Author Topic: What if stocks go nowhere for 10 years?  (Read 24168 times)

dude

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Re: What if stocks go nowhere for 10 years?
« Reply #50 on: April 18, 2014, 08:55:21 AM »
What he is saying is that at the point you declare "I quit!" and retire, no longer bringing in earned income, it is like you have taken all of your money on that day and placed it in the market (and possibly in bonds).  There will not be any new money outside of what you make on interest and dividends so there is no way to DCA.
Ok - I can see what the poster meant then, but I think it's fundamentally different to say "my investments haven't gone up at all in 20 years!" then to say "my portolio hasn't reached the same peak it hit 20 years ago."  In the end your return is the amount you put in divided by the time it was there and adjusted for inflation.

However, you bring up a valid point, which is what do you do when look at your portfolio, declare it's time to say "i quit", and then the market drops or goes sideways for years.  And that is a legitimate concern.  It gets back to what a SWR should be, the "4% rule", and ultimately 'how much is enough to say 'i quit!'?"
FireCALC and other simulators include these decades when stocks did poorly. The majority of the time, the portfolio still survives.  I'm sure it's scary as hell to declare retirement one year and then watch the market (and your portfolio) nosedive 30% the following year.  But there are ways to adapt.  Having a bond ladder is one.  Having a 3.5% or even 3% SWR generally results in near-100% success rates in these historical models.  And being adaptable by being able to reduce your spending or bring in some extra money when necessary is perhaps the most powerful method of ensuring your AA lasts.

Precisely.  That sequence of returns risk is always there, but is most damaging in the first few years of retirement.  Having a plan to withstand that and not touch your stock portfolio is huge.  Rarely have those downturns lasted for more than 1-3 years.

obstinate

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Re: What if stocks go nowhere for 10 years?
« Reply #51 on: April 18, 2014, 09:29:47 AM »
One other salient point about this is that even if such a thing were to happen, you'd be no worse off than other people, relatively. There have been countries that have gone through extended periods of economic stagnation or retraction, even developed ones like Japan. Everybody suffers, but if you're spending conservatively you'll be suffering less than most.

warfreak2

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Re: What if stocks go nowhere for 10 years?
« Reply #52 on: April 19, 2014, 05:38:05 AM »
If stocks go nowhere for 10 years, then you appreciate your foresight in allocating a percentage of your investments in bonds.

Sphinx

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Re: What if stocks go nowhere for 10 years?
« Reply #53 on: April 19, 2014, 06:35:52 AM »

Ok - then I agree with you.  I've known others that suggest keeping cash in a savings account earning 0.1% just "waiting for a good time to invest."

I do keep about $20,000 in pure cash (not even a money market) but that is for trading purposes otherwise I have to wait 3 days for settlement.  There isn't a great way to earn anything on $20K if you are cycling through it several times a week.

I use a high interest savings account at my bank to hold cash. I get just over 1 percent, and I can access it anytime.  It is low, but so is everything else that is safe, and I am waiting to buy some  blue chip dividend paying stock, to add to my existing portfolio, when there is a good correction, or crash.  It seems to me that about every seven yrs. or so there is a significant correction/crash.  It happened in 2000, 2008 -- could it happen again in approx. 2015, especially with the market so high now ?  I think it is quite possible. Just my opinion.

AlmstRtrd

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Re: What if stocks go nowhere for 10 years?
« Reply #54 on: April 19, 2014, 08:00:22 PM »
Go to the bottom of this link to see what has happened with stocks since 2000 (including data through 4/1/14, I believe):

http://www.advisorperspectives.com/dshort/commentaries/SPX-Dow-Nasdaq-Since-Their-2000-Highs.php

I posted this in another thread but I believe that chart at the bottom is new. It includes reinvested dividends.

Just my opinion but I believe that the Permanent Portfolio is worth looking into for wealth preservation. It stinks being invested in the PP when stocks are on a tear as they were in 2013, but it has historically done almost as well as an all stock portfolio with a much smoother ride.

