Author Topic: Just retired and I'm 100% in an S&P 500 index fund - Tell me why I'm an idiot  (Read 4154 times)

I'm Fred

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As the title reads I have everything in an S&P 500 tax deferred index fund (TSP C fund).  Apparently I should have some bonds.  Why?  I get $48k per year pension forever plus an additional $15k per year until 62 (I'm 51yo now).  That covers more than 100% of my expenses.  If I don't need the money for ten years (and then still won't) what's the point of moving money into bonds?  Bonds would be the US Govt G fund because I'm a horribly lazy investor and don't want to manage multiple accounts.

Please tell me why I'm an idiot.  Thanks!

Bonus material:  no mortgage, no car payments, 1 child - college is funded if he goes, wife will work another 7 years until 55  and she is self funded. 

bacchi

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You're not.

Unless you panic when the market drops 30% in a month and you have trouble sleeping and sell low.

Aggie1999

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Your pension is your bond fund to see you through the downturns in the first 10 years. So no actual bond funds needed. Most people are not in this situation (nice pension at early retirement).

terran

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Sounds like you're in a unique situation with the guaranteed income sources that more than cover your expenses, so you'd be an idiot NOT to be 100% stock. For the most of us who don't have that kind of guaranteed income I would feel more comfortable with a glidepath that starts fairly bond heavy and moves to 100% stock to help combat sequence of return risk.

Silrossi46

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I have always pondered this same thing as the OP.  I also have a guaranteed pension coming at 55 that will be probably in the 90k per year range.   I have a 457b, vanguard after tax account and vanguard Roth all in index funds.   I see no reason to change course as I plan to not touch those investments in down periods unless I really had to.   Refreshing to see responses that echo what I was thinking as well. 

reeshau

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Your pension is your bond fund to see you through the downturns in the first 10 years.

Pensions are even more effective than bonds at that job, but I agree with the statement--they are your fixed income allocation.

@I'm Fred, the only downside is that your pension is not a diversified investment.  So, how sure are you of the company and the pension?  I've been through a PBGC takeover of my company's pension, and early retiree benefits are not guaranteed by the PBGC.  While it didn't impact me directly, many early retirees lost 50% of their pension payouts on takeover.

So, while you *can* have your money all in stocks, I would ask you *why* you want to do that--are you working toward any specific goals?  Or are you Scrooge McDuck?  Taking more risk than you need is not necessarily smart, although it makes the numbers on your spreadsheet bigger.  You might think more of the mindset of self-insurance, and making sure you even have the black swans covered--just because you can.

davisgang90

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I'm 100% in stocks as well.

I get a military pension and VA disability and I work a part-time job for fun.  We are currently doing a Roth ladder at about 2% of our retirement funds and keep the final 2 years out of the market to decrease any volatility.

I'm very comfortable keeping the rest in the market.

norajean

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Based on historical performance, your portfolio will return less than a mixed one over the long term and will fall much farther in a downturn. You will have no ability to pick up cheap stocks in a crash scenario. But, if it’s all funny money for you because of your pension, then do as you like.

reeshau

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I'm 100% in stocks as well.

I get a military pension and VA disability and I work a part-time job for fun.  We are currently doing a Roth ladder at about 2% of our retirement funds and keep the final 2 years out of the market to decrease any volatility.

I'm very comfortable keeping the rest in the market.

Not to call you out on this--your situation sounds like you are in great shape--but you are 92% stocks, 8% cash, assuming your FIREd at 25x spending.  It doesn't matter to you, but it could confuse others reading this.  OP, for example, did not mention any cash position.

Brother Esau

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I'll be getting a small pension and am old enough to plan on getting something for SS as well. That can be considered the "bond" portion of my overall portfolio AA. The rest is not 100% S & P like you, but it's pretty darn close to all equities.

vand

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OK, I’ll bite.

You’re an idiot either because you don’t understand personal finance or you’re deliberately trolling. If I had a guaranteed pension (what we here in the UK call “defined benefit”) at that sort of level then I’d be putting all of my investments (what we here in the UK call “defined contribution”) into risk assets also.

You are NOT 100% in the S&P.

If you were to surrender your pension at market price and then proceed to put that into the S&P only then would your claim be accurate.

