a U.S. stock fund.
This is from Morningstar.com
1) The typical actively managed international-stock fund has beaten its relevant index over the past 20 years, albeit not by much;
2) That's better than domestic-stock funds have done, especially large-company domestic-stock funds;
3) If you are to invest actively in large-company stocks, doing so with international funds seems to make more sense than doing so with a U.S. stock fund.
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Does Active Management Add Value in Emerging Markets? - Articles - Advisor Perspectives
Larry Swedroe believes that passive management like DFA will still beat most emerging market managers.
Larry Swedroe believes that passive management like DFA will still beat most emerging market managers.
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Mman wrote:
No, that is incorrect. Interest rates effect prices/yields of bonds which are the main alternative investment to stocks. So with such low rates bonds are relatively very unattractive so stocks are relatively more attractive.
Yes, but expected returns for both asset classes going forwarded are below average because of high valuations.
also wrote:
Market valuations should in no way impact what you use for a safe withdrawal rate, that's why it's called safe.
Disagree. If one has lower expected returns going forward one should reevaluate what to expect from one's portfolio. Remember, all of these things are models based on what has worked before. They are not reality. We have only one century of good data. The link speaks to the question of high valuations and safe withdrawal rates.
Safe withdrawal rate: Is 3 percent the new 4 percent?
No, that is incorrect. Interest rates effect prices/yields of bonds which are the main alternative investment to stocks. So with such low rates bonds are relatively very unattractive so stocks are relatively more attractive.
Yes, but expected returns for both asset classes going forwarded are below average because of high valuations.
also wrote:
Market valuations should in no way impact what you use for a safe withdrawal rate, that's why it's called safe.
Disagree. If one has lower expected returns going forward one should reevaluate what to expect from one's portfolio. Remember, all of these things are models based on what has worked before. They are not reality. We have only one century of good data. The link speaks to the question of high valuations and safe withdrawal rates.
Safe withdrawal rate: Is 3 percent the new 4 percent?
You keep acting like leverage is bad. It isn't. In a low rate environment it's good. Do you even know what leverage is? It's borrowing money. When a company sells bonds, the interest rate on those bonds is locked in for the life of the bond. It makes no difference what happens to the interest rate in the future. So when rates are low now (as you have so eloquently pointed out), it's in the best interest of many (most?) companies to issue new debt so they can lock in that low rate for the life of the bonds. Then when rates go up, they are still paying that low rate from years ago.
That's a GOOD thing. Leverage itself isn't bad.
Also, I'm going to assume that you have NOT read the 132 page IMF report that you seem to be a fan of. Unfortunately I can't cut and paste individual graphs and text blocks for you from it. But it does talk about how US companies have massive amounts of cash on hand (page 10). It talks about how US companies have issued debt at a slower rate than they did in the 1980s or 1990s (page 10). It talks about how the debt service ratio (or how easily companies pay their debt) is rising, but is way low compared to previous decades (page 12). It goes on. It's a semi annual report that they type out that mostly talks about things the global financial system and risks to it. There is no serious analysis of anything useful to an investor in it. It's the 1000 foot view. They don't talk details.
If you actually read the report, you might also notice that nearly every graphic in it has "IMF staff estimates" as a source. It's not hard data. And actually, go back and read the reports from 2010 and 2011. The world is a scary place. If you like graphics that show things being bad, you might get out of equities back then by reading them.
And I'm glad zerohedge is one of many bad sources you use. Financial Times is basically independent blogs. It isn't a real source any more than an article you find at Motley Fool or Seeking Alpha. Evaluate the actual evidence, not what an author tells you to believe.
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Correct. But you have to invest somewhere. Below average stock returns in the short to medium term are still better than almost anything else out there. That's why it doesn't matter what the absolute return is nearly as much as it matters what the return is relative to everything else.