JT

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Re: What if stocks go nowhere for 10 years?
« Reply #55 on: April 20, 2014, 04:07:52 AM »
See if you can get a copy of "The Intelligent Investor" by Benjamin Graham.

It's been a 'bible' for the stock market since 1949.

I've got the revised edition with new commentary - 2006 - and it's very interesting.

Sphinx

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Re: What if stocks go nowhere for 10 years?
« Reply #56 on: April 20, 2014, 07:27:07 AM »
Go to the bottom of this link to see what has happened with stocks since 2000 (including data through 4/1/14, I believe):

http://www.advisorperspectives.com/dshort/commentaries/SPX-Dow-Nasdaq-Since-Their-2000-Highs.php

I posted this in another thread but I believe that chart at the bottom is new. It includes reinvested dividends.

Just my opinion but I believe that the Permanent Portfolio is worth looking into for wealth preservation. It stinks being invested in the PP when stocks are on a tear as they were in 2013, but it has historically done almost as well as an all stock portfolio with a much smoother ride.

That is a very interesting chart.  Thank you.  What do you mean by the Permanent Portfolio ?  Could you elaborate please ?

Thanks.

AlmstRtrd

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Re: What if stocks go nowhere for 10 years?
« Reply #57 on: April 20, 2014, 08:01:11 AM »
It's an investment philosophy developed by Harry Browne that holds equal parts stocks, gold, cash and long-term treasuries.

You can check out this forum:

http://gyroscopicinvesting.com/forum/index.php

Craig Rowland's 2012 book called The Permanent Portfolio is probably the best starting point. The basic idea is that different asset classes perform well in different economic environments. In the 1980s & 1990s, stocks and bonds did great. In the 1970s & 2000s gold was far and away the best performer. A lot of people don't like it because they don't like one of the assets classes. For me at present it's long-term treasuries. But the basic idea is that it's impossible to time the markets, and that by rebalancing periodically you sell some of your winners and load up on other assets when they are on sale.

Anyway, I am not a pitchman for the portfolio. I just think it's a good alternative to a 60/40 stock & bond split. Others on this forum don't agree and you should weigh what they have to say as well.

For the record, I am 55 years old and I want a portfolio that protects my principal and has real (after inflation) positive returns for all rolling five and ten-year periods over the last 40 years (a 60/40 stock split hasn't accomplished that).


DaKini

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Re: What if stocks go nowhere for 10 years?
« Reply #58 on: April 20, 2014, 02:41:43 PM »
I thought alot about the PP and came to the conclusion that the main magic it tries to drive on is diversification of asset classes with rebalancing.
I dropped the PP in favor of a world wide diversified portfolio containing 55% developed markets, 25% emerging markets, 10% intl REITs and 10% industrial commodities via a futures ETF. The 55% is split in us+canada, europe and asia/pacific (20, 20, 15%s).
For the OPs scenario to become true for this portfolio the entire world needs to have a very huge crisis.

My main concerns with the PP are that it is not as broadly diversified and gold being not productive but very speculative.

Mr. FI

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Re: What if stocks go nowhere for 10 years?
« Reply #59 on: April 21, 2014, 03:49:28 PM »
You all seem well educated on the investing front, beyond what I know (still learning!) but it seems a lot of the concerns and strategies are met by using Betterment.

NOTE: Not getting paid for this (hate that I have to say that)

Betterment seems to keep coming up with answers to all my concerns. They even have a new retirement model for those declared retired (early retirees can use it, too) that dynamically allocates your SWR rather than having a static 4%, which by the way, they say in today's financial environment, will fail 30% of the time if you strictly pull 4% out each year. https://www.betterment.com/blog/2014/04/11/why-the-4-percent-rule-is-broken/

You all seem to know that if you have to pull back and live on 2%, you could--Which is their premise on this retirement model. They have you diversified over 102 countries, re-invest your dividends, have low fees (their fee on top of the ETF fees in their portolio amounts to .397% if you have $10,000 invested, .297% if you have $100,000). You all certainly have good strategies and plans and probably don't need a service like Betterment, but I love it. It takes a lot of this worrying and discipline out of my hands.
« Last Edit: April 21, 2014, 03:55:35 PM by Mr. FI »

DaKini

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Re: What if stocks go nowhere for 10 years?
« Reply #60 on: April 22, 2014, 12:15:15 AM »
Quote
takes a lot of this worrying and discipline out of my hands.
Just make sure giving up this asset allocation responsibility does not harm your research in asset allocation. Otherwise you fell prone to fear.