2Birds1Stone

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Please tell me why I'm an idiot.  Thanks!


Since you asked nicely.

Because you posted on an anonymous internet forum to humble-brag?

Good job Fred.

terran

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Based on historical performance, your portfolio will return less than a mixed one over the long term and will fall much farther in a downturn. You will have no ability to pick up cheap stocks in a crash scenario. But, if it’s all funny money for you because of your pension, then do as you like.

If they're withdrawing, maybe, otherwise no. Stocks have always outperformed bonds over long periods of time (so far).

celerystalks

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Your pension is your bond fund to see you through the downturns in the first 10 years.

Pensions are even more effective than bonds at that job, but I agree with the statement--they are your fixed income allocation.

@I'm Fred, the only downside is that your pension is not a diversified investment.  So, how sure are you of the company and the pension?  I've been through a PBGC takeover of my company's pension, and early retiree benefits are not guaranteed by the PBGC. While it didn't impact me directly, many early retirees lost 50% of their pension payouts on takeover.

So, while you *can* have your money all in stocks, I would ask you *why* you want to do that--are you working toward any specific goals?  Or are you Scrooge McDuck?  Taking more risk than you need is not necessarily smart, although it makes the numbers on your spreadsheet bigger.  You might think more of the mindset of self-insurance, and making sure you even have the black swans covered--just because you can.

Given the fact of a large account in the  TSP C fund, I think it is safe to assume that the pension is either a CSRS or FERS pension.  These are not PBCG guaranteed.  But they are direct obligations of the federal government.

Buffaloski Boris

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Sorry. I don’t think you’re an “idiot” for being essentially all in the stock market given a pension and a high risk tolerance. Where I think you’re being a bit reckless is in keeping it all in a cap weighted, large cap fund. When you have a chance, take a look at the underlying holdings. What you’ll find is that you have a whole lot invested in the top 50 or so companies that make up that index. If you’re comfortable owning a whole lot of what the rest of the world owns, and the lack of diversification, then by all means carry on.

If not, you might want to diversify into other equities markets and assets such as international, sectors, REITs, and small caps.

In the end, you shouldn’t believe what’s been posted by Russian Bots. They lie. Go run your own scenarios in free tools like portfoliocharts and come to your own conclusions.

ChpBstrd

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I’d say take a deep dive into analyzing the health of your pension, or even hire someone to do it Ask the questions others have noted here. Most likely, your pension is underfunded and there are contingencies where your payout would get cut or suspended.

The issue is that the same scenario that would wipe out 50% of your equity allocation would probably also destroy the solvency of your pension.

For example, if inflation suddenly hit 5% a worldwide bond collapse / bubble pop would ensue and stocks would tank at the same time (all while your COL went up). Or, if you prefer the opposite, a Japan-style disinflationary couple of decades would have both stocks and bonds yielding nothing, resulting in the collapse of your pension (all while jobs dry up). In these scenarios, real estate and short duration government bonds might be the only performers, but you are not exposed much to those sectors and probably your pension isn’t either.

harvestbook

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If you're in need of feeling like an idiot, go post this on Bogleheads.

Otherwise, if I had a pension like that, I wouldn't be wasting any time on forums at all.

Mighty-Dollar

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Run the numbers. What would happen if your fund dropped 36.55% in one year like it did in 2008? Would you have to go back to work? Would you get stressed out?

https://www.youtube.com/watch?v=opNohVglLX0  Best allocation ratio from 2000 - 2017
https://www.youtube.com/watch?v=ZOXu2cu7ZUw  Best allocation ratio during great depression

davisgang90

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I'm 100% in stocks as well.

I get a military pension and VA disability and I work a part-time job for fun.  We are currently doing a Roth ladder at about 2% of our retirement funds and keep the final 2 years out of the market to decrease any volatility.

I'm very comfortable keeping the rest in the market.

Not to call you out on this--your situation sounds like you are in great shape--but you are 92% stocks, 8% cash, assuming your FIREd at 25x spending.  It doesn't matter to you, but it could confuse others reading this.  OP, for example, did not mention any cash position.
I'm pulling 2% a year and keeping the final 2 years in cash, so technically, I'm 96% stocks 4% cash.  I find it a good way to max my exposure to equity while keeping a 2 year hedge for when the market inevitably dips for a year or so. 