I've personally advocated a 3% SWR no matter what expected returns are. And when retirement planning, you are forecasting returns 30-40 years in the future. Those likely future returns are not materially different than past returns. We are quibbling over the short to medium term which you should not use to decide your SWR. If you have an appropriate asset allocation in retirement, you can get by just fine with a 3% SWR even if you get 10 years of 5% returns from the market.
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If stocks are virtually certain to provide a good return for 30 years...Why such a low SWR?
because you never know what the sequence of returns will be in that 30-40 years and I would never have a high equity allocation at retirement. I also really have fun at work so do not feel a need to retire ASAP when I have a nest egg that can support 4% SWR.
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Agree with the comment about sequence risk.
Just Keep Buying
An interesting blog post including the worst investor in the world that only bought stocks right before massive drops in the market and how well they still would have done long term.
Also includes data from Shiller showing US stock returns vs P/E ratio at the time and how over a long time frame, they all converge to the same return almost no matter what the starting P/E ratio was.
Think about it this way as a single stock. If it earns $10 a year and sells for a P/E ratio of 10, 20, or 30. That means it either costs $100, $200, or $300 a share. Let that $10 a year earnings grow @ 10% per year for say 35 years and you are now making like $280 per year. If the stock now has a P/E of only 10, it's $2800 a share, if it's 20 it's $5600 a share. So worst case you bought it for P/E of 30 and it's now only P/E of 10. Your $300 per share investment is still worth $2800 per share. Still not a bad return (6.6%) despite timing it horribly.
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Just Keep Buying
An interesting blog post including the worst investor in the world that only bought stocks right before massive drops in the market and how well they still would have done long term.
Also includes data from Shiller showing US stock returns vs P/E ratio at the time and how over a long time frame, they all converge to the same return almost no matter what the starting P/E ratio was.
Think about it this way as a single stock. If it earns $10 a year and sells for a P/E ratio of 10, 20, or 30. That means it either costs $100, $200, or $300 a share. Let that $10 a year earnings grow @ 10% per year for say 35 years and you are now making like $280 per year. If the stock now has a P/E of only 10, it's $2800 a share, if it's 20 it's $5600 a share. So worst case you bought it for P/E of 30 and it's now only P/E of 10. Your $300 per share investment is still worth $2800 per share. Still not a bad return (6.6%) despite timing it horribly.
Yeah I read that article before. I already said you could invest either way.
You just have to expect far lower return rates with high valuations.
I guess the entire point of the article is that you actually don't get "far lower return rates with high valuations". Over a long time frame, you get very similar return rates despite the high valuation to start with.
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Schiller has already shown this in multiple economics papers out of Yale that the overall P/E ratio is VERY important for future returns. This sums it up:
Historical PE Ratios And Stock Market Performance
you realize that none of that has anything to do with 30+ year returns, right?
If your entire basis for not wanting to invest in stocks at this time is Shiller, that's OK. But Shiller doesn't have a better place to put your money at this point, including cash, that is meant for long term investing. If you want to argue that short term returns are unlikely to be as great as historical norms because of current Shiller P/E, I won't disagree. But when it comes to investing for retirement, Shiller is a lot less useful (and is harmful if you use it to stay away from stocks).
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How about a part cash, part stock approach at this time? Can always put the rest of the cash into the market if/when it drops again?
That would've been a far better strategy around 2008 than being totally in the market at that time.
Thats the real question.
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People's continued belief that they can time the market never ceases to amaze me.
Of course being out of the market in 2008 would have been wonderful. But I'm going to go out on a limb that your ability to make that comment was markedly better after 2008 than it was before 2008.
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Its not "timing" the actual collapses, its diversification of investments instead of putting all eggs in one basket.
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If you're doing your diversification based on time, then it's timing the market. Ie: your part cash, part stock at this time comment above. You imply changing your strategy and allocation based on time.
You should never have all your money in stocks. You should always have some allocation to bonds and cash. But just so we are clear on how bad a decision that would have been to be in stocks, if you had 100% of your money in stocks in May 2008, right before the crash, but didn't sell you'd be up 104% since then (6.2% annual return). Your money would have literally doubled in less than 10 years even if you had the worst timing ever for the 2008 crash. Think about that. And that's a strategy that only had money put in at the worst time and wasn't continuing to invest more money in as the market went way down. If you are investing into it all along on the way up, your returns were way better.