The Happy Philosopher

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Re: What if stocks go nowhere for 10 years?
« Reply #61 on: April 22, 2014, 12:40:15 AM »
A flat stock market is great in the accumulation phase because assuming you DCA you will accumulate more shares.  If you are a constant buyer of a commodity (in this case stocks) then a flat or crashing market is great. As you approach retirement asset allocation is shifted to a more conservative portfolio (traditionally bonds).  No one in their right mind would retire with 100% equities anyways. If the market is richly valued when you retire then you keep working until SWR is lower or assets higher.

Phil_Moore

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Re: What if stocks go nowhere for 10 years?
« Reply #62 on: April 22, 2014, 08:07:32 AM »
A flat stock market is great in the accumulation phase because assuming you DCA you will accumulate more shares.

This is what I was going to say, it was something I had completely not thought about when I started out investing regularly. I would look at the green up-arrows and say "woohoo!".

Albert

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Re: What if stocks go nowhere for 10 years?
« Reply #63 on: April 22, 2014, 02:11:02 PM »
Stocks is not the only investment option. My own plan is to be able to cover minimum expenses with rental properties alone, supplemented with a pension later in life (small unless I actually work to 65).

Mr. FI

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Re: What if stocks go nowhere for 10 years?
« Reply #64 on: April 22, 2014, 02:47:00 PM »
Quote
takes a lot of this worrying and discipline out of my hands.
Just make sure giving up this asset allocation responsibility does not harm your research in asset allocation. Otherwise you fell prone to fear.

I was comfortable with their portfolio and since they're proponents of passive investing, all the more reason to do so. Holding individual stocks doesn't really appeal to me and some of their ETFs have nice dividend yields. I haven't found anything I don't like about using them and I don't feel I could outperform all the advantages their automation provides.

I should also note, I don't plan to invest strictly in stocks/bonds. I have aspirations of real estate investing and am dabbling in P2P investments as well.

RootofGood

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Re: What if stocks go nowhere for 10 years?
« Reply #65 on: April 22, 2014, 05:36:24 PM »
I should also note, I don't plan to invest strictly in stocks/bonds. I have aspirations of real estate investing and am dabbling in P2P investments as well.

Woah, what?  You won't manage your own investments but you're going to manage real estate and P2P lending portfolios?  Managing an investment portfolio is way simpler than real estate or P2P (since you mostly just "do nothing" and let it simmer for years).  If you're doing it right, that is. 


Mr. FI

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Re: What if stocks go nowhere for 10 years?
« Reply #66 on: April 23, 2014, 02:49:42 PM »
I should also note, I don't plan to invest strictly in stocks/bonds. I have aspirations of real estate investing and am dabbling in P2P investments as well.

Woah, what?  You won't manage your own investments but you're going to manage real estate and P2P lending portfolios?  Managing an investment portfolio is way simpler than real estate or P2P (since you mostly just "do nothing" and let it simmer for years).  If you're doing it right, that is.

Yes, aspiring to is the key here. I obviously have to learn the ropes before jumping into real estate. That being said, I could manage my own investments, I choose not to because I think Betterment would do it better than me. Even in just index investing. So I choose the automated, hands-off approach to leave me free to research other investment avenues. I don't really care to be reading up on P/E ratios and company policies.