All that being said, the money is just extra cash I don't really need based on my pension and other sources of income.

dandarc

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Zane is going for the record - "fastest ban ever".

nereo

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Zane is going for the record - "fastest ban ever".

Meh.  These kinds of posters pop up every few days.  They get taken down and banned pretty quickly. Just hit the “report to moderator” button, and we can all keep these forums clean(er) and less spammy.

Padonak

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I wouldn't call you an idiot but i would call you a braggart.

RWTL

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Your only risk is sequence of returns - and that only affects you if you withdraw.  If it would bother you when the market drops, then move some to bonds now to protect your capital.  If you're not worried about the volatility, then stay at 100% and ride the wave.  In the end, your returns will reward you at 100% equities.

Well done. 

Ragman

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8

nereo

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8
It wasn’t a lost decade at all.  Measuring peak-to-peak is misleading, unless one actually invests all their money at that particular peak. 
For those of us who started saving in the late 90s and kept it up through the first decade of the 2000s it was a good decade indeed.

aspiringnomad

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OK, I’ll bite.

You’re an idiot either because you don’t understand personal finance or you’re deliberately trolling. If I had a guaranteed pension (what we here in the UK call “defined benefit”) at that sort of level then I’d be putting all of my investments (what we here in the UK call “defined contribution”) into risk assets also.

You are NOT 100% in the S&P.

If you were to surrender your pension at market price and then proceed to put that into the S&P only then would your claim be accurate.

Yep, this is why.

Ragman

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8
It wasn’t a lost decade at all.  Measuring peak-to-peak is misleading, unless one actually invests all their money at that particular peak. 
For those of us who started saving in the late 90s and kept it up through the first decade of the 2000s it was a good decade indeed.


I'm not talking about putting all your money in at that particular peak, I was talking about having your money fully invested during that time period, many years before and many years after.  During that time period, 12/31/99 – 12/31/09, you would have not made any money if all your investments were in the S&P 500 index.  Of course, before and after that time period you would have made money.

nereo

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8
It wasn’t a lost decade at all.  Measuring peak-to-peak is misleading, unless one actually invests all their money at that particular peak. 
For those of us who started saving in the late 90s and kept it up through the first decade of the 2000s it was a good decade indeed.


I'm not talking about putting all your money in at that particular peak, I was talking about having your money fully invested during that time period, many years before and many years after.  During that time period, 12/31/99 – 12/31/09, you would have not made any money if all your investments were in the S&P 500 index.  Of course, before and after that time period you would have made money.
That’s exactly what i mean about your logic being off.

Ragman

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8
It wasn’t a lost decade at all.  Measuring peak-to-peak is misleading, unless one actually invests all their money at that particular peak. 
For those of us who started saving in the late 90s and kept it up through the first decade of the 2000s it was a good decade indeed.


I'm not talking about putting all your money in at that particular peak, I was talking about having your money fully invested during that time period, many years before and many years after.  During that time period, 12/31/99 – 12/31/09, you would have not made any money if all your investments were in the S&P 500 index.  Of course, before and after that time period you would have made money.
That’s exactly what i mean about your logic being off.

My logic is not off, In my original post I was talking about a specific ten year time period where the SP 500 index returned nothing.  I said if you diversified your holdings into small, mid and international equities, along with the SP 500 index, during that specific ten year time period you would have made money.  You are the one that brought up the fact if you invested in the S&P 500 "BEFORE" that time period you would have made money. Thank you Captain Obvious!

hodedofome

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Most likely your pension is heavily invested in bonds. So there's your bond allocation.

My grandpa is 91 and has never owned a bond his entire life. 100% invested in stocks and has made it through the 70s and 2000s alive. Retired in his 50s, he's worth probably $10 million now because he's been aggressive as an investor and hasn't cruised into the grave.

Davnasty

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8
It wasn’t a lost decade at all.  Measuring peak-to-peak is misleading, unless one actually invests all their money at that particular peak. 
For those of us who started saving in the late 90s and kept it up through the first decade of the 2000s it was a good decade indeed.