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Actually from 2000 to 2017, the SP500 is up annualized at a 4.8% rate with dividends reinvested. This is with an extreme increase in the last few years with very high valuations.
I agree with the market timing thing but the conventional wisdom that "just put money in the market at ANY time" is concerning to me.
We are using metrics from the US market over the last 100 years or so.
How about the Japanese market? If you got in 1989, you'd still be at half today. Plenty of other markets throughout the world has been the same way.
Just because the USA had a great run for the last 100 years doesn't mean it will be the same returns.
America was the SUPERPOWER CREDITOR nation of the world that was UNTOUCHED by either WW1 and WW2 whereby it had basically a GREAT RUN that is likely unprecedented.
In the last 17 years we had literally two crashes, which would have really hurt the portfolio of someone even with a 3% withdrawal rate if they continued to take out at the bottom.
The markets are artificially inflated with ZIRP, QE and massive amounts of leverage that are UNPRECEDENTED in the history of the US market. We also have debt that is UNPRECEDENTED with huge liabilities at the local, state and federal levels.
GDP growth is largely at ALL TIME LOWS despite all of this money printing and huge deficits. We have an aging population that will collapse the Medicare and SS system.
We also have a Millenial generation that has a COLLEGE BUBBLE with >1.4 trillion in student loan debt whereby they can't buy homes easily after getting mostly worthless degrees. These millenials have significantly LOWER SALARIES than their parents after adjusting for inflation DESPITE huge college DEBTS.
We also have ridiculous levels of leverage in the RA market considering the borrowing metrics compared to 30 years ago.
Even Vanguard Boglehead's and Schiller are guess the market will increase approximately 4% on average over the next 10 years if we're lucky.
http://nypost.com/2015/11/05/youre-probably-not-going-to-make-money-investing-in-the-next-10-years/
For instance, in my trust, we have a specialized TIAA money market account that gives a PROMISED 4% per year on average. This has been in line with the SP500 for the last 17 years and will probably outperform it in the next 10 years.
I believe in diversification of assets including REITS, International Index Funds, high paying money market accounts, Vanguard Total Stock Index (broader than SP500 with very low fees) and DRIP individual stocks like ATT.
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He didn't say from 2000...he said from the day before the last crash, which included a market dip of over 50%!!!
Cherry picking dates "from 2000, etc..." does no favors. Why not just pick 1995? Market from then to now is annualized at 9.4%
The fact that you can always cherry pick the exact date to make your returns seem great or terrible is the exact reason you shouldn't time the market. You don't know when those peaks and valleys are. And even though Bogle knows a heck of a lot more about investing than I do, since the date that article was published, the market is up 12% annualized. Did you "reallocate" when you read the article in 2015?
I do agree with you, though, that being diversified is essential.
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Claiming the market "always goes up" is always cherry picking. You are using the SP500 over the last 100 years in the USA only.
How about adding in the Nikkei in Japan? Or Germany during the Wars? Or Egypt, Argentina, etc?
I enjoy that people think they can just look at this stuff and be like "well in the past it did this, so its shown the market will always go up no matter valuations/debt/leverage/geopolitics/demographics/etc".
Its like the magical SP500. Its a law of nature that it can only go up.
This isn't to say Im not in the market and heavily in Index funds already but I still believe in diversification of multiple asset classes like I wrote about in the above post.
Actually you picked the 2008 date, not me. I merely provided the data.
Also, if you care to talk about the bad run in Japan you should at least also point out the decade long monster run up they had prior to that which puts anything the US market has done to shame. Nikkei still had something like a 5-6% return per year from 1985-2015. Cherry picking from a peak in the past to show the worst performance possible isn't a scientifically valid way to predict future performance of something.