And P2P lending isn't that difficult once you set up your parameters. I would say much simpler than stock investing.
« Last Edit: April 23, 2014, 02:51:14 PM by Mr. FI »

AlmstRtrd

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Re: What if stocks go nowhere for 10 years?
« Reply #67 on: April 24, 2014, 12:51:22 PM »
Not trying to hammer the Permanent Portfolio idea into the ground, but I am just surprised that in the imaginary Venn diagram in my mind, there isn't a bigger overlap between folks on this forum and the PP. Many seem to be planning a very short working career and quitting when they have just enough for a comfortable SWR. A really bad stock market year or two at the beginning of a retirement like that and it's tough going unless one really does have the option of going back to work (not always a guaranteed option).


dragoncar

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Re: What if stocks go nowhere for 10 years?
« Reply #68 on: April 24, 2014, 01:31:29 PM »
Not trying to hammer the Permanent Portfolio idea into the ground, but I am just surprised that in the imaginary Venn diagram in my mind, there isn't a bigger overlap between folks on this forum and the PP. Many seem to be planning a very short working career and quitting when they have just enough for a comfortable SWR. A really bad stock market year or two at the beginning of a retirement like that and it's tough going unless one really does have the option of going back to work (not always a guaranteed option).

Well, last time we checked, 5% of respondents used the PP (5 responses)

http://forum.mrmoneymustache.com/investor-alley/what-is-your-investment-strategy/

warfreak2

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Re: What if stocks go nowhere for 10 years?
« Reply #69 on: April 24, 2014, 01:57:14 PM »
Not trying to hammer the Permanent Portfolio idea into the ground, but I am just surprised that in the imaginary Venn diagram in my mind, there isn't a bigger overlap between folks on this forum and the PP. Many seem to be planning a very short working career and quitting when they have just enough for a comfortable SWR. A really bad stock market year or two at the beginning of a retirement like that and it's tough going unless one really does have the option of going back to work (not always a guaranteed option).
My impression of the Permanent Portfolio is that it's there's no particular justification that the four asset classes should have equal weight. Each of them is supposed to deal with one of four possible scenarios (and these four scenarios are supposed to be an exhaustive list), but there's no consideration to the likelihood of each scenario.

Also, I think gold is ridiculous; real estate is also considered to be an inflation hedge, but is at least a productive investment. Putting gold under your mattress is not investing. Then, 25% cash is way out of proportion; only 25% in stocks, nothing in real estate, your SWR is not going to be very high, you'll need to save much more before you can retire.

Obviously I don't speak for all Mustachians, but perhaps this gives an idea of why the PP isn't very popular here.

dragoncar

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Re: What if stocks go nowhere for 10 years?
« Reply #70 on: April 24, 2014, 02:32:09 PM »
Not trying to hammer the Permanent Portfolio idea into the ground, but I am just surprised that in the imaginary Venn diagram in my mind, there isn't a bigger overlap between folks on this forum and the PP. Many seem to be planning a very short working career and quitting when they have just enough for a comfortable SWR. A really bad stock market year or two at the beginning of a retirement like that and it's tough going unless one really does have the option of going back to work (not always a guaranteed option).
My impression of the Permanent Portfolio is that it's there's no particular justification that the four asset classes should have equal weight. Each of them is supposed to deal with one of four possible scenarios (and these four scenarios are supposed to be an exhaustive list), but there's no consideration to the likelihood of each scenario.

Also, I think gold is ridiculous; real estate is also considered to be an inflation hedge, but is at least a productive investment. Putting gold under your mattress is not investing. Then, 25% cash is way out of proportion; only 25% in stocks, nothing in real estate, your SWR is not going to be very high, you'll need to save much more before you can retire.

Obviously I don't speak for all Mustachians, but perhaps this gives an idea of why the PP isn't very popular here.