I'm not talking about putting all your money in at that particular peak, I was talking about having your money fully invested during that time period, many years before and many years after.  During that time period, 12/31/99 – 12/31/09, you would have not made any money if all your investments were in the S&P 500 index.  Of course, before and after that time period you would have made money.
That’s exactly what i mean about your logic being off.

My logic is not off, In my original post I was talking about a specific ten year time period where the SP 500 index returned nothing.  I said if you diversified your holdings into small, mid and international equities, along with the SP 500 index, during that specific ten year time period you would have made money.  You are the one that brought up the fact if you invested in the S&P 500 "BEFORE" that time period you would have made money. Thank you Captain Obvious!

It may be an obvious statement but I think you're still missing why it's relevant to the "lost decade" claim.

A temporary spike in value doesn't negate the "real" growth that follows it until the value has risen back to the height of the previous spike.

As an extreme example, if the value of the S&P 500 doubled tomorrow and then came back down to earth the next day and you didn't buy or sell anything during that time, your investments would be unaffected. Would you consider the many years it takes to get back to the top of that irrational spike as lost?

Ragman

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8
It wasn’t a lost decade at all.  Measuring peak-to-peak is misleading, unless one actually invests all their money at that particular peak. 
For those of us who started saving in the late 90s and kept it up through the first decade of the 2000s it was a good decade indeed.


I'm not talking about putting all your money in at that particular peak, I was talking about having your money fully invested during that time period, many years before and many years after.  During that time period, 12/31/99 – 12/31/09, you would have not made any money if all your investments were in the S&P 500 index.  Of course, before and after that time period you would have made money.
That’s exactly what i mean about your logic being off.

My logic is not off, In my original post I was talking about a specific ten year time period where the SP 500 index returned nothing.  I said if you diversified your holdings into small, mid and international equities, along with the SP 500 index, during that specific ten year time period you would have made money.  You are the one that brought up the fact if you invested in the S&P 500 "BEFORE" that time period you would have made money. Thank you Captain Obvious!

It may be an obvious statement but I think you're still missing why it's relevant to the "lost decade" claim.

A temporary spike in value doesn't negate the "real" growth that follows it until the value has risen back to the height of the previous spike.

As an extreme example, if the value of the S&P 500 doubled tomorrow and then came back down to earth the next day and you didn't buy or sell anything during that time, your investments would be unaffected. Would you consider the many years it takes to get back to the top of that irrational spike as lost?

I think we are getting our definition of "lost decade" confused.  By "lost decade" I'm implying that it was a decade where there "zero economic gains" for the typical S&P 500 investor from the start of the decade (the first spike) until the end of the decade (the second spike).  A few years within that decade where phenomenal, but overall it was a wash.   Yes, there was a lot of volatility within that decade, and yes the S&P 500 index rose back,after a few big dumps, back to that irrational spike at the beginning of the decade. I can see your point of view where the decade was not lost because the S&P 500 Index did rise during that decade back up where to where it started.   What I was implying by my original post was that you would have made gains during that decade by diversifying and you would have had more money at the end of the decade than you had at the beginning, those two irrational spikes you speak of. The end of the decade spike would have been higher, with a diversified portfolio, than the start of the decade spike. I'm sure they are many other time spans where the S&P 500 index outperformed a diversified portfolio and vise versa.  Sorry I called your Captain Obvious by the way, sometimes I lose my cool a bit when posting on these sites.

AdrianC

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You need to add small, mid size, and international companies in there as well for diversification. I agree you don't need any bond funds in your allocation.  Look back at the lost decade of the 2000s, it was only a lost decade if you had all your money in the S&P 500 Index.

https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#46ec7fb17cf8
It wasn’t a lost decade at all.  Measuring peak-to-peak is misleading, unless one actually invests all their money at that particular peak. 
For those of us who started saving in the late 90s and kept it up through the first decade of the 2000s it was a good decade indeed.

It was a good decade for savers. We did very nicely.

If you were retired at the peak and only invested in the S&P500 you most definitely did experience a lost decade. Someone retiring at the start of 2000 and taking out 4% had 42% of their stash left after 10 years.