I'm not seeing REITS holding up like gold in 2008.  If you mean direct real estate, then your liquidity is shot and you can't rebalance.

warfreak2

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Re: What if stocks go nowhere for 10 years?
« Reply #71 on: April 24, 2014, 02:52:37 PM »
I'm not seeing REITS holding up like gold in 2008.  If you mean direct real estate, then your liquidity is shot and you can't rebalance.
But that's not gold's function in the Permanent Portfolio. Gold is included as an inflation hedge, and the 25% cash portion is so you don't have to sell after a crash.
« Last Edit: April 24, 2014, 02:56:17 PM by warfreak2 »

dragoncar

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Re: What if stocks go nowhere for 10 years?
« Reply #72 on: April 24, 2014, 03:09:26 PM »
I'm not seeing REITS holding up like gold in 2008.  If you mean direct real estate, then your liquidity is shot and you can't rebalance.
But that's not gold's function in the Permanent Portfolio. Gold is included as an inflation hedge, and the 25% cash portion is so you don't have to sell after a crash.

All assets serve the function of low-correlation allowing rebalancing.  If you are using two highly correlated assets (REITS, which act like small caps, and equities) then that's more like having a 50% equities / 50% intermediate bonds.  Which is a fine Boglehead portfolio, but it is not equivalent to the PP.

warfreak2

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Re: What if stocks go nowhere for 10 years?
« Reply #73 on: April 24, 2014, 03:25:55 PM »
I didn't say it was equivalent to the PP. I suggested that it was more sensible.

dragoncar

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Re: What if stocks go nowhere for 10 years?
« Reply #74 on: April 24, 2014, 03:35:47 PM »
I didn't say it was equivalent to the PP. I suggested that it was more sensible.

Then why do you care what gold's function in the PP is?

warfreak2

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Re: What if stocks go nowhere for 10 years?
« Reply #75 on: April 24, 2014, 03:51:42 PM »
Someone asked why the PP didn't appeal to Mustachians as much as he thought it might, I responded why it didn't appeal to me... wasn't my motivation clear? Wait, why do you even care why I even care about it?
« Last Edit: April 24, 2014, 03:53:27 PM by warfreak2 »

dragoncar

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Re: What if stocks go nowhere for 10 years?
« Reply #76 on: April 24, 2014, 04:04:00 PM »
Someone asked why the PP didn't appeal to Mustachians as much as he thought it might, I responded why it didn't appeal to me... wasn't my motivation clear? Wait, why do you even care why I even care about it?

Wait, why do you even care why I even care why you even care about it?

warfreak2

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Re: What if stocks go nowhere for 10 years?
« Reply #77 on: April 24, 2014, 04:16:13 PM »
Before this continues, I'm going to put some money in "why do you even cares", I've got a feeling they're going to grow in the short term.

nereo

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Re: What if stocks go nowhere for 10 years?
« Reply #78 on: April 24, 2014, 05:03:31 PM »
Before this continues, I'm going to put some money in "why do you even cares", I've got a feeling they're going to grow in the short term.
I for one am deeply interested in why dragoncar is so interested in why warfreak2 cares.  It's going to keep me up at night if I don't get a good answer soon.

dragoncar

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Re: What if stocks go nowhere for 10 years?
« Reply #79 on: April 24, 2014, 06:03:01 PM »
Before this continues, I'm going to put some money in "why do you even cares", I've got a feeling they're going to grow in the short term.
I for one am deeply interested in why dragoncar is so interested in why warfreak2 cares.  It's going to keep me up at night if I don't get a good answer soon.

I'm hedging my "even care" investment with some call options on "this thread is now locked"

nereo

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Re: What if stocks go nowhere for 10 years?
« Reply #80 on: April 24, 2014, 06:07:34 PM »
Before this continues, I'm going to put some money in "why do you even cares", I've got a feeling they're going to grow in the short term.
I for one am deeply interested in why dragoncar is so interested in why warfreak2 cares.  It's going to keep me up at night if I don't get a good answer soon.

I'm hedging my "even care" investment with some call options on "this thread is now locked"
Why, are you paying off Arelsby?

Kriegsspiel

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Re: What if stocks go nowhere for 10 years?
« Reply #81 on: April 25, 2014, 11:20:20 AM »
I'm buying real estate in Care-a-lot.