It's possible we're on the cusp of another. Diversification might help, especially into non-US equities.

nereo

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I think we are getting our definition of "lost decade" confused.  By "lost decade" I'm implying that it was a decade where there "zero economic gains" for the typical S&P 500 investor from the start of the decade (the first spike) until the end of the decade (the second spike).  A few years within that decade where phenomenal, but overall it was a wash.   Yes, there was a lot of volatility within that decade, and yes the S&P 500 index rose back,after a few big dumps, back to that irrational spike at the beginning of the decade. I can see your point of view where the decade was not lost because the S&P 500 Index did rise during that decade back up where to where it started.   What I was implying by my original post was that you would have made gains during that decade by diversifying and you would have had more money at the end of the decade than you had at the beginning, those two irrational spikes you speak of. The end of the decade spike would have been higher, with a diversified portfolio, than the start of the decade spike. I'm sure they are many other time spans where the S&P 500 index outperformed a diversified portfolio and vise versa.  Sorry I called your Captain Obvious by the way, sometimes I lose my cool a bit when posting on these sites.

Here’s why calling it a “lost decade” is incorrect, particularly if the claim is that there were “zero economic gains for the typical SP500 investor”.  As you noted there was a lot of volatility, and if you measured the value from point-to-point the market wound up essentially flat.  But that doesn’t mean that it was a bad period for SP500 investors, nor is that method indicative of how most people invest.

Indeed, if you had $10k in an SP500 fund in 2000 and walked away for a decade you would see no growth (in fact it would be slightly down in real terms).  Fair enough.  But assume that an investor started contributing $1k monthly during that same time frame and s/he would have posted meager inflation-adjusted gains during that time period.  Which still would have been horrible, unfortunate timing on the investors part.

STep back a bit further, and look at a hypothetical investor who had begun to invest in the early 90s and the annualized real returns start mirroring the historical average even though more than half of all contributions occurred during your so-called ‘lost-decade’. To further illustrate the point - consider what happens if we shift the time period just two years.  80% of this “lost decade” remains, yet the real returns jump by 28% for that decade.  Shows what looking at very specific time periods can do.

Your proposed solution - increased diversification - is not a bad one.  In full disclosure, I also own small cap and international index funds.  But your suggestion that this would avoid the flat performance is highly dependent on what those holdings are.  Certainly bonds would have helped, with annualized returns above 3% for US treasuries. Small Caps did better, but just barely, at 1.4%. But many international indices got hammered, as the ‘Great REcession’ impacted some countries (e.g. Western Europe & the Middle East) far more than in the US.  So depending on what an investors AA was, s/he could have done slightly better or even worse than simply holding the SP500.  We certainly could cherry-pick which AA would have done well during this specific period, but that would be ex post facto. We already know that a high-ish (>20%) of bonds will tamp down volatility in a portfolio, but that it will miss out on n equities-only portfolio in the overwhelming majority of 10, 20 and 30 year periods. Ironically most international funds introduce more volatility than the SP500, compounding the problem they’re supposed to solve. So while I agree with your general statement about increasing ones diversification to a point, its unclear what that point is and unclear whether that would have fared any better.


Ragman

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I think we are getting our definition of "lost decade" confused.  By "lost decade" I'm implying that it was a decade where there "zero economic gains" for the typical S&P 500 investor from the start of the decade (the first spike) until the end of the decade (the second spike).  A few years within that decade where phenomenal, but overall it was a wash.   Yes, there was a lot of volatility within that decade, and yes the S&P 500 index rose back,after a few big dumps, back to that irrational spike at the beginning of the decade. I can see your point of view where the decade was not lost because the S&P 500 Index did rise during that decade back up where to where it started.   What I was implying by my original post was that you would have made gains during that decade by diversifying and you would have had more money at the end of the decade than you had at the beginning, those two irrational spikes you speak of. The end of the decade spike would have been higher, with a diversified portfolio, than the start of the decade spike. I'm sure they are many other time spans where the S&P 500 index outperformed a diversified portfolio and vise versa.  Sorry I called your Captain Obvious by the way, sometimes I lose my cool a bit when posting on these sites.

Here’s why calling it a “lost decade” is incorrect, particularly if the claim is that there were “zero economic gains for the typical SP500 investor”.  As you noted there was a lot of volatility, and if you measured the value from point-to-point the market wound up essentially flat.  But that doesn’t mean that it was a bad period for SP500 investors, nor is that method indicative of how most people invest.

Indeed, if you had $10k in an SP500 fund in 2000 and walked away for a decade you would see no growth (in fact it would be slightly down in real terms).  Fair enough.  But assume that an investor started contributing $1k monthly during that same time frame and s/he would have posted meager inflation-adjusted gains during that time period.  Which still would have been horrible, unfortunate timing on the investors part.

STep back a bit further, and look at a hypothetical investor who had begun to invest in the early 90s and the annualized real returns start mirroring the historical average even though more than half of all contributions occurred during your so-called ‘lost-decade’. To further illustrate the point - consider what happens if we shift the time period just two years.  80% of this “lost decade” remains, yet the real returns jump by 28% for that decade.  Shows what looking at very specific time periods can do.

Your proposed solution - increased diversification - is not a bad one.  In full disclosure, I also own small cap and international index funds.  But your suggestion that this would avoid the flat performance is highly dependent on what those holdings are.  Certainly bonds would have helped, with annualized returns above 3% for US treasuries. Small Caps did better, but just barely, at 1.4%. But many international indices got hammered, as the ‘Great REcession’ impacted some countries (e.g. Western Europe & the Middle East) far more than in the US.  So depending on what an investors AA was, s/he could have done slightly better or even worse than simply holding the SP500.  We certainly could cherry-pick which AA would have done well during this specific period, but that would be ex post facto. We already know that a high-ish (>20%) of bonds will tamp down volatility in a portfolio, but that it will miss out on n equities-only portfolio in the overwhelming majority of 10, 20 and 30 year periods. Ironically most international funds introduce more volatility than the SP500, compounding the problem they’re supposed to solve. So while I agree with your general statement about increasing ones diversification to a point, its unclear what that point is and unclear whether that would have fared any better.




You are adding assumptions that I did not mention in my original post, dollar cost averaging and shifting around the time period. Yes, of course, those things would have made gains. There was huge volatility during that decade shifting around the time period a few years and dollar cost averaging changes everything.  I get it, big returns outside that decade, dollar cost averaging,parts of the decade has phenomenal returns, people really don't invest that way, shift the decade around, etc.  I was talking about that specific time period, without dollar cost averaging, as mentioned in the Forbes article.

I also said diversification might help.  According to Wells Fargo, mid and small cap stocks produced a little over 6% annualized total returns during that time period. Mixing some of those might have produced a gain. How much is dependent on the allocation of each asset class.

I never imagine that people on here would completely over analyze my simple comment of "There may be extended times where an index might under perform, adding diversification during that time may help" to a response that someone was putting all their money in the SP 500 index. I then gave an example from an old Forbes article that mentioned a "A Lost Decade" where there was actually specific time period where the S&P 500 under preformed. It's just a simple example folks.

We could be at the beginning of one of those time periods now, who knows.  The top five companies in the S&P 500 account for nearly 20% of the market value of the entire index. That's not much diversification in my mind.  I'll say it again to the original poster, Adding diversification from multiple asset classes, not just the S&P 500, may be beneficial in the upcoming years.  I just won't give an example..lol

You guys are brutal! :-)

nereo

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It’s a click-bait article - and its important for others to understand why it’s intentionally misleading.  For the majority of people, that specific time period was not a bad time to be an investor. 

As for the Mantra of diversification - that’s a funny beast, and one that is deeply misunderstood and for the most part a throwback to the times when people’s entire portfolio might consist of a dozen stocks (i.e. before broad-market low cost index funds).  Yes, the top five companies isn’t he SP500 make up 20% of its index, but that’s also missing the broader point that the index itself is diversified across many different sectors, and to a first approximation largely mirrors the current economy. You’ve got IT, Health Care, Retail, Banks, Energy etc. all in their at roughly the same proportion that they are in the broader economy.  Adding small-caps beyond their market capitalization actually skews your AA away from this.  It can also introduce *more* volatility, not less.  Google and Apple and Amazon each have such a large chunk precisely because they employ tens of thousands and have quarterly profits in the tens of billions.

To use an analogy - when looking at the EU one expects Germany and France to have a larger impact than Cyprus or Estonia.